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KEY FINANCIAL RATIOS 2019

in € million
2019 2018
EBIT* 75.2 80.2
EBT 74.0 80.5
Balance sheet total 1,042.9 924.0
Net financial position 37.0 21.9
Pension provision 528.5 507.2

* before special effects

 

 

 

 

Group Management Report

FUNDAMENTAL PRINCIPLES OF THE GROUP

Business model

Established 150 years ago, the TÜV NORD GROUP is the byword for safety and trust. As a service provider with many years of experience in the areas of technology and safety, the TÜV NORD GROUP is dedicated to providing answers to important global questions with implications for the future. Its professionals and experts provide innovative inspection, certification, consultancy and engineering services with the highest levels of expertise in accordance with globally applicable standards. In this way, the TÜV NORD GROUP as a technology group guarantees comprehensive support for its regional, domestic and international customers.

The TÜV NORD GROUP has divided its activities into six business units and the Holding / Services division and is active in the TICCET (Testing, Inspection, Certification, Consulting, Engineering, Training) market. Extensive consulting and training services are offered alongside the traditional testing business. The Group has a unique selling proposition in the sector as a whole, with services in the engineering and natural resources as well as aerospace fields.

 

  • The certification, service and testing portfolio of the companies in the Industrial Services business unit includes specific individual tests and the management of complex security solutions.
  • 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.
  • In 2019, the Natural Resources business unit was renamed to Engineering and Natural Resources to empathize the growing importance of engineering services. The unit offers services in plant construction and process engineering, construction and infrastructure, mining and energy markets.
  • The core activities of the Training business unit are vocational education and training for specialists and managers, along with publicly funded training measures.
  • The Aerospace business unit is involved in activities concerning the procurement, modification, testing and certification of electronic components for the aerospace industry.
  • The IT business unit focuses on IT security assessment services for hardware and software as well as testing and certification services for IT infrastructures for the validation of the security and availability of data centres and cloud providers.

As of 31 December 2019, the Group with its management company TÜV NORD AG embraced 85 fully consolidated companies, 42 of them domiciled in Germany and 43 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

General economic and sector-specific conditions

Across the world, the start of 2020 has been marked by ongoing political uncertainties, resulting in a much-reduced willingness of companies to invest and thus weighing on foreign trade. The risks associated with an escalation of trade conflicts and Brexit remain high. The global economy remains subdued, which was reflected in a decline in world trade in the second half of 2019. While industrial production continued to decline in the developed economies, it increased somewhat in emerging economies, especially in Asia. At 3.0% for 2019, global growth was well below the previous year’s level (3.7%). China, India and the US remained the main drivers of growth, but the same countries are also largely responsible for the global slowdown. At 1.1% for 2019, growth in the Eurozone was well below the previous year’s level (1.9%).

The weakness of the German economy continues. The loss in value added in the industrial sector, which continues to decline, is largely being offset by growth in services and construction. A sharper downturn or even a pronounced recession is not expected at present. The export-oriented German industry is still confronted by weak global trade caused by trade conflicts, a stagnating global industrial economy and a global slowdown in the demand for motor vehicles. This is having a dampening effect on domestic investment and is serving to boost domestic demand for intermediate and capital goods. The less export-dependent sectors of the domestic economy have so far remained relatively unaffected. However, private and government demand for consumer goods and construction services are reliably bolstering demand overall. At 0.5%, however, for the reasons laid out above, overall growth failed to match that of the previous year (2018: 1.5%).

The value of the global market for TIC services at the start of 2020 is estimated to be in excess of €150 billion. The European market is worth around €50 billion. The general trend of the market for TIC services continues to be positive.

Belonging as they do to a knowledge-based concern, all the com- panies in the TÜV NORD GROUP are focused on the digital future. Their employees are rising to the challenge posed by the extra requirements of digitalisation, global networking and ever shorter product cycles and offer a wide range of security solutions.

Business Trends

In a competitive and economically less robust environment, TÜV NORD GROUP has continued on its growth path with the aid of its international product portfolio and the expansion of the global presence of its services. The Group achieved a positive operative result, albeit one, which, due to high levels of expenditure on future and growth projects, was slightly below the operative level of the 2018 reporting period.

Sales and earnings projections announced in the 2018 management report and the forecast for 2019 were slightly exceeded. All business units contributed to the growth in sales and made a positive contribution to earnings as planned.

The planned moderate sales increase in the Industrial Services business unit was exceeded abroad but, due to the intensity of the competition, only partly realised on the domestic market. Because of the costs for future and growth projects, earnings decreased as planned in the reporting period.

The planned positive sales and earnings trends were surpassed once again in the Mobilit business unit in 2019. This was mainly due to the expansion of the partner organisation as well as the digitalisation and further development of services.

The planned increase in sales and earnings for the Engineering and Natural Resources business unit was not fully achieved, due to a decline in orders.

In the Training business unit, the planned decline in sales and earnings resulting in particular from the planned closure of the education system for the mining industry was not as sharp as was feared and was largely balanced out by additional job speed dating.

An increase in invoicing for large-scale projects resulted in sales figures above the planned level in the Aerospace business unit. The planned slight decrease in earnings was mitigated by projects with a higher rate of return.

The IT business unit reported an increase in sales that was slightly above the planned level and further established itself in the testing and consulting market for information and communication technologies. A significant sales increase was recorded, particularly in the IT security field. The decline in earnings was higher than planned due to start-up losses and customer-related delays in the consulting business.

The number of full-time employees of the Group in 2019 almost reached the planned figure. The increase in the workforce is accounted for by recruitment, principally in the Industrial Services business unit.

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

 

The year-on-year trends within the Group in the 2019 fiscal year were as follows:

  • Turnover increased by 4.3% from €1,229.5 million to €1,282.4 million. The rise in sales of €52.9 million was mainly driven by Mobility and Engineering and Natural Resources business units.
  • Before special items, earnings before interest and taxes (EBIT) decreased by 6.2% from €80.2 million to €75.2 million. The decrease of €5.0 million can primarily be attributed to the development in earnings in the Industrial Services and the Training business units and to a cost increase, due to future and growth projects.
  • The return on sales, measured by EBIT, was 5.9%, after 6.5% in the previous year.
  • Earnings before tax (EBT) decreased by €6.5 million to €74.0 million.
  • The average number of employees, converted to full-time equivalent, increased from 10,735 to 11,235 in 2019.

Earnings

The 2019 fiscal year ended with a turnover of €1,282.4 million (2018: €1,229.5 million). The following figure shows the trend of sales in the Group (€ million):

 

 

The breakdown of sales by region (€ million) is shown in the following figure:

 

The Group’s domestic revenue in 2019 amounted to €948.2 million (2018: €903.4 million). Turnover from the international business amounted to €334.2 million (2018: €326.1 million) and achieved a share of 26.1%.

Broken down by business units and Holding / Services, the following overall picture emerged for the year 2019:

 

Due the heterogeneous nature of their market presence, their various product portfolios and their regional focus, the individual business units followed very different developmental trends.

The Industrial Services business unit generated a turnover of €552.6 million (2018: €559.9 million), in which the development of foreign business was especially positive. In Germany, sales of €345.9 million failed to match the previous year’s level (2018: €361.0 million), essentially due to the assignment of two com­panies to the Engineering and Natural Resources business unit as of 1 January 2019. The increase in foreign sales to €206.7 million (2018: €198.9 million) was principally accounted for by healthy developments in India.

The turnover of the Mobility business unit, at €423.7 million, was 8.5% higher than in the previous year, €390.5 million. The increase in sales was primarily accounted for by transactions with cooperation partners. Furthermore, the initial consolidations of TÜV NORD Sofortgutachten GmbH & Co. KG and TÜV NORD live expert GmbH & Co. KG have an impact as of 1 January 2019.

In the Engineering and Natural Resources business unit, a turnover of €127.3 million (2018: €106.5 million) was generated: the increase was due in particular to the allocation of two companies from the Industrial Service business unit and the good performance of the Geo Engineering & Exploration business segment.

In the Training business unit sales declined to €100.3 million (2018: €101.2 million), because of the scheduled closure of the mining colleges as of 31 July 2018.

The sales of the Aerospace business unit, at €49.0 million, surpassed those of the previous year (2018: €47.6 million), due to an increase in billing for major projects.

The sales of the IT business unit increased to €25.9 million (2018: €18.6 million) due to the initial consolidation as of 1 January 2019 of TÜV NORD IT Secure Communications GmbH & Co. KG, which offers consultancy services in the IT security field.

Group expenses increased by 5.4% to €1,252.9 million during the year under review. The cost of materials reached a level of €238.4 million in comparison to €216.1 million in the previous year. This is primarily attributable to higher costs for purchased services.

Personnel expenses increased by 4.1% to €741.9 million due to the recruitment of new staff.

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 €74.0 million and were thus €6.5 million below the previous year’s result of €80.5 million. As in the previous year, all the business units contributed to the positive result of the Group. Due to the initial application of IFRS 16 (Leases), the EBT decreased by €0.8 million.

Net profit, at €46.0 million, was 10.1% less than that of the previous year (2018: €51.2 million).

 

Assets

The TÜV NORD GROUP balance sheet reveals a sound structure. Total assets increased to €1,042.9 million during the year under review, as against €924.0 million in 2018.

Non-current assets rose from €548.2 million to €656.3 million. This was primarily due to an increase in property, plant and equipment levels as a result of the initial application of IFRS 16 (Leases). The rate of coverage of non-current assets (equity plus pension provisions divided by non-current assets) amounts to 99.4% (2018: 112.4%).

Current assets, which make up 37.1% of total assets, are recognised at €386.6 million (2018: €375.8 million). The increase is due to a growth in cash and cash equivalents to €89.3 million (2018: €73.5 million).

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

Equity, at €124.0 million, is above the level of the previous year (2018: €108.7 million). The equity ratio amounts to 11.9% (2018: 11.8%). Due to the lowering of the discount rate for pension obligations, actuarial losses in the Other equity positions amounting to €24.2 million in 2019 (2018: €36.6 million) were offset, thereby affecting the consolidated income statement.

In the 2019 fiscal year, €765.4 million (2018: €766.8 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 €528.5 million (2018: €507.2 million). The cause for this increase was the significant reduction in the discount rate of pension provisions.

Reinsurance coverage increased in 2019, thus narrowing the pensions 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 net asset position can be found in the Notes to the Consolidated Financial Statements, under No. 5, “Consoli­dated Balance Sheet disclosures”.

 

Financial status

Notwithstanding the high amount of investment and expenditure on innovations and digitalisation projects, the TÜV NORD Group further improved its positive net financial position. On 31 December 2019 and was thus not indebted as of the record date. This enables investment in innovation, training and the sustainability of services.

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. 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 thirteenth year in succession awarded the TÜV NORD Group the accolade of eligibility for refinancing with central banks. The Group thus belongs to the group of companies whose credit liabilities can be used by commercial banks as collateral with regard to the Deutsche Bundesbank. This guarantees the TÜV NORD GROUP a preferred position in terms of access to financial resources.

The cash flow (see “Consolidated Cash Flow Statement”) amounted to €86.6 million and was essentially applied to investments in intangible assets and in fixed assets and in property, plant and equipment, and to the reinsurance of pension liabilities. Capital expenditure excluding corporate acquisitions amounted to €56.7 million in the year under review as against €57.6 million in 2018. Of this, €48.5 million was invested by the German companies, and €8.2 million abroad. The focus was on the construction of real estate in Essen, 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 €7.4 million (2018: €2.2 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 assessed and analysed both regarding the return and its impact on the consolidated balance sheet.

The Group’s net financial position amounted to €37.0 million at the end of the year under review, a figure that was, despite high investments, above that of the previous year (2018: €21.9 million).

The existing syndicated loan for the Group for €100.0 million had not been used as of 31 December 2019.

In 2019, the Group was in the position to meet its payment obligations at all times.

 

Overall situation

In view of the macroeconomic situation, the TÜV NORD GROUP is satisfied with the way the year under review progressed. However, notwithstanding the very good operating profit of the Group, every effort continues to be made to optimise the company’s position in terms of its earnings, assets and finances. TÜV NORD GROUP assumes that the earnings, asset and financial positions will remain stable in the future.

 

 

NON-FINANCIAL PERFORMANCE INDICATORS

Innovation report

The technological revolution is having a significant impact on the Group’s business. The Group needs a vibrant and purposeful culture of innovation, the targeted promotion of innovation and an established and active innovation management to form the basis of its success if these opportunities are to be exploited and the challenges mastered. Digitalisation and innovation are therefore key drivers for the growth of the TÜV NORD GROUP.

In 2019, an Innovation Council was established from across the business units to act as a governance body for the continuous development of the innovation portfolio of TÜV NORD GROUP.

Innovation boards have been implemented in all the business units with responsibility for the monitoring, controlling and coordination of the respective innovation processes. These boards assess and decide on the continuation of individual innovation ideas and projects from the initial idea through to market launch.

The establishment of innovation controlling has made it possible for the TÜV NORD GROUP to carry out quarterly surveys and analyses of sales, costs, investments, employee numbers and general innovation costs. The Board of Management and the Supervisory Board are regularly kept informed of the results.

The expertise of the TÜV NORD employees and its global presence form the ideal basis for the digital transformation and the Group’s innovation process, both of which are needed to underpin the success of TÜV NORD GROUP’s customers in the digital age. For this purpose, the TÜV NORD GROUP is also involved in universities and cooperates with research institutions. In addition, employees of the TÜV NORD GROUP are to be found in relevant committees for the domestic and international development of industry-specific regulations.

The necessary cultural change is being actively promoted from within the company by the work of the Digital Academy. This successful programme is in its third year and has met with a great deal of interest, including from beyond the TÜV NORD GROUP. Just under 40 digitisation projects have already emerged from the Digital Academy and are either being implemented or have already been completed. Employees from all the business units have been trained as digital experts and taken on new and greater challenges in their organisations, thereby acting as catalysts for change. With this effective concept, TÜV NORD GROUP recorded some initial successes with external customers in 2019.

 

Employees

As of 31 December 2019, the domestic and foreign companies of the TÜV NORD GROUP employed an average of 11,235 staff (converted to full-time equivalent) in comparison to 10,735 in the previous year.

Including the experts provided by the associations, the average number of full-time employees was 11,276 (2018: 10,780). On the reporting date of 31 December 2019, the absolute number of employees was 14,088. The proportion of women working in the Group remains at 29%.

7,889 employees work in Germany. The number of employees abroad increased in 2019 to 3,387. The largest business unit is Industrial Services, with 5,910 employees in Germany and abroad, followed by the Mobility business unit with 2,761 employees.

It is the knowledge and technical expertise of the staff that form the basis of the long-term success of the TÜV NORD GROUP. For this to be maintained, a comprehensive portfolio of measures for the training and development of staff and managers alike is an absolute necessity. Expenditure amounting to €8.2 million was incurred in 2019 for the use of internal and external training services (2018: €8.0 million).

As an employer, the TÜV NORD GROUP is the byword for open and authentic communication, both internally and with the outside world. The average length of service in TÜV NORD GROUP, at over ten years, is higher than the comparable figures from the competitor companies. This shows just how important it is for the Group to have a culture that strengthens the bonds of loyalty between the employees and their companies. The “Open Company” seal of approval issued by Kununu since 2012 confirms the successful implementation of these values.

The Board of Management would like to thank all the staff and company managers, both domestic and abroad, for their commitment. The success achieved in the year 2019 would have been impossible without their dedication to their work. The thanks also go out to the employee representatives for their constructive collaboration in a spirit of trust.

 

REPORT ON EXPECTED DEVELOPMENTS, ­OPPORTUNITIES AND RISKS

Report on expected developments

The leading German economic research institutes expect weaker growth in the global economy as a whole in 2020 compared to 2019. This forecast is due in particular to the ongoing trade dispute between the United States and China and declining growth in the latter. Likewise, after growth of 1.1% in the Eurozone in 2019, significantly lower rates of growth are also predicted here for the next two years. According to the current forecasts of leading German economic research institutes, the heavily export-dependent German economy will also grow significantly more slowly than in previous years, primarily due to the negative economic impact of Brexit. Growth forecasts for 2020 are expected to average out at 0.8%.

A further growth driver in the dynamic global TICCET business are the major growth markets in the Asia-Pacific region. Growth is being further amplified by the harmonisation of standards and guidelines as well as the introduction of new legal frameworks and standards. In contrast, relatively low growth rates on the domestic and European markets, high levels of competitive pressure and the existing skills shortage may have a negative impact on the growth of the European market participants.

For the 2020 reporting period, the TÜV NORD GROUP thus expects a stable development with regard to financial performance indicators. Furthermore, an increase in sales with a rate of growth slightly in excess of the level achieved in 2019 is expected. The major organic growth drivers are the Industrial Services, Mobility and Engineering and Natural Resources business units.

The TÜV NORD GROUP anticipates, as before, that all the business units will continue to contribute positively to earnings. A positive operative result is anticipated for the Group as a whole, albeit one which, due to high levels of expenditure on future projects and a worsening macroeconomic outlook, will be slightly below the operative level of the 2019 reporting period.

For the Industrial Services business unit, moderate sales growth is expected in the classic business fields, both in Germany and abroad. In 2020 the costs of growth and future projects, coupled with stiff competition, will have a dampening effect on earnings. However due to the expected improvement in earnings and the above-mentioned initial consolidation, a moderate improvement in the operating result is nevertheless planned.

For the Mobility business unit, the growth trend in sales and earnings is expected to continue. This is mainly due to the expansion of the partner organisation as well as the digitalisation and further development of services.

In 2020, the Engineering and Natural Resources business unit is forecast to see increased demand in 2020 in the areas of infrastructure, plant engineering and plant and product testing. In the context of efforts to reduce its dependence on the commodities market and to boost sales, additions to the service portfolio are planned both in Germany and abroad, as is an expansion of the engineering activities. New services and products are thus expected to increase sales, which will be roughly at the level of the 2019 reporting period. A moderate increase in operating profit is forecast.

The Training business unit expects sales and earnings to increase in 2020, mainly due to the strong growth in products offered on the free market by the TÜV NORD Akademie. A slight decline in operating profit is planned as a result of investments in future projects.

The Aerospace business unit plans a decline in sales and a stable result for 2020. The unit is continuing its strategy of focusing on services with high added value.

The IT business unit is planning significant sales and earnings increases, particularly in the IT security field.

The planned increases in turnover in the Group go hand in hand with a scheduled increase in the number of employees for 2020. The increase in the workforce is accounted for by recruitment, principally in the Industrial Services and Mobility business units.

The innovation projects identified in the context of the Strategy 2020plus should contribute to the organic growth of the Group in the long term. These projects will continue in 2020 with the aim of developing new services.

 

Risk and opportunity management system

Its international presence means that 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 important element of corporate governance. Early identification and forward-looking management form the basis of a systematic risk and opportunity management policy.

In the context of the risk and opportunity management system, regular analyses of market and competition data are carried out in all the companies in which the TÜV NORD GROUP holds a majority stake. 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. A standardised, IT-supported periodic process is used to identify risks in the individual companies at the end of each quarter. The risks identified here are assessed in line with the scale of their potential to cause damage and likelihood of occurrence, so that recommendations for action can subsequently be developed and implemented to minimise or eliminate risk. For individual risks, precautionary provision is made where necessary. With the aid of the Group’s centralised insurance management system, the possible financial impacts of arising risks can be limited using appropriate insurance contracts. Any risks remaining after the countermeasures have been adopted serve as the basis for reporting to the risk management of the TÜV NORD GROUP. Generally reported on at scheduled intervals are significant and existential risks, 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. They discuss at length the causes of the risk situation and the measures taken in response to it. Additionally, the effectiveness of the risk management system is verified by the corporate internal audit department and external auditors. The results of these audits are reported to the Board of Management and the Supervisory Board.

 

Risks and Opportunities for TÜV NORD GROUP

With its diversified services, the Group is exposed to a wide range of risks but well positioned to take advantage of a whole raft of opportunities. None of these have significantly changed in a year-on-year comparison. In the 2019 reporting period, no risks were identified which might either individually or collectively endanger the survival of the Group or substantially impair its asset, 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 net present value of the discounted pension obligations and thus influence the equity capital and overall earnings.

The Group is not exposed to any material price change, 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:

The Industrial Services business unit expects its business to continue to develop positively in the coming years. The business unit is exposed to risks, above all in its core European market. Intense price competition in tandem with equally intense competition regarding the recruiting of qualified staff may have a negative impact on the achievement of its objectives. Digitalisation offers the opportunity both to mitigate the skill shortage threat posed by demographic developments and to slim down processes. However, there is a real risk in Germany that regulations will be amended with the effect that previously mandatory tests will no longer be required and / or other, yet less qualified staff, will be granted permission to carry out tests in place of the experts. Opportunities for the expansion of business activities lie in offering new services and expanding existing ones: for example, the Group’s market presence in the fields of wind energy, railway technology, food and medical devices is being geared to international markets. To realise these oppor­tunities, an organisational structure has been put in place that focuses even more single-mindedly on the customers. Using this structure, all the companies within the business unit have since January 2019 been managed using a standardised process. In addition, the sales activities of the business units are being intensified. Alongside the emphasis on the acquisition of major national and international projects, a strong focus is being placed on the expansion of cross-selling activities.

As a result of the amendment of the Atomic Energy Act in 2011, the nuclear business is confronted with the medium- to long-term risk of declining orders in Germany. All the important contracts for decommissioning and dismantling in Germany have been acquired, thereby creating a long-term basis for the further adaptation of the portfolio. There are long-term opportunities in the German market with regard to decommissioning and waste management, diversification, modernisation and the digitalisation of products and services. The integration of international companies and their areas of expertise is opening up new markets and opportunities in the global energy sector, for example in the energy supply systems field (grids and storage).

In the certification business, changes to the statutory base make it impossible to rule out the possibility 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 important and central DAkkS accreditation, one of the functions of which is to minimise risk through internal auditing. Opportunities continue to arise through process optimisation and investments in the areas of digitalisation alongside energy management, social standards and consumer protection.

The development of the Mobility business unit is expected to remain stable in the coming years while the previous premises and conditions remain largely unchanged. The customer-group-oriented strategy of the Mobility business unit fundamentally revolves around the identification using market and competition analyses of sector-specific risks and changes in market conditions in the segments and regions. 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.

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 scandal has affected the type approval process in the form of changes to testing and measurement procedures and the increased use of appropriate measuring technology. Opportunities have arisen for the Mobility business unit out of the changes in inspection and measurement procedures (e.g. the further development of type testing for exhaust gas emissions) and the increasing use of the corresponding measurement technology (e.g. Real Driving Emission (RDE), Portable Emission Measurement Systems (PEMS)). As of 2018, tailpipe emissions measurements have been made mandatory once again for all vehicles to ensure the maximum effectiveness of the periodic exhaust emissions tests. Technological developments in the automotive sector are resulting in changes in the requirements on data protection 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 Group sees opportunities to expand business activities in the manufacturing business in the form of the further development of methods to test systems installed in vehicles. The offer of vehicle valuations in growing secondhand car markets around the world presents further opportunities. Penetration of the market will be facilitated here using new technologies and the development of targeted corporations.

The Engineering and Natural Resources business unit’s project business is subject to special complexity and country risks as well as to risks that arise from increasing competitive pressure. Overall, demand for commodities-related services depends on global eco- nomic development, as does the infrastructure and plant construction market. Demand has stabilised at a low level in the exploration seismology field; invitations to tender for major projects are being issued here. However, the level of competitive pressure remains high. Dependence on the mining industry is being gradually reduced by expanding the service portfolio, consistently implementing innovation projects and entering new markets. In plant engineering, for example, the business unit is also offering its service portfolio in the chemical and petrochemical industry, thereby expanding a customer spectrum, which used to be limited to the steel industry.

For the companies of the Training business unit, falling unemployment could give rise to risks in the coming years, as it may lead to a substantial reduction in the number of contracts for training measures financed from public funds. The companies are mitigating the risk of regionally uneven reductions in order volumes with temporary training sites and the approval of new qualification measures to allow them to respond flexibly to emerging needs. Furthermore, the new Qualification Opportunities Act offers opportunities to retrain adults whose jobs are threatened by digitisation and automation. Nursing and healthcare are two areas which will in the future offer increasing opportunities, as the need for caregivers is increasing due to demographic trends. The training centres for healthcare and nursing offer initial and retraining measures alongside training and qualifications in geriatric care in the form of state registered seminars for care of the elderly. The greatest risk is currently to be found in the shortage of registered course heads in the field of healthcare and nursing and in the implementation of the legislation governing the nursing profession which has been in force since 1 January 2010 and which still contains some significant normative gaps in practical implementation that might lead to initial reluctance on the part of the training companies. In the TÜV-specific topic 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.

The companies in the Aerospace business unit are influenced by current developments and requirements in the space industry. This presents both opportunities and risks. The business unit has implemented a specialised service platform to minimise risk and seize opportunities. The “DOEEET” platform provides technical, logistical and commercial information and offers comparison tools and crowd testing options, among other things. Prospects for business expansion are also offered by increased growth in Europe and other emerging markets as well as the extension of existing services, such as the new Virtual Lab software, and the marketing of these services for other sectors, which require high levels of reliability. The new European regulation on the testing and certification of drones also offers a great opportunity for the business units, as does as the testing of small satellites.

Particular risks for the companies in the IT business unit are presented by the constantly increasing shortage of IT security experts, both in Germany and abroad. Competition for qualified specialists will continue in the coming year, which could jeopardise growth ambitions in the sector, especially internationally. In Germany, recruitment measures are being taken, for instance at universities, and cooperation with external service providers is being intensified and employee development improved, e.g. through the introduction of an expert career and a comprehensive range of trainings. The information and cybersecurity sector offers great growth potential. New sales potential could be generated by the new strategic direction of the IT business unit, with its pronounced international focus. In June 2019, the EU introduced the Cybersecurity Act, a European regulation that strengthens the mandate of ENISA (European Union Agency for Network and Information Security) and provides an EU-wide framework for the certification of products, services and processes in line with IT security requirements. In recent years, the competences of the Federal Office for Information Security (BSI) have been expanded at the national level – with the strengthening of ENISA, however, an increasing trend towards European competition is now emerging among IT security testing bodies, from which only well-positioned organisations across Europe are likely to benefit. The IT business unit is in constant close contact with the BSI and ENISA and offers advice in all IT-relevant issues.

 

CORPORATE RESPONSIBILITY

The TÜV NORD GROUP has now included sustainable action as an important plank of its business activities. The TÜV NORD GROUP sees the implementation of Corporate Responsibility (CR) as a long-term project.

This is based on the Group’s five 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 the basis.
    TÜV NORD GROUP operates sustainably – in respect of the economy, the environment and society alike. 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 account of the impact of its actions on the environment and society.
  • 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 in the process with the United Nations Sustainable Development Goals.

Back in 2018, the various activities carried out under the banner of sustainable and responsible economic management were pooled into a single Corporate Responsibility Strategy and divided into four fields of action:

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

These fields of action contain a total of 19 CR topics, which were elaborated in the wake of a materiality analysis. They were provided with specific objectives, measures and requirements for the Group’s business units and summarised in a CR Roadmap – in most cases with 2020 as the time horizon.

The CR management structure of the TÜV NORD GROUP was defined in 2018 via the organisational structures and bodies listed below.

In the TÜV NORD GROUP, Corporate Responsibility is anchored at the highest level of corporate governance: the responsibility lies with the Group Executive Committee. A CR steering committee consults internally on all crosscutting issues and activities – such as the creation and review of the CR Strategy, its implementation and CR reporting. The Group has created the function of CR Manager for the coordination of CR activities and communication.

At the business unit level, it is the management board of each unit, which is responsible for CR. It appoints a CR coordinator whose job is to collaborate in the CR steering committee at Group level and to support the business unit management in the strategic coordination of CR activities.

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

The Corporate Responsibility Report for 2018 was the first document to set out information on the economic, ecological and societal impact of the business activities of TÜV NORD, in which the TÜV NORD GROUP’s approach to integrating responsibility and sustainability into its corporate processes was explained. The plan is to publish progress reports for 2019 and 2020 to provide information on the Group’s ongoing commitment to CR.

 

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 Three Lines of Defence (TLoD) governance model and is the byword for responsible management and control with the aim of long-term value creation. With its three connected lines of defence, of which the first is operative management, the second risk management, controlling, law, compliance etc., and the third internal auditing, the TÜV NORD GROUP safeguards 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 effectively preventing potential risks and averting damage to the TÜV NORD GROUP. The CMS is closely linked to the TÜV NORD GROUP’s CR Strategy. Compliance and integrity are important components of this strategy. Compliance objectives, such as preventing corruption by means of e-learning modules, are therefore an integral part of the CR objectives.

A key role in this respect is played by the central CMS in TÜV NORD AG, which provides for the appointment of a point of contact for compliance issues. This officer 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 TÜV NORD GROUP takes a preventive approach to compliance and aims to reinforce a corporate culture that uses awareness-raising measures and staff education to prevent breaches of the rules before they have a chance to occur. This includes 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 its 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, and the observance of the law and the extirpation of corruption.

Members of staff, business partners and customers have a further possibility in the form of an ombudsman system, bound by principles of confidentiality and anonymity, to communicate compliance issues or draw the Group’s attention to breaches of the compliance regulations of the TÜV NORD GROUP. A renowned lawyer, appointed as an external point of contact for all employees, customers and business partners, gathers information on any violations of the law or policy to which he is alerted.

Compliance with the corporate governance rules and regulations is continually monitored by the Internal Audit Department through its risk-orientated audit planning. The quality management system implemented by the Group’s internal audit department aims 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 assessment of the audit confirms that the compliance management system is with sufficient confidence suitable for both the identi­fication of risks of major violations of the rules and the prevention of such violations in the first place.

Awareness and sensitivity concerning compliance at corporate management level and among the employees have been deemed exemplary across the Group over a sustained period. 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, for instance, 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. In addition to the continuous supply of up-to-date information, the Group’s point of contact for compliance presents a compliance report to the Board of Management and to the Group Executive Committee. 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.

The Supervisory Board resolved back in 2017 that it was not seeking to increase the number of women in the Board of Management and the Supervisory Board for the period ending on 30 June 2022. Should any subsequent appointments become necessary, women will, as always, be offered the same opportunities as men in both bodies.

The targets were either met or exceeded by 30 June 2017. For the first and second tiers of management below the Board of Management, the target of 30% was met. For both targets, the deadline set for implementation was 30 June 2022.

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

1Pursuant 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 December 2019 and in respect of relevant special transactions during the 2019 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, 28 February 2020

TÜV NORD AG
The Board of Management