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ANNUAL REPORT 2008

ISS GLOBAL A/S

Cødtand! på Joe færd Ål
dn Pal 2009

Dom drgged Bj STEN
Attorney-at-Law

FRØ NL

Bredgade 30 - DK-1260 Copenhagen K
Telephone +45 3817 0000

ISS Globa! A/S

Bredgade 30

DK — 1260 Copenhagen K
Denmark

CVR 21 40 83 95

Phone: +45 38 17 00 00
Fax: +45 38 1700 11

 

CONTENTS

10

15

22

26

27

28

89

110

Key Figures
Company Report
Financial Review
Strategy — The ISS Way
Corporate Governance
Management Statement
Independent Auditor's Report
Consolidated Financial Statements
Parent Company Financial Statements

Definitions

 

 

ANNUAL REPORT 2008 / Contents

 

 

KEY FIGURES

 

 

 

 

 

Amounts in DKK million (unless otherwise stated) 2008 2007 2006 2005 2004
Revenue 68,848 63,935 55,784 46,453 40,365
Operating profit before other items 4,418 4,183 3,293 2,863 2,421

Operating margin before other items, % 6.4 6.5 5.9 6.2 6.0
EBITDA ” 3,954 3,868 3,536 2,940 2,411

Adjusted EBITDA ”: 2 5273 5,018 4,033 3,510 3,027
Operating profit 3,099 — 3,033 2,796 2,293 1,805
Net finance costs (1,924) (1,271) (1,183) (505) (347)
Profit before impairment/amortisation of brands and customer contracts 727 949 982 1,299 1,022
Net profit/(loss) for the year?” (42) 540 734 965 633
Additions to property, plant and equipment, gross 963 937 864 769 696
Cash flow from operating activities 3,675 3,021 3,006 1,610 2,156

Investments in intangible assets, property, plant and equipment, net (705) (699) (831) (542) (550)
Total assets 42,532 42,872 38,898 31,782 28,900
Goodwill 21,742 21,689 20,065 16,642 15,384
Carrying amount of net debt ” 23,778. 23,262 20,243 16,128 9,468
Total equity ” (15) 1,137 1,678 2,192 7,106
Financial ratios

Interest coverage ” 2.7 3.9 3.4 7.0 8.7
Cash conversion, % ” 103 101 103 92 109
Employees on full-time, % 69 68 66 61 57
Number of employees at 31 December 472,700. 438,000  391,400  310,800  273,500
Growth

Organic growth, % ” 5.3 6.0 5.5 3.0 1.5
Acquisitions, net, % 6 9 15 11 11

Total revenue, % 8 15 20 15 12
Currency adjustments, % (3) (0) 0 1 (0)

 

Note: Except for the key figures that can be directly derived from the consolidated financial statements on pages 29-33 of this report, the key figures and
ratios above are not measures of financial performance under Danish GAAP or IFRS. ISS Global includes these financial measures because it believes
that they are appropriate measures of ISS Global's financial performance. Other companies, including those in ISS Global's industry, may calculate
similarly titied financial measures differently.

The applied accounting principles are described in note 1, Significant accounting policies to the consolidated financial statements.
1) See page 110 for definitions.

2) Adjusted EBITDA, as calculated by the Group, represents Operating profit before other items plus Depreciation and amortisation. By using Operating
profit before other items for the calculation of adjusted EBITDA instead of Operating profit, the Group excludes from the caiculation of adjusted
EBITDA integration costs relating to acquisitions and those items recorded under Other income and expenses, net, in which the Group includes
income and expenses that it believes do not form part of the Group's normal ordinary operations, such as gains and losses arising from divestments,
the winding up of operations, disposals of property, restructuring and certain acgquisition related costs. Some of the items that the Group records under
the line item Other income and expenses, net, are recurring and some are non-recurring in nature.

3) Excluding Goodwill impairment and write-down and Amortisation of brands and customer contratcs.

4) including minority interests.

 

ANNUAL REPORT 2008 / Key Figures 3

 

 

COMPANY REPORT

ISS Global A/S is a wholiy owned subsidiary of ISS
A/S (referred to as "ISS”), an international provider of
facility services. ISS Global A/S (referred to as "ISS
Global" or "the Group”) owns — directly or indirectly —
the ISS Giobal Group's operating companies.

BUSINESS HIGHLIGHTS OF THE YEAR

2008 was characterised by the continued focus on
cash flow, profitability and growth. During 2008, ISS
Global achieved a number of milestones that moved
the company towards the Group's visions to "Lead
Facility Services globally — by leading Facility Ser-
vices locally.”

In 2008, the Group introduced "The ISS Way” strategy
plan, which continued to focus on the needs of the
customers and to drive Integrated Facility Services
(IFS) solutions and efficiencies. Furthermore, the
strategy takes new steps towards aligning the Group's
business model and strengthening knowledge sharing
across the Group. "The ISS Way” focuses on continu-
ing the development of single-service excellence con-
cepts and Integrated Facility Services capabilities, re-
gional and global knowledge and best-practice shar-
ing, as well as increased focus on cross-border sales.

In 2008, total Group revenue amounted to DKK 68.8
billion, an increase of 8% from 2007. ISS Global
passed another new milestone in October 2008, when
monthly revenue surpassed DKK 6 billion for the first
time in the company's history.

During the year, ISS Global continued to develop its
service mix to broaden the Group's service offerings,
by building up critical mass of services in selected
countries, and expanding further both organically and
through acquisitions, particularly in growth regions.
The transition towards becoming a true global Inte-
grated Facility Services provider continued. Integrated
Facility Services sales accounted for 16% of total
Group revenue in 2008.

In order to strengthen our service offerings and pur-
sue opportunities in countries with high growth poten-
tial, ISS Global continued to acquire businesses. By
the end of the year, ISS Global had completed a total
of 66 acquisitions with total annual revenue estimated
at approximately DKK 3.9 billion.

In line with strategy, ISS Global focused on acquisi-
tions within Catering and Security services, which ac-
counted for 25% and 22%, respectively, of total ac-
quired revenue. ISS Globa! continued investing in
Cleaning services through acquisitions, which ac-
counted for 26 % of the total acquired revenue.

Considering the turmoil in the financial markets and
the severe economic challenges experienced by the
global economy in the second half of 2008, ISS
Global maintained a satisfactory performance.

The organic growth for the year was 5.3%, slightly
lower than in 2007. All regions and almost all coun-
tries added to the organic growth with Asia and Latin
America once again achieving double-digit organic
growth rates.

Throughout the year, ISS Global remained focused on
operational efficiency. Operating profit before other
items amounted to DKK 4.4 billion, up by 6% com-
pared with 2007. ISS Global maintained a solid oper-
ating margin before other items of 6.4% in 2008.

ISS Global generated positive cash flow and in-
creased the net inflow from operating activities from
DKK 3.0 billion in 2007 to DKK 3.7 billion, due to a
combination of an improved operational result and a
strong cash conversion.

In 2007, ISS Global implemented a global Corporate
Client organisation in order to win IFS contracts with
large multinational or global clients. As a direct result,
in March 2008, ISS Global entered into an interna-
tional Integrated Facility Services contract with HP, a
leading international technology solutions company.
This contract covers more than 45 countries in
Europe, the Middle East, Asia and Africa and is the
largest contract in ISS Global's history as well as a
significant milestone in ISS Global's pursuit of the
corporate vision of being the leading global Facility
Services provider.

At the end of the year, ISS Global had more than
472,000 employees worldwide. Hence since year-end
2007, a net increase of roughly 35,000 employees
joined the company as a result of either organic
growth or through acquisitions.

Performance highlights

> Revenue growth in the continuing business was
13% at constant exchange rates. Adverse foreign
exchange adjustments and divestments reduced
the growth to 8%

> Operating margin before other items was 6.4% in
2008

> Cash conversion increased from 101% in 2007 to
103% in 2008

> Cash flow from operations increased from DKK
3.0 billion in 2007 to DKK 3.7 billion in 2008

REGIONAL DEVELOPMENT

The "ISS world" consists of seven regions: Nordic,
Western Europe, Eastern Europe, Asia, Latin Amer-
ica, the USA and Pacific. The key principle for group-
ing countries is that countries share market conditions
and culture to the largest possible extent. The group-
ing also reflects the differences between mature re-
gions and growth regions.

In the fourth quarter of 2008 and the beginning of
2009, those countries in Europe most exposed to the
industry segments experienced a slow down, includ-
ing France, Belgium, Spain and a number of Eastern
European countries.

 

ANNUAL REPORT 2008 / Company Report

 

 

Nordic

The Nordic region comprises Denmark, the Faroe Is-
lands, Finland, Greenland, Iceland, Norway and Swe-
den.

The Nordic market is one of the more mature markets
in the Group, and ISS Global is the leader within the
facility services market throughout the region.

The strategy for the Nordic region continues to focus
on mainly organic growth and on developing Single
Services and Integrated Facility Services concur-
rently. A cornerstone for continuous success in the
Nordic markets is to provide the best service within
each of the single-service markets. Consequently, in
2008, great efforts were made to further develop not
only Integrated Facility Services, but also each of the
Single Services.

In 2008, revenue in the Nordic region increased by
4% from DKK 16,488 million in 2007 to DKK 17,071
million. The increase was driven by positive organic
growth of 5% throughout the region. The main con-
tributors were Norway, Sweden and Finland. Growth
from acquisitions contributed 1% growth while cur-
rency adjustments decreased revenue by approxi-
mately 2% for the region.

Operating profit before other items in the Nordic re-
gion amounted to DKK 1,189 million compared with
DKK 1,162 million in 2007. The operating margin in
the region was 7.0% in 2008, in line with the margin
realised in 2007. This was due to an operating margin
increase in Denmark, offset by slight margin de-
creases in the other countries. In Norway, the 2008
performance was negatively impacted by below-
average margin projects in the building maintenance
activities and was positively impacted by a recognised
curtailment gain of DKK 30 million related to defined
benefit pension plans. The operating margin in 2007
was impacted by curtailment gains on defined benefit
schemes of DKK 32 million and DKK 13 million in
Sweden and Norway, respectively.

Western Europe

The Western European region comprises Austria,
Belgium & Luxembourg, France, Germany, Greece,
Ireland, Israel, Italy, the Netherlands, Portugal, Spain,
Switzerland, Turkey and the United Kingdom.

The Western European market is a generally mature
market characterised by a high level of single-service
outsourcing. The market is becoming increasingly pro-
fessional and is gradually moving towards Multi Ser-
vices and Integrated Facility Services driven by cus-
tomers constantly searching for efficiency and cost
reductions while focusing on their own core busi-
nesses.

In 2008, revenue in the Western European region in-
creased by 4% from DKK 37,709 million in 2007 to
DKK 39,337 million. Organic growth was 4% and
growth from acquisitions was 6%, while divestments
and currency adjustments each reduced revenue for
the region by approximately 3%. With the exception of
the Netherlands and France, organic growth was posi-
tive in all countries in the region with Greece, Turkey
and Israel delivering double-digit organic growth

rates. In France, the largest country in the Group,
revenue decreased as a result of the divestment of
the non-core energy activities, which generated reve-
nue of DKK 909 million in 2007. Adjusted for this ef-
fect, revenue in France increased by 1% in 2008.

Operating profit before other items in Western Europe
amounted to DKK 2,356 million in 2008, the same as
in 2007. The operating margin of 6.0% was 0.2 per-
centage points lower compared with 2007, which was
due to the Netherlands, where operational challenges,
mainly in three business units, resulted in losses and
a margin reduction from 6.0% in 2007 to 2.9% in
2008. Turnaround plans are being implemented, in-
cluding changes in management teams, organisa-
tional set ups and business processes. The margin is
positively impacted by one-off income, net of DKK 45
million related mainly to settlement of a dispute on so-
cial charge contributions for prior years. Furthermore,
Germany, Switzerland and France realised slightly
lower margins than in 2007. The margin decreases
were partly offset by margin increases in Ireland and
Turkey. In Ireland the increase was due to the suc-
cessful restructuring of the business activities follow-
ing the divestment of the landscaping division in Au-
gust 2007.

Eastern Europe

The Eastern European region comprises Croatia, the
Czech Republic, Estonia, Hungary, Poland, Romania,
Russia, Slovakia and Slovenia.

The Eastern European region remained a growth re-
gion for ISS Global in 2008. While continuing to in-
crease critical mass in all countries within Cleaning as
the core business platform, the service transforma-
tions continued in 2008, within Property Services and
Catering in particular, as a result of competence-
enhancing acquisitions in 2007 and 2008.

In line with the focus on growth regions, revenue in
Eastern Europe increased by 36% from DKK 1,226
million in 2007 to DKK 1,663 million in 2008. The in-
crease was driven by acquisition growth of 19% and
organic growth of 9%. The organic growth was posi-
tive in all countries in the region with the exception of
Slovakia. Currency adjustments increased revenue by
8% compared with 2007.

The operating profit before other items in Eastern
Europe increased by 35% to DKK 124 million in 2008.
The operating margin was 7.4% in 2008, the same as
in 2007. In addition to the significant 2008 revenue
growth in the region all countries, apart from Slovenia,
Slovakia and Croatia, increased their operating mar-
gin in 2008 compared with 2007.

Asia

The Asian region comprises Brunei, China, Hong
Kong, India, Indonesia, Malaysia, the Philippines,
Singapore, Sri Lanka, Taiwan and Thailand.

The service transformation from predominantly Clean-
ing to the current service split with which Cleaning
only accounts for 51% of revenue is well under way in
the region. The key transformational moves have
been a number of acquisitions within Office Support,

 

ANNUAL REPORT 2008 / Company Report

5

 

 

Property Services and Catering, in particular. The lat-
est of these acquisitions is Golden Mind Services in
Thailand, a manpower company that added approxi-
mately DKK 204 million annual revenue and 9,000
employees to ISS Global in Thailand.

Revenue in Asia increased by 31% from DKK 2,409
million in 2007 to DKK 3,147 million in 2008. The in-
crease was driven by 20% organic growth and 18%
growth from acquisitions, partly offset by a 7% de-
crease from adverse currency adjustments. The or-
ganic growth was driven mainly by India and Indone-
sia, and organic growth rates were double-digit in all
countries in the region except Brunei and Taiwan.

The operating profit before other items in Asia in-
creased by 33% to DKK 210 million in 2008 compared
with DKK 158 million in 2007. The operating margin
increased to 6.7% compared with 6.6% in 2007. This
was due primarily to operating margin increases in
Malaysia, India, Taiwan and Singapore, partly offset
by margin decreases in the Philippines and Thailand.

Latin America
The Latin American region comprises Argentina, Bra-
zil, Chile, Mexico and Uruguay.

The current regional geographical footprint places ISS
Global in a unique position to exploit the growth po-
tential that categorises Latin America as one of the
world's emerging markets. ISS Global continued to re-
fine its single-service and multi-service delivery model
in 2008. Furthermore, as the IFS market in Latin
America has a rather low maturity level, ISS Global
has continued to focus on consolidating and expand-
ing the service mix and capabilities to drive the re-
quest for service delivery through IFS. During 2008,
ISS Global acquired strategically important catering
companies in Mexico and Uruguay, which have sig-
nificantly strengthened our catering offering in the re-
gion. ISS Global also entered the security market in
Chile through an acquisition.

Revenue in Latin America increased by 27% from
DKK 1,484 million in 2007 to DKK 1,890 million in
2008. Organic growth was 17% and all countries de-
livered double-digit growth rates. Growth from acquisi-
tions was 14%, and currency adjustments reduced the
revenue for the region by approximately 4%.

The operating profit before other items in Latin Amer-
ica increased by 27% to DKK 109 million in 2008. The
operating margin was 5.8%, the same as in 2007. All
countries in the region except Brazil increased their
operating margin in 2008.

USA

ISS Global entered the USA in June 2007 through the
acquisition of the cleaning company Sanitors, Inc. In
April 2008, ISS Global further strengthened its pres-
ence in the USA through the acquisition of BGM In-
dustries, adding DKK 510 million in estimated annual
revenue. BGM Industries is primarily a cleaning com-
pany with a strong position in the Midwest and a spe-
cial expertise in airport cleaning. More than 70% of
US revenue originates from cleaning, which makes
ISS Global the eighth-largest provider in the US
cleaning market.

Outsourcing of facility services and Facility Manage-
ment are already well accepted by US corporations —
however only a few providers offer IFS. This repre-
sents a significant opportunity for ISS Global and we
will focus on building IFS capabilities suitable for the
US market.

Revenue in the USA amounted to DKK 2,131 million
in 2008, with organic growth contributing 6%.

The operating profit before other items in the USA
amounted to DKK 128 million in 2008 compared with
DKK 62 million in 2007, which included only seven
months of operations. The operating margin in 2008
was 6.0% compared with 5.6% in 2007.

Pacific

The Pacific region comprises Australia, which ISS
Global entered in 2002 and New Zealand, which ISS
Global entered in 2005. ISS Australia delivers more
than 90% of the revenue in the region.

2008 was a year of consolidation with focus on inte-
gration and margins in the Pacific region. Further-
more, ISS New Zealand consolidated its position
within the security market through the acquisition of
the manned guarding and mobile patrolling activities
from Chubb, an international security provider in New
Zealand, in December.

Revenue in the Pacific region increased by 3% from
DKK 3,519 million in 2007 to DKK 3,614 million in
2008. The growth was driven primarily by organic
growth of 4% stemming from positive organic growth
in both Australia and New Zealand. Acquisitions in-
creased revenue by 5%, while currency adjustments
reduced revenue by approximately 6%.

The operating profit before other items in the Pacific
region amounted to DKK 230 million in 2008 com-
pared with DKK 225 million in 2007. The operating
margin in the region amounted to 6.4% in 2008, the
same as in 2007. This was negatively impacted by a
decrease in income related to workers compensation
incentives received from the Australian government,
which decreased from DKK 34 million in 2007 to DKK
20 million in 2008.

BUSINESS DEVELOPMENT IN 2008

In line with "The ISS Way” strategy, we continue to
strengthen the services we offer to the clients. During
2008, country operations continued their ongoing ef-
fort to improve single-service offerings and the way in
which services are delivered while continuing to de-
velop their Integrated Facility Services capabilities.

SERVICES

Cleaning

ISS Global's Cleaning offering encompasses a range
of services within daily office cleaning, hospital clean-
ing, food hygiene, industrial cleaning, cleaning in
transport systems, dust control, washroom services
and specialised cleaning e.g. of windows, communi-
cation equipment etc.

 

ANNUAL REPORT 2008 / Company Report

 

 

In 2008, Cleaning remained ISS Global's largest busi-
ness area, representing 53% of total Group revenue,
or DKK 36.5 billion compared with 54% in 2007.
Measured by revenue, Cleaning grew by 5% from
2007. During 2008, ISS Global acquired 14 compa-
nies specialised completely or primarily in cleaning in
13 different countries. In total, these acquisitions
added approximately DKK 1.0 billion to the Group's
annual revenue.

Property Services

ISS Global's Property Services offering encompasses
building maintenance, landscaping, pest control and
damage control.

In 2008, revenue in Property Services amounted to
DKK 15.4 billion representing 22% of total Group
revenue compared with 24% in 2007. Revenue was
reduced in 2008 following the divestment of the en-
ergy activities in France, which generated revenue of
DKK 0.9 billion in 2007, as this specialised technical
service did not match the strategic fit with the remain-
ing property services offering in France.

During the year, ISS Global expanded its offering of
property services to new geographies and increased
density in other markets where the services were al-
ready available. The offering of building maintenance
and technical services was strengthened through ac-
quisitions in several countries, including acquisitions
in Singapore and Hong Kong. The position in iand-
scaping was further consolidated through acquisitions
in France and Spain. Finaily, several smaller acquisi-
tions of pest control activities were completed
throughout the Group in 2008.

Office Support

ISS Global's Office Support offering encompasses the
operation of receptions, intemal mail handling, scan-
ning and other office logistics, call centres, manpower
supply, and out-placement services.

In 2008, Office Support accounted for approximately
6% of total Group revenue, the same as in 2007, In
absolute figures, revenue in Office Support increased
from DKK 3.9 billion in 2007 to DKK 4.1 billion in
2008. ISS Global's service offering within Office Sup-
port was strengthened through nine acquisitions
spanning several countries mainly within the man-
power and temporary staffing activities, which alone
added approximately DKK 0.5 billion in annual reve-
nue.

Catering

ISS Global's Catering offering includes in-house res-
taurants, catering services e.g. for meetings and
events, executive dining and coffee solutions.

Catering accounted for about 8% of total Group reve-
nue in 2008, or DKK 5.7 billion, up by DKK 1.5 billion
compared with last year. ISS Global made strategi-
cally important catering acquisitions in several coun-
tries, the most significant being Sardunya in Turkey,
Topic Catering in Australia, Gastronomia Mediterra-
nea in Spain and Servicoin in Mexico. All in all, the 11
acquisitions of catering companies completed in 2008
added approximately DKK 1.0 billion in annual reve-
nue.

Security
ISS Global's Security offering includes primarily
manned guarding, access control and patrolling.

Annual revenue amounted to DKK 4.3 billion, equiva-
lent to 6% of total revenue in 2008, one percentage
point up from 2007. During 2008, ISS Global's offering
of Security was significantly expanded through eight
acquisitions of security companies and capabilities in
Chile, Finland, Greece, Hong Kong, Israel, New Zea-
land, Norway, and the United Kingdom, which added
approximately DKK 0.9 billion in annual revenue.

Facility Management (FM)

ISS Global's offering within Facility Management in-
cludes on-site management of facility services,
change management, space management and con-
sulting.

In 2008, Facility Management generated revenue of
DKK 2.7 billion, equivalent to 4% of total revenue, the
same relative share as the year before but equal to
growth of almost DKK 0.2 billion in revenue.

ACQUISITIONS

During 2008, ISS Global completed 66 acquisitions
spanning 28 countries. 12 of these acquisitions had
annualised revenue of more than DKK 100 million.
With the acquisitions, ISS Global gained annualised
revenue of approximately DKK 3.9 billion and almost
40,000 employees.

In 2008, ISS Global completed the following strategic
acquisitions:

Adams Secuforce — Hong Kong

In January, ISS Global acquired Adams Secuforce in
Hong Kong. Adams Secuforce has more than 13
years of experience with security and guarding in both
the private and public sectors, and more than 1,600
employees.

Security is a vital component of ISS Global's Inte-
grated Facility Services strategy in Asia, and the in-
vestment in Adams Secuforce adds further depth to
ISS Global's Hong Kong operations. This acquisition
firmly establishes ISS Global as the leading provider
of fully integrated property and facility services in
Hong Kong and Greater China. The acquisition added
approximately DKK 111 million in annual revenue.

Kfir — Israel

In March, ISS Global acquired Kfir, the fourth largest
provider of facility services in Israel. Kfir's position has
been achieved primarily through a very good reputa-
tion for delivering professional high-quality services
resulting in long-term relationships with key custom-
ers. Kfir, which is based in Haifa in the northern part
of Israel, had approximately 4,500 employees and is a
nationwide provider of cleaning services, manned
guarding and manpower services for a wide range of
public and B2B customers.

Kfir was acquired to expand the range of services of-
fered by ISS Israel through entering the security seg-
ment and gaining immediate critical mass. In addition,

 

ANNUAL REPORT 2008 / Company Report

7

 

 

Kfir adds further critical mass within cleaning and
manpower services. The acquisition added approxi-
mately DKK 268 million in annual revenue.

Aspis — Greece

In April, ISS Global acquired Aspis Security S.A., the
third-largest security provider in Greece. Aspis Secu-
rity has 17 years of experience within security and
manned guarding in both the private and public sec-
tors and a workforce in excess of 1,400 employees.

This acquisition significantly increases ISS Greece's
size and nation-wide presence. Furthermore, the ac-
quisition provides ISS Greece with a solid platform in
the security services market while serving as a major
step in the strategic transformation of ISS Greece into
a leading nation-wide facility services provider. The
acquisition added approximately DKK 216 million in
annual revenue.

BGM — USA

In April, ISS Global acquired BGM Industries in the
USA, a Midwest facility services provider. BGM has
over 30 years of experience in the USA in property
services and security, but has expanded its service of-
fering over recent years, and cleaning services is now
the company's largest business area.

ISS Global gained an important presence in the US
market when acquiring Sanitors Inc. in 2007 as part of
the strategy to be a global leader in facility services.
The acquisition of BGM is consistent with ISS Global's
strategic goal of expanding its presence and geo-
graphical coverage and strengthening ISS Global's
service offering and market position in the USA. The
acquisition added approximately DKK 510 million in
annual revenue and 3,800 employees.

Topic Catering — Australia

In June, ISS Global expanded its business in the Aus-
tralian market through the acquisition of Topic Cater-
ing, a large catering company established in 1988 and
centred in Pilbara, a large region dominated by the
natural resources industry. Topic's customers are pre-
dominantly large mining companies. Furthermore, the
acquisition through reference customers provides an
opportunity to organically expand catering and camp
management services into remote areas of Australia.

The acquisition of Topic is a logical step towards ISS
Australia offering fully Integrated Facility Services to
the remote natural resources sector. The acquisition
added approximately DKK 184 million in annual reve-
nue and approximately 200 employees.

Sardunya — Turkey

In June, ISS Global acquired Sardunya, the third-
largest provider of catering in Turkey. The well re-
spected catering company provides catering services
throughout Turkey and is headquartered in Istanbul
where more than half of the revenue is generated.
Sardunya was established in 1989 and has grown or-
ganically to its size at time of acquisition with 94
kitchens and approximately 1,500 employees. The
customer portfolio consists of primarily B2B custom-
ers, private hospitals and private schools.

The acquisition of Sardunya added catering to ISS
Turkey's facility services platform and enables ISS
Global to offer catering in combination with other ser-
vices in addition to pursuing the potential within the
catering market itself in Turkey. The acquisition added
approximately DKK 298 million in annual revenue.

Golden Mind — Thailand

In September, ISS Global expanded its operations in
Thailand into the growing office support business
segment through the acquisition of Golden Mind Ser-
vices Ltd., the largest office support and manpower
provider in Thailand with about 9,000 employees.

The acquisition established the Office Support pillar
within ISS Thailand and added immediate critical
mass. In addition, ISS Thailand became a fully
fledged provider of facility services and significantly
expanded its revenue, customer base and workforce.
The acquisition added approximately DKK 204 million
in annual revenue.

Chubb — New Zealand

in December, ISS Global acquired the manned guard-
ing and mobile patrolling activities from the interna-
tional security provider Chubb in New Zealand. To-
gether with the existing security business, the ac-
quired activities will provide ISS New Zealand with na-
tionwide coverage within the security segment.

Furthermore, the acquisition of Chubb has trans-
formed ISS New Zealand into a national multi-service
provider and has thereby significantly increased ISS
Global's size and presence in New Zealand. The ac-
quisition added approximately DKK 132 million in an-
nual revenue and approximately 600 employees.

MANAGEMENT CHANGES

The management team of ISS Global formally con-
sists of the Managing Directors of ISS Global. As ISS
Global has no operating activities of its own it relies
on the management team of ISS A/S, which consists
of the Executive Group Management and Group
Management Board. Consequently, the management
changes described below also include management
changes in ISS A/S.

As announced in December 2007, Jeff Gravenhorst
was appointed Group Chief Operating Officer (COO)
with effect from 1 April 2008. He continued to act as
Group Chief Financial Officer (CFO) until his succes-
sor, Jakob Stausholm, was appointed on 1 September
2008.

With effect from 1 September 2008, Jakob Stausholm
replaced Bjørn Raasteen as member of the Board of
Directors in ISS Global A/S.

SUBSEQUENT EVENTS

ISS Global has made a number of acquisitions sub-
sequent to 31 December 2008. All acquisitions con-
cluded between 1 January 2009 and 28 February
2009 are listed in note 11, Acquisition and divestment
of businesses, to the consolidated financial state-
ments.

 

ANNUAL REPORT 2008 / Company Report

 

With the exception of the above and the events de-
scribed in this Annual Report, ISS Global is not aware
of events subsequent to 31 December 2008 that are
expected to have a material impact on ISS Global's fi-
nancial position.

OUTLOOK

The outlook set out below should be read in conjunc-
tion with "Forward-looking statements” (see below)
and the description of Risk management on page 24
of this report.

In 2009, ISS Global will continue its strategic course
towards offering Integrated Facility Services,
strengthening single-service excellence and maintain-
ing its focus on key operational objectives (i) cash
flow; (ii) operating margin; and (iii) profitable organic
growth. In 2009, ISS Global will continue rolling out
the initiatives included in its strategy plan — "The ISS
Way”, which focuses on further aligning the business
model and strengthening knowledge-sharing abilities.
The initiatives include the continued development of
single-service excellence concepts and Integrated
Facility Services capabilities, regional and global
knowledge and best-practice sharing, as well as in-
creased focus on cross-border sales by strengthening
the global Corporate Client organisation.

During the second half of 2008 the financial markets
deteriorated but ISS Global has committed long-term
financing in place with only a part to be refinanced in
the second half of 2010. ISS Global is exploring a
range of different refinancing options in order to be
well prepared for the upcoming refinancing of the
EUR 850 million Medium Term Notes (EMTNs) due to
mature in September 2010. ISS Global also has ac-
quisition facilities available to continue to acquire
companies in line with ISS Global's strategy until May
2009.

ISS Global's business should be fairly resilient to the
current slow down in the global economies and ISS
Global's business model is well positioned to benefit
from attractive sales opportunities, as ISS Global's
value proposition can help clients become more effi-
cient through outsourcing. Consequently, at the pre-
vailing currency rates and including acquisitions and
divestments completed up to 28 February 2009, ISS
Global expects revenue to continue to grow organi-
cally, although at lower levels than in 2008, supple-
mented by selective acquisitions within more tight
constraints both in terms of strategic and financial cri-
teria. The operating margin is expected to be around
at the current level in 2009.

 

Forward-looking statements

 

 

This report may contain forward-looking statements. Statements herein, other than statements of historical fact,
regarding future events or prospects, are forward-looking statements. The words "may”, 'will”, "should”, "expect”,
"anticipate”, "believe”, "estimate”, "plan”, "predict”, "intend” or variations of these words, as well as other state-
ments regarding matters that are not historical fact or regarding future events or prospects, constitute forward-
looking statements. ISS Global has based these forward-looking statements on its current views with respect to fu-
ture events and financial performance. These views involve a number of risks and uncertainties, which could
cause actual results to differ materially from those predicted in the forward-looking statements and from the past
performance of ISS Global. Although ISS Global believes that the estimates and projections reflected in the for-
ward-looking statements are reasonable, they may prove materially incorrect, and actual results may materially dif-
fer, e.g. as the result of risks related to the facility service industry in general or ISS Global in particular including
those described in this report and other information made available by ISS Global.

As a result, you should not rely on these forward-looking statements. ISS Global undertakes no obligation to up-
date or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
except to the extent required by law.

 

 

 

ANNUAL REPORT 2008 / Company Report

 

FINANCIAL REVIEW

INCOME STATEMENT

Revenue

Revenue amounted to DKK 68,848 million represent-
ing revenue growth of 11%, excluding foreign ex-
change adjustments, compared with 2007. Revenue
growth was driven by 5% organic growth and 8%
growth from acquisitions. This was partly offset by di-
vestments of 2% and adverse currency exchange rate
movements of 3%. The organic growth was, as ex-
pected, driven by double-digit growth rates in the
growth economies of Asia and Latin America. Stable
organic growth was experienced in all other regions.

Staff costs

Staff costs increased by DKK 3,126 million, or 8%,
from DKK 40,837 million in 2007 to DKK 43,963 mil-
lion in 2008. This increase was due primarily to an in-
crease in the overall number of employees as a result
of acquisitions and organic growth. Staff costs as a
percentage of revenue was 63.9% in 2008 which was
level with 2007.

Cost of sales

Cost of sales increased by DKK 520 million, or 9%,
from DKK 5,614 million in 2007 to DKK 6,134 million
in 2008. This increase was due primarily to acquisi-
tions and organic growth. Cost of sales as a percent-
age of revenue amounted to 8.9% in 2008, a slight in-
crease compared with 8.8% in 2007.

Other operating expenses
Other operating expenses increased by DKK 1,012
million, or 8%, from DKK 12,466 million in 2007 to

DKK 13,478 million in 2008. This increase was due
primarily to acquisitions and organic growth. Other
operating expenses as a percentage of revenue to-
talled 19.6% in 2008, a slight increase compared with
19.5% in 2007.

Depreciation and amortisation

Depreciation and amortisation excluding amortisation
of brands and customer contract portfolios and related
customer relationships (customer contracts) increased
by DKK 20 million, or 2%, from DKK 835 million in
2007 to DKK 855 million in 2008, which as a percent-
age of revenue was a slight decrease from 1.3% in
2007 to 1.2% in 2008.

Operating profit before other items

Operating profit before other items increased by DKK
235 million, or 6%, from DKK 4,183 million in 2007 to
DKK 4,418 million in 2008. Operating profit before
other items as a percentage of revenue, i.e. the oper-
ating margin before other items, was 6.4% in 2008
compared with 6.5% in 2007, due to lower earnings in
the Netherlands. In line with previous years, a number
of non-recurring items affected the Group in 2008, in-
cluding curtailment gains related to defined benefit
plans, income related mainly to settlement of a dis-
pute on social charge contributions for prior years and
workers” compensation incentives received. Corporate
items in 2008 were an income of 0.1% of revenue
which was level with 2007.

 

 

 

 

 

 

Operating results 2008
Operating profit Operating margin
Revenue before other items before other items
DKK million DKK million

2008 2007 Change 2008 2007 Change 2008 2007
Nordic ” 17,071 16,488 4% 1,189 1,162 2% 7.0 % 7.0 %
Western Europe ? 39,337 37,709 4% 2,356 2,356 0% 6.0 % 6.2 %
Eastern Europe 1,663 1,226 36% 124 91 35% 7.4% 7.4%
Asia ” 3,147 2,409 31% 210 158 33% 6.7% 6.6 %
Latin America ? 1,890 1,484 27 % 109 86 27% 5.8 % 5.8 %
usa? 2,131 1,100 94 % 128 62 106% 6.0 % 5.6 %
Pacific > 3,614 3,519 3% 230 225 2% 6.4 % 6.4 %
Corporate / eliminations (5) (0) 72 43 67% 0.1% 0.1 %
Total 68,848 63,935 8% 4,418 4,183 6% 6.4 % 6.5 %

1
2:

Turkey and the United Kingdom.
3

4)
5)

Latin America comprises Argentina, Brazil, Chile, Mexico and Uruguay.

Se

7) Pacific comprises Australia and New Zealand.

Nordic comprises Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden.
Western Europe comprises Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, |taly, the Netherlands, Portugal, Spain, Switzerland,

Eastem Europe comprises Bosnia and Herzegovina, Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia.
Asia comprises Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Sri Lanka, Taiwan and Thailand.

USA was established as a region through the acquisition of Sanitors Inc. in June 2007.

 

 

 

ANNUAL REPORT 2008 / Financial Review

10

 

Other income and expenses, net

Other income and expenses, net, represented a net
expense of DKK 169 million in 2008 compared with a
net expense of DKK 81 million in 2007. This related
partly to losses on divestments of non-core activities,
including the non-strategic temporary staffing and
landscaping businesses in Austria and subsequent
restructuring of the organisational setups in both
France and Austria. Furthermore, other income and
expenses included costs related to a restructuring
project in the Netherlands comprising changes in
management teams, organisational setups and busi-
ness units, a relocation project in Norway as well as
redundancy and severance payment relating to organ-
isational changes.

Other income and expenses, net, in 2007 represented
a net expense of DKK 81 million and included a gain
on the sale of a call option relating to a property in
Norway and a gain related to the sale of a PFI stake
in the United Kingdom. These gains were møre than
offset by losses on divestments related mainly to
landscaping activities in Ireland and part of the energy
activities in France, restructuring costs related to of-
fice relocation and reorganisational projects in Norway
and the Netherlands, as well as costs for consolidat-
ing properties in central London and Scotland.

Integration costs

Integration costs amounted to DKK 66 million in 2008,
which was level with 2007. Integration costs in 2008
related primarily to redundancy payments and termi-
nation of rental obligations with respect to acquired
companies in Germany, Spain, the USA, France and
Israel.

Royalty

Royalty increased in 2008 to DKK 1,084 million from
DKK 1,002 million in 2007. Royalty consists of pay-
ments to ISS A/S for the right to use the ISS brand
and know-how.

Operating profit

Operating profit increased by DKK 66 million, or 2%,
from DKK 3,033 million in 2007 to DKK 3,099 million
in 2008.

Share of result from associates

The share of result from associates decreased by
DKK 5 million from a profit of DKK 8 million in 2007 to
DKK 3 million in 2008.

Net finance costs

Net finance costs increased by DKK 653 million, or
51%, to DKK 1,924 million in 2008 from DKK 1,271
million in 2007. In 2007, net finance costs included
DKK 227 million of non-recurring income relating to a
net accounting gain as a consequence of ISS Global's
refinancing of approximately EUR 390 million of Me-
dium Term Notes (EMTNs) due in 2014. Excluding the
impact of the accounting gain, net finance costs in-
creased by 28%. The main reasons for the increase
were additional drawings to fund acquisitions in line
with expectations and an increase in net debt as a re-
sult of a push down of debt from ISS Holding A/S as
well as a negative impact from loss on foreign ex-
change, which were partly offset by the savings im-
pact from the July 2007 refinancing.

In 2008, net finance costs included DKK 1,771 million
of net interest expenses, DKK 207 million of net loss
on foreign exchange and DKK 33 million of amortisa-
tion of financing fees.

Profit before tax and goodwill impairment/
amortisation of brands and customer con-

tracts

Profit before tax and goodwill impairment/amortisation
of brands and customer contracts decreased by DKK
592 million from DKK 1,770 million in 2007 to DKK
1,178 million in 2008.

Income taxes

Income taxes decreased from DKK 821 million in
2007 to DKK 451 million in 2008. The effective tax
rate was 38.3% in 2008 compared with 46.4% in
2007, calculated as the consolidated tax provision of
DKK 451 million divided by the profit before tax and
goodwill impairment/amortisation of brands and cus-
tomer contracts of DKK 1,178 million. The tax ex-
pense in 2007 was adversely impacted by change of
valuation of net tax assets accounting for approxi-
mately DKK 273 million. In 2008, this amount was ap-
proximately DKK 86 million.

 

 

 

 

 

Revenue growth 2008
Revenue growth, %
Total growth excl.
Organic Acq.J/Div., net currency Currency Total growth
Nordic 5 1 6 (2) 4
Western Europe 4 3 7 (3) 4
Eastern Europe 9 19 28 8 36
Asia 20 18 38 (7) 31
Latin America 17 14 31 (4) 27
USA” 6 22 28 (4) 24
Pacific 4 5 9 (6) 3
Total 5 6 11 (3) 8

1) USA was established as a region through the acquisition of Sanitors Inc. in June 2007. The growth rates above are presented on a like-for-fike basis and represents
the development in the 7 months ended December 2008 compared to the same period in 2007, The revenue in 2008 against 2007 increased by 94%.

 

 

 

ANNUAL REPORT 2008 / Financial Review

11

 

 

 

Finally, the tax expense in 2008 was adversely im-
pacted by withholding taxes that are non-proportional
to the profit before tax and limitations to deductions of
financial expenses.

Profit before goodwill impairment/amortisa-
tion of brands and customer contracts

Profit before goodwill impairment/amortisation of
brands and customer contracts decreased by DKK
292 million, or 23%, from DKK 949 million in 2007 to
DKK 727 million in 2008.

Goodwill impairment and write-down

Goodwill impairment and write-down amounted to
DKK 414 million, of which DKK 250 million related to
ISS Global's business in Germany and DKK 65 million
related to ISS Global's business in Italy, and was rec-
ognised following impairment tests. The impairment
losses resulted from an increase in the discount rate
applied combined with declining market conditions
within certain business activities in which ISS Global
operates. The remaining DKK 99 million related to the
divestment of ISS Global's non-strategic temporary
staffing and landscaping businesses in Austria as well
as minor divestments in Norway. In 2007, goodwill
impairment and write-down amounted to DKK 99 mil-
lion, and related primarily to the divestments of ISS
Global's landscaping business in Ireland and the first
part of the non-core energy activities in France.

Amortisation of brands and customer con-

tracts

Amortisation of brands and customer contracts
amounted to DKK 495 million in 2008, an increase
from DKK 439 million in 2007. The amortisation re-
lated primarily to customer contracts, whereas only a
minor part of the amortisation related to local brands.

Tax effect

The tax effect of goodwill impairment and write-down
and amortisation of brands and customer contracts,
which is presented separately in the income state-
ment to show the effective tax percentage before im-
pairment/amortisation of intangibles, was DKK 140
million in 2008 and DKK 129 million in 2007. In 2007,
the tax effect related to amortisation of brands and
customer contracts was positively impacted by the re-
duction in corporate income tax rates in several Coun-
tries in which ISS Global operates, as the deferred tax
liabilities were reduced accordingly.

Net loss

Net loss for 2008 was DKK 42 million, a decrease of
DKK 582 million compared with a profit of DKK 540
million in 2007. Net loss of 2008 was negatively im-
pacted by higher net finance costs, as well as higher
non-cash charges related to goodwill impairment and
write-down. This was partly offset by the improved
operational performance and lower income tax ex-
penses. In 2008, a loss of DKK 52 million was attrib-
utable to the equity holders of ISS Global, whereas a
profit of DKK 10 million was attributable to minority in-
terests.

CASH FLOW STATEMENT

Cash flow from operating activities

Cash flow from operating activities was a net inflow of
DKK 3,675 million in 2008, up DKK 654 million from
DKK 3,021 million in 2007. The improvement was due
primarily to the increase in operating profit before
other items of DKK 235 million as well as a positive
development in cash flow from working capital of DKK
93 million. Cash inflow related to working capital was
DKK 122 million, compared with DKK 29 million in
2007. The positive change stemmed mainly from
trade receivables that were maintained at the same
level, as the organic growth realised in 2008 was in all
material respect offset by lower debtor days.

Cash outflow from changes in provisions decreased
from DKK 203 million in 2007 to DKK 96 million in
2008. The amount comprised the effect of net
changes in provisions charged to the income state-
ment during 2008 and payments made in relation to
such provisions, related predominantly to pension
plans in Norway and Switzerland.

Income taxes paid, net, amounted to DKK 320 million
in 2008 compared with DKK 568 million in 2007. The
decrease related primarily to refunds of tax payments
in foreign operations.

Payments related to Other income and expenses, net,
amounted to DKK 155 million in 2008, down DKK 20
million compared with 2007. Payments of DKK 54 mil-
lion related to the re-scoping of the IT outsourcing
agreement in 2007 with CSC and, DKK 49 million re-
lated to restructuring projects in Norway and the Neth-
erlands.

Payments related to royalties to ISS A/S amounted to
DKK 1,084 million in 2008 compared with DKK 1,002
million in 2007.

Cash flow from investing activities

Cash flow from investing activities in 2008 was a net
cash outflow of DKK 2,530 million, of which DKK
2,095 million related to acquisitions, most significantly
in the USA, Greece, Israel, Turkey and the United
Kingdom. This was partly offset by proceeds from di-
vestments of DKK 272 million, related primarily to the
divestment of the remaining energy activities in
France. Investments in intangible assets and property,
plant and equipment, net, were DKK 705 million in
2008, representing 1.0% of revenue. Investments in
financial assets, net, totalled an outflow of DKK 2 mil-
lion in 2008.

In 2007, the net cash flow from investing activities
represented an outflow of DKK 3,680 million, due
mainly to payments of DKK 2,957 million related to
acquisitions and investments in intangible assets and
property, plant and equipment, net, (excluding acqui-
sition related intangibles) of DKK 699 million.

Net cash flow from financing activities

Cash flow from financing activities in 2008 was a net
cash outflow of DKK 704 million. This resulted primar-
ily from interest payments of DKK 1,762 million, pay-
ment of dividend to shareholders of DKK 525 million

 

 

ANNUAL REPORT 2008 / Financial Review

12

 

 

and payments to affiliates of DKK 421 million, partly
offset by net drawings on credit facilities among oth-
ers to fund acquisitions.

In 2007 the cash flow from financing activities, net,
was an inflow of DKK 1,232 million impacted posi-
tively by proceeds from borrowings to fund acquisi-
tions of DKK 3,358 million and partly offset by interest
payments of DKK 1,462 million and payment of divi-
dends to shareholders of DKK 1,000 million.

Cash conversion

In spite of an organic growth rate of 5% in 2008,
changes in working capital represented a cash inflow
of DKK 122 million. As a result, cash conversion was
103% in 2008 compared with 101% in 2007. The posi-
tive change stemmed mainly from trade receivables
that were maintained at the same level.

Cash conversion ratios for individual years may vary.
The cash flows from operations for the individual peri-
ods depend on the timing of a number of payments
towards the end of the individual months and years.
For a definition of cash conversion, see page 110.

BALANCE SHEET

Total assets

Total assets amounted to DKK 42,532 million at 31
December 2008, of which DKK 27,982 million repre-
sented non-current assets, primarily intangible assets,
and DKK 14,550 million represented current assets,
primarily trade receivables of DKK 10,097 million.

Intangible assets

Intangible assets increased by DKK 95 million from
DKK 25,059 million at 31 December 2007 to DKK
25,154 million at 31 December 2008. Intangible as-
sets relate primarily to goodwill arid customer con-
tracts.

The negative development in the world economy and
financial markets during the second half of 2008 and
beginning of 2009, including increased market fluctua-
tions and volatility, has made the valuation of intangi-
ble assets subject to larger uncertainties than in re-
cent years.

At 31 December 2008, goodwill amounted to DKK
21,742 million, an increase of DKK 53 million, from
DKK 21,689 million in 2007. Additions related to ac-
quisitions in 2008 amounted to DKK 1,518 million
while currency adjustments reduced goodwill by DKK
1,036 million. Goodwill was reduced by impairment
and write-down of DKK 414 million related primarily to
ISS Global's impairment in Germany and Italy as well
as the divestment of Office support and Landscaping
activities in Austria.

Goodwill relates to acquisitions carried out under
varying circumstances and at different stages of mac-
roeconomic cycles. The goodwill is distributed on
most of the countries in which the Group operates.
The acquired companies, to which the goodwill re-
lates, comprise a diverse portfolio of service types,
customer segments, geographical regions, contract
sizes and management skills. The largest amount of

goodwill relates to the Group's operations in France,
representing approximately 20% of the total carrying
amount of goodwill.

Customer contracts decreased by DKK 16 million to
DKK 3,139 million at 31 December 2008, from DKK
3,155 million at 31 December 2007. Amortisation of
DKK 487 million and negative foreign exchange ad-
justments of DKK 166 million were partly offset by ad-
ditions from acquisitions of DKK 634 million.

Other non-current assets

Non-current assets other than intangible assets
amounted to DKK 2,828 million at 31 December 2008,
a slight decrease from DKK 2,854 million at 31 De-
cember 2007. The decrease related mainly to de-
ferred tax assets that were partly offset by an increase
in property, plant and equipment.

Trade receivables

Trade receivables decreased slightly from DKK
10,114 million at 31 December 2007 to DKK 10,097
million at 31 December 2008. This was achieved in
spite of the 8% growth in revenue and resulted in a
decrease in debtor days from 48.6 in 2007 to 46.7 in
2008.

Cash and cash equivalents

Cash and cash equivalents increased from DKK 2,574
million at 31 December 2007 to DKK 2,951 million at
31 December 2008, of which DKK 1,497 million re-
sided at Group level and the remainder resided at
country level. The cash position was positively im-
pacted by working capital inflow in Q4 2008. The cash
position during the months may fluctuate significantly
as a result of the frequency and timing of cash collec-
tion and outgoing payments, e.g. salary payments.

Other current assets

Other current assets comprises inventories, contract
work in progress, tax receivables, other receivables
and securities and amounted to DKK 1,502 million at
31 December 2008 (DKK 2,270 million at 31 Decem-
ber 2007). Other receivables decreased from DKK
950 million at 31 December 2007 to DKK 737 million
at 31 December 2008. Other receivables comprised
mainly prepayments. Assets held for sale at 31 De-
cember 2007 amounting to DKK 550 million were dis-
posed of in 2008.

Total equity

Total equity decreased from DKK 1,137 million at 31
December 2007 to a negative equity of DKK 15 million
at 31 December 2008, of which a negative amount of
DKK 48 million was attributable to the equity holders
of ISS Global. The total change in equity for the year
attributable to the equity holders of ISS Global was a
reduction of DKK 1,131 million.

The reduction in equity of DKK 1,152 million resulting
in a negative equity of DKK 15 million was due partly
to payment of dividend to the shareholders of ISS
Global of DKK 525 million following approval of the
annual report for ISS Global for 2007 in April 2008
and partly to net expenses recognised in equity of
DKK 597 million. This included negative currency ad-
justments relating to investments in foreign subsidiar-

 

ANNUAL REPORT 2008 / Financial Review

13

 

 

 

ies of DKK 147 million, net loss for the year of DKK 42
million and negative fair value adjustment of hedges,
net of tax, of DKK 216 million. Actuarial losses, net,
including the effect of the asset ceiling on defined
benefit pension schemes amounted to DKK 157 mil-
lion. The tax effect of entries recognised directly in
equity was an increase of DKK 37 million.

The negative effect from fair value adjustment of
hedges, the impact from defined benefit pension
schemes and currency adjustments relating to in-
vestments in foreign subsidiaries was significantly im-
pacted by changes in currency rates, interest rates
and expected return on assets in the last months of
2008. Equity is expected to be re-established through
positive results in coming years.

The equity ratio, defined as total equity relative to total
assets, decreased from 2.7% at 31 December 2007,
to 0.0% at 31 December 2008.

Long-term debt

The increase in Long-term debt from DKK 23,124 mil-
lion in 2007 to DKK 24,247 million in 2008 was pri-
marily due to borrowings in connection with funding of
acquisitions in 2008.

Other long-term liabilities

Other long-term liabilities comprises pensions and
similar obligations, deferred tax liabilities and other
provisions and amounted to DKK 2,119 million at 31
December 2008 (DKK 1,965 million at 31 December
2007).

Pensions and similar obligations amounted to DKK
834 million at 31 December 2008, compared with
DKK 724 million at 31 December 2007. The majority
of the Group's pension plans are defined contribution
plans. The Group's contributions to such plans are
accrued and expensed on an ongoing basis. In certain
countries, mainly France, Germany, the Netherlands,
Sweden, Switzerland and the United Kingdom, ISS
Global has defined benefit plans. As mentioned
above, actuarial losses of DKK 157 million, including
the net effect from the asset ceiling, were taken di-

rectly to equity. The losses stemmed mainly from the
United Kingdom, Switzerland and the Netherlands.
Due to the current market conditions, the determina-
tion of the discount rates in the individual countries is
subject to uncertainty.

Other provisions amounted to DKK 832 million at 31
December 2008, of which DKK 397 million had an es-
timated maturity of more than one year. Comparative
figures at 31 December 2007 were DKK 653 million
and DKK 326 million, respectively. The provisions
comprise acquisition related provisions and various
obligations incurred in the course of business, e.g.
self-insurance obligations, labour-related obligations,
legal obligations, restructurings, contract closures etc.

Deferred tax liabilities decreased from DKK 915 mil-
lion in 2007 to DKK 888 million in 2008.

Other current liabilities

Other current liabilities comprises short-term debt,
trade payables, tax payables, other provisions and li-
abilities held for sale and amounted to DKK 5,964 mil-
lion at 31 December 2008 (DKK 6,330 million at 31
December 2007).

Other liabilities amounted to DKK 10,217 million at 31
December 2008 compared with DKK 10,315 million at
31 December 2007. Other liabilities consist mainly of
accrued wages and holiday allowances, tax withhold-
ings, VAT and other payables and accrued expenses.

Carrying amount of net debt

Carrying amount of net debt amounted to DKK 23,778
million, at 31 December 2008 an increase of DKK 516
million from DKK 23,262 million at 31 December
2007. The increase was primarily due to acquisitions
in 2008 as well as an increase in debt as a result of
debt push down from ISS Holding A/S. At 31 Decem-
ber 2008, Long-term debt was DKK 24,247 million,
short-term debt amounted to DKK 2,603 million while
securities, cash and cash equivalents and receivable
from affiliates were DKK 3,072 million.

 

ANNUAL REPORT 2008 / Financial Review

14

 

 

STRATEGY — THE ISS WAY

ITY MANAGEMENT

CLEANING

ISS Global is a subsidiary of ISS A/S ("ISS” or the
"Group”) and is therefore subject to the same strategy
as ISS. The following section describes the strategy of
ISS.

The ISS Way is the strategy prepared in early 2008
and implementation began in the second half of 2008.
The ISS Way represents the next phase in ISS's strat-
egy and builds on the previous strategy plans.

VISION AND VALUES

Everything we do at ISS must respect our corporate
values and be guided by our vision:

"LEAD FACILITY SERVICES GLOBALLY — BY LEADING
FACILITY SERVICES LOCALLY”

We aim to lead:

> globally with presence in ali main regions and
countries.

> locally with leading positions in all established
markets based on our ambition to quickly achieve
this position in new markets.

> the industry by offering best-in-class Single Ser-
vices and Integrated Facility Services (IFS) where
appropriate. The road travelled to fulfil the vision
must start with our corporate values — honesty,
entrepreneurship, responsibility and quality.

DÅ AA NOT SRRG
SERVICES RR SERVICES

 

NE NTe SECURITY

SALLE SS > Fe .

> HONESTY — WE RESPECT

Qur honesty is not negotiable.
We respect our customers, our
colleagues and our company.
Honesty comes first.

> ENTREPRENEURSHIP — WE ACT

Action speaks louder than words.
All our employees have a "licence
to act' and are expected to do so.

> RESPONSIBILITY — WE CARE

We care about what we do and
for whom we do it.

> QUALITY — WE DELIVER

We are professionals with a
passion for quality. We deliver
on our promises.

A strategy designed around customer needs

"The ISS Way" has been developed with customer
needs in mind. In cooperation with our customers
around the globe we work to determine which of their
businesses are non-core and can benefit from being
outsourced. ISS's business model is based on creat-

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

15

 

 

 

ing value for these customers by taking over these
non-core activities, leveraging global scale, best prac-
tice, integrating services and driving out synergies.

Our strategy and the IFS delivery model reflects cus-
tomer needs, allowing them to outsource multiple ser-
vices where ISS takes on responsibility for both man-
aging the ongoing delivery of these services and ac-
tualliy delivers them through our own organisation.
Furthermore, we ensure that our offering evolves with
our customers.

OUR CORNERSTONES

«The ISS Way” is built on four cornerstones: Service
Excellence, the Integrated Facility Services strategy, a
focus on Portfolio-based business and a Multi-local
approach.

Service Excellence

Service Excellence is the core of every ISS delivery.
Ensuring a consistent and high level of quality in the
delivery of our services to customers will continue to
be central to our success.

The best way to promote and develop our Service Ex-
cellence is to share knowledge, methodology and best
practices across the organisation.

IFS Strategy

We are continuing to pursue an integrated Facility
Services strategy which enables us to manage and
self-deliver a range of services. ISS is the first broad-
service provider to exploit this market opportunity and
for many years we have been working with determina-
tion to roll out this service delivery model all over the
world. While serving customers through our single-
service and multi-service delivery models, we will con-
tinue to focus on IFS as a vital means of differentiat-
ing our value proposition from those of our competi-
tors.

Portfolio-based business

The success of ISS has, in part, been founded on our
ability to generate and manage a large portfolio — as
opposed to "once only” business. This focus on port-
folio-based business yields many advantages, includ-
ing recurring revenue and operational and financial
visibility.

Linked to the benefits of our portfolio-based business
is our ability to self-deliver and to provide excellence —
either through our approach to Service Excellence or
through our ability to manage and integrate a suite of
services for the benefit of the customer through IFS.

Multi-local approach

At ISS, we build our business on strong, highly
autonomous local leadership. This ensures strong en-
trepreneurs who are close to the customers and know
their markets and can act quickly in response to local
market opportunities.

Going forward, ISS will combine these strong local
capabilities with a standardised delivery model and
increased use of best practices across the Group. We
also intend to continue growing and prospering by fur-

ther emphasising knowledge sharing and collabora-
tion.

This is the essence of "The ISS Way”.

THE BUSINESS MODEL

ISS distinguishes between services offered and the
way in which these services are delivered. The ser-
vices offered include: Cleaning, Catering, Property
Services, Office Support, Security and Facility Man-
agement. The way the services are delivered (delivery
model) includes: Single Service, Multi Services and
Integrated Facility Services.

In 2008, ISS continued to develop and strengthen our
Single Service excellence concepts and Integrated
Facility Services capabilities. Similarly, ISS increased
focus on cross-border sales by strengthening our
global Corporate Clients organisation.

THE SERVICE OFFERING

As a leading global Facility Services company, ISS'
core business is to deliver and manage facility ser-
vices. These cover a range of business support ser-
vices within cleaning, office support, property ser-
vices, Catering, security and facility management.

The service offering is illustrated by the "ISS House”,
which has five pillars: Cleaning, Office Support, Prop-
erty Services, Catering and Security. The "roof”, Facil-
ity Management, represents the sixth service and our
capabilities within facilities service integration. The
ISS House is built on a strong foundation of Service
Excellence.

ISS focuses primarily on delivering portfolio and site-
based services, where ISS employees become an in-
tegrated part of the clients' daily operations. ISS also
offers selected route-based services, such as pest
control and wash room services. Not all country op-
erations necessarily offer all services within the six
business areas. Local offerings depend on factors
such as customer demand, market conditions and ac-
cess to qualified staff.

If the country does not self-deliver all six business ar-
eas, the use of subcontractors ensures a one-stop
shop opportunity for customers. Each country aims at
building up services according to market demand. In
time, all ISS countries are expected to be able to self-
deliver the most significant components of the full ISS
House of services.

THE DELIVERY MODEL

ISS delivers services to customers in three different
ways: Single Services, Multi Services or Integrated
Facility Services. In most cases ISS delivers the ser-
vices through its own personnel.

With Single-Service outsourcing, the customer buys
one service solution from ISS, for instance outsourc-
ing of cleaning, so they can focus More on their core
business activities.

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

16

 

 

 

With Multi-Service outsourcing, which consists of two
or more services but is not a fully integrated solution,
the customer achieves the same benefits as with
single-service outsourcing with the benefits of service
integration where possible. In an Integrated Facility
Services solution, ISS delivers two or More services
under one contract with a single point of contact on-
site, and ISS takes over all or most of the facility ser-
vices functions at the customer's premises. The cus-
tomer receives both the full potential of Single-Service
outsourcing and the advantages of integrating ser-
vices.

IFS contracts constituted around 16%, or DKK 11.2
billion, of total annual revenue in 2008, up from 15%
in 2007.

DEVELOPMENT AND METHODS

In line with "The ISS Way”, ISS will standardise and
intensify exchange of knowledge, methods and stan-
dards worldwide. ISS must continuously work to im-
prove the methods and technologies for providing su-
perior service within each service area.

Excellence Centres and Knowledge Forums
Being a leading facility services company requires
constant attention to delivering service excellence in
every service area. ISS will continue its substantial fo-
cus on developing and spreading Single-Service ex-
cellence throughout the organisation. In 2008, signifi-
cant resources were added to the Excellence Centres
across services.

The Cleaning Excellence concept provides individual
country operations with knowledge and support to as-
sist them in delivering services optimally by using, for
example, the most efficient tools and methods, supe-
rior training, improved logistics and an efficient supply
chain. The concept will also contribute to improved
ergonomics for the cleaning staff as well as reduced
environmental impacts.

To facilitate knowledge sharing and best practices be-
tween countries and within the service lines ISS es-
tablished a number of Knowledge Forums as a corpo-
rate initiative in 2007. The Knowledge Forum activities
were expanded in 2008, where eight Knowledge Fo-
rums were established covering a range of our ser-
vices as well as an IFS Knowledge Forum.

With more than 300 participants at these Knowledge
Forums, they constitute one of the important methods
of sharing best practices, enabling ISS to decide on
levels of service consistency and ensuring continuous
development of our services.

Global Corporate Client organisation

In November 2007, a global Corporate Client organi-
sation was established in order to further leverage
and develop the company's position as the leading
global facility services company. The Corporate Client
organisation will:

> drive new business sales with selected multina-
tional customers

> serve multinational clients through a key account
organisation

> support 100% retention of existing multinational
customers

During 2008, the Corporate Client organisation was
also significantly expanded e.g. with regional experts
and contract managers, and secured the largest inter-
national contract for ISS ever to deliver facility ser-
vices to all of HP's locations outside of the Americas.

THE ISS VALUE CHAIN

The ISS Value Chain is one of our most important
management tools for implementing "The ISS Way”. It
illustrates the interdependency between every action
of every country or business unit — and ensures that
we deliver a complete and coherent service solution
that makes a valuable difference to our customers.

The symbolism of the chain is that ail links must work
closely together in the process of creating value (no
chain is stronger than its weakest link).

The model is developed by ISS and inspired by the
Harvard Business School Value Profit Chain.

The ISS Value Chain starts with the Business Plat-
form that determines which services we choose to de-
liver, which customers we choose to focus on and in
which regions we choose to deliver. It also defines
how to structure the organisation to support these de-
cisions.

Once the Business Platform process sets the strategic
priorities, the Service Concept can take shape, con-
verting the identified priorities into concrete and op-
erational service offerings, for instance by defining
how to price, position and deliver a service in its given
market and how it will be delivered.

The value of any ISS service depends on the person
delivering the service. We therefore focus clearly on
recruiting and retaining capable and motivated staff to
support low employee tumover, deliver quality service
and ensure first-rate customer interaction.

Satisfied and well managed employees directly influ-
ence service value which again affects customer sat-
isfaction. The value experienced by the customer
must live up to both objective and subjective quality
criteria based on clear concepts, work plans and in-
novative working methods.

Armed with compelling service concepts and sup-
ported by intelligence from customer satisfaction sur-
veys, business growth ensures e.g. the generation of
new sales and retention of existing customers.

Acquisitions are a useful tool in the continued devel-
opment of ISS, and will be used selectively to improve
the company's competitiveness, build critical mass
and increase service capabilities and capacity where
and when appropriate.

The ISS Value Chain is used actively on a strategic,
tactical and operational level and forms a central part
of "The ISS Way” of thinking and working.

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

17

 

 

 

OPERATIONAL OBJECTIVES

ISS seeks to maintain and enhance operationa! effi-
ciency by focusing on three well-established and pri-
oritised operational objectives for its local managers:
(i) cash flow, (ii) operating margin, and (iii) profitable
organic growth.

Cash flow

ISS's first objective is to continue to maintain a rela-
tively high rate of cash conversion primarily by operat-
ing in a manner that optimises working capital.
Through this approach, ISS expects to continue to
generate a level of positive cash flow from operations
that exceeds its obligations to service its credit facili-
ties.

Operating margin

ISS's second objective is to maintain or improve its
operating margin. ISS seeks to improve operational
efficiency by increasing its local market positions and
operational densities, and by implementing company-
wide best practices. In 2008, ISS further developed
regional and global knowledge and best-practice shar-
ing including the establishment of regional forums and
competence centres.

Profitable organic growth

ISS's third objective is to continue to leverage its in-
ternational market position and service offering in or-
der to increase its local market positions and drive or-
ganic growth. ISS continues to work with a wide range
of initiatives to: (i) attract new customers, (ii) increase
customer retention rates, e.g. by establishing dedi-
cated key account teams, and (iii) cross-selling re-
lated services to existing customers. ISS has also
continuously increased its market presence and oper-
ating platform in selected high-growth economies,
particularly in Latin America and Asia and continued
to do so during 2008.

ACQUISITIONS

ISS acquires companies in order to further broaden its
service offering, to spread its geographical coverage
and to establish critical mass.

The acquisitions are based on careful screening and
appropriate due diligence processes to ensure that
the acquired companies represent a strong strategic
fit, match the corporate values of ISS, add value and

growth potential to the Group, while also ensuring that
the risks and integration processes associated with
acquisitions are manageable.

Since the turn of the millennium, ISS has acquired
more than 640 companies around the world, adding
close to DKK 40 billion in annual revenue. During
2008, ISS completed 66 acquisitions spread across
28 countries and all regions with ISS operations. 35 of
the acquisitions had estimated average annual reve-
nue of less than DKK 30 million, confirming the strat-
egy of limiting integration risks. With the acquisitions,
ISS gained annualised revenue of approximately DKK
3.9 billion and almost 40,000 employees.

Acquisitions in 2008 followed the strategy to firstly ac-
quire companies in high-growth regions and secondly
to expand ISS's service offerings primarily within Ca-
tering and Security services. In ISS's high growth re-
gions, which comprise Asia, Eastern Europe and Latin
America, the acquired annualised revenue amounted
to DKK 1.0 billion or 26% of the total acquired reve-
nue, while these regions accounted for only 10% of
the total revenue in 2008. In 2008, the acquisitions
within Catering and Security services accounted for
25% and 22%, respectively, of total acquired annual-
ised revenue. ISS continued investing in Cleaning
services through acquisitions, which totalled 26% of
the total acquired revenue.

Since 2004, ISS has established operations in 11 new
geographies characterised by significant market po-
tential for facility services and a strong economic
growth outlook. These geographies include countries
such as China, India, Mexico and several countries in
Eastern Europe. In emerging markets such as Latin
America and Asia, the general economic development
continues to generate high annual growth rates. This
is particularly interesting because global buying power
is gradually shifting towards these markets.

Today, ISS has national subsidiaries in over 50 coun-
tries. With the expansion into the USA, in 2007, ISS
established itself in not only the world's largest econ-
omy but also the world's largest market for outsourc-
ing of facility services. In 2008, ISS's US business
was strengthened and significantly expanded geo-
graphically when ISS acquired BGM Industries, add-
ing DKK 500 million in estimated annual revenue.

No new countries were added to the list of acquisi-
tions in 2008. However, in existing ISS geographies,
ISS broadened its service offerings and geographical
coverage and continued building up critical mass
through acquisitions particularly within Catering and
Security services.

In 2009, ISS expects to continue to be a consolidator
in the global facilities services industry, although at a
slower pace. ISS expects to continue focusing primar-
ily on smaller acquisitions which enhance our busi-
ness platform in individual countries. ISS cannot pro-
vide any assurance, however, that it will not pursue
larger acquisitions in the future.

It should be emphasised that acquisition-driven reve-
nue growth will vary widely from year to year, depend-
ing on opportunities, organisational capability, finan-
cial resources, etc.

CORPORATE SOCIAL RESPONSIBILITY

ISS will continue to conduct its business around the
world in a sustainable manner. As a global company
operating in over 50 countries with more than 472,000
employees, ISS influences the lives of many people
and has a considerable interface with societies
around the world.

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

 

 

The following section describes ISS's relationships
with a group of stakeholders who influence ISS's way
of conducting business and creating value.

Society

For ISS, sustainability is part of day-to-day operations
and daily interaction with society in general, locally
and globally. Principles and policies form the frame-
work of corporate sustainability. Conduct in day-to-
day business is crucial for putting the principles into
practice, and ensuring a high standard of sustainable
behaviour.

This presents challenges to any company wanting to
do business in a sustainable way, because economic,
social and environmental issues are inevitably inter-
connected. ISS therefore builds and maintains rela-
tionships based on commitment and trust with key
stakeholders in society. ISS believes that this is bene-
fits society as well as the company.

ISS continuously works to ensure that employees and
business partners are treated fairly, that environ-
mental impacts of ISS's operations are reduced, and
that ISS acts as a good corporate citizen in the com-
munities in which it operates.

United Nations Global Compact

ISS has been a signatory and supporter of the United
Nations Global Compact since its inception in 1999. In
line with membership regulations, ISS endeavours to
comply with the ten Global Compact principles, and
participates in The Global Compact Nordic Network.

The core of the UN Global Compact comprises princi-
ples concerming human rights, labour rights, anti-
corruption and environmental protection. The Global
Compact calls for companies to:

> support and protect internationai human rights and
to ensure they are not complicit in abuse

> uphold the freedom of association, recognition of
collective bargaining, elimination of forced labour,
child labour and discrimination at work

> implement a precautionary approach to environ-
mental challenges, promote environmental re-
sponsibility and environmentally friendly technolo-
gies

> work against all forms of corruption, including ex-
tortion and bribery

ISS joined the Amnesty Business Forum in 2002 to
discuss human rights protection with Amnesty Interna-
tional Denmark and a group of companies headquar-
tered in Denmark. ISS maintains its dialogue with
Amnesty International regarding human rights issues.

The ISS Code of Conduct
In 2003, the Board of Directors adopted an "ISS Code
of Conduct”.

The Code of Conduct constitutes the key operational
framework for ISS's proper conduct and corporate re-
sponsibility for the protection of human rights, em-
ployee conduct, anti-corruption and bribery, compli-
ance with competition rules, business partner rela-
tions and workplace standards in accordance with the
UN Global Compact Principles.

Since the adoption of the ISS Code of Conduct, ISS
has communicated and enforced its standards across
the Group. Our commitment to human rights protec-
tion has been communicated to suppliers, major cus-
tomers and employees by means of leaflets, meet-
ings, management training sessions, employee
magazines etc. Local country managers are responsi-
ble for compliance. When acquiring new companies
and entering new markets and joint venture opportuni-
ties, we promote business conducted in compliance
with the ISS Code of Conduct.

Human and Labour Rights
The UN Global Compact calls for companies to:

> support and protect international human rights and
ensure they are not complicit in abuse

> uphold the freedom of association, recognition of
collective bargaining, and elimination of forced la-
bour, child labour and discrimination at work

ISS profoundly respects and aims to support and pro-
tect human rights. ISS recognises labour rights and
maintains close ties and an open dialogue with un-
ions. In 2003, ISS signed a letter with The Union Net-
work International (UNI), a union representing 20 mil-
lion workers globally, committing itself to 12 funda-
mental principles in the workplace. The principles are
based on ILO conventions and cover the following ar-
eas: forced/bonded labour, discrimination, child la-
bour, freedom of association, unions, legal minimum
wages, working hours, health and safety, harassment,
training, employers' obligations and environmental
protection. UNI has in turn pledged to address and
disclose companies that undermine fundamental
standards in the service industry.

In 2008, the letter of agreement with UNI was re-
newed. The new agreement is the most advanced to
date between a global company and UNI Global Un-
ion, and takes the mutual commitment to a new and
higher level. The agreement aims at enabling all ISS
employees worldwide to be able to exercise rights to
union membership and collective bargaining. ISS will
work with and support unions to ensure that they have
the best possible access to inform employees about
union membership and to recruit employees wishing
to join a union. As part of the agreement, ISS will do-
nate EUR 100,000 annually to a jointly managed fund
aimed at monitoring and raising standards in specific
markets where current conditions are inadequate.

Subsequently, UNI named ISS as an employer that
treats its workers well and is setting a good example
for other global employers.

ISS uses no forced, compulsory or child labour and
tolerates no form of discrimination.

ISS plays an active role in employing vulnerable
groups. As a large employer, ISS has both the capa-
bility and motivation to conduct training and reintegra-
tion programmes for immigrants, long-term unem-
ployed and other groups for whom it is difficult to gain
access to the labour market. ISS often forms partner-
ships with local authorities in order to establish and
run employment programmes with this aim.

 

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

 

ISS has taken initiatives in this field in more than two-
thirds of the countries. Positions are found both in
administrative and service-operative functions.

Environmental protection

The UN Global Compact calls for companies to im-
plement a precautionary approach to environmental
challenges, and promote environmental responsibility
and environmentally friendly technologies.

Environmental protection is a key component of ISS's
overali approach to sustainable development. The
corporate environmental policy provides a Group-wide
framework for local environmental policies and initia-
tives and spells out ISS's key environmental objec-
tives:

> to minimise emissions and effluents (primarily aris-
ing from transport and use of chemicals in clean-
ing)

> to minimise the use of energy and water

> to reduce, manage and recycle waste

> to use safe products and materials

ISS's country organisations implement local! environ-
mental policies and management systems based on
corporate policies. In most countries, the environ-
mental policies and systems are already in place and
many of them are ISO 14001 certified. in addition, en-
vironmental responsibility is promoted through staff
training and awareness programmes.

ISS aims at increasing fuel efficiency by raising the
share of diesel-fuelied cars in its fleet management
programme. Diesel-fuelled cars account for approxi-
mately 83% of the entire ISS fleet and the aim is to
gradually increase this percentage.

As ISS has around 18,000 vehicles on the road, the
high proportion that are fuelled by diesel has lowered
fuel consumption per kilometre, offering a potential for
considerable environmental benefits.

ISS continuously works to reduce the environmental
impact from the use of cleaning products and has en-
tered into a new global agreement on delivery of envi-
ronmentally friendly cleaning products. The use of
highly concentrated products, which requires less use
of raw materials and packaging, as well as increased
use of dosing systems, is expected to reduce the car-
bon dioxide emissions considerably in the coming
years.

Through Office Support services, ISS offers scanning
of documents to electronic format and thereby re-
duces the amount of paper copies. ISS also offers
paper destruction i.e. paper is first shredded and then
sent for recycling.

Anti-corruption

The UN Global Compact calls for companies to work
against all forms of corruption, including extortion and
bribery.

ISS welcomes the tenth Global Compact principle on
anti-corruption. The ISS Code of Conduct expresses a
clear commitment to combating ali forms of corruptive
practice. Through the ISS Code of Conduct, the anti-
corruption position is communicated to the entire
Group.

During 2008, the ISS University hosted a range of
training seminars covering sustainability and the Code
of Conduct. More than 200 ISS managers from
around the world attended the seminars. At these
sessions, ISS's approach to sustainability, including
anti corruption, was presented and the participants
were engaged in dilemma training on these issues.

The appointment of ombudsmen in the local organisa-
tions over the last few years has improved the proce-
dure for raising concerns, for example about ali types
of breaches of the ISS Code of Conduct. Employees
can confidentially report what they see as breaches of
the Code or other wrongful behaviour to the local ISS
ombudsman, if norma! organisational reporting chan-
nels are unsuitable.

In 2009, ISS will revise and strengthen the corporate
guidelines on anti-corruption.

EMPLOYEES

In 2008, the number of ISS employees rose by
roughly 35,000, an increase of 8% compared with
2007. A large number of these additional employees
joined as a result of ISS expanding in the US market
as well as through other acquisitions. At the end of
2008, ISS had more than 472,000 employees in
Europe, Asia, Pacific, Latin America and the USA.

Human Capital

The ISS Human Capital Vision "to be the preferred
employer in our industry” was made explicit in 2007.
Aligned with the Group strategy, it focuses on: up-
grading leadership and management capabilities, en-
hancing customers' service experience, integrating
acquired businesses, and ensuring competitiveness
through cost efficiency.

The Human Capital strategy is implemented through
1185 International HR Standards”, which will be the fu-
ture framework for local HR initiatives. To ensure
relevance, human resource executives from across
the Group collaborated on formulating these minimum
standards during International HR Community meet-
ings in 2007. Other main topics were employee ap-
praisals and performance management, which were
discussed by all country management teams in 2008.

Training remains the cornerstone of the Human Capi-
tal strategy. Resources are invested in staff and man-
agement development — ranging from basic skills
training through middle management programmes to
full corporate MBAs. The philosophy is to offer tailored
training at all functional levels in order to enhance
employee skills and upward staff mobility. Much atten-
tion is devoted to developing the first management
layer e.g. team leaders, supervisors and contract
managers, who are responsible for the immediate
staff and customer interface. Most training is con-
ducted at ISS academies and training facilities in na-
tional and local operations.

The first participants from the second intake of the
ISS MBA programme graduated in 2008. In line with
Group strategy, the MBA programme will continue in
local settings.

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

20

 

 

The IFS Academy conducted centralised training in
Calculation for Planners and the ISS Facility Man-
agement System introduction. As in previous years,
the ISS University programme portfolio consisted of
internal and external seminars designed in coopera-
tion with suppliers such as IMD, Henley Management
College and INSEAD.

The management induction programme, ISS Advan-
tage, continues with executives from throughout the
Group. During 2008, approximately 700 senior man-
agers and specialists from the entire Group attended
a total of 38 workshops and programmes at ISS Uni-
versity.

Health and Safety

We operate on client premises in a number of chal-
lenging environments including in the transport sector,
major hospitals, workplace restaurants and public
parks and gardens. We promote the fact that all em-
ployees are responsible for their own safety and the
safety of others who may be affected by their work ac-
tivities. Our efforts are concentrated on ensuring the
right working environment and giving our employees
the training and equipment necessary to perform their
work safely.

We aim for continuous improvement in our Health and
Safety performance and plan to embrace it as part of
overall business operations. For example, we provide
regular Health and Safety training to our frontline
managers in the United Kingdom and support them
with a dedicated team of 51 Health and Safety profes-
sionals.

Employee loyalty

The service industry in general has high levels of em-
ployee tumover, as part of the industry is often con-
sidered suitable for short-term or secondary employ-
ment. ISS pursues a range of strategies to retain its
employees by offering more full-time and daytime
work, multi-task jobs, teamwork, skills development,
career opportunities, leisure activities, etc. In 2008,
the share of full-time employees (working 25 hours or
more a week) rose to 69%. This indicator is important,
as, on average, full-time employees develop stronger

ties with ISS. The distribution of employee seniority (in
years) provides another perspective on employee loy-
alty within ISS. In 2008, approximately 65% of the
Group's employees had been with ISS for more than
one year.

Equal opportunities

ISS rewards its people solely on the basis of merit.
When recruiting, developing and promoting, ISS fo-
cuses on the individual capabilities and qualifications
of a candidate and not on the person's gender, age,
ethnic origin, religion, political views, etc.

Thanks to the corporate culture, and aided by lan-
guage courses and adapted training materials, today
ISS is an employer of choice for many immigrants and
ethnic minorities. In countries such as Belgium, Den-
mark, France, Norway, Sweden and the United King-
dom, ISS is among the largest employers of ethnic
minorities. In ISS Denmark, an initiative to develop
management skills among employees with an immi-
grant background was established in 2007. The goal
is to train 300 employees over a four-year period to fill
management positions.

The Danish "Charter for Women in Management” was
signed in 2008 by Group CEO Jørgen Lindegaard, on
behalf of the Group head office, to ensure commit-
ment to including women as candidates for executive
positions.

European Works Council

Employee and trade union relations are a natural part
of a people-centred business such as ISS. The corpo-
rate policy of involvement and dialogue is applied lo-
cally in the country operations. Established in 1995,
the European Works Council (EWC) is a forum for
dialogue between ISS executives and employee rep-
resentatives from across Europe.

A total of 13 countries as weil as representatives from
the Danish Union 3F and the Union Network Interna-
tional took part in the 2008 annual meeting. The par-
ticipants discussed primarily a new agreement be-
tween ISS and EWC. Negotiations are still ongoing.

 

ANNUAL REPORT 2008 / Strategy — The ISS Way

21

 

 

 

 

CORPORATE GOVERNANCE

 

1) As described in note 34 to the consolidated financial statements, certain members of the Board, the EGM members and a number
of senior officers of the Group have invested, directly or indirectly, in shares and warrants in FS Invest S.å r.l. The total number of

shares held by these officers is below 2% of the total share capital.

Note: The ultimate parent company for which consolidated financial statements are prepared is FS Invest S.å r.l. The consolidated
financial statements can be obtained from FS Invest S.å r.l, 9-11 Grand Rue, L-1661 Luxembourg.

ISS Global is a subsidiary of ISS Holding A/S ("ISS” or
"the Group”) and is therefore subject to the same cor-
porate governance policies as ISS. The following sec-
tion describes the corporate governance policies ap-
plicable in ISS Holding A/S.

The Board of Directors regularly considers the
Group's corporate governance in relation to the
Group's activities, external environment and statutory
requirements. Good corporate governance in ISS is a
dynamic process with the Board of Directors and the
Company continuously assessing the need for ad-
justments for the benefit of ISS's stakeholders and the
business itself.

The ISS corporate governance policies and proce-
dures take into account the Danish Companies Act,
the Danish Financial Statements Act, IFRS, the Action
Plan for Corporate Social Responsibility (CSR), the
Danish Venture Capital and Private Equity Associa-
tion's guidelines for responsible ownership and good
corporate governance as well as good corporate gov-
ernance practices for companies of ISS's size and
global reach.

Reporting on Corporate Social Responsibility (CSR) is
included in the "Strategy” chapter.

Shareholders

ISS is a limited liability company incorporated and op-
erating under Danish law. The company's share capi-
tal is indirectly owned by funds advised by EQT Part-
ners (EQT) and Goldman Sachs Capital Partners (GS
Capital Partners) — EQT and GS Capital Partners are
together referred to as the Principal Shareholders and
hold 54% and 44% of the share capital respectively.
The remaining approximately 2% of the share capital
is held by certain members of the Board of Directors,
the Executive Group Management and a number of
senior officers of ISS through director and manage-
ment investment programmes.

EQT is a leading private equity group with operations
in Northern Europe and Greater China. EQT has
raised approximately EUR 12.5 billion in twelve funds.
In total, EQT funds have invested approximately EUR
7.3 billion in more than 70 companies. EQT Partners,
acting as exclusive investment advisor to EQT, is
headquartered in Stockholm and maintains offices in
Copenhagen, Frankfurt, Helsinki, Hong Kong, Munich,
New York, Oslo, Warsaw and Shanghai.

 

ANNUAL REPORT 2008 / Corporate Governance

22

 

 

GS Capital Partners is the private equity vehicle
through which the Principal Investment Area (PIA) of
Goldman Sachs Group, Inc. conducts its privately ne-
gotiated corporate equity investment activities. Since
1986, PIA has raised 15 investment funds (including
mezzanine and senior secured loan funds) through
three corporate investment vehicles, aggregating over
USD 87 billion of capital (including actual and esti-
mated leverage). GS Capital Partners is a global pri-
vate equity group focused on large, sophisticated
business opportunities in which value can be created
by leveraging the resources of Goldman Sachs.

The Principal Shareholders have entered into a
shareholders' agreement covering all entities through
which EQT and GS Capital Partners hold their interest
in ISS.

The Board
ISS has a two-tier governance structure consisting of:

> the Board of Directors (the Board), and
> the Executive Group Management (the EGM)

The Board supervises the company's activities, its
management and organisation. The EGM is responsi-
ble for ISS's day-to-day operations. The two bodies
are separate and do not have overlapping members.

The Board functions in accordance with the rules set
out in the Danish Companies Act, the shareholders'
agreement, the articles of association and its rules of
procedure, which provide guidelines for the Board's
work in general. Board resolutions are generally
passed with a simple majority, and in the event of a
tie, the Chairman casts the deciding vote. However,
under the shareholders' agreement, certain actions
require special approval by the Principal Sharehold-
ers.

The Board convenes at least six times a year. Ex-
traordinary meetings are convened whenever specific
matters need attention between scheduled meetings.
The Board held eight meetings in 2008. The Board
receives a monthly financial and operational reporting
package and is briefed about important matters in the
periods between Board meetings. The Board ap-
proves the strategy plan, the annual budget and large
or strategic acquisitions based on recommendations
from the Acquisition Committee (see "Board Commit-
tees” below).

According to the shareholders' agreement, EQT and
GS Capital Partners are entitled to nominate three
Board members and a deputy member each, and
EGT has the right to nominate the Chairman of the
Board after consultation with GS Capital Partners.

A further description of the Board members is in note
34 to the consolidated financial statements. Remu-
neration to the Board of Directors of the Group is dis-
closed in note 3 to the consolidated financial! state-
ments.

Board committees
The Board has established the following four commit-
tees that all report to the Board.

The Remuneration Committee decides the remu-
neration packages and incentive schemes for the
Group CEO, and provides input for other members of
the Group Management Board, as well as compensa-
tion levels and bonus systems in general. The com-
mittee consists of at least three members of the Board
(currently Ole Andersen, Peter Korsholm and Sanjay
Patel), and the Group CEO participates in its meet-
ings. The committee held two meetings in 2008.

The Audit Committee evaluates ISS's external finan-
cial reporting, main accounting principles and esti-
mates, and systems of internal controls and risk man-
agement. Further, the committee considers the rela-
tionship with ISS's external auditor and reviews the
audit process. The committee consists of at least
three members of the Board (currently Leif Ostling,
John Murray Allan, Christoph Sander and Steven
Sher), and the Group CFO participates in its meet-
ings. The committee held three meetings in 2008.

The Acquisition Committee considers ISS's proce-
dures for acquisitions, reviews the acquisition pipe-
line, approves certain acquisitions in accordance with
adopted procedures, and evaluates selected effected
acquisitions. The committee consists of at least three
members of the Board (currently Christoph Sander,
Peter Korsholm and Steven Sher), and the Group
COO, Group CFO, Head of Group Strategy and Busi-
ness Development and Head of Group M&A partici-
pate in its meetings. The committee held eight meet-
ings in 2008.

The Financing Committee considers ISS's capital
structure, financing of future investments and hedging
policies. The committee consists of at least two mem-
bers of the Board (currently Peter Korsholm and Ste-
ven Sher), and the Group CFO and Head of Group
Treasury participate in its meetings. The committee
held four meetings in 2008.

Group Management

The Executive Group Management of ISS consists of
Group CEO Jørgen Lindegaard, Group COO Jeff
Gravenhorst and Group CFO Jakob Stausholm (the
"EGM”). On 1 September 2008, Jakob Stausholm
joined ISS and took over responsibility as Group CFO.

The Group Management Board (the "GMB") com-
prises the EGM together with COOs Jacob Gåtzsche,
Hans John Oiestad, Stig Pastwa, and Martin Gaarn
Thomsen, Head of Group Strategy and Business De-
velopment Todd O'Neill, Head of Group M&A Jens
Ebbe Olesen, Head of Corporate Clients Magnus
Åkerberg, Group General Counsel Bjørn Raasteen,
Head of Group Human Capital Helle Havgaard and
Group Treasurer Christian Kofoed Jakobsen. The
primary tasks of the GMB are to implement Group
policies, monitor Group performance, review opera-
tional and financial matters, coordinate and evaluate
acquisitions, discuss and develop new strategic initia-
tives and carry out day-to-day management in gen-
eral.

The members of the GMB are remunerated with a
combination of a fixed salary and, for most members,
a bonus, which is capped at 50% of their fixed salary.
The employment contracts of the GMB members are

 

ANNUAL REPORT 2008 / Corporate Governance

23

 

 

subject to termination periods of between 12 and 18
months. Directorships in companies in the ISS Group
held by members of the GMB are not remunerated
separately.

No member of the GMB is permitted to hold director-
ships in companies outside the ISS Group unless
specific consent is granted. Remuneration received in
respect of such external directorships is retained by
the member, and ISS assumes no liability for such di-
rectorships.

Country management

In each of the countries in which ISS operates, coun-
try management teams are appointed to manage the
business in accordance with ISS Group policies and
procedures and local legislation and practice. ISS
delegates substantial autonomy and considerable
powers to the country management teams including
management of operations in their relevant markets,
financial reporting, local tax and compliance with local
legislation and practices. The country management
teams for each relevant country are described on the
ISS website.

Management Participation Programme

The Principal Shareholders have established a Man-
agement Participation Programme, under which the
GMB and a number of senior officers of the ISS Hold-
ing Group can invest. The programme is structured as
a combination of direct and indirect investments in a
mix of shares and warrants in FS Invest (ISS's ulti-
mate parent company) based on market values until
the Principal Investors” exit. At the introduction of the
programme in 2006, warrants in FS Invest were
granted free of charge with a vesting schedule (based
on value of shares and time) of which 396,940 were
outstanding as of 31 December 2008.

Further, non-executive members of the Board (except
representatives of the Principal Shareholders) can
participate in a Directors Participation Programme and
a Co-investment Scheme, under which they have in-
vested in a mix of shares and warrants in FS Invest
based on market values until the Principal Investors'
exit.

As of 31 December 2008, the net investments were
as follows:

 

 

investment
Group Persons [DKK million)
Board of Directors 4 27.5
Executive Group Management 3 19.0
Corporate Officers 21 40.4
Country Management 108 125.7

 

 

 

Risk management

ISS continuously seeks to identify and evaluate risk
factors that may have an adverse effect on the ISS
Group's activities, financial position, results and future
growth. For a detailed, non-exhaustive list of the risk
factors to which the Group is subject, reference is
made to the High Yield Offering Memorandum (pages
33-52) available from the  Group's website
www.issworld.com.

Overall, operational and financial risks are managed
in accordance with policies adopted by the Board. In
addition, detailed plans and business procedures for a
number of functions are described in manuals and
guidelines. The policies for operational and financial
risk management and the ISS Group's standards are
documented and distributed to the operating compa-
nies. ISS's Group Risk Management and Group
Treasury departments supervise compliance with
these standards. Monthly reporting to the Board con-
tains an overview of the status in these areas.

Operational risk management

Operational risk management focuses principally on
procedures for ciaims management, entering into con-
tracts, occupational safety, environmental! aspects
and safeguarding of physical assets. Operational risk
is assessed based on the activities of each operating
company, historic and current claims events, and the
markets in which the companies operate. Operational
risk is monitored and mitigated in accordance with ISS
Group standards for risk management, risk financing
and good operational practice. Operational risk financ-
ing is based on insurance and own funding, primarily
through local and global insurance programmes in-
cluding a captive (Global Insurance A/S), all managed
centrally in ISS.

ISS considers that the Group is not subject to material
operational risks except for risks common in the ordi-
nary course of business in the service industry.

Operational responsibility is delegated to the operat-
ing companies under the supervision of regional man-
agement.

Financial risk management

Financial risk management focuses primarily on inter-
est rate risk, currency risk and credit risk. The ISS
Group's financial risk management is described in
note 32 to the consolidated financial statements.

Main elements of the Groups internal control

environment

The Board and the EGM have overall responsibility for
the Groups internal control and risk management sys-
tems related to preparation of the consolidated finan-
cial statements. The Audit Committee reviews and
monitors the EGM in the assessment of material risks
and the internal controls and risk management sys-
tems that manage the identified risks.

A material risk is considered to be a risk that may
cause a material error in the consolidated financial
statements of the Group. Internal control procedures
at group level have been established to assess the
Group's internal control environment and to manage
identified risks.

ISS considers strong controls to be an essential man-
agement tool. Accordingly, care is taken to ensure
that a sound framework of controls is in place for
safeguarding the business, the company's assets and
the shareholder investments. However, such controls
are designed to manage rather than eliminate the
risks and can provide only reasonable and not abso-
lute assurance against material misstatements or

 

ANNUAL REPORT 2008 / Corporate Governance

24

 

 

losses. The policies and procedures set out below re-
flect the principal features of the ISS Group's internal
control environment.

ISS aims at establishing a control environment that
provides the Board and the EGM with reasonable as-
surance that:

> … management reporting is reliable and in compli-
ance with applicable laws, regulations, internal
policies and procedures and gives a true and fair
view of the financial results

> risks are identified and minimised

> internal controls are in place to support the quality
and efficiency of the business processes and to
safeguard the Group's assets

> ISS's business is conducted in compliance with
legislation and ISS policies

The country management teams are responsible for
ensuring that the control environment in each operat-
ing unit is sufficient to meet the objectives above. The
regional management teams provide governance of
the country operations. In order to ensure that ade-
quate internal control procedures are maintained lo-
cally, the Group Business Controlling department vis-
its the subsidiaries regularly. Controller visits take
place according to a plan for the year approved by the
Audit Committee and in accordance with the control
procedures and standards defined in ISS's control
manual. The findings and conclusions of the visits,
which include recommendations on how to improve
the control environment, are presented in reports ad-
dressed to country and regional managements and
the external auditor. The controllers perform follow-up
reviews to ensure that the recommendations are im-
plemented. The results of the control visits are pre-
sented to the Audit Committee and the Audit Commit-
tee assesses the results reported and uses this as-
sessment to review the Control Plan for the coming
year.

Other key elements of ISS's control environment are:

> strategy reviews — annual meetings with country
managers at which the strategy is discussed, and
priorities and plans for the coming year are agreed

> business reviews — monthly meetings between re-
gional management and country management
with a focus on the current performance and state
of the business

> budgets and financial plans — all countries must
prepare budgets and plans for the following finan-
cial year in a pre-defined procedure and format.
Regional managements review the proposed
budgets and plans with the countries

> IT solutions — all countries must use a standard-
ised IT reporting tool and the number of different
ERP platforms within the Group is continuously
being reduced

> acquisitions — all acquisition proposals must be
presented in a predefined acquisition report and
valuation model for approval. Board approval is
required for large or strategic acquisitions

> reporting of cash flow forecasts — countries Must
report the daily cash flow forecast for the coming
month on the third working day of each month.
Subsequently, actual figures are continuously
monitored by ISS's Group Treasury department
for deviations from the forecasted figures

> reporting of financial results — all countries must
report a full income statement, balance sheet,
cash flow statement, portfolio analysis etc. on a
monthly basis. Any significant variance from
budgets must be explained

>. full-year forecasts — all countries must update and
report their year-end estimates twice a year

Auditor

The Board nominates the external auditor for election
pursuant to the shareholder's agreement. The nomi-
nation follows an assessment of the competencies,
objectivity and independence of the external auditor
and the effectiveness of the audit process.

An independent business relationship with the ISS
Group's external auditor is essential for the control
environment. As part of the safeguards to ensure in-
dependence, the external auditor may not be used for
certain non-audit services for ISS including, but not
limited to, preparation of accounting records and fi-
nancial statements and recruitment for senior man-
agement positions.

The company collaborates with its external auditor in
relation to procedures and internal controls by ex-
changing controller reports and audit reports and by
generally sharing relevant knowledge.

All Board members receive the external auditor's
long-form audit reports in connection with the audit of
the annual financial statements and any other long-
form audit reports. Auditor reports are discussed in
detail in the Audit Committee.

The Board reviews the Annual Report at a Board
meeting attended by the external auditor. The poten-
tial findings of the external auditor and any major is-
sues arising during the course of the audit are dis-
cussed and key accounting principles and audit
judgements are reviewed.

 

ANNUAL REPORT 2008 / Corporate Governance

25

 

 

MANAGEMENT STATEMENT

COPENHAGEN, 2 APRIL 2009

The Board of Directors and the Managing Directors
have today discussed and approved the Annual Report
2008 of ISS Global A/S. The Annual Report 2008 has
been prepared in accordance with Intemational Finan-
cial Reporting Standards (IFRS) as adopted by the EU
and additional Danish disclosure requirements for an-
nual reports of companies with listed debt instruments.

In our opinion, the Annual Report gives a true and fair
view of the Group's and the Parent Company's assets,
liabilities and financial position at 31 December 2008
and of the results of the Group's and the Parent Com-
pany's operations and cash flows for the financial year
2008. Furthermore, in our opinion the Company Report
gives a true and fair view of the development and per-
tormance of the Group's and the Parent Company's
activities and of the financial position taken as a whole
together with a description of the significant risks and
uncertaimties that the Group and the Paremt Company
face.

MANAGI IRECTORS

Group General Counsel røtip Treasurer

 

ANNUAL REPORT 2008 / Management Statement

 

 

INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDER OF ISS
GLOBAL A/S

We have audited the Annual Report of ISS Global A/S
for the financial year 1 January - 31 December 2008,
which comprises the Company Report, Management
Statement, Income Statement, Cash Flow Statement,
Balance Sheet, Statement of Total Recognised In-
come and Expense, Statement of Changes in Equity
and Notes to the Financial Statements for the Group
as well as for the parent company. The Annual Report
has been prepared in accordance with the Interna-
tional Financial Reporting Standards (IFRS) as
adopted by the EU and additional Danish disciosure
requirements for annual reports of companies with
listed debt instruments.

MANAGEMENT'S RESPONSIBILITY FOR
THE ANNUAL REPORT

Management is responsible for the preparation and
fair presentation of the Annual Report in accordance
with the International Financial Reporting Standards
(IFRS) as adopted by the EU and additional! Danish
disclosure requirements for annual reports of compa-
nies with listed debt instruments. This responsibility
includes: designing, implementing and maintaining in-
ternal control relevant to the preparation and fair
presentation of an annual report that is free from ma-
terial misstatement, whether due to fraud or error; se-
lecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable
in the circumstances.

AUDITORS' RESPONSIBILITY

Our responsibility is to express an opinion on the An-
nual Report based on our audit. We conducted our
audit in accordance with Danish and International
Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance
whether the Annual Report is free from material mis-
statement.

An audit involves performing procedures to obtain au-
dit evidence about the amounts and disclosures in the
annual report. The procedures selected depend on
the auditors' judgement, including the assessment of
the risks of material misstatement of the Annual Re-
port, whether due to fraud or error. In making those
risk assessments, the auditors consider internal con-
trol relevant to the entity's preparation and fair presen-
tation of the Annual Report in order to design audit
procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An
audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of
accounting estimates made by management, as well
as evaluating the overall presentation of the Annual
Report.

We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion.

Our audit did not result in any qualification.

OPINION

In our opinion, the Annual Report gives a true and fair
view of the Group's and the Company's assets, liabili-
ties and financial position at 31 December 2008 and
of the results of the Group's and the Campany's op-
erations and cash flows for the financial year then
ended in accordance with the International Financial
Reporting Standards (IFRS) as adopted by the EU
and additional Danish disclosure requirements for an-
nual reports of companies with listed debt instru-
ments.

KPMG
Statsautoriseret Revisionspartnerselskab

Copenhagen, 2 April 2009

” Hehe

State Authorised
Public Accountant

Authorised
ic Accountant

 

ANNUAL REPORT 2008 / Independent Auditor's Report

27

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS 2008
ISS GLOBAL A/S

 

ANNUAL REPORT 2008 / Consolidated Financial! Statements

28

 

 

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

1 January — 31 December. Amounts in DKK million

 

Note 2008 2007
2  Revenue 68,848 63,935
3,4 Staff costs (43,963) (40,837)
19 Cost of sales (6,134) (5,614)
5. Other operating expenses (13,478) (12,466)
13, 15: Depreciation and amortisation ” (855) (835)
Operating profit before other items ? 4,418 4,183
6 Other income and expenses, net (169) (81)
Integration costs (66) (67)
Royalty (1,084) (1,002)
2. Operating profit ” 3,099 3,033
16 Share of result from associates 3 8
7. Net finance costs (1,924) (1,271)

Profit before tax and goodwill impairment/

amortisation of brands and customer contracts 1,178 1,770
8. Income taxes ? (451) (821)

Profit before goodwill impairment/

 

amortisation of brands and customer contracts 727 949

9, 13, 14. Goodwill impairment and write-down (414) (99)

13. Amortisation of brands and customer contracts ” (495) (439)

8. Income tax effect ? 140 129

Net profit/(loss) for the year 42 540
Attributable to:

Equity holders of ISS Global (52) 514

Minority interests 10 26

Net profit/(ioss) for the year 42 540

”) Excluding Goodwill impairment and write-down and Amortisation of brands and customer contracts.

2) Other items comprise Other income and expenses, net, Integration costs, Royalty, Goodwill impairment and write-down and Amortisation of
brands and customer contracts.

2 Exciuding tax effect of Goodwill impairment and write-down and Amortisation of brands and customer contracts.
9 includes customer contract portfolios and related customer relationships.
3) Income tax effect of Goodwill impairment and write-down and Amortisation of brands and customer contracts.

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

29

 

CONSOLIDATED CASH FLOW STATEMENT

1 January — 31 December. Amounts in DKK million

 

Note

13, 15
10

22

11
11
12
12

25

Operating profit before other items

Depreciation and amortisation

Changes in working capital

Changes in other provisions, pensions and similar obligations
Payments related to other income and expenses, net
Payments related to integration costs

Income taxes paid, net

Payments related to royalties

Cash flow from operating activities

Acquisition of businesses

Divestment of businesses

Investments in intangible assets and property, plant and equipment, net
Investments in financial assets, net

Cash flow from investing activities

Proceeds from borrowings
Repayment of borrowings
Interest paid, net

Payments (to)/from affiliates, net
Dividends paid to shareholders
Minority interests

Cash flow from financing activities

Total cash flow
Cash and cash equivalents at 1 January

Total cash flow
Foreign exchange adjustments

Cash and cash equivalents at 31 December

2008 2007
4,418 4,183
855 835
122 29
(96) (203)
(155) (175)
(65) (78)
(320) (568)

(1,084) (1,002)

FF —————

3,675 3,021

(2,095) (2,957)

272 (26)
(705) (699)

(2) 2
(2,530) (3,680)

2,251 10,063
(225) (6,705)
(1,762) (1,462)

 

 

 

(421) 350
(525) (1,000)
(22) (14)
704 1,232
441 573

2,574 2,006
441 573
(64) (5)

2,951 2,574

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

30

 

 

CONSOLIDATED BALANCE SHEET

At 31 December. Amounts in DKK million

 

 

 

 

Note 2008 2007
Assets
13, 14. Intangible assets 25,154 25,059
15. Property, plant and equipment 2,262 2,207
16. Investments in associates 24 28
17. Deferred tax assets 309 394
18. Other financial assets 233 225
Total non-current assets 27,982 27,913
19. Inventories 264 249
20 Trade receivables 10,097 10,114
21 Contract work in progress 182 161
22 Tax receivables 233 277
23 Other receivables 737 950
24. Assets held for sale - 550
25 Securities 86 83
25 Cash and cash equivalents 2,951 2,574
Total current assets 14,550 14,958
Total assets 42,532 42,871
Equity and liabilities
Total equity attributable to equity holders of ISS Global (48) 1,083
Minority interests 33 54
26 Total equity 15 1,137
27  Long-term debt 24,247 23,124
28 Pensions and similar obligations 834 724
17 Deferred tax liabilities 888 915
29 Other provisions 397 326
Total long-term liabilities 26,366 25,089
27. Short-term debt 2,603 2,811
Trade payables 2,803 2,710
22 Tax payables 123 151
30 Other liabilities 10,217 10,315
29 Other provisions 435 327
24. Liabilities held for sale - 331
Total current liabilities 16,181 16,645
Total liabilities 42,547 41,734
Total equity and liabilities 42,532 42,871

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

 

 

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE

At 31 December. Amounts in DKK million

 

2008

Foreign exchange adj. of subsidiaries and minorities

Fair value adjustment of hedges, net

Fair value adjustment of hedges, net, transferred to
Net finance costs

Actuarial gains/(iosses)

impact from asset ceiling

Tax of entries recognised directly in equity

Net income and expense
recognised directly in equity

Net profit/(loss) for the year

Total recognised income and
expense for the year

2007

Foreign exchange adj. of subsidiaries and minorities

Fair value adjustment of hedges, net

Fair value adjustment of hedges, net, transferred to
Net finance costs

Actuarial gains/(losses)

Impact from asset ceiling

Fair value adjustment of PFI investments
transferred to Other income and expenses, net

Tax of entries recognised directly in equity

Net income and expense
recognised directly in equity

Net profit/(loss) for the year

Total recognised income and
expense for the year

Attributable to equity holders of ISS Global

 

 

 

 

 

 

Retained Translation  Hedging Minority Total
earnings reserve reserve Total interests equity
- (146) - (146) (1) (147)
- - (184) (184) - (184)
- - (104) (104) - (104)
(182) - - (182) - (182)
25 - - 25 - 25
(35) - 72 37 - 37
(192) (146) (216) (554) (1) (555)
(52) - - (52) 10 (42)
(244) (146) (216) (606) 9 (597)
- (115) - (115) (1) (116)
- - 77 77 - 77
- ” (70) (70) ” (70)
152 - - 152 - 152
(41) - ” (41) - (41)
(19) - - (19) - (19)
(33) ” (2) (35) ” (35)
59 (115) 5 (51) (1) (52)
514 - - 514 26 540
573 (115) 5 463 25 488

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

32

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 31 December. Amounts in DKK million

 

Attributable to equity holders of ISS Global

 

 

 

 

 

 

Share Retained Translation Hedging Minority Total

2008 capital earnings reserve reserve Total  interests equity
Equity at 1 January 2008 160 979 (142) 86 1,083 54 1,137
Total recognised income and

expense for the year - (244) (146) (216) (606) 9 (597)
Impact from acquired and divested

companies, net - - - - - (8) (8)
Dividends paid - (525) - - (525) (22) (547)
Total changes in equity - (769) (146) (216) (1,131) (21) (1,152)
Equity at 31 December 2008 160 210 (288) (130) (48) 33 (15)
2007
Equity at 1 January 2007 160 1,406 (27) 81 1,620 58 1,678
Total recognised income and

expense for the year - 573 (115) 5 463 25 488
Share issue - - - - - - -
Impact from acquired and divested

companies, net - - - - - (15) (15)
Dividends paid - (1,000) - - (1,000) (14) (1,014)
Total changes in equity - (427) (115) 5 (537) (4) (541)
Equity at 31 December 2007 160 979 (142) 86 1,083 54 1,137

 

Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
subsidiaries/joint ventures and investments in associates as well as from the translation of long-term intra-group balances which are

considered an addition to the net assets of subsidiaries/joint ventures, loans in foreign currency and derivatives hedging net
investments in foreign subsidiaries/joint ventures.

Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred. The reserve is presented net of the estimated tax effect.

Dividends
No dividends have been proposed or declared before the Annual Report was issued.

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Note

Accounting policies
1 Significant accounting policies

Income statement

Segment reporting

Staff costs

Share-based payments

Fees to auditors

Other income and expenses, net
Net finance costs

Income taxes

Goodwill impairment and write-down

CONGOS EN

Cash flow statement
10 Changes in working capital
11 Acquisition and divestment of businesses
12 Investments in non-current assets

Balance sheet
13 Intangible assets
14 Impairment tests
15 Property, plant and equipment
16 Investments in associates
17 Deferred tax
18 Other financial assets
19 Inventories
20 Trade receivables
21 Contract work in progress
22 Tax receivables and tax payables
23 Other receivables
24 Assets and Liabilities held for sale
25 Securities, cash and cash equivalents
26 Share capital
27 Borrowings
28 Pensions and similar obligations
29 Other provisions
30 Other liabilities

Other
31 Contingent liabilities
32 Financial risk management
33 Derivatives
34 Related parties
35 Interests in joint ventures
36 Subsequent events
37 Subsidiaries, joint ventures and associates

88885888

50
51
58

59
60
63
63

66
66

67
67
68
68
69
69
70
72
75
76

76
78
80
82
83

84

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

34

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements of ISS Global A/S as of and for the year ended 31 December 2008, comprise ISS Global A/S
and its subsidiaries (together referred to as "the Group”) and the Group's interests in associates and jointly controlled entities.

STATEMENT OF COMPLIANCE
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and the statutory order on the adoption of IFRS issued pursuant to the Danish Financial Statements Act.

In addition, the consolidated financial statements have been prepared in compliance with the IFRSs issued by the IASB.

Furthermore, in accordance with $ 6.7 of the statutory order on submission and publication of financial statements issued pursuant to
the Danish Financial Statements Act, the consolidated financial statements are prepared and submitted only in English.

BASIS OF PREPARATION

The financial statements have been prepared on the historical cost basis except for the following assets and liabilities, which are
measured at fair value: derivatives, financial instruments designated as fair value through the income statement and financial assets
classified as available-for-sale.

Non-current assets and disposal groups classified as held for sale are measured at the lower of the carrying amount before the
changed classification and fair value less costs to sell.

CHANGES IN ACCOUNTING POLICIES
The Group has with effect from 1 January 2008 implemented IFRS 8, "Operating Segments" and IFRIC 14 "IAS 19 - The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction".

IFRS 8 "Operating Segments” introduces a "management approach" whereby the segment reporting is based on operating segments
as expressed in the Group's internal management reporting. Consequently, the segments reported under IFRS 8 are changed
compared to the previous segment reporting under IAS 14, which required segment reporting to be based on both business
segments and geographical segments. IFRS 8 has been adopted before the effective date in accordance with the transitional
provisions of the standard.

IFRIC 14 "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction" provides guidance on
assessing the limit on the amount of surplus to be recognised as a defined benefit asset as well as the treatment of minimum funding
requirements. IFRIC 14 has been adopted before the effective date in accordance with the transitional provisions of the interpretation.

The adoption of these Standards and interpretations did not affect the recognition and measurement, and consequently the
accounting policies set out below have been applied consistently by all entities of the Group to all periods presented in these
consolidated financial statements. The new standards and interpretations only resulted in changes to the presentation and
disclosures in the notes. Comparative figures have been adjusted accordingly.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for the judgements on carrying amounts of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The Group believes the
following are the areas involving critical accounting estimates and judgements used in the preparation of the consolidated financial
statements:

" revenue recognition and determination of deferred income

+ the valuation of identifiable assets, liabilities and contingent liabilities in connection with the acquisition of businesses

+ the impairment testing of goodwill, brands, customer contract portfolios and related customer relationships, and any other
acquisition-related intangible assets

+ the actuarial calculations regarding pension benefits

+ the valuation of provisions other than pension benefits

+ the assessment of ongoing litigations and the valuation of contingent liabilities

the valuation of tax assets and

+ bad debt provisions.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in

the period in which the estimates are revised if the revisions affect only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.

continues

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
35

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

BASIS OF CONSOLIDATION
Subsidiaries The consolidated financial statements include ISS Global A/S and all subsidiaries in which ISS Global A/S, directly or
indirectly, holds more than 50% of the voting rights or otherwise has a controlling interest.

The consolidated financial statements are based on the financial statements of ISS Global A/S and the individual subsidiaries by
adding items of a similar nature.

Associates Entities, which are not regarded as subsidiaries, but in which the Group holds investments and exercises a significant, but
not a controlling influence are regarded as associates. The proportionate share of the associate's profit or loss after tax is recognised
in the income statement in the consolidated financial statements in accordance with the equity method.

Joint ventures The Group's interests in jointly controlled entities are regarded as joint ventures and recognised in the consolidated
financial statements by including the Group's proportionate share of the entities' assets, liabilities, income and expenses on a line-by-
line basis with items of a similar nature.

Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses on income and expenses
arising from intra-group transactions are eliminated when preparing the consolidated financial statements. Unrealised gains arising
from transactions with associates and jointly controlled entities are eliminated to the extent of the Group's interest in the entity.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Business combinations Acquired businesses are included in the consolidated financial statements as from the date when control
commences. Businesses that are divested or wound-up are included until the date where control ceases or the entity is wound-up.
Comparative figures are not restated for businesses acquired, divested or wound-up.

Acquisitions are treated in accordance with the purchase method, under which identifiable assets, liabilities and contingent liabilities of
acquired businesses are recognised in the balance sheet at fair value at the date of acquisition. Identifiable intangible assets are
recognised if separable or if they arise from contractual or other legal rights, provided that the fair value can be measured reliably. Tax
impact related to fair value adjustments is taken into account.

For acquisitions made prior to impiementing IFRS as at 1 January 2004, goodwill is included on the basis of its deemed cost, which
represents the net book value as at 31 December 2003, recorded under previously applied accounting policies.

Excess cost of acquisition over the fair value of acquired assets, liabilities and contingent liabilities is capitalised as goodwill. Goodwill
is allocated to cash-generating units and tested for impairment annually. The first impairment test is prepared no later than at the end
of the year of acquisition.

If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the
combination is effected, adjustments made within twelve months of the acquisition date to the provisional fair value of acquired
assets, liabilities and contingent liabilities or cost of the acquisition, are adjusted to the initial goodwill. The adjustment is calculated as
if it was recognised at the acquisition date. Comparative figures are restated. Subsequent to this period, goodwill is only adjusted for
changes in estimates of the cost of the acquisition being contingent on future events. However, subsequent realisation of deferred tax
assets not recognised on acquisition will result in the recognition in the income statement of the tax benefit concurrently with a write-
down of the carrying amount of goodwill to the amount that would have been recognised if the deferred tax asset had been recognised
at the time of the acquisition.

Gains or losses on the divestment or winding-up of businesses or associates are measured as the difference between the sales or
winding-up sum adjusted for directly related divestment or winding-up costs and the carrying amount of the net assets at the time of
disposal or winding-up including any carrying amount of goodwill. Accumulated exchange rate adjustments on divested or wound-up
subsidiaries or associates recognised in equity after 1 January 2004, the date of transition to IFRS, are included in the income
statement under Net finance costs at the time of divestment or wind-up.

Foreign currency Items included in the financial statements of each of the Group's entities are measured using the currency of the
primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented
in Danish kroner, which is the functional and presentation currency of ISS Global A/S.

Transactions in foreign currency are translated into the functional currency at the exchange rate ruling at the date of transaction.
Monetary assets and liabilities in foreign currency are translated at the exchange rate ruling at the balance sheet date. Non-monetary
assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the
date of transaction.

The income statements of foreign subsidiaries are translated into Danish kroner using the average exchange rates prevailing during
the year, whereas balance sheet items are translated by applying the exchange rates ruling at the balance sheet date.

continues

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
36

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Realised and unrealised exchange gains and losses are included in the income statement under Net finance costs, except
gains/losses arising from the translation of:

 

+ the opening balances of net assets of foreign subsidiaries/joint ventures and investments in associates to exchange rates ruling at
the balance sheet date

the income statements of foreign subsidiaries/joint ventures and the share of result from associates from average exchange rates to
exchange rates ruling at the balance sheet date

+ long-term intra-group balances which are considered an addition to the net assets of subsidiaries/joint ventures

« |oans in foreign currency and derivatives hedging net investments in foreign subsidiaries/joint ventures.

Realised and unrealised exchange gains and losses related to the translation of the above four groups of transactions are taken
directly to equity. The related tax impact is taken into account.

INCOME STATEMENT

Presentation The income statement is presented in accordance with the "nature of expense" method. Goodwill impairment and write-
down and Amortisation of brands and customer contracts as well as the Income tax effect hereof are presented in separate line items
after Operating profit. This income statement presentation is considered to more appropriately reflect the Group's profitability.

Revenue comprises the value of services provided during the year less VAT and duties as well as price and quantity discounts.
Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the
consideration is probable, the associated costs can be estimated reliably and the amount of revenue can be measured reliably.
Contract work in progress is recognised using the percentage-of-completion method based on the value of work completed at the
balance sheet date.

In assessing whether revenue should be reported on a gross or a net basis (i.e. net of related costs), the Group considers whether it:
(i) is the primary obligor in the arrangement; (ii) has the general inventory risk; (iii) has latitude in establishing price; (iv) changes the
product or performs part of the service; (v) has discretion in supplier selection; (vi) is involved in the determination of product or
service specifications; (vii) has physical loss inventory risk; or (viii) carries the credit risk. If these assumptions are fulfilled revenue is
reported on a gross basis.

Government grants Grants that compensate the Group for expenses incurred are recognised in the income statement on a
systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset
are recognised in the income statement on a systematic basis over the useful lifetime of the asset.

Staff costs comprises salaries and wages, pensions, social security expenses and other employee related expenses.

Cost of sales comprises material consumption related to the recognised revenue.

Other operating expenses includes expenses related to the operation of service equipment and other non-current assets, external
assistance as well as other selling, distribution and administrative expenses, including expenses related to marketing, transportation,
operating leases, subcontractors, audit, legai assistance, realised losses and loss provisions on receivables etc.

Depreciation and amortisation includes depreciation and amortisation of intangible and tangible assets excluding Goodwill
impairment and write-down and Amortisation of brands and customer contracts, which are presented in separate line items after

Profit before goodwill impairment/amortisation of brands and customer contracts.

Operating leases Operating lease costs are recognised in the income statement on a straight-line basis over the term of the lease.
The obligation for the remaining lease period is disclosed in the notes under Contingent liabilities.

Other income and expenses, net consists of income and expenses, both recurring and non-recurring, that the Group does not
consider to be part of normal ordinary operations, such as gains and losses arising from divestments, the winding-up of operations,
disposals of property, restructurings and certain acquisition related costs, etc.

Integration costs includes costs regarding the acquiring Group company and the acquired business that are a consequence of the
integration. Integration costs include costs of compensating employees for termination of their employment, closing facilities, and
termination of subscriptions and agreements.

Royalty comprises royalty and management fee invoiced by ISS A/S (the parent of ISS Global A/S).

Share of result from associates comprises the share of result after tax in associates.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
37

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Net finance costs comprises interest payable on borrowings calculated using the effective interest rate method, interest receivable
on funds invested, foreign exchange gains and losses, and gains and losses on derivatives that do not qualify for hedge accounting.

Income taxes consists of income tax and changes in deferred tax. Deferred tax is recognised based on the balance sheet method
and comprises all temporary differences between accounting and tax values of assets and liabilities. Furthermore, a deferred tax
liability is recognised for expected re-taxation of tax-deductible losses realised in foreign subsidiaries previously included under
Danish joint taxation.

Where the tax base can be calculated using different tax regulations, deferred tax is measured based on the planned use of the asset
or the unwinding of the liability, as applicable. Deferred tax is computed based on the tax rate expected to apply when the temporary
differences are reversed. No deferred tax provisions are made for undistributed profits of subsidiaries and goodwill not deductible for
tax purposes.

Deferred tax assets, including the tax value of losses carried forward, are recognised at the value at which they are expected to be
applied either by eliminating tax on future earnings or by setting off deferred tax liabilities within the same legal tax unit and
jurisdiction. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realised.

The recognised income tax is allocated to Income taxes, Tax effect of goodwili impairment and write-down and amortisation of brands
and customer contracts and Equity, as applicable.

ISS Global A/S is jointly taxed with all Danish resident affiliates. The Danish income tax payable is allocated between the jointly taxed
Danish companies based on their proportion of taxable income (full absorption including reimbursement of tax deficits). The jointly
taxed companies are included in the Danish tax on account scheme. Additions, deductions and allowances are recognised under Net
finance costs.

Goodwill impairment and write-down inciudes impairment losses arising from impairment tests as well as write-down of goodwill in
connection with divestments.

Amortisation of brands and customer contracts includes amortisation of acquired brands and acquired customer contract
portfolios and related customer relationships, impairment losses arising from impairment tests and write-down in connection with
divestments.

Income tax effect of Goodwill impairment and write-down and amortisation of brands and customer contracts is presented in a
separate line item in connection with these two line items.

CASH FLOW STATEMENT
The cash flow statement shows the Group's cash flows for the period stemming from operating, investing and financing activities, the
change in its cash position during the year as well as the Group's cash position at the beginning and the end of the year.

The cash flow statement is prepared using the indirect method based on Operating profit before other items.

The liquidity effect of acquisitions and divestments of businesses is shown separately under Cash flow from investing activities. The
cash flow statement includes cash flows from acquired businesses from the date of acquisition and cash flows from divested
businesses until the date of divestment.

Cash flow from operating activities comprises Operating profit before other items adjusted for non-cash items, changes in working
capital and provisions and payments regarding income taxes, other income and expenses, integration costs and royalties.

Cash flow from investing activities comprises cash fiow from acquisition and divestment of businesses as well as the purchase and
sale of non-current assets.

Cash flow from financing activities comprises proceeds from and repayment of loans, dividends, proceeds from share issues,
purchase and sale of treasury shares, cash flow related to derivatives hedging net investments and dividends to Minority interests.
Furthermore, interest paid and received is included in cash flow from financing activities as this better reflects the distinction between
operating and financing activities following the acquisition of ISS A/S (the parent of ISS Global A/S) by ISS Holding A/S.

Cash and cash equivalents comprises cash and marketable securities, with maturity of less than three months that are readily
convertible to khown amounts of cash and which are subject to an insignificant risk of changes in value.

continues

ANNUAL REPORT 2008 / Consolidated Financial Statements
38

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BALANCE SHEET
Business combinations are accounted for using the purchase method as described under "Basis of consolidation”.

 

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units, which is generally
equal to country level. Goodwill is tested for impairment annually and whenever there is an indication that goodwill may be impaired.

An impairment loss is recognised whenever the carrying amount of a cash-generating unit exceeds its recoverable amount. The
recoverable amount is calculated as the higher of net selling price and value in use. In assessing value in use the estimated future
cash flows are discounted to their present value.

Brands Acquisition related brands are recognised at fair value at the date of acquisition. Subsequently, acquired brands with indefinite
useful lives are measured at historical cost less any accumulated impairment losses while acquired brands with finite useful lives are
measured at historical cost less accumulated amortisation and any accumulated impairment losses. Amortisation is provided on a
straight-line basis over the expected useful life of the brand, which is usually in the range 2-5 years.

The valuation of acquired brands is based on a discounted cash flow model using the after-tax royalty payments (the royalty relief
method). Cash flows are discounted on an after tax basis using the locai Weighted Average Cost of Capital (WACC) plus a risk
premium for the assumed risk inherent in the brand.

The net present value of the cash flow is increased with an estimated portion of the discounted tax amortisation benefit applicable for a
potential buyer based on the local tax amortisation opportunity available for brand names when bought as a trade and asset purchase.
The tax amortisation benefit is discounted. This increased value of the brand equals the fair value at the date of acquisition.

A deferred tax liability is calculated at the local tax rate on the difference between the book value and the tax value. The initial
recognition of this deferred tax liability increases the amount of goodwill.

The value of brands is allocated to cash generating units and tested for impairment as part of the annual impairment test of goodwill.

Customer contract portfolios and related customer relationships ("Customer contracts") Acquisition related customer contracts
are recognised at fair value at the date of acquisition and subsequently carried at cost less accumulated amortisation and any
accumulated impairment losses. The value is amortised based on the chum rate of the acquired portfolio using the declining balance
method. This chum rate is calculated on a contract by contract basis and has historically averaged approximately 12% to 13%
annually. In certain cases the value of customer contracts is amortised on a straight line basis based on the legal duration of the
acquired contract.

The valuation of customer contracts is based on a discounted cash flow model using an estimated split of the acquired revenue in
business segments and the related chum rates and profitability of the revenue at the time of the acquisition. A contributory asset
charge as a cost or retum requirement for assets supporting the intangible asset has been included in the model. Cash flows are
discounted on an after tax basis using the local Weighted Average Cost of Capital (WACC) plus a risk premium for the assumed risk
inherent in customer contracts.

The net present value of the cash flow is increased with an estimated portion of the discounted tax amortisation benefit applicable for a
potential buyer based on the local tax amortisation opportunity available for customer contracts when bought as a trade and asset
purchase. The tax amortisation benefit is discounted. This increased value of customer contracts equals the fair value at the date of
acquisition.

A deferred tax liability is calculated at the local tax rate on the difference between the book value and the tax value. The initial
recognition of this deferred tax liability increases the amount of goodwill.

The value of customer contracts is allocated to cash generating units and tested for impairment as part of the annual impairment test
of goodwill.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
39

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Software and other intangible assets and Property, plant and equipment are measured at cost less accumulated amortisation,
depreciation, impairment loss and write-down.

Cost of assets includes cost price as well as costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended. To the cost price is added the estimated cost of dismantling and removing
the item and restoring the site on which it is located to the extent that this cost is recognised as a provision.

Subsequent costs of replacing part of an item are recognised as an asset if it is probable that the future economic benefits embodied
with the item will flow to the Group. The remaining carrying amount of the replaced item is de-recognised in the balance sheet and
transferred to the income statement. Ali other costs for common repairs and maintenance are recognised in the income statement as
and when incurred.

When measuring the value of software developed for internal use, extemal costs to consultants and software as well as intemal direct
and indirect costs related to the development are capitalised. Other development costs for which it cannot be rendered probable that
future economic benefit will flow to the Group are recognised in the income statement as and when incurred.

Amortisation and depreciation is provided on a straight-line basis over the expected useful lives of the assets taking into account the
estimated residual value. The amortisation and depreciation methods, useful lives and residual values are reassessed annually.

Non-current assets Expected useful life
Software and other intangible assets 5-10 years
Buildings 20-40 years
Leasehold improvements (the lease term) 8-12 years
Plant and equipment 3-10 years

if the estimated useful lives of the assets or the estimated residual value is changed the impact on the amortisation and depreciation
is recognised prospectively.

Gains and losses arising on the disposal or retirement of non-current assets are measured as the difference between the selling price
less direct sales costs and the net carrying amount, and are recognised in the income statement under Other operating expenses in
the year of sale, except gains and losses arising on disposals of property, which are recognised under Other income and expenses,
net.

Leased assets Assets held under finance leases are at inception of the agreement measured in the balance sheet at the lower of the
fair value and the present value of future lease payments. When calculating the present value, the interest rate implicit in the lease or
an approximated rate is applied as the discount rate. Assets held under finance leases are depreciated in accordance with the policy
for non-current assets acquired by the Group.

Financial assets Investments in associates are measured in accordance with the equity method. Associates with a negative net asset
value are stated at zero, and amounts owed to the Group by such associates are written down by the Group's share of the negative
net asset value to the extent it is considered uncollectible. Should the negative net asset value exceed the receivable, the residual
amount is recognised under provisions to the extent the Group has a legal or constructive obligation to cover the negative balance.

Costs related to tenders for public offers for PPP (Public Private Partnership)/PFI (Private Finance Initiative) contracts are recognised
in the income statement as incurred. If the Group is awarded status as preferred bidder, directly attributable costs and investments
from that date, if any, are recognised under Financial assets. For PPP/PFI contracts awarded, the costs are amortised over the term
of the contract. If the Group is not awarded the contract, all costs are recognised in the income statement.

Investments in PFI contracts are classified as available-for-sale and are measured at fair value at the balance sheet date, with any
resulting gains or losses being recognised directly in equity, except for any impairment losses, which are recognised directly in the
income statement. When these investments are de-recognised, the cumulative gain or loss previously recognised directly in equity is
recognised in the income statement. The fair value is the quoted bid price at the balance sheet date.

Inventories Raw materials and supplies are measured at the lower of cost under the FIFO principle and net realisable value. Finished
goods and Work in progress are measured at the lower of cost plus attributable overheads and net realisable value. The cost price of
raw materials and supplies includes the purchase price plus costs directly related to the purchase. Net realisable value is the
estimated selling price less costs of completion and selling costs.

Receivables are measured at amortised cost less a provision for doubtful debts based on an individual assessment. Provisions and
realised losses during the year are recognised under Other operating expenses.

continues
ANNUAL REPORT 2008 / Consolidated Financial Statements
40

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Contract work in progress is measured at the sales value of the proportion of work completed at the balance sheet date. The sales
value is calculated based on the stage of compietion and the total amount expected to be received for each individual contract.
Progress billings related to the completed proportion of work to be performed are deducted from the recognised value, while progress
billings exceeding the completed proportion of work to be performed are recognised as Prepayments from customers under Current
liabilities.

Securities which are designated as fair value through the income statement are measured at fair value at the balance sheet date,
with any resulting gains or losses recognised directly in the income statement.

Treasury shares Proceeds related to the acquisition or disposal of treasury shares are taken directly to equity.
Dividends are recognised in the period in which they are declared.

Financial liabilities are initially measured at the value of the proceeds received less related transaction costs. Subsequently,
financial liabilities are measured at amortised cost, equal to the capitalised value when applying a constant effective rate of interest,
and the difference between the proceeds initially received and the nominal value is recognised in the income statement over the ioan
period.

Defined benefit plans Net obligations in respect of defined benefit pension plans are calculated separately for each plan by
estimating the amount of future benefits that employees have earned in retum for their service in the current and prior periods; that
benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. Discount rates are based on the
market yield of high quality corporate bonds or government bonds in the country concerned with a maturity approximating to the terms
of the Group's pension obligations. The calculations are performed by a qualified actuary using the Projected Unit Credit Method.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as
an expense in the income statement on a straight-line basis over the average period until the benefits vest. To the extent that the
benefits vest immediately, the expense is recognised immediately in the income statement. Net pension assets are only recognised to
the extent that the Group is able to derive future economic benefits in the way of refunds from the plan or reductions of future
contributions. Any actuarial gains and losses are recognised directly in equity.

Other long-term employee benefits The Group's net obligation in respect of long-term employee benefits other than pension plans
is the amount of future benefit that employees have earned in retum for their service in the current and prior periods. The benefit is
discounted to determine its present value and the fair value of any related assets is deducted. Discount rates are based on the market
yield of high quality corporate bonds or govemment bonds in the country concerned with a maturity approximating to the terms of the
Group's obligations. The calculations are performed by a qualified actuary using the Projected Unit Credit Method. Any actuarial gains
and losses are recognised under Staff costs in the income statement.

Other provisions comprise obligations concerning labour related matters, self-insurance, integration costs related to acquisitions,
dismantling costs, and various other operational issues. The provisions are recognised when the Group has a legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Derivatives are measured at fair value calculated according to generally accepted valuation methods and are recognised in Other
receivables or Other liabilities.

For derivatives hedging the fair value of recognised assets and liabilities the value of the hedged asset or hedged liability is also
stated at fair value in respect of the risk being hedged. When a hedging instrument expires or is sold, terminated or exercised but the
hedged asset or hedged liability with a determinable maturity still exist, the adjustment recorded as part of the carrying amount of the
hedged item is amortised to the income statement from that date onwards using the effective interest method.

The effective part of the changes in the fair value of derivatives hedging future transactions is recognised directly in equity, net of tax.
On realisation of the hedged item, value changes recognised under equity are reversed and recognised together with the hedged
item. When a hedging instrument expires or is sold, terminated or exercised but the hedged future transactions are still expected to
occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the
transaction occurs.

Derivatives that qualify as net investment hedges of subsidiaries, joint ventures and associates are recognised directly in equity, net
of tax.

For derivatives, which do not comply with the hedge accounting conditions, changes in fair value are recognised as Net finance costs
in the income statement as they occur.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
41

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Non-current assets held for sale Assets are classified as held for sale when the carrying amount of the assets are expected to
primarily be recovered through a sale within 12 months rather than through continuing use. immediately before classification as held
for sale, the assets are remeasured in accordance with the Group's accounting policies. Thereafter, assets held for sale are
recognised at the lower of the carrying amount and fair value less costs to sell. Assets held for sale are not amortised or depreciated.
Impairment losses on initial classification as held for sale are included in the income statement. The same applies to gains and losses
on subsequent remeasurement. Assets and related liabilities are separated in the balance sheet and the main elements are specified
in the notes to the financial statements.

Discontinued operations comprises a component of the Group's business that represent a separate major line of business or
geographical area of which the operations and cash flows can be clearly distinguished, i.e. as a minimum a cash-generating unit.
Classification as discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for
sale. The profit or loss is separated in the income statement, assets and related liabilities are separated in the balance sheet, and the
cash fiows from operating, investing and financing activities are disclosed in the notes to the financial statements. When an operation
is classified as discontinued operation, the comparative income statement is re-presented as if the operation had been discontinued
from the beginning of the comparative period.

Segment reporting The Group's reportable segments have been identified based on the Group's internal management reporting.
Operations are managed based on a geographical structure in which countries are grouped into 7 regions representing the Group's
reportable segments. The regions have been identified based on a key principle of grouping countries that share market conditions
and culture.

The accounting policies of the reportable segments are the same as the Group's accounting policies described above. Segment
revenue, costs, assets and liabilities comprise items that can be directly referred to the individual segments. Unallocated items mainly
consist of revenue, costs, assets and liabilities relating to the Group's Corporate functions as well as Net finance costs and Income
taxes.

For the purpose of IFRS 8, segment profit has been identified as Operating profit (before Goodwill impairment and write-down and
Amortisation of brands and customer contracts). Segment assets and segment liabilities have been identified as Total assets and
Total liabilities, respectively.

In presenting geographical information segment revenue and non-current assets are based on the geographical location of the
individual subsidiary from which the sales transaction originates.

NEW STANDARDS AND INTERPRETATIONS

IASB has published the following new standards, amendments to existing standards and interpretations that are not mandatory for the
preparation of the consolidated financial statements of the Group for the year ended 31 December 2008: IAS 1, 23 and 27, IFRS 2
and 3, IFRIC 13 and 15-18, "amendments to IAS 32 and IAS 1", "amendments to IAS 39" and "amendments to IFRS 1 and IAS 27"
and "improvements to IFRSs May 2008". IFRS 3, IAS 27, the mentioned amendments and IFRIC 15-18 have not yet been approved
by the EU.

The Group expects to implement the new standards and interpretations when they become mandatory in 2009 and 2010, respectively.
The standards and interpretations that are approved with different effective dates in the EU than the corresponding effective dates
under IASB will be early adopted so that the implementation follows the effective dates under IASB.

IFRS 3 (Revised) "Business Combinations" (and the simultaneous amendment of IAS 27) is effective for annual periods beginning on
or after 1 July 2009. The standard incorporates a number of changes of which the full impact is not yet known. However, it is expected
that primarily the following changes are likely to be relevant to the Group's operations:

+ Contingent consideration will be measured at fair value, with subsequent changes therein recognised in the income statement.
+ Transaction costs, other than share and debt issue costs, will be expensed as incurred.

The Group does not expect to apply the possibility of recognising goodwill related to any minority share of acquired businesses.
Furthermore, it is expected that the impact of a number of the more technical adjustments to the purchase method will not be
significant.

IFRS 3 (Revised) becomes mandatory for the Group's 2010 consolidated financial statements and will be applied prospectively, and
therefore there will be no impact on prior periods in the Group's 2010 consolidated financial statements.

Apart from IFRS 3 (Revised) "Business Combinations" (and the simultaneous amendment of IAS 27), none of the standards and
interpretations are expected to have a material impact on the consolidated financial statements of the Group.

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
42

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SEGMENT REPORTING

 

Reportable segments
ISS is a global Facility Services company that operates in more than 50 countries and delivers a wide range of services within the
areas cleaning, office support, property services, catering, security and facility management.

Operations are managed based on a geographical structure in which countries are grouped into 7 regions. The regions have been
identified based on a key principle of grouping countries that share market conditions and culture.

The segment reporting is prepared in a manner consistent with the Group's intemal management and reporting structure. Segment
revenue, costs, assets and liabilities comprise items that can be directly referred to the individual segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

Western Eastern Latin reportable
DKK million Nordic Europe Europe Asia America USA Pacific  segments
2008
Income statement
Revenue ” 17,071 39,337 1,663 3,147 1,890 2,131 3,614 68,853
Depreciation and amortisation ? (229) (462) (26) (41) (19) (13) (33) (823)
Operating profit before other items ? 1,189 2,356 124 210 109 128 230 4,346
Other income and expenses, net (20) (149) 0 (0) - - - (169)
Integration costs (6) (37) (2) (6) (6) (4) (5) (66)
Royalty (267) (620) (25) (50) (30) (34) (58) (1,084)
Operating profit ? 896 1,550 97 154 73 90 167 3,027
Goodwill impairment and write-down (25) (389) - - - - - (414)
Amortisation of brands and customer contracts (77) (272) (17) (33) (15) (43) (38) (495)
Balance sheet
Total assets 8,829 25,448 1,159 2,209 1,050 1,612 2,455 42,762
Additions excluding acquisitions/divestments 318 565 18 70 26 18 35 1,050
Additions from acquisitions/divestments 104 1,195 120 334 121 282 176 2,332
Additions to non-current assets ” 422 1,760 138 404 147 300 211 3,382
Total liabilities 8,094 19,402 867 1,230 788 1,165 1,927 33,473
2007
Income statement
Revenue ” 16,488 37,709 1,226 2,409 1,484 1,100 3,519 63,935
Depreciation and amortisation ? (217) (452) (21) (37) (14) (7) (34) (782)
Operating profit before other items ? 1,162 2,356 91 158 86 62 225 4,140
Other income and expenses, net (12) (65) - 3 3 - - (71)
Integration costs (7) (44) (1) (5) (2) (3) (5) (67)
Royalty (252) (599) (18) (36) (23) (18) (56) (1,002)
Operating profit 2 891 1,648 72 120 64 41 164 3,000
Goodwill impairment and write-down (16) (83) - - - - - (99)
Amortisation of brands and customer contracts (84) (243) (11) (24) (13) (24) (40) (439)
Balance sheet
Total assets 9,342 25,714 977 1,706 940 1,195 2,603 42,477
Additions excluding acquisitions/divestments 284 566 19 54 20 7 41 991
Additions from acquisitions/divestments 204 1,554 179 306 70 1,049 45 3,407
Additions to non-current assets ” 488 2,120 198 360 90 1,056 86 4,398
Total liabilities 7,881 19,449 713 863 765 907 2,012 32,590

 

1) segment revenue comprises total revenue of each segment. Due to the nature of the business internal revenue is insignificant and is therefore not
disciosed.

2) Excluding Goodwill impairment and write-down and Amortisation of brands and customer contracts.

3) Other items comprise Other income and expenses, net, Integration costs, Royalty, Goodwill impairment and write-down and Amortisation of brands and
customer contracts.

1) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.

ANNUAL REPORT 2008 / Consolidated Financial Statements

continues

 

43

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SEGMENT REPORTING (CONTINUED)

 

Grouping of countries into regions

Nordic: Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden

Western Europe: Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, Italy, the Netherlands,
Portugal, Spain, Switzerland, Turkey and the United Kingdom

Eastern Europe: Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia

Asia: Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Sri Lanka,
Taiwan and Thailand

Pacific: Australia and New Zealand

USA: USA

Latin America: Argentina, Brazil, Chile, Mexico and Uruguay

Products and services
The Group's revenue relates to the following service types:

 

DKK million … 2008 | 2007
Cleaning 36,547 34,786
Office Support 4,146 3,881
Property Services 15,410 15,186
Catering 5,727 4,198
Security 4,344 3,406
Facility Management 2,674 2,478
Total revenue 68,848 63,935

Geographical information
Revenue and non-current assets (excluding deferred tax assets) is specified below for each of the Group's significant countries”:

 

 

 

2008 2007

Non- Non-

current current

DKK million Revenue assets Revenue assets
France 9,336 5,290 10,144 5,395
United Kingdom 7,565 1,677 7,814 2,100
Norway 5,683 1,342 5,324 1,578
Spain 4,603 1,934 3,775 1,623
Sweden 3,920 1,469 3,861 1,642
Denmark (country of domicile) 3,702 1,174 3,713 1,110
Netherlands 3,540 2,011 3,654 2,028
Finland 3,517 2,317 3,317 2,321
Other countries ? 26,982 10,459 22,333 9,722
Total 68,848 27,673 63,935 27,519

 

1) In this context significant countries are defined as countries representing 5% or more of the Group's revenue.
2) including unallocated items and eliminations.

Major customers
No customer comprises more than 10% of the Group's external revenue.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
44

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. SEGMENT REPORTING (CONTINUED)

 

Reconciliations
DKK million

Revenue
Revenue for reportable segments
Elimination of internal revenue

Revenue according to the Consolidated Income Statement

Operating profit

Operating profit for reportable segments
Unallocated corporate income and costs
Unallocated other income and expenses, net

Operating profit according to the Consolidated Income Statement

Unallocated:
Share of result from associates
Net finance costs

Profit before tax and goodwill impairment/amortisation of brands
and customer contracts according to the Consolidated Income Statement

Total assets

Total assets for reportable segments
Elimination of intemal assets
Unallocated assets

Total assets according to the Consolidated Balance Sheet

Additions to non-current assets ”
Additions to non-current assets for reportable segments
Unallocated additions to non-current assets

Total additions to non-current assets according to the Consolidated Balance Sheet

Total liabilities

Total liabilities for reportable segments
Elimination of internal liabilities
Unalfocated liabilities

Total liabilities according to the Consolidated Balance Sheet

1 Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.

 

2008 2007
68,853 63,935
(5) -
68,848 63,935
3,027 3,000
72 43

- (10)
3,099 3,033
3 8
(1,924) (1,271)
1,178 1,770
42,762 42,477
(18,155) — (17,001)
17,925 17,395
42,532 42,871
3,382 4,398
33 10
3,415 4,408
33,473 32,590
(17,755) — (16,605)
26,829 25,749
42,547 41,734

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

45

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

3. STAFF COSTS

DKK million 2008 2007
Wages and salaries 33,995 31,453
Pension costs, defined benefit plans 126 118
Pension costs, defined contribution plans 1,492 1,477
Social charges and other costs 8,350 7,789
Staff costs 43,963 40,837
Average number of employees 455,846 416,867

Remuneration to the Board of Directors and Executive Management of the Group

 

 

 

2008 2007
Board of Executive Board of Executive
DKK thousand Directors Management Directors Management
Salaries (including benefits) and fees - 18,102 - 17,267
Bonus - 5,148 - 6,510
Severance payments ” - - - 12,833
- 23,250 - 36,610

 

The management team of the Group formally consists of the Managing Directors of ISS Global A/S. As ISS Global A/S has no
operating activities of its own, the Group relies on the management team of ISS A/S, the parent of ISS Global A/S.

Executive Management of the Group comprises the Executive Group Management of ISS A/S. The Executive Management is
remunerated by ISS A/S. The Managing Directors are not remunerated separately for their directorships in ISS Global A/S and are
therefore not included in the table above.

1) Included in Other income and expenses, net in ISS A/S.

 

4. SHARE-BASED PAYMENTS

 

Management Participation Programme

Funds advised by EQT Partners and Goldman Sachs Capital Partners (the "Principal Shareholders”) have established a
Management Participation Programme, under which Executive Management” and a number of senior officers of the Group (all
employed by ISS A/S, the parent of ISS Global A/S) have been offered to invest. The programme is structured as a combination of
direct and indirect investments in a mix of shares and warrants of FS Invest S.a r.! ("FS Invest"), ISS Global A/S's ultimate parent. Ås
part of the initial programme - in addition to the investments - warrants in FS Invest were granted free of charge to Executive
Management and a number of senior officers of the Group.

The direct and indirect investments in FS Invest were made on market terms and hence are not share-based payments within the
scope of IFRS 2 Share-based Payment. Further details of the programme and these investments are provided in note 34, Related
parties and in Corporate Governance on page 24. The warrants granted to Executive Management and a number of senior officers of
the Group are within the scope of IFRS 2.

Warrants granted as part of the Management Participation Programme

The warrants were granted in July 2006 as a one-time grant and were issued in two series, A and B, both expiring on 1 June 2014.
The estimated FS Invest share price at the time of the grant was DKK 1,019 per share. The warrants entitie the holder to subscribe
for FS Invest shares at an exercise price of DKK 2,039 and DKK 2,549 per share for warrants in series A and series B, respectively,
in a proportion which is determined by the exercise restrictions mentioned below. The warrants are exercisable for a period of 30
business days prior to and ending on 1 June 2014. The warrants are non-transferable.

1) Executive Management comprises Executive Group Management of ISS A/S.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
46

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. SHARE-BASED PAYMENTS (CONTINUED)

 

The fair value of the warrants was estimated to DKK 25 million at the time of grant measured using the Black-Scholes option pricing
model based on the assumptions at the time of grant and exercise restrictions.

The warrants are accounted for as equity-settled transactions in ISS A/S, the parent of ISS Global A/S. The fair value of these
warrants will be expensed in the income statement over the vesting period from July 2006 to June 2014. In 2008, DKK 5 million were
recognised under Other income and expenses, net in ISS A/S in respect of warrants granted (2007: DKK 2 million).

The warrants are subject to exercise restrictions depending on the share price at the time of exercise. At a share price of 6,114 or
more at the time of exercise 100% of the warrants vested can be exercised. The proportion of exercisable warrants decreases in
intervals down to 10% at a share price of 2,038. At share prices below 2,038 no warrants are exercisable.

Warrants outstanding at 31 December 2008 and movements during 2007 and 2008 were:

 

 

 

 

Executive Management Senior officers Total

Series A
Number of warrants Series A Series B Total Series A Series B Total Series A Series B and B
Outstanding at 1 January 2007 - 125,424 125,424 31,367  385,575  416,942 31,367  510,999  542,366
Warrants forfeited - - - (1,515) (8,839) (10,354) (1,515) (8,839) (10,354)
Outstanding at 31 December 2007 - 125,424  125,424 29,852  376,736  406,588 29,852  502,160  532,012
Warrants settled - (67,536) (67,536) -… (67,536) (67,536) - (135,072) (135,072)
Outstanding at 31 December 2008 - 57,888 57,888 29,852  309,200  339,052 29,852  367,088  396,940

 

Warrants settled during 2008 relates to cash settiement by FS Invest of warrants in connection with termination of employment.

 

 

5. FEES TO AUDITORS

DKK million 2008 2007
KPMG

Audit fees 40 37
Other audit related services 4 12
Tax and VAT advisory services 9 8
Other services 14 20
Total KPMG 67 77

Audit fees comprised audit of the consolidated and local Annual Reports. Other services mainiy comprised work related to
acquisitions such as financial and tax due diligence etc.

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. OTHER INCOME AND EXPENSES, NET

 

 

 

 

 

DKK million 2008 2007
Gain on divestments 35 7
Gain on sale of properties 0 23
Gain on sale of option - 61
Gain on sale of Private Finance Initiative (PFi) stake in the United Kingdom - 41
Other 18 14
Other income 53 146
Restructuring projects (131) (70)
Redundancy and severance payments relating to organisational changes (9) -
Loss on divestments (22) (115)
Closedown and subsequent surveillance of landfill site in France (28) -
Adjustment to accounting estimate in Belgium (17) -
Consolidation projects in the United Kingdom (4) (28)
Re-scoping of IT outsourcing agreement - (10)
Other (11) (4)
Other expenses 222 227
Other income and expenses, net 169 81

Other income
Gain on divestments in 2008 mainly relates to the remaining part of the non-core energy activities in France.

Gain on sale of properties in 2007 mainly related to sale of buildings within Landscaping activities in the Netherlands.
Gain on sale of option in 2007 related to the sale of a call option for property located in Norway.

Gain on sale of PFI stake in 2007 related to the sale of the Group's interest in Criterion Healthcare (Bishop Auckland) which operates
certain facilities at Bishop Auckland Hospital in the United Kingdom.

Other expenses

Restructuring projects in 2008 relate to costs for projects in the Netherlands, Norway, France, Austria and various other countries. In
the Netherlands a re-organisation of the organisational setup covering four business units as well as head office was initiated
amounting to DKK 70 million. In Norway the office relocation project initiated in 2007 to consolidate several office locations in Norway
continued amounting to DKK 16 million. In France, Austria and Norway re-organisations of the organisationai setup following the
divestments of various activities was carried out amounting to DKK 31 million. Restructuring projects in 2007 related to costs for the
office relocation project in Norway amounting to DKK 55 million and re-organisation of the organisational setup within a major
business unit in the Netherlands amounting to DKK 15 million. The projects included redundancy payments, termination of leaseholds
and relocation costs.

Redundancy and severance payments relating to organisational changes relate to organisational changes carried out by the Group at
country management level.

Loss on divestments in 2008 mainly relates to non-strategic landscaping activities in Austria. in 2007, divestments mainly related to
landscaping activities in Ireland and various other countries as well as the divestment of the initial part of the energy activities in
France.

Closedown and subsequent surveillance of landfill site in France relates to additional costs regarding closure and subsequent
supervision for 30 years of a landfill site, which was managed by ISS France and closed in 2008. The additional costs are mainly a
result of changed expectations and administrative requirements for handling of landfill sites as weli as an unfavourable climatic and
geological evolution.

Adjustment to accounting estimate in Belgium relates to adjustment of prior years estimate regarding work in progress.

Consolidation projects in the United Kingdom comprise costs related to consolidation of properties in centrai London and Scotland.
The projects include termination of leaseholds, write-off of fixed assets and relocation costs.

Re-scoping of IT outsourcing agreement in 2007 related to incurred re-scoping costs regarding the outsourcing of the Group's
operation and maintenance of certain of its information technology systems, primarily as a result of changing the IT outsourcing
agreement from a centralised solution to a decentralised solution.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
48

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7. NET FINANCE COSTS

DKK million 2008 2007
Interest income etc. 153 147
Amortised gain from settlement of interest rate swaps 87 84
Gain related to partial redemption of EMTNs - 227
Foreign exchange gain 62 22
Financial income i 302 480
Interest expenses etc. (1,772) (1,527)
Interest expenses to affiliates (152) (158)
Amortisation of financing fees (33) (26)
Foreign exchange loss (269) (40)
Financial expenses (2,226) (1,751)
Net finance costs (1,924) (1 271)

Amortised gain from settlement of interest rate swaps

The interest rate swaps hedging ISS Global's Medium Term Notes (EMTNs) were partially settled in June 2005 and the remaining part
was settled in June 2006 resulting in a net gain to be recognised in the consolidated income statement over the remaining term of the
EMTNSs. A part of the gain is referred to the partially redeemed EMTNs and was recognised in the income statement in connection
with the redemption in July 2007. The remaining unrecognised net gain of DKK 144 million at 31 December 2008 (DKK 231 million at
31 December 2007) will be recognised in the income statement in the financial years 2009 - 2014 corresponding to the remaining term
of the EMTNs, see note 27, Borrowings.

Gain related to partial redemption of EMTN's

In July 2007, 77.9% of the EMTN's due in 2014 were redeemed. The notes were acquired at a discount to nominal value resulting in a
net gain of DKK 227 million including DKK 25 million of non-cash items from amortisation of related interest rate swaps and financing
fees.

 

8. INCOME TAXES

 

DKK million 2008 2007
Current tax regarding profit before impairment/amortisation of intangibles ” 304 412
Deferred tax regarding profit before impairment/amortisation of intangibles ” 184 421
Tax on profit before impairment/amortisation of intangibles ” 488 833
Adjustments relating to prior years, net (37) (12)
Income taxes 451 821
Tax effect of impairment/amortisation of intangibles ” (140) (129)
Total tax recognised in the income statement 311 692

1) Intangibles comprise the value of goodwill, brands and customer contracts.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
49

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. INCOME TAXES (CONTINUED)

 

DKK million

Current tax regarding equity movements
Deferred tax regarding equity movements

Total tax recognised directly in equity

Computation of effective tax rate
Statutory income tax rate in Denmark
Foreign tax rate differential, net

Non-tax deductible expenses less non-taxable income
Adjustments relating to prior years, net

Change of valuation of net tax assets

Effect of changes in tax rates

Other taxes ?

Limitation to interest deduction in Denmark

Effective tax rate (excluding effect from impairment/amortisation of intangibles) ”

1 intangibles comprise the value of goodwill, brands and customer contracts.
2) Other taxes mainly comprise withholding tax.

 

2008 2007
- 2
(37) 33
37) 35

25.0 % 25.0 %

1.7 % 2.5 %
26.7 % 27.5 %
2.2 % 1.7 %

(3.2)% (0.7)%
73%  15.4%

(0.7)% (0.4)%
4.2 % 29%
1.8% -

 

38.3 % 46.4 %

 

9. GOODWILL IMPAIRMENT AND WRITE-DOWN

 

DKK million

Impairment
Write-down

Goodwill impairment and write-down

 

2008 2007
315 -
99 99
414 99

Goodwill impairment of DKK 315 million in 2008 relates to ISS Germany of DKK 250 million and ISS Italy of DKK 65 million. For

further description see note 14, Impairment tests.

Write-down of DKK 99 million in 2008 mainly relates to divestment of the landscaping and office support activities in Austria of DKK
54 million and the construction part of the landscaping activities in region Vestfold and Telemark in Norway of DKK 25 million. The
write-down of DKK 99 million in 2007 mainly related to divestment of the landscaping activities in Ireland of DKK 70 million and the
energy activities in France of DKK 9 million as well as a number of minor divestments primarily in Denmark.

 

10. CHANGES IN WORKING CAPITAL

 

DKK million

Changes in inventories
Changes in receivables
Changes in payables

Changes in working capital

 

 

2008 2007
(28) 2
(128) (558)
278 585
122 29

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

50

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES

 

Acquisition of businesses

The Group made 66 acquisitions during 2008 (67 during 2007). The total purchase price amounted to DKK 2,139 million (DKK 2,896
million in 2007). The total annual revenue of the acquired businesses (unaudited approximate figure) is estimated at DKK 3,887
million (DKK 4,540 million in 2007) based on expectations at the time of acquisition.

The acquisitions (including adjustments to acquisitions in prior years) had the following effect on the Group's assets and liabilities on
the acquisition date:

Total acquisitions

 

Fair value adj.

 

 

Pre-

acquisition Current Prior Recognised
DKK million carrying year year values on
2008 amounts acq. acq. acquisition
Goodwill 7 (7) - -
Customer contracts - 677 1 678
Other non-current assets 158 21 (1) 178
Trade receivables 626 (20) 4 610
Other current assets 248 (27) (0) 221
Other provisions (15) (108) (9) (132)
Pensions, deferred tax liabilities and minorities (3) (163) (0) (166)
Long-term debt (23) (1) 1 (23)
Short-term debt (193) (4) (3) (200)
Other current liabilities (498) (52) (1) (551)
Net identifiable assets and liabilities 307 316 (8) 615
Goodwill 138 1,592
Acquisition costs, net of tax (1) (68)
Purchase price 129 2,139
Cash and cash equivalents in acquired businesses (118)
Cash purchase price 2,021
Changes in deferred payments and earm-outs 24
Changes in prepaid purchase price (11)
Acquisition costs paid, net of tax 61
Total payments regarding acquisition of businesses 2,095

In 2008, no acquisitions accounted for more than 2% of the Group's revenue on an individual basis. Consequently, all acquisitions are
deemed individually immaterial and are therefore shown in aggregate.

Opening balances are recognised in accordance with IFRS 3. At 31 December 2008, certain opening balances have only been
provisionally determined. Consequently, fair value adjustments may be recognised against goodwill within 12 months from the
acquisition date.

The purchase price of prior years' acquisitions increased by DKK 129 million, mainly due to revised estimates relating to eam-outs for
the acquisitions of Carlos Rocha in Spain of DKK 80 million, Ryvola in Czech Republic of DKK 12 million and CMC in Turkey of DKK
10 million.

The goodwill recognised on acquisition is attributable mainly to; i) assembled workforce, ii) technical expertise and technological know
how, iii) training expertise and training and recruitment programmes and iv) platform for growth. As the Group is a service company
that acquires businesses in order to apply the ISS model and generate value by restructuring and refining the acquired business, the
main impact from acquisitions derives from synergies, the value of human resources and the creation of platforms for growth.

continues

ANNUAL REPORT 2008 / Consolidated Financial Statements
51

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Acquisition of businesses (continued)
Acquisitions made in 2007 (including adjustments to acquisitions in prior years) had the following effect on the Group's assets and
liabilities on the acquisition date:

 

 

 

 

Sanitors inc. Total acquisitions
Fair value adj.
Pre- Pre-
acquisition Fair Recognised  acquisition Current Prior  Recognised
DKK million carrying value values on carrying year year values on
2007 amounts adj. acquisition amounts acq. acq. acquisition
Goodwill 497 (497) - 497 (497) - -
Brands - 2 2 - 2 - 2
Customer contracts - 309 309 - 947 1 948
Other non-current assets 34 (6) 28 216 14 4 234
Trade receivables 223 (13) 210 793 (32) 3 764
Other current assets 27 (3) 24 275 5 (21) 259
Other provisions (18) (13) (31) (65) (12) (5) (82)
Pensions, deferred tax liabilities and
minorities (17) (58) (75) (35) (235) 5 (265)
Long-term debt - - - (91) 4 (0) (87)
Short-term debt (1) (1) (2) (205) 11 (15) (209)
Other current liabilities (117) (96) (213) (633) (145) 31 (747)
Net identifiable assets and liabilities 628 (376) 252 752 62 3 817
Hereof previously recognised as associates - - (42)
Net identifiable assets and liabilities 252 3 775
Goodwill 706 18 2,201
Acquisition costs, net of tax (13) (0) (80)
Purchase price 945 21 2,896
Cash and cash equivalents in acquired businesses (13) (196)
Cash purchase price 932 2,700
Changes in deferred payments and earn-outs 5 172
Changes in prepaid purchase price - (1)
Acquisition costs paid, net of tax 12 86
Total payments regarding acquisition of businesses 949 2,957

In 2007, only the acquisition of Sanitors Inc. accounted for more than 2% of the Group's revenue on an individual basis. All other
acquisitions were deemed individually immaterial and are therefore shown in aggregate.

The purchase price of prior years' acquisitions increased by DKK 21 million in 2007, mainly due to revised estimate relating to an earn-
out for the acquisition of Tempo Services Ltd. in 2006.

The goodwill recognised on acquisition is attributable mainly to; i) assembled workforce, ii) technical expertise and technological know
how, iii) training expertise and training and recruitment programmes and iv) platform for growth. As the Group is a service company
that acquires businesses in order to apply the ISS model and generate value by restructuring and refining the acquired business, the
main impact from acquisitions derives from synergies, the value of human resources and the creation of platforms for growth.

continues

ANNUAL REPORT 2008 / Consolidated Financial Statements
52

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Acquisition of businesses (continued)

The 66 acquisitions" made by the Group during 2008 are listed below:

 

 

Consolidated
in the income  Percentage Annual Number of
Company Country statement interest  revenue? employees?
Hoguin Espace Verts SAS France January 100% 10 21
Kolberg Norway January Activities 17 12
Rengøringscentralen A/S Denmark January 100% 24 120
Catering Tefen Ltd. Israel January 50% 26 230
Adams Secuforce Int. Ltd Hong Kong January 100% 111 1,627
Triumph Network Services India February Activities 2 35
Profi-Komfort Kft. Hungary February 100% 68 1,361
Smartcare New Zealand February Activities 7 85
Kfir Group Israel March 100% 268 4,500
AÅrena21 Ltd. United Kingdom March 100% 43 114
Pest Check Ireland March Activities 5 6
Slim S.A. Chile March 100% 22 667
TimSar & Hawes Pest Australia March Activities 1 9
Technisch Onderhoud & Services BVBA Belgium March 100% 33 35
Strata Security and Combined Services Ltd. United Kingdom March 100% 152 635
Schack Firmafrugt Denmark April Activities 34 25
Vigor Services Norway April Activities 7 30
Gastropol Group Spoika z.0.0. Poland April 100% 81 670
BGM Industries USA April Activities 510 3,800
Ekå Våxtservice AB Sweden April 100% 4 6
Complete Cleaning Services Ltd. Australia April 100% 30 183
Inbuilt Engineering Pte Ltd. Singapore April 100% 94 110
Aspis Security SA Greece April 100% 216 1,430
Saneerauspari Finland May Activities 13 26
Paksil & CSS Turkey May 100% 88 1,500
Smartkost AS Norway May 100% 7 6
Servicoin S.A. de C.V. Mexico May 100% 94 987
Provence Faucardage SAS France June 100% 15 19
Siddhi Caterers and Allied Services Pvt. Ltd. India June 100% 20 500
Naturdes Ambiental S.L. Spain June 100% 1 15
ISH Weissenfels Germany June Activities 1 2
Sardunya Hazir Yemek Uretim Tesisleri A.S. Turkey June 100% 298 1,500
David Morrisson SARL Luxembourg June 100% 2 3
Contract Building Services USA June Activities 9 95
Boracure New Zealand June Activities 11 22
Topic Catering Australia June Activities 184 200
Promocentro Portugal June Activities 47 1,473
Notre Bel Co., Ltd. Thailand July 100% 31 1,900
Jardineria Pedro Moral S.L. Spain July 100% 5 12
Webdie NV Belgium July 100% 11 20
StopFlam SAS France July 100% 15 14
Ciape DD, S.L. Spain July 100% 9 24
Catering Habitue Uruguay July Activities 18 188
Equipo Blanco SØL Argentina July 100% 10 310
Subtotal 2,654 24,527
1) Includes all acquisitions completed prior to 1 January 2009.
2) Unaudited approximate figures based on information available at the time of acquisition.
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

53

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Acquisition of businesses (continued)
Consolidated

 

 

in the income  Percentage Annual Number of
Company Country statement interest  revenue” employees ”
Subtotal (from previous page) 2,654 24,527
Gros Environment SAS France August 100% 39 42
Hung Fat Cleaning Transportation Company Ltd. Hong Kong August 100% 27 183
HTTP Finland August Activities 6 10
Glanzend Ltda Chile August 100% 39 774
Personellsikring AS Norway August 100% 41 144
Loghis Logistica Integrada Ltda. Brazil August 100% 108 1,895
Grupo RV Catering Services Spain September 100% 57 250
HRS Helmut Ried! GmbH Germany September 100% 2 3
Golden Mind Services Co. Ltd. Thailand September 100% 204 9,066
ASL SA France October 100% 11 36
Control y Tratamientos Sanitarios, S.L. Spain October 100% 6 11
Silvertech E&M Engineering Co. Ltd. Hong Kong October 100% 72 145
The Catering People Ltd. United Kingdom October 100% 83 275
Frugt Karl Engros Denmark October Activities 3 0
MDN SAS France November 100% 40 272
Eltel Security Finland November Activities 11 13
Reaktorskolen AS Norway November 100% 54 21
Chubb (guarding & patrol) (Security Salesco NZ Ltd.) New Zealand December 100% 132 600
Van Den Brande Technieken Belgium December Activities 38 37
Bartens Pest Guard Germany December Activities 1 3
Gastronomia Mediterranea, S.L. and Limpiezas Masan, S.A. Spain December 100% 100 465
Grupo Limpul Spain December 100% 159 1,050
Total 3,887 39,822
1) Unaudited approximate figures based on information available at the time of acquisition.
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

54

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Divestment of businesses

The Group made 12 divestments during 2008 (14 during 2007). The total sales price amounted to DKK 316 million (DKK 32 million in
2007). The total annual revenue of the divested businesses (unaudited approximate figure) is estimated at DKK 1,281 million (DKK
394 million in 2007) based on expectations at the time of divestment.

The divestments had the following effect on the Group's assets and liabilities (carrying amounts) on the divestment date:

DKK million … 2008 2007
Goodwill (15) (37)
Customer contracts (6) (1)
Other non-current assets (10) (45)
Trade receivables (43) (47)
Other current assets (20) (69)
Assets held for sale (550) -
Other provisions 3 -
Pensions, deferred tax liabilities and minorities 12 -
Short-term debt 1 6
Other current liabilities 20 101
Liabilities held for sale 331 -
Net identifiable assets and liabilities (277) (92)
Loss/(gain) on divestment of businesses, net (13) 108
Divestment costs, net of tax (26) (48)
Sales price (316) (32)
Cash and cash equivalents in divested businesses 12 24
Cash sales price (304) (8)
Changes in deferred payments and earn-outs 1 (6)
Divestment costs paid, net of tax 31 40
Net proceeds regarding divestment of businesses 272 26

The 12 divestments” made by the Group during 2008 are listed below:

 

 

Excluded

from the
income Annual
Company/activity Country statement  revenue ?
Wood Restoration Business Spain January 6
EU Business in L&P France January 25
Slotsholmen Denmark January 45
ISS Energie France January 854
H. Jakober Transport Switzerland January 16

Eiendomsinvestor Norway February
Aquawall Denmark March 4
Security Phone Business Finland June 5
Austria Office Support Austria October 209
ISS Faroe Islands Faroe Islands November 10
Austria Landscaping Austria November 76
Vestfald & Telemark Norway December 31
Total 1,281

1 Includes al! divestments completed prior to 1 January 2009.
2) Unaudited approximate figures based on information available at the time of acquisition. continues

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
55

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Proforma revenue and operating profit
Assuming all acquisitions and divestments in the year were included as of 1 January the effect on revenue and operating profit before
other items is estimated as follows:

DKK million 2008 2007
Pro forma revenue

Revenue recognised in the income statement 68,848 63,935

Adjustment, assuming all acquisitions in the year were included as of 1 January 1,641 1,996

Revenue, assuming all acquisitions in the year were included as of 1 January 70,489 65,931

Adjustment, assuming all divestments in the year were carried out as of 1 January (230) (181)

Revenue, assuming all acquisitions and divestments in the year were carried
out as of 1 January 70,259 65,750

Pro forma operating profit before other items

Operating profit before other items recognised in the income statement 4,418 4,183
Adjustment, assuming all acquisitions in the year were included as of 1 January 113 152
Operating profit before other items, assuming all acquisitions in the year were

included as of 1 January 4,531 4,335
Adjustment, assuming all divestments in the year were carried out as of 1 January (0) 7

Operating profit before other items, assuming all acquisitions and divestments in the year
were carried out as of 1 January 4,531 4,342

Applied assumptions

The adjustment of revenue and operating profit before other items is based on estimates made by local ISS management in the
respective jurisdictions in which such acquisitions and divestments occurred at the time of such acquisition and divestment or actual
results where available. Synergies from acquisitions are not included for periods in which such acquisitions were not controlled by the
Group.

These adjustments and the computation of total revenue and operating profit before other items calculated on a pro forma basis
based on such adjustments are presented for informational purposes only and have not been audited. This information does not
represent the results the Group would have achieved had the divestments and acquisitions during the year occurred on 1 January. In
addition, the information should not be used as the basis for or prediction of any annualised calculation.

The acquiree's profit or loss since the acquisition date

The amount of the acquiree's profit or loss since the acquisition date included in the income statement for the year is not disclosed,
since such disclosure is impracticable, as acquired companies are typically merged with (or activities transferred to) existing
companies shortly after completion of the acquisition.

continues

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
56

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Acquisitions and divestments subsequent to 31 December 2008
From 1 January to 28 February 2009 the Group made 10 acquisitions and 1 divestment. Acquisitions/divestments had the following
effect on the Group's assets and liabilities on the acquisition/divestment date” :

 

 

 

Acquisitions Divestments
Pre-
acquisition Recognised
carrying values on Carrying
DKK million amounts  acquisition amounts
Customer contracts - 16 -
Other non-current assets 4 6 (2)
Trade receivables 11 7 -
Other current assets 10 10 -
Other provisions - (0) -
Pensions, deferred tax liabilities and minorities - (10) -
Short-term debt (1) (1) -
Other current liabilities (20) (23) -
Net identifiable assets and liabilities 4 5 (2)
Goodwill 33 -
Acquisition/divestment costs, net of tax (2) (0)
Purchase/(sales) price 36 (2)
Cash and cash equivalents in acquired/divested businesses (9) -
Cash purchase/(sales) price 27 (2)
Changes in deferred payments and earn-outs 32 -
Changes in prepaid purchase price 82 -
Åcquisition/divestment costs paid, net of tax o -
Total payments regarding acquisition/divestment of businesses 141 (2)

In accordance with usual Group procedures, opening balances are prepared during the first months following the acquisition. Hence,
opening balances are not yet available for all acquisitions completed from 1 January to 28 February 2009. For acquisitions, where
the opening balance is not yet available, any purchase price paid is shown in the line Changes in prepaid purchase price above.

1) Unaudited figures up until 31 January 2009.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
57

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Acquisitions and divestments subsequent to 31 December 2008 (continued)
The 10 acquisitions and 1 divestment made by the Group in the period 1 January to 28 February 2009 are listed below:

Consolidated in/
excluded from

 

 

 

 

 

 

the income  Percentage Annual Number of
Company/activity Country statement interest — revenue” employees ”
Mettek Hizmet Turkey January 100% 137 2,178
Central Property Service USA January Activities 182 917
Industriservice Danmark A/S Denmark January 100% 7 13
Vaasan LVI-Huolto Finland January 100% 14 13
Sunparking Indonesia February Activities 107 5,000
Aplytec Spain February 100% 13 24
Agria-Ved Hungary February 100% 7 25
ECO Servis Bosnia February 100% 5 65
Karmak italy February 100% 100 412
Suomala Finland February 100% 19 105
Acquisitions 591 8,752
Asker Norway January Activities 31 40
Divestments 31 40
1) Unaudited approximate figures based on information available at the time of acquisition/divestment.
12. INVESTMENTS IN NON-CURRENT ASSETS
DKK million 2008 2007
Purchase of intangible assets and property, plant and equipment (920) (946)
Sale of intangible assets and property, plant and equipment 215 247
Investments in intangible assets and property, plant and equipment, net ” 705 699
Purchase of financial assets (4) (25)
Sale of financial assets ?” 8 54
Changes in financial receivables (6) (27)
Investments in financial assets, net (2) 2

1) Excluding goodwill, brands and customer contracts as well as additions related to assets under finance leases.
2) In 2007, sale of financial! assets included proceeds from sale of Private Finance Initiative stake in the United Kingdom.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

58

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. INTANGIBLE ASSETS

 

DKK million

2008

Cost at 1 January

Foreign exchange adjustments

Additions

Additions from acquired companies, net
Disposals

Transfer from Property, plant and equipment

Cost at 31 December

Impairment, write-down and amortisation at 1 January
Foreign exchange adjustments

Amortisation

Amortisation from acquired companies, net
Impairment

Write-down

Disposals

Transfer from Property, plant and equipment

Impairment, write-down and amortisation
at 31 December

Carrying amount at 31 December

2007

Cost at 1 January

Foreign exchange adjustments
Additions

Additions from acquired companies, net
Disposals

Transfer to Assets held for sale

Cost at 31 December

Impairment, write-down and amortisation at 1 January
Foreign exchange adjustments

Amortisation

Amortisation from acquired companies, net
Write-down

Disposals

Transfer to Assets held for sale

impairment, write-down and amortisation
at 31 December

Carrying amount at 31 December

 

 

 

 

 

 

 

 

 

 

Software

and other

Customer  intangible
Goodwill Brands contracts assets Total
22,103 10 4,183 564 26,860
(1,036) 0 (238) (27) (1,301)
1,518 - - 120 1,638
(15) - 634 27 646
(99) ” (2) (37) (138)
- - - 15 15
22,471 10 4,577 662 27,720
(414) (1) (1,028) (358) (1,801)
0 0 72 13 85
- (2) (487) (80) (569)
- - 3 - 3
(315) - - - (315)
(99) - - - (99)
99 - 2 31 132
- 2 - (2) (2)
(729) (3) (1,438) (396) (2,566)
21,742 7 3,139 266 25,154
20,494 8 3,314 465 24,281
(211) 0 (45) (1) (257)
2,136 = - 114 2,250
(52) 2 917 5 872
(99) - - (17) (116)
(165) - (3) (2) (170)
22,103 10 4,183 564 26,860
(429) (0) (608) (300) (1,337)
0 (0) 12 1 13
- (1) (438) (74) (513)
15 - 4 (3) 16
(99) - - - (99)
99 - - 17 116
- - 2 1 3
(414) (1) (1,028) (358) (1,801)
21,689 9 3,155 206 25,059

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

59

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. IMPAIRMENT TESTS

 

The Group performs impairment tests on intangibles” annually and whenever there is an indication that intangibles may be impaired.
As described in note 9, Goodwill impairment and write-down, impairment losses of DKK 250 million related to the German business
and DKK 65 million related to the Italian business have been recognised in 2008.

The Group's intangibles relate to several hundred acquisitions carried out under varying circumstances and at different stages of
macro-economic cycles. The intangibles are distributed between most of the countries in which the Group operates. The acquired
companies, to which the intangibles relate, comprise a diverse portfolio of service types, customer segments, geographical regions,
contract sizes and management skills.

Impairment tests are carried out per country as this represents the iowest level of cash-generating units (CGU) to which the carrying
amount of intangibles can be allocated and monitøred with any reasonable certainty. This level of allocation and monitoring of
intangibles should be seen in the light of the Group's strategy to integrate acquired companies as quickly as possible in order to
benefit from synergies.

Acquired companies are typically organisationally integrated and merged with (or activities transferred to) existing Group companies
shortly after the completion of the acquisition. Furthermore, synergies and other effects resulting from cooperation with existing
Group companies in their geographical or business area normally influence the financial performance of an acquired company.
Consequently, after a short period of time, it is generally not possible to track and measure the value of intangibles of the individual
acquired companies (or activities) with any reasonable certainty.

As a company based in Europe, the Group assumes the long-term market equity risk premium to be 4.5%. When performing
impairment tests for individual CGU's, the risk premium applied may be higher than the Group's. When doing acquisitions the Group
typically applies a hurdle rate, which is significantly higher than the calculated cost of capital. '

The carrying amount of intangibles and the key assumptions? used in the impairment testing for each CGU representing more than
3% of the carrying amount of intangibles are presented below.

Applied expected Applied discount

Carrying amount (DKK million) long-term rate rate

Discount Discount

 

 

Customer Total rate, rate,
2008 Goodwill Brands  contracts intangibles Growth  Margin net of tax pre tax
France 4,350 0 269 4,619 3.0% 6.7% 9.3% 12.9%
Finland 1,883 - 176 2,059 3.0% 8.0% 9.1% 11.5%
Netheriands 1,834 - 68 1,902 3.0% 6.6% 9.7% 12.0%
Spain 1,445 - 341 1,786 3.0% 6.1% 9.2% 12.2%
United Kingdom 1,298 - 231 1,529 3.0% 6.8% 8.8% 11.3%
Australia 1,229 - 216 1,445 3.0% 6.6% 10.2% 13.7%
Belgium 1,084 - 134 1,218 3.0% 7.1% 8.9% 12.4%
USA 869 1 322 1,192 3.0% 6.3% 7.9% 11.2%
Norway 925 - 172 1,097 3.0% 7.5% 10.1% 13.2%
Switzerland 925 - 104 1,029 3.0% 7.6% 8.3% 10.0%
Sweden 864 - 100 964 3.0% 6.8% 8.9% 11.3%
Denmark 895 - 50 945 3.0% 6.7% 9.7% 12.2%
Germany 751 6 131 888 3.0% 4.6% 9.2% 12.2%
Other 3,390 - 825 4,215
Total carrying amount at
31 December 2008 21,742 7 3,139 24,888

 

1) In this context intangibles cover the value of goodwill, brands and customer contracts resulting from the acquisition of companies.
2) The key assumptions applied in the impairment tests are used for accounting purposes and should not be considered a forward-iooking statement within
the meaning of the US Private Securities Litigation Act of 1995 and similar laws in other countries regarding expectations to the future development.

continues

ANNUAL REPORT 2008 / Consolidated Financial Statements
60

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. IMPAIRMENT TESTS (CONTINUED)

 

Estimates used to measure recoverable amount

The recoverable amount of each CGU is determined on the basis of its value-in-use. The value-in-use is established using certain
key assumptions as described below. The key assumptions are revenue growth, operating margin (before other items) and discount
rates.

Value-in-use cash flow projections are based on financial budgets approved by management covering the following financial year.
The operating margin is based on past performance and expectations for the future market development. The assumptions applied in
the short to medium term are based on management's expectations regarding the development in growth and operating margin. The
terminal growth rates do not exceed the expected long-term average growth rate including inflation for the business in which the
CGU's operate.

Uncertainties reflecting historical performance and possible variations in the amount or timing of the future cash flow is reflected in
the discount rate.

In determining the country specific discount rates, which are calculated net of tax, a target ratio of 60/40 between the market value of
debt and enterprise value is used. A country specific risk premium has been added to the discount rates to reflect the specific risk
associated with each CGU.

Impairment test results

The impairment test for ISS Germany has been based on a business plan prepared by management of ISS Germany applying the
assumptions set out below. The impairment test resulted in recognition of an impairment loss of DKK 250 million which was caused
by declining market conditions within certain business activities in which ISS Germany operates, and thus lower expectations for
future earnings combined with an increase in the discount rate applied.

The impairment test for ISS Italy resulted in recognition of an impairment loss of DKK 65 million. The impairment loss was primarily a
consequence of a significant increase in the applied discount rate. Furthermore, the Italian business is negatively impacted by a high
effective tax rate as a result of a special regional tax on productive activities (IRAP) as well as a decline in the margin. After
recognition of the impairment loss of DKK 65 million, the total intangibles in ISS Italy amounts to DKK 132 million.

Sensitivity analysis
A sensitivity analysis on the key assumptions in the impairment testing is presented below. The allowed change represents the
percentage points by which the value assigned to the key assumption as applied in the expected long-term rate can change, all other
things being equal, before the unit's recoverable amount equals its carrying amount.

Discount rate, net of

 

 

Growth Margin tax

Applied Applied

expected expected
long-term Allowed long-term Allowed Applied Allowed
2008 rate  decrease rate  decrease rate increase
France 3.0% >3.0% 6.7% 2.4% 9.3% 2.4%
Finland 3.0% >3.0% 8.0% >3.0% 9.1% >3.0%
Netheriands 3.0% >3.0% 6.6% 2.5% 9.7% 2.7%
Spain 3.0% 2.0% 6.1% 1.6% 9.2% 2.1%
United Kingdom 3.0% >3.0% 6.8% >3.0% 8.8% >3.0%
Australia 3.0% 1.6% 6.6% 1.3% 10.2% 1.7%
Belgium 3.0% >3.0% 7.1% >3.0% 8.9% >3.0%
USA 3.0% 2.2% 6.3% 2.0% 7.9% 2.3%
Norway 3.0% >3.0% 7.5% >3.0% 10.1% >3.0%
Switzerland 3.0% >3.0% 7.6% >3.0% 8.3% >3.0%
Sweden 3.0% >3.0% 6.8% >3.0% 8.9% >3.0%
Denmark 3.0% >3.0% 6.7% >3.0% 9.7% >3.0%
Germany 3.0% 0.0% 4.6% 0.0% 9.2% 0.0%
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
61

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. IMPAIRMENT TESTS (CONTINUED)

 

2007

France
Finland
Netherlands
United Kingdom
Australia
Spain
Norway
Belgium
Germany
Sweden
Switzerland
USA
Denmark
Other

Total carrying amount at 31
December 2007

2007

France
Finland
Netherlands
United Kingdom
Australia
Spain
Norway
Belgium
Germany
Sweden
Switzerland
USA
Denmark

 

 

 

 

 

 

Applied expected Applied discount
Carrying amount (DKK million) long-term rate rate

Discount Discount
Customer Total rate, rate,
Goodwill Brands  contracts intangibles Growth Margin netoftax pre tax
4,300 0 257 4,557 3.0% 7.0% 8.2% 11.2%
1,868 - 198 2,066 3.0% 8.0% 8.6% 10.7%
1,836 - 79 1,915 3.0% 6.7% 8.7% 10.8%
1,615 - 287 1,902 3.0% 6.7% 8.1% 10.2%
1,432 - 254 1,686 3.0% 6.5% 10.5% 13.8%
1,155 - 338 1,493 3.0% 6.2% 8.2% 10.6%
1,121 - 226 1,347 3.0% 7.5% 9.1% 11.7%
1,057 - 133 1,190 3.0% 7.3% 7.5% 10.1%
998 7 146 1,151 3.0% 5.5% 8.4% 10.8%
999 - 130 1,129 3.0% 6.6% 9.1% 11.7%
833 128 961 3.0% 7.5% 7.7% 9.2%
658 2 266 926 3.0% 5.9% 7.7% 10.8%
881 43 924 3.0% 7.0% 9.3% 11.5%

2,936 - 670 3,606

21,689 9 3,155 24,853

Discount rate,
Growth Margin net of tax
Applied Applied
expected expected

long-term Allowed long-term Allowed Applied Allowed
rate decrease rate decrease rate increase
3.0% >3.0% 7.0% 2.5% 8.2% 3.0%
3.0% >3.0% 8.0% >3.0% 8.6% >3.0%
3.0% >3.0% 6.7% 3.0% 8.7% >3.0%
3.0% >3.0% 6.7% >3.0% 8.1% >3.0%
3.0% 3.0% 6.5% 1.3% 10.5% 1.7%
3.0% 2.7% 6.2% 2.1% 8.2% 2.7%
3.0% >3.0% 7.5% >3.0% 9.1% >3.0%
3.0% >3.0% 7.3% >3.0% 7.5% >3.0%
3.0% 0.5% 5.5% 0.6% 8.4% 0.5%
3.0% >3.0% 6.6% >3.0% 9.1% >3.0%
3.0% >3.0% 7.5% >3.0% 7.7% >3.0%
3.0% 1.8% 5.9% 1.6% 7.7% 1.8%
3.0% >3.0% 7.0% >3.0% 9.3% >3.0%

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

62

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

2008 2007
Land and Plant and Landand  Plantand
DKK million buildings equipment Total buildings equipment Total
Cost at 1 January 325 6,318 6,643 347 5,736 6,083
Foreign exchange adjustments (8) (313) (321) 2 (55) (53)
Additions ” 65 898 963 10 927 937
Additions from acquired companies, net 8 163 171 40 309 349
Disposals (38) (673) (711) (69) (541) (610)
Transfers ? (8) (7) (15) (5) (58) (63)
Cost at 31 December 344 6,386 6,730 325 6,318 6,643
Depreciation at 1 January (122) (4,314) (4,436) (85) (3,854) (3,939)
Foreign exchange adjustments 2 256 258 0 48 48
Depreciation (18) (763) (781) (15) (746) (761)
Depreciation from acquired companies, net (1) (99) (100) (23) (197) (220)
Disposals 31 558 589 1 395 396
Transfers ?” 2 0 2 - 40 40
Depreciation at 31 December (106) (4,362) (4,468) (122) (4,314) (4,436)
Carrying amount at 31 December 238 2,024 2,262 203 2,004 2,207
Hereof assets held under finance leases - 182 182 - 156 156

 

Land and buildings with a carrying amount of DKK 5 million (DKK 6 million in 2007) have been provided as collateral for mortgage
debt of DKK 0 million (DKK 0 million in 2007). Additionally, a minor part of Land and buildings and Plant and equipment in certain
countries has been provided as security for the borrowings under the senior facilities, see note 31, Contingent liabilities.

1) In 2008, additions include assets held under finance leases of DKK 155 million (2007: DKK 111 million).

2) in 2008, DKK 13 million was transferred to Intangible assets. In 2007, DKK 23 million was transferred to Assets held for sale.

 

16. INVESTMENTS IN ASSOCIATES

 

DKK million

Cost at 1 January
Foreign exchange adjustments
Disposals ”

Cost at 31 December

Revaluation at 1 January
Foreign exchange adjustments
Net result for the year
Dividends received

Disposals ”

Revaluation at 31 December

Carrying amount at 31 December

1) In 2007, disposals included transfers related to associates now fully owned.

2008

20
(3)

17

(0)
(4)

24

2007
56

(37)

20

10

(3)
(7)

28

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

63

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. INVESTMENTS IN ASSOCIATES (CONTINUED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DKK million The Group's share
Operating Net Owner- Net
2008 Country Revenue profit result Assets Liabilities  ship% Equity result
NSB Trafikservice AB Norway 32 2 31 26 45 2 1
ISS Industriservice AB Sweden 280 11 6 119 88 48 15 3
Other associates 151 (2) 43 37 4 (1)
463 13 6 193 151 21 3
Goodwill at 31 December 2008 3 -
Carrying amount at 31 December 2008 24 3
DKK million The Group's share
Operating Net Owner- Net
2007 Country Revenue profit result Assets Liabilities  ship% Equity result
NSB Trafikservice AS Norway 64 4 3 27 22 45 2 1
ISS Industriservice AB Sweden 245 24 16 127 91 49 18 8
Other associates 153 1 (3) 50 38 8 (1)
462 29 16 204 151 28 8
Goodwill at 31 December 2007 - -
Carrying amount at 31 December 2007 28 8
17. DEFERRED TAX
DKK million 2008 2007
Deferred tax liabilities/(assets), net at 1 January 521 34
Foreign exchange adjustments (20) -
Additions from acquired companies, net 71 173
Tax regarding equity movements (37) 33
Transfer to assets held for sale - (11)
Tax on profit before impairment/amortisation of intangibles ” 184 421
Tax effect of impairment/amortisation of intangibles ” (140) — (129)
Deferred tax liabilities/(assets), net at 31 December 579 521
Recognised in the balance sheet as follows:
Deferred tax liabilities 888 915
Deferred tax assets (309) (394)
Deferred tax liabilities/(assets), net 579 521
1 Intangibles comprise the value of goodwill, brands and customer contracts.
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. DEFERRED TAX (CONTINUED)

 

Deferred tax specification

 

 

 

2008 2007

Deferred Deferred Deferred Deferred

tax tax tax tax

DKK million assets liabilities assets  liabilities
Tax losses carried forward 252 - 207 -
Goodwill 47 265 65 170
Brands - 2 - 3
Customer contracts - 804 - 862
Property, plant and equipment 85 110 138 140
Provisions 171 - 176 -
Long-term debt 47 - 68 -
Set-off within legal tax units and jurisdictions (293) (293) (260) (260)
Deferred tax 309 888 394 915

 

The recognition of deferred tax assets regarding tax losses carried forward is supported by expected future profitability in the
foreseeable future.

A deferred tax liability associated with investments in subsidiaries, joint ventures and associates has not been recognised, because
the Group is able to control the timing of the reversal of the temporary differences and does not expect the temporary differences to
reverse in the foreseeable future.

Unrecognised tax assets
The Group had unrecognised deferred tax assets regarding tax losses carried forward in the following countries:

 

 

2008 2007

Recog-  Unrecog- Recog-  Unrecog-
DKK million Total nised nised Total nised nised
Germany 254 58 196 239 47 192
Brazil 39 2 37 25 2 23
Belgium 22 17 5 12 8 4
USA 22 19 3 12 10 2
Israel 10 3 7 5 1 4
France 8 - 8 - - -
Denmark 4 4 - 5 5 -
Argentina 3 - 3 4 - 4
New Zealand 3 - 3 2 - 2
Austria 2 - 2 - - -
Italy 2 - 2 - - -
Hong Kong 2 1 1 - - -
Greece 1 - 1 - - -
Australia - - - 3 1 2
Total 268 233

The unrecognised tax losses can be carried forward indefinitely in the individual countries. Deferred tax assets relating to tax losses
carried forward are only recognised to the extent that it is more likely than not that future taxable profit will be available against which
the unused tax losses can be utilised in the foreseeable future taking into account any restrictions in utilisation in the local tax
legisiation.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
65

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. OTHER FINANCIAL ASSETS

 

DKK million

Costs related to PPP (Public Private Partnerships)/PFI (Private Finance Initiative) contracts
Regulatory long-term loans
Other

Other financial assets

2008

34
47
152

233

2007

61
46
118

225

Regulatory long-term loans are measured at amortised cost with any resulting adjustment being recognised in the income statement.

 

 

 

 

19. INVENTORIES
DKK million 2008 2007
Raw materials and supplies 102 95
Work in progress 15 14
Finished goods 147 140
Inventories 264 249
Inventories expensed 6,134 5,614
20. TRADE RECEIVABLES
DKK million 2008 2007
Trade receivables (gross) 10,325 10,341
Provision for doubtful debts (228) (227)
Trade receivables 10,097 10,114
The ageing of trade receivables at 31 December was:
Not past due 7,793 7,586
Past due 1 to 60 days 1,814 2,041
Past due 61 to 180 days 407 417
Past due 181 to 360 days 66 57
More than 360 days 17 13
Trade receivables 10,097 10,114
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

66

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. TRADE RECEIVABLES (CONTINUED)

 

DKK million 2008 2007
Movements in the provision for doubtful debts during the year was:

Provision for doubtful debts at 1 January (227) (225)
Foreign exchange adjustments 6 2
Additions from acquired businesses, net (22) (47)
Provisions for the year (73) (53)
Provisions reversed 51 74
Amounts written off as uncollectible 37 22
Provision for doubtful debts at 31 December 228 227

Trade receivables are shown net of provision for doubtful debts. The carrying amount approximates the fair value.

In general, the Group does not receive collateral for sales on credit. However, if collateral is received this is taken into account when
assessing the necessary provision for doubtful debts.

 

21. CONTRACT WORK IN PROGRESS

 

DKK million 2008 2007
Contract expenses 410 372
Recognised profits 72 61
Contract work in progress (before advances and prepayments) 482 433
Advances and prepayments (300) (272)
Contract work in progress 182 161

 

22. TAX RECEIVABLES AND TAX PAYABLES

 

DKK million … 2008 | 2007
Tax (receivables)/payables, net at 1 January (126) (49)
Foreign exchange adjustments 32 (4)
Additions from acquired companies, net 5 4
Adjustments relating to prior years, net (37) (12)
Tax on profit before impairment/amortisation of intangibles ” 304 412
Tax regarding equity movements - 2
Reclassification of joint taxation contribution 32 89
Tax paid, net (320) (568)
Tax (receivablesYpayables, net at 31 December ' 110 126
Recognised in the balance sheet as follows:

Tax payables 123 151
Tax receivables (233) (277)
Tax (receivablesYpayables, net 110 126

1) Intangibles comprise the value of goodwill, brands and customer contracts.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
67

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. OTHER RECEIVABLES

 

 

 

DKK million 2008 2007
Receivables from affiliates 35 15
Interest rate swaps - 103
Prepayments 458 390
Other 244 442
Other receivables 737 950

The carrying amount of other receivables approximates their fair values.

Receivables from affiliates are mainly related to a joint taxation scheme with Danish resident affiliates. The effective interest rate
regarding receivables from affitiates was 6.3% (2007: 5.8%).

Interest rate swaps are carried at marked-to-market value. Changes in the fair value are recognised in equity.

Prepayments comprise various prepaid expenses such as rent, leasing and insurance as well as accrued interest expenses,

 

24. ASSETS AND LIABILITIES HELD FOR SALE

 

in 2008, no assets or liabilities are ciassified as held for sale.

In 2007, assets and liabilities held for sale related to the energy activities in France. The first part of the activities was divested in
September 2007, and the assets and liabilities attributable to the remaining activity were reclassified as held for sale. The remaining
energy activity was disposed 1 January 2008.

 

DKK million 2008 2007
Goodwill - 165
Other intangibles - 2
Property, plant and equipment - 23
Financial assets - 3
Inventories - 50
Trade and other receivables - 307
Assets held for sale - 550
Deferred tax liabilities - 11
Other provisions - 8
Bank loan - 7
Trade and other payables - 305
Liabilities held for sale - 331

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
68

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. SECURITIES, CASH AND CASH EQUIVALENTS

 

 

 

2008 2007
Carrying Average Carrying Average
amount effective Average amount effective Average
(DKK interest  duration (DKK interest  duration

million) rate (years) million) rate (years)
Bonds 86 4.0% 1.8 83 4.0% 2.7
Securities 86 83
Cash and cash equivalents 2,951 2.7% 2,574 4.1%

Bonds consist of listed Danish government bonds measured at fair value through the income statement.

Of the total cash position, DKK 61 million (2007: DKK 50 million) was restricted and DKK 315 million (2007: DKK 198 million) was
reserved for amortisation of term facility A and acquisition facility in accordance with the terms of the Senior Facility Agreement.

 

 

26. SHARE CAPITAL

DKK million 2008 2007
Share capital at 1 January 160 160
Share capital at 31 December 160 160
Number of shares (in thousand of shares)

Number of shares at 1 January 160 160
Number of shares at 31 December - fully paid 160 160

At 31 December 2008, a total of 160,000 shares with a nominal value of DKK 1,000 per share were issued and fully paid (2007:

160,000 shares). No shares carry special rights. Shares are freely transferable.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

69

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. BORROWINGS

 

DKK million 2008 2007
Issued bonds 7,295 7,386
Bank loans 16,505 15,266
Finance lease obligations 122 108
Debt to affiliates 325 364
Long-term debt 24,247 23,124
Long-term debt due within one year 315 198
Bank loans and overdrafts ” 782 733
Finance lease obligations 69 77
Debt to affiliates ? 1,437 1,803
Short-term debt 2,603 2,811
Total long-term and short-term debt 26,850 25,935
Fair value 25,249 25,394

The fair value of the issued bonds (EMTNs) is based on the quoted market price on the Luxembourg Stock Exchange. For the
remaining part of long-term and short-term debt fair value is equal to the nominai value.

During 2008, financing fees amounting to DKK (2) million (2007: DKK 114 million) have been recognised in long-term debt while
accumulated financing fees recognised in long-term debt on 31 December 2008 amounted to DKK 159 million (2007: DKK 194
million).

in 2008 and 2007, the Group had no debt convertible into equity.

1) The effective interest rate was 5.9% (2007: 6.9%).

2) Debt to affiliates includes 4 million (2007: DKK 31 million) related to a joint taxation scheme with Danish resident affiliates. The effective interest rate
regarding debt to affiliates was 6.8% (2007: 8.0%).

Maturity profile of long-term debt

 

 

 

 

 

DKK million

2008 1-2 years 2-3 years 3-4 years 4-5 years >5 years Total
Issued bonds 6,466 - - - 829 7,295
Bank loans and finance lease obligations 822 890 597 14,318 325 16,952
Long-term debt 7,288 890 597 14,318 1,154 24,247
2007 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total
Issued bonds - 6,556 - - 830 7,386
Bank loans and finance lease obligations 484 717 925 625 12,987 15,738
Long-term debt 484 7,273 925 625 13,817 23,124

 

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
70

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. BORROWINGS (CONTINUED)

 

Terms and maturity of long-term debt

 

 

2008 2007
Weighted average Interest Interest Year of Face Amount  Carrying  Carrying
DKK million interest rate rate rate risk maturity value  hedged 2) amount amount
Issued bonds:
EMTNs due 2010 4.75% Fixed Fair value 2010 6,332 - 6,330 6,333
EMTNs due 2014 4.50% Fixed Fair value 2014 823 - 821 822
Interest rate swaps - - - - - - 144 231
Bank loans:
Senior facilities:
Term facility A Libor + 2.00% Floating Cash flow 2012 952 1,069 884 1,207
Term facility B Libor + 2.00% Floating Cash flow 2013 12,938 7,766 12,851 12,217
Acquisition facility A Libor + 2.25% Floating Cash flow 2012 1,280 600 1,280 1,384
Acquisition facility B Libor + 2.25% Floating Cash flow 2013 1,467 - 1,467 406
Other bank loans - - - - 23 - 23 52
Finance lease obligations - - - - 122 - 122 108
Debt to affiliates 7.00% - - 2016 325 - 325 364
Long-term debt 5.42% ” 24,247 23,124

” Weighted average interest rate taking the effect of interest rate hedges into account.

2) interest rate swaps hedging the floating interest rates are adjusted to fair value and recognised directly in equity. The amount hedged for term facility A
relates to the long-term as well as the short-term part of the debt.

Currency profile of long-term debt

The Group's long-term debt is denominated in the following currencies:

DKK

EUR

GBP

NOK

SEK
USD-related
Others

Finance lease obligations
Finance lease obligations are payable as follows:

DKK million

Within 1 year
1-5 years
After 5 years

 

 

 

2008 2007
0.1% 0.1%
88.6% 85.4%
5.5% 7.7%
2.1% 2.9%
1.6% 2.2%
0.1% 0.1%
2.0% 1.6%
100.0% 100.0%
2008 2007
Minimum Minimum
lease lease
payments Interest Principal payments interest  Principal
79 (10) 69 84 (7) 77
136 (15) 121 113 (6) 107
1 (0) 1 1 - 1
216 (25) 191 198 (13) 185

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

71

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. PENSIONS AND SIMILAR OBLIGATIONS

 

The Group contributes to defined contribution plans as well as defined benefit plans. The majority of the pension plans are funded
through payments of annual premiums to independent insurance companies responsible for the pension obligation towards the
employees (defined contribution plans). In these plans the Group has no legal or constructive obligation to pay further contributions
irrespective of the funding by these insurance companies. Pension costs related to such plans are recorded as expenses when
incurred.

In some countries, most significantly, the Netherlands, Sweden, Switzerland, France, Germany and the United Kingdom, the Group
has pension schemes where the actuarially determined pension obligations are recorded in the consolidated balance sheet (defined
benefit plans). The defined benefit plans are primarily based on years of service, and benefits are generally determined on the basis
of salary and rank. The majority of the obligations are funded, but in some countries, mainly Sweden and France, the obligation is
unfunded.

The Group's liabilities under defined benefit plans may be significantly affected by changes in the discount rate, the expected retum
on plan assets, the social security rate, the rate of increase in salaries and pension contributions, changes in demographic variables
or other events and circumstances.

There can be no assurance that the Group will not incur additional liabilities relating to its pension plans, and these additional
liabilities could have a material adverse effect on the Group's business, results of operations and financial condition. Changes to
local legislation and regulations relating to defined benefit plan funding requirements may result in significant deviations in the timing
and size of the expected cash contributions under such plans.

in certain countries, the Group participates in multi-employer pension schemes. The funds are currently not able to provide the
necessary information in order for the Group to account for the schemes as defined benefit plans. There is a risk that the plans are
not sufficiently funded. Furthermore, there is a risk that changes to local legislation will entail that pension plans are reclassified from
defined contribution plans to defined benefit plans, requiring the Group to recognise a provision.

In Norway, curtailment gains totalling DKK 30 million have been recognised in the income statement under staff costs, as a
consequence of a reduction in the future benefits of the participants in the defined benefit plan.

Recognised in the balance sheet

 

 

DKK million 2008 2007
Present value of funded obligations 2,860 2,736
Fair value of plan assets (2,591) (2,617)
Funded obligations, net 269 119
Present value of unfunded obligations 478 508
Unrecognised past service costs 1 1

Accumulated effect of asset ceiling 14 44
Recognised in the balance sheet for defined benefit obligations 762 672
Other long-term employee benefits 72 52
Pensions and similar obligations at 31 December 834 724

Specification of defined benefit obligations:

 

Present value of funded obligations 2,860 2,736

Present value of unfunded obligations 478 508

Defined benefit obligations at 31 December 3,338 3,244
continues

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
72

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. PENSIONS AND SIMILAR OBLIGATIONS (CONTINUED)

 

Recognised in the balance sheet (continued)
DKK million

Movement in defined benefit obligations (funded and unfunded):
Present value of obligations at 1 January

Foreign exchange adjustments

Reclassifications

Additions from acquired companies, net

Interest on obligation

Current service costs

Benefits paid

Employee contributions

Actuarial (gains)/losses

Recognised past service costs

Liabilities extinguished on settlements and curtailments

Present value of obligations at 31 December

Movement in fair value of plan assets:
Fair value of plan assets at 1 January
Foreign exchange adjustments
Reclassifications

Additions from acquired companies, net
Expected retum on plan assets

Actuarial gains/(losses)

Assets distributed on settlements
Contributions

Benefits paid

Fair value of plan assets at 31 December

Realised return on plan assets:
Expected retum on plan assets
Actuarial gains/(losses)

Realised return on plan assets at 31 December

Major categories of plan assets (% of total plan assets):
Bonds

Equities

Property

Cash

Other

Total

The Group expects to contribute DKK 178 million to its defined benefit plans in 2009.

2008

3,244
32
47
32

139
149
(96)
74
(244)

(41)

3,338

2,617

53
14
134
(426)
(16)
213
(41)

2,591

134
(426)

292

60%
21%
10%
1%
8%

100%

2007

3,446
(108)
(48)
37
123
156
(91)
65
(200)
(0)
(136)

3,244

2,606
(91)
(43)

116
(48)
(91)
221
(53)

2,617

116
(48)

68

54%
29%
1%
8%
8%

100%

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

73

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. PENSIONS AND SIMILAR OBLIGATIONS (CONTINUED)

 

Recognised in the income statement
DKK million

Current service costs

Interest on obligation

Expected retum on plan assets
Recognised past service costs, net

Gains on curtailments and settlements, net

Recognised in the income statement as staff costs

Recognised in equity

Cumulative (gains)/iosses recognised in equity at 1 January
Actuarial (gains)/losses during the year

Effect of asset ceiling

Cumulative (gainsY/losses recognised in equity at 31 December

Hereof accumulated actuarial (gains)/losses

Actuarial assumptions

2008

149
139
(134)

(30)

126

110
182
(25)

267

248

2007

156
123
(116)

(0)
(45)

118

221
(152)
41

110

66

Actuarial calculations and valuations are performed annually for all major defined benefit plans. The actuarial assumptions vary from

country to country due to local conditions. The range of actuarial assumptions used is as follows:

Discount rates at 31 December

Expected return on plan assets at 31 December
Future salary increases

Future pension increases

2008

1.8-13.0%
1.8-8.0%
2.0-10.0%
1.3-5.1%

2007

3.4-11.0%
3.9-6.9%
2.0-5.0%
0.3-3.1%

Discount rates are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to
the terms of the defined benefit obligations. In Switzerland, which represents 56% of the gross obligation (2007: 49%), the discount
rate was 3.8% (2007: 3.4%) and in the euro countries representing 23% of the gross obligation (2007: 25%) the discount rate was

between 5.6% and 6.0% (2007: 5.15%-5.25%).

Expected retum on plan assets is based on the plan asset portfolio and general expectations to the economic development.

Historical information
DKK million

Present value of obligations

Fair value of plan assets
Unrecognised past service costs
Asset ceiling

Net obligations at 31 December

Actuarial (gains)/losses on obligations
Actuarial gains/(losses) on plan assets

Actuarial (gainsYlosses during the year

Cumulative actuarial (gains)/losses at 31 December

 

 

 

 

 

2008 2007 2006 2005 2004
3,338 3,244 3,446 2,240 2,330
(2,591) (2,617) (2,606) (1,441) (1,652)
1 1 1 2 2

14 44 3 - -
762 672 844 801 680
(244) (200) (59) 253 (6)
(426) (48) (13) 29 (46)
182 (152) (46) 224 40
248 66 218 264 40

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

74

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

29. OTHER PROVISIONS
Labour- Contingent
related Self- Acquisition and  liabilities in

DKK million items insurance integration costs  acquisitions Other Total
2008
Other provisions at 1 January 86 167 41 14 345 653
Foreign exchange adjustments (3) (17) (3) - (13) (36)
Transfers, net ” 2 8 (1) - 8 17
Additions from acquired companies, net 23 - - 31 68 122
Provisions for the year (included in goodwill) - - 68 - - 68
Provisions for the year (included in the income statement) 37 103 66 - 199 405
Provisions for the year (dismantling costs) - - - - 30 30
Provisions reversed (against the income statement) (23) (18) (1) - (42) (84)
Provisions used during the year (30) (77) (125) -… (112) (344)
Unwind of discount - - - - 1 1
Other provisions at 31 December 92 166 45 45 484 832
Current 68 70 43 13 241 435
Non-current 24 96 2 32 243 397

92 166 45 45 484 832
2007
Other provisions at 1 January 89 120 64 - 472 745
Foreign exchange adjustments 0 (5) 1 - (4) (8)
Transfers, net ” 4 2 0 - (19) (13)
Additions from acquired companies, net 4 26 0 14 38 82
Provisions for the year (included in goodwill) - - 80 - - 80
Provisions for the year (included in the income statement) 48 83 67 - 129 327
Provisions reversed (against the income statement) (21) (13) (5) -… (135) (174)
Provisions used during the year (38) (46) (166) -… (136) (386)
Other provisions at 31 December 86 167 41 14 345 653
Current 68 49 28 14 168 327
Non-current 18 118 13 0 177 326

86 167 41 14 345 653

 

Labour related items
The provision mainly related to labour related obligations in Belgium, Brazil, France, Israel, the Netherlands, Spain and Turkey.

Self-insurance

In Australia, Ireland, the USA and the United Kingdom, the Group carries an insurance provision on employers' liability. Ireland and
the United Kingdom are self-insured up to a yearly limit of DKK 18 million (DKK 35 million in 2007) for employers' liability. The USA is
self-insured up to a limit of DKK 1.3 million per claim. Australia is self-insured up to a limit of DKK 1.8 million per claim. ISS Corporate
has taken out a group third party liability insurance programme. The ISS captive insurance company Global Insurance A/S carries part
of the risk on the third party liability programme with a maximum annual limit of DKK 42 million (DKK 42 million in 2007).

Acquisition and integration costs

The provision includes obligations incurred in the normal course of acquisitions mainly related to transaction costs, redundancy
payments and termination of rental of properties. Transaction costs are included in goodwill. Other costs are included in the income
statement.

Contingent liabilities in acquisitions
The provision relates to contingent liabilities assumed in connection with acquisitions.

Other
The provision comprises various obligations incurred in the course of business, e.g. provision for restructuring, dismantling costs,
operational issues, closure of contracts and legal cases.

1) in 2008, transfers, net consisted of net provisions transferred from Other liabilities and Pensions and similar obligations. In 2007, transfers, net consisted
of net provisions transferred to Other liabilities, Pensions and similar obligations and Trade receivables.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
75

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30. OTHER LIABILITIES

 

DKK million 2008 2007
Accrued wages and holiday allowances 4,311 4,211
Tax withholdings, VAT etc. ' 2,840 2,934
Prepayments from customers 420 446
Interest rate swaps 185 -
Other payables and accrued expenses 2,461 2,724
Other liabilities 10,217 10,315

The carrying amount of other liabilities approximates their fair value.

Interest rate swaps are carried at marked-to-market value. Changes in the fair value are recognised in equity.

 

31. CONTINGENT LIABILITIES

 

Senior Facility Agreement

ISS Holding A/S has executed a share pledge over its shares in ISS A/S as security for the Group's senior facilities and a secondary
share pledge over such shares as security for the subordinated notes issued by ISS Holding A/S.

ISS Global A/S, a 100% owned subsidiary of ISS A/S, acceded to the senior facilities agreement and thereby obtained a right to
make borrowings under the senior facilities.

ISS A/S and certain material subsidiaries of ISS Globai A/S in Australia, Belgium, Denmark, Finland, France, the Netherlands,
Norway, Spain, Sweden, the United Kingdom and the USA have provided guarantees for ISS Global A/S's borrowings under the
senior facilities. The guarantees have been backed up by security over bank accounts, trade receivables, intra-group receivables,
other receivables, properties, production equipment and intellectual property rights of ISS A/S and these subsidiaries. At 31
December 2008, the aggregate approximate values of assets provided as security for the borrowings under the senior facilities were:

DKK billion … 2008 | 2007
Goodwill 2.0 3.0
Customer contracts 0.4 0.5
Intellectual property rights 0.0 0.0
Other intangible and tangible assets 0.3 0.3
Trade receivables 3.2 3.8
Other receivables 0.2 0.1

Bank accounts 1.8 1.8
Total 7.9 9.5

In addition, the shares in the material subsidiaries and shares in certain of their subsidiaries as well as shares in certain subsidiaries
in Austria, Germany, Hong Kong, Ireland, Portugal, Singapore, Switzerland and Turkey have been pledged.

Operating leases
Operating leases consist of leases and rentals of properties, vehicles (primarily cars) and other equipment. The total expense under
operating leases in the income statement amounted to DKK 1,856 million (DKK 1,816 million in 2007). Assuming the current car fleet
etc. is maintained, the future minimum lease payments under operating leases are:

After Total lease

 

DKK million Year 1 Year 2 Year 3 Year 4 Year 5 5 years payment
At 31 December 2008 1,282 915 646 399 284 394 3,920
At 31 December 2007 1,234 896 658 412 286 431 3,917

 

Additional future lease payments of DKK 7 million (DKK 5 million in 2007) existed regarding associates at 31 December.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
76

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. CONTINGENT LIABILITIES (CONTINUED)

 

Commitment vehicle lease

On 1 January 2005 the Group entered into a global car fleet lease framework agreement for three years, including an option for
extension. The agreement was re-negotiated and extended for another three year term from 1 January 2008 to 31 December 2010.
The framework agreement contains an option for the Group to terminate the fleet of an entire country or the entire fleet under the
framework agreement with four weeks notice subject to payment of a termination amount. The majority of the underlying agreements
have a duration of 3-5 years. The disclosed contingent liability includes the Group's total leasing commitment assuming no early
termination of any agreement.

Guarantee commitments
Indemnity and guarantee commitments at 31 December 2008 amounted to DKK 318 million (31 December 2007: DKK 405 million).

Performance guarantees

The Group has issued performance guarantee bonds for service contracts with an annual revenue of DKK 1,305 million (31 December
2007: DKK 1,229 million) of which DKK 1,112 million (31 December 2007: DKK 979 million) were bank-guaranteed performance
bonds. Such performance bonds are issued in the ordinary course of business in the service industry.

Outsourcing of IT

The Group has an IT outsourcing agreement with Computer Sciences Corporation (CSC) running until 2015. The Group's contractual
obligations related to the agreement at 31 December 2008 amounted to approximately DKK 60 million (31 December 2007: DKK 75
million).

Divestments

The Group makes provisions for claims from purchasers or other parties in connection with divestments and representations and
warranties given in relation to such divestments. Management believes that provisions made at 31 December 2008 are adequate.
However, there can be no assurance that one or more major claims arising out of the Group's divestment of companies will not
adversely affect the Group's activities, results of operations and financial position.

Legal proceedings

The Group is party to certain legal proceedings. Management believes that these proceedings (which are to a large extent labour
cases incidental to its business) will not have a material impact on the Group's financial position beyond the assets and liabilities
already recognised in the balance sheet at 31 December 2008.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. FINANCIAL RISK MANAGEMENT

 

The Group is exposed to a number of financial risks as a result of its operating activities, investing activities and financing activities,
mainly related to fluctuations in exchange rates and interest rates as weli as availability of funding. The Group has not identified any
additional financial risk exposures in 2008. However, the individual risks associated with the exposures identified have changed
following the current financial crisis.

The Group's financial risks are managed centrally in Group Treasury based on policies approved by the Board of Directors. The
Group's financial risk management is focused on managing risks arising from the Group's operating and financing activities, mainly
by use of interest rate instruments and currency instruments. It is not the Group's policy to take positions in the financial markets.

Currency risk
The service industry is characterised by a relatively low level of transaction risk, since the services are produced and delivered in the
same local currency with minimal exposure from imported components.

However, as an intemational business with the majority of revenue and operating profit stemming from foreign entities, the Group is
exposed to risk relating to translation into Danish kroner of income statements and net assets of foreign subsidiaries, including
intercompany items such as loans, royalties, service fees and interest payments between entities with different functional currencies.

Additionally, the Group has a currency risk to the extent that its interest payments with respect to borrowings are not denominated in
the same currencies as the Group's revenue.

The Group hedges the exposure on the intercompany loans to foreign subsidiaries by entering into currency swaps. Foreign
exchange gains and losses arising from both the intercompany loans and currency swaps are recognised in the income statement. It
is not Group policy to hedge the currency exposure on foreign investments. Consequently, no hedging transactions of net
investments in foreign subsidiaries were entered into in 2008 and 2007. However, the Group may choose to hedge the currency
exposure on foreign investments by funding such investments in local currencies.

In 2008, the currencies in which the Group's revenue was denominated decreased with an average of 2.6% (2007: decreased with
0.3%) relative to Danish kroner, decreasing the Group's revenue by DKK 1,624 million (2007: a decrease of DKK 160 million).
Currency movements decreased the Group's operating profit before other items by DKK 107 million (2007: a decrease of DKK 10
million). The effect of the translation of net assets in foreign subsidiaries decreased equity by DKK 146 million (2007: a decrease of
DKK 115 million).

A 5% change in foreign exchange rates of the Group's main currencies would have impacted revenue, operating profit before other
items, royalty and equity by the amounts shown below. The analysis is based on the assumption that all other variables remain
constant.

 

 

 

 

2008 2007

Operating Net assets Operating Net assets

profit before in foreign profit before in foreign

Effect in DKK million Revenue other items  Royalty subsidiaries  SRevenue otheritems  Royalty subsidiaries
EUR 1,523 90 25 212 1,476 93 24 268
CHF 123 10 2 41 111 9 2 34
GBP 378 26 6 33 390 26 6 36
NOK 284 20 4 (31) 266 19 4 (37)
SEK 196 13 3 8 193 13 3 7
USD 211 13 3 62 138 8 2 44
Other 536 34 9 88 432 29 6 90
Total 3,251 206 52 413 3,006 197 47 442

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
78

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. FINANCIAL RISK MANAGEMENT (CONTINUED)

 

Interest rate risk
The Group's most significant interest rate risk relates to interest-bearing debt.

The Group's loan portfolio primarily consists of bank loans (senior facilities) and listed bonds (EMTN's). To manage the interest rate
risk the Group uses fixed-rate bonds and derivatives, such as interest rate swaps. A part of the Group's interest payments on the
bank loans have been swapped from floating into fixed rates, see note 27, Borrowings, where a breakdown of the Group's long-term
debt and applied interest rate swaps is provided.

The interest rate risk is measured by the duration of the net debt (fixed-rate period). As at 31 December 2008, the duration of net debt
was approximately 1.3 years (31 December 2007: 2.1 years). A decrease in interest rates will increase the fair value of the debt with
a fixed interest rate, but oniy part of this increase will be reflected in the income statement and equity as long-term borrowings are
stated at amortised cost and therefore not adjusted to fair value. It is estimated that a general increase in relevant interest rates of
1%-point would increase the annual interest expenses, net by DKK 57 million (2007: DKK 43 million), all other things being equal.
The estimate is based on net debt adjusted for the effect of hedging instruments as at 31 December 2008.

Liquidity risk

Liquidity risk is the risk of the Group failing to honour its contractual obligations due to insufficient liquidity. The Group's liquid
reserves mainly consist of liquid funds and unused credit facilities. As at 31 December 2008, the Group's liquid reserves consisted of
liquid funds of DKK 2,890 million (2007: DKK 2,524 million), unused revolving credit facilities of DKK 817 million (2007: DKK 738
million) available for drawing until 30 June 2012 and unused acquisition facilities of DKK 2,033 million (2007: DKK 3,135 million)
available for drawing until 11 May 2009. It is the Group's policy to maintain an appropriate level of liquid reserve.

The bank loans are subject to customary undertakings, covenants (including financial covenants) and other restrictions. Financial
covenants comprise the following: i) Debt cover ii) Senior debt cover, iii) Cash flow cover, iv) Interest cover, v) Limitation on Capex
spending. The financial covenants are calculated on a last-twelve-months basis and reported quarterly, except for ii) and v), which are
only reported at year-end. In the event of a default under those agreements, the debt incurred including accrued interest could be
declared immediately due and payable. in 2008 and 2007, all covenants have been complied with.

For a breakdown of the maturity of the Group's long-term debt, see note 27, Borrowings. In 2010, EUR 850 million of the EMTN's will
mature. The Group intends to repay the principal amount of the notes at maturity using funds obtained from other financing sources,
rather than with cash from operations. In accordance with the provisions of the Group's Intercreditor Agreement, the Group is obliged
to publicly announce that it is in negotiations to refinance these EMTN's at least 6 months prior to maturity date.

Capital management
The Group monitors the capital structure and evaluates the need for adjustments on an ongoing basis. The dividend policy and
payment of dividends is made subject to the necessary consolidation of equity and the Group's continuing expansion.

ISS Global A/S (the Group's parent) is a holding company, and its primary assets consist of shares in its subsidiaries, receivables
from affiliates and cash in its bank accounts. ISS Global A/S has no revenue generating operations of its own, and therefore ISS
Global A/S's cash flow and ability to service its indebtedness, will depend primarily on the operating performance and financial
condition of its operating subsidiaries, and the receipt by ISS Global A/S of funds from its subsidiaries in the form of dividends or
otherwise.

Credit risk

Credit risk is the risk of a counterparty failing to meet its contractual obligations and so inflicting a loss on the Group. The Group's
credit risk is mainly related to transactions with financial institutions (liquid funds and derivatives with positive fair value) and service
deliveries to customers (trade receivables). It is the Group's policy that financial transactions may be entered into only with financial
institutions with a high credit rating.

The Group is not exposed to significant risks relating to individual customers. The Group performs ongoing credit evaluations of the
financial condition of the Group's counterparties in order to reduce the credit risk exposure. Losses on bad debt relating to individual
customers have historically been relatively low. It is estimated that the provisions made are sufficient to cover expected losses (see
note 20, Trade receivables).

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
79

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. DERIVATIVES

 

Contractual values and unrealised gains and losses are specified below for financial instruments used to hedge the foreign exchange
risk and the interest rate risk:

Unrealised
gain/(loss) on Included in Taken directly
Contractual revaluation the income to equity on

 

 

 

 

 

 

 

DKK million value to fair value statement 31 December Maturity
2008
Forward foreign currency, purchases
CHF 263 5 5 - 2009
EUR 3,842 (2) (2) - 2009
GBP 435 (13) (13) - 2009
4,540 (10) (10) -
Forward foreign currency, sales
AUD 977 (1) (1) - 2009
CZK 151 2 2 - 2009
ILS 205 (3) (3) - 2009
MXN 73 4 4 - 2009
NOK 1,098 2 2 - 2009
SEK 280 - - - 2009
USD 909 6 6 - 2009
Others 471 3 3 - 2009
4,164 13 13 -
Interest rate instruments ”
Interest rate swap - 2009 (CHF), payer 192 (1) - (1) 2009
Interest rate swap - 2010 (CHF), payer 169 (2) - (2) 2010
Interest rate swap - 2009 (GBP), payer 289 (3) - (3) 2009
Interest rate swap - 2010 (GBP), payer 289 (8) - (8) 2010
Interest rate swap - 2010 (GBP), payer 994 (38) - (38) 2010
Interest rate swap - 2009 (SEK), payer 415 (1) - (1) 2009
Interest rate swap - 2010 (SEK), payer 361 (5) - (5) 2010
Interest rate swap - 2009 (NOK), payer 462 (0) - (0) 2009
Interest rate swap - 2010 (NOK), payer 398 (5) - (5) 2010
Interest rate swap - 2009 (EUR), payer 600 (1) - (1) 2009
Interest rate swap - 2010 (EUR), payer 600 (7) - (7) 2010
Interest rate swap - 2010 (EUR), payer 3,129 (44) - (44) 2010
Interest rate swap - 2010 (EUR), payer 3,353 (69) - (69) 2010
11,251 (184) - (184)
Total financial instruments (181) 3 (184)

 

” The swaps convert a major part of the floating rates within the bank ioans to fixed interest rate.

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
80

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. DERIVATIVES (CONTINUED)

 

Contractual values and unrealised gains and losses are specified below for financial instruments used to hedge the foreign exchange
risk and the interest rate risk:

Unrealised
gair/(loss) on Included in Taken directly
Contractual revaluation theincome to equity on

 

 

 

 

 

 

 

DKK million value to fair value statement 31 December Maturity
2007
Forward foreign currency, purchases
CHF 220 0 0 - 2008
EUR 5,421 (4) (4) - 2008
GBP 679 (10) (10) - 2008
HKD 46 (1) (1) - 2008
NOK 243 0 0 - 2008
Others 17 0 O - 2008
6,626 (15) (15) -
Forward foreign currency, sales
AUD 1,098 9 9 - 2008
CZK 145 1 1 - 2008
ILS 154 1 1 - 2008
MXN 179 5 5 - 2008
SEK 208 o 0 - 2008
SGD 60 1 1 - 2008
USD 855 18 18 - 2008
Others 226 2 2 - 2008
2,925 37 37 -
Interest rate instruments ”
Interest rate swap - 2009 (CHF), payer 173 1 - 1 2009
Interest rate swap - 2009 (SEK), payer 481 8 - 8 2009
Interest rate swap - 2009 (NOK), payer 570 12 - 12 2009
Interest rate swap - 2010 (GBP), payer 384 0 - 0 2010
Interest rate swap - 2010 (EUR), payer 600 10 - 10 2010
Interest rate swap - 2010 (GBP), payer 1,319 3 - 3 2010
interest rate swap - 2010 (EUR), payer 3,132 59 - 59 2010
Interest rate swap - 2010 (EUR), payer 3,355 11 - 11 2010
10,014 104 - 104
Total financial instruments 126 22 104

 

1) The swaps convert a major part of the floating rates within the bank loans to fixed interest rate.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
81

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

34. RELATED PARTIES

 

Parent and ultimate controlling party

The sole shareholder of ISS Global A/S, ISS A/S, has controlling influence in the Group. The ultimate controlling company of the
Group is FS Invest S.å rå ("FS Invest"), which is 54% owned by funds advised by EQT Partners and 44% owned by funds advised by
Goldman Sachs Capital Partners, together The Principal Shareholders.

Key management personnel

Members of the Board of Directors and Managing Directors

Apart from co-investment programmes described below there were no significant transactions with members of the Board of Directors
or the Managing Directors during the year. The Board of Directors and the Managing Directors are not remunerated separately for
their directorships in ISS Global A/S.

Co-investment Programmes

The Principal Shareholders have established a Management Participation Programme, under which the Executive Group
Management and a number of senior officers of the Group were offered to invest. The programme is structured as a combination of
direct and indirect investments in a mix of shares and warrants of FS Invest, ISS Global A/S's ultimate parent. As of 31 December
2008, the investments amounted to DKK 185 million in total for 132 executives and officers. As part of the initial programme - in
addition to the investments - certain senior officers were granted warrants in FS Invest with a vesting schedule (based on value of
shares and time). As of 31 December 2008, 396,940 were outstanding, see note 4, Share-based payments.

Directorships and external executive positions of ISS Global's Board of Directors and Managing Directors

 

 

Board of Directors Board Member Executive Position
Jørgen Lindegaard Efsen Engineering A/S None

Jeff Gravenhorst None None

Jakob Stausholm None None

Managing Directors Board Member Executive Position
Christian Kofoed Jakobsen None None

Bjørm Raasteen None None

Affiliates

In 2008, the Group had the foliowing transactions with affiliates:

- the Group paid royalty and management fees to ISS A/S.

- the Group received/paid interest from/to affiliates, see note 7, Net finance costs.

- the Group received/paid joint taxation contribution equal to 25% of taxable income from/to ISS Equity A/S (the ultimate parent
company in Denmark).

- the Group paid dividends to ISS A/S.

- the Group and Goldman Sachs have agreed general terms and conditions for the supply of Facility Services to be applied by local
ISS operations and local Goldman Sachs affiliates when contracting with each other. ISS in Switzerland, Russia and the United
Kingdom have entered into Facility Services agreements with local Goldman Sachs affiliates. The annual revenue from these
agreements is estimated at DKK 83 million. Furthermore, the Group have local agreement terms with Goldman Sachs in France,
Hong Kong, Ireland, Italy and Singapore. The annual revenue from these agreements is estimated at DKK 8 million.

-the Group and Goldman Sachs have entered into various agreements on provision of financing and banking related services.

All transactions were made on market terms.

Joint ventures and associates
Transactions with joint ventures and associates are limited to transactions related to shared service agreements. There were no
significant transactions with joint ventures and associates during the year. All transactions were made on market terms.

Other
In addition to the above and except for intra-group transactions, which have been eliminated in the consolidated accounts, there
were no material transactions with related parties and shareholders during the year.

 

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
82

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

35. INTERESTS IN JOINT VENTURES

 

As of 31 December 2008, the Group had interests in 10 joint ventures (9 in 2007). The significant joint ventures are specified in note
37, Subsidiaries, joint ventures and associates. The Group's interests in joint ventures are recognised using the proportionate
consolidation method. At the balance sheet date the joint ventures had the following effect on the Group's consolidated income
statement and balance sheet:

DKK million 2008 2007
Revenue 202 116
Expenses (190) (112)
Operating profit before other items 12 4
Net profit for the year ' 7 3
Non-current assets ” 12 8
Current assets 76 51
Total assets 88 59
Equity 18 24
Non-current liabilities 2 2
Current liabilities 68 33
Total equity and liabilities 88 59
The Group's part of contingent liabilities (operating leases) in joint ventures 6 6

The aggregate investment in joint ventures is as follows: Sri Lanka DKK 1.6 million (2007: DKK 1.6 million), Norway DKK 12.6 million
(2007: DKK 18 million), the Netherlands DKK 3.4 million (2007: DKK 6.2 million), Spain DKK 1.7 million (2007: DKK 0.3 million),
Hong Kong DKK 0.4 million (2007: DKK (0.4) million) and Israel DKK (0.3) million (2007: DKK (0.3) million).

” Excluding goodwill arising from the acquisition of the joint ventures.

 

36. SUBSEQUENT EVENTS

 

Acquisitions and divestments completed subsequent to 31 December 2008 are listed in note 11, Acquisition and divestment of
businesses. Apart from these and the events described in this Annual Report, the Group is not aware of events subsequent to 31
December 2008, which are expected to have a material impact on the Group's financial position.

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

 

ISS Global A/S

Argentina

Facility Services S.R.L.
ISS Argentina S.A.
Top Service S.R.L.

Australia

ISS Catering Services Pty Ltd.

ISS Facility Services Australia Ltd.
ISS Facility Services Pty Lid.

ISS Franchise Services Pty Ltd.

ISS Health Services Pty Ltd.

ISS Holdings Pty Ltd.

ISS Hygiene Services Pty Ltd.

ISS Integrated Services Pty Ltd.

ISS Property Services Pty Ltd.

ISS Security Pty Ltd.

Pacific Invest December 2004 Pty Ltd.
Pacific Service Solutions Pty Ltd.
Prestige Protection Services Pty Ltd.

Austria

ISS Austria Holding GmbH

ISS Beta Beteiligungsverwaltung GmbH
ISS Facility Services GmbH

ISS Ground Services GmbH

Belgium

Abilis Cemstobel Wallonie N.V.
BD Food SA

ISS Building Services N.V.

ISS Catering N.V.

ISS Industrial Cleaning N.V.

ISS Industrial Services N.V.

ISS N.V.

ISS Office Support N.V.

Lease Plant International N.V.
National Pest Control Bvba

Party & Dinner N.V.

Pest Management Solutions N.V.
Synerg' ISS SA

Technisch Onederhoud & Services Bvba

Bosnia and Herzegovina
ISS Facility Services d.0.0. Banja Luka
ISS Facility Services d.0.0. Sarajevo

Brazil

BJP Manutengcåo e Operagcåo de Utilidades Ltda.
ISS Biosystem Saneamento Ambiental Ltda.
ISS Catering Sistemas de Alimentagcåo Ltda.
ISS Servisystem do Brasil Ltda.

100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%

51%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%

100%
100%
100%
100%

Brazil (continued)

ISS Sulamericana Brasil Ltda.
Loghis Logistica Integrada Ltda.
SMV Manutengcåo Volante Ltda

Brunei
ISS Facility Services Sdn. Bhd.

Bulgaria
ISS Facility Services EOOD
Ryvola Bulgaria EOOD

Canada
ISS Facility Services Inc.

Chile

EFI Ltda.

Glanzend Ltda.

ISS Chile S.A.

ISS Facility Services S.A.

ISS Office Support Ltda.

ISS Servicios Generales Ltda.
Ledan Ltda.

Slim S.A.

China and Hong Kong

Beijing Hanyang Facility Management Co., Ltd.
Cormerstone Associates Ltd.

Hung Fat Cleaning Transportation Co., Ltd.
ISS Adams Secuforce Limited

ISS Building Consultancy Ltd.

ISS China Holdings I Ltd.

ISS China Holdings Ltd.

ISS EastPoint Properties Ltd.

ISS EastPoint Property Consultants Ltd.
ISS EastPoint Property Management Ltd.
ISS Environmental Services (HK) Ltd.

ISS Facility Services China Ltd.

ISS Facility Services Ltd.

ISS Greater China Ltd.

ISS Hangyang (Beijing) Cleaning Services Co., Ltd.

ISS Hong Kong Services Ltd.

ISS Hongrun Facility Services (Shanghai) Ltd.
ISS Hygiene Services (HK) Ltd.

ISS Macau Services Ltd.

ISS Mediclean (HK) Ltd.

ISS Pan Asia Security Services Ltd.

ISS Roboclean (HK) Co., Ltd.

ISS Servisystem (China) Ltd.

ISS Shun Tak Company Ltd.

ISS Thomas Cowan Co., Ltd.

100%
100%
100%

100%

100%
100%

100%

100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
60%
100%
50% ”
100%
100%
100%
100%
50% ”
70%

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

84

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)

 

China and Hong Kong (continued)

JSL Ltd.

LAWN Environmental Protection Ltd.
Shanghai ISS Houban Catering Management Co., Ltd.
Silvertech E&M Engineering Co., Ltd.

Croatia
ISS Kadrovske uslige d.0.0.
ISS Usluzne djelatnosti d.0.0.

Czech Republic

ISS Facility Services s.r.0o
ISS Sprava Budov s.r.o.
Ryvola s.r.0o.

Denmark

Global insurance A/S

House of Coffee A/S
Industriservice Danmark A/S
ISS Document A/S

ISS Facility Services A/S
ISS Finans A/S

ISS Funding A/S

ISS Holding France A/S

ISS Kloak- & Industriservice A/S
ISS Venture A/S

Estonia

Ha&Ho Kinnisvarateenused OU
ISS Eesti AS

ISS Haldus OU

ISS Holding OU

Minu Vara OU

Finland

ISS Palvelut Holding Oy

ISS Palvelut Oy

ISS Proko Oy

ISS Security Oy

ISS Teollisuuspalvelut Oy
Suomen Laatutakuu Palvelut Oy

France

BSE SAS

Channel SAS

CPMS SA

Europe Filtration SAS
Europrop SAS

Extincteurs HaaS SAS
Force Protection SAS

FSI SAS

GIE ISS Services

GROS Environnement SAS
Hoguin Espaces Verts SAS
ifopro Sarl

ISS Abilis France SAS

100%
100%
100%
100%

100%
100%

100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

51%
51%
51%
100%
51%

100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

France (continued)

ISS Accueil & Services SAS
ISS Environnement SAS

ISS Espaces Verts SAS

ISS Facility Service SAS

ISS Holding Paris SAS

ISS Hygiene & Prevention SAS
ISS Hygiéne SAS

ISS Logistique et Production SAS
ISS Sécurité SAS
L'Impeccable SAS

Qualitec SAS

STOP FLAM SAS

Verts Paysages & Aménagement SAS

Germany

AA Schådlingsbekåmpfung HRS Helmut Riedil GmbH

DEBEOS GmbH

ISS Damage Control Deutschiand GmbH

ISS Facility Services GmbH
ISS HWS GmbH & Co. KG
ISS Personalservice GmbH

ISS Schådlingsbekåmpfung und Hygiene GmbH

ISS Security GmbH
Klaus Harren GmbH
Vatro GmbH & Co. KG
Vatro Verwaltungs GmbH

Greece

ISS ASPIS Security S.A.
ISS Facility Services S.A.
ISS Human Resources S.A.

Greenland
ISS Grønland A/S

Hungary
ISS Facility Services Kft.
Profi-Komfort Kft.

Iceland
ISS Island ehf.

India

Integrated Siddhi Hospitality Pvt. Ltd.

ISS Catering Services (South) Pvt. Ltd.

ISS Facility Services India Pvt. Ltd.

ISS Integrated Facility Services Pvt. Ltd.

ISS Management Services Pvt. Åtd.

ISS Pest Control Services Pvt. Ltd.

ISS Records Management Solutions Pvt. Ltd.

Indonesia

P.T. ISS Catering Services
P.T. ISS Facility Services
P.T. ISS Indonesia

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%
100%
100%
100%
100%
100%
100%
100%

86%

86%

100%
100%
100%

100%

100%
100%

100%

100%
100%
100%
100%
100%
100%
100%

100%
100%
100%

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

85

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)

 

Ireland

ISS freland Holding Ltd.
ISS Ireland Ltd.

U.S. Security Limited

Israel

A.B Ogen Management Project Ltd.

A.Kfir Holdings Ltd.

Catering Ltd.

Catering Tefen (1991) Ltd.

Glat Chef Ltd.

ISS Ashmoret Ltd.

ISS Comprehensive Services for Business Ltd.
ISS Israel Manpower Services Ltd.

Jet Gourmet Ltd.

Kfir Electronic Security Systems and Surveiliance Ltd.

Kfir Security Guarding and Services Ltd.
M.A.S.H. Mahatz Agencies Ltd.

Norcat Ltd.

Nortec Food Industries (1995) Ltd.

Italy
ISS Facility Services S.r.å.
G.S. Service S.p.A.

Japan
Nihon ISS KK

Latvia
ISS Namu Serviss SIA

Lithuania
ISS Pastatu Valda UAB

Luxembourg
ISS Facility Services S.A.
Lux Interim S.A.

Malaysia

ISS Facility Services Sdn. Bhd.

ISS Hygiene Services Sdn. Bhd.

Kontrekleen Services Sdn. Bhd.

Reliance Suci Environmental Services Sdn. Bhd.

Mexico

Decoracidn y Mantenimiento San Rafael, SA de CV
ISS Centro America, S de RL de CV

ISS Servicios Gerenciales, S de RL de CV

ISS Servicios Integrales, S de RL de CV
Mantenimiento Ténico Tapnew, SA de CV

Martex, SA de CV

Netherlands

Drielanden Bos & Landscapsbouw B.V.
Groene Team B.V.

ISS Arbo Plus B.V.

100%
100%
100%

100%
100%
100%
100%

50%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%
100%

100%

51%

51%

100%
100%

30%
100%
30%
30%

100%
100%
100%
100%
100%
100%

100%
100%
100%

Netherlands (continued)

ISS Building Maintenance Services B.V.
ISS Catering Services B.V.

ISS Contact Centers B.V.

ISS Food Hygiene B.V.

ISS Holding Nederland B.V.

ISS Hospital Services B.V.

ISS Hygiene Services B.V.

ISS Integrated Facility Services B.V.
ISS Landscaping Services B.V.

ISS Nederland B.V.

ISS Reception Services B.V.

ISS Security & Services B.V.
Omring Thuisservice B.V.

Sure& Calls B.V.

TalentGroep Montaigne Facility Management B.V.

New Zealand

Basecare Ltd.

First Security Guard Services 2008 Ltd.
ISS Facilities Services Ltd.

ISS Holdings NZ Ltd.

Norway
ForvaltningsCompagniet AS
Hero Holding AS

Human Ressource Center AS
IPEC Kristiansand AS

ISS Facility Services AS
ISS Holding AS

ISS Industri AS

ISS Personalhuset AS

ISS Serveringspartner AS
NSB Trafikkservice AS
Personellsikring AS
Raufoss Beredskap AS
Reaktorskolen AS
Smartkost AS

Varig Gruppen AS

Philippines
ISS Facility Services Phils., Inc.

Poland
ISS Facility Services Sp. 2.0.0.
Gastropol Group Sp. Z.0.0.

Portugal

ISS Facility Services, Lda
ISS FS Acores, Lda

ISS Human Resources, da.
ISS Pest Control, Åda.

ISS Plantiagro, Lda.

ISS Portugal Il, da.

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%

100%
100%
100%
100%

100%
50% ”
100%
100%
100%
100%
100%
100%
100%
45% ”"
100%
51%
100%
100%
70%

100%

100%
100%

100%
100%
100%
100%
100%
100%

continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

86

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)

 

Romania Sweden
3D Romania S.A. 100% GK Rengårarna AB 100%
ISS Facility Services S.R.L. 100% ISS Demogruppen AB 100%
ISS Romania Group S.R.L. 100% ISS Ekonomifårvaltning AB 100%
ISS Facility Services AB 100%
Russia ISS Facility Services Holding AB 100%
Facility Services RUS LLC 100% ISS Industriservice AB 48%
ISS Lemonia AB 100%
Singapore ISS Mayday AB 100%
Inbuilt Engineering Pte Ltd. 100% ISS Palvelut Holding AB 100%
ISS Facility Services Pte Ltd. 100% ISS Teleoffice AB 100%
ISS Hydroculture Pte Ltd. 100% ISS Terrakultur AB 100%
ISS Landscaping Pte Ltd. 100% ISS TraffiCare AB 100%
ISS Pest Management Pte. Ltd. 100%
ISS Sanitation Services Pte Ltd. 100% Switzerland
ISS-CDCS Catering Pte Ltd. 100% Erwin Jakober AG 100%
ISS-Woko Catering Pte Ltd. 100% ISS Aviation AG 100%
Serve tst Services Pte Ltd. 100% ISS Bernasconi SA 100%
ISS Facility Services (Liechtenstein) AG 100%
Slovakia ISS Facility Services AG 100%
ISS Aviation Slovakia spol s.r.0. 100% ISS FM Services AG 100%
ISS Facility Services spol s.r.o. 100% ISS Holding AG 100%
ISS Security spol s.r.o. 100% ISS Pest Control AG 100%
Ryvola Slovakia spol s.r.0. 100% ISS Schweiz AG 100%
Jakober AG 100%
Slovenia Jakober Transporte und Kanalreinigungs AG 100%
ISS Facility Services d.0.0. 100% Notter Kanalservice AG 100%
Magnetik d.0.0. 100%
Thailand
Spain Golden Mind Manufacturing Co., Ltd. 100%
Activa Contrabalx, S.L. 100% Golden Mind Marketing Co., Ltd. 100%
Centro de Actividades Formativas y Educacionales S.L 100% Golden Mind Services Co., Ltd. 100%
Extintores Balear, S.L. 100% Golden Mind Transportation Co., Ltd. 100%
Fabri Facility Management, S.L. 100% ISS Facility Services Co., Ltd. 100%
Gelim S.A. 100% Job Golden Co., Ltd. 100%
Gelim Valencia S.A. 100%
Gelim Asturias S.A. 100% MPA Securitas Limited 100%
Gelim Madrid S.A. 100% Notre-Bel Co., Ltd. 100%
Gelim Baleares S.A. 100% SARA Services Co., Ltd. 100%
Integrated Service Solutions, S.L. 100%
Inser Systems S.L. 100% — Taiwan
ISS Facility Services S.A. 100% ISS Facility Services Ltd. 100%
ISS Higiene Ambiental 3D S.A. 100% ISS Fealty Properties Management Co., Ltd. 100%
ISS Logistica Produccidn y Outsourcing, S.L. 100% ISS Security Co., Ltd. 100%
ISS Salud y Servicios Sociosanitarios S.A. 100%
ISS Serv. Auxiliares y Complem. de Oficinas S.A. 100% — Turkey
ISS Soluciones de Catering, S.A. 100% CMC Iletisim Hizmetleri A.S. 71%
ISS Soluciones de Jardineria S.A. 100% CSS Guvenlik ve Savunma Sis. San. Tic. A.S. 71%
ISS Soluciones de Mantenimiento Gestidn Integral S.L. 100% Dårt U Hasere Kontrol Hizmetleri A.S. 71%
ISS Soluciones de Seguridad, S.L. 100% … ISS Tesis Ydnetim Hizmetleri A.S. 71%
Rocha Vending, S.L. 100% — Paksil Organizas. Otel Turizm Hizmet San. Tic. Ltd. S 71%
Proser Koruma ve Givenlik Hizmetleri A.S. 71%
Sri Lanka Sard unya Hazir Yemek Uretim ve Hizmet A.S. 71%
ISS Abans Environmental Services (PT) Ltd. 50% ”
United Kingdom
Arena21 Ltd. 100%
continues

 

ANNUAL REPORT 2008 / Consolidated Financial Statements
87

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37. SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES (CONTINUED)

 

United Kingdom (continued)
ISS (Brentwood) Ltd.

ISS Damage Control (Scotland) Ltd.
ISS Damage Control Ltd.

ISS Facility Services Ltd.

ISS Mediclean Ltd.

ISS Servicelink Ltd.

ISS UK Holding Ltd.

ISS UK Ltd.

Pegasus Security Holdings Ltd.
RCO Group Ltd.

Spectrum Franchising Ltd.
Spectrum Holdings Ltd.

Strata Security and Combined Services Ltd.

The Catering People Ltd.

Uruguay
ISS Uruguay S.A.

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

100%

USA

C&S Building Maintenance Corporation
ISS Holding (USA) Inc.

ISS Facility Services Holding, Inc.

ISS Facility Services of California, Inc.
ISS Facility Services of Texas L.P.

ISS Facility Services, Inc.

ISS Grounds Control of Texas L.P.

ISS Grounds Control, Inc.

ISS Management and Finance Co., Inc.
ISS Specialty Services, LLC

ISS TMC Services, Inc.

ISS Uniguard, Inc.

TMC Ridge, LLC

Tri-Enterprise Construction, LLC

Undertakings of immaterial interest are left out
" Joint venture
"" Associate

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

 

 

ANNUAL REPORT 2008 / Consolidated Financial Statements

88

 

 

PARENT COMPANY FINANCIAL STATEMENTS

INCOME STATEMENT OF THE PARENT COMPANY

1 January - 31 December. Amounts in DKK million

 

Note

2. Other operating income and expenses, net

Operating profit before other items

3 Other income and expenses, net

Operating profit

6 Income from subsidiaries and joint ventures
4. Net finance costs

Profit before tax

5. Income taxes

Net profit for the year
Attributable to:

Proposed dividends
Retained earnings

Net profit for the year

 

 

 

 

2008 2007
28 28
28 28
” (9)

28 19
1,393 3,574
(259) 132
1,162 3,725
(28) (53)
1,134 3,672
- 525
1,134 3,147
1,134 3,672

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

89

 

 

CASH FLOW STATEMENT OF THE PARENT COMPANY

1 January - 31 December. Amounts in DKK million

 

Note 2008 2007
Operating profit before other items 28 28
Changes in working capital (36) 10

13. Income taxes received/(paid), net 6 (61)
Payments related to other income and expenses, net (54) (51)
Cash flow from operating activities 56 74

6. Increase of share capital in subsidiaries and joint ventures (1,739) (1,533)
6. Acquisition of subsidiaries and joint ventures (1,800) (1,964)
6. Proceeds from sale of subsidiaries and joint ventures 3,912 3,368
6. Dividends received from subsidiaries and joint ventures 136 2,538
Cash flow from investing activities 509 2,409
Proceeds from borrowings 2,004 10,063
Repayment of borrowings (225) (6,723)
Interest paid, net (155) (106)
Payments (to)/from affiliates, net (1,666) (3,932)
Dividends paid to shareholder (525) (1,000)
Cash flow from financing activities (567) (1,698)
Total cash flow (114) 637
Cash and cash equivalents at 1 January 1,592 955
Total cash flow (114) 637
8 Cash and cash equivalents at 31 December 1,478 1,592

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

 

 

BALANCE SHEET OF THE PARENT COMPANY

At 31 December. Amounts in DKK million

 

 

Note 2008 2007
Assets
6. Investments in subsidiaries 16,986 16,102
6. Investments in joint ventures 2 2
8 Receivables from affiliates 8,178 10,491
7. Deferred tax assets 40 84
Total non-current assets 25,206 26,679
8. Receivables from affiliates 7,429 4,193
13 Tax receivables - 26
Other receivables 75 128
8. Cash and cash equivalents 1,478 1,592
Total current assets 8,982 5,939
Total assets 34,188 32,618
Equity and liabilities
9 Total equity 7,516 7,195
10. Long-term debt 23,442 22,429
Total long-term liabilities 23,442 22,429
8,10 Short-term debt 325 207
8 Debt to affiliates 2,536 2,600
Trade payables 27 73
13 Tax payables 5 -
Other liabilities 337 114
Total current liabilities 3,230 2,994
Total liabilities 26,672 25,423
Total equity and liabilities 34,188 32,618

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

91

 

 

STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE OF THE PARENT

At 31 December. Amounts in DKK million

 

2008

Fair value adjustment of hedges, net

Fair value adjustment of hedges, net, transferred to Net finance costs
Tax of entries recognised directly in equity

Net income and expense recognised directly in equity

Net profit for the year

Total recognised income and expense for the year

2007

Fair value adjustment of hedges, net

Fair value adjustment of hedges, net, transferred to Net finance costs
Tax of entries recognised directly in equity

Net income and expense recognised directly in equity

Net profit for the year

Total recognised income and expense for the year

Retained Hedging

 

 

 

 

 

 

earnings reserve Total
- (184) (184)

- (104) (104)

(72) 72 -

(72) (216) (288)
1,134 - 1,134
1,062 (216) 846
- 77 77
” (70) (70)
” (2) (2)

- 5 5
3,672 - 3,672
3,672 5 3,677

 

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

92

 

 

STATEMENT OF CHANGES IN EQUITY OF THE PARENT COMPANY

At 31 December. Amounts in DKK million

 

2008

Equity at 1 January 2008
Total recognised income and expense for the year
Dividends paid

Total changes in equity

Equity at 31 December 2008

2007

Equity at 1 January 2007
Total recognised income and expense for the year
Dividends paid

Total changes in equity

Equity at 31 December 2007

Hedging reserve

 

 

 

 

 

 

Share Retained  Hedging
capital earnings | reserve Total
160 7,000 35 7,195
- 1,062 (216) 846
- (525) - (525)
- 537 (216) 321
160 7,537 (181) 7,516
160 4,328 30 4,518
- 3,672 5 3,677
- (1,000) ” (1,000)
- 2,672 5 2,677
160 7,000 35 7,195

 

The hedging reserve comprises the effective portion of the cumulative net change in fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred. The reserve is presented net of the estimated tax

Dividends

No dividends have been proposed or declared before the Annual Report was issued (2007: DKK 525 million of proposed

dividends was included in retained earnings).

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

93

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

 

Note

mA ØQØnN

oo wo N 0

11
12
13
14
15
16
17
18

Accounting policies
Significant accounting policies

Income statement

Fees to auditors elected at the Annual General Meeting
Other income and expenses, net

Net finance costs

Income taxes

Balance sheet

Investments in subsidiaries and joint ventures
Deferred tax

Financial assets and liabilities

Share capital

Borrowings

Other

Remuneration to the Board of Directors and Executive Management of ISS Global A/S

Share-based payments

Tax receivables and tax payables
Contingent tiabilities

Financial risk management
Derivatives

Related parties

Subsidiaries and joint ventures

Page

95

98
98
98
99

99
100
100
100
101

102
103
104
104
105
106
108
109

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

94

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

1. SIGNIFICANT ACCOUNTING POLICIES

STATEMENT OF COMPLIANCE

The financial statements of ISS Global A/S have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU being effective for accounting periods beginning on 1 January 2008 and the statutory order on the
adoption of IFRS issued pursuant to the Danish Financial Statements Act.

 

In addition, the financial statements have been prepared in compliance with the IFRSs issued by the IASB.

Furthermore, in accordance with & 6.7 of the statutory order on submission and publication of financial statements issued pursuant to
the Danish Financial Statements Act, the financial statements are prepared and submitted only in English.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

BASIS OF PREPARATION

The financial statements have been prepared on the historical cost basis except for the following assets and liabilities, which are
measured at fair value: derivatives, financial instruments designated as fair value through the income statement and financial assets
classified as available-for-sale.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for the judgements on carrying amounts of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates. ISS Global A/S believes the following are the areas
involving critical accounting estimates and judgements used in the preparation of the financial statements:

« the valuation of investments in subsidiaries and joint ventures

- the assessment of ongoing litigation and the valuation of contingent liabilities
+ the valuation of receivables from affiliates

- the valuation of tax assets and

the valuation of derivatives.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimates are revised if the revisions affect only that period, or in the period of the revision and future periods if
the revision affects both current and future periods.

GENERAL

Foreign currency Transactions in foreign currency are translated at the exchange rate ruling at the date of transaction. Monetary
assets and liabilities in foreign currency are translated at the exchange rate ruling at the balance sheet date. Non-monetary assets
and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of

transaction.
Realised and unrealised exchange gains and losses are included in the income statement under Net finance costs.

INCOME STATEMENT
Other operating income and expenses, net includes income and expenses related to the operation of service equipment and other
non-current assets, administrative expenses, including audit and legal assistance etc.

Other income and expenses, net consists of expenses, both recurring and non-recurring, that ISS Global A/S does not consider to
be part of normal ordinary operations.

Income from subsidiaries and joint ventures comprises dividends declared in the year and gains and losses from divestment of
subsidiaries and joint ventures and impairment losses. If dividends declared exceed the accumulated profit since take-over, the
dividend is not recognised in the income statement but instead recognised as a write-down in the cost of the investment.

Net finance costs comprises interest payable on borrowings calculated using the effective interest rate method, interest receivable on
funds invested, foreign exchange gains and losses, and gains and losses on derivatives that do not qualify for hedge accounting.

continues

ANNUAL REPORT 2008 / Parent Company Financial Statements
95

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income taxes consist of income tax and changes in deferred tax. Deferred tax is recognised based on the balance sheet method and
comprises all temporary differences between accounting and tax values of assets and liabilities.

Where the tax base can be calculated using different tax regulations, deferred tax is measured based on the planned use of the asset
or the unwinding of the liability, as applicable. Deferred tax is computed based on the tax rate expected to apply when the temporary
differences are reversed. No deferred tax provisions are made for undistributed profits of subsidiaries and goodwill not deductible for
tax purposes. Deferred tax assets, including the tax value of losses carried forward, are recognised at the value at which they are
expected to be applied either by eliminating tax on future earnings or by setting off deferred tax liabilities within the same legal tax unit
and jurisdiction. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.

The recognised income tax is allocated to Income taxes and Equity, as applicable.

ISS Global A/S is jointly taxed with ali Danish resident affiliates. The Danish income tax payable is allocated between the jointly taxed
Danish companies based on their proportion of taxable income (full absorption including reimbursement of tax deficits). The jointly
taxed companies are included in the Danish tax on account scheme. Additions, deductions and allowances are recognised under Net
finance costs.

CASH FLOW STATEMENT
The cash flow statement shows ISS Global A/S's cash flows for the year stemming from operating, investing and financing activities,
the change in cash position during the year as well as ISS Global A/S's cash position at the beginning and the end of the year.

The cash flow statement is prepared using the indirect method based on Operating profit before other items.

Cash flow from operating activities comprises Operating profit before other items adjusted for non-cash items, changes in working
capital and payments regarding income taxes and other income and expenses.

Cash flow from investing activities comprises investments in or sale of subsidiaries and joint ventures and cash flow from
purchase and sale of non-current assets.

Cash flow from financing activities comprises proceeds from and repayment of loans, payments regarding interest, dividends and
proceeds from share issues.

Cash and cash equivalents comprises cash and marketable securities, with maturity of less than three months that are readily
convertible to khown amounts of cash and which are subject to an insignificant risk of changes in value.

BALANCE SHEET

Financial assets Investments in subsidiaries and joint ventures are recognised at cost. Investments are written down to the
recoverable amount if this is exceeded by the cost. Cost is written down to the extent that the dividends declared exceed the
accumulated profit since take-over.

Receivables are measured at amortised cost less a provision for doubtful debts based on an individual assessment. Provisions and
realised losses during the year are recognised under Other operating income and expenses, net.

Dividends are recognised in the period in which they are declared.
Financial liabilities are initially measured at the value of the proceeds received less related transaction costs. Subsequently,
financial liabilities are measured at amortised cost, equal to the capitalised value when applying a constant effective rate of interest,

and the difference between the proceeds initially received and the nominal value is recognised in the income statement over the loan
period.

continues

 

ANNUAL REPORT 2008 / Parent Company Financial Statements
96

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivatives are measured at fair value calculated according to generally accepted valuation methods and recognised in Other
receivables or Other liabilities.

For derivatives hedging the fair value of recognised assets and liabilities the value of the hedged asset or hedged liability is also
stated at fair value in respect of the risk being hedged. When a hedging instrument expires or is sold, terminated or exercised but the
hedged asset or hedged liability with a determinable maturity still exist, the adjustment recorded as part of the carrying amount of the
hedged item is amortised to the income statement from that date onwards using the effective interest method.

The effective part of the changes in the fair value of derivatives hedging future transactions is recognised directly in equity, net of tax.
On realisation of the hedged item, value changes recognised under equity are reversed and recognised together with the hedged
item. When a hedging instrument expires or is sold, terminated or exercised but the hedged future transactions are still expected to
occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the
transaction occurs.

For derivatives, which do not comply with the hedge accounting conditions, changes in fair value are recognised as Net finance
costs in the income statement as they occur.

 

 

ANNUAL REPORT 2008 / Parent Company Financial! Statements

97

 

NOTES TO FINANCIAL STATEMENTS OF THE PARENT COMPANY

2. FEES TO AUDITORS ELECTED AT THE ANNUAL GENERAL MEETING

 

DKK million 2008 2007
KPMG

Audit fees 1 1
Other services O 0
Total KPMG 1 1

Audit fees comprised audit of the Annual Report.

 

3. OTHER INCOME AND EXPENSES, NET

 

DKK million 2008 2007
Re-scoping of IT outsourcing agreement - (10)
Other - 1
Other income and expenses, net - (9)

Re-scoping of IT outsourcing agreement

Re-scoping of IT outsourcing agreement in 2007 related to incurred re-scoping costs regarding the outsourcing of the Group's
operation and maintenance of certain of its information technology systems, primarily as a result of changing the IT outsourcing
agreement from a centralised solution to a decentralised solution.

 

4. NET FINANCE COSTS

 

DKK million 2008 2007
Interest income etc. 18 16
Interest income from affiliates 1,381 1,256
Amortised gain from settlement of interest rate swaps 87 84
Gain related to partial redemption of EMTN's - 227
Financial income 1,486 1,583
Interest expenses etc. (1,389) (1,182)
Interest expenses to affiliates (192) (220)
Amortisation of financing fees (33) (27)
Foreign exchange loss (131 22
Financial expenses 1,745 1,451
Net finance costs 259 132

Amortised gain from settlement of interest rate swaps

The interest rate swaps hedging ISS Global's Medium Term Notes (EMTNs) were partially settled in June 2005 and the remaining part
was settled in June 2006 resulting in a net gain to be recognised in the consolidated income statement over the remaining term of the
EMTNSs. A part of the gain is referred to the partially redeemed EMTNs and was recognised in the income statement in connection
with the redemption in July 2007. The remaining unrecognised net gain of DKK 144 million at 31 December 2008 (DKK 231 million at
31 December 2007) will be recognised in the income statement in the financial years 2009 - 2014 corresponding to the remaining
term of the EMTNSs, see note 10, Borrowings.

Gain related to partial redemption of EMTN's

In July 2007, 77.9% of the EMTN's due in 2014 were redeemed. The notes were acquired at a discount to nominal value resulting in a
net gain of DKK 227 million including DKK 25 millions of non-cash items from amortisation of related interest rate swaps and financing
fees.

 

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements
98

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

 

 

 

 

 

 

 

 

5. INCOME TAXES
DKK million 2008 2007
Current tax regarding profit before tax 16 (28)
Deferred tax regarding profit before tax (44) (28)
Tax on profit before tax (28) (56)
Adjustments relating to prior years, net 0 3
Total tax recognised in the income statement 28 53
Current tax regarding equity movements - 2
Total tax recognised directly in equity - 2
6. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES

Investments in joint Investments in

ventures subsidiaries

DKK million 2008 2007 2008 2007
Cost at 1 January 2 2 19,456 16,144
Additions - - 3,539 3,497
Disposals - - (2,465) (185)
Cost at 31 December 2 2 20,530 19,456
Revaluation at 1 January - - (3,354) (1,207)
Impairment - - (165) (133)
Dividends received in excess of accumulated profits - - (25) (2,014)
Revaluation at 31 December - - (3,544) (3,354)
Carrying amount at 31 December 2 2 16,986 16,102
Income from subsidiaries and joint ventures
Impairment (165) (133)
Received dividends 136 2,538
Hereof in excess of accumulated profits (25) (2,014)
Proceeds from sale of subsidiaries and joint ventures 3,912 3,368
Carrying amounts of sold subsidiaries and joint ventures (2,465) (185)
Income from subsidiaries and joint ventures 1,393 3,574

Impairment

The recoverable amount of investments in subsidiaries and joint ventures is determined on the basis of the value-in-use adjusted for
net døbt. The impairment tests have been based on business plans prepared by local management. The impairment loss of DKK 165
million (2007: DKK 133 million) is related to ISS Italy of DKK 75 million (discount rate, net of tax 10.2%), ISS Germany of DKK 63
million (discount rate, net of tax 9.2%) and ISS Brazil of DKK 27 million (discount rate, net of tax 15.9%).

Subsidiaries and joint ventures

For a list of directly owned subsidiaries and joint ventures, see note 18, Subsidiaries and joint ventures.

 

 

ANNUAL REPORT 2008 / Parent Company Financial Statements

99

 

 

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

7. DEFERRED TAX

 

DKK million 2008 2007
Deferred tax assets, net at 1 January 84 112
Tax on profit before tax 44 28)
Deferred tax assets, net at 31 December 40 84
Deferred tax specification

DKK million 2008 2007
Tax losses carried forward 4 5
Long-term debt 36 68
Provisions 0 11
Deferred tax 40 84

 

The recognition of deferred tax assets regarding tax losses carried forward is supported by expected future profitability in the
foreseeable future. ISS Global A/S has no unrecognised deferred tax assets regarding tax losses carried