TÜV NORD GROUP  |  CORPORATE REPORT

Financial Report

Group Management Report

FUNDAMENTALS OF THE GROUP

Business activity
The TÜV NORD GROUP is a global technology group which offers its customers impartial, reliable and expert support in all matters concerning safety and security. Testing technology for safety has always been the focus of its business activities. However, the Group has continuously addressed new issues, monitoring and supporting the development of new technologies and their safe use. The technical professionals and experts inspect, advise and train with the highest levels of skill and according to standards that are applicable worldwide. In addition, their engineering expertise is in demand. Customers can rely on the know-how in the Group – regionally, domestically and internationally.

 

The TÜV NORD GROUP has been active in the TICCET (Testing, Inspection, Certification, Consulting, Engineering, Training) market for over 150 years. The inspection, consulting and training business is offered in six operating business units; thanks to the services in the Engineering and Natural Resources as well as Aerospace business units, the Group has a unique selling proposition compared to its competitors in the sector. In addition to its operating business units, the Group’s internal services are also grouped together in the Holding / Services division.

• The Group offers a wide range of testing and certification ser­vices for systems, products and complex plants courtesy of its Industrial Services business unit.
• The Mobility business unit offers numerous services, such as vehicle and driving tests, vehicle assessments, testing of vehicle components and vehicles (homologation) and development-related consulting for the automotive sector.
• The experts in the Engineering and Natural Resources business unit are active in plant construction and process engineering, construction and infrastructure, mining and the energy markets.
• The Training business unit offers qualifications and training for specialists and executives, along with publicly funded training measures.
• The Aerospace business unit provides its services to the aerospace industry and other highly specialised industries. These consist primarily of the procurement, modification, integration, testing and certification of electronic components.
• Inspection, testing and certification services relating to IT security fall within the remit of the IT business unit. In addition, the business unit advises on the operation and planning of telecommunications and IT networks.

As of 31 December 2020, the Group with its management company TÜV NORD AG embraced a total of 82 fully consolidated companies, 40 of them domiciled in Germany and 42 abroad. The TÜV NORD AG consolidated financial statement includes all major companies in Germany and abroad in which TÜV NORD AG either directly or indirectly holds the majority of voting rights.

ECONOMIC REPORT

Macroeconomic and sector-specific conditions
As a result of the coronavirus pandemic, the global economy underwent a sharp decline in 2020. Since the first easing of measures to curb infections in the middle of the year, the economy has partially recovered. However, the risks to investor confidence and world trade remain high, as, despite all the containment measures, the number of infections worldwide is rising again, and an escalation of trade conflicts, especially between the US and China, as well as uncertainties in the wake of the Brexit deal, cannot be ruled out.

 

These uncertainties are reflected in a global growth of –3.9% in 2020, which was well below the previous year’s figure of 2.6%. Regions around the world are affected to varying degrees by coronavirus. China is the only major economy to have grown in the pandemic year of 2020, albeit at a much lower rate of 2.3% than in the previous year (6.1%). India’s economy, which was likewise considered a major growth factor in the previous year (4.2%), declined by more than 8% as a result of the coronavirus pandemic. In the previous year, the US had also been a driver of growth at 2.3%, but, in 2020, the growth rate slumped to –3.7%. In Europe, the coronavirus pandemic is expected to impact on the economy in the longer term. At –7.6%, growth in the Eurozone was well below the previous year’s level (1.3%).

The German economy slid into recession during the year, with exports being particularly hard hit. As key customer countries were all affected by the coronavirus pandemic at roughly the same time, exports of goods fell by 9.3% in 2020. Imports also declined by 7.1%. The services sector struggled more than manufacturing under the coronavirus pandemic measures. The willingness to invest remained at a lower level than before the crisis, thereby weakening domestic demand. In order to stem the decline in private demand, the government initiated stimulus measures. At –5.0%, growth in 2020 was nevertheless significantly lower than in the previous year (0.6%).

 

In line with the general economic trend, the TICCET market was also not spared the negative impact of the pandemic. All manu­facturing companies in industries ranging from the automotive and aerospace sectors through to chemicals and consumer goods partially suspended production in 2020, leading to a decline in demand for testing, inspection and certification services. In this context, cross-border import and export activities were also in part limited to essential goods, which had a negative impact on the general demand for testing services.

 

At the same time, however, the fight against the coronavirus pandemic significantly increased the demand for particular services, including in the chemical-pharmaceutical industry, with the increasing demand for vaccines and medicines, and in the healthcare sector, for the testing of medical devices and components. New and digitally developed technologies will ensure the compe­titiveness of the TÜV NORD GROUP. We systematically use data to protect and benefit people, technology and the environment. In this way, the TÜV NORD GROUP continues to develop into a data-driven international knowledge group which has set itself the twin goals of going carbon neutral by 2030 and supporting its cus­tomers in their efforts to become sustainable.

 

Business trends
After a good financial year in 2019, the TÜV NORD GROUP faced some major challenges in 2020 due to the pandemic. The Group achieved a positive operative result, albeit one which, especially due to the impairment of its operating business because of mea­sures to curb the spread of the pandemic, was significantly below the operative level of the 2019 reporting period.

The revenue and earnings before interest and taxes (EBIT) finan­cial performance indicators did not develop as planned in the 2019 management report and the outlook for 2020. The consequences of the pandemic have affected all business units in different forms.

 

The planned revenue increases in the Industrial Services business unit were not quite achieved. Nevertheless, a pleasing level of revenue growth was achieved year on year. This was due to positive domestic developments and the testing of medical protective equipment. Earnings exceeded both the planned volume and those of the previous year.

 

The Mobility business unit did not fully realise its planned positive revenue and earnings development in 2020. This was mainly due to the negative effects of the coronavirus pandemic, although the previous year’s revenue figures were exceeded in this business unit, too.

 

In the Engineering and Natural Resources business unit, there was a significant year-on-year decrease in revenue and earnings. The planned values were not achieved. Due to the coronavirus mea­sures, projects were either postponed or cancelled by customers. Because of its strong international orientation, the business unit was particularly affected by global travel restrictions.

 

Revenue and earnings in the Training business unit in the reporting period were also significantly below the planned figure and the previous year’s level. The temporary bans on classroom teaching and the contact restrictions and hygiene regulations led to a significant reduction in business operations and a decline in orders.

 

Due to the coronavirus pandemic, revenue and earnings in the Aero­space business unit were also below the previous year’s and the planned levels. There were declines in orders from small and medium-sized customers and postponements of larger projects, particularly in France.

 

The IT business unit reported year-on-year revenue growth but was unable to achieve the planned values. This was due, among other things, to the travel restrictions imposed at the beginning of the pandemic, which weakened revenue. The result was below the planned figure and the level of the previous year due to the start-up losses in the consulting business as well as customer-side project postponements or cancellations.

 

The number of full-time employees of the Group in 2020, while being higher than the previous year, did not reach the planned figure. This was due to a reluctance to hire in the context of the pandemic.

 

The Group innovation projects decided upon in the context of Strategy 2020plus were continued as planned with the aim of developing new services.

 

The trends within the Group in the 2020 fiscal year in comparison with the previous year were as follows:

• Revenue decreased by 1.3% from €1,282.4 million to €1,265.6 million. The decline in revenue of €16.8 million was mainly attributable to the impact of the coronavirus pandemic on the Engineering and Natural Resources and Training business units.
• Before special items, earnings before interest and taxes (EBIT) decreased by 36.4% from €75.2 million to €47.8 million. The decrease of €27.4 million was mainly due to the coronavirus-­related decline in earnings in the Mobility and Training busi­ness units.
• The return on revenue, measured by EBIT, was 3.8%, after 5.9% in the previous year.
• Earnings before tax (EBT) decreased by €42.1 million to €31.9 million.
• The average number of employees, converted to full-time equivalent, increased from €11,276 to €11,658 in 2020.

 

Earnings
The 2020 fiscal year came to an end with a revenue of €1,265.6 million (2019: €1,282.4 million).

The following figure shows the trend of revenue in the Group (€ million):

 

The breakdown of revenue by region (€ million) shows the following figure:

 

The Group’s domestic revenue in 2020 amounted to €945.3 million (2019: €948.2 million). Revenue from the international business amounted to €320.3 million (2019: €334.2 million) and achieved a share of 25.3%.

 

Broken down by business unit and Holding / Services, the following overall picture emerged for the year 2020 (in %):

 

Due to the coronavirus pandemic, the heterogeneous nature of their market presence, their various product spectra and their regional alignments, the individual business units developed very differently.

 

The Industrial Services business unit generated a revenue of €582.1 million (2019: €552.6 million), where the domestic business trend was more positive than the foreign equivalent. In Germany, revenue, at €371.7 million, were above the previous year’s level, mainly due to tests of medical protective equipment. Revenue abroad were €210.4 million (2019: €206.7 million), bolstered by the posi­tive impact of the first-time consolidation of an Italian company as of 1 January 2020.

 

The revenue of the Mobility business unit, at €440.1 million, was 3.9% higher than in the previous year, €423.7 million. The increase in revenue was primarily accounted for by transactions with co­operation partners.

 

In the Engineering and Natural Resources business unit, revenue of €96.1 million (2019: €127.3 million) was generated: The main reason for the decline was pandemic-related project postponements by customers in all business segments. Due especially to intra-Group revenue in the field of medical protective equipment testing, the year-on-year decrease in total revenues (before con­solidation) was only €16.5 million or 12.6%.

 

The decline in revenue in the Training business unit to €75.9 million (2019: €100.3 million) resulted from measures to curb the coronavirus pandemic, such as bans on classroom teaching and major events, including job speed-dating. 

 

The revenue of the Aerospace business unit, at €40.1 million, was lower than in the previous year (2019: €49.0 million) due to coronavirus-related declines in orders and a weak performance in France.

 

The development of the IT security business segment was the main factor behind the increase in revenue in the IT business unit to €27.6 million (2019: €25.9 million).

 

Group expenses increased by 1.3% to €1,269.4 million during the reporting period. This was due in particular to increases in depreciation. The cost of materials reached a peak of €236.4 million in comparison to €238.4 million in the previous year.

 

Personnel expense increased, primarily due to the recruitment of new staff, by 1.7% to €754.6 million.

 

The 29.7% increase in depreciations to €77.3 million was mainly due to a write-down of the goodwill of the Engineering and Natural Resources business unit in the amount of €10.5 million.

 

Further information on expenses can be found in the Notes to the Consolidated Financial Statements, under No. 3, “Consolidated Income Statement disclosures”.

 

Earnings before tax (EBT) amounted to €31.9 million and were thus €42.1 million below the previous year’s result of €74.0 million. The Industrial Services, Mobility and Aerospace business units contributed to the positive result of the Group.

 

Net profit, at €13.5 million, fell below that of the previous year by 70.6% (2019: €46.0 million).

 

Assets
The TÜV NORD GROUP balance sheet reveals a sound structure. Total assets increased to €1,045.6 million during the reporting period, as against €1,042.9 million in 2019.

 

Non-current assets decreased from €656.3 million to €645.4 million. The rate of coverage of non-current assets (equity plus pension provisions divided by non-current assets) amounts to 102.3% (2019: 99.4%).

 

Current assets, which make up 38.3% of total assets, are recognised at €400.3 million (2019: €386.6 million). The increase is due to a growth in cash and cash equivalents to €134.9 million (2019: €89.3 million).

 

The Group has additional hidden reserves, which primarily take the form of property ownership and investments.

 

Equity capital, at €126.3 million, is above the level of the previous year (2019: €124.0 million). The equity ratio amounts to 12.1% (2019: 11.9%). Due to the lowering of the discounting interest rate for pension obligations to 0.75%, actuarial losses in the Other equity positions amounting to €8.4 million in 2020 (2019: €24.2 million) were offset, thereby affecting the consolidated income statement.

 

In the 2020 fiscal year, €777.4 million (2019: €765.4 million) of plan assets were netted against pension provisions. The proportion of the provisions for current and future pension obligations that is not covered by plan assets amounted to €531.4 million (2019: €528.5 million).

 

Reinsurance coverage of pension provisions decreased in 2020, thus narrowing the coverage gap, adjusted for the effects of a change in the discount rate, still further in comparison to the previous year.

 

Further information on the asset situation can be found in the Notes to the Consolidated Financial Statements, under No. 5, “Consolidated Balance Sheet disclosures”.

 

Financial status
The positive net financial position of the TÜV NORD GROUP improved significantly year on year due to the measures taken to ensure liquidity- and opportunity-oriented management during the pandemic, despite the coronavirus crisis and the ongoingly high level of investment. As of 31 December 2020, the TÜV NORD GROUP remained free of debt and was on a solid financial footing. This has enabled targeted investment in innovation, training and the sustainability of services, even during the pandemic.

 

The most important objectives of the conservative financial policy remain the further maintenance of the Group’s good rating and the safeguarding of an adequate level of liquidity for the centralised financing of the subsidiary companies by the Group at a level that meets their needs.

 

Consequently, from the start of the coronavirus pandemic, the Group was managed in a strictly liquidity- and opportunity-oriented way. The implementation of appropriate measures maintained the Group's ability to act, and no recourse to credit was necessary. In addition, it is fundamental to the Group´s financial strategy to ensure a broad measure of financial flexibility along with trans­parent risk and opportunity management.

 

The Deutsche Bundesbank, having investigated important financial metrics such as profitability, internal financing strength, liquidity and capital structure on the basis of audited financial statements, has for the fourteenth year in succession awarded the TÜV NORD GROUP the accolade of eligibility for rediscount with the central bank. The Group has thus belonged since the first assessment in 2007 to the round of companies whose credit liabilities can be used by commercial banks as collateral with regard to the Deutsche Bundesbank. This continues to guarantee the TÜV NORD GROUP a preferred position in terms of access to financial resources.

 

The cash flow (see “Consolidated Cash Flow Statement”) amounted to €64.3 million and was essentially applied to investments in intangible asset and in property, plant and equipment, and to the reinsurance of pension liabilities. Capital expenditure excluding corporate acquisitions amounted to €56.9 million in the year under review as against €56.7 million in 2019. Of this, €50.7 million was invested by the German companies, and €6.2 million abroad. The focus was on the construction of real estate in Essen and physical investment in testing equipment, vehicle fleets and computer hardware and software. No material capital expenditure obligations existed as of the reporting date.

 

The Group spent a total of €6.0 million (2019: €7.4 million) on the acquisition of companies and equity holdings during the year under review. All projects were assessed by value creation criteria; every potential acquisition or capital investment project was scrutinised and analysed both with regard to the return it would bring and also from the point of view of its impact on the consolidated balance sheet.

 

The Group’s net financial position amounted to €82.6 million at the end of the year under review; a figure which, despite the coronavirus pandemic and high investments, was above that of the previous year (2019: €37.0 million).

 

The syndicated loan, which expires in April 2021, was extended early to December 2023 and increased to €125.0 million. It had not been used as of 31 December 2020.

 

In 2020 the Group was in the position to meet its payment obli­gations at all times.

 

Overall situation
As a result of the macroeconomic situation and the coronavirus pandemic, the TÜV NORD GROUP was confronted with major challenges in the year under review. The Group has thus far managed the effects of the crisis in a satisfactory manner.

 

In the future, too, every effort will be made to optimise the company’s position in terms of its earnings, assets and finances. The TÜV NORD GROUP assumes that the earnings, asset and financial positions will remain stable in the future.

NON-FINANCIAL PERFORMANCE INDICATORS

Innovation report
New and digitally developed technologies will ensure the competitiveness of the TÜV NORD GROUP. Innovations will help the Group to take advantage of the opportunities offered by digitalisation. A culture of innovation is exemplified in the TÜV NORD GROUP, as is active innovation management. The workforce is immensely com­mitted to the implementation of new ideas. The awards which are visible to all make us proud of our development and act as a spur to many to join in the competition for the best inno­vations.

 

Despite all its negative aspects, the coronavirus pandemic repre­sents an opportunity for the TÜV NORD GROUP to accelerate its digital transformation.

 

At the beginning of the pandemic, the ability of the employees to work independently of location had to be ensured with the aid of innovative communication solutions. Digitalisation has made it possible to serve customers at very short notice.

 

Moreover, the targeted innovation initiatives of recent years have paid off. For example, the TÜV NORD GROUP has managed to significantly increase the number of remote audits. Prior to the coronavirus pandemic, most customers preferred to have the auditor physically present on site. The pandemic has also boosted customer acceptance of digital solutions developed by the TÜV NORD GROUP in the context of forward-looking innovation projects. The Training business unit managed to create a very good alternative to classroom events through the short-term development and expansion of an online campus.

 

In the context of the coronavirus pandemic, the TÜV NORD GROUP launched some new and innovative services. While under critical time pressure, the Industrial Services as well as the Engineering and Natural Resources business units carried out tests of large quantities of protective masks – both at home and abroad. In the IT business unit, experts from TÜViT examined the IT security of the German coronavirus warning app.

 

The Digital Experts trained by the Digital Academy are supporting innovation activities and the further development of new services in all business units.

 

Employees
Knowledge and expertise are the key to the long-term success of the TÜV NORD GROUP and must be preserved and developed. For these to be maintained, a comprehensive portfolio of measures for the training and development of staff and executives alike is an absolute necessity. The development and expansion of digital skills is a key priority. Expenditure amounting to €6.5 million was incurred in 2020 for the use of internal and external training ser­vices (2019: €8.2 million).

 

Our employees enjoy working in the TÜV NORD GROUP which they regard as an open, authentic and secure employer. The average length of service is over ten years. Loyalty and trust shape the relationship between employer and employees.

 

Every day, our employees devote themselves to the cause of safety and security, sharing their knowledge, and protecting life, tech­nology and the envi­ronment. They contribute their experience and knowledge every day to achieve the best possible results. It is diversity that forms the basis for successful teamwork. The “Open Company” and “Top Company” seals, which the company has regularly been awarded for many years, confirm the successful implementation of these values in the company.

 

As of 31 December 2020, the domestic and foreign companies of the TÜV NORD GROUP employed an average of 11,658 staff (converted to full-time equivalent) in comparison to 11,276 in the previous year. On the sampling date of 31 December 2020, the absolute number of employees was 14,182. The share of women working in the Group remains at 29%.

 

7,990 employees work in Germany. The number of employees abroad increased in 2020 to 3,668. The largest business unit is Industrial Services, with 6,197 employees in Germany and abroad, followed by the Mobility business unit with 2,803 employees.

 

The Board of Management would like to thank all the staff and company managers, both at home and abroad, for their commitment. The success achieved in the year under review would have been impossible without their dedication to their work. Their thanks also go out to the employee representatives for their con­structive collaboration in a spirit of trust.

OUTLOOK, OPPORTUNITY AND RISK REPORT

Outlook
The latest outlook (January 2021) from the International Monetary Fund (IMF) predicts a rate of growth of 5.5% for the global econ­omy in 2021, slightly above the autumn 2020 outlook. This re­flects the expectation of a vaccination-fuelled economic recovery later in the year and the additional political support that has been forthcoming in some major economies. However, the outlook re­mains uncertain and depends on whether the second and third waves of infection, particularly in Europe and the US, can be stopped and contagion rates reduced.

 

The outlook for the Euro area accordingly assume a growth rate of 4.8% in 2021, following on from the 2020 slump in economic output. The growth of the export-dependent German economy, which is outlook to be 3.5%, will show a marked recovery com­pared to 2020. The US is also returning to a growth trajectory with a projected 4.1% growth in economic output for 2021. Very strong growth is expected in 2021 for the two major Asian economies, China (10.2%) and India (9.5%).

 

Further drivers of growth in the dynamic global TICCET market, alongside the harmonisation of standards and guidelines and the introduction of new legal frameworks and standards, are the increase in security requirements for new technologies and the digital transformation. The domestic and European markets will also be characterised by positive growth rates in 2021. At the same time, these markets are characterised by high competitive pressure and an ongoing shortage of skilled workers. The global market for TIC services is estimated at approx. €173 billion and the European market at approx. €43 billion. In general, the market for TIC services continues to develop positively.

 

For the 2021 reporting period, the TÜV NORD GROUP thus expects a stable development with regard to performance indi­cators. How­ever, the key ratios will continue to be affected by the impact of the pandemic in 2021.

 

Revenue are expected to rise to slightly above 2020 levels. All busi­ness units are expected to contribute to the increase in revenue. The TÜV NORD GROUP anticipates that all the business units, with the exception of the Training business unit, will continue to contribute positively to earnings. The outlook result (EBIT) for the 2021 reporting period is expected to be slightly above the level of the 2020 reporting period, as the prospects for an end to the pandemic should improve, resulting in the gradual withdrawal of measures to contain it.

 

For the Industrial Services business unit, moderate organic rev­enue growth is expected in the classic business segments, both in Germany and abroad in the 2021 reporting period. In this report­ing period, the result will be negatively impacted mainly by staff increases and costs associated with innovation and digitalisation projects, and will only increase slightly.

 

The Mobility business unit expects a moderate increase in revenue and a significant rise in earnings for 2021. The business segment for driving licence applicants, the expansion of the partner organisation and the digitalisation and further development of services should contribute significantly to the planned development.

 

The expectation for the Engineering and Natural Resources busi­ness unit is of stabilisation of the domestic business and muted development abroad. A moderate rise in revenue is outlook. Almost all business segments will contribute positively to the slight im­prove­ment in the result in 2021. In growth projects, the focus is on revenue support alongside targeted innovations and efficiency improvements. At the same time, customer access is to be improved with the aid of location concepts.

 

The Training business unit expects a significant increase in revenue in 2021. Assuming the relaxation of coronavirus measures with the continuation of hygiene rules and ongoing restrictions on small-scale meetings, a slightly improved result is expected. There is still a risk that planned events will be postponed or cancelled.

 

The Aerospace business unit is planning for a moderate increase in revenue and earnings for 2021. The business unit is continuing with its strategy of focusing on engineering services.

 

The IT business unit is planning for moderate revenue and earnings increases, particularly in the IT security field, which will continue to develop in 2021.

 

The planned increases in revenue in the Group go hand in hand with a scheduled moderate increase in the number of employees. A recruitment drive in the course of business expansion will play a significant part in this.

 

The innovation projects identified in the context of the strategy should contribute to the organic growth of the Group in the long term. These projects will continue in 2021 with the aim of developing new services.

 

Risk and opportunity management system
Because of its international presence, the TÜV NORD GROUP is exposed to a wide range of risks but also well positioned to take advantage of opportunities. The risk and opportunity management system is thus an elementary element of corporate governance. Early identification and forward-looking management form the basis of a systematic risk and opportunity management policy.

 

For all companies in which TÜV NORD holds the majority stake, market and competition data are analysed in the context of the risk and opportunity management system. Market potentials are continuously observed for the early identification of macroeco­nomic and sector-specific opportunities. Moreover, efficient mea­sures to reduce or eliminate risk are introduced. Risks in the individual companies are identified using a standardised, IT-supported periodic process and classified according to the amount of damage and probability of occurrence at the end of each quarter. In this way, after classification, recommendations for action on risk reduction or elimination can be developed and implemented. The possible ­financial impacts of emerging risks can be limited with the aid of the Group’s centralised insurance management system. Any remaining risks will then continue to be reported to the risk management of the TÜV NORD GROUP. Significant and existential risks are generally reported on at scheduled intervals with additional ad-hoc reports as and when particular events occur.

 

The Group Executive Committee, the Board of Management and the Supervisory Board are kept informed at regular intervals of the current risk situation of the Group and the individual business units. This information includes the causes of the risk situation and the measures taken in response to it. Additionally, the risk mana­ge­ment is verified by the corporate audit department and external auditors. The results of these audits are also reported to the Board of Management and the Supervisory Board.

 

Risks and opportunities for the TÜV NORD GROUP
The coronavirus pandemic has affected the business of the TÜV NORD GROUP, particularly in the Training business unit, and led to a decline in revenues. Aside from the effects of the pandemic, risks and opportunities have not changed significantly year on year. In the 2020 reporting period, however, no risks, including those associated with the coronavirus crisis, were identified which might, either individually or as a whole, endanger the survival of the Group or substantially impair the assets, financial and earnings position. As far as can be seen at present, there are no risks in the foresee­able future which might jeopardise the survival of the Group.

 

Interest rate risks can arise in connection with pension obligations. The plan assets intended to finance the pension obligations are managed in a fiduciary capacity by the TÜV NORD PENSION TRUST e. V., which was founded in 2008. Changes to the actuarial interest rates in the valuation of pension obligations can have an impact on the cash value of the discounted pension obligations and thus influence the equity capital and total comprehensive income earnings.

 

The Group is not exposed to any material price, credit loss or liquidity risks, or to risks arising from fluctuations in cash flow. The Group’s financial assets are invested in such a way that, as far as can be seen at present, no material risks exist.

 

Digitalisation and global networking are both an opportunity for, and a challenge to, the TÜV NORD GROUP.

 

The individual business units report the following risks and opportunities in their business activities:

 

For the next few years, notwithstanding the uncertainties of the coronavirus pandemic, the Industrial Services business unit expects to see a fundamentally positive trend, both at home and abroad. The trend in infections is currently mainly seen as a risk to the international business. Opportunities are arising from the increase in remote audits and remote inspections. Aside from coronavirus, the core market of Europe is particularly exposed to risks in this business unit. Competition with regard to the recruitment of qualified staff and the ongoing intensity of price compe­tition may have a negative impact on the achievement of its objectives. One potential opportunity is presented by the stan­dardisation and streamlining of processes and digitalisation, which might help mitigate the shortage of skilled workers that demographic developments are threatening to unleash. There is a particular risk in Germany that the regulations will be amended with the effect that previously mandatory tests will no longer be required and / or other less qualified staff will be granted permission to conduct tests in place of the experts. Another opportunity for the expansion of business activities lies in offering new ser­vices and the expansion of existing ones. For example, the Group’s market presence in the fields of wind power, railway technology, food and medical devices is being geared to international markets. The prospect of full exploitation of these opportunities is boosted by the customer-focused organisational struc­ture that has been in  place since 2019 and the accompanying strengthening of cross- border cooperation. Revenue activities in the business unit will continue to develop, in particular the expansion of cross-selling activities.

 

In connection with the shutdown of nuclear power plants, revenue in the nuclear administration business in Germany will decline from 2021 onwards. Contracts for the decommissioning and dismantling of nuclear power plants and the disposal of radioactive waste represent a long-term foundation for the adaptation of the portfolio with a view to its future viability. Opportunities in the German market will arise in the medium and long term in connection with final storage of radioactive waste and further diversification, e.g. in the global energy sector, which will require the modernisation and digitalisation of services. Opportunities in international mar­kets are being further developed by the Nuclear OBS, acting in concert with other TÜV NORD companies.

 

In the certification business, changes to the statutory base make it impossible to rule out the risk that individual services will become obsolete or be cut back. However, due to the high level of diver­­si­fication and the heterogeneity of the customer structure, this risk is manageable. The risk remains that accreditation bodies will impose drastic sanctions, up to and including the revocation of accreditation for certain areas, in the event of violations of the rules by indi­­vidual employees of the certification company. In TÜV NORD CERT GmbH, a quality management system has been set up for the purpose, for instance, of obtaining the crucial DAkkS accredi­tation, one of whose functions is to minimise risk through inter­nal audit­ing. Opportunities continue to arise through process optimisation and investments in the areas of digitalisation alongside sustain­ability, social standards and medical products. In addition, as the example of the examination of protective masks during the coronavirus pandemic makes clear, they may also result from short-term economic political necessity or changes in the under­lying legal principles.

 

The massive cuts triggered by the coronavirus pandemic are lead­ing to changes in economic conditions and potential for the overall market of the Mobility business unit. The dwindling number of transfers of ownership alongside changes to vehicle inventories and customer structures may require the realignment of the business unit’s own portfolio and revenue, as well as adaptations in the provision of services. The pandemic may well prove beneficial for the implementation of the digitalisation strategy in the Mobility business unit. This applies equally to the implementation of internal digitalisation projects for process optimisation and the estab­lishment of proprietary technology and market solutions among customer groups.

 

The customer-group-oriented strategy of the Mobility business unit should lead to the early identification through market and compe­tition analyses of sector-specific risks and changes in market conditions in the segments and regions. Various previously defined future fields and initiatives have been reassessed in the light of the current situation and the findings taken into account. The consolidation of the market for car dealerships and workshops is continuing to exert competitive pressure. The implementation of a nationwide market presence with franchise partners will allow services to be offered throughout Germany, with the effect of countering the trend towards increasing concentration in the car dealership and workshop sector. The Group is prey to intensive efforts by the competition to lure away both customers and staff, giving rise to a risk that top performers will be lost to the Group. Targeted measures are being implemented to find suitable appli­cants for vacant positions and to enhance the loyalty to the company of its top performers.

 

Electromobility is having an impact on the market for homologations, and the variety of models offered by vehicle manufacturers will be reduced. This may be counterbalanced by increases in demand for the approval of alternative drives and networked driving. Technological developments in the automotive sector are resulting in changes in the requirements that apply to the safety of mobility concepts and data security. The increasing complexity of equipment and vehicles requires that the existing tests be supple­mented by the testing of software for security management purposes. The offer of vehicle valuations in growing second-hand car markets around the world presents further opportunities. Penetration of the market will be facilitated here by the use of new technologies and the development of targeted cooperations. Opportunities in other European countries arising from easier market access (similar legal framework conditions, proximity) have been identified. No discernible risks to the Mobility business unit have arisen out of the exhaust emissions scandal that was uncov­ered in the 2015 reporting period.

 

The trend in the Engineering and Natural Resources business unit shows that the coronavirus pandemic is affecting existing projects or orders in almost all business segments. Projects are being de­layed, postponed indefinitely or suspended. In the infrastructure and plant construction markets, the assumption is of stable busi­ness development. The global natural resources industry is also expected to stabilise.

 

Alongside the risks posed by the pandemic, new opportunities have also emerged which will have a lasting positive impact on the business through expansions of the service portfolio. In the Product, Plant & Safety business segment, for instance, investments have been made in a new testing laboratory with the aim of establishing a new service on the market. In cooperation with TÜV NORD CERT, the certification of personal protective equipment (PPE), for example, of mouth-nose coverings, is now in full flow.

 

In the Training business unit, risks may emerge in the wake of the coronavirus pandemic due to the continuing hygiene and social distancing rules and the travel restrictions that make classroom events unworkable. Moreover, the multiple bans on large-scale events are putting the successful job speed-dating product under pressure. The provision of training in an alternative digital or hybrid form is reducing this risk. Furthermore, lockdown brings with it the risk of a reduction in commissions in the field of publicly funded training.

 

Opportunities from the coronavirus pandemic may be presented by the increase in the number of short-time workers and the unemployment rate. In the TÜV-specific areas, there is a constant need for training as a result of technical developments or changes to rules and regulations. This will result in further opportunities for the companies in the Training business unit. Opportunities will arise in the medium term in the nursing and healthcare sector, as the need for caregivers is increasing due to demographic trends.

The coronavirus pandemic is also having an impact on the Aero­space business unit, but the development of the companies is being influenced by the current developments in the space industry. The space industry is focusing on providing better services in many fields, such as communications, Earth observation, sustainability, security, launching, human space flights, Mars exploration, etc. The business unit has implemented a specialised service platform to minimise risk and seize opportunities. The platform is continuously being developed and provides technical, logistical and commercial information as well as offering comparison tools and crowd testing options, among other things.

 

Opportunities are also being presented by increased growth in Europe and other emerging markets as well as the extension of existing services and the marketing of these services for other high reliability sectors. Additionally, in the short and medium term, drones will become an important growth vector in the aeronau­tical industry. The new European regulation on the testing and certification of drones (mandatory as of December 2020) also offers a great opportunity for the business unit, as does the testing of small satellites.

 

Risks to the companies in the IT business unit continue to arise from the current shortage of IT security experts. Despite a coronavirus-related increase in the numbers of job seekers in the IT market, the competition for qualified specialists will continue, especially in the IT security environment. It is for this reason that particular atten­tion is being paid internally to securing staff loyalty and offering employee development, e.g. through the introduction of an expert career path and a comprehensive range of trainings. The necessary increase in staffing levels is focusing on attracting and training junior staff from higher training and strengthening cooperation with selected external service providers. Risks have also been identified in relation to possible coronavirus-related restrictions on the provision of services or the postponement of planned projects.

 

And yet, the pandemic also offers opportunities. One example of the exploitation of such opportunities is the Group’s participation in the establishment of the coronavirus warning app in Germany. At the same time, the pandemic is proving to be an additional driver of digitalisation, automation and networking in industry, government agencies and bodies, as well as in society, which is further reinforcing the ongoing major growth potential of the information security and cybersecurity sector. Examples include the increasing use of location-flexible working environments, the onset of the indus­trial use of 5G and the expansion and moderni­sation of safety-relevant infrastructures, such as government networks in Germany. The state regulation of cybersecurity is being extended to cover more and more industries (critical infrastructure) and technologies all the way through to product requirements (security by design). The upcom­ing new IT Security Act (IT-2.0), with its holistic approach to the protection of citizens, the strengthening of the role of the state, the protection of public information tech­nology and an economy with a robust IT infrastructure, also offers enormous potential for testing and consulting services.

CORPORATE RESPONSIBILITY

Corporate Responsibility and sustainability are important com­ponents of the entrepreneurial activities of the TÜV NORD GROUP. The TÜV NORD GROUP sees the implementation of corporate responsibility (CR) as a long-term project. This is based on the Group’s six key values:

• The focus is on customers.
  The TÜV NORD GROUP considers it a responsibility to contribute to the success of its customers. The Group offers them services of the highest quality and efficiency in the context of a sustain­able portfolio of services and new ideas to help them on their way into the future.
• Employees are the key to success.
  As employers, the TÜV NORD GROUP companies are responsible for creating an attractive work environment which communicates their appreciation of their staff. They offer their employees the space they need to design a working life which is charac­terised by individual responsibility; they set great store by team­work, support the reconciliation of work and family and offer individual training opportunities. The employees in turn have a responsibility to contribute to the success of the company.
• Integrity is fundamental.
  The TÜV NORD GROUP operates sustainably – in respect of the economy, the environment and society. A culture of openness is cultivated which is firmly rooted in mutual respect and trust. Based on a mandatory code of conduct, the TÜV NORD GROUP always acts lawfully and transparently in respect of its business partners and society. The TÜV NORD GROUP is also responsible for taking the impact of its actions on the environment and society into account.
• Sustainability opens up new paths to a shared future.
  The TÜV NORD GROUP pays close attention to the economic, environmental and social impacts of its entrepreneurial decisions and actions. Sustainability is an elemental part of of its core brand – both in the service portfolio and in every other issue relating to innovation. At the same time, it is incumbent on the TÜV NORD GROUP to continuously reduce its own carbon footprint.
• Our diversity opens up new opportunities.
  Diversity and internationality are an enrichment for the busi­ness units and companies of the Group. The TÜV NORD GROUP promotes equal opportunities and respects the individuality of each and every person within it. The TÜV NORD GROUP uses mixed teams and interdisciplinary work to offer its customers tailor-made solutions.
• The Group has a forward-looking culture of innovation.
  The business units and companies of the TÜV NORD GROUP are continuously improving their products and processes, developing new ideas for their customers and driving innovation. They see it as their responsibility to future generations to measure their own services against sustainability criteria and requirements and to align themselves with the United Nations Sustainable Development Goals.
   

Sustainability, as a guiding value of the TÜV NORD GROUP, has been part of the mission statement since the beginning of 2020. The TÜV NORD GROUP is thereby taking into account the impor­tance of this issue to the public and among its stakeholders.

 

Since 2018, the TÜV NORD GROUP has been reporting on its various activities under the banner of sustainable and responsible economic management. These were pooled into a single corporate responsibility strategy and divided into four fields of action:

• Responsible value creation
• Staff orientation
• Environmental orientation
• Societal orientation

Based on a materiality analysis which reflected the relevance of the main themes from the point of view of the stakeholders and the company itself, 19 CR Topics were identified. These were furnished with specific objectives, measures and requirements for the Group’s business units and summarised in a CR Roadmap. The identified topics remained valid and material in 2020. The 2020 CR Progress Report provides information on the degree of compliance with the CR targets as of the end of 2020.

 

The responsibility lies with the Group Executive Committee. This body is supported by a CR manager whose job it is to coordinate the CR activities. A CR steering committee, consisting of the CR coordinators from the business units, consults internally on all cross-cutting issues and activities. The CR coordinators also support the business unit management boards in the execution of their CR responsibilities at business unit level.

 

In the case of the Group companies, responsibility for CR lies with the management of the companies concerned. The management officer of the company supports the management in the planning, implementation and reporting of CR activities.

 

The 2018 Corporate Responsibility Report was the first document to set out information on the economic, ecological and social impact of the business activities of TÜV NORD, in which the TÜV NORD GROUP’s approach to integrating Corporate Responsibility into its corporate processes was explained. A progress report is also being published for 2020. One of the main successes in 2020 in the field of sustainability was the Gold Medal award presented to the TÜV NORD GROUP by EcoVadis in its CSR rating.

CORPORATE GOVERNANCE

For the effective implementation of corporate governance, the TÜV NORD GROUP takes its guidance from the requirements imposed by the German Corporate Governance Codex on capital-market-­orientated companies. The governance structure is thus consis­tently aligned with the globally recognised governance model, the Three Lines of Defence (TLoD), and is the byword for responsible management and control with the aim of long-term value creation. With its three connected lines of defence – operative management; risk management, controlling, law, compliance etc.; and internal auditing – the TÜV NORD GROUP ensures the lawfulness of all its business processes and organisational structures along with the efficiency and effectiveness of its established internal control system (ICS).

 

The Compliance Management System (CMS) of the TÜV NORD GROUP, which was established over 10 years ago, is an essential element of corporate governance as stipulated by TLoD. Taken together with the realignment of the Group’s mission statement and values, these strategies are a means of efficiently preventing potential risks. In this way, the TÜV NORD GROUP is protected from damage. The CMS is, moreover, closely linked to TÜV NORD GROUP’s CR Strategy, of which compliance and integrity are important components. Compliance objectives, such as preventing corruption by means of e-learning modules, are therefore an integral part of the CR objectives.

 

The central CMS in TÜV NORD AG coordinates compliance issues and tasks and is available to all employees as a point of contact. Appropriately conceived and clearly formulated policies and regulations, accessible to all staff at all times via the Intranet, are fundamental factors when it comes to ensuring good corporate governance. The adoption of a corporate philosophy and a binding code of conduct have given employees a concrete framework of guidelines for their actions, thus reinforcing good business practices in compliance with the law. Information events and trainings which make use of e-learning modules raise awareness among the staff of the significance of compliance-relevant issues such as data protection or personal conduct at work.

 

The preventive approach of the TÜV NORD GROUP reinforces a corporate culture that uses awareness-raising measures and staff training to prevent breaches of the rules before they have a chance to occur. Another significant component is the risk-oriented evalu­ation in the development of new business models or the acquisition of companies in the context of M&A projects.

 

Compliance is also an important assessment criterion in the selection of suppliers and business partners and is guaranteed by a Compliance Code for suppliers and business partners which forms the basis of existing and future business relationships. By signing the agreement on the Compliance Code, the suppliers of the Group undertake to act in the spirit of the TÜV NORD compliance stan­dards. These include the basic requirements of human rights, equal opportunities and non-discrimination, environmental protection, product and occupational safety, the observance of the law and the extirpation of corruption.

 

In the form of an ombudsman system, bound by principles of confidentiality and anonymity, members of staff, business partners and customers have a further possibility to communicate compliance issues or draw the Group's attention to breaches of the com­pliance regulations of the TÜV NORD GROUP. Information on any violations of the law or policy, either domestically or abroad, is gathered by a renowned lawyer, appointed as an external point of contact.

 

All corporate governance structures and processes are regularly reviewed to ensure that they are up to date and, if necessary, adapted to meet new requirements. Compliance with the corporate governance rules and regulations is continually monitored by the Internal Audit Department on the basis of risk-orientated audit planning. The quality management system implemented by the Group’s internal audit department serves to guarantee the effi­ciency and effectiveness of its auditing work. The effectiveness of the established processes is regularly confirmed by an external and voluntary audit in accordance with the DIIR (German institute of internal auditing) standard.

 

The CMS has been tested by external auditors on the basis of the IDW auditing standard PS 980. The audit report deemed the implementation and orientation of the CMS to be appropriate. The verdict of the audit confirms with sufficient confidence that the compliance management system is suitable for both the identi­fi­cation of risks of major violations of the rules and the prevention of such violations before they occur.

 

Awareness and sensitivity concerning compliance at corporate management level and among the employees have been deemed exemplary across the Group. Regular compliance queries sub­mitted by the employees and the recommendations for conduct issued in reply in advance of active business transactions are effective and efficient measures for the prevention of damage. Risk-based process controls, such as a compliance check for business partners, systematically reduce potential compliance risks. The tracking, sanctioning, evaluation and documentation of breaches of com­pliance represent an integral part of the continuous improvement process. The Group’s point of contact for com­pliance keeps the Board of Management and the Group Executive Committee con­tinuously updated on relevant compliance issues. These mea­sures strengthen the tried-and-tested compliance structures and per­manently reinforce awareness of the manda­tory nature of TÜV NORD compliance in the Group’s day-to-day business.

STATEMENT ON CORPORATE GOVERNANCE

Findings on the promotion of the participation of women in leadership positions according to Article 76 (4) and Article 111 (5) German Stock Corporation Act

The TÜV NORD GROUP pursues a strategy of diversity and is striving to increase the percentage of women in managerial positions¹.

 

In December 2020 / January 2021, the Supervisory Board resolved on new targets for the share of women in the Board of Management and the Supervisory Board for the period ending on 30 June 2025. The target for the share of women on the Supervisory Board is set at 30%; for the Board of Management, it is 33%.

 

With the appointment of a female member of the Board of Manage­ment for the HR / Labour Director portfolio as of 1 January 2021, the share of women on the Board of Management is now one third. The target has thus already been met. The share of women on the Supervisory Board is currently 25%.

 

For each of the first and second tiers of management below the Board of Management a target of 30% was set, with a deadline for implementation at the end of 30 June 2022. These targets are currently being not only met, but surpassed.

 

For the other affected companies in the Group, the targets for the share of women in the Supervisory Board, the Board of Management and the next two tiers of management and implementation deadlines were set on time.

 

 

¹ Pursuant to the act on the equal participation of women and men in managerial positions in the private and public sectors, certain companies in Germany are committed to setting targets for the proportion of women on their supervisory boards, executive boards and in the following two management tiers and to set a date for the achievement of these targets. The TÜV NORD GROUP pursues a strategy of diversity and is striving to increase the percentage of women in managerial positions.

 

FURTHER INFORMATION

TÜV NORD AG is deemed to be directly dependent within the mean­ing of Sec. 17 of the Stock Corporations Act (Aktiengesetz – AktG) upon TÜV Nord Holding GmbH & Co. KG of Hamburg and TÜV HSA Holding GmbH & Co. KG of Hanover, and indirectly dependent upon TÜV Nord e. V. and TÜV Hannover / Sachsen-Anhalt e. V. For the period from 1 January to 31 December2020 and in respect of relevant special transactions during the 2020 fiscal year, the Board of Management of TÜV NORD AG has drawn up a report pursuant to Sec. 312 of the AktG regarding relations between the company on the one hand and TÜV Nord Holding GmbH & Co. KG, TÜV HSA Holding GmbH & Co. KG, TÜV Nord e. V., TÜV Hannover / Sachsen-Anhalt e. V. and the affiliated companies on the other.

 

This report ends with the following declaration:

 

“We declare that, in the case of the legal transactions listed in the report on relations with affiliated companies, TÜV NORD AG received appropriate consideration for each transaction in accordance with the circumstances known to us at the time in which the legal transactions were executed.

 

No measures were taken or omitted on the initiative or in the interests of the dominant enterprise or any enterprise affiliated with it.”

Hanover, 26 February 2021

TÜV NORD AG
The Board of Management