LITTLETON, MA--(Marketwired - May 1, 2017) - TÜV Rheinland, a leading international testing service provider for quality and safety, today announced financial results for its fiscal year 2016. The company saw net income for the year increase by more than 34 percent to EUR 122.6 million [$133.8 million] (2015: EUR 91.3 million [$99.6 million]) on total revenue growth of 1.9 percent from EUR 1.88 billion [$2.05 billion] to EUR 1.92 billion [$2.09 billion]. On a constant currency basis, revenues would have amounted to EUR 1.94 billion [$2.12 billion], a 3.1 percent increase against the previous year. The company's EBIT margin increased by 1.5 percentage points, from 4.9 percent to 6.4 percent. TÜV Rheinland's investments again exceeded the EUR 90-million [$98 million] mark -- as in the 2015 fiscal year -- reaching EUR 92.8 million [$101.15 million].
"We are making good progress. 2016 was a good year for our company," said Dr. Michael Fübi, CEO of TÜV Rheinland AG. "We recorded growth in terms of both earnings and profitability. We significantly increased our return on sales while simultaneously growing, albeit moderately. In the process, we have taken the first steps on our chosen path."
Revenues reflect strong global position and diversity of services
TÜV Rheinland currently generates just over half of its revenues outside Germany. In 2016, revenues in Germany rose by 2.8 percent, or EUR 26 million [$28 million] to EUR 955 million [$1.04 billion]. Revenues outside Germany rose slightly to EUR 963 million [$1.05 billion] (up EUR 11 million [$12 million]).
As in 2015, the regions of Asia and India, Middle East and Africa demonstrated the most significant growth. In 2016, TÜV Rheinland also acquired new subsidiaries in the Maghreb region and in Switzerland to support the company's goals to establish a presence in the rail and energy sectors. Business in Brazil remained challenging in 2016, reflecting the country's economic conditions; business contracted in Brazil by 3.5 percent.
Development also varied across the six business units into which TÜV Rheinland is organized: Industrial Service, Mobility, Products, Academy & Life Care, ICT & Business Solutions, and Systems.
Overall, the largest business unit, Industrial Services, saw a slight downturn in revenues to EUR 520 million [$567 million] in 2016. This was particularly due to low global oil prices and development contraction in Brazil. By contrast, activities in Germany saw positive performance. The Mobility business stream, which includes traditional vehicle inspection and car services, recorded moderate revenue growth of EUR 15 million [$16.3 million] or 3.2 percent, rising to EUR 486 million [$529.8 million]. Every year, TÜV Rheinland inspects more than 9.5 million vehicles around the world.
In 2016, the Systems business unit generated revenues of EUR 166 million [$181 million] from the certification of management systems, an increase of 2.5 percent. This result comes largely from a high demand for customer-specific audits to be carried out by the company's experts. Academy & Life Care saw revenues from services for people and their working environments increase by 6.8 percent, to EUR 219 million [$238.7 million]. Specifically, education services around health management and occupational safety contributed positively to TÜV Rheinland's business performance.
The Information and Communication Technology (ICT) & Business Solutions business unit developed less favorably, with revenues falling slightly by EUR 2 million [$2.18 million], to EUR 131 million [$142.8 million]. This business stream bundles IT, cybersecurity and telecommunications infrastructure services. Services for IT and cybersecurity saw positive development, given the significant global need for TÜV Rheinland's qualified specialists in this area.
Product Testing enjoyed the strongest revenue growth in 2016. The increase of 7 percent or EUR 34 million [$37 million], to EUR 519 million [$565.7 million], was due in particular to developments in Germany and Asia. Demand for testing was especially high in the harmful substances, textiles and electrical segments. Growth in electrical testing is being driven by new demand for testing around new products and technologies, especially in the areas of networking and wireless.
"We improved our earnings performance in almost all areas. TÜV Rheinland's wide-ranging, globally positioned services mean we are well equipped to respond rapidly to changes in the market and compensate for weaknesses in individual industries thanks to our strength in other areas," said Dr. Fübi.
Global demand for specialists
TÜV Rheinland added more than 40 new jobs, rising to 19,671 employees globally in 2016, and expects to add 500 more in 2017. These figures represent the average number of full-time equivalents across the year as a whole. The company employed 8,286 people in Germany, 243 more than in 2015. The number of employees outside Germany fell by 202, due entirely to contraction in Brazil. The number of employees in other countries continued to rise.
"As a companion to technical innovation, we are involved in many future-oriented activities across the globe," said Dr. Fübi. "As the economy and our lives change, so, too, do the challenges facing our business. At the same time, the importance of technical monitoring, inspection and certification is continuing to grow in many countries."
In fact, research firm Market Research Engine recently forecast the Testing, Inspection and Certification market as a whole is expected to exceed more than EUR 261 billion [$285 billion] by 2024, growing at a CAGR of more than 5.6 percent across that time.
Even a megatrend like digitalization will not ultimately change the fact that TÜV Rheinland depends on the knowledge and expertise of its employees, added Fübi.
Financial situation develops positively
TÜV Rheinland's equity increased by EUR 28.4 million [$31 million] to EUR 346.2 million [$377.4 million] in 2016. The equity ratio also improved from 17.7 percent to 18.4 percent. Cash flow amounted to EUR 163.4 million [$178.1 million], a substantial year-over-year increase of 5.4 percent. This was due to the consolidated net profit of EUR 66 million [$71.9 million] and the firm's systematic approach to net working capital management.
"The better our cash flow, the easier it is for us to make investments and acquisitions," said Vincent Furnari, CFO of TÜV Rheinland, with regard to the past fiscal year.
Investments remain at a high level
In 2016, TÜV Rheinland made further significant investments amounting to EUR 92.8 million [$101.1 million], especially in adding testing facilities, laboratories, IT infrastructure and software. As a result, investments nearly matched the level recorded in 2015 (EUR 97.3 million [$106 million]). TÜV Rheinland intends to maintain this level of investment in the coming years, irrespective of any acquisitions it may make. In addition to investments in recent years totaling almost EUR 70 million [$76.3 million] at the company's headquarters in Cologne, TÜV Rheinland invested significantly in strategic future business areas.
For instance, laboratories were established for the testing of harmful substances, energy efficiency and the electromagnetic compatibility of products. The company also expanded its internal IT infrastructure and invested in telecommunications and software, which not only are essential for further growth worldwide, but also form the basis for the rise in digitalization in the testing business.
For TÜV Rheinland, digitalization has three simultaneous vectors: expansion of its internal IT infrastructure; digitalization of testing services and tested products, especially for processing measurement data and advancing connectedness; and, the development of new services for companies and organizations in the IT sector and the online business itself.
"The aim is to empower the entire TÜV Rheinland organization in our increasingly digitalized world," said Dr. Fübi.
New opportunities via digitalization, connectedness and automation
The growing connectedness of products, components and objects has dramatically changed TÜV Rheinland's business. This connectedness is establishing itself not only in our personal lives thanks to trends such as smart homes and mobile communications, but also throughout large swathes of the economy, including industrial production, logistics and mobility. This is why TÜV Rheinland is investing significantly in testing facilities for electrical components and wireless technologies. This involves the testing and certification of wireless standards, such as 2G, 3G, 4G, Bluetooth, Wi-Fi, ZigBee, and the future 5G standard. Other new technologies are already in the implementation phase, such as technologies for exchanging small data volumes over long distances with low energy consumption.
To meet this need, TÜV Rheinland opened a second, 1,100-square meter laboratory center in Silicon Valley (Fremont, Calif.) in the spring of 2017. This center uses state-of-the-art technology to reduce test cycles to a fraction of their previous duration, and thus reduce the cost of testing. Tests that used to take up to 30 minutes can now be conducted in around ten seconds.
The trend towards increased digitalization, automation and connectedness occupies TÜV Rheinland's specialists even in its traditional business streams of Mobility and Industrial Services. In the latter, highly specialized experts are working on every aspect of functional safety for components, plants and systems. Functional safety is aimed at minimizing the safety risks for technical plants and systems that have a direct impact on whether an installation works as it should. By its very definition, the process of technical change is transforming the nature of work permanently, but the opportunities and risks associated with automation have a particularly rapid and extensive impact here. TÜV Rheinland's concept of "Security by Design" is therefore bringing together the expertise of specialists for the functional safety of industrial systems and cybersecurity experts.
"Future Mobility Solutions" is also becoming increasingly significant for TÜV Rheinland. This sector includes alternative propulsion systems and automation and digitalization in mobility, especially the trend towards autonomous vehicles on public roads. This involves testing vehicles and their homologation, function and technical monitoring in addition to the growing "intelligent" infrastructure. Everything needs to be created in a reliable and flexible way in order to allow for the growth and evolution of autonomous vehicles -- a process that will last decades.
Improving the quality of life as the "powerhouse of a modern society"
TÜV Rheinland will involve itself in the trends to sustain growth in the years to come. The company considers itself to be in an excellent position to positively shape digital changes for people and business.
"We have been responsible for quality and safety for people, technology and the environment for 145 years now. This is our mission," said Dr. Fübi. "This triad is being supplemented by new dimensions of quality and safety in areas such as digitalization and globalization. For us, bringing technical innovations to market maturity means the products and technologies involved should ideally benefit people and the environment by helping to improve the quality of life and address global challenges simultaneously. In this respect, we see ourselves as the powerhouse of a modern society."
About TÜV Rheinland
TÜV Rheinland is a global leader in independent inspection services, founded 145 years ago. The group maintains a worldwide presence with 19,700 employees; annual turnover is more than EUR 1.9 billion. The independent experts stand for quality and safety for people, technology and the environment in nearly all aspects of life. TÜV Rheinland inspects technical equipment, products and services, oversees projects, and helps to shape processes and information security for companies. Its experts train people in a wide range of careers and industries. To this end, TÜV Rheinland employs a global network of approved labs, testing and education centres. Since 2006, TÜV Rheinland has been a member of the United Nations Global Compact to promote sustainability and combat corruption. Website: www.tuv.com
