Annual report of TÜV SÜD 2017 by TÜV SÜD Czech

THE GROUP AT A GLANCE 2017 Key figures

2017

2016

2015

2014

2013

IFRS

Revenue

2,427.6

2,343.2

2,222.0

2,061.4

1,939.0

Personnel expenses

IN € MILLIO N

Business development

1,464.1

1,421.2

1,328.6

1,232.1

1,159.0

Cash flow from operating activities

258.3

241.5

221.2

202.3

189.2

Free cash flow

169.2

164.1

140.8

134.3

109.0

87.1

86.6

80.4

68.0

80.2

201.3

198.8

162.4

172.3

160.7

Capital expenditures EBIT 2 Income before taxes

190.2

182.6

144.4

146.5

140.3

Consolidated net income

138.8

130.5

114.0

104.4

102.1

80.7

80.9

61.0

66.6

62.1

EBIT margin

EVA (Economic Value Added) IN %

8.3

8.5

7.3

8.4

8.3

EBIT margin, adjusted

IN %

8.9

8.6

8.5

9.1

8.8

EBT margin

IN %

7.8

6.5

7.1

7.2

EBT margin, adjusted

IN %

8.5

7.9

7.7

8.0

7.6

1,193.7

1,222.4

1,147.5

1,111.7

992.9

Assets Non-current assets Current assets Balance sheet total Equity ratio

IN %

857.1

791.4

722.3

718.6

713.8

2,050.8

2,013.8

1,869.8

1,830.3

1,706.7

38.7

31.9

29.8

21.6

26.6

22,117

21,738

20,228

19,735

18,981

24,231

23,997

22,363

22,003

21,146

Employees (annual average) Full-time equivalents

Headcount As of December 31

1 _ Free cash flow: cash flow from operating activities less cash paid for investments in intangible assets, property, plant and equipment and investment property. 2 _ E BIT: Earnings before interest, before other financial result and before income tax, but after income from participations.

€

2,427.6

REVENUE

MILLION

€

87.1

MILLION

C A PI TA L E X PENDI T URE S

€

190.2

MILLION

INCOME BE F ORE TA X E S

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TÜV SÜD structure

DIVISIONS

SEGMENTS

TÜV SÜD

INDUSTRY

MOBILITY

INDUSTRY SERVICE

AUTO SERVICE

C E R T I F I C AT I O N

PRODUCT SERVICE BUSINESS ASSURANCE

R E A L E S T AT E & INFRASTRUCTURE

Headcount

Revenue

IN € MILLION

24,231

2017

23,997

2016

22,363

2015

2,428 22,003

2014

21,146

2013

2017

Revenue by segment3

39.6 INDUSTRY

3 _ Without OTHER and reconciliation.

2016

2,222

2015

2,061

2014

1,939

2013

IN %

2017

2,343

31.8 MOBILIT Y

29.4 CER T IF IC AT ION

TÜV SÜD stands for “Choose certainty. Add value” and more than 24,000 people around the world are dedicated to adding value through improved safety. They are united by their passion about people, the environment and technological progress and their common goal of making this world a safer place – for a future worth living. Our experts partner with our customers in their processes, offering comprehensive industry expertise, early consultation and continuous guidance to optimize technology, systems and know-how. By doing so, we enable our customers to access global markets and strengthen their competitiveness.

CONTENTS M A N A G E M E N T A N D S U P E RV I S O RY B OA R D S 06 10 12 16

Message from the Board of Management On site worldwide Supervisory Board report Corporate Boards

C O M B I N E D M A N AG E M E N T R E P O RT 20 30 34 65 73 83

Group information Corporate governance report Economic report Non-financial performance indicators Opportunity and risk repor t Outlook

C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 92 93 94 95 96 98 143

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 Auditorâ&#x20AC;&#x2122;s report

144

Notes and future-oriented statements

MANAGEMENT AND SUPERVISORY BOARDS

MANAGEMENT AND S U P E RV I S O RY B OA R D S 06 10 12 16

Message from the Board of Management On site worldwide Supervisory Board report Corporate Boards

TÜV SÜD AG ANNUAL REPORT 2017

Message from the Board of Management

Supervisory Board report

On site worldwide

Corporate Boards

Management and Supervisory Boards

means constantly developing ourselves further in order to seize new opportunities – and yet always remaining true to our principles.

AXEL STEPKEN

TÜV SÜD AG ANNUAL REPORT 2017

Message from the Board of Management

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On site worldwide

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IS H A N PA LIT

MATTHIAS J. RAPP

TÜV SÜD AG ANNUAL REPORT 2017

Message from the Board of Management

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On site worldwide

Corporate Boards

Management and Supervisory Boards

LADIES AND GENTLEMEN, 2017 was a successful year for TÜV SÜD. Our revenue rose organically by 4.4 percent to over € 2.4 billion, while EBIT increased to € 201 million. 24,000-plus people at over 1,000 locations around the globe are passionate about their work at TÜV SÜD. These people and the dedication they show are the cornerstone of our success. However, success in the here and now is not enough. Looking ahead and preparing for the future is equally – if not more – important. In 2017, we made good progress in preparing our company even better for the future. Our aim is to be among the pioneers of digital transformation, and we plan to play a critical role in shaping the world of tomorrow. Digitization is changing existing framework conditions and business models. It is giving rise to new opportunities – but also new risks and new competitors. As a result, many industries are facing major challenges. We pledge to continue mitigating these risks, ensuring the safety of technical systems and infrastructure on a broad scale, and helping our customers access global markets as the digital age evolves. Companies seeking to explore new horizons and take a proactive approach to shaping the future need a vision, strategic skills, and the courage to make bold decisions as they venture into new, often unknown territory. But courage to embrace change does not mean abandoning established methods and structures for the mere sake of renewal. Instead, we have to look closely at possible future scenarios, weigh their risks and opportunities, and then accept these challenges in full awareness of what they involve. Our guiding principle in the future will be the same as over the past 150 years: “To make our world a safer place by protecting people, the environment, and assets against technology- related risks.” Therefore for us, courage means continuously advancing and developing, moving to seize new opportunities while staying true to our principles. In line with this philosophy, a strategic focus of our future development will be to “reinvent” our conventional testing and inspection services and align them to the changing technologies of today and tomorrow. Projects addressing this issue are currently underway in all divisions as part of the corporate strategy we are developing for the year 2025. Pursuing a two-pronged approach, these projects aim on the one hand to introduce digitized processes to make our existing services more efficient, and use data from smart systems to enhance customer value even further. For this purpose, we are expanding our present expertise by integrating artificial intelligence (AI). On the other hand, we are proactively developing new services to help our customers cope with the challenges resulting from digitized processes and new technologies. With this in mind, our development activities p rioritize areas including cybersecurity and the secure processing and utilization of sensor data. In addition, we are also driving the development of testing and certification methods for new technologies, such as cyber-physical systems (CPS) and artificial intelligence.

TÜV SÜD AG ANNUAL REPORT 2017

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Working with business partners and customers, we have launched promising projects for a number of technology trends: In additive manufacturing (AM), we provide testing and certification of 3D printing processes. Providing “digital twins,” we support our customers in simulating and optimizing the performance of large-scale infrastructure right from the planning phase, thereby helping them to avoid costly faults during operation later on. In sensor network installation, testing, and monitoring, we ensure the integrity and security of the data collected. Central hubs for our Digital Services activities are our Business Assurance Division and two Centers of Competence in Germany and Singapore. They pool know-how and drive development. Our portfolio has been further expanded by our acquisition of the majority holding in Uniscon universal identity control GmbH in 2017. We can now offer our customers highly secure cloud solutions for data processing. With this acquisition, we have positioned ourselves at the core of digital transformation and taken the role of third-party provider of a reliable secure platform for handling sensitive data. Given that data availability and confidence in data security are key for the functioning and further growth of the Internet of Things, we now occupy a key position. In 2017 we introduced the necessary organizational changes to become more agile and effective. Our Board of Management has become leaner. Responsibilities have been redefined and operational responsibility has been assigned to the new role of Chief Operating Officer (COO). A leadership council, with members including the CEOs of Divisions and the Key Regions of USA and China, has been established, and we have consolidated our sales and marketing activities. However, TÜV SÜD is only as strong as the people working in our company. Given this, we will continue to invest in the further development of our employees’ skills and qualifications. We call upon every single one of our employees to rise to new challenges with courage and to learn new skills, thereby not only shaping digital transformation but their own personal development. For this purpose, we have launched the “Digital Readiness” program, a global continuous training program which will provide tailored and individual training to experts, managers, and top executives. Digitization has characterized and driven change at TÜV SÜD in recent years, and will continue to be the key driver of change in the future. We are tackling the challenges with confidence and are using our current position of strength to set our company on the right course today – embracing the courage to shape the future.

Munich, March 23, 2018 Board of Management of TÜV SÜD AG

PROF. DR.-ING. AXEL STEPKEN Chairman of the Board of Management

ISHAN PALIT Member of the Board of Management

DR. MATTHIAS J. RAPP Member of the Board of Management

TÜV SÜD AG ANNUAL REPORT 2017

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BOSTON

A M E RI C A S

E U RO PE G E R M A N Y CORPORATE HEADQUARTERS: MUNICH W E S T E R N E U R O PE HEADQUARTERS: MILAN C E N T R A L & E A S TER N EU R O P E HEADQUARTERS: VIENNA

AM E RICA S A M E R I C A S HEADQUARTERS: BOSTON

ASIA A S M E A (SOUTH & SOUTH EAST ASIA, MIDDLE EAST & AFRICA) HEADQUARTERS: PUNE N O R T H A S I A HEADQUARTERS: HONGKONG

TÜV SÜD AG ANNUAL REPORT 2017

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E U ROP E MU N IC H M IL A N

V I EN N A

ASIA

PUNE

HONGKONG

TÜV SÜD AG ANNUAL REPORT 2017

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P R O F. D R . - I N G . H A NS - JÖ R G B U LLING ER

TÜV SÜD AG ANNUAL REPORT 2017

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SUPERVISORY BOARD REPORT Ladies and Gentlemen, 2017 was another positive and successful year for TÜV SÜD. The company achieved its defined goals and continued the good business performance from the prior years in a challenging market environment. TÜV SÜD is and remains an economically strong company. 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 Uniscon universal identity control GmbH with which TÜV SÜD made a pioneering step in expanding its portfolio of cyber security services. 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 2017, we discussed topics including the 2016 separate and consolidated financial statements, the Group’s strategy, a continued focus of which was the digital transformation of TÜV SÜD’s various business models, and planning for 2018. We also received reports on possibilities to evaluate efficiency within the Supervisory Board. The measures of the Board of Management to achieve greater efficiency, reduce complexity and increase 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. 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 Supervisory Board was always kept informed in detail about the company’s situation and plans.

TÜV SÜD AG ANNUAL REPORT 2017

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Since May 1, 2017, TÜV SÜD has been led by a three-person Board of Management made up of the CEO, CFO and the newly created position of a Chief Operating Officer (COO). The introduction of the new management organization also changed the composition of the Board of Management of the Group. The former members of the Board of Management, Karsten Xander and Dirk Eilers, left TÜV SÜD’s Board of Management at the end of April. The Supervisory Board thanks Karsten X ander and Dirk Eilers, who has taken over management of the Product Service Division until further notice, for their dedicated work for the company. Ishan Palit was elected as a new member of the Board of Management. As COO, he is responsible for successful operations and sales across all TÜV SÜD’s business units and entities. The long-serving Deputy Chairman of the Supervisory Board, Franz Holzhammer, stepped down as of June 30, 2017. Harald Gömpel was elected as the new Deputy Chairman. The audit committee met four times in 2017. The topics it addressed included the 2016 financial statements, the half-year report as at June 30 2017, preparations for the audit, the audit focus areas and the independence of the auditor. It also examined the current risk situation as well as TÜV SÜD’s opportunity and risk management. Furthermore, it dealt with the internal audit findings for 2017, the effectiveness of the internal control system and further internal audit planning. Other topics were TÜV SÜD’s tax compliance management system, planned investments as well as TÜV SÜD Pension Trust’s investment and hedging strategy. 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 auditor’s report. These documents and the audit reports prepared by the auditors were available to all members of the Supervisory Board. At its meeting on March 16, 2018, the audit committee initially discussed and reviewed these documents.

TÜV SÜD AG ANNUAL REPORT 2017

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At the Supervisory Board’s closing meeting on March 23, 2018, 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 2017.

Munich, March 23, 2018

PROF. DR.-ING. HANS-JÖRG BULLINGER Chairman of the Supervisory Board of TÜV SÜD AG

TÜV SÜD AG ANNUAL REPORT 2017

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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

Harald Gömpel1 Deputy Chairman (since July 1, 2017) Chairman of the works council of TÜV Technische Überwachung H essen GmbH Josef Bichler1 Former Head of Corporate Controlling of TÜV SÜD AG

Dr. Jörg Matthias Großmann Member of the Board / CFO of Freudenberg Chemical Specialities SE & CO. KG Franz Holzhammer1 Deputy Chairman (until June 30, 2017) Union representative Peter Kardel1 Chairman of the works council of TÜV SÜD Industrie Service GmbH

Dr. Christine Bortenlänger Member of the Executive Board of Deutsches Aktieninstitut e.V.

Wolfram Reiners1 Chairman of the works council in Munich of TÜV SÜD Business Services GmbH

Wolfgang Dehen Former Chairman of the Board of Management of OSRAM Licht AG

Angelique Renkhoff-Mücke Member of the Executive Board / CEO of WAREMA Renkhoff SE

Dr.-Ing. Klaus Draeger Former Member of the Board of Management BMW Group

Christine Siemssen General Manager of Milupa Nutricia GmbH

Thomas Eder1 Chairman of the local works council of TÜV SÜD Auto Service GmbH

Martha Straub1 Chairperson of the works council of TÜV SÜD Akademie GmbH

Jörg Frimberger1 Chairman of the central works council of TÜV SÜD Auto Service GmbH

Dr. Eberhard Veit Chief Executive Officer of 4.0-Veit GbR Former CEO of Festo AG

1 _ Employee representative.

Dirk Eilers Member of the Board of Management (until April 30, 2017) Ishan Palit Member of the Board of Management (since May 1, 2017) Dr. Matthias J. Rapp Member of the Board of Management Karsten Xander Member of the Board of Management (until April 30, 2017)

MAN AGEMEN T REPORT

CO MBIN ED MAN AG EMEN T RE PO RT 20 30 34 65 73 83

Group information Corporate governance report Economic report Non-financial performance indicators Opportunity and risk report Outlook

TÜV SÜD AG ANNUAL REPORT 2017

Group information

Non-financial performance indicators

Corporate governance report

Opportunity and risk report

Combined Management Report

Economic report

83 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. TÜV SÜD’s range of services covers certification and testing, inspection, auditing and system certification, knowledge services and training. We operate in the TIC (Testing, Inspection, Certification) market as a technical services provider. Our dedicated and responsible specialists with wide-ranging industry expertise 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.

MAN AG EMEN T STRUCTURE A new management structure was implemented in 2017. It aims to position TÜV SÜD as an agile, efficient and transparently managed organization in a sustainable way. As of May 1, 2017, the three-person Board of Management has an international member for the first time. The function of Chief Operating Officer (COO) was created, in addition to the CEO and CFO, thereby centralizing responsibility for the operative business. At the same time, in order to strengthen the position of the divisions, a Leadership Council was established to complement and report directly to the Board of Management. The CEOs of the divisions and key regions are represented in this new body in addition to the Board of Management.

CHAPTER STRATEGY SEE PAGES 24 – 27

The members of the Leadership Council join forces to drive forward overarching themes such as strategy, employee development, innovation and digitization. In this way, new impetus is constantly being generated in order to meet the challenges we face, which arise as a result of changing framework conditions and, in particular, the digital transformation of the economy and society. In this context, we also adjusted the allocation of our services to the three segments INDUSTRY, MOBILITY and CERTIFICATION. The INDUSTRY Segment includes, as before, the Industry Service and Real Estate & Infrastructure Divisions. The MOBILITY Segment includes the Auto Service Division and the Life Service unit, which had not been allocated to any segment previously. We have bundled our expertise in cyber security, training and management certification in the new Business Assurance Division. 05 This belongs to the CERTIFICATION Segment, as does the Product Service Division. The regional structure remains largely the same, although the Middle East & Africa sub-region is now managed under ASIA. The prior-year comparative figures have been adjusted to the new divisional and regional structure to improve comparability. TÜV SÜD continues to be managed as a matrix organization. The divisions allocated to the three segments are responsible for the implementation of the global strategy. The regions are responsible for the local business development.

TÜV SÜD AG ANNUAL REPORT 2017

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Opportunity and risk report

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83 Outlook

TÜV SÜD structure

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

Operating in more than 50 countries around the world, more than 24,000 employees at over 1,000 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 support our customers with services. 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, but also a strong partner in the future.

GENERAL CONDITIONS SEE PAGES 36 – 37

Our 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.

TÜV SÜD AG ANNUAL REPORT 2017

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Corporate governance report

Opportunity and risk report

Combined Management Report

Economic report

83 Outlook

Sustainability as the group’s purpose Sustainable action geared to protecting people and the environment has always been set out in TÜV SÜD’s goals. This guiding principle has shaped the company since its foundation over 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. TÜV SÜD also applies stringent standards to its 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 all our employees always meet the high standards that our customers and the public expect from us. TÜV SÜD’s growth is driven by our employees around the world who are available for our customers around the globe. They might all have different nationalities and belong to different cultures, they might all be of different age, with different lifestyles and world views — but they all contribute to TÜV SÜD’s success with their skills and knowledge. By signing the Diversity Charter in July 2017, TÜV SÜD has committed itself to promoting pluralism and making it part of its corporate culture.

TÜV SÜD AG ANNUAL REPORT 2017

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Opportunity and risk report

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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. 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 Gesellschafteraus schuss GbR, a shareholder committee with registered offices in Munich. The purpose of the civil law association is to hold and manage this shareholding under stock corporation law. The governing bodies of TÜV SÜD e.V., the TÜV SÜD Foundation and TÜV SÜD Gesellschafterausschuss GbR, are largely independent of the supervisory bodies of TÜV SÜD AG. This ensures the independence of the bodies in accordance with the German Corporate Governance Code. 06 The TÜV SÜD Foundation publishes its own report annually.

Legal structure

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

EUROPE

AMERICAS

ASIA

GERMANY

NORTH ASIA

WESTERN EUROPE

ASMEA1

CENTRAL & EASTERN EUROPE

SUBSIDIARIES IN 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 1 _ South & South East Asia, Middle East & Africa.

TÜV SÜD AG ANNUAL REPORT 2017

Group information

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Opportunity and risk report

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83 Outlook

Strategic course for further growth Our proven Strategy 2020 has enabled us to constantly increase the value of TÜV SÜD over the past years. The focus on the two dimensions of action “growth” and “efficiency” remained unchanged this fiscal year. The market for testing and certification services continues to offer TÜV SÜD many opportunities to grow and increase our revenue volume organically. In addition, we are enhancing our portfolio by acquiring companies in the sectors and regions of relevance for us. In the coming years, TÜV SÜD will see promising market opportunities arising from further internationalization, digitization and technical developments. TÜV SÜD faces two major challenges. Existing business needs to be transformed and adapted to changing market situations, customer needs and new framework conditions, for example in the area of standards and regulations. This also includes expanding the international business in the focus markets, active portfolio management and achieving greater efficiency through the use of digital technologies. Overall, we intend to and must expand and complement our existing 07 strengths in order to be a strong partner for our customers and to generate further growth.

EMPLOYEE REPORT SEE PAGES 65 – 72

At the same time, we intend to exploit any new potential that presents itself through digital services, innovation and the corresponding business models. The aim is to systematically generate customer benefits in the individual divisions from new technological possibilities. This requires us to develop the relevant capabilities within the company. For this reason we have launched a group-wide training program on “Digital Readiness” in order to ensure that we are in position to quickly and flexibly use the opportunities offered by digitization. It is also important to continue expanding essential strategic capabilities and our portfolio in the digital area. Our investment in Uniscon universal identity control GmbH (Uniscon), Munich, enhances our digital portfolio in the area of highly secure cloud solutions. This investment enables us to develop and offer new business models and services in the area of secure data handling. This is a major component of the digital positioning of TÜV SÜD.

Major challenges for TÜV SÜD

TÜV SÜD

EXPLOIT NEW POTENTIALS

TRANSFORM THE EXISTING BUSINESS

N E W C A PA B I L I T I E S

S T R AT E G I C A D J U S T M E N T T O W A R D S CHANGING MARKET ENVIRONMENT

N E W D I G I TA L S E R V I C E S AND BUSINESS MODELS

E X PA N S I O N O F E X I S T I N G S T R E N G T H S REINFORCEMENT OF FOCUS COUNTRIES A N D I N T E R N AT I O N A L B U S I N E S S U S E O F N E W D I G I TA L T E C H N O L O G I E S ACTIVE PORTFOLIO MANAGEMENT

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83 Outlook

In 2017 we also started refining our strategy up to 2025. This involves defining strategic future states, thrusts, initiatives and plans on both group and company levels by mid-2018. In this way, we intend to set the course for the future of TÜV SÜD.

Pooling sales and marketing TÜV SÜD already reached important milestones in the coordinated support of key accounts in the past years with the expansion and subsequent strengthening of key account management. In order to meet the forthcoming strategic challenges in the best possible way, we have taken the next step and pooled our sales and marketing activities. The aim is to provide even more intensive and target-driven support for key customers, based on a uniform system and supported by the existing customer relationship management system. With the closer integration of sales and marketing we want to react more quickly to customer requests and to rule out information gaps in our processes as far as possible. In light of this, TÜV SÜD will significantly expand its activities in key account management. In future, strategic account managers will be direct contact persons for TÜV SÜD’s key accounts and will drive forward customer development. In addition, a member of top-level management will be available as a discussion partner and executive sponsor for every key account customer. In this way, we want to recognize our customers’ requirements at an early stage and to address these with tailor-made offers. The objective is to achieve proportionately higher revenue with the key accounts in the coming years.

Management system TÜV SÜD’s 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. Revenue growth and earnings before interest and tax, but after income from participations (EBIT) and the EBIT margin, are defined 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-tier and second-tier management as a component of the variable remuneration. Other non-key financial indicators include 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 from our 02 operating activities.

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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 ITION

EBIT

Earnings before interest, before other financial result and before income tax, but after income from participations

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 – 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.

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 performance indicators are determined as part of our planning and monitoring processes for the respective levels of the Group (segments, regions, divisions and legal entities) 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 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. Our analyses, with which we measure the achievement of strategic goals and identify budget variances, are based on the planning for the following year, three forecasts in the course of the 08 year and timely prepared monthly and quarterly financial statements.

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Strategic and operational planning

GOALS

G R O U P S T R AT E G Y

Division strategy

Strategic financial planning

Breakdown of regions and company level

Linkage through strategic and operational planning

Planning assumptions

BUDGET PLANNING

PERFORMANCE

BUDGET

MEASUREMENT

Innovations report FU N D I N G I N N OVATION A ND DIGITA L TRA NSF ORM ATION Active innovation management Technological change has driven our business since TÜV SÜD’s foundation over 150 years ago. 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 every possibility in our own company in order to work more efficiently and to offer our customers a high level of service. We have encouraged active innovation management for many years. In fiscal year 2017 centralized innovation management coordinated investments of € 17.1 million (prior year: € 9.4 million) in research and development. Promoting innovation quickly and purposefully The targeted promotion of innovation funding and a simplified innovation process form the basis of rapid and effective implementation of clearly market-focused innovation projects. TÜV SÜD’s focus is on the implementation of pilot projects with customers and partners. In fiscal year 2017 seven innovation projects were supported by the Corporate Innovation Fund in addition to numerous projects for the innovative development of existing services in the operating business. The individual projects are initiated and implemented locally by divisions or regions and supported by central innovation management. The projects’ focus are on the digital transformation of the core business and new, technology- driven business models. This helps create, for example, new services in the area of additive manufacturing, the constant monitoring of facilities and the inspection of wind turbines using drones. Synergy effects are successfully exploited and project implementation accelerated as a result of overarching planning and coordination of innovation projects and the regular exchange of information between all project managers.

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Expansion of digitization Technological progress is still characterized by advancing digitization in almost every industry. TÜV SÜD recognized this development at an early stage and, in the year 2016, established the Cyber Security unit and opened a Center of Excellence (CoE) for Digital Services in Singapore. With TÜV SÜD Digital Service GmbH and the official opening of an additional CoE for Digital Services in Munich we further increased capacity for digitization topics in the fiscal year. TÜV SÜD Digital Service GmbH, as a start-up in the Group, will develop new solutions and business models and support the Group’s operative units to develop their services further. The CoE in Singapore focuses above all on the rapid implementation of pilot projects in Singapore’s highly-innovative environment, whereas the competence center in Munich develops digital leading technologies relevant to TÜV SÜD and implements them in group-wide initiatives. The framework for this is a threefold strategy that defines TÜV SÜD’s approach to digitization:

Impact

SECURE , HORI ZON TA L DATA PL AT F ORM

TÜV SÜD

VA L UE -A DDE D SE R V ICE S, E .G., A DVA NCE D A N A LY T IC S

ENABLE

E N D -T O - E N D CYBER SECURIT Y

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e combine our technology and sector analysis on the topic of advanced analytics to offer W our customers new or expanded services. Pilot projects have already been launched in the area of smart lifts, the optimization of wind power plants as well as in the predictive maintenance of conventional power plants. A partner ecosystem will also be created through targeted collaboration projects in the next few years, from which our customers will enjoy the benefits.

ith our comprehensive range of services for cyber security, we want to be a trustworthy W partner in all aspects of IT security, above all for our small and medium-sized business customers. The focus is, among other things, on certification services for the Internet of Things, device and version management for factory automation as well as penetration and security testing for industrial applications. At the same time, we are also looking for possibilities for the targeted expansion of our portfolio in this area.

e completed such a targeted expansion of our capabilities in the area of highly secure W cloud solutions with our investment in Uniscon, the third point of our threefold strategy, with which we are positioning ourselves at the center of digital transformation.

We want to use digital transformation to offer new and improved services to our customers while at the same time increasing the efficiency of our own processes. In the fiscal year 2017, the highly automated driving (HAD) initiative was launched to position us as a technology leader in a new field of business and to position our traditional business in the field of vehicle inspections and homologation for the future. TÜV SÜD experts monitored the approval process for Germany’s first automated bus shuttle in the Bavarian town Bad Birnbach, which went into operation in the summer of 2017. TÜV SÜD recently also became the partner of UnternehmerTUM’s Digital Hub Mobility, the Center for Innovation and Business Creation at Technical University of Munich (TUM). Participation in the “Digital Project School” is one of the offers. Together with experts from other well-known companies in practice-based projects, TÜV SÜD employees can use new development methods to develop digital projects. Researchers from TUM support the work as scientific advisors. TÜV SÜD will increasingly invest in technological development. Between the years 2017 and 2019 alone, a double-digit million figure will be invested in the development of new services relating to digitization.

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CORPORATE GOVERNANCE REPORT TÜV SÜD AG’s Board of Management and Supervisory Board are guided by the requirements placed on publicly traded companies by the German Corporate Governance Code. Good corporate governance means a responsible, transparent and value-based management. This is an essential component of our success which is 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. This enhances the trust of our customers, our employees and the public in our work and allows us to meet the steadily increasing information requirements of national and international stakeholders.

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 shareholders, who are reputable representatives of business and the public. There are three women on the shareholder side of the Supervisory Board and one woman on 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 audit 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 areas 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 has three 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.

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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.

C ORPORATE 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 in the notes to the financial statements.

Declaration on the equal representation of women and men in management positions TÜV SÜD AG achieved the targets defined in 2015 by June 30, 2017 and defined new target 03 shares and deadlines for the participation of women in management positions:

Supervisory Board

EMPLOYEE REPORT SEE PAGES 65 – 72

Target rate Jun. 30, 2017

Percentage already achieved (Jun. 30, 2017)

19%

25%

Newly-fixed target rate

Percentage already achieved (Dec. 31, 2017)

Deadline

25%

Dec. 31, 2021

Board of Management

Dec. 31, 2021

First management level

15%

20%

10%

Dec. 31, 2021

Second management level

33%

38%

35%

63%

Dec. 31, 2021

Target shares were also newly 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 mainly set as December 31, 2021.

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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. Ethical principles 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 actual 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/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 respective 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. Breaches of laws or internal guidelines are subject to appropriate measures and can have consequences under labor law, including dismissal.

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New legal requirements In order to comply with the requirements of the German tax authorities we are currently addressing the design of a tax compliance management system. The mandatory country-by-country reporting has already been successfully set up. We are currently paying special attention to compliance with legal data protection requirements of the General Data Protection Regulation which enters into force at the end of May 2018. We also comprehensively assessed the implications of the German Act Implementing the CSR Directive (CSR-RUG) on our company in the fiscal year. The test showed that TÜV SÜD is not obliged to submit a non-financial statement under CSR-RUG. However, we take our responsibility as a technical service provider very seriously. Our company’s purpose is geared towards sustainable action, and in particular, protecting people and the environment.

Risk management system OPPORTUNITY AND RISK REPORT SEE PAGES 73 – 82

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. This is done in the risk committees set up for this purpose, which include representatives of the divisions and corporate functions. We continually adapt this s ystem to the changing business environment.

TĂ&#x153;V SĂ&#x153;D AG ANNUAL REPORT 2017

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ECONOMIC REPORT Macroeconomic environment The global economy saw growth of 3.7% in fiscal year 2017, thereby exceeding expectations. The global economic upswing was additionally stimulated by unexpectedly strong impetus in Europe and Asia. In the advanced economies, economic growth picked up momentum, especially towards the end of the year. In some cases, economic growth in emerging markets was also higher than forecasted. Rising raw materials prices as a result of high industrial demand were a driving force. 10 Despite the buoyant economy, inflation rose only moderately.

Economic growth in key markets worldwide

IN %

6.7

3.7

7.1

6.8 6.7

6.5 6.4

3.2 2.4

2.5 1.8

1.9

2.3

1.8

1.5

0.9

GLOBAL1

2017

EURO ZONE1

GERMANY1

USA1

2016

1 _ IMF world economic outlook (prior-year forecast updated with actual figures).

INDIA1

CHINA1

J A PA N

ASIA (WITHOUT J A PA N ) 1

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PO SI T I V E D EV ELOPM E NT IN E UROPE A N E CONOM IE S Most countries in the European Union experienced significant economic growth in the fiscal year which accelerated particularly towards the end of the year. There was an increase in real GDP of 2.4% (prior year: 1.8%) in the euro zone as well as in the entire European Union. In most countries, this development was again driven by private consumption and investments in plant and equipment. In Germany, the situation in the fiscal year 2017 was marked by solid and consistent economic growth. GDP grew by 2.5%, after 1.9% in the prior year. This is the highest figure in six years. Private consumption remained the main driver of the economy, with strong momentum especially in the first half of the year. The expansion was the strongest in 15 years and was supported by a high level of employment coupled with a moderate increase in disposable income. However, the increased investments of many companies and high exports also provided significant positive impetus. Britain’s decision to leave the European Union had a direct effect on economic growth there for the first time in 2017. The UK economy grew moderately over the year as a whole by 1.7% (prior year: 1.9%). The increase in production was curbed by Brexit-related uncertainty. With average GDP growth for the year of 1.6% (prior year: 0.9%), the Italian economy also picked up. In Spain, on the other hand, the dynamic upward trend from previous years slowed marginally, but the country is still on a robust growth course. At 3.1%, economic growth was slightly below the prior-year level of 3.3%. In the other countries of the euro zone, economic expansion also gained strength, thus contributing to the cyclical upswing in Europe.

U SA: O N G O I N G STRONG CONSUM PTION BUOYS E CONOM IC DE VE L OPM E NT The US economy gained more momentum than expected over the course of 2017. On an annual average, gross domestic product in the USA grew by 2.3% (prior year: 1.5%). The trend was also driven by private consumption, supported by persistently positive trends in the labor market coupled with an increase in disposable income. The tax reform enacted at the end of the year provided a positive impetus and points to continued strong economic momentum.

PERFO RMAN C E O F A SIA N E M E RGING M A RKE TS VA RIE D The development in China is characterized by the state-controlled structural transformation from the extended workbench of the advanced economies to a service society. At 6.8%, the Chinese economy grew slightly faster than in the prior year. China remains one of the drivers of global economic development. High investment in infrastructure boosted domestic demand and contributed to the economic upswing of the emerging economies in Asia. The Indian economy responded to the introduction of the GST (Goods and Sales Tax) with noticeable adverse effects on economic activity. Economic growth has not been maintained at the same level as prior years and has fallen from 7.1% to 6.7%.

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MO N ETARY AN D FISCA L POL ICY CONTINUE TO DRIVE THE E CONOM Y F ORWAR D Key interest rates in the euro zone remain at historically low levels. The US Federal Reserve raised its key interest rate in the year 2017, but fiscal policy remains expansionary.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CURRENCY TRANSLATION SEE PAGE 101

The euro continued to appreciate against the US dollar in the course of the fiscal year 2017 and stood at US 1.20 dollar (prior year: US 1.05 dollar) at the end of the year. Over the year, the euro also appreciated in value against other important currencies for TÜV SÜD. The development of the reference currencies is shown in the notes to the consolidated financial statements.

Industry-specific environment Regulatory authorities, accreditation and recognition bodies, technical service providers such as TÜV SÜD, research and development institutions, manufacturers and traders, and plant operators operate in the TIC market. The market for technical services shows annual growth rates of around 5%. At present, the market volume is around € 70 billion, with at least 40% attributable to the EUROPE Region and approximately 30% to the ASIA and AMERICAS Regions respectively. The market is served by large international companies as well as a large number of small specialists. In addition to the harmonization of standards and guidelines, growth drivers include the introduction of new statutory framework conditions for a wide variety of sectors. Another contributory factor will be the constant rise in demand from the emerging markets. The increasing number of product recalls as well as product piracy and plagiarism are also leading to a higher demand for test services and certification in order to confirm services and product characteristics and thus create trust between market participants. TÜV SÜD’s services are focused on selected areas in which we have grown historically and where we are also expecting momentum for future growth. At the same time, we are targeting new focus markets and aligning 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 are systematically devel11 oping our sales markets in selected emerging economies.

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Influencing factors and selected activities in the fiscal year

NE W TECHNOLOGIES A ND DIGI TA L T R A N S F O R M A T I O N

CONSOL IDAT ION OF THE MARKET

TÜV SÜD

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: With the founding of TÜV SÜD Digital Service GmbH and the investment in Uniscon, TÜV SÜD wants to exploit the opportunities provided by heightened levels of networking, the convergence of software and hardware, the proliferation of intelligent sensors and Big Data, and to minimize the associated risks with new and comprehensive approaches to testing and certification. INNOVATIONS REPORT SEE PAGES 27 – 29

Consolidation of the market: In Spain, we operate in the field of vehicle inspections in the different regions in a free market or regulated market. In the regulated regions in particular, we anticipate market deregulation which will give us access to even bigger market volumes. In Europe, several Notified Bodies for health and medical products discontinued their services.

Regulation and standardization: TÜV SÜD is accredited by the German Accreditation Body (DAkkS) as inspector for the proper designation of offshore wind power plants in keeping with the requirements of the German Federal Waterways and Shipping Administration (WSV) (industry standard RDS-PP®). TÜV SÜD offers the drone certificate of knowledge in accordance with the regulation of the German Federal Ministry of Transport and Digital Infrastructure (BMVI).

Global networking: TÜV SÜD received China Metrology Accreditation (CMA) accreditation and can therefore conduct chemical and microbiological tests of food and animal feed intended for the Chinese domestic market. The Bureau of Indian Standards (BIS) accredited TÜV SÜD to test lighting and LEDs according to the Compulsory Registration Scheme (CRS) for the Indian market.

Sustainable development: TÜV SÜD is a member of the Technologie- Initiative SmartFactory KL, working together with partner companies on topics such as interoperability, functional security and IT security for the entire facility. TÜV SÜD participates in the Social & Labor Convergence Project (SCLP) for the collection of data on social and working conditions in the clothing and shoe sector. The objective of the project is the provision of manufacturer-neutral measurement and evaluation methods of social and working conditions independent of standards, which can then be verified by accredited independent certification bodies or second-party audits. As member of the Zero Discharge of Hazardous Chemicals Programme of the textiles industry (ZDHC Programme), TÜV SÜD supports the commitment to more sustainability in the value chain and safe chemical management.

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Business and economic environment In the reporting year, we established the new management structure, which will manage TÜV SÜD as an international and sustainable group even more efficiently and transparently in the future. Other focal points were the establishment of the digitization business worldwide, the intensified networking of our activities and the market launch of product innovations. By directly linking the key account management with the newly-appointed Leadership Council, we are pursuing our claim to be a competent, neutral and reliable partner for our customers. In addition, we invested in selected focus countries in the INDUSTRY and CERTIFICATION Segments and successfully continued to streamline our corporate structure by merging companies. Our services are in increasing demand worldwide. Although our business development in Europe is only to a minor extent dependent on the economic situation, the economic development does provide us with additional growth impetus. The economic momentum in the USA had a stimulating effect on business development there. Nevertheless, demand for services in the petrochemical industry remains at a low level. In Brazil, there were signs of a slight economic recovery, which slowed the decline in demand. In Asia, our business is developing steadily after economic growth in the emerging markets there had slowed in recent years.

I N D U ST RY The focus in the fiscal year was on expanding our existing business and exploiting the opportunities arising from the digital transformation for TÜV SÜD. The aim is to generate higher customer benefits from existing services and to develop innovative, future-oriented offers. An important element in this context is the range of renewable energies on offer. In the fiscal year, TÜV SÜD was able to demonstrate its many years of experience with onshore and offshore wind energy in various contracts for technical due diligence reviews and the realization of wind farms, also in the international environment. In Taiwan, TÜV SÜD is intensifying its collaboration with research institutes and regulatory authorities to promote the expansion of offshore wind energy there. In Germany, our experts were involved in the construction supervision and testing of a natural electricity storage facility. The innovative power plant concept consists of four wind turbines and a pumped storage power plant. Other innovative offerings such as predictive maintenance and plant inspections with drones have successfully passed the pilot phase and are now included in the service portfolio worldwide. Thanks to our competence and experience in the field of non-destructive material testing, we have been awarded a multi-year testing project in Italy for large parts for power plant turbines using X-ray analysis.

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TÜV SÜD’s range of services for the real estate industry covers the entire life cycle of a property. Since February 2017, sustainability assessment according to BREEAM (Building Research Establishment Environmental Assessment Method) and other green building standards have been bundled in the Advisory Institute for Simulation & Energy Efficiency of TÜV SÜD Advimo GmbH, Munich. In this way, customers receive comprehensive advice and digital planning of energy- efficient and sustainable buildings from a single source. Building information modeling (BIM), i.e., the modeling of a digital twin building, as well as offers for networked building automation systems are further innovative products in our service portfolio. In the fiscal year, we were commissioned to provide BIM advice and support for the construction of a new chemical laboratory in Germany. We also created the energy concept and simulation for the new building of a meat factory. In May 2017, we acquired the business of the Swedish company, MiW Rail Technology AB, Stockholm. The company offers, in particular, digital measurements of vehicle dynamics and the development of simulation tools. It enhances our existing range of services for rail transport with innovative digital services. In the course of development work, we examined new types of trains for high-speed long-distance traffic in Switzerland in accordance with the harmonized European regulations and national Swiss requirements. The project was successful. A temporary operating permit has been granted and the vehicles will gradually begin operating in 2018. In December 2017, the high speed rail link from Berlin to Munich went into operation. The line uses state-of-the-art electronic signaling technology and the new European train control system. TÜV SÜD experts were also heavily involved in the design and acceptance tests for train protection and signal box technology, traction power systems and tunnel equipment and hazard alarm systems. In the UK, TÜV SÜD is investing more than ten million euros in the construction of a new Center of Excellence for underwater pipelines. The research and development center’s range of services is aimed in particular at the chemicals and petrochemicals industry. The project is supported by the Scottish Enterprise Fund. Changes in local conditions in individual markets as well as planned disposals led to impairments on assets in 2017. The continuing weakness of the Brazilian construction industry led to impairments on selected intangible assets from the acquisition of Bureau de Projetos e Consultoria Ltda., São Paulo. The corrective measures that have been initiated in the company so far were not able to compensate for the weak order situation for publicly funded infrastructure measures. The private sector investments stimulated by the government during the fiscal year have not yet reached the necessary volumes either. In spring 2017, we sold our lift inspection business in South Africa, TUV SUD South Africa Real Estate Services (Pty) Ltd. (TUV SUD South Africa), Cape Town, and are now focusing our business development in this market on non-destructive testing.

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We are concentrating our offering to the chemicals and petrochemicals industry as well as the process industry on our European core market. The sale of RCI Consultants Inc. (RCI), Houston (USA), after the reporting date resulted in an impairment of selected assets in the fiscal year 2017.

MO BI LI T Y The Spanish TÜV SÜD ATISAE companies acquired in the prior year were more closely integrated into the TÜV SÜD Group in the year 2017. The integrative measures included, among other things, optimizing the structure of the shareholdings. As part of the realignment of our management structure and the associated focus on our core competencies, the MOBILITY Segment was supplemented by the business of driving ability and medical-psychological examinations. The services provided by the Life Services unit, previously assigned to OTHER, now complement the segment’s range of services with safety-related services for vehicle drivers. Digitization and the associated technological change are the driving force behind our core business with automobile-related services. In the fiscal year, TÜV SÜD accompanied various projects in the area of highly-automated driving. In addition to preparing expert opinions for the approval of a fully-automated passenger bus in Bad Birnbach, this also included the development of new test procedures for the safety of highly-automated vehicles in the PEGASUS project of the Federal Ministry of Economics. For the optimal standardization of vehicle management processes, TÜV SÜD offers a comprehensive range of digital tools such as the creation of digital vehicle files or multilingual valuation reports. The worldwide network of test laboratories is also an important component for TÜV SÜD in the field of electromobility. With the Dynamic Component Testing Laboratory (DYCOT) in the Czech Republic, TÜV SÜD supports the automotive industry with simulations and non-destructive testing of automotive components. The service portfolio also includes the testing of exhaust gas and airbags. The TÜV SÜD Blue Box, a modular test center that is ready for use within one day, creates even greater customer proximity. In addition to the efficient roadworthiness test and exhaust gas analysis, the range of services offered by the mobile test center also includes experts’ evaluations and opinions. The Blue Box is now in use at six locations. By entering into a cooperation agreement with the South Korean Environment Cooperation (K-eco), TÜV SÜD is creating the conditions for European automobile manufacturers to gain access to the South Korean market. TÜV SÜD’s testing facilities for emission and consumption measurements as well as the engine and roller testing rigs in Heimsheim have been extensively expanded since fall 2017 and expanded to become the largest mobility laboratory in Europe. The laboratory already offers independent engine and exhaust-gas analyses. In the future, type approvals can also be carried out there in compliance with all international guidelines. Completion is scheduled for 2019.

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C ERT I FI CAT I O N The CERTIFICATION Segment was realigned in the fiscal year to provide a larger platform for the TÜV SÜD Group’s digitization services business. The former Management Service Division, the Cyber Security unit and the Academy business, which was previously under OTHER, were combined in the Business Assurance Division. The Product Service Division remains unchanged. In April 2017, the second Center of Excellence (CoE) for Digital Services in addition to Singapore was opened in Munich. The main focus of the CoE and TÜV SÜD Digital Service GmbH is on the development of new services and business models in the fields of data analysis, functional reliability of intelligent systems and industrial IT security. In May 2017, we expanded our network of laboratories for electromagnetic compatibility (EMC) in the USA by acquiring Advanced Compliance Solutions ACS Inc., Atlanta. We have further expanded our product range for the US market and are even better able to meet the demand for EMC services. At the same time, we were able to supplement our range of services with various accreditations, including for radio and telecommunications. The internationally-oriented LabExcellence Program was successfully continued to promote the transfer of knowledge and the exchange of innovative test methods as well as process optimization in our laboratories worldwide. At the end of July 2017, TÜV SÜD invested in Uniscon. The company offers highly secure cloud solutions for data processing. The product range enables TÜV SÜD to position itself as a neutral operator of a secure platform for handling sensitive data. TÜV SÜD has been handling the personnel certification of the Swiss project management Hermes 5 since 2013 on behalf of the Swiss Federal IT steering unit (ISB). In November of the fiscal year, the contract was extended until 2023. We also recognized impairment losses on intangible assets at the Brazilian company TÜV SÜD SFDK Laboratório de Análise de Produtos EIRELI (SFDK), São Paulo, to reflect structural weaknesses of the market for food and health products, described as a risk in the prior year, which have now occurred.

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Business development We saw organic growth in the fiscal year. The cyclical upswing in most markets resulted in additional stimulus. Development was impacted only by the strong euro, fundamental policy decisions such as 04 the nuclear phase-out in South Korea, and sluggish recovery of the Brazilian economy.

Targets and results

2016

2017 outlook

2017

Revenue Development compared to prior period

€ 2,343.2 million 5.5%

€ 2.4 billion 3% – 4%

€ 2,427.6 million 3.6%

EBIT Development compared to prior period

€ 198.8 million 22.4%

up to € 210 million mid-single-digit percentage range

€ 201.3 million 1.3%

EBIT margin EVA Employees Development compared to prior period

8.5%

high singlepercentage range

8.3%

€ 80.9 million

€ 75 – 85 million

€ 80.7 million

7.5%

approximately 4%

1.8%

Our expectations regarding business development are derived from our existing services. They are defined as organic growth. All segments saw positive revenue development. The INDUSTRY Segment fell short of the forecast growth rate for revenue and EBIT. The EBIT margin was within the expected high single-digit percentage range. The MOBILITY Segment’s revenue and EBIT growth was within the expected range; the EBIT margin outperformed targets. The CERTIFICATION Segment met all expectations with the exception of revenue growth. At € 201.3 million, earnings before interest, before other financial result and before income tax, but after income from participations (EBIT) met the expected corridor. At 8.3%, the EBIT margin was within the expected range, but lower than the prior-year EBIT margin (8.5%). The EBIT development was positively influenced by revenue growth and lower personnel expenses in relation to revenue increase. Higher other expenses had a negative impact. Non-recurring impairments of goodwill and intangible assets were again necessary but remained below the prior-year level. The effect from the planned sale of the US-based RCI is also included here. Adjusted EBIT, which is better suited for a multi-year comparison with other companies in the industry, at € 216.7 million is 7.4% above the prior-year figure (€ 201.8 million). At 8.9%, the adjusted EBIT margin is in the expected forecast range and is 0.3 percentage points above the prior year figure.

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Consolidated earnings before taxes (EBT) rose by 4.2% compared to the prior year, thus matching our expectations. In the prior year, EBT was positively impacted by the non-recurring write-up of the existing stake held in the Spanish TÜV SÜD ATISAE, S.A.U (TÜV SÜD ATISAE), Madrid, by around € 11 million which was recognized through profit and loss. Adjusted EBT also attained the expected figure. The adjusted EBT margin saw an increase to 8.5% (prior year: 7.9%). The consolidated result after taxes reached a new record of € 138.8 million (prior year: € 130.5 million). At € 80.7 million, EVA for the Group is slightly below the prior-year level (€ 80.9 million) but within the range we expected. This key indicator is calculated from the net operating profit after tax (NOPAT) of € 145.4 million less the Group’s cost of capital, yielded by the product of average capital employed (€ 924.8 million) and WACC of 7.0%. NOPAT was positively influenced by the development of business from the MOBILITY and CERTIFICATION Segments. 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 in the prior year of TÜV SÜD ATISAE and ATISAE de Castilla y León, S.A.U. (ATICAL), Miranda de Ebro, with regard to operating assets and working capital. The average increase in the number of employees (full-time equivalents) from 21,738 to 22,117 is below the expected range after selective personnel measures were necessary abroad in order to reflect the development of local businesses. 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.

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Situation of the company RESU LT S O F O PERATIONS In the fiscal year 2017, TÜV SÜD generated revenue of € 2,427.6 million, equivalent to an increase of € 84.4 million or 3.6% compared to the prior year. In the existing services business, we achieved an increase in revenue of € 102.4 million or 4.4%. Despite negative exchange rate effects of € 18.0 million (down 0.8%) in the 2017 fiscal year, we achieved our projected revenue 12 / 13 target of € 2.4 billion. Revenue growth thus lies in the targeted range of 3% to 4%.

Revenue growth comparable

IN %

5.5 4.4 3.6

3.4

2017

2016

ACTUAL

2016

C O M PA R A B L E 1

1 _ Adjusted for exchange rate and portfolio effects.

Revenue growth 2017

IN %

4.4

– 0.8

ORGANIC GROWTH

E X C H A N G E R AT E EFFECTS

0.0

3.6

PORTFOLIO CHANGES

T O TA L R E V E N U E GROWTH

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With € 73.2 million or a share of 86.7% (prior year: 40.3%), German companies in particular made a major contribution to revenue growth. The other 13.3% (prior year: 59.7%) of the revenue increase – € 11.2 million – was generated abroad.

Revenue by region 2016 / 2017 according to customer location

IN %

2017

20161

74.9

15.6

9.5

74.3

16.5

9.2

EUROPE

ASIA

AMERICAS

1 _ Adjusted for the new regional structure.

The share of total revenue generated abroad in the fiscal year was 42.1% (prior year: 43.2%) and thus exceeded the long-term target of 40%. Our European home market remains the strongest 14 region in terms of revenue. With a rise of 4.2%, purchased service cost developed almost in proportion to revenue. The increase resulted from the successful expansion of our offerings for vehicle management and reconditioning services, our academy business in Germany and an increased demand for laboratory services in China. At 12.6% (prior year: 12.5%) the ratio of purchased service cost to revenue remains at a comparable level year on year. In fiscal year 2017, personnel expenses increased by 3.0% to € 1,464.1 million. The ratio of personnel expenses to total operating performance fell from 69.2% in the prior year to 68.7%. The expenses for wages and salaries including social security contributions rose by 2.9% compared to the prior year. Collective wage increases in Germany and the increase in headcount due to new hires, especially in Germany, contributed significantly to the increase. Retirement benefit costs increased by 6.0% to € 101.8 million (prior year: € 96.0 million) primarily due to the higher employer’s share of social security, as well as increased contributions levied by the mutual pension guarantee association in this fiscal year. In the fiscal year, amortization, depreciation and impairment losses of intangible assets, property, plant and equipment and investment property of € 76.2 million were recorded, a decrease of € 2.9 million on the prior year. Scheduled amortization and depreciation are € 2.0 million (2.8%) higher than in the prior year. In addition to scheduled amortization and depreciation, there were one-off impairment losses on intangible assets as a result of the purchase price allocation. The adjustments had become necessary due to the unsatisfactory development of business at individual subsidiaries in Brazil and Belgium.

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The planned sale of our petrochemical business in the USA and the downsizing of our wind power services in the UK led to an impairment of goodwill of € 3.8 million (prior year: € 1.5 million). Other expenses increased by 5.5% to € 458.5 million, thus outpacing revenue. The main reason for this increase, other than exchange rate losses, were the expenses for rented properties, especially in Germany, as well as legal and consulting costs for, among other things, intragroup mergers and the IT-assisted implementation of the GST (Goods and Sales Tax) in India. Changes in other expenses were further influenced by purchased administrative services, which also included the use of temporary staff, travel and marketing expenses mainly in Germany. The increase in other income by 9.2% from € 56.7 million in the prior year to € 61.9 million resulted mainly from income from rentals and leases in Germany. In addition, there were grants and subsidies for ongoing investments and development projects in the UK, Singapore and Germany as well as refund claims against insurance companies. The financial result decreased by € 7.0 million to € 0.5 million (prior year: € 7.5 million) in the fiscal year 2017, primarily attributable to a one-time effect on other income/loss from participations. At € 10.1 million, income from investments accounted for using the equity method was lower than the prior-year level (prior year: € 11.6 million). The Spanish ITV de Levante S.A., Valencia, and our French associated company could not compensate for the slight decline in earnings contributions from the Turkish joint ventures and the effect of the first-time inclusion of Uniscon. The earnings development of the Turkish companies reflects the currency relationship between the euro and the Turkish lira. The positive business development in Turkey was completely eroded by this currency translation. The earnings situation of Uniscon, the new at-equity investment, reflects the start-up character of the company. Other income/loss from participations in 2016 was particularly influenced by the write-up of the existing investment at TÜV SÜD ATISAE of about € 11 million. Proceeds of € 1.5 million were recognized from the liquidation and write-up of participations in Spain in the fiscal year. The interest result improved by € 2.9 million in the fiscal year, but remains negative at € –13.4 million. We benefited from the higher coverage of pension obligations in net interest expenses from the pension provisions (unwinding of the discount for pension provisions less expected interest income on plan assets). This resulted in a disproportionately large decrease in interest expenses (down € 5.2 million) in relation to the planned income (down € 2.7 million). Other income and expenses from interest remained practically unchanged at the prior-year level. Gains and losses from the special fund are mainly summarized in the other financial result.

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Income before taxes came to € 190.2 million in the fiscal year 2017. This represents an increase of 4.2% on the prior year. The income tax expense fell by 1.3% to € 51.4 million. The effective tax rate of 27.0% remains below the prior-year rate of 28.5%. The development of earnings before taxes is influenced in the fiscal year by overall negative 05 one-off effects totaling € –15.4 million (prior year: € –3.0 million).

One-off effects IN € M IL L IO N

2017

2016

PPA amortization and impairment losses

9.6

14.5

One-off effects, provisions and reversals of impairments

3.0

– 1,8

Impairment of goodwill

3.8

1.5

Exchange rate effects from financial transactions at companies accounted for using the equity method

0.0

– 0,1

One-off effects in income/loss from participations

– 1,0

– 11,1

With EBIT effect

15.4

3.0

With EBT effect

15.4

3.0

Amortization of intangible assets which we identified in the purchase price allocation (PPA amortization) was adjusted by € 7.7 million in the fiscal year 2017. In addition, one-off impairment losses of € 1.9 million on software, as well as on capitalized customer bases in Belgium and Brazil, are recorded here. In the prior year, one-off impairment losses totaled € 6.2 million. Other expenses include coverage for subsequent purchase price installments. In the prior year, we eliminated a reversal of impairment losses on property, plant and equipment in Germany as well as the spin-off of non-core activities in Japan. In addition to the wind power business in the UK, the impairment of goodwill relates to the US-based RCI, which was held for sale as of the reporting date and has since been sold. The write-up of a Spanish participation is recognized in income/loss from participations. In the prior year, the write-up of the existing stake in TÜV SÜD ATISAE in particular was adjusted.

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At € 201.3 million, EBIT in the fiscal year 2017 was 1.3% above the prior-year figure of € 198.8 million. The EBIT margin decreased compared to the prior year by 0.2 percentage points to 8.3%. Adjusted EBIT increased by 7.4% to € 216.7 million (prior year: € 201.8 million), following an increase of 6.3% in the prior year. The adjusted EBIT margin thus comes to 8.9% (prior year: 8.6%). The one-off effects had a total effect of € 15.4 million in EBIT and result in a higher variance between the adjusted and unadjusted EBIT margin compared to the prior year. NOPAT rose slightly by 0.8% to € 145.4 million and thus remained almost unchanged from the prior-year figure (€ 144.2 million). The rise in personnel expenses and the disproportionately high increase in other expenses reduced the higher operating result as a starting point for the development of NOPAT. In addition, there was no longer the one-off effect from 2016, which resulted from the write-up recognized through income of the existing stake in TÜV SÜD ATISAE. Capital employed increased from € 904.3 million to € 924.8 million. Based on the average analysis of this indicator, there was again an increase compared with the prior year, after the first-time inclusion of the Spanish TÜV SÜD ATISAE and ATICAL in the prior year was reflected only on a proportionate basis. In terms of the reporting date, capital employed showed almost no change compared with the prior year (0.2%). At € 80.7 million, EVA for the Group was slightly lower (down € 0.2 million) than in the prior year (€ 80.9 million). At € 190.2 million, EBT exceeded the prior-year level (prior year: € 182.6 million). The adjusted earnings before taxes rose by € 20.0 million to € 205.6 million (prior year: € 185.6 million). The return on revenue, calculated using earnings before taxes (EBT), stood unchanged at 7.8% in the fiscal year. After the prior year’s positive one-off effect from the remeasurement of the existing stake held in TÜV SÜD ATISAE in the financial result, the adjusted EBT margin, which is more suitable for assessing earnings over time, increased from 7.9% to 8.5%. The reported consolidated net income increased to € 138.8 million in the fiscal year 2017 and is therefore € 8.3 million or 6.4% higher than the prior-year figure of € 130.5 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, SEE PAGES 106 – 111

For further analyses of significant items of the consolidated income statement, we refer to the notes to the consolidated financial statements.

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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 outsourced to cover pension obligations, the investment and risk management of these positions is of great importance for us. Capital structure TÜV SÜD finances itself with cash flows from operating activities. The available cash and cash equivalents are supplemented by a syndicated credit line of € 200 million, with a term until the end of 2020, to give us the financial flexibility necessary to reach our growth targets. The c ontract provides for an option to prolong 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 € 87.1 million in the fiscal year (prior year: € 86.6 million). In our home market of Germany, we invested € 55.6 million, nearly two thirds of the investment volume, in SAP licenses and the IT application software ASPro, among other things. In addition, we had expenses for the acquisition of land and the construction of a new technical service center in Hamburg as well as on the equipment for the new administrative building in Hesse. In Western Europe, we invested a total of € 5.9 million, mainly in the construction of a research and development center for underwater pipelines in the UK. In Central & Eastern Europe, expenditure focused on equipping a climatic chamber and an EMC chamber. A total of € 2.8 million was spent in this region. In ASIA, investments amounted to € 13.5 million (15.5% of total investments), mainly for a software project and technical equipment of the Product Service Division. The investment volume amounted to € 9.3 million, or 10.7%, in the AMERICAS. The focus here was the acquisition of land and the construction of a new laboratory in the USA. We invested € 3.2 million in the acquisition of entities in fiscal year 2017 (prior year: € 40.5 million). These investments include payments to acquire shares in consolidated and non-consolidated affiliated companies. As of the reporting date, there were no material investment obligations.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONSOLIDATED STATEMENT OF CASH FLOWS SEE PAGE 95

Liquidity Cash and cash equivalents increased by € 27.9 million or 11.4% to € 273.3 million in fiscal year 2017. This is equivalent to 13.3% of total assets (prior year: 12.2%). The development of cash and cash equivalents in the fiscal year is presented in detail in the consolidated statement of 15 cash flows.

Liquidity of the TÜV SÜD Group 2017

IN € M IL L IO N

258.3

– 211.9

245.4

Cash and cash equivalents at the beginning of the period

Cash flow from operating activities

Cash flow from investing activities

– 10.1

– 8.4

Cash flow from financing activities

Effect of currency translation differences and changes in scope of consolidation

273.3

Cash and cash equivalents at the end of the period

In the fiscal year 2017, the consolidated net income of the year as a starting point for the statement of cash flows came to € 138.8 million, which is € 8.3 million above the prior-year figure (€ 130.5 million). The non-cash items amortization, depreciation, impairment losses and write-ups come to € 80.3 million and therefore are € 1.9 million higher than the prior-year figure of € 78.4 million. In addition to the current amortization and depreciation, impairment of goodwill, intangible assets such as order backlog and customer relationships were again recognized during the year, albeit to a lesser extent than in the prior year. 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 the equity method and income from the group-wide currency hedging. In the prior year, this item was particularly characterized by the remeasurement of the existing stake held in the Spanish TÜV SÜD ATISAE. The changes in working capital and the other assets and other liabilities resulted in a cash outflow in the fiscal year compared to a cash inflow in 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 capital employed was lower than in the prior year. In the INDUSTRY Segment in particular, current provisions and other liabilities fell. Cash flow from operating activities increased by € 16.8 million or 7.0% from € 241.5 million to € 258.3 million.

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Cash outflow from investing activities increased by € 7.1 million to € 211.9 million in the fiscal year. Cash paid for investments in intangible assets, and property, plant and equipment increased by € 11.7 million to € 89.1 million (prior year: € 77.4 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 of TÜV SÜD AG. The investment in Uniscon and a loan granted at the same time, as well as expenses for the acquisition of additional shares in affiliated non-consolidated companies, resulted in a net outflow of financial assets (prior year: net inflow). After deduction of acquired cash and cash equivalents, acquisitions, mainly the payment of the second purchase price installment for the Spanish ATISAE Group, led to an outflow of funds of € 13.3 million. Cash outflow (€ 40.5 million) in the prior year was also characterized by this company acquisition. The redemption of securities with final maturity and the reinvestment in the special fund resulted in net cash received of € 0.9 million (prior year: € 4.5 million). The contribution to external pension funds came to € 93.9 million due to the recontribution of refunded benefit payments and a one-off addition to the TÜV SÜD Pension Trust e.V., (€ 31.1 million, prior year: € 30.0 million). This was € 7.4 million lower than the prior-year level (€ 101.3 million), in which a one-off addition had also been made to the Alters- und Hinterbliebenen-Versicherung der Technischen Überwachungs-Vereine -VvaG- [“AHV”, an old-age and surviving dependents pensions fund for technical inspection associations] (€ 10.0 million). 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 € 169.2 million in fiscal year 2017 (prior year: € 164.1 million). This constitutes an increase of the free cash flow of 3.1% on the prior year. The higher cash flow from operating activities outweighed the counter effect of higher investments in intangible assets and property, plant and equipment. At 1.22, the cash conversion rate, which is calculated from the ratio of free cash flow to consolidated net income, is lower than the prior-year figure of 1.26 as a result of the higher investment activities. Cash outflow from financing activities fell by € 5.1 million to € 10.1 million. The dividend distribution to TÜV SÜD Gesellschafterausschuss GbR remained unchanged. Dividends paid to non-controlling interests were above the prior-year level, as a still outstanding dividend from the prior year was made to non-controlling interests in the Middle East. The cash inflow was mainly attributable to external borrowing in India. The repayment of two bank loans from the acquisition in Spain led to a reduction in the cash inflow in the prior year. Other cash inflows and outflows include capital increases in companies with minority interests and the acquisition of the remaining shares in an already fully consolidated entity in Japan. Cash and cash equivalents of € 273.3 million – consisting of checks, cash in hand, bank balances and securities with an original term of less than three months – were € 27.9 million higher than the prior-year level. With the securities disclosed in other financial assets which can be liquidated at all times, there are cash and cash equivalents totaling € 316.9 million (prior year: € 290.0 million). Additional financing flexibility is provided by various credit lines (€ 10.8 million) and the existing syndicated loan agreement of € 200.0 million.

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N ET ASSET S Composition of the statement of financial position of the TÜV SÜD Group: Assets/Equity and liabilities IN %

ASSETS 2017

2016

58.2

60.7

NON-CURRENT ASSETS thereof1

30.9

32.1

I N TA N G I B L E A S S E T S

38.5

38.4

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

20.3

21.1

D E F E R R E D TA X A S S E T S

41.8

39.3

CURRENT ASSETS thereof1

56.0

58.5

T R A D E R E C E I VA B L E S

31.9

31.0

C A S H A N D C A S H E Q U I VA L E N T S

EQUITY AND LIABILITIES 2017

2016

38.7

31.9 EQUITY

34.0

41.5

NON-CURRENT LIABILITIES thereof1

89.2

89.6

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

27.3

26.6

CURRENT LIABILITIES thereof1

23.7

25.1

CURRENT PROVISIONS

47.3

50.1

OTHER CURRENT LIABILITIES

T O TA L AS S ETS : € 2, 050. 8 M ILLIO N. € 1 _ As a percentage of the current or non-current item, not of the total assets.

TO TA L A S S ETS : € 2, 013. 8 M ILLIO N

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Assets, equity and liabilities Total assets increased by € 37.0 million or 1.8% to € 2,050.8 million in the fiscal year (prior year: 16 € 2,013.8 million). Non-current assets fell by € 28.7 million to € 1,193.7 million. Current assets rose by € 65.7 million to € 857.1 million. Intangible assets decreased by € 24.3 million or 6.2% to € 368.4 million. The change was mainly due to the reclassification of the goodwill of RCI and PetroChem Inspection Services Inc. (PetroChem), Pasadena, to non-current assets held for sale and disposal groups. In addition, exchange rate effects and scheduled amortization of intangible assets reduced the line item. Impairment losses of intangible assets, in particular of order backlogs and customer relationships, which were identified in the purchase price allocation, came to € 1.9 million. Investments in expanding existing laboratory capacities as well as in modernizing technical service centers characterized the additions to property, plant and equipment. There were also considerable investments in furniture and fixtures, particularly in Germany. The reclassification of selected property, plant and equipment in the USA as non-current assets and disposal groups held for sale and the recognition of an existing property held as investment property in Germany had a reducing effect. This line item increased by € 3.1 million to € 6.8 million. Investments accounted for using the equity method rose by € 14.8 million to € 42.9 million mainly as a result of the investment in Uniscon. Deferred tax assets decreased by € 15.4 million to € 242.1 million. The main reasons for this are the deferred taxes recognized in other comprehensive income on the balance of actuarial gains from the valuation of the pension obligations (€ 10.9 million) and profits from plan assets (€ 51.6 million) as well as deferred taxes from tax loss carryforwards. Trade receivables increased by € 16.7 million or 3.6% in fiscal year 2017 to € 479.9 million. This means they increased proportionate to revenue (up 3.6%). The level of trade receivables – without receivables from the measurement of current unbilled work in process – rose by € 6.5 million or 1.9%. The change was due mainly to our good order situation in Germany, the USA and Asia. Receivables from current, unbilled work in progress showed an increase of 8.6% to € 129.3 million, particularly due to long-term projects in Germany which was disproportionately high compared with revenue growth. Following the decision to sell the US companies RCI and PetroChem, the related trade receivables amounting to € 8.8 million were reported under non-current assets and disposal groups held for sale. This corresponds to a proportionate receivables balance of 2.3%. Days sales outstanding including receivables reported in accordance with IFRS 5 are unchanged on average throughout the Group and stand at 56 days (prior year: 56 days). Cash and cash equivalents rose by € 27.9 million to € 273.3 million. This is equivalent to 13.3% of total assets (prior year: 12.2%).

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Non-current assets and disposal groups held for sale include not only a property but also the assets of the two US companies available for sale, RCI and PetroChem. Equity increased by € 151.0 million (up 23.5%) in the fiscal year, and stood at € 793.3 million as of the reporting date. The increase is mainly due to the positive consolidated net income of € 138.8 million (prior year: € 130.5 million). Actuarial gains after the recognition of deferred taxes also had a positive effect, while exchange rate losses and dividend distributions reduced 17 equity. The equity ratio increased by 6.8 percentage points to 38.7%.

Sound capital basis IN € M IL L IO N

800

793.0 642.0

700

IN %

100

600

90 80

557.0

500

395.1

400

453.4

70 60 50 40

300

200

100

10 0

0 2017

2016

2015

2014

2013

266.3

264.9

253.6

100

200

300

Equity ratio

308.4 Equity

283.7 Net financial assets

Non-current liabilities fell by € 138.5 million to € 697.7 million. The main change here was from the provisions for pensions and similar obligations (down € 126.8 million). This effect is reinforced by a decrease in deferred tax liabilities as well as by lower other non-current liabilities. The provisions for pensions and similar obligations decreased by 16.9% from € 749.4 million to € 622.6 million. The group-wide defined benefit obligation reported at € 2,059.9 million is € 29.7 million lower than the prior-year figure (€ 2,089.6 million). In Germany, there was a decrease of € 6.0 million, resulting mainly from pension payments exceeding the sum of service cost and interest cost. This was offset by the future salary commitments for employees made in fiscal year 2017. The change abroad (down € 21.3 million) is mainly due to a reduced salary trend in the UK resulting from a decline in active employment, and in changes to demographic assumptions.

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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 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 € 1,437.3 million. Of this figure, € 1,273.1 million was attributable to the trust assets of TÜV SÜD Pension Trust e.V., and € 28.6 million to TÜV Hessen Trust e.V. The remaining plan assets of € 135.6 million consisted mainly of policy reserves due to employer’s pension liability insurance and assets for pension plans in other countries. The group-wide increase in plan assets amounts to € 97.1 million. The increase is attributable in particular to the actual return on plan assets in Germany and abroad of € 74.9 million as well as one-off additions in Germany of € 31.1 million. The exchange rate losses (mainly in the UK) had the reverse effect. The refunded benefit payments of € 58.6 million (prior year: € 56.4 million) were recontributed and thus strengthen the plan assets. Due to the increase in the plan assets, which was higher than the increase in the defined benefit obligation, the percentage of pension obligations funded by plan assets improved overall from 64.1% in the prior year to 69.8% as of the reporting date. In Germany, coverage stood at 69.1% (prior year: 63.8%). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS SEE PAGES 120 – 126

For a detailed presentation of the development of pension obligations and plan assets, please refer to the notes to the consolidated financial statements. Other non-current liabilities fell by € 5.1 million to € 7.5 million. This item also includes obligations from ongoing software license fees, an earn-out obligation from completed acquisitions and a put-out option on the sale of shares in South Africa. The decrease in deferred tax liabilities by € 6.6 million to € 29.0 million resulted mainly from adjustments to the planned sale of RCI in the USA. Current liabilities increased by € 24.5 million to € 559.7 million, particularly as a result of higher income tax payable, trade payables and advance payments received. Current provisions mainly include bonus obligations to employees and severance payments. Trade payables increased for billing-related reasons, including obligations from current, unbilled work in progress, particularly in Germany and Asia. Other current liabilities fell by € 3.3 million to € 264.7 million. They mainly include obligations to employees for additional working hours and vacation, which are comparable to the prior-year level. The higher level of advance payables received was offset by lower liabilities for outstanding invoices and lower liabilities to affiliated non-consolidated companies. Liabilities directly associated with assets and disposal groups held for sale mainly comprise other current liabilities attributable to the two US-based companies.

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SU MMARY REV I EW OF THE SITUATION Our global presence, expertise in our core areas as well as our innovative service portfolio guarantee stable growth. In this way, in the fiscal year 2017, revenue growth was characterized solely by the organic growth of our existing companies. Despite negative exchange rate effects, we exceeded our projected revenue target of up to € 2.4 billion. All segments again made a positive contribution to consolidated revenue growth. With the exception of the ASIA Region, the geographic segments, including our core market of Germany, saw positive revenue development. Both EBIT and adjusted EBIT developed positively. At 8.3%, the EBIT margin declined in comparison to the prior year (prior year: 8.5%). The adjusted EBIT margin stands at 8.9% (prior year: 8.6%). EBIT development was significantly impacted by the higher other expenses – including those relating to innovation promotion – and lower income from participations compared to the prior year. By contrast, the proportional increase in purchased external services and the disproportionately low rise in personnel expenses compared to revenue had a positive effect. Adjusted for one-time effects, earnings before taxes (EBT) developed positively, as did the adjusted EBT margin, which increased by 0.6 percentage points to 8.5% (prior year: 7.9%). The investment in Uniscon, the extensive investment projects and the ongoing promotion of innovation as well as the one-off additions to the pension assets were financed from the cash flow from operating activities. TÜV SÜD has comfortable liquidity, which is secure for the long term thanks to our good credit ratings and the existing syndicated credit line. We offer high-quality, innovative and sophisticated services worldwide across nearly all industries 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 in terms of revenue and profit met our expectations.

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TÜV SÜD AG In addition to reporting on the TÜV SÜD Group, we explain below the results of operations, net assets and financial position of TÜV SÜD AG’s annual financial statements in accordance with German GAAP. TÜV SÜD AG is the management holding company of TÜV SÜD Group. In the fiscal year 2017, the Group comprised a total of 55 (prior year: 55) companies in Germany and 136 (prior year: 146) 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 economic development 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.

RESU LT S O F O PER ATIONS Income statement of TÜV SÜD AG

IN € M IL L IO N

2017

2016

Revenue

94.6

84.7

Total operating performance

94.6

84.7

5.7

7.4

Cost of materials

– 21,0

– 23,8

Personnel expenses

– 33,8

– 30,4

– 8,6

– 9,0

Other operating expenses

– 58,9

– 52,0

Operating result

– 22,0

– 23,1

Other operating income

Amortization and depreciation

Financial result Income taxes Earnings after taxes (net income for the year) Profit carried forward Retained earnings

57.0

139.3

– 12,6

– 21,2

22.4

95.0

99.2

6.3

121.6

101.3

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Operating performance of TÜV SÜD AG increased by € 9.9 million to € 94.6 million in the fiscal year 2017. Income realized from the management services charged to subsidiaries rose due to the adjustment in cost allocations in Germany and abroad, as well as the favorable development 06 of revenue. Lower divisional allocations that were recognized in the cost of materials were the main reason for a decline of € 2.8 million to € 21.0 million in this item. Personnel expenses increased by € 3.4 million to € 33.8 million, mainly due to higher retirement benefit costs. Amortization and depreciation stood at € 8.6 million, € 0.4 million below the prior-year level. Other operating expenses increased by € 6.9 million to € 58.9 million, mainly due to innovation and marketing costs absorbed for subsidiaries. The financial result decreased by € 82.3 million to € 57.0 million. In the fiscal year, lower income from profit and loss transfer agreements are offset against higher expenses from profit and loss transfer agreements. The decrease in earnings from subsidiaries is mainly due to the effects from interest rate changes from the discounting of pension obligations, which is recognized in the income statement. The prior year was positively impacted by a change in legislation whereby pension provisions are discounted using the average market interest rate of the past ten years instead of seven years as previously used. Our Turkish joint ventures provided an additional positive contribution (€ 5.7 million, prior year: € 9.7 million). Income and expenses related to the contractual trust agreement (CTA) are presented net in the interest result. CTA investments generated income of € 69.1 million (prior year: € 48.5 million) in the fiscal year. A gain was again realized from interest rate and currency hedging. The operating result, defined as earnings before taxes and the financial result, at € –22.0 million was slightly higher than the prior-year figure of € –23.1 million. Taxes on income resulted in a € 8.6 million lower tax expense of € 12.6 million (prior year: € 21.2 million), after higher interest expenses for pension provisions reduced the taxable income. At € 22.4 million, net income for the year was lower (by € 72.6 million) than in the prior year (€ 95.0 million). 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.

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N ET ASSET S Risk report of TÜV SÜD AG IN € M IL L IO N

Dec. 31, 2017

Dec. 31, 2016

Assets Intangible assets Property, plant and equipment Financial assets Fixed assets Receivables and other assets Cash and cash equivalents Current assets

8.0

11.4

106.3

110.9

933.6

912.1

1,047.9

1,034.4

27.7

23.2

80.8

71.8

108.5

95.0

Prepaid expenses Excess of covering assets over pension and similar obligations Total assets

2.2

2.0

242.2

244.9

1,400.8

1,376.3

Equity and liabilities Capital subscribed

26.0

Capital reserve

124.4

Revenue reserves

405.1

Retained earnings

121.6

101.3

Equity

677.1

656.8

Tax provisions

15.1

9.4

Other provisions

19.8

16.0

Provisions

34.9

25.4

Liabilities

688.8

694.1

1,400.8

1,376.3

Total equity and liabilities

Within fixed assets, current depreciation and amortization reduced intangible assets and property, plant and equipment. Financial assets increased in particular with investment in securities 07 and the investment in Uniscon. Receivables and other assets increased in particular through advance payments made for capital gains tax and trade tax on income by € 4.5 million to € 27.7 million. The excess of covering assets over pension and similar obligations fell by € 2.7 million to € 242.9 million. An increase of € 5.7 million to € 15.1 million was recorded for tax provisions. The increase in other provisions by € 3.8 million to € 19.8 million was accounted for mainly by provisions for outstanding invoices and subsequent purchase price payments.

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Compared to the prior year, the € 5.3 million lower liabilities (€ 688.8 million) result mainly from obligations due to affiliated companies from the cash pool as well as a loan issued by TÜV SÜD Asia Ltd., Singapore.

FI N AN C I AL PO SI TION, E QUITY A ND L IA BIL ITIE S Our financial management aims to maintain solvency at all times and continuously optimize liquidity. Cash and cash equivalents rose by € 9.0 million to € 80.8 million. Payments by the subsidiaries from operating activities, which flowed to TÜV SÜD AG via the cash pool, were a key factor. The transfer of € 31.1 million to the CTA had the opposite effect. Equity increased by € 20.3 million to € 677.1 million. This corresponds to the net income for the year of € 22.4 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 € 121.6 million. Total assets increased by € 24.5 million to € 1,400.8 million. The equity ratio increased from 47.7% to 48.3%.

OV ERALL STAT EM E NT ON TÜV SÜD AG’S SITUATION The fiscal year 2017 was in line with the expectations of the Board of Management. Revenue and liquidity developed in line with our planning. 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.

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Segment report The prior-year information presented below has already been adjusted to the realignment of the segments and regions to improve comparability. The three segments, INDUSTRY, MOBILITY and CERTIFICATION, continued their growth trajec18 tory in the fiscal year 2017.

Revenue by segment 2016 / 2017 1

IN %

2017

2016

39.6

31.8

29.4

41.0

31.3

28.4

INDUSTRY

MOBILIT Y

CER T IF IC AT ION

1 _ Without OTHER and reconciliation.

I N D U ST RY The 8,033 employees (on average) of the INDUSTRY Segment generated revenue of € 961.3 million. This is equivalent to 39.6% of consolidated revenue. Revenue in the segment barely changed in comparison to the prior year (up € 0.3 million), thus falling short of expectations. The Industry Service Division recorded a slight decline (down 1.1%) in revenue in the fiscal year, but remained the division with the highest volume of revenue within the segment, accounting for 61.2% of revenue. Business development in South Korea was characterized by delays in f ollow-up orders and a general fall in demand. In addition, the nuclear phase-out announced by the South Korean government weighed on the order situation. A lack of follow-up engagements also led to a significant decrease in revenues in South Africa. By contrast, positive development was seen in Germany and Italy. The Real Estate & Infrastructure Division generated 38.8% of segment revenue. Transport technology together with rail transport and infrastructure accounted for the business development. The sale of the South African TUV SUD South Africa and the weak order situation in the Middle East were more than offset by a further increase in revenue in the core market of Germany. At € 78.1 million, EBIT in the INDUSTRY Segment was just below the prior-year figure (€ 77.8 million, up 0.3%) and thus also fell short of our forecast. EBIT development was impacted in particular by other expenses, which saw higher percentage growth than revenue. In addition, EBIT was negatively impacted by the recognition of 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 unchanged on the prior year and thus within our expected corridor.

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Segment assets decreased by € 1.0 million to € 521.2 million (prior year: € 522.2 million) and were characterized by working capital, particularly evident in other assets. In fixed assets, capital expenditures nearly compensated depreciation and amortization. € 14.4 million was invested among others in the construction of a research and development center for underwater pipelines and the further expansion of a refrigeration technology laboratory. Impairment losses on i ntangible assets identified as a result of the purchase price allocation led, by contrast, to a decrease in 19 fixed assets.

Revenue by region – INDUSTRY

2017

EUROPE

ASIA

AMERICAS

of which Germany

MO BI LI T Y The 5,736 employees (on average) of the MOBILITY Segment generated revenue of € 772.4 million. This is equivalent to nearly 32% of consolidated revenue. Revenue growth of € 37.9 million or 5.2% is in line with our expectations. Roadworthiness tests and exhaust gas analyses, our core business, saw an increase in revenue, especially in Germany, after the first fee increase in almost eight years. In Germany, the number of vehicle inspections carried out declined slightly, whereas a significant increase was seen in Spain and Turkey. Business with driver’s license tests and damage assessment reports grew significantly. Services relating to vehicle preparation also showed a positive revenue development. Our homologation services were increasingly in demand, especially in China and the Czech Republic. Business was also particularly successful in emissions testing in Germany. The business model in the MOBILITY Segment is partially geared to franchising as a growth driver. As a result, the ratio of purchased service cost to revenue is 15.5% (prior year: 14.9%), which is above the group-wide ratio of purchased service cost to revenue of 12.6%. At € 64.8 million, EBIT exceeded our expectations, but development was impacted by higher personnel expenses attributable to collective wage increases as well as higher other expenses, mainly due to the renting of new space. At 8.4%, the EBIT margin was within the expected target corridor. As of the reporting date, segment assets came to € 359.1 million (prior year: € 355.9 million). The increase is primarily attributable to fixed assets. A total of € 27.3 million was invested in fiscal year 2017, including in the ASPro IT application system. The new administration building in Hesse, Germany was equipped and the modernization of the technical service centers continued to be 20 driven forward.

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Revenue by region – MOBILITY

2017

EUROPE

ASIA

AMERICAS

of which Germany

C ERT I FI CAT I O N The CERTIFICATION Segment represents approximately 30% of consolidated revenue generated (€ 714.3 million). The average headcount here was 6,375 in fiscal year 2017. With an increase in revenue of € 49.4 million or 7.4%, the segment fell only just short of our expected growth rate. The Product Service Division generated approximately two thirds of segment revenue and accounted for the largest share of the revenue increase in the segment, with revenue growth of 7.5%. Our consumer goods audits and certifications were increasingly in demand, especially in Germany, China, South Asia and the US. Revenue development in the industrial goods sector was on the back of good utilization of our battery test labs in North America. However, growth in the ASIA Region remained subdued. Services for medical products in Germany and also the US, were increasingly in demand, whereas in ASIA, revenue in this business remained at a high level. As largest notified body, TÜV SÜD participated in the nearly double-digit growth of the global medical market. The newly-established Business Assurance Division showed positive revenue development (up 7.1%). More than half of the revenue generated is due to our portfolio of services relating to quality, environmental, energy and safety management systems. The academy business showed strongest growth in the division, especially in the core market of Germany. With ongoing international expansion, revenue growth was also realized in India, China and Singapore. Our services in cyber security contributed to growth, also for the first time outside Germany. Purchased services increased at a faster rate than revenue, raising the ratio of purchased service cost to revenue to 17.1% (prior year: 14.3%). This is due in particular to the customary commissioning of outside service providers in the academy business. Personnel expenses did develop at a lower pace than revenue, with the major share of the increase being attributable to collective wage increases in Germany. EBIT in the CERTIFICATION Segment amounted to € 81.1 million, and was within the range we expected. The generated EBIT margin of 11.3% exceeded our expectations. Segment assets increased to € 348.5 million. This is equivalent to an increase of € 19.4 million or 5.9% compared to the prior year. This development was driven by the good course of business and the associated increased billing. A total of € 19.8 million was invested in the segment. The investment focus was on the development of software for process control as well as on the expan21 sion of the laboratory network in the US and Asia.

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Revenue by region – CERTIFICATION

2017

EUROPE

ASIA

AMERICAS

of which Germany

OT H ER The corporate functions are pooled under OTHER, generating revenue of € 21.0 million in the fiscal year 2017. EBIT in OTHER amounted to € –22.6 million in the fiscal year. The value in the prior year was € –5.2 million, influenced by the write-up recognized through profit or loss of the existing stake in TÜV SÜD ATISAE. Segment assets increased by € 2.3 million from € 269.1 million to € 271.4 million. The company mainly invested in software. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, SEE PAGES 134 – 136

For an overview of the development of revenue in the segments, including OTHER, and in the regions, please refer to segment reporting in the notes to the consolidated financial statements.

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NON-FINANCIAL PERFORMANCE INDICATORS Employee report An essential success factor for TÜV SÜD is its employees. The number of our employees increases accordingly with the company’s success. By 2020, more than 27,000 people are likely to be employed by TÜV SÜD. At the end of 2017, TÜV SÜD had approximately 24,000 employees, half of whom work outside Germany. As a technical services provider, TÜV SÜD mainly recruits 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 33%, and also above the prior-year figure (32%). The percentage of female employees in the Group totaled 31%. Globally, the share of women in the top management level (excluding the Board of Management) is 7.3%, which is one percentage point above the prior-year level of 6.3%. The next level down has a percentage of female employees totaling 9.7% (prior year: 11.3%). As a result of the strategic focus on development programs, its share is expected to increase over the next few years. TÜV SÜD AG signed the Diversity Charter in July 2017 and thus joined Germany’s largest diversity corporate network. 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 six years older than their colleagues abroad. 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 six years. Staff turnover throughout the Group stands at 7.0%, above the prior-year figure of 6.4%. At 3.1% (prior year: 2.3%), the turnover rate in Germany is at a low level. By contrast, a slight increase from 9.8% in the prior year to 11.4% in the fiscal year was seen in other countries. In order to continue to meet the demand for qualified employees in the future, we expanded our recruiting activities at national and international level in the year 2017. Against this background, the global applicant management system has also been implemented in other countries. This means that TÜV SÜD’s job offers are currently available in twelve other countries via a platform for applicants. The aim is to use this platform worldwide for all positions offered at TÜV SÜD.

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C H AN G ES I N H EADCOUNT The average number of employees (full-time equivalents; FTE) for the year 2017 was 22,117, which is 1.7% up on the prior year. In Germany, the average headcount (FTE) increased by 3.1%, 22 while abroad it rose marginally by 0.5%.

Development of employees

A N N U A L AV E R A G E

22,117

2017

21,738

2016

20,228

2015

19,735

2014

18,981

2013

As of December 31, 2017, 22,268 employees (FTE) were employed by TÜV SÜD (prior year: 22,034). In Germany, 347 new jobs were created in the existing companies. The headcount at our foreign subsidiaries decreased by a total of 113 employees. This change already takes into account both the increase in the number of employees through acquisitions (44 FTE) and the reduction in the number of employees as a result of disposals (18 FTE). In the prior year, employee development was influenced by the acquisition of the Spanish ATISAE Group.

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C H AN G ES I N H EADCOUNT IN THE SE GM E NTS A ND RE GIONS Changes in headcount 2016 / 2017 by segment

A N N U A L AV ER A G E

– 1.3 %

8,033 8,135 + 3.0 % + 4.6 %

5,736 5,485

2017

20161

INDUSTRY

2017

20161

MOBILITY

6,375 6,191

2017

20161

C E R T I F I C AT I O N

1 _ Adjusted for the new divisional structure.

The reduction in the headcount in the INDUSTRY Segment related to our commitments in South Korea and South Africa. Here, corrective measures were introduced to compensate for the slowdown in conventional energy business. In Brazil, the weak order situation in the infrastructure sector led to further reductions in headcount. In preparation for the sale of our petrochemicals business in the USA, we continued to reduce our headcount there. Despite a decline in the n umber of employees, the INDUSTRY Segment continues to have the largest number of employees. The increase in headcount in the MOBILITY Segment was mainly in Germany. The CERTIFICATION Segment systematically increased its headcount. The focus is on the Academy and Cyber Security units and the worldwide laboratory network. The comparative figures for the prior year in the MOBILITY and CERTIFICATION Segments have been adjusted to reflect the realignment of our divisions, taking into account the 180 employees in the MOBILITY Segment and nearly 300 employees in the CERTIFICATION Segment. They were all previously allocated to OTHER.

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Changes in headcount 2016 / 2017 by region

A N N U A L AV ER A G E

+ 3,4%

14,360 13,882

– 1.4 %

6,225

6,311

2017

20161

– 0.8 %

1,532 1,545 2017

20161

EUROPE

2017

20161

AMERICAS

ASIA

1 _ Adjusted for the new regional allocation.

More than half of the total TÜV SÜD workforce was employed outside Germany in the fiscal year 2017. We expanded our workforce in EUROPE in order to provide our customers with sufficient capacity at all times. The focus here was on Germany. The number of jobs in the AMERICAS and ASIA Regions was slightly lower than in the prior year. Additions were offset by capacity adjust23 / 24 ments to take account of selective market requirements. In line with the segment presentation, the comparative figures for the prior year have been adjusted for the sub-region Middle East & Africa, which has been allocated to the ASIA Region in the fiscal year.

N EW H R O RG AN I ZATION PROVIDE S RE L IE F F ROM ROUTINE TA SKS To enhance the efficiency and quality of HR work, we have pooled administrative activities in shared service centers group-wide. In the meantime, the transition has been largely completed and the HR business partners now have more capacity to comprehensively advise the specialist and management staff they support in their personnel policy. We make use of the opportunities offered by ever-increasing digitization: TÜV SÜD’s managers have access to important HR information from their area of responsibility and the employees directly assigned to them – fast, up-to-date and clearly set out.

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U N I FO RM STAN DARDS 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 accomplish this, we have developed an IT system that enables management and employees to assess achievement against goals online and at any time. The system has been used in Asia since 2010. In 2016 and 2017, we expanded the user circle to the USA and South Africa, so that now more than 7,300 employees are registered online.

D EV ELO PMEN T O F E XPE RTS A ND M A NAGE M E NT – F OR THE F UTURE At present, many job profiles are changing as a result of digitization, as are the demands placed on individuals. An extensive “Digital Readiness” program is designed to enable TÜV SÜD employees to learn new skills and thus shape not only digital transformation but also their own development. From top management to every single employee in our organization, we provide training and support to lay the foundations of successful future development. This is particularly required for managers and experts at TÜV SÜD. We want to foster and continuously enhance their talent and knowledge. To this end, we launched the Fit4Digital@TÜV SÜD program in the year 2017 in cooperation with the University of St. Gallen, which aims to improve our understanding of the requirements of the digital economy in companies. Tailored to the needs of the divisions and embedded in the activities of our TÜV SÜD Digital Service Center of Excellence, the program focuses primarily on the skills of our managers to identify and leverage the potential of new digital business models. The requirements of digitization also play an increasingly important role in our Global Expert Development Program (EDP). With the EDP, we want to reach experienced senior experts in order to further develop them in core competencies such as innovation management, product development, customer orientation or knowledge transfer. In this way, we aim to prepare these experts for new tasks and, at the same time, to increase employee retention and prevent the loss of knowledge due to fluctuation.

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JUMP! – FOURTH ROUND OF THE PROGRAM FOR HIGH POTENTIALS COMPLETED We have been preparing employees with potential for divisional and cross-regional management tasks for several years with the Jump! program. In fall 2017, the fourth year concluded the program, in which 17 participants from various TÜV SÜD locations around the world worked on specific tasks and projects. Using four further training modules, participants were able to develop their leadership skills in an international context. Regular feedback and insights into personality and team concepts supported the personal development of the participants, who were also accompanied by mentors from senior TÜV SÜD management. Since the start of the program in 2009, two thirds of the participants went on to successfully take over a new function in the company.

VO CAT I O N AL T RAINING SE CURE S THE F UTURE In the year 2017, 142 trainees prepared for their careers at TÜV SÜD in Germany (prior year: 137). Many of them combined theory and practice by participating in dual track courses which TÜV SÜD offers in collaboration with universities of cooperative education in the areas of mechanical engineering, electrical and automotive engineering. Graduates are usually taken on and trained as test engineers or officially recognized experts.

T Ü V SÜ D – AN ATTRACTIVE E M PL OYE R For many years now, TÜV SÜD has been one of the most attractive employers in Germany, particularly for engineers and technical specialists who appreciate our company as a potential employer. Internationally, we were also able to achieve a number of excellent rankings and awards in the year 2017. TÜV SÜD ATISAE is one of the top 100 employers in Spain – and is thus one of only four German companies in this top group, which is compiled annually by the Spanish business magazine “Actualidad Economica”. TÜV SÜD is also a strong employer brand in Asia, where we were able to further consolidate our good competitive position in the fiscal year. In the context of the “Excellence Employer of China 2017” competition, TÜV SÜD in China was again acknowledged as one of the 100 companies with outstanding HR management.

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I N T ERN AT I O N AL YOUTH E XCHA NGE PROGRA M S A RE POPUL A R 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, across country and company borders. The acceptance of the program has been high since its launch. A total of sixty families, thirty from Germany and just as many from the international community, took part in the exchange program in the summer of 2017. The Horizons program will be continued over the next few years. The youth exchange program will be extended by the Explore program. Children of employees who are studying are given the opportunity to complete a paid internship of up to two months at one of the TÜV SÜD locations around the world.

CAREER AN D FAM ILY – 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, webinars on selected topics through to support with care for family members. To continuously optimize our commitment, we have regularly participated in the “berufundfamilie” audit since 2009. The focus here is on kindergartens and intensifying the increasingly virulent topics of careers and caregiving. In the fiscal year, we began to intensify the communication of our various offers and to supplement them with cooperations with additional 08 childcare facilities.

Reconciling the demands of career and family

2017

2016

610

570

Percentage of employees in part-time employment during parental leave

24.2%

19.5%

Total percentage of employees in part-time employment

18.9%

18.0%

4.2 months

13.6 months

14.1 months

1.3 months

1.4 months

Employees on parental leave

Average duration of parental leave Thereof women Thereof men Only Germany.

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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 was adopted in the fiscal year which will regulate, among other things, our global organization of health protection as well as minimum standards and key figures in the fields of first aid and emergency management, risk assessment and industrial hygiene. It supplements the group works agreement developed together with the group works council in 2014. The health index, which is determined in the course of the global employee survey, serves as a benchmark for occupational health management. It is supplemented by locally collected figures and indices, including accident and sickness levels or the rates of participation in healthcare promotion actions. For several years now, employees on business trips have been able to use a worldwide network of 24/7 assistance centers to get fast and competent help in emergencies. This service has now been rolled out to all employees worldwide and the commitment to health and safety has been underpinned by the signing of the Singapore Declaration of the International SOS Foundation. Company-wide healthcare campaigns support our employees’ own initiatives to promote preventative healthcare. In the year 2017, the focus was on the topic of a healthy back. For the year 2018, the campaign will focus on the heart. Tried and tested offers such as flu vaccinations and colorectal cancer screenings as well as healthcare activities at individual locations complement our commitment and are well received by our employees.

N EW MO BI LI T Y CONCE PT F OR GE RM A NY A new mobility concept was negotiated for Germany during the fiscal year. As a result, TÜV SÜD employees can claim a company car if they exceed a defined annual mileage. For employees with a mileage below this threshold, the previously valid fixed-rate expense allowance per kilometer was fixed for the coming years.

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OPPORTUNITY AND RISK REPORT 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. A responsible approach to risks and opportunities is one of the prerequisites for our success.

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 guidelines ensure 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 dual control 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.

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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 via internal ad hoc reports. Risk management is firmly rooted in the Group’s management process. Risk committees are deployed at least at segment level. 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 measures is 25 monitored by the committees.

Organizational structure of the risk management process

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

EUROPE AMERICAS ASIA

C O R P O R AT E

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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 to 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.

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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. We report 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 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 about € 60 million (prior year: € 74 million). The largest ten risks affecting net income amount to approximately € 14 million weighted net risk. This corresponds to a manageable risk position for equity and earnings in relation to the size of the company. The INDUSTRY Segment shows six Top 10 risks, resulting in a weighted net risk of just under € 8 million. There is a quantifiable weighted Group net risk of € 4 million from confirmed one-time payments as a result of the collective wage agreement in the year 2017. Following legal proceedings against the “Versorgungsstatut” (articles of association concerning the welfare fund) there is, at the same time, a risk of additional payment and an increase in future pension obligations, which is reported as a qualitative risk due to the uncertainty of the outcome of the legal proceedings. In addition to these Group risks, there is a weighted net risk of € 2 million in the INDUSTRY Segment resulting from the planned phase-out of nuclear power in South Korea as well as a risk of cost allocations for ongoing business in the USA (weighted net risk under € 2 million). The other Top 10 risks are all below a loss amount, weighted in terms of likelihood of occurrence, of just over € 1 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 exposed to industry and systemic risks that could negatively impact revenue and earnings. These mainly relate to sales risks arising from liberalization, deregulation, but also from protectionism measures and digitization in our core markets. 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. The business development of our segments is also influenced by changing statutory and regulatory framework conditions. We therefore monitor the 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.

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We identify the following industry and systemic risks among the Top 10 risks. The South Korean government’s planned phase-out of nuclear power could have a negative impact on our future business development of service provision in the area of conventional power generation in South Korea. If the corrective measures introduced for our local business activities are not effective, there may be a risk of impairment. The possible loss of a follow-up order following the retendering of a major project could significantly reduce the earnings prospects in South Africa in the long term and impair the value of the company’s assets over time. The decline in demand in the textiles industry in India could have a negative impact on our order situation, while changing market conditions in China, other Asian countries and Eastern Europe could have a negative impact on business development.

O PERAT I N G RI SK S The commitment, motivation and skills of our 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 our business activities. 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.

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The Top 10 risks include an operating risk relating to the confirmed one-off payments as a result of the collective wage agreement in the year 2017. An additional Top 10 risk results from staff turnover in one division, resulting in possible capacity bottlenecks, project delays and also the loss of customers. Furthermore, we see risks from an earn-out and the delayed commissioning of a laboratory in the INDUSTRY Segment.

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.

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I N T EREST RAT E A ND 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. 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. These assets 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 the year 2017, 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. There is the Top 10 risk resulting from the sale of RCI after the reporting date and the planned sale of PetroChem that the administrative and management costs previously borne by the companies available for sale have a negative impact on the result of the remaining companies.

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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. A former employee with company pension claims brought an action against the current pension assessment under the Versorgungsstatut. The action was granted in the court of first instance. Appeal proceedings have been initiated. The unweighted gross risk to all pension beneficiaries, resulting from arrears payments for three years including retrospective interest payments of up to three years and an increase in future pension obligations, amounts to € 41 million. Since the probability of occurrence, which could be at present between 10% and 50%, cannot be conclusively assessed, the risk is reported primarily as a qualitative risk. A negative decision by the Federal Labor Court, which would be invoked following an unfavorable outcome of the appeal proceedings, would have significant impact on the net assets, financial position and results of operations of TÜV SÜD Group. Until clarification, a plea of limitation has been waived.

OV ERALL STAT EME NT ON THE RISKS FACE D BY THE GROUP From a Group perspective, we are paying 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, which has an effect on equity, but also to the industry and systemic risks. We are also currently monitoring the progress of the ongoing action against the current pension assessment under the Versorgungsstatut. 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 on TÜV SÜD’s net assets, financial position and results of operations. All organizational preconditions necessary to recognize developing risks at an early stage have been met.

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Opportunity report Significant opportunities for the favorable business development of TÜV SÜD result from the strategic planning, the business outlook and the 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 In the INDUSTRY Segment, we see additional sales opportunities in the non-destructive testing of vehicles which have been affected by manufacturers’ recall actions. We expect a gain on disposal from the planned sale of the US-based PetroChem. In the MOBILITY Segment we see growth opportunities from the increased demand for tailpipe measurements following their compulsory reintroduction as of January 1, 2018, as well as from the new regulation on fees for medical-psychological examinations. We also regularly take part in invitations for tenders for large projects in the CERTIFICATION Segment. Our references and expert knowledge enable us to fulfill the qualification requirements and thereby increase the possibility of commissioning. We expect to receive approval in the near future for an additional large project in Italy.

O PERAT I N G O PPORTUNITIE S One of the focus points in the INDUSTRY Segment is our range of services for the petrochemical industry, which we develop specifically from our core market of Europe for customers all over the world. We expect further growth in Asia, particularly in India, with our services for power generation. We will use our international competence in the CERTIFICATION Segment to drive the expansion of our global key accounts in the textile sector and in the oil and gas sector. Tailor-made offers will serve the growing demand for customer-specific services.

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.

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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. 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 every existing or forecast receivable or liability denominated in foreign currency. They are mainly hedged using forward exchange contracts. Currency risks arise from changes in the market price of held securities. Industry and systemic risks arising from changes in the market conditions in the segments and regions are recorded using market and competitive analyses. Possible measures are discussed in strategy meetings.

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83 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 2018. This was prepared by the Board of Management and approved by the Supervisory Board on December 5, 2017. 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 2018 outlook. We expect that the upswing of the global economy will continue at around 3.9% in 2018. The 09 Kiel-based Institut für Weltwirtschaft (ifw) expects growth of 3.6% for 2019.

Development of the global economy: outlook for 2018

Global

Moderate development

Germany

Positive development

Euro zone

Positive development

USA

Positive development

Emerging markets

Moderate development

The German economy will continue to grow in 2018. The upswing has so far been based on a solid domestic economic foundation. The ongoing positive situation on the labor market is driving the positive consumer sentiment among private households. Commercial investment in construction as well as in capacity expansion and equipment will continue to grow since global economic growth promises higher exports and stable financing conditions create a favorable basis. The effects of the coalition negotiations and political concessions on the German economy are not yet foreseeable. We anticipate reduced cyclical momentum for the fiscal year 2019. The cyclical recovery in the euro zone will continue on a broad basis, even though Italy continues to suffer from high national debt. In the UK, uncertainties about future economic relations with the EU dampen the propensity to invest and weigh on the British pound. We therefore expect that economic growth in the UK will continue to lose momentum.

TÜV SÜD AG ANNUAL REPORT 2017

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Combined Management Report

Economic report

83 Outlook

The US economy will continue to grow in 2018. The tax reform that has been passed could result in additional growth impetus there. Economic growth in the large emerging markets is expected to remain moderately positive, albeit with lower growth rates than in prior years. In Brazil, economic recovery is supported by stable commodity prices. The Indian economy should benefit from government infrastructure measures and strong private consumption, after the introduction of the GST (Goods and Sales Tax) in the fiscal year 2017 slowed economic growth. In China, the pace of expansion is being steered in order to drive debt reduction and the transformation into a service society.

Revenue growth: outlook 2018

Group

3% – 4% up to € 2,5 billion

INDUSTRY Segment

Mid-single-digit growth

MOBILITY Segment

Low-single-digit growth

CERTIFICATION Segment

High-single-digit growth

For 2018, TÜV SÜD expects organic growth of 3% to 4%. Consolidated revenues generated with the existing affiliated companies should therefore be between € 2,480 million and € 2,525 million. The non-German affiliated companies already contribute over 40% to consolidated revenue – according to the customer’s place of business – and will continue to increase their share in the 10 next two years. In the forecast year, we will define the key points of our strategy through to 2025. We will focus on our core competencies, in which we intend to grow organically, and on future-oriented trends, in particular digitization as well as industries with long-term growth prospects. We will focus mainly on those markets characterized by high economic growth and a reliable business environment. We expect revenue growth in the mid-single-digit percentage range for the INDUSTRY Segment in 2018. We generate approximately 43% of consolidated revenue in this segment outside Germany. The foreign share could fall slightly next year due to market shifts. The Industry Service Division is expected to generate 60% of consolidated revenue whereas the Real Estate & Infrastructure Division with over € 400 million will generate about 40% of revenue. The largest revenue contribution in the INDUSTRY Segment comes from our steam and pressure business. Here, we are continuing to expand our market share in the USA and Asia, based therein on our services for inspection and testing according to the ASME standard (American Society of Mechanical Engineers). We expect the highest revenue growth rate in absolute terms from the international project business in the areas of technical construction supervision, power generation and quality management. We anticipate substantial growth in Europe in particular. In the forecast period, we intend to acquire further orders in this area through our expertise in the aviation sector. There is an increased level of demand for services for the chemical and petrochemical sector. In this area, we want to focus more strongly on our core market of Europe. We intend to sell our remaining activities in the USA.

TÜV SÜD AG ANNUAL REPORT 2017

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83 Outlook

We expect a fall in demand for conventional energy. The German market continues to shrink. Services for decommissioning and testing projects could only compensate in part for the decrease in revenue resulting from the gradual decommissioning of conventional power plants. The nuclear phase-out announced in South Korea means we can also expect a decline in business activities in the local market. We intend to further enhance our global leadership in independent technical risk calculation and analysis with international customers. With our consulting, testing and certification services for buildings, lifts, infrastructure and rail transport we intend to continue our growth trajectory in 2018. We lead the market in safety-related services for lifts in Germany and intend to consolidate our market penetration in this area. We also have a strong market position in other European countries and the Middle East. In addition, we see international growth potential in the mid-term in other regions, which will be successively tapped in the forecast year. Our core markets for our services provision for buildings (testing, certification, consulting and engineering services, simulation and energy efficiency) are Germany and the UK. As innovation leader, we work with our customers to shape the transformation towards digital building information modeling (BIM). In Germany, we expect growth in the Testing and Certification Segments (construction controlling and assessment, fire protection, building materials, electrical engineering and building technology) as well as simulations and services to improve energy efficiency. Market conditions for consulting and engineering services are also positive. The Rail business continues its global growth course with a strong market position. The sector is characterized by internationalization and simultaneous consolidation of the manufacturers (OEMs). Our comprehensive service portfolio continues to set us apart from our competitors. With the commissioning of the high speed rail link Munich — Berlin we have achieved an excellent starting point for the expansion of the European Train Control System (ETCS). In the long term, it is planned that ETCS should replace the different train control systems currently in use throughout Europe. We will focus on the acquisition of international large-scale projects in future. We anticipate low-single-digit revenue growth for the MOBILITY Segment in the forecast period. Foreign business will generate more than 10% of revenue in 2018. Our core business is our offering of roadworthiness tests and exhaust gas analyses, damage and valuation reports, and driver’s license tests. We offer these services to private and business customers in Germany, Turkey and Spain. We expect sustained growth driven by targeted – as well as digital – sales measures. Homologation services and emissions testing expect strongest percentage growth. Significant drivers are emissions testing on a domestic level and homologation services from an international perspective. Through the targeted acquisition of key accounts and the expansion of collaborations for claims management, we intend to further increase revenue with our service portfolio for manufacturers, retailers and workshops. As a result of comprehensive sales measures we anticipate an increase in the number of vehicles managed in the fleet business. The driving ability and medical-psychological examinations business, newly integrated in the fiscal year 2017, will contribute moderately to revenue growth.

TÜV SÜD AG ANNUAL REPORT 2017

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83 Outlook

We are continuing our innovation activities in the MOBILITY Segment with a view to tapping the potential of digitization in the automotive sector. Revenue growth in the CERTIFICATION Segment should be in the high single-digit range in the forecast year 2018. Growth drivers in the international markets in this segment include our services for consumer and industrial goods as well as food, cosmetics and healthcare products. The focus on selected key accounts, the expansion of the retail business of a major German customer in the USA, and our international orientation will result in consumer goods growth in the mid-single-digit range. In this area, we also respond precisely to the wishes of our customers and offer differentiated, innovative and value-adding services along the supply chains. 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 are systematically expanding our development support services for manufacturers and suppliers and are offering new solutions for additive manufacturing and the application of digital data modelling. We will also offer our customers extensive value-creating services for electromobility and stationary energy systems. We intend to further defend and enhance our global leadership position in the area of healthcare and medical products. We will focus in particular on the US market. We expect further growth impetus for high-risk products under the European Medical Products Regulation (MDR) and the EU In Vitro Diagnostic Device Regulation (IVDR). The regulations lead to an expansion of the monitoring activities and a more extensive product range. In future, numerous cosmetic products will be covered by MDR. At the same time, this results in a market adjustment after several Notified Bodies discontinued their services. In addition, we will appeal to a broader c ustomer range with our premium services and our services for cardiovascular, in-vitro and reusable medical equipment. In addition to uncertainties, the consequences of Brexit offer opportunities for competition. Through our network of state-of-the-art test laboratories, we guarantee our customers with international operations local access to the TÜV SÜD service portfolio worldwide. Standardized laboratory management systems and regionally harmonized laboratory structures will increase the efficiency of the laboratories and achieve a higher utilization of our network. We are continuing to expand our risk-based chemical tests. We combined our services for cyber security, certification and training in the Business Assurance Division in the fiscal year. By pooling our competencies we can offer our customers a complete range of services from a single source. The full service portfolio is offered in Germany, and also in the USA, Italy, India and Singapore. We will continue to expand our product portfolio in cyber security in particular. We expect the highest revenue growth as a percentage in the CERTIFICATION Segment with the seminar business, particularly in Germany. Additional growth impulses should result from construction of eLearning platforms and the expansion of the academy offerings in the international environment.

TÜV SÜD AG ANNUAL REPORT 2017

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83 Outlook

Certification services with core products, such as ISO 9001, supplemented by certification in the areas of food safety, sustainability and corporate social responsibility will continue to generate the greatest proportion of revenue. We intend to secure our market leadership position in Germany with further growth. At the same time, we will leverage our global presence to offer our international customers one-stop certification for global and integrated management systems. In the forecast period, Asia remains the most significant growth region for certification services.

C O N T I N U O U S EAR NINGS DE VE L OPM E NT E XPE CTE D In the development of our business activities, we focus on markets and innovative industries 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 and expectations with our services and innovations. We can offer our customers made-to-measure services from a single source, which are both efficient and flexible. With our well-trained and motivated employees, we have an international presence at the customer’s location. Based on current foreign exchange forecasts, we expect a further strengthening of the euro. This can impact on our business development. We are continually analyzing our business processes, implementing measures to improve efficiency and optimizing our cost and process structures accordingly. We focus on increasing earnings and profits in a sustainable way. For the forecast year 2018, we anticipate a high single- digit increase in EBT.

EBIT development: forecast 2018

Group

Increase up to € 215 million

INDUSTRY Segment

Medium increase

MOBILITY Segment

Slight increase

CERTIFICATION Segment

Slight to medium increase

We are forecasting EBIT growth in the upper-single-digit percentage range in the year 2018. 11 The EBIT margin should also remain in the high-single-digit percentage range. Our success is founded on the high quality standards we impose upon ourselves coupled with the state of the art services we offer and the collaborative, trust-based way we work with our customers as process partners. The forward-looking orientation of TÜV SÜD is another factor that will have a positive impact on earnings development in the forecast year 2018. Specifically this includes new innovative services for digitization and new technologies, close cooperation with international key accounts in addition to our expertise in our traditional markets. We therefore expect EBIT to develop positively in all segments in the year 2018. In the INDUSTRY Segment, we anticipate an EBIT increase just in the double-digit range. Earnings development in the MOBILITY Segment should be in the mid-single-digit range. We again forecast an increase in EBIT just in the double-digit range for the CERTIFICATION Segment in the forecast year. The EBIT margin should be in the high single-digit-range for each of the three segments.

TÜV SÜD AG ANNUAL REPORT 2017

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83 Outlook

We anticipate a one-off effect on earnings before taxes in the forecast period from the sale of PetroChem. Various factors, which are largely independent of each other, influence the development of TÜV SÜD’s earnings. The economic development of our markets together with the regulatory political decisions there will set the underlying trend. Our global presence close to our customers and our expertise in innovative technical services are of far greater economic significance. The Corporate Innovation Fund finances forward-looking projects. A total amount of up to double- digit million euros will be made available for this purpose. 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 € 215 million if the innovation budget were to be used in full in the coming year. We will streamline our corporate structure systematically in order to achieve a higher level of efficiency and cost savings, and increase our strength through transparent 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 TÜV SÜD’s success. On the basis of the positive EBIT development described above and disproportionately low increase in average capital employed in line with revenue, we expect EVA of around € 80 million to € 86 million for the forecast year 2018. 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. After all, it is thanks to our highly skilled and motivated employees that we are able to implement our growth strategy and continue the positive business development of TÜV SÜD in the future. More than half of our total workforce is employed outside Germany and as international expansion continues, 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.

CON SOL IDATED F IN AN CIAL STATEMEN TS

CO N S O L IDAT ED F IN A N C IA L S TATE M EN T S 92 93 94 95 96 98 143

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

CONSOLIDATED INCOME STATEMENT Consolidated income statement for the period from January 1 to December 31, 2017

IN € MILLIO N

Note

2017

2016

Revenue

(33)

2,427.6

2,343.2

Own work capitalized Purchased services Operating performance

7.9

4.3

– 305.1

– 292.9

2,130.4

2,054.6

– 1,464.1

– 1,421.2

Personnel expenses

(6)

Amortization, depreciation and impairment losses

(7)

– 76.2

– 79.1

Other expenses

(8)

– 458.5

– 434.4

Other income

(9)

61.9

56.7

Impairment of goodwill

(13)

Operating result

– 3.8

– 1.5

189.7

175.1

Income from investments accounted for using the equity method

(10)

10.1

11.6

Other income/loss from participations

(10)

1.5

12.1

Interest income

(10)

2.1

1.7

Interest expenses

(10)

– 15.5

– 18.0

Other financial result

(10)

2.3

0.1

Financial result Income before taxes Income taxes

(11)

Consolidated net income

0.5

7.5

190.2

182.6

– 51.4

– 52.1

138.8

130.5

124.9

117.3

13.9

13.2

Attributable to: Owners of TÜV SÜD AG Non-controlling interests

(12)

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Consolidated statement of comprehensive income for the period from January 1 to December 31, 2017 IN € MILLIO N

Note

Consolidated net income

2017

2016

138.8

130.5

Items that will not be reclassified to the income statement: 62.5

– 48.2

Tax effect

Remeasurements of defined benefit pension plans

(22)

– 7.4

20.8

Total amount of items in other comprehensive income that will not be reclassified to the income statement

55.1

– 27.4

0.3

1.2

0.0

– 11.3

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 Tax effect

– 0.1

0.0

0.2

– 10.1

– 32.4

4.7

Currency translation differences Changes from unrealized gains and losses Changes from realized gains and losses

1.0

0.0

– 31.4

4.7

– 2.9

– 2.1

– 2.9

– 2.1

Investments accounted for using the equity method Changes from unrealized gains and losses

Total amount of the items of other comprehensive income that will be reclassified to the income statement in future periods Other comprehensive income Total comprehensive income

(11)

– 34.1

– 7.5

21.0

– 34.9

159.8

95.6

147.0

84.9

12.8

10.7

Attributable to: Owners of TÜV SÜD AG Non-controlling interests

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

CONSOLIDATED STATEMENT OF FINANCIAL POSITION Consolidated statement of financial position as of December 31, 2017

Note

Dec. 31, 2017

Dec. 31, 2016

Intangible assets

(13)

368.4

392.7

Property, plant and equipment

(14)

459.2

469.1

Investment property

(15)

6.8

3.7

Investments accounted for using the equity method

(16)

42.9

28.1

Other financial assets

(17)

68.3

65.4

IN € MILLIO N

Assets

Other non-current assets Deferred tax assets

(11)

Non-current assets Inventories Trade receivables

(18)

Income tax receivables

6.0

5.9

242.1

257.5

1,193.7

1,222.4

4.0

479.9

463.2

16.7

11.2

Other receivables and other current assets

(19)

63.5

67.6

Cash and cash equivalents

(32)

273.3

245.4

Non-current assets and disposal groups held for sale

(20)

Current assets Total assets

19.7

0.0

857.1

791.4

2,050.8

2,013.8

Equity and liabilities Capital subscribed

(21)

26.0

Capital reserve

(21)

124.4

Revenue reserves

(21)

613.7

435.9

Other reserves

(21)

– 25.5

6.7

738.6

593.0

Equity attributable to the owners of TÜV SÜD AG Non-controlling interests

(12)

Equity

54.8

49.4

793.4

642.4

Provisions for pensions and similar obligations

(22)

622.6

749.4

Other non-current provisions

(23)

36.8

37.1

Non-current financial debt

(24)

1.8

1.5

Other non-current liabilities

(26)

7.5

12.6

Deferred tax liabilities

(11)

Non-current liabilities Current provisions

(23)

Income tax liabilities

29.0

35.6

697.7

836.2

132.7

134.1

30.7

23.3

Current financial debt

(24)

6.7

5.2

Trade payables

(25)

122.5

104.6

Other current liabilities

(26)

264.7

268.0

Liabilities directly associated with non-current assets and disposal groups held for sale

(20)

2.4

0.0

Current liabilities Total equity and liabilities

559.7

535.2

2,050.8

2,013.8

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated statement of cash flows for the period from January 1 to December 31, 2017 IN € MILLIO N

Note

Consolidated net income Amortization, depreciation, impairment losses and reversals of impairment losses 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 Other non-cash income/expenses Change in inventories, receivables and other assets

2017

2016

138.8

130.5

76.2

76.7

3.8

1.5

0.3

0.2

2.1

– 0.6

– 0.3

– 1.5

8.9

– 7.1

– 27.9

– 22.5

Change in liabilities and provisions

56.4

64.3

Cash flow from operating activities

258.3

241.5

intangible assets, property, plant and equipment and investment property

– 89.1

– 77.4

financial assets

– 20.6

– 3.9

Cash paid for investments in

securities business combinations (net of cash acquired)

(3)

– 0.4

– 0.5

– 13.3

– 40.5

Cash received from disposals of intangible assets and property, plant and equipment

3.7

5.3

financial assets

0.5

8.5

securities

1.2

5.0

– 93.9

– 101.3

– 211.9

– 204.8

Dividends paid to owners of TÜV SÜD AG

– 2.1

Dividends paid to non-controlling interests

– 10.1

– 7.6

Repayments of loans including currency translation differences

– 2.0

– 6.3

Proceeds from loans including currency translation differences

3.1

2.4

Other cash received or paid

1.0

– 1.6

– 10.1

– 15.2

36.3

21.5

Contribution to pension plans

(32)

Cash flow from investing activities

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

– 8.4

0.7

Cash and cash equivalents at the beginning of the period

245.4

223.2

273.3

245.4

1.0

0.8

Cash and cash equivalents at the end of the period

(32)

Additional information on cash flows included in cash flow from operating activities: Interest paid Interest received

1.8

1.4

Income taxes paid

49.0

49.5

Income taxes refunded

1.6

4.5

Dividends received

9.4

11.7

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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, 2017 Revenue reserves

I N € MILLION

As of January 1, 2016

Capital subscribed

Capital reserve

Remeasurements of defined benefit pension plans

Other revenue reserves

26.0

124.4

– 329.9

676.3

– 25.5

117.3

Total comprehensive income Dividends paid

– 2.1

Other changes

– 0.2

As of December 31, 2016

26.0

124.4

– 355.4

791.3

As of January 1, 2017

26.0

124.4

– 355.4

791.3

54.3

124.9

Total comprehensive income Dividends paid

– 2.1

Change in scope of consolidation Other changes As of December 31, 2017

0.7 26.0

124.4

– 301.1

914.8

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Other reserves

Currency translation differences

Investments Available-for-sale accounted for using financial assets the equity method

18.5

10.2

– 15.1

5.3

– 10.1

– 2.1

Equity attributable to the owners of TÜV SÜD AG

Non-controlling interests

Total equity

510.4

46.6

557.0

84.9

10.7

95.6

– 2.1

– 8.5

– 10.6

– 0.2

0.6

0.4

0.1

– 17.2

593.0

49.4

642.4

23.8

0.1

– 17.2

593.0

49.4

642.4

– 29.5

0.2

– 2.9

147.0

12.8

159.8

– 2.1

– 8.6

– 10.7

0.0

0.2

0.7

1.0

1.7

738.6

54.8

793.4

23.8

– 5.7

0.3

– 20.1

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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 A ND PRINCIPL E S 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 EUROPE, AMERICAS and ASIA.

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, 2017. 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, 2017 in accordance with the International Financial Reporting Standards (IFRSs) by exercising the option under Section 315e (3) HGB [“Handelsgesetzbuch”: German Commercial Code]. All IFRSs that are binding for the fiscal year 2017 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, 2018, TÜV SÜD AG’s Board of Management approved the consolidated financial statements for the fiscal year 2017 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, dis tributed 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 consolida 17 tion comprises the entities listed in the table below.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Scope of consolidation NU MBE R O F ENTITIES

Fully consolidated entities Entities accounted for using the equity method

Dec. 31, 2017

Dec. 31, 2016

113

120

thereof joint ventures

thereof associated companies

118

124

Total number of consolidated entities

The scope of consolidation was extended in the fiscal year 2017 to include two entities. Additions relate to one fully consoli dated newly founded company as well as the acquisition of shares in a joint venture accounted for using the equity method. Eight entities were removed from the scope of consolidation, five of which due to intragroup mergers, two due to liquidation and one due to the sale of shares in the entity. The affiliated companies, associated companies and joint ven tures included in the consolidated financial statements are listed in note 38 “Consolidated entities” along with the consol idation method applied. The list of the Group’s entire share holdings is published in the German Electronic Federal Gazette (Elektronischer Bundesanzeiger) as an integral part of the notes to the financial statements. Consolidation decisions based on contractual arrangements The TÜV SÜD Group holds 50% of the shares in TÜV SÜD Car Registration & Services GmbH (CRS), Munich, and 48% of the shares in TUV SUD South Africa (Pty.) Ltd. (TS SA), Cape Town, South Africa. These entities are fully consolidated in the Group, as the TÜV SÜD Group is responsible for economic control of the entities on the basis of the contractual arrangements and can thus make decisions regarding the relevant activities of each entity.

In 2017, the TÜV SÜD Group acquired 52% of the shares in Uniscon universal identity control GmbH (Uniscon), Munich. After reviewing the entity’s purpose and structure as well as analyzing the contractual arrangement, Uniscon is included in the scope of consolidation as a joint venture pursuant to IFRS 11, as decisions regarding the relevant activities and pro cesses can only be made with a voting right majority of 80%. Decision-making powers can thus only be exercised jointly by both owners. 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 commit ments 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.

100

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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 2017, TÜV SÜD made two acquisitions (including asset deals) which were immaterial individually and which had collectively 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 the fiscal year 2017 IN € MILLIO N

Carrying amount before revaluation

Fair value as of acquisition date

Intangible assets and property, plant and equipment

0.5

0.7

Current liabilities

0.3

Total net assets acquired

0.2

0.4

Interest in net assets acquired

0.4

Goodwill arising on acquisition

3.1

Purchase prices of the business combinations (cash consideration) Less fair value of contingent consideration

3.5 – 0.3

Net cash paid for business combinations 2017

3.2

Payments made for contingent consideration from prior years (earn-out payments)

0.6

Net cash paid for business combinations

3.8

Hidden reserves totaling € 0.2 million were identified in cus tomer relationships with useful lives of eleven years. The goodwill arising on these acquisitions includes value driv ers that cannot be reported separately, in particular the value of the acquired workforce and expected synergy effects. Earn-out agreements were concluded with a term of two years. Acquisition-related costs of € 0.1 million (prior year: € 1.3 mil lion) were incurred and were recognized in other expenses in the income statement in the respective reporting year and prior year. The acquisitions described above are expected to result in goodwill of € 3.1 million that will be tax deductible.

In the fiscal year 2016, TÜV SÜD acquired the remaining out standing shares (54.8%) in the ATISAE Group, Madrid, Spain, which has belonged entirely to the TÜV SÜD Group since then. Fully included in the consolidated financial statements are the companies TÜV SÜD ATISAE, S.A.U. (TÜV SÜD ATISAE), Madrid, Spain, and ATISAE de Castilla y León, S.A.U. (ATICAL), Miranda de Ebro, Spain. For a purchase price in the form of cash and cash equivalents of € 87.9 million, the net assets acquired amounted to € 73.5 million and the goodwill € 14.4 million. The acquisition led to a net payment of € 32.0 million in 2016. The ATISAE companies contributed € 67.7 million to revenue and € 7.0 million to the operating result of TÜV SÜD in the fiscal year 2016. If the acquisition of the ATISAE companies had taken place as of January 1, 2016, the entities acquired would have contributed € 73.2 million to consolidated revenue and € 6.7 million to the Group’s operating result for the twelve months ended December 31, 2016.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

4 / C U RRE N C Y T RAN SLAT I O N 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 on the reporting date. This does not include equity, which is trans lated using historical rates. Expense and income items are stated using annual average exchange rates. Exchange rate dif ferences are treated as other comprehensive income and recog nized under other reserves within equity.

101

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 cur rencies developed as follows:

Selected exchange rates

Closing rate

Annual average rate

Dec. 31, 2017

Dec. 31, 2016

2017

2016

Chinese renminbi (CNY)

7.8044

7.3202

7.6264

7.3496

Pound sterling (GBP)

0.8872

0.8562

0.8762

0.8189

Singapore dollar (SGD)

1.6024

1.5234

1.5582

1.5277

Turkish lira (TRY)

4.5464

3.7072

4.1214

3.3425

US dollar (USD)

1.1993

1.0541

1.1293

1.1066

102

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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.

At each reporting date, the Group assesses whether there is any indication that the carrying amounts of intangible assets, prop erty, plant and equipment and investment property may be sub ject to impairment. If any such indication exists, an impair ment test is performed. Such a test is conducted annually for intangible assets with an indefinite useful life.

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 rec ognizing 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 (costto-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.

Deferred tax assets and liabilities are recognized for tempo rary 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 income. Deferred tax assets and liabilities on tempo rary differences are netted out for each entity and/or tax group.

Goodwill is not subject to amortization but is tested for impair ment 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 recover able amount is the higher of fair value less costs to sell and value in use derived from the plan for 2018 prepared and approved by management, 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.

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 esti mated, and directly deducted from the corresponding receiv ables. If this results in a negative balance, this is posted to cur rent liabilities according to the percentage-of-completion method. Advance payments received for customer orders are stated without offsetting in current liabilities.

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.

Non-current assets and disposal groups held for sale relate to assets that can be sold in their present condition and whose sale is highly probable. Management has committed to a plan to sell the assets and the sale is expected to be completed within one year from the date of the classification. Liabilities to be sold together with assets in a single transaction are part of a dis posal group or discontinued operations and are reported sepa rately as liabilities associated with non-current assets and disposal groups held for sale. Non-current assets held for sale are no longer amortized or depreciated. Instead they are stated at their fair value less costs to sell from the date of classification provided that this is lower than the carrying amount. Provisions for pensions and similar obligations are mea sured using the actuarial projected unit credit method for defined benefit pension plans. The amount shown on the state

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

ment 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 assump tions. Remeasurements, comprising actuarial gains and losses and the return on plan assets (excluding interest on the net lia bility), are recognized in full in the fiscal year in which they occur. They are charged directly against revenue reserves, tak ing 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 out flow of economic benefits and their value can be determined reliably. They are measured using the best estimate of the set tlement 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 plau sibility 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 trans actions, forward contracts, combined interest rate and cur rency 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 por

tions of other receivables and liabilities. They are stated at amortized cost. In the case of receivables, specific and portfo lio-based allowances are generally recognized in proportion to the anticipated default risk. Financial debt and loans are mea sured 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 mea surement 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 participa tions, 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-comple tion method, goodwill, deferred tax assets recognized on tax loss carryforwards, the measurement parameters for pension obligations and other provisions, and the calculation of fair val ues. 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 in the goodwill that is not impaired. The defined benefit obligations and the pension expenses for the subsequent year are calculated using the actuarial parame ters given in note 22. 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

103

104

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

the consolidated net income for the reporting year, as remea surements are recognized in equity. 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 imma terial for the consolidated financial statements. Adjustment of prior-year figures The introduction of a new management structure also prompted TÜV SÜD to change the segment allocation of individual business units as of July 1, 2017 (see note 33). The prior-year figures for segment reporting have been adjusted accordingly.

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 state ments, but have not yet been applied in the consolidated finan cial statements as of December 31, 2017. The amendments are mandatory for fiscal years beginning on or after their respec tive 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

Effective date pursuant to EU endorsement

Anticipated impact on TÜV SÜD AG’s consolidated financial statements

IFRS 9 “Financial Instruments”

January 1, 2018

The amount of loss allowances is expected to be affected.

IFRS 15 “Revenue from Contracts with Customers”

January 1, 2018

No consequences are expected.

Amendments to IFRS 15 “Clarifications of IFRS 15”

January 1, 2018

See comments on IFRS 15.

IFRS 16 “Leases”

January 1, 2019

Higher total assets, a lower equity ratio and improved EBIT are expected.

“Improvements to IFRSs” issued as a result of the annual improvements project 2014 – 2016

January 1, 2018

No consequences are expected for the consolidated financial statements.

STA NDARD

IFRS 9 “Financial Instruments” replaces the existing guidelines of IAS 39 “Financial Instruments: Recognition and Measure ment”. The new regulations particularly relate to the classifica tion of financial instruments, the calculation and recognition of impairment losses and hedge accounting. The TÜV SÜD Group reviewed the consequences and adjusted the systems and pro cesses accordingly. No significant measurement differences are expected from the classification of financial instruments. The

TÜV SÜD Group developed a model to determine historical bad debt rates to use in the calculation of loss allowances on trade receivables. This will result in a change to the loss allowances recognized, the amount of which cannot at present be reliably quantified. The new regulations on hedges currently have no consequences for the TÜV SÜD Group because it has and had no hedging relationships designated pursuant to IAS 39 or IFRS 9.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

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 exist ing guidelines on revenue recognition, including IAS 18 “Reve nue”, IAS 11 “Construction Contracts” and IFRIC 13 “Customer Loyalty Programmes”. TÜV SÜD will apply IFRS 15 retrospec tively. A review of the main contracts with customers in 2017 revealed that the requirements to recognize revenue over a period of time in accordance with IFRS 15.35c have been met. The first-time application will not result in any need to make adjustments. The application of IFRS 15 therefore will not result in a change to revenue recognition, which had previously been in accordance with the percentage-of-completion method pursuant to IAS 18.20. IFRS 16 “Leases” replaces the current guidelines on leases, including IAS 17 “Leases” and IFRIC 4 “Determining whether an Arrangement Contains a Lease”. The main changes as a result of IFRS 16 relate to the accounting treatment at the les see. In the future, the lessee must recognize right-of-use assets

105

for the obtained rights to use an asset and liabilities for the pay ment obligations entered into for all leases. Exceptions are granted for leases of low-value assets and for short-term leases. TÜV SÜD intends to apply the modified retrospective method upon transition to IFRS 16. The consequences for the consoli dated financial statements as of January 1, 2019 are currently being analyzed, but cannot at present be quantified more pre cisely. The Group 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 IFRS 16. 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 315e HGB.

New accounting standards and interpretations not yet endorsed by the EU that are not yet mandatory

Effective date

Anticipated impact on TÜV SÜD AG’s consolidated financial statements

Amendments to IAS 28 “Long-term Investments in Associates and Joint Ventures”

January 1, 2019

No significant consequences are expected for the consolidated financial statements.

Amendments to IAS 40 “Transfers of Investment Property”

January 1, 2018

No significant consequences are expected for the consolidated financial statements.

Amendments to IFRS 9 “Financial Assets with Early Repayment Penalties”

January 1, 2019

No significant consequences are expected for the consolidated financial statements.

Pending

These amendments are currently not relevant for TÜV SÜD.

IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

January 1, 2018

No significant consequences are expected for the consolidated financial statements.

IFRIC 23 “Uncertainty over Income Tax Treatments”

January 1, 2019

No significant consequences are expected for the consolidated financial statements.

”Improvements to IFRSs” issued as a result of the annual improvements project 2015 – 2017

January 1, 2019

No significant consequences are expected for the consolidated financial statements.

STA NDARD / INT ERPRETATIO N

Amendments to IFRS 10 and IAS 28 “Disposal or Contribution of Assets in Associates or Joint Ventures”

106

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Notes to the consolidated income statement 6 / PE RS O N N E L EX PEN SES

7 / A M ORTIZATION, DE PRE CIATION A ND I M PA IRM E NT L OSSE S

Personnel expenses

Amortization, depreciation and impairment losses IN € MILLIO N

Wages and salaries

2017

2016

1,178.8

1,145.0

Social security contributions and other benefit costs

158.8

155.3

Retirement benefit costs

101.8

96.0

24.7

24.9

1,464.1

1,421.2

Incidental personnel costs

2017

2016

of intangible assets

19.1

19.2

of property, plant and equipment

55.1

53.0

0.1

IN € MILLION

Amortization and depreciation

of investment property Impairment losses

The rise in wages and salaries and in social security contribu tions and other benefit costs is a result of the expansion of the workforce in Germany and other countries and also of collec tive wage increases in Germany which became effective in the reporting period. Retirement benefit costs also include employer contributions to state pensions. The decrease in the German discount rate from 2.0% to 1.7% as of December 31, 2016 caused the current service cost to increase by € 1.2 million in the fiscal year 2017. The TÜV SÜD Group had an average headcount (full-time equivalents) of 22,117 employees in the reporting year (prior year: 21,738 employees). The majority of employees are sala ried employees.

1.9

6.8

76.2

79.1

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

107

8 / OT H E R E X PE NSES Other expenses

2017

2016

104.9

101.0

Travel expenses

93.1

90.3

Cost of purchased administrative services

43.2

40.3

IT costs

38.9

37.3

Fees, contributions, consulting and audit costs

25.2

21.9

Telecommunication costs

20.7

21.2

Marketing costs

17.6

14.7

Currency translation losses

IN € MILLIO N

Rental and maintenance expenses

11.1

7.6

Impairment losses on trade receivables (including amounts derecognized)

8.2

8.4

Other taxes

4.5

4.8

Miscellaneous other expenses

91.1

86.9

458.5

434.4

9 / OT H E R IN C O ME Other income IN € MILLIO N

2017

2016

Income from other transactions not typical for the company

9.1

5.4

Income from the reversal of provisions

8.8

7.4

Currency translation gains

8.4

9.4

Income from the reversals of impairment losses on trade receivables

2.0

1.9

Gain on the disposal of non-current assets

1.7

3.5

Income from the reversal of impairment losses on fixed assets Miscellaneous other income

0.1

2.4

31.8

26.7

61.9

56.7

108

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

1 0 / F IN A N C IA L RESU LT Financial result IN € MILLIO N

2017

Income from investments accounted for using the equity method

2016

10.1

11.6

Income/loss from participations Financial income from participations Finance costs from participations

1.6 – 0.1

Other income/loss from participations

12.3 1.5

– 0.2

1.5

12.1 12.1

Interest income from loans

0.3

Other interest and similar income

1.8

1.4

Interest income Net finance costs for pension provisions Interest cost from finance leases Other interest and similar expenses Interest expenses

2.1

1.7

– 12.3

– 14.8

– 0.1

– 3.1

– 15.5

– 18.0

Currency gains/losses from financing measures Currency translation gains Currency translation losses

20.0 – 18.7

20.4 1.3

– 21.2

– 0.8

Sundry financial result Sundry financial income Sundry finance costs Other financial result

The income from investments accounted for using the equity method of € 10.1 million (prior year: € 11.6 million) contains a figure of € 8.6 million (prior year: € 10.0 million) from the pro portionate net income generated by the Turkish joint venture companies. In the prior year, other income/loss from participations con tained € 11.3 million from the write-up of the existing stake in TÜV SÜD ATISAE to fair value as of January 31, 2016.

2.3 – 1.3

1.7 1.0

– 0.8

0.9

2.3

0.1

0.5

7.5

The total interest income from assets not measured at fair value through profit or loss amounts to € 2.1 million in the fiscal year 2017 (prior year: € 1.7 million). The total interest expense (without net finance costs for pension provisions) amounts to € 3.2 million (prior year: € 3.2 million).

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

109

1 1 / IN CO ME TA X ES Income taxes

2017

IN € MILLIO N

Current taxes

2016

49.3

52.7

Deferred taxes on temporary differences

– 2.9

on tax loss carryforwards

5.0

– 7.0 2.1

6.4

51.4

Current taxes for the fiscal year 2017 include expenses of € 5.7 million (prior year: income of € 1.8 million) for current taxes from prior periods.

– 0.6 52.1

The following reconciliation for the TÜV SÜD Group presents a summary of the individual entity-specific reconciliations pre pared 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

IN € MILLIO N

Income before taxes Expected tax rate

2017

2016

190.2

182.6

30.6%

Expected income tax expense

58.2

55.9

Tax rate differences

– 3.1

– 4.5

Tax reductions due to tax-free income

– 3.5

– 7.0

6.0

6.7

Tax increases due to non-deductible expenses Tax increases due to non-deductible income taxes and withholding taxes

4.5

4.0

– 3.1

– 3.6

0.8

0.4

Current and deferred taxes for prior years

5.1

0.7

Valuation allowances and adjustments to carrying amounts of deferred taxes

1.5

0.5

– 16.0

– 0.4

1.0

– 0.6

51.4

52.1

27.0%

28.5%

Tax effect on accounting for associated companies and joint ventures using the equity method Tax increases on account of non-deductible impairment of goodwill

Effect of changes in tax rates and tax status Other differences Reported income tax expense Effective tax rate

Valuation allowances and adjustments to carrying amounts of deferred taxes contain deferred tax income of € 1.4 million (prior year: € 3.5 million) from the reassessment of recover ability of losses that were not recognized in the prior year. This

was counterbalanced by deferred tax expenses of € 2.8 million (prior year: € 3.3 million) from the change in valuation allow ances recognized on deferred taxes on losses and temporary differences.

110

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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

Deferred tax assets

Deferred tax liabilities

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Non-current assets

9.2

13.1

68.8

73.0

Current assets

2.4

1.7

13.0

11.6

261.1

263.5

0.6

IN € MILLIO N

Non-current liabilities Pension provisions Other non-current liabilities Current liabilities

6.0

6.3

0.7

18.5

20.1

6.1

7.3

297.2

304.7

89.2

93.2

Offsetting

– 60.2

– 57.6

– 60.2

– 57.6

Deferred taxes on temporary differences

237.0

247.1

29.0

35.6

29.0

35.6

Deferred taxes on tax loss carryforwards

In Germany, no deferred taxes were recognized on corporate income tax loss carryforwards of € 9.4 million (prior year: € 9.2 million) and trade tax loss carryforwards of € 9.4 million (prior year: € 9.5 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 € 32.8 million (prior year: € 36.7 million). Of these tax loss car ryforwards, € 28.7 million (prior year: € 34.0 million) can be used indefinitely and € 3.1 million (prior year: € 1.6 million) will expire within the next five years. Furthermore, no deferred

5.1

10.4

242.1

257.5

tax assets were recognized for deductible temporary differ ences of € 6.6 million (prior year: € 0.7 million). Differences on investments in subsidiaries totaling € 14.8 million (prior year: € 14.2 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 liabili ties changed as follows in the reporting year:

Development of the net balance of deferred tax assets and deferred tax liabilities IN € MILLIO N

As of January 1

2017

2016

221.9

208.6

Currency translation differences

0.8

– 0.9

Change in scope of consolidation

0.0

– 7.2

Income (+)/ expense (–) in the income statement

– 2.1

0.6

Deferred taxes recognized in other comprehensive income

– 7.5

20.8

As of December 31

213.1

221.9

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

111

The deferred taxes recognized in other comprehensive income stem from the following:

Income taxes recognized directly in other comprehensive income

2017

I N € MILLION

2016

Before tax

Deferred tax expense/income

After tax

Before tax

Deferred tax expense/income

62.5

– 7.4

55.1

– 48.2

20.8

– 27.4

0.3

– 0.1

0.2

– 10.1

0.0

– 10.1

Remeasurements of defined benefit pension plans Available-for-sale financial assets Currency translation of foreign subsidiaries

After tax

– 31.4

0.0

– 31.4

4.7

0.0

4.7

Investments accounted for using the equity method

– 2.9

0.0

– 2.9

– 2.1

0.0

– 2.1

Other comprehensive income

28.5

– 7.5

21.0

– 55.7

20.8

– 34.9

1 2 / N O N -CO N TRO LLI N G I N T EREST S Companies with significant non-controlling interests

TÜV Technische Überwachung H essen GmbH, Germany

TUV SUD Certification and Testing (China) Co., Ltd., China

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

45.0%

49.0%

Non-current assets

82.0

82.5

22.1

24.3

Current assets

36.6

26.2

80.5

74.9

Non-current liabilities

53.1

52.0

0.0

Current liabilities

17.6

17.3

53.6

50.9

Net assets

47.9

39.4

49.0

48.3

Carrying amount of non-controlling interests

21.6

17.8

24.0

23.7

Non-controlling interest IN € MILLIO N

Revenue

2017

2016

2017

2016

132.9

128.8

166.7

159.3

Net income for the year

9.7

10.5

13.0

12.5

Other comprehensive income

1.8

– 4.2

– 3.1

– 1.6

Total comprehensive income

10.9

11.5

6.3

9.9

Net income attributable to non-controlling interests

4.3

4.8

6.3

6.1

Other comprehensive income attributable to non-controlling interests

0.8

– 1.9

– 1.5

– 0.8

Dividends paid to non-controlling interests

1.3

0.7

4.5

4.4

Cash flow from operating activities

16.3

13.7

23.5

23.2

Cash flow from investing activities

– 5.3

– 9.7

– 3.6

– 10.5

Cash flow from financing activities

– 3.0

– 1.5

– 9.2

– 9.0

8.0

2.5

10.7

3.7

Net change in cash and cash equivalents

112

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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

Goodwill

Licenses and s imilar rights and customer r elationships

Internally g enerated i ntangible assets

Other intangible assets

Intangible assets under development

Total

Gross carrying amount as of January 1, 2017

284.9

187.0

28.4

79.9

8.7

588.9

Currency translation differences

– 17.0

– 10.8

– 0.1

– 0.6

– 0.1

– 28.6

Change in scope of consolidation

– 1.4

0.0

– 1.4

Acquisitions of subsidiaries

3.1

0.2

0.0

3.3

Additions

0.0

3.6

9.6

10.5

23.7

Disposals

– 0.4

0.0

– 4.7

– 0.2

– 5.3

– 23.8

– 8.8

0.0

– 0.3

0.0

– 32.9

0.0

– 1.0

1.6

3.4

– 3.6

0.4

Gross carrying amount as of December 31, 2017

245.4

166.6

33.5

87.3

15.3

548.1

Accumulated amortization and impairment losses

– 17.8

– 80.3

– 13.4

– 68.2

0.0

– 179.7

Carrying amount as of December 31, 2017

227.6

86.3

20.1

19.1

15.3

368.4

Amortization and impairment losses in the fiscal year 2017

– 2.8

– 9.8

– 3.3

– 7.9

0.0

– 23.8

Gross carrying amount as of January 1, 2016

260.2

144.0

25.3

82.3

3.4

515.2

3.7

– 0.3

0.0

3.4

21.0

44.9

0.0

1.0

0.0

66.9

Reclassifications to “held for sale” Reclassifications

Currency translation differences Acquisitions of subsidiaries Additions

0.0

2.2

12.3

6.8

21.3

Disposals

0.0

– 1.6

– 1.0

– 15.4

– 0.2

– 18.2

0.0

1.9

– 0.3

– 1.3

0.3

Gross carrying amount as of December 31, 2016

Reclassifications

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

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

113

The carrying amounts of goodwill are principally allocated to the following groups of cash generating units (CGUs):

Goodwill

Dec. 31, 2017

Dec. 31, 2016

Industry Service

89.4

108.8

Real Estate & Infrastructure

49.5

51.2

Auto Service

44.8

Product Service

38.8

39.6

IN € MILLIO N

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 relation ships, trademark rights, software and concessions.

5.1

227.6

249.5

Intangible assets with finite useful lives are amortized using the straight-line method over a period of two to 20 years.

Impairment losses of € 1.2 million (prior year: € 3.1 million) were recognized on customer relationships and order backlog, of € 0.2 million on software (prior year: € 0.3 million) and of € 0.5 million (prior year: € 0.0 million) on licenses and accred itations as part of the annual impairment test of intangible assets. Of these amounts, € 0.3 million (prior year: € 1.6 mil lion) is attributable to the INDUSTRY Segment, € 0.4 million (prior year: € 0.5 million) to the MOBILITY Segment and € 1.2 million (prior year: € 1.3 million) to the CERTIFICATION Seg ment.

The item “licenses and similar rights and customer relation ships” includes expenses for the license for regular vehicle inspections by TÜV SÜD Bursa, Kestel-Bursa, Turkey, of € 5.8 million (prior year: € 7.9 million). The operator’s license is amortized over its term until August 2027 using the straightline method.

For goodwill, impairment losses of € 2.8 million (prior year: € 1.5 million) were recorded primarily resulting from the stra tegic realignment of a business in the INDUSTRY Segment. Impairment losses of € 1.0 million were also recorded on good will resulting from the classification of a subsidiary as a dis posal group held for sale.

As of the reporting date, the carrying amount of concessions, accreditations and trademark rights with indefinite useful lives comes to € 29.5 million (prior year: € 31.1 million), of which € 20.3 million (prior year: € 20.3 million) relates to the Auto Service CGU, € 9.2 million (prior year: € 10.3 million) to the Industry Service CGU and € 0.0 million (prior year: € 0.5 mil lion) to the Product Service CGU.

The calculation of fair value less costs to sell per CGU was based on a discount rate of between 6.9% and 7.8% taking income taxes into account (prior year: between 6.0% and 7.1%). 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.

Internally generated intangible assets essentially comprise software and development costs.

Research and development expenses totaling € 17.1 million were recognized in the income statement in the reporting year (prior year: € 9.4 million).

114

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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

Land and buildings

Technical equipment and machinery

Other equipment, furniture and fixtures

Assets under construction

Total

Gross carrying amount as of January 1, 2017

520.2

217.7

267.6

17.8

1,023.3

Currency translation differences

– 4.4

– 11.0

– 3.3

– 0.6

– 19.3

0.0

0.5

0.0

0.5

Acquisitions of subsidiaries Additions

6.5

11.9

29.6

15.3

63.3

Disposals

– 5.7

– 11.5

– 14.9

0.0

– 32.1

Reclassifications to “held for sale”

– 4.1

– 10.9

– 1.4

– 0.6

– 17.0

Reclassifications

– 6.7

5.6

3.2

– 10.0

– 7.9

Gross carrying amount as of December 31, 2017

505.8

202.3

280.8

21.9

1,010.8

Accumulated depreciation and impairment losses

– 231.2

– 129.6

– 190.3

– 0.5

– 551.6

Carrying amount as of December 31, 2017

274.6

72.7

90.5

21.4

459.2

Depreciation and impairment losses in the fiscal year 2017

– 14.2

– 14.1

– 26.8

0.0

– 55.1

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

– 0.4

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

– 229.4

– 143.3

– 181.0

– 0.5

– 554.2

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

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 five to 15 years, and furni ture and fixtures over a period of three to 23 years.

Impairment losses to the lower fair value of € 3.4 million were recognized in the prior year. Of these, € 2.5 million related to technical equipment and machinery, € 0.5 million to assets under construction and € 0.4 million to furniture and fixtures. Reversals of impairment losses of € 1.3 million were also recog nized for technical equipment and machinery and of € 1.1 mil lion for land and buildings in 2016.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

1 5 / I N V E S TME 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

Investments accounted for using the equity method 2017

2016

Gross carrying amount as of January 1

5.3

5.1

Investments in joint ventures

Acquisitions of subsidiaries

0.0

0.2

Investment in an associated company

Reclassifications

7.5

0.0

Gross carrying amount as of December 31

12.8

5.3

Accumulated depreciation

IN € MILLIO N

115

– 6.0

– 1.6

Carrying amount as of December 31

6.8

3.7

Depreciation and impairment losses in the fiscal year

– 0.1

Investment properties are measured at amortized cost. As of December 31, 2017, they had a fair value of € 11.0 million (prior year: € 7.4 million). Measurement at fair value of the investment property is classi fied 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 cap italized earnings method pursuant to the ImmoWertV [“Immo bilienwertermittlungsverordnung”: German Ordinance on the Valuation of Property] and derived from the standard land val ues as well as the expected rental income. Essential input fac tors 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 unchanged on the prior year at 4.5%.

IN € MILLION

Dec. 31, 2017

Dec. 31, 2016

39.4

24.8

3.5

3.3

42.9

28.1

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 com panies 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 imple mentation 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 2017, 8.9 million (prior year: 8.2 million) vehicle inspections were performed, generating revenue of TRY 1,633.9 million or € 396.4 million (prior year: TRY 1,452.2 million or € 434.5 million). Other joint ventures are ITV de Levante, S.A. (ITV Levante), Valencia, Spain, and Uniscon universal identity control GmbH (Uniscon), Munich, both of which are consolidated in accor dance with the equity method. Neither company has a quoted market price. TÜV SÜD has held 50.0% of the shares in ITV Levante since 2016. The company was founded in 1998 and owns the conces sions for three vehicle service stations in the Valencia region, which expire in 2022.

116

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

TÜV SÜD acquired 52.0% of the shares in Uniscon in July 2017. The company was founded in 2009 and is a provider of high- security cloud solutions for storing and processing data. 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. For the other joint ventures (ITV Levante and Uniscon), the amounts in the companies’ separate financial statements have been raised to the respec tive fair value.

Financial data of the joint ventures (100%)

Consolidated financial statements TÜVTURK, Turkey

IN € MILLIO N

Non-current assets Current assets thereof cash and cash equivalents Non-current liabilities thereof financial liabilities Current liabilities thereof financial liabilities Net assets

Other joint ventures

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

185.7

217.3

31.4

8.2

38.5

54.0

2.0

1.5

11.6

30.8

1.4

1.3

118.6

161.1

5.5

0.8

9.9

24.4

1.0

0.0

60.2

64.5

2.5

1.7

46.1

47.2

0.1

0.0

45.4

45.7

25.4

7.2

2017

2016

2017

2016

Revenue

396.4

434.5

10.8

10.0

Amortization and depreciation

– 3.5

– 3.6

– 1.3

– 1.0

3.3

4.3

0.0

Interest income Interest expenses

– 3.7

– 6.5

0.0

Income taxes

– 6.4

– 7.1

– 0.5

Net income for the year

25.7

30.1

0.9

1.5

Total comprehensive income

25.7

30.1

0.9

1.5

5.7

9.7

1.4

0.8

Dividends received

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

117

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

Consolidated financial statements TÜVTURK, Turkey

Other joint ventures

IN € MILLIO N

2017

2016

2017

2016

Net assets (100%) as of January 1

45.7

51.1

7.2

7.8

Net assets of Uniscon as of August 1, 2017 Total comprehensive income Dividends paid

0.0

19.4

0.0

25.7

30.1

0.9

1.5

– 17.1

– 29.2

– 2.1

Currency translation differences

– 8.9

– 6.3

0.0

Net assets (100%) as of December 31

45.4

45.7

25.4

7.2

Attributable to TÜV SÜD Group

15.1

15.2

19.4

4.4

Capital gain on disposal of TÜVTURK Istanbul

– 8.7

0.0

Dilution of shares due to acquisition of shares in TÜVTURK Istanbul in 2010 and 2011

– 6.4

0.0

Consolidation effect on acquisition of TÜVTURK Istanbul at TÜV SÜD

20.0

0.0

0.3

20.0

20.1

19.4

4.7

Group adjustments ITV Levante Carrying amount as of December 31

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

Dec. 31, 2017

Dec. 31, 2016

13.1

13.9

Loans to joint ventures

1.0

0.0

Other participations

3.3

2.4

44.8

45.5

IN € MILLIO N

Investments in affiliated companies

Non-current securities Share of policy reserve from employer’s pension liability insurance

0.2

Other loans

5.9

3.4

68.3

65.4

An amount of € 1.2 million (prior year: € 0.9 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

Dec. 31, 2017

Dec. 31, 2016

Receivables according to the percentage-of-completion method

129.3

119.1

Other trade receivables

350.6

344.1

479.9

463.2

IN € MILLION

Valuation allowances on trade receivables amount to € 22.0 million (prior year: € 20.8 million) as of the reporting date.

118

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

The maturity profile of other trade receivables is as follows:

Maturity structure

Dec. 31, 2017

Dec. 31, 2016

Other trade receivables

350.6

344.1

thereof neither impaired nor past due

205.5

218.8

85.8

72.2 20.5

IN € MILLIO N

thereof not impaired but past due by: up to 30 days 31 to 60 days

23.2

61 to 90 days

14.8

10.1

91 to 180 days

11.0

12.0

181 to 360 days

3.4

4.7

more than 360 days

2.7

2.6

4.2

3.2

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

Dec. 31, 2017

Dec. 31, 2016

1.8

3.5

Receivables from other participations

1.1

0.6

Fair values of derivative financial instruments

2.3

1.5

Miscellaneous financial assets

33.9

39.6

Other receivables and other current financial assets

39.1

45.2

8.1

8.6

Miscellaneous non-financial assets

16.3

13.8

Other current non-financial assets

24.4

22.4

63.5

67.6

IN € MILLIO N

Receivables from affiliated companies

Refund claims against insurance companies

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

2 0 / N O N -CU RREN T ASSET S AN D DISPOSAL GROUPS HELD FOR SALE

21 / E QUITY

As part of its portfolio optimization measures, TÜV SÜD initi ated the sale of two American subsidiaries in the fiscal year 2017, one of which was already sold at the beginning of 2018. Negotiations with potential buyers have commenced for the other subsidiary. The two disposal groups are reported in the INDUSTRY Segment. The measurement to fair value less costs to sell resulted in an impairment of goodwill of € 1.0 million, which is reported under impairment of goodwill in the income statement. Other comprehensive income contains cumulative income from cur rency translation from the two disposal groups of € 3.2 million. Assets and liabilities allocated to the two disposal groups break down as follows:

Disposal groups held for sale as well as associated liabilities IN € MILLIO N

The capital reserve mainly includes the premium for various capital increases carried out since 1996. 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 adjust ments recognized in other comprehensive income in connec tion with the first-time application of IFRSs. Furthermore, remeasurements of defined benefit pension plans recognized in other comprehensive income were allocated directly to reve nue 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.

Dec. 31, 2017

Intangible assets

6.5

Property, plant and equipment

1.5

Other non-current assets

0.1

Trade receivables

8.8

Other receivables and other current assets

0.8

Disposal groups held for sale

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 regis tered share.

17.7

Non-current liabilities

0.1

Trade payables

0.4

Other current liabilities

1.9

Liabilities directly associated with disposal groups held for sale

2.4

Land and buildings of € 2.0 million that are highly likely to be sold in their present condition within twelve months of reclas sification are also reported under non-current assets and dis posal groups held for sale.

Other reserves record the differences arising from the cur rency translation of foreign subsidiaries’ separate financial statements without effect on income, effects from the measure ment of available-for-sale financial assets 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.

119

120

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

2 2 / P ROV IS IO N S FO R PEN SI O N S A N D S IM IL AR O BLI G AT I O N S Provisions for pensions and similar obligations (net liability) IN € MILLIO N

Provisions for pensions in Germany Provisions for pensions in other countries Provisions for similar obligations in other countries

Dec. 31, 2017

Dec. 31, 2016

599.3

704.8

14.4

36.1

8.9

8.5

622.6

749.4

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, con tractual 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 2017, they totaled € 69.9 million (prior year: € 66.9 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 dependents’ pensions. The Group’s obli gations 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 pen sion 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 accordance 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.

There is a defined benefit pension plan in the UK based, among other things, on salary and on length of service. Eligible employ ees 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 pro visions 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 Altersund Hinterbliebenen-Unterstützungskasse der Technischen Überwachungs-Vereine e.V. 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 German companies’ plan assets are primarily managed by TÜV SÜD Pension Trust e.V. and TÜV Hessen Trust e.V. and are irrevocably protected from recourse by the group companies. The plan assets are invested by professional investment managers in accordance with the policy specified by trustees. The objective is for the strategic allocation to be aligned with the pension obligation. This is monitored on a regular basis by performing asset liability management (ALM) studies in con sultation with external experts. As of December 31, 2017, the plan assets comprise shares, fixed-interest securities, real estate, alternative investments, derivatives, cash and cash equivalents and other assets. TÜV SÜD Pension Trust e.V. is funded such that the pension payments reimbursed by TÜV SÜD Pension Trust e.V. are con tributed back into the CTA by the relevant domestic companies and additional funds are made available by the Board of Man agement 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 SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

121

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.

existing plan assets totaling GBP 30.1 million were transferred to an external insurer, which will bear the investment, inflation and mortality risk in the future.

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 Pen sion Regulator (TPR) in the UK for approval. To finance the defi cit 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 review set after three years is complete. The additional restructuring plan is currently being agreed with TPR. In December 2017, obligations and

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 2018, the Group intends to make a contribu tion to plan assets of € 65.5 million in order to further reduce the existing deficit (the planned figure for 2017 was € 63.7 mil lion, the end-of-year figure, including one-off additions of € 31.1 million, amounted to € 93.9 million). 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

Germany IN € MILLIO N

2017

Other countries 2016

2017

Total 2016

2017

2016

Defined benefit obligation

1,939.0

1,945.0

120.9

144.6

2,059.9

2,089.6

Fair value of plan assets

1,339.7

1,240.2

97.6

100.0

1,437.3

1,340.2

599.3

704.8

23.3

44.6

622.6

749.4

Net defined benefit liability (carrying amount as of December 31)

The development compared with prior fiscal years is shown below:

Development of funded status

2017

2016

2015

2014

2013

Defined benefit obligation

2,059.9

2,089.6

2,026.3

2,021.2

1,680.6

Plan assets

1,437.3

1,340.2

1,253.5

1,123.2

998.7

622.6

749.4

772.8

898.0

681.9

IN € MILLIO N

Funded status as of December 31

122

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Change in net defined benefit liability Development of defined benefit obligation

2017 IN € MILLIO N

Defined benefit obligation as of January 1

2016

Germany

Other countries

Total

Germany

Other countries

Total

1,945.0

144.6

2,089.6

1,897.8

128.5

2,026.3

Service cost

26.0

4.7

30.7

25.3

4.2

29.5

Interest cost

32.5

3.1

35.6

37.2

3.7

40.9

Benefits paid

– 71.5

– 8.2

– 79.7

– 69.8

– 5.3

– 75.1

Contributions by the beneficiaries

0.0

0.6

0.0

0.6

Plan curtailments and settlements

0.0

– 0.8

Actuarial gains and losses from demographic assumptions

0.0

– 3.2

0.0

1.8

Actuarial gains and losses from financial assumptions

0.0

– 6.1

85.9

26.1

112.0

Actuarial gains and losses from experience adjustments

7.0

– 8.6

– 1.6

– 31.4

1.6

– 29.8

0.0

– 0.5

0.0

– 0.3

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

0.0

– 5.5

0.0

– 15.5

1,939.0

120.9

2,059.9

1,945.0

144.6

2,089.6

254.3

7.3

261.6

255.1

7.4

262.5

1,684.7

113.6

1,798.3

1,689.9

137.2

1,827.1

Around 54% (prior year: 53%) of the defined benefit obliga tion is allocable to pensioners, and 46% (prior year: 47%) to active employees and vested beneficiaries. The weighted aver age duration of the obligations is 14.8 years (prior year: 15.9 years). Pension payments of € 78.8 million are expected for the fiscal year 2018.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Development of plan assets

2017 IN € MILLIO N

Fair value of plan assets as of January 1 Interest income

123

2016

Germany

Other countries

Total

Germany

Other countries

Total

1,240.2

100.0

1,340.2

1,153.9

99.6

1,253.5

21.1

2.2

23.3

23.1

3.0

26.1

49.5

2.1

51.6

26.2

9.6

35.8

89.7

4.2

93.9

96.7

4.6

101.3

0.0

0.6

0.0

0.6

0.6 – 64.2

Gains (+) and losses (–) from remeasurements Return on plan assets excluding interest income Contributions by the employer Contributions by the beneficiaries Benefits paid

– 60.8

– 7.6

– 68.4

– 59.7

– 4.5

Plan curtailments and settlements

0.0

– 0.6

Currency translation differences and other

0.0

– 3.9

0.0

– 12.3

1,339.7

97.6

1,437.3

1,240.2

100.0

1,340.2

70.6

4.3

74.9

49.3

12.6

61.9

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

2017 IN € MILLIO N

As of January 1

2016

Germany

Other countries

Total

Germany

Other countries

Total

704.8

44.6

749.4

743.9

28.9

772.8

Service cost

26.0

4.7

30.7

25.3

4.2

29.5

Net interest cost

11.4

0.9

12.3

14.1

0.7

14.8

Contributions by the employer

– 89.7

– 4.2

– 93.9

– 96.7

– 4.6

– 101.3

Benefits paid

– 10.7

– 0.6

– 11.3

– 10.1

– 0.8

– 10.9

0.0

– 0.2

Actuarial gains and losses from demographic assumptions

0.0

– 3.2

0.0

1.8

Actuarial gains and losses from financial assumptions

0.0

– 6.1

85.9

26.1

112.0

Plan curtailments and settlements Gains (–) and losses (+) from remeasurements

Actuarial gains and losses from experience adjustments Return on plan assets excluding interest income

7.0

– 8.6

– 1.6

– 31.4

1.6

– 29.8

– 49.5

– 2.1

– 51.6

– 26.2

– 9.6

– 35.8

Past service cost

0.0

– 0.5

0.0

– 0.3

Currency translation differences and other

0.0

– 1.6

0.0

– 3.2

599.3

23.3

622.6

704.8

44.6

749.4

As of December 31

124

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Plan assets Composition of plan assets

Dec. 31, 2017

Dec. 31, 2016

Shares (prior to hedging)

419.2

353.3

Fixed-interest securities

592.2

664.9

Share in investment company for infrastructure projects and private debt funds (SICAV)

110.7

74.1

Real estate and similar assets – used by third parties, vacant or under construction

205.4

142.7

IN € MILLIO N

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 cover ing 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 ALM studies. The resulting target allocation includes an optimized risk return profile, tak ing into account the interdependency of plan assets and obliga tions. 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 con trol 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

109.8

105.2

1,437.3

1,340.2

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). 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 (cover age shortfall) on account of negative developments of the pen sion 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. In 2017, a new ALM study was conducted to optimize invest ments for the long term. The findings from this will be imple mented in order to further improve the risk return profile of all assets. The results also reveal stronger alternative investments compared to highly liquid securities.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

125

Defined benefit obligation Actuarial assumptions for determining the defined benefit obligation

Dec. 31, 2017

Dec. 31, 2016

Germany

Other countries

Germany

Other countries

Discount rate

1.70

2.30

1.70

2.28

Future salary increases

2.25

2.22

2.25

3.01

Future pension increases

1.80

3.20

1.80

3.20

IN %

The actuarial assumptions were continuously derived in accor dance 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 cor porate 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 deter mine the defined benefit obligation in Germany as of Decem ber 31, 2017 would lead to a corresponding change in this fig ure. 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 expec tancy 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 mortal ity tables for the respective country were used.

Sensitivity analyses

DBO Germany as of Dec. 31, 2017 IN € MILLIO N

Increase

Discount rate (1% variation) 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 obliga tion 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 in

DBO Germany as of Dec. 31, 2016

Decrease

Increase

Decrease

– 276.7

350.4

– 289.8

368.5

240.7

– 200.1

267.0

– 220.4

84.8

–

86.3

–

the following fiscal year. The assumptions used in the calcula tion of the pension expenses for the fiscal year 2017 were therefore already defined as of the reporting date Decem ber 31, 2016.

126

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

The key assumptions in calculating pension expenses are pre sented in the following overview:

Actuarial assumptions for determining pension expenses

2017

2016

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 expense recognized for defined benefit pension plans in total comprehensive income for the fiscal years 2017 and 2016 breaks down as follows:

Expenses (+) / income (–) recognized for defined benefit plans in total comprehensive income

2017 IN € MILLIO N

Germany

2016

Other countries

Total

Germany

Other countries

Total

Service cost

26.0

4.7

30.7

25.3

4.2

29.5

Net interest cost

11.4

0.9

12.3

14.1

0.7

14.8

Past service cost

0.0

– 0.5

0.0

– 0.3

Gains (–) and losses (+) from plan curtailments and settlements

0.0

– 0.2

Expenses for defined benefit plans recognized in the consolidated income statement Return on plan assets excluding interest income Gains (–) and losses (+) from remeasurements of the defined benefit obligation Remeasurements of defined benefit plans recognized in other comprehensive income Expenses recognized for defined benefit plans in total comprehensive income

37.4

5.1

42.5

39.4

4.4

43.8

– 49.5

– 2.1

– 51.6

– 26.2

– 9.6

– 35.8

7.0

– 17.9

– 10.9

54.5

29.5

84.0

– 42.5

– 20.0

– 62.5

28.3

19.9

48.2

– 5.1

– 14.9

– 20.0

67.7

24.3

92.0

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

127

2 3 / OTH E R PROV I SI O N S Development of other provisions

IN € MILLIO N

As of January 1, 2017 thereof non-current Currency translation differences Change in scope of consolidation

Personnel provisions

Litigation, warranty and similar obligations

Restructuring provisions

Miscellaneous provisions

Other provisions

128.3

12.4

11.1

19.4

171.2

28.4

0.0

8.7

37.1

– 2.0

– 0.1

0.1

– 0.4

– 2.4

0.0

Additions

98.8

3.3

0.6

6.2

108.9

Utilization

– 90.8

– 0.7

– 0.5

– 6.5

– 98.5

Reversals

– 5.2

– 1.8

– 1.2

– 1.6

– 9.8

0.2

0.0

0.2

Unwinding of the discount Reclassifications to “held for sale”

0.0

– 0.1

0.0

– 0.1

As of December 31, 2017

129.3

13.0

10.1

17.1

169.5

thereof non-current

28.2

0.0

0.1

8.5

36.8

The personnel provisions mainly pertain to variable remunera tion for staff and management including associated social secu rity 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 obliga tions are counterbalanced by refund claims from insurance companies totaling € 8.1 million (prior year: € 8.6 million) that have been recognized as current assets.

2 4 / F IN A N C IA L D EBT Financial debt

Non-current

Current

Total

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Liabilities to banks

0.2

0.4

5.3

2.8

5.5

3.2

Finance lease liabilities

0.7

1.1

0.2

0.1

0.9

1.2

Cash pool liabilities to affiliated companies

0.0

1.1

0.0

1.1

Cash pool liabilities to other related parties

0.0

1.2

Loan liabilities to third parties

0.9

0.0

0.9

0.0

1.8

1.5

6.7

5.2

8.5

6.7

IN € MILLIO N

All the liabilities to banks are due in less than five years.

128

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

2 5 / T RA D E PAYABLES Trade payables

Dec. 31, 2017

Dec. 31, 2016

Liabilities according to the percentage-of-completion method

42.8

32.8

Other trade payables

79.7

71.8

122.5

104.6

IN € MILLIO N

2 6 / OTH E R L IA B I LI T I ES Other liabilities

Non-current IN € MILLIO N

Dec. 31, 2017

Current Dec. 31, 2016

Total

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Liabilities to affiliated companies

0.0

5.8

11.9

5.8

11.9

Liabilities to other participations

0.0

0.5

0.7

0.5

0.7

Fair values of derivative financial instruments

0.0

0.8

1.5

0.8

1.5

Outstanding invoices

0.0

39.8

44.3

39.8

44.3

Miscellaneous financial liabilities

7.5

12.6

34.5

35.7

42.0

48.3

Other financial liabilities

7.51

12.61

81.4

94.1

88.91

106.71

Advance payments received

0.0

62.5

52.1

62.5

52.1

Vacation claims, flexitime and overtime credits

0.0

50.7

50.4

50.7

50.4

Other taxes

0.0

44.2

44.6

44.2

44.6

Social security liabilities

0.0

5.6

5.8

5.6

5.8

Miscellaneous non-financial liabilities

0.0

20.3

21.0

20.3

21.0

0.0

183.3

173.9

183.3

173.9

7.51

12.61

264.7

268.0

272.21

280.61

Other non-financial liabilities

1 _ Thereof due in more than five years: € 5.8 million (prior year: € 2.7 million).

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

2 7 / 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 IN € MILLIO N

Dec. 31, 2017

Dec. 31, 2016

71.2

45.0

Guarantee obligations Contingent liabilities arising from litigation risks

1.6

1.5

Miscellaneous contingent liabilities

0.3

0.5

73.1

47.0

The guarantee obligations include a guarantee issued for T.P.S. Benefits Scheme Limited, Fareham, UK. The guarantee reduces the insurance fees charged by the Pension 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. Another guarantee relates to unused swap lines of an American subsidiary as of the reporting date.

129

The obligations were entered into for current business transac tions where no utilization is to be expected based on the assess ment 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.

28 / L E GA L PROCE E DINGS An action relating to the current pension assessment was filed against TÜV SÜD e.V., which has appealed against the first instance judgement at the Regional Labor Court. A ruling has not yet been handed down. Regarding the potential effects of the legal proceedings, reference is made to the opportunity and risk report in the combined management report. Apart from that, TÜV SÜD AG and its subsidiaries are not involved in any litigation which could have a material impact on the economic or financial situation of the individual entities or the Group as a whole.

2 9 / 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, 2017

Due in less than one year

Due in one to five years

Due in more than five years

Dec. 31, 2017 Total

Future obligations from rental and lease agreements for real estate

51.4

121.0

52.0

224.4

Future obligations from other operating leases

12.4

16.5

2.1

31.0

63.8

137.5

54.1

255.4

IN € MILLIO N

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

Rental and lease expenses for the fiscal year 2017 amount to € 70.1 million (prior year: € 70.0 million).

Due in less than one year

Due in one to five years

Due in more than five years

Dec. 31, 2016 Total

49.3

121.6

51.2

222.1

9.1

9.5

0.0

18.6

58.4

131.1

51.2

240.7

130

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Other notes 3 0 / A D D IT IO 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

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

Dec. 31, 2017

Dec. 31, 2016

29.3

14.0

29.3

14.0

773.4

746.8

63.3

64.1

866.0

824.9

13.9

8.3

13.9

8.3

Financial liabilities measured at amortized cost

205.0

208.5

Total equity and liabilities

218.9

216.8

thereof held for trading

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, 2017

Fair value hierarchy I N € MILLIO N

Other financial assets 1, 2, 3 Other non-current assets 2 3 ,

Non-current assets Trade receivables 2 Other receivables and other current assets 2 3 ,

Cash and cash equivalents 2

Carrying amounts

Fair value

thereof level 1

thereof level 2

thereof level 3

68.1

44.8

0.0

5.7

0.1

0.0

0.1

0.0

73.8

44.9

44.8

0.1

0.0

479.9

0.0

39.1

4.4

0.2

4.2

0.0

273.3

26.9

0.0

Current assets

792.3

31.3

27.1

4.2

0.0

Total assets

866.1

76.2

71.9

4.3

0.0

1.8

0.7

0.0

0.7

0.0

Non-current financial debt 2 Other non-current liabilities 2 3

7.5

6.5

0.0

6.5

Non-current liabilities

9.3

7.2

0.0

0.7

6.5 0.0

Current financial debt 2 Trade payables 2 Other current liabilities 2, 3

6.7

0.2

0.0

0.2

122.5

0.0

81.4

7.1

0.0

0.8

6.3

Current liabilities

210.6

7.3

0.0

1.0

6.3

Total equity and liabilities

219.9

14.5

0.0

1.7

12.8

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 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Carrying amounts and fair values of financial instruments as of December 31, 2016

131

Fair value hierarchy IN € MILLIO N

Carrying amounts

Fair value

thereof level 1

thereof level 2

thereof level 3

65.2

45.5

0.0

Other financial assets 1, 2, 3

5.9

0.0

Non-current assets

Other non-current assets 2 3

71.1

45.5

0.0

Trade receivables 2

463.2

0.0

Other receivables and other current assets 2 3 ,

Cash and cash equivalents 2

45.2

3.8

0.2

3.6

0.0

245.4

12.4

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

Non-current financial debt 2 Other non-current liabilities 2 3

12.6

6.3

0.0

6.3

Non-current liabilities

14.1

7.4

0.0

1.1

6.3 0.0

Current financial debt 2

5.2

0.1

0.0

0.1

104.6

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

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 pur chase price liabilities from put options are recognized. The calculation of the fair values of forward exchange transac tions and currency swaps is based on FX forward swap market data used to interpolate the current forward points (FX for ward swaps) on a straight-line basis from the information avail able 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 dis counted 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 inter est derivatives in foreign currency, the present value is trans lated to euro at the mean of the buying and the selling rate.

132

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

The table below shows the development of the financial instru ments recorded in level 3:

Reconciliation of financial instruments in level 3

Assets

Equity and liabilities

2017

2016

2017

2016

As of January 1

0.0

33.0

6.8

4.5

Currency translation differences

0.0

0.1

0.0

I N € MILLION

Additions

0.0

3.0

3.4

Changes with an effect on other comprehensive income

0.0

1.1

0.0

Changes recognized with an effect on income

0.0

– 11.3

3.5

0.9

Changes with an effect on cash and cash equivalents

0.0

– 0.6

– 2.0

Disposals

0.0

– 22.8

0.0

As of December 31

0.0

12.8

6.8

The additions to equity and liabilities in the fiscal year 2017 concluded put option in South Africa. The changes with an effect on income chiefly stem from adjusting a contingent pur chase price component for a Spanish company.

The net gains and losses on the financial instruments recog nized in the income statement, by measurement category, are as follows:

Net gains and losses by measurement category IN € MILLION

Financial assets / liabilities at fair value through profit or loss Loans and receivables Available-for-sale financial assets Financial liabilities measured at amortized cost

2017

2016

8.7

– 3.5

– 8.8

– 4.1

1.5

12.2

– 6.4

2.6

– 5.0

7.2

The net gains and losses were mainly attributable to effects from impairment losses, currency hedging and currency translation. In the prior year, they included the result from the reclassifica tion of the write-up of the shares in TÜV SÜD ATISAE from other comprehensive income to the income statement.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

133

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

IN € MILLIO N

Valuation allowances as of January 1, 2016

Other financial assets

Trade receivables

Other receivables and other current assets

Total

11.4

14.9

11.0

37.3

Currency translation differences

0.1

0.0

0.1

Change in scope of consolidation

7.6

4.3

1.6

13.5

Additions

0.1

7.3

0.6

8.0

Utilization

– 5.8

– 3.5

– 9.4

– 18.7

Reversals

0.0

– 2.2

0.0

– 2.2

Valuation allowances as of December 31, 2016/January 1, 2017

13.4

20.8

3.8

38.0

Currency translation differences

– 0.4

– 0.8

0.0

– 1.2

Change in scope of consolidation

0.0

0.1

0.0

0.1

Additions

0.3

8.4

0.1

8.8

Utilization

– 1.5

– 2.6

– 0.7

– 4.8

Reversals

0.0

– 3.9

– 0.1

– 4.0

11.8

22.0

3.1

36.9

Impairment losses 2017

Valuation allowances as of December 31, 2017

0.1

7.9

0.3

8.3

Impairment losses 2016

0.2

8.4

0.0

8.6

3 1 / 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 busi ness. These include obtaining collateral, credit ratings or track records of prior business relations, particularly payment behav ior. Recognizable risks are taken into account through appro priate 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, percent age-of-completion receivables and loans is their carrying amount as of December 31, 2017. 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 mar ket value as of December 31, 2017. 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.

134

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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 var ious 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 credit line had an original term until December 2019 but was extended until December 2020 in 2017 by exercising the corresponding option. As of the report ing date, payments due within one year of € 210.6 million (prior year: € 203.9 million) and payments due in more than one year of € 9.3 million (prior year: € 14.1 million) are cov ered by cash and cash equivalents of € 273.3 million (prior year: € 245.4 million) as well as undrawn credit lines of € 210.8 million (prior year: € 211.1 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 con nection with the operating business are hedged using deriva tive 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, 2017 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 € 2.7 million (prior year: € 5.8 million). The market value of cross-currency swaps would increase by € 0.4 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 trans actions would rise by € 2.2 million (prior year: € 5.4 million). The market value of cross-currency swaps would decrease by € 0.3 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. Finan cial 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.

32 / NOTE S TO THE STATE M E NT OF CA SH F L OW S The cash and cash equivalents presented in the statement of cash flows contain all highly liquid items shown in the state ment 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 € 0.0 million (prior year: € 0.1 mil lion) 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 € 58.6 million (prior year: € 56.4 million). Together with one-off additions of € 30.0 million (prior year: € 31.1 million) to TÜV SÜD Pension Trust e.V. and € 0.0 million (prior year: € 10.0 million) to AHV as well as fur ther additions to other plan assets of € 4.2 million (prior year: € 4.9 million), these payments are recognized as part of the cash flow from investing activities.

33 / SE GM E NT RE PORTING Segment information Based on the organizational structure and existing reporting structures, TÜV SÜD has the three reportable segments INDUSTRY, 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 prof itability of the segments described below and make decisions regarding the allocation of resources. With effect as of July 1, 2017, the allocation of individual business units to the three segments was adjusted compared to the prior year. INDUSTRY The Industry Service and Real Estate & Infra structure Divisions support customers in operating indus trial plants, infrastructure facilities, refineries, power plants and buildings safely and economically, as well as ensuring the functionality and safety of rail vehicles, signaling tech nology and rail infrastructures.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

MOBILITY This segment comprises all services for automo biles, 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. Since 2017, this segment has also covered the activities of the Life Service Business Unit, which provides driving suitability tests for road users and support with regaining and retaining their drivers’ licenses. These activities were still reported under OTHER in the prior year. ERTIFICATION The activities of the Product Service and C Business Assurance 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. Newly created in 2017, the

135

Business Assurance Division comprises the three business units Management Systems, Academy and Cyber Security. All three business units support customers in optimizing their business processes, systems and resources. Academy was reported under OTHER in the prior year. Holding activities are reported under OTHER. In the prior year, this also contained the activities of Life Service and Academy, which are now allocated to the MOBILTY and CERTIFICATION Segments. OTHER also includes individual assets of subsidiaries that cannot be allocated to actual business operations of the operational segments. The prior-year figures were adjusted to the new segment struc ture in the following tables. Consolidations of business relation ships between the segments are recorded in the reconciliation column.

Segment information from January 1 to December 31, 2017 and as of December 31, 2017 IN € MILLIO N

External revenue

INDUSTRY

MOBILITY

CERTIFICATION

OTHER

Reconciliation

Group

952.4

771.6

705.5

0.3

– 2.2

2,427.6

8.9

0.8

8.8

20.7

– 39.2

0.0

Total revenue

Intersegment revenue

961.3

772.4

714.3

21.0

– 41.4

2,427.6

Amortization, depreciation and impairment losses

– 16.1

– 18.0

– 20.1

– 22.0

0.0

– 76.2

0.0

10.4

– 0.3

0.0

10.1

78.1

64.8

81.1

– 22.6

– 0.1

201.3

Income from investments accounted for using the equity method EBIT Capital expenditures Segment assets as of December 31, 2017

14.4

27.3

19.8

25.6

0.0

87.1

521.2

359.1

348.5

271.4

– 20.1

1,480.1

Segment information from January 1 to December 31, 2016 and as of December 31, 20161 IN € MILLIO N

External revenue Intersegment revenue

INDUSTRY

MOBILITY

CERTIFICATION

OTHER

Reconciliation

Group

953.7

733.4

657.6

0.6

– 2.1

2,343.2

7.4

1.1

7.3

19.3

– 35.1

0.0

Total revenue

961.1

734.5

664.9

19.9

– 37.2

2,343.2

Amortization, depreciation and impairment losses

– 21.2

– 17.1

– 20.7

– 20.1

0.0

– 79.1

Income from investments accounted for using the equity method EBIT Capital expenditures Segment assets as of December 31, 2016 1 _ Prior-year figures adjusted; see note 5.

0.0

11.6

0.0

11.6

77.8

57.1

69.0

– 5.3

0.2

198.8

18.9

23.4

22.2

22.1

0.0

86.6

522.2

355.9

329.1

269.1

– 16.7

1,459.6

136

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

The same accounting policies are used as for the consolidated financial statements.

Information on geographic segments – external revenue 1

Transfer prices for revenue with other segments are deter mined using a market-based approach (at arm’s length).

IN € MILLION

EUROPE thereof Germany

Segment performance is evaluated based on EBIT. In 2016, EBIT of the area OTHER contained the write-up of the existing stake in TÜV SÜD ATISAE of € 11.3 million. The EBIT from the segment reporting is reconciled to income before taxes in accordance with the consolidated income state ment as follows:

AMERICAS ASIA Total external revenue

2017

2016

1,828.5

1,745.1

1,507.5

1,416.1

221.6

206.7

377.5

391.4

2,427.6

2,343.2

1 _ Prior-year figures adjusted; see note 5.

Information on geographic segments – segment assets 1 Reconciliation of EBIT to income before taxes

71 IN € MILLION

IN € MILLIO N

EBIT according to segment reporting Interest income Interest expenses Other financial result Income before taxes according to consolidated income statement

2017

2016

201.3

198.8

2.1

1.7

– 15.5

– 18.0

2.3

0.1

190.2

182.6

EUROPE thereof Germany AMERICAS

Dec. 31, 2017

Dec. 31, 2016

1,090.4

1,043.9

832.4

776.3

185.4

201.1

ASIA

228.1

237.7

Reconciliation

– 23.8

– 23.1

1,480.1

1,459.6

Total segment assets 1 _ Prior-year figures adjusted; see note 5.

Information on geographic segments The geographic segments also changed in 2017. The prior-year figures in the corresponding presentation of segments were adjusted accordingly. TÜV SÜD operates in the following geo graphic segments: EUROPE comprises the home market of Germany as well as Western Europe and Central & Eastern Europe. The Middle East & Africa Subregion, which was also allocated here in the prior year, has been reported under the geographic seg ment of ASIA since 2017. AMERICAS covers both American continents, from Canada to the southern tip of South America. ASIA combines all the countries of the Asia/Pacific and South Asian area as well as the Middle East & Africa Sub region from 2017 onwards.

Assets are allocated according to their geographic location.

Reconciliation of segment assets to group assets

Dec. 31, 2017

Dec. 31, 2016

1,480.1

1,459.6

IN € MILLION

Segment assets Interest-bearing financial assets

52.0

49.1

Deferred tax assets

242.1

257.5

Cash and cash equivalents

273.3

245.4

3.3

2.2

2,050.8

2,013.8

Other interest-bearing current assets Group assets

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

3 4 / R E L AT E 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 Gesellschafter ausschuss 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-Würt temberg are carried out by the group company TÜV SÜD Auto Service GmbH 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 pro cesses 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

137

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 2017, a total vol ume of € 145.8 million (prior year: € 139.2 million) was charged to TÜV SÜD e.V. TÜV SÜD e.V. recorded revenue of € 148.0 million (prior year: € 141.3 million) from this source. Cash pool liabilities of € 0.3 million (prior year: € 0.2 million) to TÜV SÜD e.V. and of € 0.2 million (prior year: € 0.3 million) to subsidiaries of TÜV SÜD e.V. are recorded as of the reporting date. In the fiscal years 2017 and 2016, 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 trans actions with these entities were carried out at arm’s length con ditions. In 2017, transactions were carried out with material related parties that led to the following items in the consoli dated financial statements:

Items of the statement of financial position from transactions with non-consolidated subsidiaries, associated companies and joint ventures Non-consolidated subsidiaries

Associated companies

Joint ventures

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

Loans

0.0

1.0

0.0

Receivables

1.8

3.5

0.0

Financial debt

0.0

1.1

0.0

Liabilities

5.8

11.9

0.0

0.1

IN € MILLIO N

138

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

Receivables from non-consolidated subsidiaries include valua tion allowances amounting to € 3.1 million (prior year: € 3.8 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 the Turkish joint ventures are based primarily on a license agreement between TÜVTURK Kuzey and TÜVTURK Güney (both licensors) and TÜV SÜD Bursa (licensee). In 2017, dividend distributions of these com panies amounted to € 5.7 million (prior year: € 9.7 million). Furthermore, there was a distribution of € 1.4 million (prior year: € 0.8 million) of the Spanish joint venture ITV Levante. Dividend distributions of € 0.9 million (prior year: € 0.9 mil lion) 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 Técni cos y Consultoria ITV, S.L., Torrelodones, Spain. For the expected utilization, a provision of € 0.3 million (prior year: € 0.9 million) has been recognized in the consolidated finan cial statements. Remuneration of active members of the Board of Management and Supervisory Board The total remuneration of active members of the Board of Man agement amounted to € 5.0 million in the fiscal year 2017 (prior year: € 4.9 million). This includes variable, EVA-based salary components totaling € 1.9 million (prior year: € 2.2 mil lion), the majority of which have not yet been paid out as of December 31 (provision as of December 31, 2017: € 1.5 mil lion). Total remuneration includes termination benefits of € 1.3 million. The additional service cost incurred for pension obligations amounted to € 0.3 million (prior year: € 0.3 mil lion). The present value of the defined benefit obligation calcu lated in accordance with IFRSs amounted to € 4.6 million as of the reporting date (prior year: € 6.0 million). The active members of the Supervisory Board received total remuneration of € 1.0 million in the fiscal year 2017 (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 pen sion payments and other payments (advisory services) amounted to € 1.1 million (prior year: € 1.1 million). Pension obligations (DBOs) amounting to € 17.9 million (prior year: € 16.2 million) are in place with regard to former members of the Board of Management and their surviving dependents.

35 / PROPOSA 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 € 121.6 million, equivalent to € 0.08 per share. The remaining amount of € 119.5 million is to be carried forward to new account.

36 / AUDITOR’S F E E S Fees of the auditor KPMG AG Wirtschaftsprüfungsgesellschaft

2017

2016

Audit of the financial statements

0.8

Tax advisory services

0.5

Other services

0.1

1.4

IN € MILLION

37 / E VE NTS A F TE R THE RE PORTING DATE The sale of RCI Consultants, Inc., Houston, USA, which was recognized as a disposal group as of the end of 2017, was com pleted on January 12, 2018. Following the approval of the respective authorities, TÜV SÜD e.V. transferred the official inspection body in Baden-Württem berg in full and irrevocably to TÜV SÜD Auto Service GmbH as of March 1, 2018 for € 17.1 million. This means that the former agent TÜV SÜD Auto Service GmbH replaces TÜV SÜD e.V. as the inspection body pursuant to exhibit VIIIb StVZO [“Straßenverkehrs-Zulassungs-Ordnung”: German Road Traf fic Licensing Regulations] in Baden-Württemberg and is offi cially recognized as such.

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

139

3 8 / CO N S O L IDAT ED EN T I T I ES Consolidated entities

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

100.00

ARMAT GmbH & Co. KG, Pullach i. Isartal

100.00

ARMAT Südwest GmbH & Co. KG, Pullach i. Isartal

100.00

FleetCompany GmbH, Oberhaching

100.00

MI-Fonds F60, Munich

100.00

PIMA-MPU GmbH, Munich

100.00

SIGNON Deutschland GmbH, Berlin

100.00

TÜV Hanse GmbH TÜV SÜD Group, Hamburg

90.00

TÜV Hessen Immobilien Service GmbH & Co. KG, Gräfelfing

55.00

TÜV SÜD Advimo GmbH, Munich

100.00

TÜV SÜD Akademie GmbH, Munich

100.00

TÜV SÜD Auto Partner GmbH, Hamburg

TÜV SÜD Auto Plus GmbH, Leinfelden-Echterdingen TÜV SÜD Auto Service GmbH, Stuttgart

100.00 *)

100.00

TÜV SÜD Battery Testing GmbH, Garching TÜV SÜD Business Services GmbH, Munich

70.00

TÜV SÜD Car Registration & Services GmbH, Munich TÜV SÜD Chemie Service GmbH, Leverkusen TÜV SÜD Digital Service GmbH, Munich

50.00 *)

100.00

F *)

100.00

TÜV SÜD ELAB GmbH, Siegen TÜV SÜD Energietechnik GmbH Baden-Württemberg, Filderstadt

100.00

100.00 *)

TÜV SÜD Food Safety Institute GmbH, Neu-Isenburg

100.00 100.00

TÜV SÜD ImmoWert GmbH, Munich

100.00

TÜV SÜD Industrie Service GmbH, Munich

100.00

TÜV SÜD Life Service GmbH, Munich

100.00

TÜV SÜD Management Service GmbH, Munich

100.00

TÜV SÜD Pluspunkt GmbH, Munich

100.00

TÜV SÜD Product Service GmbH, Munich

100.00

TÜV SÜD Rail GmbH, Munich

100.00

TÜV SÜD Sec-IT GmbH, Munich

100.00

TÜV SÜD Umwelt GmbH, Munich

100.00

TÜV SÜD Umwelt Messtechnik GmbH, Munich

100.00

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.

55.00

140

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

NA ME A ND RE G ISTE RE D OFF IC ES O F TH E EN TITY

Share in capital in %

F ULLY CONSOLIDATE D AFFILI ATED C O M PA N IES – O TH ER C O U N TR IES

ARISE (Canada) Inc., Saint John, New Brunswick, Canada

100.00

ARISE Boiler Inspection and Insurance Company Risk Retention Group, Louisville, USA

100.00

ARISE Inc., Wilmington, USA

100.00

ATISAE de Castilla y León, S.A.U., Miranda de Ebro, Spain

100.00

Bureau de Projetos e Consultoria Ltda., São Paulo, Brazil

100.00

Bytest S.r.l., Volpiano, Italy

100.00

Dunbar & Boardman Partnership Ltd., Fareham Hants, UK

100.00

ÉMI-TÜV SÜD Min ségügyi és Biztonságtechnikai Karlátolt Felel sségü Társaság, Szentendre, Hungary

62.13

Fleet Logistics Finland Oy, Helsinki, Finland

100.00

Fleet Logistics France S.A.S, Boulogne-Billancourt, France

100.00

Fleet Logistics International N.V., Vilvoorde, Belgium

100.00

Fleet Logistics Italia S.r.l., Milan, Italy

100.00

Fleet Logistics UK Ltd., Birmingham, UK

100.00

Global Risk Consultants (Australia) Pty Ltd, Melbourne, Australia

100.00

Global Risk Consultants (Guangzhou) Co. Ltd., Guangzhou, China

100.00

Global Risk Consultants Corp., Wilmington, USA

100.00

Global Risk Consultants Ltd., West Byfleet, UK

100.00

Global Risk Consultores (Brasil) Ltda., São Paulo, Brazil

100.00

Magyar TÜV SÜD M szaki Szakértöi Korlátolt Felel sségü Társaság, Szentendre, Hungary

100.00

National Association of Boiler and Pressure Vessel Owners and Operators, Inc., Louisville, USA

100.00

Nuclear Technologies plc., Fareham Hants, UK

100.00

P.H. S.r.l., Tavarnelle Val di Pesa, Italy

100.00

PetroChem Inspection Services Inc., Pasadena, USA

100.00

PT. TUV SUD Indonesia, Jakarta Pusat, Indonesia RCI Consultants, Inc., Houston, USA SIGNON Österreich GmbH, Vienna, Austria

99.59 100.00 51.00

Superfresh Ltd., Fareham Hants, UK

100.00

TÜV Italia S.r.l., Milan, Italy

100.00

TUV SUD (Malaysia) Sdn. Bhd., Kuala Lumpur, Malaysia

100.00

TUV SUD (Thailand) Ltd., Bangkok, Thailand

100.00

TÜV SÜD (UK) Ltd., Fareham Hants, UK

100.00

TUV SUD AL Technologies Pte. Ltd., Singapore

100.00

TÜV SÜD America de México, S.A. de C.V., Monterrey N.L., Mexico

100.00

TÜV SÜD America Inc., Danvers, USA

100.00

TUV SUD Asia Ltd., Shatin, Hong Kong

100.00

TUV SUD Asia Pacific Pte. Ltd., Singapore

100.00

TÜV SÜD ATISAE, S. A. U., Madrid, Spain

100.00

TUV SUD BABT Unltd., Fareham Hants, UK

100.00

TUV SUD Bangladesh (Pvt.) Ltd., Dhaka, Bangladesh

100.00

TÜV SÜD Benelux B.V.B.A., Boortmeerbeek, Belgium

100.00

TÜV SÜD Benelux VZW, Boortmeerbeek, Belgium

100.00

TÜV SÜD Bursa Tasit Muayene Istasyonlari Isletim A.S., Kestel-Bursa, Turkey

100.00

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

NA ME A ND RE G ISTE RE D OFF IC ES O F TH E EN TITY

141

Share in capital in %

TÜV SÜD Canada Inc., Newmarket, Canada

100.00

TÜV SÜD Central Eastern Europe s.r.o., Prague, Czech Republic

100.00

TUV SUD Certification and Testing (China) Co., Ltd., Wuxi, China

51.00

TUV SUD China Holding Ltd., Shatin, Hong Kong

100.00

TÜV SÜD Czech s.r.o., Prague, Czech Republic

100.00

TÜV SÜD Danmark ApS, Hellerup, Denmark

100.00

TÜV SÜD France S.A.S., Écully, France

100.00

TUV SUD Global Inspection Ltd, Shatin, Hong Kong

100.00

TUV SUD Hong Kong Ltd, Shatin, Hong Kong

100.00

TÜV SÜD Iberia, S.A.U., Barcelona, Spain

100.00

TUV SUD Inspection Authority (Pty) Ltd., Cape Town, South Africa

48.00

TÜV SÜD Japan Ltd., Tokyo, Japan

100.00

TÜV SÜD KOCEN Ltd., Seongnam-si, South Korea

100.00

TUV SUD Korea Ltd., Seoul, South Korea

100.00

TÜV SÜD Landesgesellschaft Österreich GmbH, Jenbach, Austria

100.00

TUV SUD Ltd., Glasgow, UK

100.00

TUV SUD Middle East Co. LLC, Muscat, Oman

51.00

TUV SUD Middle East LLC (Qatar), Doha, Qatar

51.00

TUV SUD Middle East LLC, Abu Dhabi, United Arab Emirates

51.00

TÜV SÜD Nederland B.V., Ede, Netherlands

100.00

TÜV SÜD Polska Sp. z.o.o., Warsaw, Poland

100.00

TÜV SÜD Products Testing (Shanghai) Co., Ltd, Shanghai, China

100.00

TÜV SÜD PSB Philippines Inc., Pasig City, Philippines

99.99

TUV SUD PSB Pte. Ltd., Singapore

100.00

TÜV SÜD Romania S.R.L., Bucharest, Romania

100.00

TÜV SÜD Sava d.o.o., Ljubljana, Slovenia

100.00

TÜV SÜD Schweiz AG, Zurich, Switzerland

100.00

TUV SUD Services (UK) Ltd., Fareham Hants, UK

100.00

TÜV SÜD SFDK Laboratório de Análise de Produtos EIRELI, São Paulo, Brazil

100.00

TÜV SÜD Slovakia s.r.o., Bratislava, Slovakia

100.00

TUV SUD South Africa (Pty) Ltd., Cape Town, South Africa

48.00

TUV SUD South Asia Pvt. Ltd., Mumbai, India

100.00

TÜV SÜD Sverige AB, Malmö, Sweden

100.00

TÜV SÜD Teknik Güvenlik ve Kalite Denetim Ticaret Ltd. Sirketi (TGK), Istanbul, Turkey

100.00

TUV SUD Vietnam Co. Ltd., Ho-Chi-Minh City, Vietnam

100.00

TÜV SÜD Zacta Ltd., Tokyo, Japan

100.00

TÜVSÜD Portugal, unipessoal Lda., Lisbon, Portugal

100.00

142

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

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 – G ER M A N Y

Uniscon universal identity control GmbH, Munich

52.00

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

50.00

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, 2018 TÜV SÜD AG The Board of Management Prof. Dr.-Ing. Axel Stepken Ishan Palit Dr. Matthias J. Rapp

TÜV SÜD AG ANNUAL REPORT 2017

Consolidated income statement

Consolidated statement of changes in equity

Consolidated statement of comprehensive income

Notes to the consolidated financial statements

Consolidated financial statements

Consolidated statement of financial position

143 Auditor’s report

Consolidated statement of cash flows

AUDITOR’S REPORT “We have audited the consolidated financial statements pre pared by TÜV SÜD AG, Munich, comprising the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consoli dated 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, 2017. 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 315e (1) HGB [“Handelsgesetzbuch”: German Com mercial 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 state ments in accordance with Section 317 HGB and German gener ally 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 report ing 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 effec tiveness 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 consoli dated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to Section 315e (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 finan cial statements, complies with the German statutory require ments 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, 2018

KPMG AG Wirtschaftsprüfungsgesellschaft Feege Hachmann Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]

143

144

TÜV SÜD AG ANNUAL REPORT 2017

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 cur rent 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, uncer tainties and factors, including but not limited to those described in the annual report. If one or more of these risks or uncertain ties 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 fig ures 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 pub lished due to statutory requirements.

Corporate Communications Sabine Hoffmann, 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 17, 2018