Business and economic environment

With the acquisition of the Spanish ATISAE Group in February 2016, we have made the largest acquisition in the history of TÜV SÜD so far. The ATISAE Group is one of the leading testing services providers in the INDUSTRY and MOBILITY Segments on the Iberian Peninsula. In accordance with the size and significance of this acquisition, the 2016 fiscal year was shaped in particular by the transaction and the integration of the new units into our Group.

In addition, we are investing in selected core countries in the INDUSTRY and CERTIFICATION Segments. We also successfully continued streamlining our corporate structure by merging and transferring companies in Europe, South Africa and Asia.
 
Demand for our services is increasing constantly. However, it was negatively impacted in individual countries by unfavorable conditions such as the low price of oil or political uncertainty. In Europe, we benefited from moderate economic growth; at the same time revenue growth was boosted by the acquisition of the Spanish ATISAE Group. Our business development depends only to a small degree on economic development. The economic momentum in the USA had a positive impact on the business performance there, but the continuing low oil price impacted the demand for services in the petrochemical industry. In Brazil, the sluggish economy continued with the result that we again had to contend with a fall in demand. Our growth in Asia is steady despite slowing economic growth in emerging economies. Here, we benefit indirectly from the economic development in the advanced economies since some of our services, especially in the CERTIFICATION Segment, are required for export to the European Union, Japan and many other countries.

INDUSTRY

The ATISAE Group offers testing, certification and advisory services for industry and infrastructure. As legally required this includes technical tests for lift, construction technology as well as lift and lifting facilities, and also the certification of occupational safety measures and explosion protection. Also on offer are products relating to quality assurance and technical consulting, in particular on environmental protection and renewable energies. The ATISAE Group holds a strong market position as a result of its technical expertise and long-standing presence on the Spanish market.

We added more targeted acquisitions to our performance portfolio in the INDUSTRY Segment. Thus, Rüdiger ITM, an engineering consultancy company with registered offices in Dresden, has been a member of the TÜV SÜD Group since April 2016. With its services in the field of energy technology, the engineering consultancy company completes our range of rail services in the Real Estate & Infrastructure Division.

In September 2016, TÜV SÜD also acquired Deutsche Private Institut für nachhaltige Immobilienwirtschaft (DIFNI), Frankfurt am Main. The company is an exclusive license partner of BRE Global for sustainable real estate certification according to the BREEAM standard (Building Research Establishment Environmental Assessment Method) in Germany, Austria and Switzerland. With the acquisition, we are continuing the expansion of real estate management services in the Real Estate & Infrastructure Division. The division’s performance portfolio is also supplemented by the new acoustics laboratory in Olching, near Munich. Here, the noise levels of air-conditioning systems, vehicles as well as household appliances such as dishwashers and toys can be measured and tested.

Thanks to our competence and experience in the field of non-destructive material testing for the aerospace industry, we have been awarded a multi-year quality assurance project for aircraft engines in Italy.

At the new satellite terminal of Munich Airport, we tested the passenger-side bridges alongside safety-relevant systems and equipment such as fire detection and sprinkler systems during the construction phase. The testing and certification of airport-specific appliances is subject to high quality standards which we can comprehensively ensure with our know-how and our industry knowledge. In this way, we were able to extend the existing framework agreement with Munich Airport to 2018.

As a result of the acquisition of US based Global Risk Consultants Corp. (GRC Group), Wilmington, in 2010, there are still several small companies in our portfolio. In 2016, we continued to integrate them into existing national companies.

Changes in local conditions in individual markets were taken into account by means of impairment losses in 2016. The downturn in demand attributable to structural factors for petrochemical services in the USA led to the recognition of impairment losses on selected assets of ­PetroChem Inspection Services Inc., Pasadena. The company offers material and safety technology inspections in plants and environmental checks.

In Brazil, the decrease in public infrastructure measures and general construction activities continued. After cost-cutting measures introduced in the prior year insufficiently compensated for the slump in demand, we recognized an impairment loss on selected intangible assets from the acquisition of Bureau de Projectos e Consultoria Ltda., São Paulo, in 2013.

Other impairment losses have been recognized on intangible assets related to wind farm business in the UK, to material testing in Singapore, and to our companies working in the field of building management in South Africa. Goodwill was also impaired in this regard.

MOBILITY

With the acquisition of the ATISAE Group, we have made an important step towards the internationalization of our core business: the vehicle roadworthiness test. The ATISAE Group carries out the vehicle roadworthiness test required by law in 34 technical service stations in Spain. In addition, the Group provides comprehensive consulting and training services for the automotive sector. The customer portfolio ideally complements our customer base. At the same time, its market presence in South America offers us favorable market entry conditions.

In July 2016, the first TÜV SÜD Blue Box was launched in Berlin. The modular service station is ready for use within one day. Mobile and close to the customer, the Blue Box enables an efficient vehicle roadworthiness test and exhaust gas analysis in an innovative manner. Experts’ evaluations and opinions can also be provided here. The Blue Box fulfills the requirements of an agile service society through its fast and flexible deployment.

In November 2016, work started at the new Dynamic Component Testing Laboratory (DYCOT) in the Czech Republic. With a dynamic test method for automotive components, the laboratory offers a cost-efficient alternative to expensive crash tests. The service portfolio also includes the testing of exhaust gas and airbags. By investing in the Czech Republic, we are positioning ourselves as a competent and innovative process partner in the automotive industry in Central and Eastern Europe.

Automotive manufacturers increasingly use their test equipment for internal development processes and contract out type tests and COP (Conformity of Production) measurements to external service providers. At the same time, following the manipulation of engine and exhaust gas values in the prior year, the pressure on car manufacturers to have their own vehicle measurement values verified by independent third parties has grown. This has a positive effect on the utilization of our test equipment for emission and consumption measurements, as well as engine and roller testing rigs. A reversal of impairment losses was necessary at selected test facilities.

Lower sales opportunities led to impairment losses on a fleet software solution, which had been recognized as part of the expansion of our service spectrum for independent fleet services.

CERTIFICATION

Since January 2016, we have been certifying in our Asian textile laboratories the entire collection of shoes for a European brand manufacturer. We are thus one of the leading suppliers of test services for leather products and shoes.

With the acquisition of Canadian Global EMC Inc., Toronto, in March 2016, we expanded our global network of EMC laboratories to meet the growing demand for electromagnetic compatibility testing.

In China, our testing laboratory received the China Compulsory Certification (CCC) accreditation for electrical tools, and the Indian food testing laboratory was awarded the accreditation DIN EN ISO/IEC 17025 for food by the International Accreditation Service (IAS). These accreditations supplement our range of services for industrial, medical and household goods. We can offer our customers certifications for safe entry into all economically strong and interesting markets in Asia, America and the European Union from a single source.

In 2016, we completed the worldwide rollout of the LabExcellence program: a project for the economic analysis and process optimization of our international network of laboratories worldwide. The program also promotes best practice sharing and the exchange of innovative testing procedures.

In June 2016, we bundled our range of services for information and communication technology into a new unit for cyber security. We are thus taking account of the growing importance of digital transformation for us and our customers.

Within the context of the strategic refocus of our portfolio, we sold non-core activities to competent partners in Germany and Japan during the fiscal year. We also recognized impairment losses on intangible assets to reflect structural weaknesses in individual markets, such as Brazil and Italy.