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[ERHVERVS- OG SELSKABSSTYRELSEN

i 2 APR, 2010
12

ANNUAL REPORT 2009

ISS GLOBAL A/S

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ener Meet og on

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ISS Global A/S . | hm
Bredgade 30 As Chri inf gr me fg
DK — 1260 Copenhagen K
Denmark GR bo
CVR 21 40 83 95 Bj (mAaasigen
Senior Vice President

Phone: +45 38 17 00 00
Fax: +45 38170011

1004126EogSN18946

 

CONTENTS

11

16

23

28

29

31

106

129

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

Definitions

 

 

 

ANNUAL REPORT 2009 / Contents

 

 

KEY FIGURES

 

 

 

Amounts in DKK millions (unless otherwise stated) 2009 2008 2007 2006 2005
Revenue 69,024 68,848 63,935 55,784 46,453
Operating profit before other items 4,238 4,418 4,183 3,293 2,863
Operating margin before other items, % 6.1 6.4 6.5 5.9 6.2
EBITDA ” 3,411 3,954 3,868 3,536 2,940
Adjusted EBITDA ") 5,087 5,273 5,018 4,033 3,510
Operating profit? 2,562 3,099 3,033 2,796 2,293
Net finance costs (1,584) (1,924) (1,272) (1,183) (505)
Profit before goodwill impairment/amortisation of brands

and customer contracts 502 727 949 982 1,299
Net profit/(loss) for the year?” (594) (42) 540 734 965
Additions to property, plant and equipment, gross 953 963 937 864 769
Cash flow from operating activities 3,471 3,675 3,021 3,006 1,610
Investments in intangible assets, property, plant

and equipment, net (882) (705) (699) (831) (542)
Total assets 44,126 42,532 42,872 38,898 31,782
Goodwill 22,262 21,742 21,689 20,065 16,642
Carrying amount of net debt ” 24,934 — 23,778 23,262 20,243 16,128
Total equity” (611) (15) 1,137 1,678 2,192

 

Financial ratios

 

Interest coverage ” 3.2 2.7 3.9 3.4 7.0
Cash conversion, % ” 106 103 101 103 92
Employees on full-time, % 71 69 68 66 61
Number of employees at 31 December 485,700 472,700 438,000 391,400  310,800
Growth

Organic growth, % ” 0.6 5.3 6.0 5,5 3.0
Acquisitions, net, % 2 6 9 15 11
Total revenue, % 0 8 15 20 15
Currency adjustments, % (3) (3) (0) 0 1

 

Note: Except for the key figures that can be directly derived from the consolidated financial statements on pages 31-105 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 titled financial measures differently.

1 see page 129 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 calculation 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 acquisition 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 contrates.

9 Including minority interests.

 

ANNUAL REPORT 2009 / Key Figures

1004126EogSN18947

 

 

MANAGEMENT'S REVIEW

ISS Global A/S is a wholly owned subsidiary of ISS
AS (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 Global Group's operating companies.

BUSINESS HIGHLIGHTS OF THE YEAR

2009 was a year marked by the challenges resulting
from the giobal recession, which proved the robust-
ness of the Group's business model and the strategic
course as set out in "The ISS Way” strategy intro-
duced in 2008.

Considering the turbulence in the financial markets
and the severe economic challenges in the global
economy experienced in 2009, the Group's perform-
ance remained sound. The Group focuses on running
the facility services for our chosen segments, thereby
enabling our customers to focus on their core busi-
ness. This entails offering a range of business support
services within Cleaning, Support Services, Property
Services, Catering, Security and Facility Manage-
ment, which can be delivered as a Single-Service,
Multi-Service or an integrated service solution (Inte-
grated Facility Services or IFS). These recurring facil-
ity services where the Group employees form an inte-
grated part of our customers' daily operations are in
the Group classified as portfolio-based services. In
addition, the Group also provides project related and
other once-only services, such as event catering,
construction-based landscaping and consulting work
in relation to construction of buildings. These non-

 

recurring services-are in the Group classified-as mon=
portfolio-based services.

The Group's focus on portfolio-based services en-
sured that revenue remained at the level realised in
2008 offsetting the decline in the non-portfolio-based
services which were hit hard in 2009. The operating
margin before other items (referred to as the operat-
ing margin) decreased slightly compared with 2008.
2009 was characterised by a relentless focus on cross
selling of services, defending margins and implement-
ing extensive turnaround plans and cost-saving initia-
tives. These efforts ensured that four of the seven ISS
regions delivered operating margins in 2009 that ex-
ceeded the level realised in 2008.

Businesses within the Group which were Most ex-
posed to non-portfolio-based services and/or to the
industrial segments (e.g. automotive and manufactur-
ing) experienced slow-downs, especially France,
Germany, Belgium and Spain were among the hard-
est impacted countries.

The ISS Way continues to focus on customer needs
and to drive the development and delivery of the
needed services, including Integrated Facility Ser-
vices. This development is based on knowledge and
best practice sharing thereby ensuring efficiencies.
The ISS Way encourages targeting customer seg-
ments, services and geographies that benefit from the

Group's value proposition. It also promotes loyalty to
our core values and extracts more value from the
business platform by harvesting the benefits of stan-
dardisation across the organisation. As part of this
process certain non-core activities were either di-
vested in 2009 or are planned for divestment in 2010.

In the countries most significantly impacted by the
economic slow down, corrective actions were taken to
adapt to the conditions and improve operating per-
formance, including implementing turnaround plans
for affected service types and adaptating the cost
structure. In addition, ihe Group initiated a Group-
wide cost reduction initiative targeting fixed costs,
which complements the ongoing and country-specific
turnaround plans. The impact of the actions was evi-
dent in the second half of 2009 and was an important
reason for restoring the operating margin in Q3 and
Q4 to the levels realised in the same periods in 2008.

In 2009, though the Group experienced a decline in its
non-portfolio-based business, its portfolio-based busi-
ness continued to grow organically, despite some cus-
tomers downsizing existing contracts. The increase in
the portfolio-based business underlines the increasing
demand for integrated facility services on a local, re-
gional and international basis and confirms the
Group's strategic choice to focus on portfolio-based
services.

In 2009, total Group revenue amounted to DKK 69.0
billion, up 3%, excluding foreign exchange adjust-
ments, compared with 2008. The organic growth for
the year was 0.6%, down from 5.3% in 2008. Four of

iv hi - |

rates in 2009, with Asia and Latin America once again
achieving double-digit organic growth rates.

ISS Global's continued focus on cash flow resulted in
a reduction of 1.4 debtor days compared with 2008
and a strong cash conversion of 106%, which under-
lines that ISS Global has a strong and stable cash
generation.

Operating profit before other items amounted to DKK
4,238 million in 2009, representing a decrease of 2%,
excluding foreign exchange adjustments, compared
with 2008. The operating margin for 2009 amounted
to 6.1%, down by 0.3 percentage point compared with
last year. While many countries delivered operating
margins in line with or above the level realised in
2008, this could not off-set the performance in certain
countries in Western Europe that were particularly im-
pacted by the economic slow-down.

Net loss amounted to a loss of DKK 594 million and
was negatively impacted by lower operating profit and
non-cash charges related to completed and planned
divestments totalling DKK 765 million before tax.

France suffered most in 2009, due mainly to its high
exposure to the industrial and manufacturing seg-
ments as well as a relatively high part of non-portfolio-
based business particular within the landscaping
business, but also due to the organisational setup of

 

ANNUAL REPORT 2009 /Management review

4

 

ISS in France, which was not aligned according to
The ISS Way strategy. Revenue declined from DKK
9.3 billion in 2008 to DKK 8.9 billion in 2009, while the
operating profit before other items dropped by DKK
233 million or 41%. As a result, the operating margin
declined from 6.1% in 2008 to 3.8% in 2009. This im-
plies, that if France had delivered the same operating
margin as in 2008, the operating margin for the Group
would have been 5.9%, or the same level as in 2008.
Several actions were taken in 2009 to turn around the
operations in France, including the appointment of a
new regional management team, a new local man-
agement team, a reorganised organisational setup
covering several business units as well as head office,
and planned divestments of non-core business activi-
ties. While a turnaround of an operation the size of
ISS in France will take time, these initiatives and the
devoted attention from both the Group and regional
management teams during 2009 will help ensuring
that ISS in France strengthens its performance.

In July 2009, the Group successfully issued EUR 525
million of new Senior Notes due in 2014 (the "Notes”).
The Notes were issued through ISS Financing Plc, a
newly formed special purpose vehicle. EUR 500 mil-
lion of the proceeds was used to settle part of the
EUR 850 million Medium Term Notes due to mature in
September 2010 (the "2010 EMTNs”) plus accrued in-
terest. The remaining part of the 2010 EMTNs is ex-
pected to be settled via a receivables-backed securiti-
sation programme that was launched in five countries
in 2009 and will continue to be rolled out to additional
countries in 2010.

The global Corporate Client organisation followed up
on the HP contract win in 2008 by entering into two
new international IFS contracts with EDS, a global IT
company, and Shell. The contract with EDS covers 28
countries in Europe, Middle East, Asia, Pacific and Af-
rica. The Shell contract covers Facility Management
and substantial self-delivery functions in eight coun-
tries in Asia and Pacific covering up to 33 million
square metres. These contract wins confirm ISS stra-
tegic direction, as a number of global customers per-
ceive ISS as one of the only companies that can de-
liver services in an integrated way globally. The focus
on IFS contracts with large multinational or global cli-
ents is fully in line with our corporate vision of being
the leading global Facility Services provider.

At the end of the year, ISS Global had more than
485,000 employees worldwide. Therefore, since year-
end 2008, a net increase of roughly 13,000 employ-
ees joined the company as a result of either organic
growth or through acquisitions.

REGIONAL DEVELOPMENT

The "ISS world” consists of seven regions: Nordic,
Western Europe, Eastern Europe, Asia, Latin Amer-
ica, North America and Pacific. The key principle for
the regional grouping is that those operations share
market conditions and culture to the largest possible
extent. The grouping also reflects the differences be-
tween developed regions and emerging regions.

Nordic

The Nordic region, comprising Denmark, Finland,
Greenland, Iceland, Norway and Sweden, is among
the most developed. ISS Global is the leader within
the facility services market throughout the region.

In early 2009, the Nordic region launched a strategy
focused on growing organically through service deliv-
ery in individual countries combined with sales of ser-
vices across the region. A Nordic sales organisation
was established that going forward will focus mainly
on large complex customers within certain segments
in the Nordic region. The aim is to match customers"
geographical footprints and deliver services across
borders. In addition, the strategy focuses
on improving efficiency through increased standardi-
sation and harmonisation. During the year, the re-
gion has also re-evaluated its service capabilities in
light of The ISS Way strategy and as a result will be
considering if further capabilities should be acquired,
divested or grown organically.

In 2009, revenue in the Nordic region grew organically
by 1% with Sweden and Finland contributing most.
Despite the positive organic growth, revenue de-
creased by 4% from DKK 17,071 million in 2008 to
DKK 16,367 million in 2009 due mainly to currency
adjustments which reduced revenue for the region by
approximately 4%, and stemmed mainly from depre-
ciation of NOK and SEK against DKK. Furthermore,
acquisitions, net, decreased revenue by 1% following
the divestment of certain non-core business units.

Operating profit before other items in the Nordic re-
gion increased to DKK 1,219 million from DKK 1,189
million in 2008. The operating margin in the region in-
creased to 7.4% in 2009, compared with 7.0% in
2008. This was due mainly to operating margin in-
creases in Norway, Denmark and Finland that were
partly offset by slight margin decreases in Sweden
and Iceland. This was due primarily to a strong re-
sponse to the economic downturn, including adapta-
tion of cost structures, an increased focus on cus-
tomer retention and the divestment of certain non-
core business units.

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 markets included in the Western European region
are generally characterised as developed markets,
and the region has been able to partly offset the eco-
nomic downturn experienced in certain countries by
focusing more clearly on implementing The ISS Way
strategy. This includes increased attention to the
commercial and sales planning process and fully util-
ising our strong delivery mødel to ensure that the op-
erational processes and concepts are in place to sup-
port our chosen customer segmentis.

In 2009, revenue in the Western European region de-
creased by 2% from DKK 39,337 million in 2008 to
DKK 38,632 million. Organic growth was negative by
1%, while currency adjustments reduced revenue for
the region by approximately 3%, and stemmed mainly

 

ANNUAL REPORT 2009 / Management's review

1004126EogSN18948

5

 

from depreciation of GBP against DKK. Acquisitions,
net, increased revenue by approximately 2%. The or-
ganic growth rates decreased as a number of coun-
tries in the region are exposed to the industrial seg-
menis (e.g. automotive and manufacturing) which
were negatively impacted by the global economic
slow down. This resulted in some customers downsiz-
ing certain portfolio-based services as well as a sig-
nificant drop in non-portfolio based services such as
projects and once-only jobs within the construction-
based industries (e.g. construction of buildings and
grounds). The main contributors, France, Spain, Aus-
tria and the Netherlands, all realised negative organic
growth rates. This negative effect was partly offset by
Turkey, Greece and Italy all delivering double-digit or-
ganic growth rates.

Operating profit before other items in Western Europe
amounted to DKK 2,056 million in 2009, down from
DKK 2,356 million in 2008. The operating margin of
5.3% was 0.7 percentage-point lower compared with
2008. The decline in operating margin was due pri-
marily to France and partly due to Germany and
Spain. In France the operating margin decreased from
6.1% in 2008 to 3.8% in 2009, leading to a DKK 233
million decline in operating profit. In France, as well as
a number of other countries in the region, ISS Global
is negatively impacted by the global economic slow-
down which especially impacted the European indus-
trial segments in particular (e.g. automotive and
manufacturing) as well as reduced the demand for
non-portfolio-based services. This reduced ISS
Global's revenue and operating profit in countries with
significant exposure to these industries. As a conse-
quence of the performance gaps, turnaround plans
were initiated to increase efficiencies and restore prof-
itability. Organisational setups and business proc-

 

Revenue in Eastern Europe decreased by 6% to DKK
1,561 million in 2009. Organic growth was negative by
2%, and stemmed mainly from the Czech Republic,
Slovakia and Slovenia. This was partly offset by dou-
ble digit organic growth rates in Romania and Poland.
Currency adjustments reduced revenue for the region
by approximately 6%, as a result of depreciation of
several Eastern European currencies compared with
DKK. Acquisitions, net, increased revenue by ap-
proximately 2%.

Operating profit before other items in Eastern Europe
decreased by 15% to DKK 106 million in 2009. The
operating margin was 6.8% in 2009, 0.6 percentage
point lower than in 2008. This was due mainly to op-
erating margin decreases in Slovakia, the Czech Re-
public, Slovenia and Hungary where ISS Global has
been negatively impacted by the effect of the general
slowdown in the Eastern European economies, which
has caused demand for non-portfolio services in par-
ticular to decline.

Åsia

The Asian region comprises Brunei, China, Hong
Kong, India, Indonesia, Japan, Malaysia, the Philip-
pines, Singapore, Taiwan and Thailand.

Asia is the fastest-growing region in the ISS Group.
Hong Kong and Singapore account for over 50% of
the region's revenue. Double-digit organic growth in
the region secured ISS Global a stronger market
share and targeted acquisitions expanded the service
offering in these countries. In 2009, six acquisitions
were completed, adding competencies within catering,
security and pest control services.

Revenue in Asia increased by 31% from DKK 3,147

esses were changed, headcount reduced to adjust to million.in. 2008 to-DKK 4,120 million in. 2009. The-in-

the lower customer demand and non-core business
units were divested. Finally, ISS Global has continu-
ously adapted the cost structure in the affected coun-
tries to suit the changed market conditions. Despite
the economic downtunn, Israel, the Netherlands, Swit-
zerland, Portugal, Italy and the United Kingdom all re-
alised higher margins than in 2008.

Eastern Europe

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

The Eastern European region, which has delivered
double digit growth rates during previous years, ex-
perienced negative organic growth of 2% in 2009
caused by a strong economic recession climate
throughout the region. The majority of the decline can
be attributed to a substantial decrease in demand for
non-portfolio services such as projects and once-only
jobs, whereas the portfolio business declined only
slightly. In 2009, our focus was on strict contract
management in response to many customers request-
ing reduced prices and scope of services. The con-
solidation and transformation of ISS Global's business
platform and services in the Eastern European region
were also stepped up substantially in line with the ISS
Way strategy to ensure a strong basis for future
growth.

crease was driven by organic growth of 15% and ac-
quisition-driven growth of 13% as well as a positive
impact of 3% from currency adjustments. All countries
in the region, except the Philippines and Malaysia,
contributed to the organic growth. Indonesia, Hong
Kong, Singapore, Taiwan, India and Brunei all deliv-
ered double-digit organic growth rates.

Operating profit before other items in Asia increased
by 47% to DKK 308 million in 2009 compared with
DKK 210 million in 2008. The operating margin in-
creased to 7.5% compared with 6.7% in 2008. All
countries in the region, with the exception of the Phil-
ippines, Thailand, Taiwan and Malaysia generated
higher margins than in 2008.

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

ISS Global has a geographical presence in the region,
which is well suited for exploiting the growth potential
that categorises Latin America as one of the world's
emerging markets. The market for complex Multi-
Service and IFS solutions in Latin America is growing,
and ISS Global continued to focus on consolidating
and expanding its service mix and especially FM ca-
pabilities to drive the request for service delivery
through IFS.

 

ANNUAL REPORT 2009 / Management's review

Revenue in Latin America increased by 10% from
DKK 1,890 million in 2008 to DKK 2,077 million in
2009. Organic growth was 12% and growth from ac-
quisitions, net, amounted to 5%. All countries in the
region delivered double-digit organic growth rates ex-
cept for Brazil. Currency adjustments decreased the
region's revenue by approximately 7%.

Operating profit before other items in Latin America
increased by 20% to DKK 131 million in 2009. The
operating margin was 6.3%, compared with 5.8% in
2008. All countries in the region realised higher year-
on-year operating margins in 2009.

North America

The North American region comprises the USA, which
ISS Global entered in 2007, and Canada which ISS
Global entered through a greenfield establishment in
2009 via its US operations.

Outsourcing of facility services is already well ac-
cepted by US corporations. Through two acquisitions
in the USA, ISS Global has achieved good geographi-
cal coverage in several of the economical growth ar-
eas and is continuing to focus on enhancing its geo-
graphical footprint to grow the business and gain criti-
cal mass where it has yet to be achieved. Further-
more, IFS sales represent a significant opportunity for
ISS Global, and a dedicated team is now in place to
capitalise on the market opportunities.

Revenue in North America increased by 18% to DKK
2,515 million in 2009, with growth from acquisitions
contributing 13% that related primarily to the acquisi-
tion of BGM Industries in April 2008, which added ap-
proximately DKK 510 million in annual revenue. Cur-
rency adjustments increased revenue from the region
by approximately 5%. Organic growth was negative
by 1%.

Operating profit before other items in North America
amounted to DKK 134 million in 2009 compared with
DKK 128 million in 2008. The operating margin in
2009 was 5.3% compared with 6.0% in 2008, a de-
crease caused mainly by lower demand for non-
portfolio services.

Pacific

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

2009 was a year of consolidation and alignment with a
focus on margin improvement, acquisition integration
and regionalisation projects in the Pacific region. In
Australia, ISS Global won a number of important con-
tracts that form a platform for growth in 2010. Fur-
thermore, ISS Global implemented a regionalisation
project to increase service efficiency and create a
more customer-oriented operation, as this will ensure
that it sells and delivers IFS locally in the states and
territories of Australia. In New Zealand, ISS Global
spent 2009 fully integrating the acquired manned
guarding and mobile patrolling activities acquired from
Chubb in December 2008, and has now secured a na-
tionwide coverage in the security market.

Revenue in the Pacific region increased by 4% from
DKK 3,614 million in 2008 to DKK 3,768 million in
2009. This growth was driven primarily by 6% growth
from acquisitions. Organic growth was 0%, while cur-
rency adjustments reduced revenue by approximately
2%.

Operating profit before other items in the Pacific re-
gion amounted to DKK 259 million in 2009 compared
with DKK 230 million in 2008. The region's operating
margin amounted to 6.9% in 2009 compared with
6.4% in 2008, in line with expectations.

BUSINESS DEVELOPMENT IN 2009

During 2009, in line with The ISS Way strategy, ISS
Global enhanced its response to customer needs and
targeted customer segments that are most receptive
to ISS Global's value propositions. ISS Global also fo-
cused on securing service excellence in suitable ser-
vices that are most relevant for integration and
thereby consistent with ISS's IFS strategy.

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.

In 2009, Cleaning remained ISS Global's largest busi-
ness area, representing 52% of total Group revenue,
or DKK 36.0 billion compared with 53% in 2008. In
line with the strategy to broaden the service platform,
Cleaning's relative share of ISS Global's total revenue
was continuously diluted, while the revenue share
from Catering and Security in particular continued to
increase. In 2009, Cleaning, which is characterised by
recurring portfolio-based services, was impacted by
reductions in volume on contracts, price pressure and
low incremental spendings by customers. This nega-
tive effect was offset by increased efficiency on con-
tracts and cross-selling of other services to existing
customers.

Property Services

ISS Global's Property Services offering encompasses
building maintenance, technical maintenance, land-
scaping, pest control and damage control.

in 2009, revenue from Property Services amounted to
DKK 14.5 billion, representing 21% of total Group
revenue compared with 23% in 2008. In 2009, Prop-
erty Services which encompasses non-portfolio-based
services was negatively impacted by the downturn in
the construction-based industries (e.g. building and
grounds construction) leading to fewer building instal-
lation projects and landscaping projects.

Support Services

ISS Global's Support Services offering encompasses
the operation of receptions, internal mail handling,
scanning and other office logistics, call centres, man-
power supply and outplacement services.

In 2009, Support Services accounted for approxi-

 

ANNUAL REPORT 2009 / Management's review

1004126EogSN18949

7

 

mately 7% of total Group revenue, up 1 percentage
point compared with 2008. In absolute figures, reve-
nue in Support Services increased from DKK 4.1 bil-
lion in 2008 to .DKK 5.0 billion in 2009. In 2009, Sup-
port Services was positively impacted by higher de-
mand for outplacement services and cross selling of
services to mainly Cleaning customers offset by lower
demand for manpower supply services.

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 9% of total Group reve-
nue in 2009, or DKK 6.2 billion, up by DKK 0.5 billion
or 1 percentage point compared with last year. In
2009, Catering was positively impacted by completion
of three acquisitions within Catering in Asia which
added approximately DKK 0.1 billion in annual reve-
nue as well as the full year effect of acquisitions within
Catering completed in 2008. Furthermore, cross sell-
ing of Catering services to existing customers had a
positive effect on revenue in 2009 while revenue from
non-portfolio-based services within Catering (e.g.
event catering) was negatively impacted by the down-
turn in the global economy.

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

Annual revenue amounted to DKK 4.7 billion, equiva-
lent to 7% of total revenue in 2009, 1 percentage point
up from 2008. ISS Global's service offering within Se-
curity was strengthened in 2009 through six acquisi-
tions spanning five countries, which added approxi-
mately-DKK-0,4 billion-in-annualrevenue

Global gained annualised revenue of approximately
DKK 1 billion and more than 14,000 employees.

The acquisitions completed in 2009 were carried out
at an average multiple of 5.8x EBITA compared with
an average multiple of 7.6x EBITA for acquisitions
completed in 2008.

In 2009, ISS Global completed the following large
strategic acquisitions:

Mettek — Turkey

In January, ISS Global expanded its business in the
Turkish market through the acquisition of Mettek, a
well recognised Facility Services provider in Turkey.
Mettek is a bolt-on acquisition that will ensure critical!
mass within Cleaning and Security for ISS Global in
Istanbul and the surrounding region. The acquisition
of Mettek will enable ISS in Turkey to further target
specific customers and segments, thereby enabling a
better platform for cross-selling and IFS sales. The
acquisition added approximately DKK 137 million in
annual revenue and 2,178 employees.

Ceniral Property Services — USA

In January, ISS Global acquired Central Property Ser-
vices (CPS), the largest commercial cleaning com-
pany in the Pittsburgh, Pennsylvania metropolitan
area. The acquisition of CPS supports ISS Global's
strategy in the USA on three vital dimensions: geog-
raphy, services and customers. CPS increased ISS
Global's critical mass in Pittsburgh as well as the vol-
ume in the Cleaning and Security service areas. The
acquisition also increased the volume in the office and
education customer segments. The acquisition added
approximately DKK 182 million in annual revenue and
917 employees.

 

Facility Management (FM)

ISS Global's Facility Management offering includes
on-site management of facility services, change man-
agement, space management and consulting.

In 2009, Facility Management generated revenue of
DKK 2.6 billion, equivalent to 4% of total revenue, the
same relative share as the year before.

ACQUISITIONS

Following several years with a high number of acquisi-
tions, ISS Global has the strategically required repre-
sentation in services and geographies and therefore
slowed down the pace of acquisitions in 2009. In-
stead, ISS Global increased its focus on integrating
acquired companies and harvesting synergies and
decided not to extend or renew its acquisition facili-
ties, which expired in May 2009.

The acquisition activities had three primary objectives
in 2009: firstly to expand ISS Global's presence in
emerging markets, secondly to continue building up
the Security services platform, and thirdly to gain criti-
cal mass in the USA. During 2009, ISS Global com-
pleted 22 acquisitions spanning 15 countries. Five of
these acquisitions had annualised revenue of More
than DKK 100 million. With the acquisitions, ISS

Sunparking — Indonesia

In February, ISS Global expanded its Indonesian op-
erations into the growing security business segment
by acquiring Sunparking, the second largest car park
management service provider in Indonesia. ISS in In-
donesia has achieved a competitive advantage
through the acquisition, as ISS Global is the only facil-
ity services provider in the Indonesian market offering
car park management services. This enhanced ISS
Global's service platform in Indonesia and improved
its scope for winning IFS contracts. The acquisition
added approximately DKK 109 million in annual reve-
nue and 5,000 employees.

Chubb — Ireland

In May, ISS Global acquired the manned guarding ac-
tivities from the international security provider Chubb
in Ireland. Together with the existing Security busi-
ness, the acquired activities provide ISS in Ireland
with nationwide coverage within the security segment.
Furthermøore, acquiring Chubb has significantly in-
creased ISS Global's size and presence in Ireland
and supports ISS Global as a national Multi-Service
provider. The acquisition added approximately DKK
134 million in annual revenue and 635 employees.

DIVESTMENTS

From 2004-2009, ISS Global completed over 450 ac-

 

ANNUAL REPORT 2009 / Management's review

8

quisitions ranging from small bolt-on acquisitions to
platform-developing acquisitions and entries into new
geographies. The vast majority of these acquisitions
are already fully integrated and performing as
planned, and their positive impact may be further en-
hanced as they become part of The ISS Way strategy
process. As part of this process, the strategic ration-
ale behind selected acquisitions was reviewed in
2009, which has led to the identification and evalua-
tion of certain activities that are either non-core to The
ISS Way strategy or lack critical mass.

Some of these activities were either divested in 2009
or are planned for divestment in 2010. This includes
the completed divestment of project-based landscap-
ing activities in Sweden, contact centres in the Neth-
erlands and laundry activities in Norway and Sweden.
In addition, certain non-core activities in France,
Spain and Norway that are expected to be divested in
2010 have been classified as held for sale at 31 De-
cember 2009. The divestments completed in 2009
and the businesses classified as held for sale on 31
December 2009 resulted in non-cash charges recog-
nised in the income statement of DKK 765 million be-
fore tax, mainly related to write-down of goodwill and
customer contracis.

FINANCING

ISS Global has committed long-term financing in
place, part of which will be refinanced in the second
half of 2010. In July 2009, ISS Global successfully is-
sued EUR 525 million of new Senior Notes due 2014.
The Notes were issued through ISS Financing Plc, a
newly formed special purpose vehicle, and are listed
on the Luxembourg Stock Exchange. The proceeds
from these Notes have been lent on to ISS Global and
were used to settle the completed tender offer for
EUR 500 million of the 2010 EMTNs plus accrued in-
terest. The 2010 EMTNSs were acquired at nominal
value and resulted in a net gain of DKK 52 million
stemming from the relative share of the capitalised
gain on settled interest rate swaps net of capitalised
financing fees.

A receivables-backed securitisation programme was
launched in five major countries in the second half of
2009 and additional countries are intended for inclu-
sion in the programme in 2010. The proceeds from
the securitisation programme will be used to refinance
the remaining EUR 350 million of the EMTNs due in
2010. After the reporting date, the Group completed a
tender offer for an additional EUR 150 million of the
outstanding notes, leaving EUR 200 million in notes
for refinancing before maturity in September 2010.

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 Group management team of ISS A/S, which
consists of the Executive Group Management and
certain Corporate Senior Officers. Consequently, the
management changes described below also include
management changes in ISS A/S.

With effect from 21 December 2009, Barbara Plucnar
Jensen replaced Christian Kofoed Jakobsen as Man-
aging Director.

SUBSEQUENT EVENTS

On 22 January 2010, ISS Global completed the ten-
der offer for EUR 150 million of the outstanding 2010
EMTNs plus accrued interest. The notes were ac-
quired at a purchase price of EUR 1,020 per EUR
1,000 principal amount and resulted in an accounting
loss of approximately DKK 13 million, which has been
recognised in 2010. The accounting loss results pri-
marily from the purchase price being above nominal
value.

On 2 February 2010, ISS announced that Jørgen
Lindegaard will step down as Group CEO as of 31
March 2010 and that the current Group COO, Jeff
Gravenhorst, will take over the responsibility as Group
CEO on 1 April 2010.

On 25 March 2010 ISS Holding A/S completed EUR
127.5 million of tap bond offering of its existing subor-
dinated notes due 2016. Proceeds from the offering
will be on-lent to ISS Global A/S and will be used for
general corporate purposes.

Divestments completed subsequent to 31 December
2009 are listed in note 12, Acquisitions and divest-
ments of businesses.

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 2009 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 pages 25-
27 of this report.

The continued successful implementation of The ISS
Way strategy is the foundation for robust and profit-
able growth in the years to come. The ISS Way is ori-
ented around a number of key strategic priorities, es-
pecially focus and alignment. In 2010, the initiatives
include the continued development of value proposi-
tions tailored to specific customer segments, devel-
opment of services within which we deliver service
excellence and strengthening of our Integrated Facility
Service capabilities. Furthermore, we will pursue
standardisation, best-practice and knowledge sharing
across the organisation, while increasing our focus on
Group-wide sales driven by a central sales and com-
mercial team that includes the global Corporate Client
organisation. Simultaneously, ISS Global will maintain
its focus on key operational objectives (i) cash flow;
(ii) operating margin; and (iii) profitable organic
growth.

Some of ISS Global's customers have been severely
affected by the global economic slowdown. During
2009, ISS Global actively worked with those custom-
ers to help them adjust service levels. This has re-

 

ANNUAL REPORT 2009 / Management's review

1004126EogSN18950

9

 

sulted in reduced service levels in a number of con-
tracts and much less non-portfolio work being carried
out. AS a result, customer retention was satisfactory in
2009, though demand for ISS Global's services de-
pends to some extent on an improved economic cli-
mate.

ISS Global expects some improvements in the eco-
nomic climate in its main markets in 2010, which
combined with the efforis carried out in 2009, are ex-
pected to lead to an increased demand for services
provided by ISS Global. Consequently, at the prevail-
ing currency rates, ISS Global expects revenue to
grow organically at an increasing pace throughout
2010. During the last two quarters of 2009, ISS Global
also restored profitability to the levels realised in the
last two quarters of 2008. Combined with the gener-
ally flexible cost base, the extensive restructuring ini-
tiatives and the Group-wide fixed cost-reduction initia-
tive carried out in 2009, ISS Global expects its operat-
ing margin for 2010 to be slightly above the level real-
ised in 2009.

ISS Global will continue to prioritise cash flow and a
healthy balance sheet. We will focus on managing the
absolute level of debt supported by significantly less
acquisition spending and continued high cash conver-
sion. ISS Global expects to make only a small number
of acquisitions in the short term, primarily in the
growth regions of Asia and Latin America.

 

 

 

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 that could cause
actual results to differ materially from those predicted in the forward-looking statements and from the past per-
formance of ISS Global. Although ISS Global believes that the estimates and projections reflected in the forward-
looking statements are reasonable, they may prove materially incorrect, and actual results may materially differ,
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 2009 / Management's review 10

 

 

FINANCIAL REVIEW

INCOME STATEMENT

Revenue

Revenue amounted to DKK 69,024 million represent-
ing year-on-year revenue growth of 3%, excluding
foreign exchange adjustments. Revenue growth was
driven by 1% organic growth and 3% growth from ac-
quisitions. This was partly offset by divestments of 1%
and adverse currency exchange-rate movements of
3%. Four of seven regions delivered positive organic
growth rates, with Asia and Latin America once again
delivering double-digit organic growth rates.

Staft cosis

Staff costs increased by DKK 605 million, or 1%, from
DKK 43,963 million in 2008 to DKK 44,568 million in
2009. This increase was due primarily to an increase
in the overall number of employees as a result of ac-
quisitions and organic growth that were partly offset
by currency exchange-rate movements. Staff costs as
a percentage of revenue increased from 63.9% in
2008 to 64.6% in 2009.

Cost of sales

Cost of sales decreased by DKK 90 million, or 1%,
from DKK 6,134 million in 2008 to DKK 6,044 million
in 2009. Cost of sales as a percentage of revenue
amounted to 8.8% in 2009, a slight decrease com-
pared with 8.9% in 2008.

Other operating expenses

Other operating expenses decreased by DKK 153 mil-
lion, or 1%, from DKK 13,478 million in 2008 to DKK
13,325 million in 2009. Other operating expenses as a
percentage of revenue totalled 19.3%, down slightly

compared with 19.6% in 2008.

Depreciation and amortisation

Depreciation and amortisation excluding amortisation
of brands and customer contract porifolios and related
customer  relationships (customer contracts) de-
creased by DKK 6 million, from DKK 855 million in
2008 to DKK 849 million in 2009, which as a percent-
age of revenue was unchanged at 1.2% compared
with 2008.

Operating profit before other items

Operating profit before other items amounted to DKK
4,238 million in 2009 representing a decrease of 2%,
excluding foreign exchange adjustments, compared
with 2008. Including the negative effect from foreign
exchange adjustments, operating profit before other
items decreased by DKK 180 million, or 4%, from
DKK 4,418 million in 2008 to DKK 4,238 million in
2009. Operating profit before other items as a per-
centage of revenue, i.e. the operating margin before
other items, was 6.1% in 2009 compared with 6.4% in
2008. This was due mainly to lower earnings in
France, Germany and Spain.

Other income and expenses, net

Other income and expenses, net, represented a net
expense of DKK 540 million in 2009 compared with a
net expense of DKK 169 million in 2008. This related
primarily to restructuring projects amounting to DKK
426 million in France, Germany, Spain, Australia, Bel-
gium, Finland, the United Kingdom and Denmark, as
well as write-down attributable to businesses classi-
fied as held for sale on 31 December 2009 totalling
DKK 159 million. The restructuring projects comprised
mainly closure of certain parts of business units or di-

 

Operating results

 

 

 

 

 

Revenue Operating profit Operating margin
BENENE RENEE — before other items before other items
DKK millions DKK millions

2009 2008 Change 2009 2008 Change 2009 2008
Nordic ” 16,367 17,071 (4)% 1,219 1,189 3% 7.4. % 7.0 %
Western Europe ? 38,632 39,337 (2)% 2,056 2,356 (13)% 5.3 % 6.0 %
Eastern Europe ? 1,561 1,663 (6)% 106 124 (15)% 6.8 % 7.4. %
Asia ” 4,120 3,147 31% 308 210 47 % 7,5 % 6.7 %
Latin America ? 2,077 1,890 10% 131 109 20% 6.3 % 5.8 %
North America & 2,515 2,131 18% 134 128 5% 5.3 % 6.0 %
Pacific ” 3,768 3,614 4% 259 230 13% 6.9 % 6.4 %
Corporate / eliminations (16) (5) 25 72 (65)% 0.0 % 0.1 %
Total 69,024 68,848 0% 4,238 4,418 (4)% 6.1 % 6.4 %

1 Nordic comprises Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden.

2) Western Europe comprises Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, Italy, the Netherlands, Portugal, South
Africa, Spain, Switzerland, Turkey and the United Kingdom.

3) Eastern Europe comprises Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia.

3) Asia comprises Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Taiwan and Thailand.

3) |atin America comprises Argentina, Brazil, Chile, Mexico and Uruguay.
8) North America comprises Canada and the USA.

1) Pacific comprises Australia and New Zealand.

 

 

 

 

 

ANNUAL REPORT 2009 / Financial Review

1004126EogSN18951

 

visions as well as changes in the organisational setup
and other efficiency improvements. Write-downs at-
tributable to businesses classified as held for sale re-
lated mainly to net assets other than intangibles of
certain non-core activities in France that are expected
to be sold in 2010. Other income and expenses in-
cluded costs related to divestments of non-strategic
landscaping activities in Norway and Sweden as well
as the call centre activities in the Netherlands and re-
dundancy and severance payments relating to senior
management changes. This was partly offset by a
gain on divestments relating to the sale of non-core
laundry activities in Sweden and Norway. that
amounted to DKK 102 million.

Other income and expensegs, net, in 2008 represented
a net expense of DKK 169 million and included losses
on divestments of non-core activities, including the
energy activities in France as well as the non-strategic
temporary staffing and landscaping businesses in
Austria and subsequent restructuring of the organisa-
tional 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 business units, a relocation project in Norway as
well as redundancy and severance payment relating
to senior management changes.

Integration costs

Integration costs decreased by DKK 20 million, or
30%, from DKK 66 million in 2008 to DKK 46 million in
2009. The decrease in integration costs in 2009 was
due to the completion of fewer acquisitions in 2009
compared with previous years. Integration costs in
2009 related primarily to redundancy payments and
termination of rental obligations with respect to ac-
quired companies in Italy and Spain.

Royalty

Royalty increased in 2009 to DKK 1,090 million from
DKK 1,084 million in 2008. Royalty consists of pay-
ments to ISS A/S for the right to use the ISS brand
and know-how.

Operating profit
Operating profit decreased by DKK 537 million, or

17%, from DKK 3,099 million in 2008 to DKK 2,562
million in 2009 and was negatively impacted by a
lower operating margin before other items and an in-
crease in other expenses.

Share of result from associates

The share of result from associates increased by DKK
t million from a profit of DKK 3 million in 2008 to DKK
4. million in 2009.

Net finance costs

Net finance costs dropped by DKK 340 million, or
18%, to DKK 1,584 million in 2009 from DKK 1,924
million in 2008. The main reason for the decrease was
a net gain on foreign exchange in 2009 compared
with a løss on foreign exchange in 2008 as well as
lower interest expenses, net in 2009.

In 2009, net finance costs included DKK 1,628 million
of net interest expenses, DKK 19 million in net gains
on foreign exchange, DKK 87 million in amortisation
of financing fees, DKK 69 million related to amortisa-
tion of gains from settlement of interest rate swaps
and a net gain of DKK 52 million stemming from the
partial redemption of the relative share of the capital-
ised gain on settled interest rate swaps net of capital-
ised financing fees.

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

Profit before tax and goodwill impairment/amortisation
of brands and customer contracts decreased by DKK
196 million from DKK 1,178 million in 2008 to DKK
982 million in 2009.

Income taxes

Income taxes increased from DKK 45T million in 2008
to DKK 480 million in 2009. The effective tax rate was
48.9% in 2009 compared with 38.3% in 2008, calcu-
lated as the consolidated tax provision of DKK 480
million divided by the profit before tax and goodwill
impairment/amortisation of brands and customer con-
tracts totalling DKK 982 million. The tax expense in
2009 was adversely impacted by withholding taxes
that are non-proportional to the profit before tax and
limitations to deductions of financial expenses.

 

Revenue growth 2009

Revenue growth, %

 

Total growth excl.

 

 

 

Organic n Acq.JDiv., net currency Currency Total growth
Nordic 1 (1) 0 (4) (4)
Western Europe (1) 2 1 (3) (2)
Eastern Europe (2) 2 0 (6) (6)
Asia 15 13 28 3 31
Latin America 12 5 17 (7) 10
North America (1) 14 13 5 18
Pacific 0 6 6 (2) 4
Total 1 2 3 (3) 0

 

 

ANNUAL REPORT 2009 / Financial Review

12

Profit before goodwill impair-
meni/amortisation of brands and cusiomer

coniracts

Profit before goodwill impairment/amortisation of
brands and customer contracts decreased by DKK
225 million or 31%, from DKK 727 million in 2008 to
502 million in 2009.

Goodwill impairment and write-down

Goodwill impairment and write-downs amounted to
DKK 721 million. Impairment losses of DKK 100 mil-
lion related to ISS's business in Germany. The im-
pairment losses resulted from weakening market con-
ditions within certain business activities in which ISS
operates, especially the industrial segments, com-
bined with an increase in the discount rate applied at
the time of recognition of the impairment loss in May
2009. Write-downs totalling DKK 621 million related to
the write-down of DKK 212 million as a result of di-
vestment of a number of businesses and the write-
down of DKK 409 million on certain businesses classi-
fied as held for sale on 31 December 2009. The write-
down of completed divestments of DKK 212 million re-
lated mainly to the sale of ISS's non-strategic land-
scaping business in Sweden of DKK 101 million, the
sale of the call centre activities in the Netherlands of
DKK 69 million and the sale of the pest control activi-
ties in the United Kingdom of DKK 482 million. The
DKK 409 million write-down on businesses classified
as held for sale on 31 December 2009 related mainly
to the expected sale of certain non-core activities in
France, Spain and Norway.

in 2008, goodwill impairment and  write-downs
amounted to DKK 414 million, of which DKK 250 mil-
lion related to ISS's business in Germany, and DKK
65 million related to ISS's business in Italy, which was
recognised following impairment tests. The remaining
DKK 99 million related to divestments.

Amortisation of brands and customer con-

tracts

Amortisation of brands and customer contracts
amounted to DKK 554 million in 2009, up from DKK
495 million in 2008. The increase was mainly a result
of a DKK 68 million write-down on customer contracts
that related mainly to classification of non-core activi-
ties in France as held for sale. 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 179
million in 2009 and DKK 140 million in 2008.

Net loss

Net loss increased from a loss of DKK 42 million in
2008 to a loss of DKK 594 million in 2009, and was
negatively impacted by a lower operating profit and
higher non-cash charges related to goodwill impair-
ment of DKK 100 million and non-cash charges before
tax related to divestments and businesses classified
as held for sale totalling DKK 765 million. This was

partly offset by lower net finance costs. In 2009, a loss
of DKK 612 million was attributable to the owners of
ISS Global, whereas a profit of DKK 18 million was at-
tributable to non-controlling interests.

CASH FLOW STATEMENT

Cash flow from operating activities

Cash flow from operating activities was a net inflow of
DKK 3,471 million in 2009, down DKK 204 million
from DKK 3,675 million in 2008. The development
was due primarily to an increase in cash outflow of
DKK 198 million from payments related to other in-
come and expenses, net, as well as the decrease in
operating profit before other items of DKK 180 million.

Cash outflow from changes in provisions decreased
from DKK 96 million in 2008 to DKK 50 million in
2009. The amount comprised the effect of net
changes in provisions charged to the income state-
ment during 2009 and payments made in relation to
such provisions.

Income taxes paid, net, amounted to DKK 311 million
in 2009 compared with DKK 320 million in 2008.

Payments related to other income and expenses, net,
amounted to DKK 353 million in 2009, up DKK 198
million compared with 2008. Payments of DKK 283
million related to restructuring projects in France, Ger-
many, Spain, Australia, Belgium, Denmark, Finland
and the United Kingdom.

Payments related to royalties to ISS A/S amounted to
DKK 1,090 million in 2009 compared with DKK 1,084
million in 2008.

Cash flow from investing activities

Cash flow from investing activities in 2009 was a net
cash outflow of DKK 1,817 million, of which DKK 914
million related to acquisitions completed during 2009
and payment of earn-outs and deferred payments on
acquisitions completed in previous years. Acquisitions
completed in 2009 comprised investments primarily in
India, the USA, Indonesia, Italy and Turkey. The cash
outflow from acquisitions was partly offset by pro-
ceeds from divestments of DKK 22 million that related
primarily to the divestment of the landscaping activi-
ties in Sweden. Investments in intangible assets and
property, plant and equipment, net, (excluding acqui-
sition-related intangibles) totalled DKK 882 million in
2009, representing 1.3% of revenue. Investments in
financial assets, net, totalled an outflow of DKK 43
million in 2009.

In 2008, the net cash flow from investing activities
represented an outflow of DKK 2,530 million due
mainly to payments of DKK 2,095 million related to
acquisitions and investments in intangible assets and
property, plant and equipment, net, (excluding acqui-
sition-related intangibles) of DKK 705 million.

Net cash flow from financing activities

Cash flow from financing activities in 2009 was a net
cash outflow of DKK 1,301 million. This was mainly a
result of interest payments of DKK 1,681 million and
repayment of borrowings of DKK 5,177 million due pri-

 

ANNUAL REPORT 2009 / Financial Review

1004126EogSN18952

13

 

marily to settlement of EUR 500 million of the 2010
EMTNs in July 2009 as well as amortisation on senior
facilities. This was partly offset by drawings on credit
facilities of DKK 5,849 million stemming mainly from
the issuance of new Senior Notes due in 2014 in July
2009, the launch of a securitisation programme in the
last quarter of 2009 as well as drawings on the acqui-
sition facility up until 11 May 2009 when the acquisi-
tion facility expired.

In 2008, the net cash flow from financing activities
amounted to a cash outflow of DKK 704 million. This
was mainly a result of DKK 1,762 million in interest
payments, payments of dividend to shareholders of
DKK 525 million and payment to ISS Group compa-
nies of DKK 421 million that was partly offset by net
drawings on credit facilities among others to fund ac-
quisitions.

Cash conversion

Changes in working capital represented a cash inflow
of DKK 246 million that resulted in a cash conversion
of 106% in 2009 compared with 103% in 2008.

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 129.

BALANCE SHEET

Total assets

Total assets amounted to DKK 44,126 million at 31
December 2009, of which DKK 28,079 million repre-
sented non-current assets, primarily intangible assets,
and DKK 16,047 million represented current assets,

trol activities in the United Kingdom of DKK 42 million.
The DKK 409 million write-down on businesses classi-
fied as held for sale on 31 December 2009 related
mainly to the expected sale of certain non-core activi-
ties in France, Spain and Norway.

Goodwill is related 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 18% of the total carrying
amount of goodwill.

Customer contracts decreased by DKK 351 million to
DKK 2,788 million at 31 December 2009, from DKK
3,139 million at 31 December 2008. Amortisation of
DKK 479 million and write-downs of DKK 68 million
were partly offset by DKK 126 million in positive for-
eign exchange adjustments.

Assets and liabilities held for sale

Assets and liabilities held for sale amounted to DKK
614 million and DKK 379 million, respectively, and in-
clude the assets and liabilities attributable to certain
non-core activities in France, Spain and Norway for
which a sales process has been initiated. The busi-
nesses in Norway and Spain were subsequently sold
on 26 February 2010.

Other non-current assets
Non-current assets other than intangible assets
amounted to DKK 2,721 million at 31 December 2009,

 

primarily trade receivables of DKK 10,130 million.

Intangible asseis

Intangible assets increased by DKK 204 million from
DKK 25,154 million at 31 December 2008 to DKK
25,358 million at 31 December 2009. Intangible as-
sets comprise primarily goodwill and customer con-
tracts.

The negative development in the world economy and
financial markets during most of 2009, including in-
creased market fluctuations and volatility, has contin-
ued to make the valuation of intangible assets subject
to greater uncertainties than in recent years.

At 31 December 2009, goodwill amounted to DKK
22,262 million, an increase of DKK 520 million, or 2%,
from DKK 21,742 million in 2008. Additions related to
acquisitions in 2009 amounted to DKK 595 million
while currency adjustments increased goodwill by
DKK 695 million. Goodwill was reduced by impairment
and write-down of DKK 721 million that related to ISS
Global's impairment of DKK 100 million in Germany
and write-downs totalling DKK 621 million related to
completed divestments and businesses classified as
held for sale. The write-down on completed divest-
ments of DKK 212 million mainly related to the sale of
the non-strategic landscaping business in Sweden of
DKK 101 million, the sale of the call centre activities in
the Netherlands of DKK 69 million and the pest con-

a slight decrease from DKK 2,828 million a:31De- —— —  —  …

cember 2008. The decrease related mainly to prop-
erty, plant and equipment and was partly offset by an
increase in deferred tax assets and other financial as-
sets.

Trade receivables

Trade receivables increased slightly from DKK 10,097
million at 31 December 2008 to DKK 10,130 million at
31 December 2009. This was a result of an increase
in revenue and despite a decrease in debtor days
from 46.7 in 2008 to 45.3 in 2009.

Cash and cash equivalents

Cash and cash equivalents increased from DKK 2,951
million at 31 December 2008 to DKK 3,353 million at
31 December 2009, of which DKK 2,042 million re-
sided at Group level with the remainder at country
level. The cash position was positively impacted by
working capital inflow in Q4 2009. The cash position
may fluctuate significantly over the months due to the
frequency and timing of cash collection and outgoing
payments, e.g. salary payments.

Other current assets

Other current assets, comprising inventories, contract
work in progress, tax receivables, other receivables
and securities, amounted to DKK 1,950 million at 31
December 2009 (DKK 1,502 million at 31 December
2008). Other receivables increased from DKK 737 mil-

 

ANNUAL REPORT 2009 / Financial Review

14

 

lion at 31 December 2008 to DKK 1,047 million at 31
December 2009. Other receivables comprised mainly
prepayments and receivable sales price related to di-
vestments.

Total equity

Total equity was negative with DKK 611 million at 31
December 2009, a decrease of DKK 596 million from
31 December 2008, of which DKK 632 million was
equity attributable to the equity holders of ISS Global
A/S. The total change in equity for the year attribut-
able to the equity holders of ISS was a reduction of
DKK 584 million.

Net income and expenses recognised in equity re-
duced equity by DKK 566 million. This included a net
loss of DKK 594 million for the year and actuarial
losses, net, including the effect of the asset ceiling on
defined benefit pension schemes that amounted to
DKK 27 million. Partly offsetting this was positive cur-
rency adjustments of DKK 63 million relating to in-
vestments in foreign subsidiaries.

The negative equity of DKK 611 million was mainly a
result of the net loss for the year of DKK 594 million,
negatively impacted by non-cash charges related to
goodwill impairment and write-down totalling DKK 721
million. Equity is expected to be re-established
through positive results in coming years.

Long-term debt

The decrease in long-term debt from DKK 24,247 mil-
lion in 2008 to DKK 21,225 million in 2009 was due
primarily to reclassification to short-term debt in ac-
cordance with the debt maturity profile.

Other long-term liabilities

Other long-term liabilities comprise pensions and simi-
lar obligations, deferred tax liabilities and other provi-
sions, and amounted to DKK 2,132 million at 31 De-
cember 2009 (DKK 2,119 million at 31 December
2008).

Pensions and similar obligations amounted to DKK
837 million at 31 December 2009, compared with
DKK 834 million at 31 December 2008. 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
has defined benefit plans. As mentioned above, actu-
arial losses of DKK 27 million, including the net effect
from the asset ceiling, were taken directly to equity.
The losses stemmed mainly from the United Kingdom
and Norway and were partly offset by a gain in
France. Due to the current market conditions, the de-
termination of the discount rates in the individual
countries is subject to uncertainty.

Other provisions amounted to DKK 802 million at 31
December 2009, of which DKK 379 million had an es-
timated maturity of more than one year. Comparative
figures at 31 December 2008 were DKK 832 million
and DKK 397 million, respectively. The provisions
comprise acquisition-related provisions and various
obligations incurred in the course of business, e.g.
self-insurance obligations, !abour-related obligations,
legal obligations, restructurings, contract closures,
etc.

Deferred tax liabilities increased from DKK 888 million
in 2008 to DKK 916 million in 2009.

Other current liabilities

Other current liabilities, comprising short-term debt,
trade payables, tax payables and other provisions,
amounted to DKK 10,489 million at 31 December
2009 (DKK 5,964 million at 31 December 2008).

Other liabilities amounted to DKK 10,512 million at 31
December 2009 compared with DKK 10,217 million at
31 December 2008. 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 24,934
million at 31 December 2009, up DKK 1,146 million
from DKK 23,778 million at 31 December 2008. The
increase was due primarily to acquisitions in 2009 and
payment of earn-outs and deferred payment on ac-
quisitions completed in previous years. At 31 Decem-
ber 2009, long-term debt was DKK 21,225 million,
short-term debt amounted to DKK 7,166 million while
securities, cash and cash equivalents and receivables
from companies within the ISS Group totalled DKK
3,457 million.

 

ANNUAL REPORT 2009 / Financial Review

1004126EogSN18953

 

 

STRATEGY — THE ISS WAY

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.

ISS - BUSINESS AND STRATEGY

ISS is one of the world's largest commercial providers
of Facility Services, operating in over 50 countries in
Europe, Asia, Pacific, North America and Latin Amer-
ica. ISS has been operating in the service industry for
more than 100 years and began offering cleaning ser-
vices in 1934. Since that time, ISS has significantly
expanded its business through acquisitions and or-
ganic growth.

ISS's business model is based on creating value for
our customers by offering a range of business support
services within Cleaning, Support Services, Property
Services, Catering, Security and Facility Manage-
ment. ISS's Facility Management approach repre-
sents a unique offering whereby the service delivery
can be integrated into one seamless solution.

The ISS Way strategy, launched in 2008, is based on
our four cornerstones; customer focus, people man-
agement, the IFS strategy and a multi-local approach.
Combined with our corporate values and leadership
principles, these cornerstones provide the foundation
on which we pursue our vision to "Lead Facility Ser-
vices globally — by leading Facility Services locally”.

In ISS we treat people with respect

In ISS we lead by example

In ISS we lead by empowerment

In ISS we develop ourselves and others

In ISS teamwork is at the heart of our performance
ISS is one company with shared values, one
brand and one strategy

VYY VV VV

These principles, which are currently being integrated
in the processes surrounding recruitment, appraisals,
development and talent management, are applicable
for all ISS leaders. As the principles translate our val-
ues into actions and behaviours by describing suc-
cessful leaders, this initiative will enhance our leader-
ship capabilities on an ongoing basis.

CORPORATE VALUES

 
   
  
  
 
  
 

>  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.

 

Implementation-of-Fhe-1SS-Way-is-well-under-way-and
is oriented around a number of key strategic priorities,
especially focus and alignment. After a period of plat-
form building through acquisitions, we are focusing on
extracting the full value inherent in our business by
concentrating our efforts on specific customer seg-
ments. Another key priority is to ensure the continued
alignment of the organisation to fully support the stra-
tegic direction we have set for ISS going forward.

The continued successful implementation of The ISS
Way strategy is the foundation for robust and profit-
able growth in the years to come.

Values

Ultimately, The ISS Way strategy is founded on our
four values on which we base our strategic, opera-
tional and financial plans and actions.

Leadership principles and development

As part of The ISS Way strategy, the way we act as
leaders has also been scrutinized. In 2009, a set of
common international leadership principles was es-
tablished defining the attitudes and behaviours ISS
expects from its leaders. This resulted in the following
nine principles:

> In ISS we put the customer first
> In ISS we have passion for performance
> In ISS we encourage innovation

    
  
  

> RESPONSIBILITY - WE CARE
Indifference is immoral. 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.

Qur four cornerstones

The ISS Way is built on four cornerstones: customer
focus, people management, the IFS strategy, and a
multi-local approach.

Customer focus. At ISS, we put customers in fo-
cus. We serve our chosen customers locally, region-
ally and globally with specific value propositions while
focusing on identifying customer needs and wants.

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

16

 

We build enduring partnerships with customers who
value our approach to service.

People management. At ISS, people management
is our core competence. We excel in people man-
agement in order to deliver excellence in our service
offerings. We mitigate risks and volatility transferred
from our customers, by applying leadership skills, HR
and EHS policies, employee training and labour legis-
lation insight. To obtain these benefits we share
knowledge and best practices.

IFS strategy. At ISS, IFS is our strategic aim. We
advance our service offering towards IFS by building
the ISS House of services and developing our FM ca-
pabilities. We self-deliver multiple site-based services
as defined by the "ISS House" and we integrate our

service deliveries seamlessly in our customers' or-
ganisations.

Multi-local approach. At ISS, we strike a balance be-
tween autonomy and alignment. We operate with
strong local leadership and autonomy to ensure timely
responses to demands and requests. We also reflect
the overall Group fundamentals and strategic direction
to allow us to exploit best practices and leverage our
geographical footprint. We are disciplined and use
tight financial controls.

Qur service offering

ISS's service offering has been developed to meet
customer needs. Our fundamental offering is illus-
trated by the "ISS House", which has five pillars:
Cleaning, Support Services, Property Services, Cater-

 

THE ISS HOUSE
- for the Healthcare segment

 

 

mr"

CEANKG SEMES

 

 

 

 

 

 

 

 

 

 

 

SUDEGRISSERVIGES (BROBERIYÆSERVIGES] (CATERINGISERVIGES!
HEALTHCARE CLEANING BEALTHCARE LOGISTICS HEALTHCARE EQUIPMENT PATIENT CATERING GUARDING
= Bed Space Cleaning « Transportation of MANAGEMENT + Patient Feeding s Patient Escorting

» Clinical Cleaning

» Non-Clinical Cleaning

» Decontamination

- Disinfection

» Barrier Cleaning

» Washroom Services

» Dust Control

» Laundry Services

" Window Cleaning

. Pavement & Sidewalk
Services (Sweeping/
Snow Remaval)

Patients

Transportation of Blood
& Medical Samples

" Transportation of
Laboratory Test/Results

» Shipping & Receivables
(Non-core Items)

" Moves, Adds & Changes
(Internal Maves)

s Switchboard (On-site)

” Information Desk

+ Printing & Copying

s Beds Management

- Furniture & Equipment
Management

» Stationary/Office
Supplies

+ Document Handling
(On-site))

» Patient Record
Management

+ Mail Handling

+ Service of Beds
(Replacements/Repairs)

+ Service of Patient Trans-
portation Equipment
(Trolteys, Wheelchairs,
Holsts etc)

+ Service of Medical
Equipment

+ Medical gases

» Nurse Call Systems &
Panic Alarms

" Pnsumatic Tube Systems

» Handyman (Light
Reactive Maintenance)

+ Repairs & Replacements

s Lifts & Escalator Services

» Building Management

» Landscaping & grounds
Maintenance

» Pest Control

 WVaste & Recycle
Management

Energy Management

- Water Supply

s Lighting & Power

« Legianella Control &
Management
(Water Treatment)

» HVAC (incl. Cooling)

+ Dletetic Services

» Nutrition Services

Delivered Meal Solutions

» Beverages incl.
Coffee/Tea

" Restaurant

 Kiaosks & Cafes

+ Hospitality Services

" Conference Facilities

s Fruit & Pastry Provisions

« Installation & Service of
Vending Machines

+ Visitor Escorting
«+ Manned guarding
+ Mobile Patrols
s Admission Control

- External & Internal
s Keys & Cards
+ Cash in Transit
” Staff Protection
«+ Monitoring (CCTV)
s Alarm Response
+ Emergency Evacuation
s Fire & gas Detection
e Burglary Detection
» Alarm Systems
- Lost Property

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

1004126EogSN18954

 

 

ing and Security. The "roof", Facility Management,
represents the sixth service and our capabilities within
the integration of service deliveries. The ISS House is
built on a strong foundation of Service Excellence,
which means that our customers enjoy the benefits of
partnering with a service expert - a company that truly
understands customer needs and has the services
required to support them.

Service concepts are being developed to address the
specific needs of customer segments. This entails de-
fining versions of the ISS House that are built on ISS's
fundamental competencies and presenting an inte-
grated solution customised for a given segment. As
an example, the ISS House for the Healthcare seg-
ment is illustrated at the previous page.

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 washroom services. Not all country opera-
tions necessarily offer all services within the six ser-
vice areas, which comprises more than 100 individual
services. Local offerings depend on factors such as
customer demand, market conditions and access to
qualified staff.

If a country does not self-deliver all six service areas,
the use of subcontractors ensures one-stop shopping
for customers. Each country aims at building up ser-
vices 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-distinguishes-between-services-offered-and-the
way in which these services are delivered. The three
delivery models are: Single Service, Multi Services
and Integrated Facility Services. In 2009, ISS contin-
ued to develop and strengthen its Single Service ex-
cellence concepts and Integrated Facility Services
capabilities.

With Single-Service outsourcing, customers buy one
service solution from ISS, for instance outsourcing of
cleaning, and can then focus møre on their core busi-
ness activities.

With Multi-Service outsourcing, which consists of two
or more services but is not a fully integrated solution,
customers achieve the same benefits as with Single-
Service outsourcing with the benefits of service inte-
gration where possible.

With Integrated Facility Services solutions, ISS deliv-
ers two or møre services under one contract with a
single point of contact on-site, and ISS takes over all
or most of the facility services functions at the cus-
tomer's premises. The customer receives both the full
potential of Single-Service outsourcing and the advan-
tages of integrating services, including cost efficien-
cies and a more efficient and flexible service set-up.

The ISS Value Chain
The ISS Value Chain management tool drives the im-
plementation of The ISS Way strategy.

The links of the Value Chain are best illustrated by
starting at ihe end — Business Growth. The shared
purpose of our existence at ISS is to create share-
holder value. This emerges from profitable growth
which in turn is driven by satisfied customers who ex-
pand their business with ISS and renew their con-
tracts. Customer satisfaction is founded on capable
employees who are engaged in their jobs and moti-
vated by being part of a strong team. Capable em-
ployees are employees who have been trained in the
delivery of clearly defined and operational service
concepts. Strong and attractive service concepts are
the result of informed decisions made regarding the
business platform, which determines the customer
segments we should serve and services we choose to
deliver to these segments. Acquisitions are a useful
tool in the continued development of ISS, and will be
used selectively to improve ISS's competitiveness,
build critical mass and increase service capabilities
and capacity where and when appropriate.

Lne VIL Tiders]
Growth

Business
Platform

Service
Cancept

Business

KoG]

AES IlNLG
å
SÅZADRET ll
KYS
Experience

KORS
Value

 

The ISS Value Chain is used actively at strategic, tac-
tical and operational levels and forms a central part of
The ISS Way of thinking and working. Management at
all levels have shared points of reference deeply em-
bedded in the organisation that enable them to see
their actions from a broader perspective, thus creating
a well-founded, valuable and homogenous service
culture at ISS.

The ISS Way strategy

After years of successfully building our business plat-
form through acquisitions, The ISS Way is turning our
focus towards extracting the full potential in our exist-
ing platform. The implementation of The ISS Way is
well under way and is oriented around a number of
key strategic priorities, especially focus and align-
ment. We are enhancing our response to customer
needs and developing value propositions tailored to
specific customer segments. We are also developing
services within which we deliver service excellence
and which are most suitable for integration and there-

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

18

 

fore consistent with our IFS strategy.

We are also pursuing standardisation, best practice
and knowledge sharing across the organisation. Ex-
cellence centres and knowledge forums have been
established and are contributing to further increasing
the efficiency of our service delivery and establishing
consistent definitions and alignment of our services.
Experts from corporate, regional and country levels
are working together in various global forums to fur-
ther align key business processes and procedures at
ISS. The ongoing implementation of this strategy will
allow ISS to continue to enhance its position as a
leading local! and global Facility Services company, by
delivering consistent high quality service.

In 2009, ISS expanded its portfolio of multi-national
customers procuring services in multiple jurisdictions
through two major new contract wins while continuing
to invest in expanding the global Corporate Clients
organisation established in 2007. The purpose of this
organisation is to win contracts with global and re-
gional customers — fully in line with the vision of being
the leading global Facility Services provider.

The ISS Way focuses on organic growth and entails a
consolidation phase after a period of high acquisition
volume in which ISS has built its broad business plat-
form. ISS has therefore slowed down the pace of ac-
quisitions in 2009 and increased its focus on integrat-
ing acquired companies and harvesting synergies.

Operational objectives

ISS seeks to Maintain and enhance operational 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 density, and by implementing company-
wide best practices.

PROFITABLE ORGANIC GROWTH

ISS's third objective is to focus on organic growth
through customer retention and sale of service solu-
tions to our customers. ISS will continue to leverage
its international market position and service offering in
order to increase its local market positions and drive
organic growth. ISS continues to work with a wide
range of initiatives, including the further development
of the Corporate Clients organisation and enhancing
our focus on specific customer segments.

CORPORATE RESPONSIBILITY

As a global company with over 485,000 employees
serving 200,000 customers in more than 50 countries,
ISS influences the lives of many people and has an
extensive interface with societies around the globe.

More than a century in the service industry has made
ISS well aware that our long-term sustainable busi-
ness success depends on a high level of Corporate
Responsibility (CR), as economic, social and envi-
ronmental issues are inevitably interconnected.
Therefore CR is an integral part of our values and
business strategy and is closely linked to the ISS
Value Chain. Developing our values into concrete ac-
tions is also our response to demand from several
stakeholder groups, e.g. existing and potential em-
ployees and customers. It is already clear that secur-
ing international IFS contracts from the world's blue-
chip corporations requires a consistent CR perform-
ance, which is a key factor in winning and retaining
contracts in this customer segment.

Qur ten-years membership of the Global Compact has
taught us that working with corporate responsibility is
not a one-off event. It is a never-ending journey. We
have come a long way and are proud of offering peo-
ple work and training while treating them fairly. By set-
ting high social, environmental and ethical standards,
we are paving the way for profitable growth while
demonstrating leadership within our industry. In the
years to come, ISS intends to transform its CR ap-
proach from improving our license to operate into
value-adding propositions and business opportunities.

This CR chapter is ISS's compulsory report on Corpo-
rate Social Responsibility, as per section 99a of the
Danish Financial Statements Act, which covers the fi-
nancial year ended 31 December 2009. In accor-
dance with instructions from the UN Global Compact
to members of the Compact, this report also serves as
ISS's communication on progress in implementing the
ten principles of the Global Compact.

Qur CR policies
Conducting business in a responsible and sustainable
manner is a core concept that is embedded in The
ISS Way strategy.

ISS has made a strong commitment as a signatory
and supporter of the United Nations Global Compact
since its inception in 1999. In line with membership
regulations, ISS is committed to complying with the
ten Global Compact principles on human rights, la-
bour rights, environmental protection and anti-
corruption. ISS's commitment to act responsibly and
with integrity is reflected in our Values, Code of Con-
duct and International HR Standards. In 2009, we
added Leadership Principles and also established a
Group Business Integrity Committee.

Rights

Responsibility is one of the four ISS Values which
founds the business of ISS. Our Code of Conduct ap-
plies to all ISS operations and is featured in the terms
of employment of all our employees. The Code states,
for example, that ISS respects the United Nations'
Declaration of Human Rights, that ISS is committed to

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

1004126EogSN18955

19

 

continuously reducing adverse environmental effects
caused by its operations and that ISS is against any
form of corruption and bribery and is committed to
combating such practices.

As ISS employs more than 485,000 employees, man-
aging people is the heart of our business. Well trained
and highly motivated employees are our primary re-
source. We therefore aim at being the preferred em-
ployer in our industry and care about our employees'
conditions at work. ISS's employee rights are stated in
our Code of Conduct, International HR Standards and
Leadership Principles. These rights, which observe
the Declaration of Human Rights, ensure proper work-
ing conditions for our employees, including training
opportunities, and support for introducing and uphold-
ing minimum wages, proper health and safety stan-
dards, non-discrimination against employees and a
ban on forced, compulsory and child labour. ISS re-
spects freedom of association, the right to collective
bargaining and to join and form trade unions as an in-
tegrated part of our efforts to ensure long-term busi-
ness success.

From policies to action

ISS communicates and enforces its standards and
policies across the Group. In an organisation as large
as ISS, one culture — one approach — cannot be dic-
tated. Each level of our organisation must therefore
fully grasp and embody the ISS Values and policies
and be empowered to take action on this basis.

Our commitment to døing business in a responsible
manner in line with our policies has been communi-
cated to suppliers, major customers and all employ-
ees by means of leaflets, meetings, management
training sessions and employee magazines. When

and joint venture opportunities, we actively promote
business conducted in compliance with the ISS Code
of Conduct.

All employees are responsible for reporting breaches
of the code to their immediate superior or in special
circumstances to the Head of Group Human Re-
sources at ISS Head Office.

Leadership

The leaders in ISS, ranging from on-site team leaders
to management, play an integral role in promoting and
driving the implementation of policies to all levels of
ISS. Resources are therefore invested in manage-
ment development and in ISS University, as described
in the Employee section below. In 2009, ISS took an-
other step forward with the launch of our leadership
principles, which serve as a guideline and benchmark
for leaders.

Employees, environment and business integ-
rity

Following the renewal of the global agreement be-
tween Union Network International (UNI) and ISS in
2008, ISS and UNI created the Global UNI-ISS Foun-
dation in April 2009. The purpose of the foundation is
to monitor and improve employment standards within
the service industry globally. The foundation ensures
that the annual ISS donation of EUR 100,000 is in-

vested in projects within the industry and countries in
which ISS operates. The agreement and collaboration
since 2008 has prompted UNI to name ISS as an em-
ployer that treats its workers well and is setting a good
example for other global employers.

ISS puts great effort into training employees to en-
hance their skills and encourage upward staff mobility.
In the majority of country operations, ISS plays an ac-
tive role in employing vulnerable groups such as im-
migrants, ethnic minorities, long-term unemployed in-
dividuals and other groups for whom it is difficult to
gain access to the labour market.

The corporate environmental policy provides a Group-
wide framework for running ISS in a sustainable way.
In most countries, the environmental policies and sys-
tems are already in place. By the end of 2009, ISS
had developed and made Cleaning Excellence avail-
able to customers in countries representing 80% of
our Cleaning volume. The Cleaning Excellence
method is gentler on the environment and ergonomi-
cally better for our employees than conventional
cleaning. Case studies show that Cleaning Excellence
results in significantly reduced water consumption and
in less use of cleaning substances. Furthermore, ISS
globally focuses on sustainable sourcing that leads to
reduced CO2 emissions. For instance approximately
85% of the entire ISS car fleet is diesel-fuelled. An-
other initiative in 2009 involved broadening the use of
environmentally friendly cleaning products and ex-
panding our agreements with producers of sustain-
able paper, tissues etc.

To support and ensure compliance with ISS's busi-
ness integrity policies, local operations have ap-
pointed ombudsmen over the last few years. ISS has

acquiring-new-companies-and-entering-new-market established a Group Business Integrity Committee

consisting of our Group CFO, Head of Group Legal,
and Head of Group Human Resources to strengthen
the enforcement of our policies. The Committee is re-
sponsible for investigating reports of possible viola-
tions of the Code of Conduct throughout the Group.

Going forward

ISS's commitment to doing business responsibly and
implementing our initiatives will continue steadily in
the years ahead. To keep ISS's CR approach fo-
cused, manageable and tangible, an analysis together
with external consultants was conducted during 2009
to identify key CR focus areas and establish how ISS
can further prioritise its CR efforts.

In 2009, ISS decided to establish a Sustainability
Steering Group to strengthen its CR organisation. The
steering group will be headed by the Group CFO and
work under the supervision of its Executive Sponsor,
the Group CEO. The Steering Group will coordinate
and formulate our CR approach and prioritise CR is-
sues. ÅA key goal for the steering group is to use the
analysis on key focus areas and other materials to
develop a comprehensive sustainability report for ISS
on a global basis.

EMPLOYEES

In 2009, the number of ISS employees increased by

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

20

 

roughly 13,000, an increase of 3% compared with
2008. A large number of these additional employees
joined both as a result of ISS expanding in the Asian
region and through other acquisitions. At the end of
2009, ISS had more than 485,000 employees in
Europe, Asia, Pacific, Latin America and North Amer-
ica.

Human Resources

The ISS Human Resources vision "to be the preferred
employer in our industry” supports the Group strategy
by focusing on: upgrading leadership and manage-
ment capabilities, enhancing customers' service ex-
perience, integrating acquired businesses, and ensur-
ing competitiveness through cost efficiencies.

The Human Resources strategy is implemented
through "ISS International HR Standards”, which is
the framework for local HR initiatives. The processes
cover:

Recruitment

Employee appraisals and reviews
Motivation and loyalty

Employee relations

Training and development

Talent management

Managing sickness and absenteeism
Reporting and monitoring

HR Support for M&A and contract integration
Health and safety

Remuneration, benefits and incentives
Succession planning

WVYVYVVVYVY VV VV

Training

Training remains the cornerstone of the Human Re-
sources strategy. Resources are invested in staff and
management 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 to enhance employee
skills and encourage upward staff mobility. Much at-
tention is devoted to developing the first management
layer e.g. team leaders, supervisors and contract
managers, who are responsible for their immediate
staff and customer interface. Most training is con-
ducted at ISS academies and training facilities in na-
tional and local operations.

As in previous years, the ISS University programme
portfolio consisted of internal and external seminars
designed in cooperation with suppliers such as IMD,
Henley Management College and INSEAD. The use
of internal trainers intensified with the roll-out of the
Business Process Framework, which is an initiative to
review and improve our processes. The IFS Academy
conducted centralised training in Calculation for Plan-
ners and the ISS Facility Management System intro-
duction.

The management induction programme, ISS Advan-
tage, continues for executives throughout the Group.
During 2009, approximately 600 senior managers and
specialists from the entire Group attended a total of
41 workshops and programmes at ISS University.
This will be further developed by adding two additional
mandatory management programmes within strategy
and leadership.

Health and safety

We operate on client premises in a number of chal-
lenging environments such as the transport sector,
major hospitals, corporate canteens and public parks
and gardens. We promote the fact that all employees
are responsible for their own safety and the safety of
others who may be affected by their work activities.
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 this area as
part of overall business operations. At global and re-
gional levels, ISS will further develop its approach to
health and safety by establishing central health and
safety functions and aligning reporting systems. This
will enable regional and global benchmarking and will
challenge current local minimum requirements.

Employee loyalty

The service industry in general has high levels of em-
ployee turnover, 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 2009,
the share of full-time employees (working 25 hours or
more a week) rose to 71%. 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 for employee
loyalty within ISS. In 2009, approximately 65% of the
Group's employees had been with ISS for møre 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 its corporate culture, and aided by lan-
guage courses and adapted training materials, ISS is
an employer of choice for many immigrants and ethnic
minorities. In all regions but especially in countries
such as Belgium, Denmark, France, Norway, Sweden
and the United Kingdom, ISS is among the largest
employers of ethnic minorities. Similarly ISS in Austra-
lia has implemented its Indigenous Training and Em-
ployment Strategy and Programme to actively engage
in realising its commitment for equitable indigenous
representation and sustained indigenous participation
across its national workforce. The associated out-
come-driven employment and retention commitment
contributes directly to the Australian Federal Govern-
ment's undertaking to halve within a decade the 24%
gap between indigenous and non-indigenous em-
ployment and workforce participation rates.

Employee relations

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-

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

1004126EogSN18956

21

 

cally in the country operations. Established in 1995,
the European Works Council (EWC) is a forum for
dialogue between ISS executives and ISS employee
representatives from across Europe. In June 2009,
the EWC and ISS signed a new EWC agreement for
the next four years. The EWC agenda for the meet-
ings includes information and consultation on matters
relating to the ISS Group in Europe, in particular con-

cerning the structure, financial situation, development
of the Group, the current situation and probable
trends of employment. Discussions also involve the
introduction of new working methods and processes,
training and health & safety issues, provided that such
issues May affect the interest of the employees of the
ISS Group in more than one country in Europe.

 

 

ANNUAL REPORT 2009 / Strategy — The ISS Way

22

 

CORPORATE GOVERNANCE

EQT 54% FS INVEST 5.å r. I (LUXEMBOURG)” GOLDMAN SACHS CAPITAL PARTNERS 44%

FS INVEST S.å r. I (LUXEMBOURG)

ISS EQUITY A/S

ISS HOLDING A/S

  

EK NÆ t

 

OPRATING SUBSIDIARIES

1 A described in note 35 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 5,å 1.1. (FS Invest), 155's Ultimate Parent Company. The total number of shares held by these directors and officers is below 2% of the total share capital.

 

 

Note: FS Invest is the ulti parent far which Ci lidated Financial are prepared, The Ci lidated Financial can be abtained from FS Invest, 2 rue de Fosse, L-1536
Luxembourg.
ISS Global is a subsidiary of ISS Holding A/S ("ISS” or the Executive Group Management and a number of
"the Group”) and is therefore subject to the same cor- senior officers of ISS through director and manage-
porate governance policies as ISS. The following sec- ment investment programmes.
tion describes the corporate governance policies ap-
plicable in ISS Holding A/S. EGT is a leading private equity group with operations
in Northern and Eastern Europe, Asia and the USA.
The Board of Directors regularly considers the EQT has raised approximately EUR 13 billion in
Group's corporate governance in relation to the twelve funds. In total, EQT funds have invested ap-
Group's activities, business environment and statutory proximately EUR 7 billion in møre than 70 companies.
requirements. Good corporate governance at ISS is EQT Partners, acting as exclusive investment advisor
implemented in a dynamic process that involves the to EQT, is headquartered in Stockholm and maintains
Board of Directors and the Company continuously as- offices in Copenhagen, Helsinki, Oslo, Frankfurt, Mu-
sessing the need for adjustments for the benefit of nich, Zurich, Warsaw, London, New York, Shanghai
ISS's stakeholders and the Group itself. and Hong Kong.
Corporate governance policies and procedures at ISS GS Capital Partners is the private equity vehicle
take into account the Danish Companies Act, the through which the Principal Investment Area (PIA) of
Danish Financial Statements Act, IFRS, the Action Goldman Sachs Group, Inc. conducts its privately ne-
Plan for Corporate Social Responsibility (CSR), the gotiated corporate equity investment activities. Since
Danish Venture Capital and Private Equity Associa- 1986, PIA has raised 15 investment funds (including
tion's guidelines for responsible ownership and good mezzanine and senior secured loan funds) through
corporate governance as well as good corporate gov- three corporate investment vehicles, aggregating over
ernance practices for companies of ISS's size and USD 80 billion of capital (including actual leverage).
global reach. GS Capital Partners is a global private equity group
focused on large, sophisticated business opportunities
Corporate Responsibility (CR) reporting is included in in which value can be created by leveraging the re-
the "Strategy” chapter. sources 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

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- in ISS.

ners (EQT) and Goldman Sachs Capital Partners (GS

Capital Partners). EQT and GS Capital Partners are The Board

together referred to as the Principal Shareholders and ISS has a two-tier governance structure consisting of:
hold 54% and 44% of the share capital respectively.

The remaining approximately 2% of the share capital > the Board of Directors (the Board), and

is held by certain members of the Board of Directors, > the Executive Group Management (the EGM).
ANNUAL REPORT 2009 / Corporate Governance 23

1004126EogSN18957

 

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 have no 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 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.
Twelve Board meetings were held in 2009. 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). The Board annually performs a self-
assessment to assess the competencies of the Board,
the effectiveness of its work and how the Board en-
sures that good corporate governance is in place.

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.

More details on the Board members are available in
note 36 to the consolidated financial statements. Re-
muneration to the Board of Directors of the Group is
disclosed in note 4 to the Consolidated Financial
Statements.

Board committees
The Board has established four committees that all
report to the Board.

The Remuneration Committee decides the remunera-
tion packages and incentive schemes for the Group
CEO, and provides input for other EGM members and
certain senior officers, as well as compensation levels
and bonus systems in general. The committee con-
sists of at least three members of the Board (currently
Ole Andersen, Peter Korsholm and Steven Sher), and
the Group CEO participates in its meetings. Ole An-
dersen is chairman of the committee. The committee
held one meeting in 2009.

The Audit Committee evaluates ISS's external finan-
cial reporting, and monitørs and challenges ISS's
main accounting policies and estimates, as well as
systems of internal controls and risk management. Its
duties also include considering the relationship with
ISS's external auditor and reviewing the audit proc-
ess. The committee consists of at least three mem-
bers of the Board (currently Leif Ostling, John Murray
Allan, Christoph Sander and Steven Sher), and meet-
ings are also attended by the Group CFO, the Head of

Group Controlling, Head of Group Internal Audit and
the Group General Counsel. Leif Ostling is chairman
of the committee, which held four meetings in 2009.

The Acquisition Committee considers ISS's proce-
dures for acquisitions and divestmenis, reviews the
acquisition and divestment pipeline, approves certain
acquisitions and divestments 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 meetings are
also attended by the Group COO, Group CFO, Head
of Group Strategy and Business Development and
Head of Group M&A. Christoph Sander is chairman of
the committee, which held six meetings in 2009.

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 eight meetings in 2009.

Group Management

The Executive Group Management of ISS (the
"EGM”) consists of Group CEO Jørgen Lindegaard,
Group COO Jeff Gravenhorst and Group CFO Jakob
Stausholm. The primary tasks of the EGM are to carry
out day-to-day management of the Group, develop
new strategic initiatives, develop Group policies,
monitor Group performance and evaluate acquisitions
and divestments.

The Group Management (the "GM”) comprises the
EGM and the following Corporate Senior Officers:

Regional CEOs Luis Andrade, Troels Bjerg, Jean 0.

Manuel Bullukian, Jacob Gåtzsche, Hans John Oi-
estad, David Openshaw and Martin Gaarn Thomsen,
Head of Group Human Resources Helle Havgaard,
Head of Group Strategy and Business Development
Todd O'Neill, Head of Group M&A Jens Ebbe Olesen,
Group General Counsel Bjørn Raasteen, Head of
Corporate Clients Magnus Åkerberg, Head of Group
Treasury Barbara Plucnar Jensen, Head of Group
Controlling Peter Harder Thomsen and Head of Group
IT Henrik Trepka. The members of the GM have been
appointed by the EGM to carry out day-to-day man-
agement within their functional areas, including pro-
viding strategic direction, managerial support and fi-
nancial control.

Two functional boards, the Operational Board and Fi-
nancial Board, were established in 2009 to ensure
development, alignment and roll-out of key initiatives
within the Boards' responsibility areas. The Opera-
tional Board is headed by the Group COO, and in-
cludes the Group CEO, the Regional CEOs, Head of
Corporate Clients and Head of Excellence Centres.
The Financial Board is headed by the Group CFO and
includes the Head of Group Controlling, Head of
Group Treasury, Head of Group IT, Head of Group In-
ternal Audit, Head of Group Risk Management, Head
of Group Tax and Regional CFOs. The primary tasks
of the two Boards are to develop and execute new
strategic initiatives, develop and implement Group
policies, monitor Group performance, review opera-

 

ANNUAL REPORT 2009 / Corporate Governance

24

tional and financial matters, coordinate and evaluate
acquisitions and divestments and provide the EGM
with input for decision making.

The members of the GM are remunerated with a
combination of a fixed salary and, for most members,
a bonus that is capped at 60% of their fixed salary.
The employment contracts of the GM members are
subject to termination periods of between 12 and 18
months. Directorships in companies in the ISS Group
held by members of the GM are not remunerated
separately.

No member of the GM 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 man-
agement teams for each relevant country are de-
scribed on the ISS website at www.issworld.com.

Management Participation Programme

The Principal Shareholders have established a Man-
agement Participation Programme, under which the
EGM and a number of senior officers of the Group
can invest. The programme is structured as a combi-
nation of direct and indirect investments in a mix of
shares and warrants in FS Invest based on market
values until the Principal Investors' exit. At the intro-
duction of the programme in 2006, warrants in FS In-
vest were granted free of charge with a vesting
schedule (based on value of shares and time) of
which 329,404 were outstanding as of 31 December
2009.

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
invested in a mix of shares and warrants in FS Invest
based on market values until the Principal Investors"
exit.

As of 31 December 2009, the net investments were
as follows:

 

 

 

Investment
Group Persons (DKK million)
Board of Directors 4 23.7
Executive Group Management 3 20.8
Corporate Officers 33 57,8
Country Management 120 118.1

 

 

Risk management

ISS continuously seeks to identify and evaluate risk
factors that may have an adverse effect on the ISS
Group's activities, financial performance, financial po-
sition and future growth. For a detailed, non-
exhaustive list of the risk factors to which the Group is
subject, reference is made to the Senior Notes Offer-
ing Memorandum dated 16 July 2009 (pages 19-34)
available from the  SGroup's website at
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 ISS Group standards are
documented and distributed to the operating compa-
nies. ISS's Group Internal Audit, Group Risk Man-
agement and Group Treasury departments supervise
compliance with these standards.

OPERATIONAL RISK MANAGEMENT

Operational risk management focuses principally on
procedures for claims management, entering into con-
tracts, occupational safety, environmental aspecis
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 coønsiders 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, liquidity risk, currency risk and credit
risk. The ISS Group's financial risk management is
described in note 33 to the Consolidated Financial
Statements.

Main elements of the Group's internal control
environmeni

OVERALL CONTROL ENVIROMENT

The Board and the EGM acknowledge their responsi-
bility for the Group's internal control and risk man-
agement systems related to preparation of the Con-
solidated Financial Statements including compliance
with applicable laws and other regulation. The Audit
Committee monitors and challenges the EGM in its
assessment of material risks and the internal controls
and risk management systems that are put in place to
manage the identified material risks. The Audit Com-
mittee reports to the Board.

 

ANNUAL REPORT 2009 / Corporate Governance

1004126EogSN18958

25

 

The Group's internal control and risk management
systems are developed to mitigate rather than elimi-
nate risks identified in relation to the financial report-
ing process and thus assist in ensuring that the Con-
solidated Financial Statements provide a true and fair
view of the financial performance and financial posi-
tion of the Group without material errors. A material
risk is considered to be a risk that may cause a mate-
rial error in the Gonsolidated Financial Statements of
the Group. Internal contro! procedures at Group level
have been established to assess the Group's internal
control environment and to manage identified risks.

ISS considers internal controls to be an essential
management tool. Accordingly, care is taken to en-
sure that a sound framework of controls is in place for
safeguarding the business, the company's assets and
the shareholder investmentis as well as the financial
reporting. However, such controls are designed to
manage rather than eliminate the risks and can pro-
vide only reasonable and not absolute assurance
against material misstatements or losses.

The aim of the established control environment is to
provide the Board and the EGM with reasonable as-
surance that:

> management reporting is reliable and in compli-
ance with internal policies and procedures and
gives a true and fair view of the financial perform-
ance and financial position

material 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 business and assets

ISS's business is conducted in compliance with
applicable legislation, regulation and ISS policies

vw

w

RISK ASSESSMENT

Risks related to the Consolidated Financial State-
ments are annually identified and assessed based on
a materiality test including a risk assessment of the
impact of quantitative and qualitative factors. The
evaluation of the risks includes an assessment of the
likelihood that an error will occur and whether such an
error may be material.

The risk of errors is relatively higher for accounting
areas that requires management judgement and/or
are transactions that are generated through complex
accounting processes. Accounting areas which re-
quires management judgement are described in note
2 to the Consolidated Financial Statements in the sec-
tion "Critical Accounting Estimates and Judgements”.

On an ongoing basis the Audit Committee discusses:

> material and relevant new accounting pronounce-
ments and implementation of such

> evaluation of the overall effectiveness of the inter-
nal controls for financial reporting

> accounting for material legal and tax issues and
significant accounting estimates.

CONTROL ACTIVITIES
In order to sustain a sound control environment, spe-
cific control activities are designed to obtain the de-

sired assurance. These measures must ensure that
all relevant aspects of a specific area are covered,
and that the combination of control activities monitors
all relevant aspects of the business. The control activi-
ties are based on the risk assessment made by EGM.
The purpose of the control activities is to ensure that
material errors in the financial reporting are pre-
vented, detected and corrected.

The Group has implemented a formalised financial
reporting process that includes:

> reporting of financial performance and financial
position — all countries must report a full income
statement, balance sheet, cash flow statement,
portfolio analysis etc. on a monthly basis. Any sig-
nificant variance from budgets must be explained

> reporting of cash flow forecasts — all countries
must report the daily cash flow forecast for a roll-
ing three-month period. Subsequently, actual fig-
ures are continuously monitored by ISS's Group
Treasury department for deviations from the fore-
casted figures

> budgets and financial plans — all countries Must
prepare budgets and plans for the following finan-
cial year in a pre-defined process and format. Re-
gional management teams review the proposed
budgets and plans with the countries

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

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

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

> acquisitions and divestments — all acquisition and
divestment proposals must be presented in a pre-
defined acquisition or divestment report and valua-
tion model for approval. Board or Acquisition
Committee approval is required for large or strate-
gic acquisitions and divestments

INFORMATION AND REPORTING SYSTEMS

All countries use a standardised financial reporting
tool. Due to the decentralised structure, various ERP
platforms exist within the Group. However, the num-
ber of different ERP platforms is continuously being
reduced.

Information and communication systems to ensure
accounting and internal control compliance have been
established, including an Accounting Manual, Report-
ing Instructions, Budgeting Manual and other relevant
guidelines.

MONITORING

Every month the Group's subsidiaries report financial
information and comments on financial developments
to the Group Finance function. This information is
used to prepare Consolidated Financial Statements
and reports submitted to the Board and EGM. Finan-
cial reporting from the subsidiaries is controlled on a
monthly basis (see control activities).

The country management teams are responsible for

 

ANNUAL REPORT 2009 / Corporate Governance

26

 

enguring that the control environment in each operat-
ing country is sufficient to avoid material error in the
country's financial performance and financial position
reported for consolidation purposes. The regional
management teams provide governance of the coun-
try operations. In order to ensure that adequate inter-
nal control procedures are maintained locally, Group
Internal Audit visits the country organisations regu-
larly. The Group's internal auditors visits take place
according to a plan for the year approved by the Audit
Committee and in accordance with the control proce-
dures and standards defined in ISS's control manual.
The findings and conclusions of the visits, which in-
clude recommendations on how to improve the control
environment, are presented in reports addressed to
country and regional managements, representatives
of EGM and the external auditor. The Group's internal
auditors perform follow-up reviews to ensure that the
recommendations are implemented. The results of the
material internal audit visits are presented to the Audit
Committee, and the Audit Committee assesses the
results reported and uses this assessment in their as-
sessment of the general control environment and per-
formance and financial position when reviewing the
Internal Audit Plan for the coming 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 at
country level and at Group level in relation to proce-
dures and internal controls by exchanging internal au-
dit 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 consolidated financial statements and any
other long-form audit reports. Auditor reports are dis-
cussed in detail in the Audit Committee.

The Board reviews the Annual Report at a Board
meeting attended by the external auditor. The findings
of the external auditor and any major issues arising
during the course of the audit are discussed and key
accounting principles and audit judgements are re-
viewed.

 

ANNUAL REPORT 2009 / Corporate Governance

1004126EogSN18959

27

 

MANAGEMENT STATEMENT

COPENHAGEN, 31 MARCH 2010

The Board of Directors and the Managing Directors
have today discussed and approved the Annual Report
2009 of ISS Global A/S. The Annual Report 2009 has
been prepared in accordance with International 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 Consolidated Financial Statements
and Parent Company Financial Statements give a true
and fair view of the Group's and the Parent Company's
assets, liabilities and financial position at 31 December
2009 and of the results of the Group's and the Parent
Company's operations and cash flows for the financial
year 2009. Furthermore, in our opinion the Manage-
ment's review gives a fair view of the development and
performance of the Group's and the Parent Company's
activities and of the Group's and the Parent Com-
pany's financial position taken as a whole, together
with a description of the most significant risks and un-
certainties that the Group and the Parent Company

 

may face.
MANAGING-DIRECTORS
åd i ge sem - SZ7 ed nd
SE å f ne
Bjørn Raasteen Barbara Plucnårdensern
Group General Counsel Group Treasurer

   

BOARD OF DIRECTORS Å LL Vs, M
- LG då Z (7 '
Ø An « CSE rl

Jørgen Lingegaard Jef Gravenhoørst …— Jakob Stausholm

Chairman j

 

ANNUAL REPORT 2009 / Management Statement 28

 

INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF ISS

GLOBAL A/S

We have audited the Consolidated Financial State-
ments and Parent Company Financial Statements of
ISS Global A/S for the financial year 1 January - 31
December 2009 (pages 31-128). The Consolidated
Financial Statements and Parent Company Financial
Statements comprise the Income Statement, Cash
Flow Statement, Statement of Financial Position,
Statement of Comprehensive Income, Statement of
Changes in Equity and Notes to the Financial State-
ments for the Group as well as for the parent com-
pany. The Consolidated Financial Statements and
Parent Company Financial Statements have been
prepared in accordance with the International Finan-
cial Reporting Standards (IFRS) as adopted by the
EU and additional Danish disclosure requirements.

In addition to our audit, we have read the Manage-
ment's review, pages 4-27 and issued a statement in
this regard.

MANAGEMENT'S RESPONSIBILITY
Management is responsible for the preparation and
fair presentation of the Consolidated Financial State-
ments and Parent Company Financial Statements in
accordance with the International Financial Reporting
Standards (IFRS) as adopted by the EU and addi-
tional Danish disclosure requirements for Consoli-
dated Financial Statements and Parent Company Fi-
nancial Statements. This responsibility includes: de-
signing, implementing and maintaining internal control
relevant to the preparation and fair presentation of the
Consolidated Financial Statements and Parent Com-
pany Financial Statements that are free from material
misstatement, whether due to fraud or error; selecting
and using appropriate accounting policies; and mak-
ing accounting estimates that are reasonable in the
circumstances. Further, it is the responsibility of Man-
agement to prepare and issue a Management's re-
view that gives a fair review of the development in the
Group's and the Parent Company's activities and fi-
nancial matters, the resulis for the year and the
Group's and the Parent Company's financial position
as well as information about material risks and uncer-
tainties affecting the Group and the Parent Company.

AUDITOR'S RESPONSIBILITY

Qur responsibility is to express an opinion on the
Consolidated Financial Statements and Parent Com-
pany Financial Statements 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 as-
surance regarding whether the Consolidated Financial
Statements and Parent Company Financial State-
ments are free from material misstatement.

An audit involves performing procedures to obtain au-
dit evidence on the amounts and disclosures in the
Consolidated Financial Statements and Parent Com-

 
 
  
  

pany Financial Statements. The procedures selected
depend on the auditor's judgement, including the as-
sessment of the risks of material misstatement of the
Consolidated Financial Statements and Parent Com-
pany Financial Statements, whether due to fraud or
error. In making those risk assessments, the auditors
consider internal contro! relevant to the Company's
preparation and fair presentation of the Consolidated
Financial Statements and Parent Company Financial
Statements 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 Campany's internal control. An audit also in-
cludes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting
estimates made by management, as well as evaluat-
ing the overall presentation of the Consolidated Fi-
nancial Statements and Parent Company Financial
Statements.

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 Consolidated Financial Statements
and Parent Company Financial Statements give a frue
and fair view of the Group's and the Parent Com-
pany's assets, liabilities and financial position at 31
December 2009 and of the results of the Group's and
tne Parent Company's operations 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.

STATEMENT ON THE MANAGEMENT'S
REVIEW

Pursuant to the Danish Financial Statements Act, we
have read the Management's review, pages 4-27 in
the annual report. We have not performed any addi-
tional procedures in addition to the audit of the Con-
solidated Financial Statements and Parent Company
Financial Statements. On this basis, it is our opinion
that the information given in the Management's review
is consistent with the Consolidated Financial State-
ments and Parent Company Financial Statements.

KPMG
Statsautoriseret Revisionspartnerselskab

Copenhagen, 31 March 2010

DU USS Claus Kronbak

State Authorised
Public Accountant

g
tate Authorised
blic Accountant

 

ANNUAL REPORT 2009 / Independent Auditor's Report

1004126EogSN18960

 

 

CONSOLIDATED FINANCIAL STATEMENTS 2009
ISS GLOBAL A/S

 

1004126EogSN18961

31

 

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

1 January — 31 December. Amounts in DKK million

 

 

Note 2009 2008
3. Revenue 69,024 68,848
4,5. Staff costs (44,568) (43,963)
20. Cost of sales (6,044) (6,134)
6 Other operating expenses (13,325) (13,478)
14,16 Depreciation and amortisation ” (849) (855)
Operating profit before other items ? 4,238 4,418
7. Other income and expenses, net (540) (169)
Integration costs (46) (66)
Royalty (1,090) (1,084)
3. Operating profit ” 2,562 3,099
17. Share of result from associates 4 3
8. Net finance costs (1,584) (1,924)
Profit before tax and goodwill impairment/
amortisation of brands and customer contracts 982 1,178
9 Income taxes ? (480) (451)
Profit before goodwill impairment/
amortisation of brands and customer contracts 502 727
10, 14,15. Goodwill impairment and write-down (721) (414)
14. Amortisation of brands and customer contracts ” (554) (495)
9, 18 Income tax effect 179 140
Net profit/(loss) for the year (594) (42)
Attributable to:
Owners of ISS Global (612) (52)
Non-controlling interests 18 10
Net profit/(loss) for the year (594) (42)

1) 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.
3) Exeluding tax effect of Goodwill impairment and write-down and Amortisation of brands and customer contracts.
4 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 2009 / Consolidated Financial! Statements

32

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

1 January — 31 December. Amounts in DKK million

 

 

 

Note 2009 2008
Net profit/(loss) for the year (594) (42)
Other comprehensive income
Foreign exchange adj. of subsidiaries and non-controlling interests 63 (147)
35 Fair value adjustment of hedges, net (249) (184)
35 Fair value adjustment of hedges, net, transferred to Net finance costs 237 (104)
29  Actuarial gains/(losses) (45) (182)
29 Impact from asset ceiling 18 25
9 Tax regarding other comprehensive income 4 37
Other comprehensive income 28 (555)
Total comprehensive income for the year (566) (597)
Attributable to:
Owners' of ISS Global (584) (606)
Non-controlling interests 18 9
(566) (597)
ANNUAL REPORT 2009 / Consolidated Financial Statements
33

1004126EogSN18962

 

CONSOLIDATED STATEMENT OF CASH FLOWS

1 January — 31 December. Amounts in DKK million

 

 

Note 2009 2008
Operating profit before other items 4,238 4,418
14,16 Depreciation and amortisation 849 855
11. Changes in working capital 246 122
Changes in other provisions, pensions and similar obligations (50) (96)
Payments related to other income and expenses, net (353) (155)
Payments related to integration costs (58) (65)
23 Income taxes paid, net (311) (320)
Payments related to royalties 1,090 1,084)
Cash flow from operating activities 3,471 3,675
12. Acquisition of businesses (914) (2,095)
12. Divestment of businesses 22 272
13. Investments in intangible assets and property, plant and equipment, net (882) (705)
13. Investments in financial assets, net (43) 2
Cash flow from investing activities (1,817) (2,530)
Proceeds from borrowings 5,849 2,251
Repayment of borrowings (5,177) (225)
Interest paid, net (1,681) (1,762)
Payments (to)/from ISS Group companies, net (278) (421)
Dividends paid to shareholders - (525)
Non-controlling interests (14) (22)
Cash flow from financing activities (1,301) (704)
Total cash flow 353 441
Cash and cash equivalents at 1 January 2,951 2,974
Total cash flow 353 441
Foreign exchange adjustments 49 (64)
25. Cash and cash equivalents at 31 December 3,353 2,951

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

34

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December. Amounts in DKK million

 

 

Note 2009 2008
Assets
14,15. Intangible assets 25,358 25,154
16. Property, plant and equipment 1,992 2,262
17. Investments in associates 21 24
18. Deferred tax assets 432 309
19. Other financial assets 276 233
Total non-current assets 28,079 27,982
20. Inventories 303 264
21 Trade receivables 10,130 10,097
22 Contract work in progress 195 182
23 Tax receivables 308 233
24. Other receivables 1,047 737
25 Securities 97 86
25 Cash and cash equivalents 3,353 2,951
26  Assets held for sale 614 -
Total current assets 16,047 14,550
Total assets 44,126 42,532
Equity and liabilities
Total equity attributable to owners of ISS Global (632) (48)
Non-controlling interests 21 33
27 Total equity (611) (15)
28  Long-term debt 21,225 24,247
29 Pensions and similar obligations 837 834
18. Deferred tax liabilities 916 888
30 Other provisions 379 397
Total long-term liabilities 23,357 26,366
28  Short-term debt 7,166 2,603
Trade payables 2,597 2,803
23 Tax payables 303 123
31. Other liabilities 10,512 10,217
30 Other provisions 423 435
26. Liabilities related to assets held for sale 379 -
Total current liabilities 21,380 16,181
Total liabilities 44,737 42,547
Total equity and liabilities 44,126 42,532

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

1004126EogSN18963

 

 

Total changes in equity

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 31 December. Amounts in DKK million

 

2009
Equity at 1 January

Total comprehensive income for the year

Impact from acquired and divested
companies, net

Dividends paid

Total changes in equity

Equity at 31 December

2008
Equity at 1 January

Total comprehensive income for the year

Impact from acquired and divested
companies, net
Dividends paid

Attributable to owners of ISS Global

 

 

 

 

 

 

 

Equity at 31 December

Translation reserve

 

Non-

Share Retained Translation Hedging controlling Total
capital earnings reserve reserve Total interests equity
160 210 (288) (130) (48) 33 (15)
(635) 63 (12) (584) 18 (566)

- - - - - (16) (16)

- - - - - (14) (14)

- (635) 63 (12) (584) (12) (596)

160 (425) (225) (142) (632) 21 (611)

160 979 (142) 86 1,083 54 1,137

- (244) (146) (216) (606) 9 (597)

. ” ” ” ” (8) (8)

- (525) - - (525) (22) (547)
- (769) (146) (216) (1,131) (21) (1,152)
160 210 (288) (130) (48) 33 (15)

 

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements af foreign
subsidiaries/joint ventures and investments in associates as well as from the translation of løng-term balances which are considered
part of the investment in 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 after tax in fair value of cash flow hedging
instruments when the hedged transactions have not yet occurred.

Dividends

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

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

36

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Note Page
Accounting policies
1 Significant accounting policies 38
2 Critical accounting estimates and judgements 50
Income statement
3 Segment reporting 54
4 Staff costs 58
5 Share-based payments 59
6 Fees to auditors 60
7 Other income and expenses, net 60
8 Net finance costs 61
9 Income taxes 62
10 Goodwill impairment and write-down 63
Statement of cash flows
11 Changes in working capital 63
12 Acquisition and divestment of businesses 64
13 Investments in non-current assets 69
Statement of financial position
14 Intangible assets 70
15 Impairment tests 71
16 Property, plant and equipment 74
17 Investments in associates 74
18 Deferred tax 75
19 Other financial assets 77
20 Inventories 77
21 Trade receivables 77
22 Contract work in progress 78
23 Tax receivables and tax payables 79
24 Other receivables 79
25 Securities, cash and cash equivalents 80
26 Assets and Liabilities held for sale 80
27 Share capital 81
28 Borrowings 81
2g Pensions and similar obligations 84
30 Other provisions 88
31 Other liabilities 89
Other
32 Contingent liabilities 89
33 Financial risk management 91
34 Financial assets and liabilities 94
35 Derivatives 96
36 Related parties 98
37 Interests in joint ventures 100
38 Subsequent events 100
39 Subsidiaries, associates, joint ventures and SPEs 101
ANNUAL REPORT 2009 / Consolidated Financial Statements
37

1004126EogSN18964

 

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 2009 comprise ISS Global A/S
and its subsidiaries (together referred to as "the Group"), jointly controlled entities and associates.

STATEMENT OF COMPLIANCE

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and additional Danish disclosure requirements (class C large size) 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.

BASIS OF PREPARATION
The consolidated financial statements are presented in Danish kroner (DKK) (rounded to nearest DKK million), which is ISS Global
A!S's functional currency.

The consolidated 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.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements except for the changes as explained below in "Changes in accounting policies”.

CHANGES IN ACCOUNTING POLICIES
With effect from 1 January 2009 the Group has implemented:

» |AS 1 (revised 2007) "Presentation of Financial Statements”;

+ JAS 23 (revised 2007) "Borrowing Costs”;

» IFRS 2 "Share-based Payment: Vesting Conditions and Cancellations”;

+ Amendments to IAS 32 and IAS 1: "Puttable Financial Instruments and Obligations Arising on Liquidation”;

» Amendments to IFRS 1 and IAS 27: "Cost of an investment in a Subsidiary, Jointly Controlled Entity or Associate";

 

«+ Amendment to IERS 7: "Improving Disclosures about Financial Instruments";
» Parts of "Improvements to IFRSs May 2008”.

In 2009, IFRIC 15 "Agreement for the Construction of Real Estate" and IFRIC 16 "Hedges of Net Investments in a Foreign Operation"
have been approved with different effective dates in the EU than the corresponding effective dates under IASB. Consequently, the
Group has early adopted these with effect from 1 January 2009 so that the implementation follows the effective dates under IASB.

The adoption of these Standards and Interpretations did not affect the recognition and measurement. The new Standards and
Interpretations only resulted in changes to the presentation and disclosure in the notes. Comparative figures have been adjusted
accordingly.

IAS 1 "Presentation of Financial Statements" introduces the term total comprehensive income, which represents changes in equity
during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive
income may be presented in either a single statement of comprehensive income (effectively combining both the income statement
and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive
income. The Group has chosen the latter of the two alternatives. Furthermore, changes in equity resulting from transactions with
owners must be presented in a separate statement.

IAS 23 "Borrowing Costs” requires capitalisation of borrowing costs directly attributable to the acquisition, construction or production
of a qualifying asset as part of the cost of that asset. The Group does not have any qualifying assets and consequently the adoption
of IAS 23 did not impact the Group's consolidated financial statements.

BASIS OF CONSOLIDATION

The consolidated financial statements comprise the parent company ISS Global A/S and subsidiaries in which ISS Global A/S has
control of financial and operating policies in order to obtain a return or other benefits from its activities. Control is presumed to exist
when ISS Global A/S owns, directly or indirectly, more than 50% of the voting rights of an entity or otherwise has a controlling
interest.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
38

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Special purpose entities (SPEs) The Group has established a number of SPEs with the purpose of raising external funding to the
Group. The Group does not have any direct or indirect shareholdings in these entities. An SPE is consolidated if, based on an
evaluation of the substance of its relationship with the Group and the SPE's risk and rewards, the Group concludes that it controls the
SPE. SPESs controlled by the Group were established under terms that impøse strict limitations on the decision-making powers of the
SPEs' management and that result in the Group receiving the majority of the benefits related to the SPEs' operations and net assets,
being exposed to the majority of risks incident to the SPEs' activities, and retaining the majority of the residual or ownership risks
related to the SPEs or their assets.

Associates Entities in which the Group has a significant influence, but which it does not control, are considered associates.
Significant influence is presumed to exist when the Group owns directly or indirectly more than 20% of the voting rights but less than
50%. When assessing whether ISS Global A/S has control or significant influence, potential voting rights that are exercisable at the
reporting date are taken into account. Investments in associates are accounted for using the equity method.

Joint ventures The Group's interests in jointly controlled entities are regarded as joint ventures and are consolidated proportionally,
and the individual accounting entries are recognised in proportion to the ownership share.

A group chart is included on page 101.

The consolidated financial statements have been prepared as a consolidation of the financial statements of ISS Global A/S,
subsidiaries, SPEs and proportionally consolidated entities prepared according to the Group's accounting policies. On consolidation,
intra-group income and expenses, shareholdings, intra-group balances and dividends and realised and unrealised gains and losses on
intra-group transactions are eliminated. Unrealised gains on transactions with associates and proportionally consolidated entities are
eliminated in proportion to the Group's ownership share of the entity. Unrealised losses are eliminated in the same way as unrealised
gains, but only to the extent that impairment has not taken place.

Investments in subsidiaries and proportionally consolidated entities are set off against the proportionate share of the subsidiaries' fair
value of identifiable net assets, including recognised contingent liabilities, at the acquisition date.

The accounting items for subsidiaries are included in full in the consolidated financial statements. The non-controlling interest's share
of the net profit/loss for the year and of the equity of subsidiaries, which are not wholly owned are included in the Group's net
profit/loss and equity respectively, but is disclosed separately.

Business combinations Acquired businesses or entities formed during the year are recognised in the consolidated financial
statements from the date of acquisition or formation. Businesses which are divested or wound up are recognised in the consolidated
income statement until the date of divestment or winding-up. Comparative figures are not restated for businesses acquired, divested
or wound up.

In acquisitions where the Group obtains control of the acquired business the purchase method is used. The identifiable assets,
liabilities and contingent liabilities of acquired businesses are recognised in the statement of financial position at fair value at the
acquisition date. 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. Deferred tax related to fair value adjustments is recognised.

On initial recognition non-controlling interests are recognised in the consolidated financial statements at the proportionate share of
identifiable assets, liabilities and contingent liabilities of the acquired business.

The acquisition date is the date when the Group effectively obtains control of the acquired business.

Any excess of the cost of acquisition over the fair value of identifiable assets, liabilities and contingent liabilities acquired is recognised
as goodwill under intangible assets. Goodwill is not amortised but tested for impairment annually. The first impairment test is
performed no later than at the end of the acquisition year. Upon acquisition, goodwill is allocated to the cash-generating units, which
subsequently form the basis for the impairment test. Goodwill and fair value adjustments in connection with the acquisition of a foreign
entity with a functional currency other than the presentation currency used in the Group are treated as assets and liabilities belonging
to the foreign entity and translated into the foreign entity's functional currency at the exchange rate at the transaction date. Negative
differences (negative goodwill) are recognised in the income statement at the acquisition date.

The cost of a business combination comprises the fair value of the consideration agreed upon and costs directly attributable to the

acquisition. If parts of the consideration are conditional upon future events, these parts are included in the cost to the extent that the
events are probable and the consideration can be measured reliably.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
39

1004126EogSN18965

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

lf uncertainties regarding measurement of acquired identifiable assets, liabilities and contingent liabilities exist at the acquisition date,
initial recognition will take place on the basis of provisionally determined fair values. If identifiable assets, liabilities and contingent
liabilities are subsequently determined to have a different fair value at the acquisition date from that first assumed, goodwill is
adjusted up until 12 months after the acquisition. The effect of the adjustments is recognised in the opening balance of equity and the
comparative figures are restated accordingly. Subsequently, goodwill is only adjusted as a result of changes in estimates of
contingent considerations, except in cases of material error. However, subsequent realisation of the acquired entity's deferred tax
assets not recognised at the acquisition date will require recognition of the tax benefit in the income statement and simultaneous
write-down of the carrying amount of goodwill to the amount which would have been recognised if the deferred tax asset had been
recognised as an identifiable asset at the acquisition date.

Gains or losses on the divestment or winding-up of subsidiaries, associates or joint ventures are measured as the difference between
the sales or winding-up amount 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
ør wound up subsidiaries, associates or joint ventures recognised in equity are included in the income statement under Net finance
costs at the time of divestment or winding-up.

Foreign currency For each of the reporting entities in the Group, a functional currency is determined. The functional currency is the
primary currency used for the reporting entity's operations. Transactions denominated in currencies other than the functional
currency are considered transactions denominated in foreign currencies.

On initial recognition, transactions denominated in foreign currencies are translated to the functional currency at the exchange rates
at the transaction date. Foreign exchange differences arising between the exchange rates at the transaction date and at the date of
payment are recognised in the income statement under Net finance costs.

Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the
reporting date. The difference between the exchange rates at the reporting date and at the date at which the receivable or payable
arose or the exchange rate in the latest annual report is recognised in the income statement under Net finance costs.

On recognition in the consolidated financial statements of entities with a functional currency other than the presentation currency of
ISS Global A/S (DKK), the income statements and statements of cash flows are translated at the exchange rates at the transaction
date and the statements of financial position are translated at the exchange rates at the reporting date. An average exchange rate for
the month is used as the exchange rate at the transaction date to the extent that this does nat significantly deviate from the exchange
rate-at-the-transaction-date-Foreign-exchange-differences-arising-on-translation-of-the-opening-balance-of-equity-otf-foreign-entities-at
the exchange rates at the reporting date and on translation of the income statements from the exchange rates at the transaction date
to the exchange rates at the reporting date are recognised directly in equity under a separate translation reserve.

Foreign exchange adjustment of balances with foreign entities which are considered part of the investment in the entity is recognised
in the consolidated financial statements directly in equity. Foreign exchange gains and losses on the part af loans and derivative
financial instruments which are designated as hedges of investments in foreign entities with a functional currency different from ISS
Global A/S's and which effectively hedge against corresponding foreign exchange gains and losses on the investment in the entity
are also recognised directly in a separate translation reserve in equity.

On recognition in the consolidated financial statements of associates with a functional currency other than the presentation currency
of ISS Global A/S, the share of profit/loss for the year is translated at average exchange rates and the share of equity, including
goodwill, is translated at the exchange rates at the reporting date. Foreign exchange differences arising on the translation of the
share of the opening balance of equity of foreign associates at the exchange rates at the reporting date, and on translation of the
share of profit/oss for the year from average exchange rates to the exchange rates at the reporting date, are recognised directly in a
separate translation reserve in equity.

On complete or partial disposal of a foreign entity or on repayment of balances which constitute part of the net investment in the

foreign entity, the share of the cumulative amount of the exchange differences recognised directly in equity relating to that foreign
entity is recognised in the income statement under Net finance costs at the time of divestment or winding-up.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
40

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 reflect the Group's profitability most appropriately.

Revenue from rendering services is recognised in the income statement in proportion to the stage of completion of the transaction at
the reporting date. Revenue is recognised when the amount of revenue can be measured reliably, the recovery of the consideration is
probable, the stage of completion can be measured reliably and the costs incurred for the transaction and the costs to complete the
transaction can be.measured reliably.

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.

Contract revenue is recognised in the income statement in proportion to the stage of completion of the contract when the outcome af
the contract can be estimated reliably. Contract revenue includes the initial amount agreed in the contract plus any variations in the
contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured
reliably. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. When the
outcome of a contract can not be measured reliably, contract revenue is recognised only to the extent of contract costs incurred that
are likely to be recoverable. An expected loss on a contract is recognised immediately in the income statement,

Revenue is measured at fair value of the consideration received less VAT and duties as well as price and quantity discounts.
Government grants mainly comprise wage subventions and investment grants.

Grants that compensate the Group for expenses incurred are recognised directly in the income statement on a systematic basis in the
same periods in which the expenses are incurred.

Grants for acquisition of assets are recognised in the statement of financial position as a reduction of the cost of the asset and
transferred to the income statement on a systematic basis over the useful life 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, e.g. chemicals, cloths, uniforms etc.

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, legal assistance, realised losses and loss pravisions 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.

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, remeasurement of disposal
groups classified as held for sale, the winding-up of operations, disposals of property, restructurings and certain acquisition related
costs, etc.

Integration costs include 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 the associates' result after tax and non-controlling interests. Share of result

from associates is recognised in the income statement after elimination of the proportionate share of unrealised intra-group
profits/losses.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
41

1004126EogSN18966

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Net finance costs comprises interest income and expense, gains and losses on securities, foreign exchange gains and losses,
amortisation of financial assets and liabilities, including finance lease and unwinding of discount. Additionally realised and unrealised
gains and losses on fair value hedges (currency swaps) and derivatives which are not designated as hedging arrangements are
included.

Income taxes consists of current tax and changes in deferred tax. The tax expense relating to the profit oss for the year is recognised
in the income statement and the tax expense relating to items recognised directly in equity is recognised directly in equity.

ISS Global A/S is jointly taxed with all Danish resident subsidiaries. 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 includes impairment losses arising from impairment tests as well as write-down of goodwill in
connection with divestments and classification of disposal groups as held for sale.

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
and classification of disposal groups as held for sale.

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.

STATEMENT OF CASH FLOWS
The statement of cash flows shows the Group's cash flows from operating, investing and financing activities for the year, 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 liquidity effect of acquisition and divestment of businesses is shown separately under Cash flow from investing activities. The
statement of cash flows 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 is calculated using the indirect method and comprises Operating profit before other items

 

adjusted for hon-cash items, changes m working capital and provisions and payments regarding mcome taxes, other mcome and
expenses, integration costs and royalties.

Cash flow from investing activities comprises payments in connection with acquisition and divestment of businesses and the
purchase and sale of intangible assets, property, plant and equipment and other non-current assets as well as acquisition and disposal
of securities not recognised as cash and cash equivalents.

Acaquisition of assets by means of finance leases are treated as non-cash transactions.

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 non-controlling
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 flows relating to assets held under finance leases are recognised as payment of interest and repayment of debt.

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

Cash flows in currencies other than the functional currency are translated using average exchange rates unless these deviate
significantly from the exchange rate at the transaction date.

STATEMENT OF FINANCIAL POSITION

Goodwill is initially recognised in the statement of financial position at cost as described under "Business combinations”.
Subsequently, goodwill is measured at cost less accumulated impairment losses and write-downs. Goodwill is not amortised, but
tested for impairment annually and whenever there is an indication that goodwill may be impaired.

The carrying amount of goodwill is allocated to the Group's cash-generating units at the acquisition date. Identification of cash-
generating units is based on the management structure and internal financial control, i.e. generally equal to country level.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
42

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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.

A deferred tax liability is calculated at the local tax rate on the difference between the carrying amount 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 churn rate of the acquired portfolio using the declining
balance method. This churn 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,

A deferred tax liability is calculated at the local tax rate on the difference between the carrying amount 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.

Software and other intangible assets are measured at cost less accumulated amortisation and write-downs.

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

Amortisation is provided on a straight-line basis over the expected useful lives of the assets. The amortisation methods and useful
lives are reassessed annually. When changing the amortisation period due to a change in the useful life, the effect on the
amortisation is recognised prospectively as a change in accounting estimates.

Software and other intangible assets Expected useful life
Software Max. of 5-10 years
Other intangible assets Max. of 5-10 years

Property, plant and equipment is measured at cost less accumulated depreciation and write-down.

Cost of assets comprises the purchase price and any costs directly attributable to bringing the asset to the location and condition
necessary for it to operate in the manner intended. The net present value of estimated liabilities related to dismantling and removing
the asset and restoring the site on which the asset is located is added to the cost of the asset to the extent that this cost is recognised
as a provision.

The cost of assets held under finance leases is stated at the lower of fair value of the asset and the net present value of future
minimum lease payments. When calculating the net present value, the interest rate implicit in the lease or an approximated rate is
applied as the discount rate.

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

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
43

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Property, plant and equipment, including assets held under finance leases are depreciated on a straight-line basis over the expected
useful lives of the assets. The expected useful lives are as follows:

Tangible assets Expected useful life
Buildings 20-40 years
Leasehold improvements (the lease term) 8-12 years
Plant and equipment 3-10 years

Land is not depreciated.

Depreciation is calculated over the depreciable amount, which is the cost of an asset less its residual value. The residual value is
determined at the acquisition date and reassessed annually. If the residual value exceeds the carrying amount depreciation is
discontinued.

When changing the depreciation period or the residual value, the effect on the depreciation is recognised prospectively as a change in
accounting estimates.

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.

Investments in associates are recognised in accordance with the equity method and measured at the proportionate share of the
entities' net asset values calculated in accordance with the Group's accounting policies minus or plus the proportionate share of
unrealised intra-group profits and losses plus the carrying amount of goodwill.

Investments in associates with a negative net asset value are measured at zero. If the Group has a legal or constructive obligation to
cover a deficit in the associate, the deficit is recognised under provisions.

Receivables from associates are measured at amortised cost. A provision is made for doubtful debt.

Other-financial-assets-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 Other 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.

Impairment of non-current assets Goodwill and brands with an indefinite useful life are subject to annual impairment tests, initially
before the end of the acquisition year.

The carrying amount of goodwill is tested for impairment together with the other non-current assets in the cash-generating unit to
which goodwill is allocated and written down to the recoverable amount through the income statement if the carrying amount is higher.
The recoverable amount is generally calculated as the present value of the expected future cash flows (value in use) from the cash-
generating unit to which goodwill is allocated. Impairment of goodwill is recognised in a separate line item in the income statement.

Deferred tax assets are subject to impairment tests annually and recognised only to the extent that it is probable that they will be
utilised.

The carrying amount of other non-current assets is tested annually for indications of impairment. If such an indication exists, the
recoverable amount of the asset is determined. The recoverable amount is the higher of the fair value of the asset less anticipated
costs of disposal and its value in use. The value in use is calculated as the present value of expected future cash flows from the asset
or the cash-generating unit to which the asset belongs.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable
amount. Impairment losses are recognised in the income statement.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses are only reversed if there has
been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation,
if no impairment loss had been recognised.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
44

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Inventories 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
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 and is determined taking into account
marketability, obsolescence and development in expected sales price.

Receivables are measured at amortised cost less a provision for doubtful debt. A provision for doubtful debt is recognised when
objective evidence indicates that a receivable or a portfolio of receivables is impaired. Objective evidence of impairment can include
default or delinguency of a debtor, restructuring of an amount due to the Group on terms that would not otherwise be considered or
indications that a debtor will enter bankruptcy.

The Group considers evidence of impairment at both a specific receivable and portfolio level. All individually significant receivables
are assessed for specific impairment. Receivables, that are found not to be specifically impaired, are collectively assessed for
impairment on portfolio level by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of
loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual
losses are likely to be greater or less than suggested by historical trends.

Provision for doubtful debt is calculated as the difference between the carrying amount of the receivables and the realisable value,
including the expected net realisable value of any collateral received, Provisions and realised losses during the year are recognised
under Other operating expenses.

Contract work in progress is measured at the contract revenue of the work completed less progress billings and anticipated losses.

The contract revenue is calculated based on the stage of completion at the reporting date and the total contract revenue to be
received for each individual contract. The stage of completion is determined on the basis of an assessment of the work performed,
which is measured as the proportion of contract costs incurred for work performed on each individual contract relative to the total
estimated contract costs.

When it is probable that the total contract costs will exceed the total contract revenue, the anticipated loss on the contract is
immediately recognised as an expense and a provision.

When the outcome of a contract cannot be determined reliably, the realisable value is measured as the contract costs incurred that
are likely to be recovered.

Where the realisable value of work performed exceeds progress billings and anticipated losses, the excess is recognised under
Contract work in progress. If progress billings and anticipated losses exceed the realisable value of a construction contract, the deficit
is recognised under Other liabilities.

Prepayments from customers are recognised under Other liabilities.
Costs relating to sales work and securing contracts are recognised in the income statement as incurred.

Securities that are designated as fair value through the income statement are measured at fair value at the reporting date, with any
resulting gains or losses recognised in the income statement.

Equity

Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of financial
statements of foreign subsidiaries/joint ventures and investments in associates as well as from the translation of long-term balances
which are considered part of the investment in subsidiaries/joint ventures, loans in foreign currency and derivatives hedging net
investments in foreign subsidiaries/joint ventures.

On complete or partial disposal of net investments in foreign subsidiaries, joint ventures and associates, the foreign exchange
adjustments are recognised in the income statement.

Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change after tax in the fair value of cash
flow hedging instruments which fulfil the criteria for hedging of future cash flows, when the hedged transactions have not yet occurred.

Treasury shares Proceeds related to the acquisition or disposal of treasury shares are recognised directly in equity.
continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
45

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Dividends proposed are recognised as a liability at the date when they are adopted at the Annual General Meeting (declaration date).
Interim dividends are recognised as a liability at the date when the decision to pay interim dividend is made.

Retirement benefit obligations and similar obligations The Group has entered into retirement benefit schemes and similar
arrangements with the majority of the Group's employees.

Contributions to defined contribution plans are recognised in the income statement in the period to which they relate. Any contributions
outstanding are recognised in the statement of financial position as Other liabilities.

For defined benefit plans an annual actuarial calculation (the Projected Unit Credit Method) is made of the present value of future
benefits payable under the plan. The present value is determined on the basis of assumptions about the future development in
variables such as salary levels, interest rates, inflation and mortality. The present value is determined only for benefits earned by
employees from their employment with the Group. The actuarial present value less the fair value of any plan assets is recognised in the
statement of financial position under Pensions and similar obligations.

Pension costs for the year are recognised in the income statement on the basis of actuarial estimates and financial expectations at the
beginning of the year. Differences between the expected development in pension assets and liabilities and the realised amounts at the
end of the year are designated actuarial gains or losses and are recognised directly in equity.

If changes in benefits relating to services rendered by employees in previous years result in changes in the actuarial present value, the
changes are recøgnised as historical costs. Historical costs are recognised immediately if employees have already earned the changed
benefits. If employees have not earned the benefits, the historical costs are recognised in the income statement over the period in
which the changed benefits are earned by the employees.

lf a pension plan constitutes a net asset, the asset is only recognised to the extent that it represents future refunds from the plan, or it
will lead to reductions in future contributions to the plan.

Interest on defined benefit plans and the expected return on plan assets are recognised under Staff costs.

Other long-term employee benefits are recognised similarly based on an actuarial calculation. All actuarial gains and losses are
recognised in the income statement immediately under Staff costs. Other long-term employee benefits comprise jubilee benefits, long-

 

service or sabbatical leave etc.

Share-based payments The value of services received in exchange for granted warrants is measured at the fair value of the these
warrants.

The fair value of equity-settled programmes is measured at grant date and recognised in the income statement under Other income
and expenses, net over the vesting period with a corresponding increase in equity.

The fair value of the warrants granted is measured using the Black-Scholes option pricing mødel based on the terms and conditions on
which they were granted. Service and non-market vesting conditions are not taken into account when estimating the fair value, but are
considered when estimating the number of warrants expected to vest.

At each reporting date, the Group revises the estimate of number of warrants expected to vest. The impact of this revision, if any, is
recognised in the income statement, and a corresponding adjustment is made to equity over the remaining vesting period. Accordingly,
total recognition is based on the number of warrants ultimately vested. Adjustments relating to prior years are included in the income
statement in the year of adjustment.

Current tax receivable/payable and deferred tax Current tax payable and receivable is recognised in the statement of financial
position as tax computed on the taxable income for the year, adjusted for tax on the taxable income for previous years and for tax paid
on account.

Deferred tax is measured in accordance with the liability method and comprises all temporary differences between accounting and tax
values of assets and liabilities. However, deferred tax is not recognised on temporary differences relating to goodwill which is not
deductible for tax purposes and on office premises and other items where temporary differences, apart from business combinations,
arose at the time of acquisition without affecting either profit/loss for the year or taxable income. Where alternative taxation rules can
be applied to determine the tax base, deferred tax is measured according to management's intended use of the asset or settlement of
the liability, respectively.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
46

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Deferred tax assets, including the tax base of tax losses carried forward, are recognised under non-current assets at the expected
value of their utilisation: either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal
tax entity and jurisdiction.

Deferred tax assets and liabilities are offset if the Group has a legal right to offset current tax assets and tax liabilities or intends to
settle current tax assets and tax liabilities on a net basis or to realise the assets and settle the liabilities simultaneously.

Deferred tax is adjusted for elimination of unrealised intra-group profits and losses.

Deferred tax is measured according to the taxation rules and tax rates in the respective countries applicable at the reporting date
when the deferred tax is expected to be realised as current tax. The change in deferred tax as a result of changes in tax rates is
recognised in the income statement.

Other provisions comprise obligations concerning legal cases, self-insurance, acquisition and integration costs, contingent liabilities
related to acquisitions, dismantling costs, and various other operational issues. Provisions are recognised if the Group, as a result of
a past event has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. The amount recognised as a provision is management's best estimate of
the amount required to settle the obligation.

When measuring provisions, the costs required to settle the obligation are discounted if this significantly impacts the measurement of
the liability. The entity's average borrowing rate is used as discount rate. The unwinding of discount is recognised under Net finance
costs.

Restructuring costs are recognised under Other provisions when a detailed, formal restructuring plan is announced to the affected
parties on or before the reporting date, On acquisition of businesses, restructuring provisions in the acquiree are only included in
goodwill when the acquiree has a restructuring liability at the acquisition date.

A provision for aneraus contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than
the unavoidable costs of meeting the obligations under the contract.

When the Group has a legal obligation to dismantle ør remove an asset or restore a site or rented facilities when vacated, a provision
is recognised corresponding to the present value of expected future costs. The present value of the obligation is included in the cost
of the relevant tangible asset and depreciated accordingly.

Financial liabilities are recognised at the date of borrowing at the amount of proceeds received less related transaction costs paid.
Subsequently, financial liabilities are measured at amortised cost using the effective interest method. Any difference between the
proceeds initially received and the nominal value is recognised in the income statement under Net finance costs over the term of the
loan.

Financial liabilities also include the capitalised residual obligation on finance leases, which are measured at amortised cost.
Leasing Før accounting purposes lease obligations are divided into finance leases and operating leases.

A finance lease is a lease that transfers substantially all risks and rewards incident to ownership to the lessee. Other leases are
classified as operating leases.

The accounting treatment of assets held under a finance lease and the related obligation are described under Property, plant and
equipment and Financial liabilities, respectively.

Payments made under operating leases are recognised on a straight-line basis over the term of the lease.

Derivative financial instruments are recognised in the statement of financial position on the transaction date and measured at fair
value. Positive and negative fair values of derivative financial instruments are included in other receivables and payables,
respectively. Positive and negative values are only offset when the Group has the legal right and the intention to settle several
financial instruments net. Fair values of derivative financial instruments are calculated on the basis of current market data and
according to generally accepted valuation methods.

Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a fair value hedge of
recognised assets and liabilities are recognised in the income statement together with changes in the value of the hedged asset or
liability as far as the hedged portion is concerned. Hedging of future cash flows in accordance with a firm commitment, except for
foreign currency hedges, is treated as a fair value hedge of a recognised asset or liability.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

47

1004126EogSN18969

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Changes in the portion of the fair value of derivative financial instruments designated as and qualifying as a cash flow hedge, and
which effectively hedges changes in the value of the hedged item, are recognised in equity in a separate hedging reserve until the
hedged transaction is realised. At this time, gains or losses concerning such hedging transactions are transferred from equity and
recognised under the same line item as the hedged item.

For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income
statement under Net finance costs.

Assets held for sale comprises non-current assets and disposal groups held for sale. A disposal group is defined as a group of
assets to be disposed of by sale or otherwise together as a group in a single transaction. Liabilities relating to assets held for sale are
those directly associated with the assets that will be transferred in the transaction. 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 in accordance with a formal
plan rather than through continuing use.

Immediately before classification as held for sale, the assets or dispoøsal groups are remeasured in accordance with the Group's
accounting policies. Assets held for sale are subsequently 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, and subsequent gains and losses on remeasurement are recognised in the
income statement. Gains and losses are disclosed in the notes.

Assets held for sale and related liabilities are presented in separate lines in the statement of financial position and the main elements
are specified in the notes to the consolidated financial statements. ”

Presentation of discontinued operations 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 statement of financial position, and the cash flows from operating, investing and financing activities are disciosed in
the notes to the consolidated 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 cultures.

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 IFRS 8 purposes, 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.

When 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 NOT YET IMPLEMENTED
IASB has published the following new standards, amendments to existing standards and interpretations that are not yet mandatory for
the preparation of the consolidated financial statements of the Group for the year ended 31 December 2009:

+ IFRS 3 (revised) "Business Combinations”;

+ Amendments to IAS 27 "Consolidated and Separate Financial Statements”;

+ Amendments to JAS 32 "Financial Instruments: Presentation”;

+ Amendments to JAS 39 "Financial Instruments: Recognition and Measurement”;
+ Amendments to IFRIC 9 "Reassessment of Embedded Derivatives”;

+ IFRIC 17 "Distributions of Non-cash Assets to Owners”;

+ IFRIC 18 "Transfers of Assets from Customers”;

+ Parts of "Improvements to IFRSs May 2008".

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
48

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

In addition the following standards are published by IASB, but not yet adopted by the EU:

- Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards”;

» Amendments to IFRS 2 "Share-based Payment”;

+ Improvements to |FERS (April 2009);

+ IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments”;

-+ Amendments to IFRIC 14 "1AS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”;
+ Revised IFRS 9 "Financial Instruments (replacement of IAS 39) project”;

« Revised IAS 24 "Related Party Disclosures”,

The Group expects to adopt the new standards and interpretations when they become mandatory. 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 following are expected to be most relevant to the
Group's operations:

- Contingent consideration will be measured at fair value at the acquisition date, with subsequent changes therein recognised in the
income statement
+ Acquisition 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 non-controlling interest of acquired
businesses, However, the possibility will be evaluated case by case on basis of the circumstances in the individual business
combinations.

IFRS 3 (Revised) becomes mandatory for the Group's 2010 consolidated financial statements and will be applied prospectively, and
will therefore have 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 2009 / Consolidated Financial Statements
49

1004126EogSN18970

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

The preparation of the consolidated financial statements of the Group requires management to make judgements, accounting
estimates and assumptions that affect the application af accounting policies and the reported amounts of the Group's assets and
liabilities, income and expenses.

The most significant accounting estimates and judgements are presented below.

ESTIMATION UNCERTAINTY
Determination of the carrying amount of certain assets and liabilities requires estimates and assumptions concerning future events.

The estimates and assumptions are based on historical experience and other factors which management assesses to be reliable, but
which by their nature are associated with uncertainty and unpredictability. These assumptions may prove incomplete or incorrect, and
unexpected events or circumstances may arise. Further, the Group is exposed to a number of risks and uncertainties as a result of its
operating, investing and financing activities. These risks may lead to actual results differing from estimates, both positively and
negatively. Specific risks for the Group are described in the notes.

Assumptions about the future and estimation uncertainty on the reporting date are described in the notes where there is a significant
risk of changes that could result in material adjustments to the carrying amount of assets or liabilities within the next financial year.

The international financial markets showed extraordinary fluctuations in both 2008 and 2009, including fluctuations in interest and
currency exchange rates and with a derived effect on the general economic situation. Consequently, estimates and assessments
have been given special attention to ensure that one-off effects which are not expected to exist in the long term do not affect
estimates and assessed factors including discount rates and expectations to the future.

Management believes the following are the areas involving significant accounting estimates in the preparation of the consolidated
financial statements of the Group:

Business combinations When acquiring businesses the purchase method is applied for recognition of assets, liabilities and
contingent liabilities of the acquiree. The most significant assets acquired generally comprise goodwill, brands, customer contract
portfolios and related customer relationships and trade receivables.

Generally there are uncertainties related to the identification of assets, liabilities and contingent liabilities as well as to the
measurement of their fair value at the acquisition date. As no active market exists for the majority of acquired assets, liabilities and

 

contingent habilities, In particular mm respect of acquired intangible assets, management makes estimates of the fair value.
Determination of assets, liabilities and contingent liabilities may be subject to subsequent adjustment within 12 months.

The unallocated purchase price (positive amounts) is recognised as goodwill, which is allocated to the Group's cash-generating units.
Management makes estimates of cash-generating units and the allocation of goodwill.

Considering the uncertainties associated with the determination of the cash flows of acquired cash-generating units, it is the
assessment of management that the allocation made is based on documented estimates. The difference between the carrying
amounts in the acquired entities and the fair value of identifiable assets and liabilities is specified in note 12, Acquisition and
divestment of businesses.

Brands In business combinations, the fair value of the brands acquired and their expected useful lives are assessed based on the
brands' market position, expected long-term developments in the relevant markets and the brands' profitability.

Generally, the Group's strategy is based on the ISS brand, which means that all acquired brands are either immediately converted to
the ISS brand or co-branded with the ISS brand for a longer or shorter period of time. Whether the conversion is effected immediately
or implemented over a period of time depends on the assessment of the fair value of the acquired brand, i.e. whether the acquired
brand is expected to separately generate future economic benefits.

When an acquired brand is assessed to separately generate future economic benefits, measurement of the fair value 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 local 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 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.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
50

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

 

Customer contracts In business combinations the fair value of customer contracts is based on an evaluation of the conditions
relating to the acquired contract portfolio and related customer relationships in terms of local market conditions, terms and conditions
of the underlying contracts and historical experience relating to churn rates.

Measurement is based on a discounted cash flow model based on key assumptions about the estimated split of the acquired revenue
in business segments and the related churn 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 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.

Impairment test Goocwill, brands and customer contracts are tested for impairment at least annually or whenever there is an
indication that the intangibles may be impaired. In performing the impairment test management makes an assessment of whether the
cash generating unit to which the intangibles relate will be able to generate positive net cash flows sufficient to support the value of
intangibles and other net assets of the entity.

The recoverable amount of each cash-generating unit is determined on the basis of its value-in-use. The value-in-use is established
using certain key assumptions. The key assumptions are revenue growth, operating margin (before other items) and discount rate.

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 cash-
generating units operate.

Uncertainties reflecting historical performance and possible variations in the amount or timing of the future cash flow are 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 cash-generating unit.

The Group's impairment tests are presented in note 15, Impairment tests.

Defined benefit plans and similar obligations When calculating the net present value of the retirement benefit obligation a number
of significant actuarial assumptions are made, including discount rates, expected return on plan assets, expected increases in future
wages, salary and retirement benefits. All the assumptions are assessed at the reporting date. The range and weighted average for
these assumptions are disclosed in note 29, Pensions and similar obligations.

The value of the Group's defined benefit plans and other long-term employee benefits are based on valuations from external
actuaries.

In certain countries, the Group participates in multi-employer pension schemes, which by their nature are defined benefit plans. The
funds, however, are currently not able to provide the necessary information in order for the Group to account for the schemes as such.
The pension schemes are therefore accounted for as defined contribution plans. There is a risk that the plans are not sufficiently
funded. However, information on surplus or deficit in the schemes is not available.

Provisions and contingencies Management assesses provisions, contingent assets and liabilities and the likely outcome of pending
or probable lawsuits etc. on an ongoing basis. The outcome depends on future events that are by nature uncertain. In assessing the
likely outcome of lawsuits and tax disputes etc., management bases its assessment on external legal assistance and established
precedents.

Provisions are disclosed in note 30, Other provisions and contingent liabilities are disclosed in note 32, Contingent liabilities.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

51

1004126EogSN18971

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

 

Deferred tax assets The recognition of deferred tax assets regarding tax losses carried forward is supported by expected future
profitability in the foreseeable future. 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 legislation. This judgement is made on the reporting date based
on budgets and estimates.

The Group's tax assets are presented in note 18, Deferred tax.

Receivables are measured at amortised cost less a provision for doubtful debt. Provisions for doubtful debt are based on
management's assessment of the customer's ability to make the required payments. Management performs analysis of impairment at
both specific receivable and portfolio level.

All individually significant receivables are assessed for specific impairment. Receivables, that are found not to be specifically
impaired, are collectively assessed for impairment on portfolio level by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of
loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual
losses are likely to be greater or less than suggested by historical trends.

Receivables are disclosed in note 21, Trade receivables.

Assets held for sale mainly comprises disposal groups and is measured at the lower of the carrying amount and fair value less costs
to sell. Consequently, management makes estimates of the fair value of the disposal group. Depending on the nature of the disposal
group's activity, assets and liabilities, the estimated fair value may be associated with uncertainty and possibly adjusted subsequently.
Management considers impairment both on initial classification as held for sale and subsequently. The estimation uncertainty relating
to impairment is described above.

Assets held for sale are disclosed in note 26, Assets and Liabilities held for sale.
Divestments When divesting businesses management makes estimates of the final sales price, Additionally, management assesses

the appropriate level of provisions to cover claims from purchasers or other parties in connection with divestments and representation
and warranties given in relation to divestments.

 

JUDGEMENT IN RELATION TO APPLICATION OF ACCOUNTING POLICIES
In applying the Group's accounting policies, management makes judgements which may significantly influence the amounts
recognised in the consolidated financial statements.

On business combinations and establishing new entities assessment is made in order to classify the acquired business as a
subsidiary, joint venture or associate. The assessment is made on basis of the agreement entered into on the acquisition of
ownership interest or voting rights in the entity etc.

The classification is significant, as the recognition of proportionally consolidated joint ventures impacts the consolidated financial
statements differently than full consolidation of subsidiaries or recognition of associates recognised according to the equity method.

Revenue is primarily generated by rendering of services or from construction contracts. Management makes judgements to
distinguish between revenue generated from rendering of service and revenue from construction contracts for the purpose of
classification of revenue either in accordance with IAS 18 "Revenue” or IAS 11 "Construction Contracts".

The classification is significant, as the recognition of revenue and related receivables in accordance with the above standards impacts
the consolidated financial statements differently.

Other income and expenses, net The use of Other income and expenses, net entails management judgement in the separation
from the normal ordinary operations of the Group. When using Other income and expenses, net it is crucial that these constitute items
that can not be attributed directly to the Group's ordinary operating activities. Other income and expenses, net, comprises both
recurring and non-recurring items.

Management carefully evaluates each item to ensure the correct distinction between the Group's ordinary operating activities and
Other income and expenses, net.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

52

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

 

Integration costs include costs regarding the acquiring ISS company and the acquired business that are of no value for the
continuing business and are an unavoidable consequence of the integration. The use of Integration costs entails management
judgement in the separation of these costs as direct costs arising from the integration, which are those that are both necessary and
required to perform the integration and not associated with the ongoing activities in the Group.

Management carefully evaluates each item to ensure the correct distinction between the Group's ordinary operating activities and
Integration costs.

Leases The Group has entered into a number of leases and for each lease agreement an assessment is made as to whether the
lease is a finance lease or an operating lease. The Group primarily enters into operating lease agreements. Operating leases consist
of leases and rentals of properties, vehicles (primarily cars), production equipment and other equipment.

Financial instruments When entering into financial instruments, management assesses whether the instrument is an effective hedge
of recognised assets and liabilities and expected future cash flows. The hedge effectiveness of recognised hedge instruments is
assessed on a monthly basis and any ineffectiveness is recognised in the income statement.

Assets held for sale Non-current assets and disposal groups are classified as held for sale when the carrying amount of the assets
or disposal groups are expected to primarily be recovered through a sale within 12 months in accordance with a formal plan rather
than through continuing use.

Management makes judgement to make the correct classification. The classification is significant as the classification as held for sale
changes the measurement basis of the non-current assets and disposal groups as well as the presentation in the statement of
financial position.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
53

1004126EogSN18972

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. 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, Support Services, 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 cultures.

The segment reporting is prepared in a manner consistent with the Group's internal 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 North reportable
DKK million Nordic Europe Europe Asia America America Pacific  segments
2009
Income statement
Revenue ” 16,367 38,632 1,561 4,120 2,077 2,515 3,768 69,040
Depreciation and amortisation I (237) (444) (23) (58) (23) (15) (35) (835)
Operating profit before other items ? 1,219 2,056 106 308 131 134 259 4,213
Other income and expenses, net 52 (567) (1) (4) - (20) (540)
Integration costs (4) (31) (1) (5) (1) (2) (2) (46)
Royalty (255) (610) (24) (66) (33) (40) (62) (1,090)
Operating profit ? 1,012 848 80 233 97 92 175 2,537
Goodwill impairment and write-down (172) (549) - (0) - - - (721)
Amortisation of brands and customer contracts (81) (317) (15) (42) (15) (46) (38) (554)
Statement of financial position
Total assets 9,951 25,384 1,138 2,757 1,354 1,544 3,012 45,140
Additions excluding acquisitions/divestments 319 526 17 88 41 12 58 1,061
Additions from acquisitions/divestments (196) 252 3 336 (10) 84 45 514
Additions to non-current assets ” 123 778 20 424 31 96 103 1,575
Total liabilities 9,088 19,626 703. 1,561 1,085 1,108 2,294 35,465

 

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

disclosed.

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

customer contracts.

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

ANNUAL REPORT 2009 / Consolidated Financial Statements

continues

54

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. SEGMENT REPORTING (CONTINUED)

 

 

 

 

 

 

 

 

 

Total

Western Eastern Latin North reportable
DKK million Nordic Europe Europe Asia America America 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 3) 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 2) 896 1,950 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)
Statement of financial position
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

 

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

disclosed.
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.

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, South Africa, 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, Taiwan and Thailand
Latin America: Argentina, Brazil, Chile, Mexico and Uruguay
North America: Canada and the USA
Pacific: Australia and New Zealand
continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
55

1004126EogSN18973

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. SEGMENT REPORTING (CONTINUED)

 

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

DKK million 2009 2008
Cleaning 36,070 36,547
Support Services 4,981 4,146
Property Services 14,503 15,410
Catering 6,201 5,727
Security 4,672 4,344
Facility Management 2,597 2,674
Total revenue 69,024 68,848

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

 

 

 

 

2009 2008

Non-current Non-current
DKK million Revenue assets Revenue assets
France 8,879 4,564 9,336 5,290
United Kingdom 6,948 1,726 7,565 1,677
Norway 5,246 1,430 5,683 1,342
Spain 4,534 1,807 4,603 1,934
Denmark (country of domicile) 3,731 1,148 3,702 1,174
Finland 3,678 2,295 3,517 2,317
Sweden 3,536 1,398 3,920 1,469
Netherlands 3,420 1,900 37540 2014
Other countries ? 29,052 11,379 26,982 10,459
Total 69,024 27,647 68,848 27,673

 

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 2009 / Consolidated Financial Statements
56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. SEGMENT REPORTING (CONTINUED)

Reconciliations

 

 

DKK million 2009 2008
Revenue
Revenue for reportable segments 69,040 68,853
Elimination of internal revenue (16) (5)
Revenue according to the income statement 69,024 68,848
Operating profit
Operating profit for reportable segments 2,537 3,027
Unallocated corporate costs 25 72
Operating profit according to the income statement 2,562 3,099
Unallocated:
Share of result from associates 4 3
Net finance costs (1,584) (1,924)
Profit before tax and goodwill impairment/amortisation of brands
and customer contracts according to the income statement 982 1,178
Total assets
Total assets for reportable segments 45,140 42,762
Elimination of internal assets ” (28,681) (18,155)
Unallocated assets 27,667 17,925
Total assets according to the statement of financial position 44,126 42,532
Additiøns to non-current assets ?”
Additions to non-current assets for reportable segments 1,575 3,382
Unallocated additions to non-current assets 13 33
Total additions to non-current assets according to the statement of financial position 1,588 3,415
Total liabilities
Total liabilities for reportable segments 35,465 33,473
Elimination of internal liabilities ” (28,254) (17,755)
Unallocated liabilities 37,526 26,829
Total liabilities according to the statement of financial position 44,737 42,547
1 Eliminations mainly relate to intra-group balances.
2) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
ANNUAL REPORT 2009 / Consolidated Financial Statements
57

1004126EogSN18974

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4. STAFF COSTS

DKK million 2009 2008
Wages and salaries 34,903 33,995
Pension costs, defined benefit plans 150 126
Pension costs, defined contribution plans 1,573 1,492
Social charges and other costs 7,942 8,350
Staff costs 44,568 43,963
Average number of employees 482,427 455,846

Remuneration to the Board of Directors, the Managing Directors and key management personnel!

The management team of the Graup formally consists of the Board of Directors and 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. Consequently, key management personnel of the Group comprises the management team of ISS A/S, i.e. the Board of
Directors, the Executive Group Management and Corporate Senior Officers of ISS A/S.

Remuneration to key management personnel is paid by ISS A/S and is presented below. The Board of Directors and the Managing
Directors of ISS Global A/S are not remunerated separately for their directorships in ISS Global A/S and are therefore not included in
the table.

 

 

 

 

 

2009 2008

Executive Corporate Executive Corporate

Board of Group Senior Board of Group Senior

Directors Management — Officers Directors Management Officers

DKK thousand ofISS A/S  ofISS A/S of ISS A/S ofISSA/S  ofiISSA/S of iSS A/S
Salaries (including benefits) and fees 1,969 20,027 37,036 1,856 18,102 26,413
Bonus 5,203 7,409 5148 8,743
Severance payments ” - - 7,091 - - 11,965
Share-based payments ” - 233 2,021 - 1,976 2,805
1,969 25,963 53,557 1,856 25,226 49,896

 

The Board of Directors of ISS A/S received remuneration for duties performed in ISS Global A/S and other companies within the ISS
Group. The remuneration is a fixed annual amount. The Board of Directors does not participate in the warrant programme described
in note 5, Share-based payments. However, the members have been offered to invest in a mix of shares and warrants as part of the
Directors Participation Programme described in note 36, Related parties.

The members of the Executive Group Management of ISS A/S and Corporate Senior Officers of ISS A/S received remuneration for
duties performed in ISS Global A/S and other companies within the ISS Group. The remuneration consists of a combination of a fixed
salary and, for most of these, a bonus, which in 2009 is capped at 60% of their fixed salary. Furthermore, the Executive Group
Management and certain Corporate Senior Officers participate in the warrant programme as well as the Management Participation
Programme described in note 5, Share-based payments.

Corporate Senior Officers comprises members of Group Management of ISS A/S, other than members of the Executive Group
Management of ISS A/S. Members of Group Management have authority and responsibility for planning, implementing and
controlling the Group's activities and are together with the Board of Directors of ISS A/S considered as the Group's key management
personnel.

The members of the Executive Group Management of ISS A/S and Corporate Senior Officers of ISS A/S are, in the event of
termination, entitled to severance payment of between 12 and 18 months salary including benefits.

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

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
58

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. 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 the Executive Group Management ” and a number of senior officers ? of the Group 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.l ("FS Invest”), ISS Global A/S's ultimate parent. As part of the initial programme - in addition to the investments -
warrants in FS Invest were granted free of charge to the Executive Group Management and a number of Corporate Officers 3) 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 36, Related
parties. The warrants granted to the Executive Group Management and a number of Corporate 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, Å 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 entitle 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.

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 an the assumptions at the time of grant and exercise restrictions.

The warrants are accounted for as equity-settled transactions. The fair value at grant date of these warrants will be expensed in the
income statement over the vesting period from July 2006 to June 2014, In 2009, DKK 3 million were recognised under Other income
and expenses, net in ISS A/S in respect of warrants granted (2008: DKK 5 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, 90% of the warrants vested can be exercised. The proportion of exercisable warrants decreases in
intervals down to 10% at a share price of 2,039. At share prices below 2,039, no warrants are exercisable.

Warrants outstanding at 31 December 2009 and movements during 2008 and 2009 were:

Executive Group

 

 

 

 

Management ” Corporate Officers ?” Total

Series A
Number of warrants Series A Series B Total Series A Series B Total Series A Series B and B
Qutstanding at 1 January 2008 -… 125,424 125,424 29,852  376,736  406,588 29,852  502,160  532,012
Warrants settled during 2008 -… (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 2009 - - - -… (67,536) (67,536) -… (67,536) (67,536)
Outstanding at 31 December 2009 -… 57,888 57,888 29,852 241,664  271,516 29,852  299,552  329,404

 

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

” The Executive Group Management comprises the Executive Group Management of ISS A/S.

2) Senior officers of the Group comprises Corporate Senior Officers of ISS A/S (members of Group Management of ISS A/S other than members of the
Executive Group Management) and other Corporate Officers of ISS A/S as well as certain members of Country Management of each country.

3 Corporate Officers of the Group comprises Corporate Seniar Officers of ISS A/S (members of Group Management of ISS A/S other than members of the
Executive Group Management) and other Corporate Officers of ISS A/S.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
59

1004126EogSN18975

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

6. FEES TO AUDITORS

DKK million 2009 2008
KPMG

Audit fees 38 40
Other assurance services 7 4
Tax and VAT advisory services 8 9
Other services 9 14
Total KPMG 62 67

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

 

7. OTHER INCOME AND EXPENSES, NET

 

 

DKK million 2009 2008
Gain on divestments 102 35
Gain on sale of properties 8 0
Other 6 18
Other income 116 53
Restructuring projects (426) (131)
Redundancy and severance payments relating to senior management changes (37) (9)
Loss on divestments (19) (22)
Write-down regarding businesses classified as held for sale (159) -
Close-down and subsequent surveillance of landfill site in France ” (28)
Adjustment-to-accounting-estimate-in-Belgium (4-7)
Consolidation projects in the United Kingdom - (4)
Other (15) (11)
Other expenses (656) (222)
Other income and expenses, net (540) (169)

Other income
Gain on divestments in 2009 related to the sale of the non-core laundry activities in Sweden and Norway.

Other expenses

Restructuring projects in 2009 related to costs for projects in France, Germany, Spain, Australia, Belgium, Finland, the United
Kingdom and Denmark. In France a re-organisation of the organisational setup covering several business units as well as head office
was initiated amounting to DKK 212 million. In Germany a re-organisation of a business unit including close-down of two divisions and
efficiency improvements was initiated amounting to DKK 84 million. In Spain a close-down of certain project-based activities within the
Building Maintenance division was completed amounting to DKK 27 million. In Australia a consolidation of office locations within New
South Wales was initiated. In Finland and the United Kingdom close-down of certain project-based activities across certain business
units were completed, and in Belgium a margin improvement project covering primarily head office was completed. In Denmark a
merger of the route-based back office organisation into the site-based organisation was completed.

Restructuring projects in 2008 related 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 organisational setup following the
divestments of various activities was carried out amounting to DKK 31 million.

Generally, restructuring projects include primarily redundancy payments, termination of leaseholds and relocation costs.

continues

ANNUAL REPORT 2009 / Consolidated Financia! Statements
60

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. OTHER INCOME AND EXPENSES, NET (CONTINUED)

 

Loss on divestments in 2009 primarily related to the non-strategic landscaping activities in Norway and Sweden as well as the call
centre activities in the Netherlands. In 2008, losses mainly related to the remaining part of the non-core energy activities in France and
non-strategic landscaping activities in Austria.

Write-down regarding businesses classified as held for sale mainly related to write-down of net assets (excluding goodwill, brands,
customer contracts and the related tax effect) of certain non-core activities in France, which are expected to be sold and consequently
have been classified as held for sale at 31 December 2009.

Close-down and subsequent surveillance of landfill site in France in 2008 related 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 well as an unfavourable
climatic and geological evolution.

Adjustment to accounting estimate in Belgium in 2008 related to adjustment of prior years estimate regarding work in progress.

 

8. NET FINANCE COSTS

 

DKK million 2009 2008
Interest income etc. 81 153
Interest income from companies within the ISS Group 0 -
Amortisation of gain from settlement of interest rate swaps 60 87
Gain related to partiai redemption of EMTNs 52 -
Foreign exchange gain 86 62
Financial income 279 302
Interest expenses etc. ” (1,614) (1,772)
Interest expenses to companies within the ISS Group (95) (152)
Amortisation of financing fees (87) (33)
Foreign exchange loss (67) (269)
Financial expenses (1,863) (2,226)
Net finance costs (1,584) (1,924)

1 In all material aspects related to long-term debt.

Amortisation of gain from settlement of interest rate swaps

The interest rate swaps hedging ISS Global's Medium Term Notes (EMTNSs) 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
EMTNS. A part of the gain is referred to the partially redeemed EMTNs and was recognised in the income statement in connection
with the partial redemption in July 2009. The remaining unrecognised net gain of DKK 30 million at 31 December 2009 (DKK 144
million at 31 December 2008) will be recognised in the income statement in the financial years 2010 - 2014 corresponding to the
remaining term of the EMTNs, see note 28, Borrowings.

Gain related to partial redemption of EMTNs

In July 2009, the EMTNs due in 2010 were partially refinanced, when EUR 500 million of the outstanding EUR 850 million were
redeemed. The partial redemption resulted in a net gain of DKK 52 million stemming from the relative share of the above mentioned
capitalised gain on settled interest rate swaps net of capitalised financing fees.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
61

1004126EogSN18976

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

9. INCOME TAXES
DKK million 2009 2008
Current tax regarding profit before impairment/amortisation of intangibles ” 483 304
Deferred tax regarding profit before impairment/amortisation of intangibles ” (22) 184
Tax on profit before impairment/amortisation of intangibles ” 461 488
Adjustments relating to prior years, net 19 (37)
Income taxes 480 451
Tax effect of impairment/amortisation of intangibles ” (179) (140)
Total tax recognised in the income statement 301 311
Income tax recognised in other comprehensive income
2009 2008

DKK million Before tax Tax Netoftax Before tax Tax Net of tax
Foreign exchange adjustment of subsidiaries

and non-controlling interests 63 ” 63 (147) - (147)
Fair value adjustment of hedges, net (249) 62 (187) (184) 46 (138)
Fair value adjustment of hedges, net,

transferred to Net finance costs 237 (59) 178 (104) 26 (78)
Limitation to interest deduction in Denmark - (3) (3) - (72) (72)
Actuarial gains/(losses) (45) 4 (41) (182) 37 (145)
Impact from asset ceiling 18 - 18 25 - 25
Total income tax recognised in

other comprehensive Income 24 Å 28 (592) 37 (555)
Computation of effective tax rate 2009 2008
Statutory income tax rate in Denmark 25.0 % 25.0 %
Foreign tax rate differential, net (1.5)% 1.7 %

23.5 % 26.7 %

Non-tax deductible expenses less non-taxable income 5.3 % 2.2 %
Adjustments relating to prior years, net 1.9 % (3.2)%
Change of valuation of net tax assets 9.0 % 7.3 %
Effect of changes in tax rates (0.2)% (0.7)%
Other taxes ? 21% 4.2 %
Limitation to interest deduction in Denmark 7.3 % 1.8%
Effective tax rate (excluding effect from impairment/amortisation of intangibles) ” 48.9 % 38.3 %

1 In this context intangibles comprise the value of goodwill, brands and customer contracts.

2) Other taxes mainly comprise withholding tax.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

62

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. GOODWILL IMPAIRMENT AND WRITE-DOWN

 

DKK million 2009 2008
Impairment 100 315
Write-down 621 99
Goodwill impairment and write-down 721 414

Goodwill impairment of DKK 100 million in 2009 related to ISS Germany while goodwill impairment of DKK 315 million in 2008 related
to ISS Germany of DKK 250 million and ISS Italy of DKK 65 million. For further description see note 15, Impairment tests.

Write-down of DKK 621 million in 2009 consisted of DKK 212 million regarding divestment of a number of businesses and of DKK
409 million regarding classification of certain businesses as held for sale on 31 December 2009. The write-down on completed
divestments of DKK 212 million mainly related to the sale of ISS's non-strategic landscaping business in Sweden of DKK 101 million,
the sale of the call centre activities in the Netherlands of DKK 69 million and the pest control activities in the United Kingdom of DKK
42 million. The write-down on businesses classified as held for sale on 31 December 2009 of DKK 409 million mainly related to the
expected sale of certain non-core activities in France, Spain and Norway. The write-down of DKK 99 million in 2008 mainly related 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.

 

11. CHANGES IN WORKING CAPITAL

 

DKK million
Changes in inventories

Changes in receivables
Changes in payables

Changes in working capital

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

1004126FogSN18977

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES

 

Acquisition of businesses

Acquisitions in 2009

The Group made 22 acquisitions during 2009 (66 during 2008). The total purchase price amounted to DKK 680 million (DKK 2,139
million in 2008). The total annual revenue of the acquired businesses (approximate figures extracted from unaudited financial
information) is estimated at DKK 997 million (DKK 3,887 million in 2008) 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 Recognised
DKK million carrying year  Prioryear values on
2009 amounts acquisitions acquisitions acquisition
Customer contracts 0 165 - 165
Other non-current assets 18 5 9 32
Trade receivables 124 (2) (15) 107
Other current assets 33 1 0 34
Other provisions (1) (8) (20) (29)
Pensions, deferred tax liabilities and non-controlling interests 7 (36) (4) (33)
Long-term debt (2) (1) - (3)
Short-term debt (16) - (2) (18)
Other current liabilities (113) (10) (15) (138)
Net identifiable assets and liabilities 50 114 (47) 117
Goodwill 66 589
Acquisition costs, net of tax 2 (26)
Purchase price 21 680
Cash and cash equivalents in acquired businesses (15)
Cash purchase price 665
Changes in deferred payments and earn-outs 223
Changes in prepaid purchase price (3)
Acquisition costs paid, net of tax 29
Tatal payments regarding acquisition of businesses 914

In 2009, 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 2009, certain opening balances have only been
provisionally determined. Consequently, fair value adjustments may be recognised against goodwill within 12 months of the
acquisition date.

The purchase price of prior years' acquisitions increased by DKK 21 million, mainly due to revised estimates relating to earn-outs for
the acquisitions of Inbuilt in Singapore of DKK 74 million and Sardunya in Turkey of DKK 36 million, offset mainly by Carlos Rocha in
Spain of DKK 21 million, Loghis Logistica in Brazil of DKK 13 million, Ryvola in the Czech Republic of DKK 10 million, Hunt/Ondes in
Belgium of DKK 8 million and Gastronomia in Spain of DKK 7 million. Furthermore, net assets of prior years' acquisitions were
reduced by DKK 47 million relating to various acquisitions. Accordingly, goodwill has been adjusted.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
64

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

Acquisition of businesses (continued)
Acquisition costs mainly comprise fees to lawyers, auditors and consultants (paid in relation to the acquisition).

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 IS5 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.

The 22 acquisitions ” made by the Group during 2009 are listed below:

Consolidated

 

 

 

inthe income  Percentage Annual Number of
Company Country Service type statement interest — revenue? employees ?
Industriservice Danmark A/S Denmark Cleaning January 100% 7 13
Vaasan LVI-Huolto Finland Property January 100% 14 13
Mettek Hizmet Turkey Cleaning, Support, Security January 100% 137 2,178
Central Property Services USA Cleaning, Security January Activities 182 917
Aplytec Spain Property January 100% 13 24
Soumala Finland Cleaning February 100% 19 105
Agria-Ved Hungary Cleaning, Security February 100% 7 25
Karmak italy Cleaning February 100% 100 412
ECO Servis Bosnia Cleaning February 100% 6 89
Sunparking Indonesia Security February Activities 109 5,000
Cleansweep Australia Property March 100% 11 24
Paprika Corporate Services India Catering March Activities 5 149
Andrawina Indonesia Gatering March Activities 68 1,130
Grossjung Germany Property April 100% 4 6
Barassa Switzerland Property May Activities 9 7
Godrej HiCare India Property May 100% 61 722
Securiguard Denmark Security May Activities 24 60
Chubb Security Ireland Security May 100% 134 635
Adelaide Sweeping Services Australia Property May Activities 5 8
Shielas Corporate Catering India Catering June Activities 5 100
WHF Property & Mine Maintenance. Australia Property August Activities 40 45
Best Indonesia Security November Activities 37 2,872
Total 997 14,534
1) Includes all acquisitions completed prior to 1 January 2010.
2) Approximate figures based on information available at the time of acquisition extracted from unaudited financial information.
continues
ANNUAL REPORT 2009 / Consolidated Financial Statements
65

1004126EogSN18978

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES

 

Acquisition of businesses (continued)

Acquisitions in 2008

The acquisitions made in 2008 (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 Recognised
DKK million carrying year  Prioryear values on
2008 amounts acquisitions acquisitions 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 non-controlling interests (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
1 Cash and cash equivalents in acquired businesses (118)
Cash purchase price 2,021
Changes in deferred payments and earn-outs ' 24
Changes in prepaid purchase price (11)
Acauisition 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.

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

Acquisition costs mainly comprise fees to lawyers, auditors and consultants (paid in relation to the acquisition).

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 2009 / Consolidated Financial Statements
66

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Divestment of businesses

The Group made 8 divestments during 2009 (12 during 2008). The total sales price amounted to DKK 240 million (DKK 316 million in
2008). The total annual revenue of the divested businesses (approximate figures extracted from unaudited financial information) is
estimated at DKK 640 million (DKK 1,281 million in 2008) 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 2009 2008
Goodwill (34) (15)
Customer contracts (44) (6)
Other non-current assets (63) (10)
Trade receivables (51) (43)
Other current assets (11) (20)
Assets held for sale ” (550)

Other provisions 0
Pensions, deferred tax liabilities and non-controlling interests 8 12
Long-term debt 5
Short-term debt 2

Other current liabilities 45 20
Liabilities related to assets held for sale ” - 331

Net identifiable assets and liabilities (143) (277)
Loss/(gain) on divestment of businesses, net (83) (13)
Divestment costs, net of tax (14) (26)
Sales price (240) (316)
Cash and cash equivalents in divested businesses 5 12
Cash sales price (235) (304)
Changes in receivable sales price 200 1

Divestment costs paid, net of tax 13 31

Net proceeds regarding divestment of businesses (22) (272)

1) The amount in 2008 related to ISS Energie in France which at 31 December 2007 was recognised as held for sale and subsequently divested in January
2008.

The 8 divestments ? made by the Group during 2009 are listed below:
Excluded from

 

 

the income Percentage Annual Number of
Company/activity Country Service type statement interest revenue? — employees ?
Asker Norway Property January Activities 31 40
Base Care Ltd. New Zealand Properiy June Activities 2 5
Landscaping Sweden Property duly Activities 328 325
Shun Tak Hong Kong Cleaning August 50% 13 162
Pest Control Services United Kingdom — Property October Activities 22 70
Contact Centres Netherlands Support October 100% 117 650
Laundry Services Norway/Sweden Cleaning December Activities 100 120
FS South Italy Cleaning December Activities 27 177
Total 640 1,549

2) Includes all divestments completed prior to 1 January 2010.
3) Approximate figures based on information available at the time of divestment extracted from unaudited financial information.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
67

1004126EogSN18979

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

 

Pro forma revenue and operating profit before other items

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 2009 2008
Pro forma revenue

Revenue recognised in the income statement 69,024 68,848
Acaquisitions 184 1,641

Revenue adjusted for acquisitions 69,208 70,489
Divestments (403) (230)
Pro forma revenue 68,805 70,259

Pro forma operating profit before other items

Operating profit before other items recognised in the income statement 4,238 4,418
Acquisitions 19 113
Operating profit before other items adjusted for acquisitions 4,257 4,531
Divestments (5) (0)
Pro forma operating profit before other items 4,252 4,531

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. The estimates are based on unaudited financial information.

 

 

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. This information does not represent the results the Group
would have achieved had the acquisitions and divestments 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 før 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 2009 / Consolidated Financial Statements
68

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. ACQUISITION AND DIVESTMENT OF BUSINESSES (CONTINUED)

Acquisitions and divestments subsequent to 31 December 2009
The 2 divestments made by the Group in the period 1 January to 28 February 2010 are listed below. On 31 December 2009 the
businesses were classified as held for sale. No acquisitions were completed in the period.

Excluded from

 

 

the income Percentage Annual Number of
Company/activity Country Service type statement interest — revenue” employees”
Industriservice Norway Property March 100% 163 254
Refrigeration Spain Property March Activities 156 163
Divestments 319 417

 

In accordance with usual Group procedures, divestment balances are prepared during the first months following the divestment.
Consequently, the final divestment balances are not available for divestments completed from 1 January to 28 February 2010.

1) Approximate figures based on unaudited financial information available at the time of divestment.

 

13. INVESTMENTS IN NON-CURRENT ASSETS

 

DKK million 2009 2008
Purchase of intangible assets and property, plant and equipment (988) (920)
Sale of intangible assets and property, plant and equipment 106 215
Investments in intangible assets and property, plant and equipment, net ” (882) (705)
Purchase of financial assets (15) (4)
Sale of financial assets 6 8
Changes in financial receivables (34) (6)
Investments in financial assets, net (43) (2)

” Excluding goodwill, brands and customer contracts as well as additions related to assets under finance leases.

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
69

1004126EogSN18980

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

14. INTANGIBLE ASSETS
Software
and other
Customer — intangible
DKK million Goodwill Brands contracts assets Total
2009
Cost at 1 January 22,471 10 4,577 662 27,720
Foreign exchange adjustments 703 1 183 22 909
Additiaons 595 - - 121 716
Additions from acquired companies, net (34) - 78 (5) 39
Disposals (641) - (99) (32) (772)
Transfer to Assets held for sale (15) - (89) (12) (116)
Cost at 31 December 23,079 11 4,650 756 28,496
Impairment, write-down and amortisation at 1 January (729) (3) (1,438) (396) (2,566)
Foreign exchange adjustments (8) - (57) (8) (73)
Amortisation - (1) (479) (90) (570)
Amortisation from acquired companies, net - - 46 2 48
Impairment (100) - - - (100)
Write-down ” (621) - (68) - (689)
Disposals 641 - 99 29 769
Transfer to Assets held for sale - - 35 8 43
Impairment, write-down and amortisation
at 31 December (817) (4) (1,862) (455) (3,138)
Carrying amount at 31 December 22,262 7 2,788 301 25,358
2008
Cost at 1 January 22,103 10 4,183 564 26,860
Foreign exchange adjustments (1,036) Q (238) (27) (1,301)
-Additions 17518: = = 120 1638
Additions from acquired companies, net (15) - 634 27 646
Disposals (99) - (2) (37) (138)
Transfer from Property, plant and equipment - - - 15 15
Cost at 31 December 22,471 10 4,577 662 27,720
Impairment, write-down and amortisation at 1 January (414) (1) (1,028) (358) (1,801)
Foreign exchange adjustments 0 (0) 72 13 85
Amortisation - (2) (487) (80) (569)
Amortisation from acquired companies, net - - 3 - 3
Impairment (315) - - - (315)
Write-down (99) - - - (99)
Disposals 99 - 2 31 132
Transter from Property, plant and equipment - - - (2) (2)
Impairment, write-down and amortisation
at 31 December (729) (3) (1,438) (396) (2,566)
Carrying amount at 31 December 21,742 7 3,139 266 25,154

 

” Write-down of customer contracts was mainly related to a write-down of DKK 37 million related to non-core activities in France which were classified

as held for sale on 31 December 2009. Write-down of goodwill is described in note 10, Goodwill impairment and write-down.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

70

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15, IMPAIRMENT TESTS

Impairment test procedure

The Group performs impairment tests on intangibles ” annually and whenever there is an indication that intangibles may be impaired.
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 lowest level of cash-generating units (CGU) to which the carrying
amount of intangibles can be allocated and monitored 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 caoperation 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.

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 (before other items) 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 (before other items). 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.

As a company based in Europe, the Group assumes the long-term market equity risk premium to be 4.35%, 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.

Impairment test results

The carrying amount of intangibles and the key assumptions ? used in the impairment testing as per 31 December 2009 are
presented below for each CGU representing more than 3% of the carrying amount of intangibles or where the recoverable amount is
close to the carrying amount of intangibles. No impairment losses were identified as per 31 December 2009.

The impairment tests as per 31 May 2009 resulted in recognition of impairment losses of DKK 100 million related to ISS Germany.
The impairment losses resulted from declining market conditions within certain business activities in which ISS operates, especially
the industrial segments, as well as a slight increase in the discount rate applied for ISS Germany. The impairment tests for ISS
Germany as per 31 May 2009 was based on a business plan prepared by local management. As per 31 December 2009 the business
plan has been evaluated and updated as part of the annual impairment testing. No additional impairment losses were identified.

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-looking 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 2009 / Consolidated Financial Statements

71

1004126EogSN18981

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. IMPAIRMENT TESTS (CONTINUED)

 

2009

France
Finland
Australia
Netherlands
Spain

United Kingdom
USA
Belgium
Norway
Switzerland
Denmark
Sweden
Germany
New Zealand
Italy
Philippines
Other

Total carrying amount at
31 December 2009

Carrying amount (DKK million)

Applied expected
long-term rate

Applied discount rate

 

 

 

Customer Total in- Discount rate, Discount rate,
Goodwill Brands contracts tangibles” Growth Margin? net of tax pre tax
4,066 - 168 4,234 3.0% 6.2% 8.8% 12.0%
1,890 - 157 2,047 3.0% 7.9% 9.1% 11.4%
1,581 - 255 1,836 3.0% 6.6% 11.4% 15.4%
1,763 - 40 1,803 3.0% 6.5% 9,6% 12.0%
1,381 - 292 1,673 3.0% 6.4% 9.8% 13.0%
1,357 - 210 1,567 3.0% 6.8% 9.4% 12.1%
917 1 293 1,211 3.0% 6.0% 8.8% 12.7%
1,075 - 117 1,192 3.0% 6.7% 8.9% 12.2%
1,018 - 144 1,162 3.0% 7.4% 10.2% 13.3%
934 - 66 1,000 3.0% 7.6% 8.1% 9,7%
876 - 47 923 3.0% 7.2% 9.8% 12.3%
814 - 58 872 3.0% 6.8% 9.5% 12.1%
653 5 116 774 3.0% 4.4% 9,8% 12.9%
161 - 41 202 3.0% 6.4% 11.5% 15.5%
152 - 24 176 3.0% 7.5% 10.0% 18.8%
28 - 2 30 3.0% 4.7% 13.6% 18.0%
3,596 1 758 4,355 - - - -
22,262 7 2,788 25,057

 

Carrying amount (DKK million)

Applied expected
long-term rate

Applied discount rate

 

 

 

 

 

 

 

Customer Total in- Discount rate, Discount rate,
2008 Goodwill Brands contracts  tangibles "Growth Mårgin ” 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%
Netherlands 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% 71% 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%
Brazil 137 - 37 174 5.0% 5.7% 15.9% 22.4%
Italy 120 - 12 132 3.0% 9.0% 10.2% 19.7%
Mexico 83 - 22 105 4.0% 6.5% 14.2% 18.6%
Other 3,050 - 754 3,804 - - - -
Total carrying amount at

31 December 2008 21,742 7 3,139 24,888
" In this context intangibles cover the value of goodwill, brands and customer contracts resulting from the acquisition of companies.
2) Based on Operating profit before other items.
continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

72

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. IMPAIRMENT TESTS (CONTINUED)

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.

 

 

 

 

 

 

Growth Margin ” Discount rate, net of tax
Applied Applied
expected expected
long-term Allowed  long-term Allowed Applied Allowed
2009 rate decrease rate decrease rate increase
France 3.0% 1.0% 6.2% 0.9% 8.8% 0.8%
Finland 3.0% >3.0% 7.9% >3.0% 9.1% >3.0%
Australia 3.0% 1.0% 6,6% 0.8% 11.4% 1.1%
Netherlands 3.0% >3.0% 6.5% 2.9% 9.,6% >3.0%
Spain 3.0% 1.2% 6.4% 1.0% 9.8% 0.9%
United Kingdom 3.0% >3.0% 6.8% >3.0% 9.4% >3.0%
USA 3.0% 0.7% 6.0% 0.7% 8.8% 0.8%
Belgium 3.0% >3.0% 6.7% >3.0% 8.9% >3.0%
Norway 3.0% >3.0% 7.4% >3.0% 10.2% >3.0%
Switzerland 3.0% >3.0% 7.6% >3.0% 8.1% >3.0%
Denmark 3.0% >3.0% 7.2% >3.0% 9.8% >3.0%
Sweden 3.0% >3.0% 6,8% >3.0% 9.5% >3.0%
Germany 3.0% 0.0% 4.4% 0.0% 9.8% 0.0%
New Zealand 3.0% 0.8% 6.4% 0.6% 11.5% 0.6%
Italy 3.0% 0.5% 7.5% 0.6% 10.0% 0.4%
Philippines 3.0% 0.1% 4.7% 0.0% 13.6% 0.1%
Growth Margin ” Discount rate, net of 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%
Netherlands 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%
Brazil 5.0% 0.3% 5.7% 0.2% 15.9% 0.2%
Italy 3.0% 0.1% 9.0% 0.2% 10.2% 0.1%
Mexico 4.0% 0.5% 6.5% 0.3% 14.2% 0.4%
1) Based on Operating profit before other items.
ANNUAL REPORT 2009 / Consolidated Financial Statements 79

1004126EogSN18982

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

2009 2008
Landand  Plantand Land and Plant and
DKK million buildings equipment Total buildings equipment Total
Cost at 1 January 344 6,386 6,730 325 6,318 6,643
Foreign exchange adjustments 3 214 217 (8) (313) (321)
Additions ” 68 885 953 65 898 963
Additions from acquired companies, net (6) (114) (120) 8 163 171
Disposals (11) (717) (728) (38) (673) (711)
Transfers ? (237) (520) (757) (8) (7) (15)
Cost at 31 December 161 6,134 6,295 344 6,386 6,730
Depreciation at 1 January (106) (4,362) (4,468) (122) (4,314) (4,436)
Foreign exchange adjustments 1 (153) (152) 2 256 258
Depreciation (14) (751) (765) (18) (763) (781)
Write-downs (92) (67) (159) - - -
Depreciation from acquired companies, net 2 72 74 (1) (99) (100)
Disposals 3 625 628 31 558 589
Transfers ? 150 389 539 2 0 2
Depreciation at 31 December (56) (4,247) (4,303) (106) (4,362) (4,468)
Carrying amount at 31 December 105 1,887 1,992 238 2,024 2,262
Hereof assets held under finance leases - 177 177 - 182 182

 

Land and buildings with a carrying amount of DKK 0 million (DKK 5 million in 2008) have been provided as collateral for mortgage

debt of DKK 0 million (DKK 0 million in 2008). 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 32, Contingent liabilities.

" In 2009, additions included assets held under finance leases of DKK 114 million (2008: DKK 155 million).
2) In 2009, DKK 218 million, net was transferred to Assets held for sale. In 2008, DKK 13 million, net was transferred to Intangible assets.

 

17. INVESTMENTS IN ASSOCIATES

 

DKK million 2009 2008
Cost at 1 January 17 20
Foreign exchange adjustments 1 (3)
Disposals (0) (0)
Transfer to Assets held for sale (6) -
Cost at 31 December 12 17
Revaluation at 1 January 7 8
Foreign exchange adjustments 1 (0)
Net result for the year 4 3
Dividends received (5) (4)
Disposals (0) 0
Transfer to Assets held for sale 2 -
Revaluation at 31 December 9 7
Carrying amount at 31 December 21 24
continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
74

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. INVESTMENTS IN ASSOCIATES (CONTINUED)

 

 

 

 

 

 

 

 

 

 

 

 

DKK million The Group's share
Operating Net Owner- Net
2009 Country  Revenue profit result Assets Liabilities ship % Equity result
NSB Trafikservice AS Norway 70 2 1 35 30 45 2 1
ISS Industriservice AB Sweden 238 4 1 105 74 48 15 1
Other associates - 121 12 9 19 14 - 4 2
429 18 11 159 118 21 4
Goodwill at 31 December 2009 - -
Carrying amount at 31 December 2009 21 4
DKK million The Group's share
Operating Net Owner-
2008 Country  Revenue profit result Assets Liabilities ship % Equity Net result
NSB Trafikservice AS Norway 32 2 31 26 45 2 1
ISS Industriservice AB Sweden 280 11 6 119 88 48 15 3
Other associates - 151 0 (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
18. DEFERRED TAX
DKK million 2009 2008
Deferred tax liabilities/(assets), net at 1 January 579 521
Foreign exchange adjustments 41 (20)
Additions from acquired companies, net 17 71
Transfer to Assets held for sale 52 -
Tax on other comprehensive income (4) (37)
Tax on profit before impairment/amortisation of intangibles ” (22) 184
Tax effect of impairment/amortisation of intangibles ” (179) (140)
Deferred tax liabilities/(assets), net at 31 December 484 579
Recognised in the statement of financial position as follows:
Deferred tax liabilities 916 888
Deferred tax assets (432) (309)
Deferred tax liabilities/(assets), net 484 579
1 In this context intangibles comprise the value of goodwill, brands and customer contracis.
continues
ANNUAL REPORT 2009 / Consolidated Financial Statements
75

1004126EogSN18983

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. DEFERRED TAX (CONTINUED)

 

Deferred tax specification

 

 

 

2009 2008

Deferred tax  Deferred tax  Deferred tax Deferred tax
DKK million assets liabilities assets liabilities
Tax losses carried forward 333 - 252 -
Goodwill 59 301 47 265
Brands - 2 - 2
Customer contracts - 698 - 804
Property, plant and equipment 122 171 85 110
Other provisions 152 - 171 -
Issued bonds - (22) 47 -
Set-off within legal tax units and jurisdictions (234) (234) (293) (293)
Deferred tax 432 916 309 888

 

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:

 

 

 

 

2009 2008

Recog- Unrecog- Recog- Unrecog-
DKK. million. Tatal nised nised Total nised nised
Germany 297 57 240 254 58 196
Denmark 113 111 2 4 4 -
France 61 61 - 8 - 8
Brazil 51 4 47 39 2 37
Belgium 30 19 11 22 17 5
Israel 15 3 12 10 3 7
Austria 9 - 9 2 - 2
USA 8 8 - 22 19 3
Argentina 4 2 2 3 - 3
Hong Kong 3 1 2 2 1 1
Greece 2 1 1 1 - 1
New Zealand 1 1 - 3 - 3
Italy 1 - 2 - 2
Total 327 268

The unrecognised tax losses can be carried forward indefinitely in the individual countries except for the USA (20 years) and
Argentina, Greece and Italy (5 years). 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 legislation.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

76

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19. OTHER FINANCIAL. ASSETS

DKK million 2009 2008
Costs related to PPP (Public Private Partnerships)/PF! (Private Finance Initiative) contracts 7 34
Regulatory long-term loans 54 47
Deposits 152 97
Other 63 55
Other financial assets 276 233

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

 

 

 

 

20. INVENTORIES

DKK million 2009 2008
Raw materials and supplies 136 102
Work in progress 0 15
Finished goods 167 147
Inventories 303 264
Inventories expensed 6,044 6,134
21. TRADE RECEIVABLES

DKK million 2009 2008
Trade receivables (gross) 10,371 10,325
Provision for doubtful debts (241) (228)
Trade receivables 10,130 10,097

The ageing of trade receivables at 31 December was:

Not past due 8,018 7,793
Past due 1 to 60 days 1,600 1,814
Past due 61 to 180 days 402 407
Past due 181 to 360 days 89 66
More than 360 days 21 17
Trade receivables 10,130 10,097

The Group's exposure to credit risk and losses related to individual customers is disclosed in note 33, Financial risk management.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
77

1004126EogSN18984

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

21. TRADE RECEIVABLES (CONTINUED)

 

DKK million

Movements in the provision for doubtful debts during the year was:
Provision for doubtful debts at 1 January

Foreign exchange adjustments

Additions from acquired businesses, net

Provisions for the year

Provisions reversed

Amounits written off as uncollectible

Transfer to Assets held for sale

Provision for doubtful debts at 31 December

Trade receivables are shown net of provision for doubtful debts.

2009

(228)
(6)
(9)

(93)
34
58

(241)

2008

(227)

(228)

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.

Securitisation

As part of the refinancing of the EUR 850 million of the EMTNs maturing in September 2010, the Group has during 2009 launched a
securitisation programme in 5 major countries. Under the programme trade receivables of the participating countries are sold to a
newly established special purpose entity (SPE), which is fully consolidated in the Group's financial statements. The securitised trade
receivables continue to be recognised in the Group's statement of financial position as the majority of risks and rewards remain with

the Group.

As at 31 December 2009, trade receivables of DKK 2,267 million have been provided as security for securitisation debt with a face

value of DKK 937 million.

 

22. CONTRACT WORK IN PROGRESS

 

DKK million

Contract expenses
Recognised profits (less recognised losses)

Contract work in progress (beføre advances)

Progress billings

Contract work in progress

Prepayments from customers

Prepayments from customers is included in note 31, Other liabilities in the line Prepayments from customers.

2009

399
87

486
(291)
195

440

2008

410
72

482

(300)

182

420

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

78

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. TAX RECEIVABLES AND TAX PAYABLES

 

DKK million 2009 2008
Tax (receivables)/payables, net at 1 January (110) (126)
Foreign exchange adjustments (58) 32
Additions from acquired companies, net 2 5
Adjustment relating to prior years, net 19 (37)
Tax on profit before impairment/amortisation of intangibles ” 483 304
Joint taxation contribution (30) 32
Tax paid, net (311) (320)
Tax (receivables)/payables, net at 31 December (5) (110)

Recognised in the statement of financial position as follows:

Tax payables 303 123
Tax receivables (308) (233)
Tax (receivables)/payables, net (5) (110)

1 In this context intangibles comprise the value of goodwill, brands and customer contracts.

 

24. OTHER RECEIVABLES

DKK million 2009 2008
Receivables from companies within the ISS Group 7 35
Prepayments 505 458
Receivable sales price from divestments 210 2
Currency swaps - 3
Other 325 239
Other receivables 1,047 737

Receivables from companies within the ISS Group are related to a joint taxation scheme with Danish resident Group companies. The
effective interest rate regarding receivables from companies within the ISS Group was 6.2% (2008: 6.3%).

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

According to the Senior Facility Agreement the use of proceeds from divestments is subject to restrictions. Consequently, divestment
proceeds may only be used for acquisition of businesses or repayment of borrowings. It is management's intention to use the
proceeds from the receivable sales price of DKK 210 million for acquisition of business.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

1004126EogSN18985

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. SECURITIES, CASH AND CASH EQUIVALENTS

 

 

 

2009 2008
Carrying Average
Carrying Average Average amount effective Average
amount effective  duration (DKK interest duration
(DKK million) interest rate (years) million) rate (years)
Bonds 97 4.0% 0.9 86 4.0% 1.8
Securities 97 86
Cash and cash equivalents 3,353 1.0% 2,951 2.7%

Bonds mainly consist of listed Danish government bonds.

Of the total cash position, DKK 62 million (2008: DKK 61 million) was restricted and DKK 1,080 million was reserved for partial
redemption of the remaining 2010 EMTNSs. After the reporting date the Group completed a tender offer for additional EUR 150 million
of the outstanding notes leaving EUR 200 million of notes for refinancing before maturity in September 2010.

 

26. ASSETS AND LIABILITIES HELD FOR SALE

 

 

DKK million 2009 2008
Goodwill 15 -
Other intangibles 58 -
Property, plant and equipment 218 -
Financial assets 8 -
Deferred tax assets 64 -
Inventories 2 -
Trade-and-other-receivables 249

Assets held for sale 614 "
Deferred tax liabilities 12 -
Pensions and similar obligations 14 -
Other provisions 64 -
Bank loans 11 -
Trade payables and other liabilities 278 -
Liabilities related to assets held for sale 379 -

In 2009, assets and liabilities held for sale related to certain businesses which comprised non-core activities in France, Spain and

Norway. In 2008, no assets or liabilities were classified as held for sale.

The assets and liabilities of these activities have been classified as held for sale and are presented separately in the statement of
financial position at the lower of the carrying amount at the date of the classification as held for sale and fair value less costs to sell.

Assets are not depreciated or amortised from the date when they are classified as held for sale.

According to management's estimates the proceeds on disposal of the activities are expected to be lower than the carrying amount of
the relevant assets and liabilities. Accordingly, a write-down of net assets on other income and expenses of DKK 159 million, a write-
down on goodwill of DKK 409 million and a write-down of customer contracts of DKK 37 million has been recognised at 31 December
2009. Generally, estimates on proceeds on disposal are associated with uncertainty and may possibly be adjusted subsequently.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

80

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

27. SHARE CAPITAL

DKK million 2009 2008
Share capital at 1 January 160 160
Share capital at 31 December 160 160
Number of shares (in thousands of shares)

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

At 31 December 2009 a total of 160,000 shares with a nominal value of DKK 1,000 per share were issued and fully paid (2008:

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

28. BORROWINGS

DKK million 2009
Issued bonds 4,546
Bank loans 16,221
Finance lease obligations 115
Debt to companies within the ISS Group 343
Long-term debt 21,225
Issued bonds due within one year 2,627
Bank loans due within one year 835
Bank loans and overdrafts ” 1,126
Securitisation debt ? 892
Finance lease obligations 93
Debt to companies within the ISS Group 3 1,593
Short-term debt 7,166
Total long-term and short-term debt 28,391
Fair value 28,924

2008

7,295
16,505
122
325

24,247

315
782

69
1,437

2,603

26,850

25,249

As part of the strategy to refinance the EUR 850 million of the EMTNs due 2010, the Group issued EUR 525 million of new Senior
notes due 2014, and additionally a securitisation programme was launched in 5 major countries during 2009. Due to the terms of the
securitisation debt it has been classified as short-term in the statement of financial position although the securitisation facility is

committed for a period of 3 years from September 2009 to September 2012.

During 2009, financing fees amounting to DKK 304 million (2008: DKK (2) million) have been recognised in long-term and short-term
debt while accumulated financing fees recognised in long-term and short-term debt on 31 December 2009 amaunted to DKK 376

million (2008: DKK 159 million).

In 2009 and 2008, the Group had no debt convertible into equity.

” The effective interest rate was 3.8% (2008: 5.9%).
2) The effective interest rate was 3.4%.

I Debt to companies within the ISS Group included 4 million (2008: DKK 4 million) related to a joint taxation scheme with Danish resident subsidiaries.

The effective interest rate regarding debt to companies within the ISS Group was 3.41% (2008: 6.7%).

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

1004126EogSN18986

81

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. BORROWINGS (CONTINUED)

 

Maturity profile of long-term debt
DKK million

 

 

 

 

 

 

 

Carrying Face
2009 amount value 1-2 years 2-3 years 3-4 years 4-5 years > 5 years
Issued bonds 4,546 4,729 - - - 4,729 -
Bank loans and other long-term debt 16,679 16,818 757 569 15,147 - 345
Long-term debt 21,225 21,547 757 569 15,147 4,729 345
Carrying Face
2008 amount value 1-2 years 2-3 years 3-4 years 4-5 years > 5 years
Issued bonds 7,295 7,155 6,332 - - - 823
Bank loans and other long-term debt 16,952 17,107 846 916 614 14,405 326
Long-term debt 24,247 24,262 7,178 916 614 14,405 1,149
The presentation of the maturity profile of long-term debt is based on undiscounted principal cash flows.
continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

82

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. BORROWINGS (CONTINUED)

Terms and maturity of long-term debt

 

 

 

 

 

2009 2008
Weighted
average Interest Interest Year of Face Amount Carrying Carrying
DKK million interest rate rate  raterisk maturity — value hedged?” amount amount
Issued bonds:
EMTNs due 2010 4.75% Fixed Fair value 2010 - - - 6,330
EMTNSs due 2014 4.50% … Fixed Fairvalue — 2014 822 - 821 821
Senior notes 2014 11% Fixed Fair value 2014. 3,907 - 3,718 -
Interest rate swaps - - - - - - 7 144
Bank loans:
Senior facilities:
Term facility A Libor + 2.00% Floating Cashflow — 2012 668 1,022 599 884
Term facility B Libor + 2.00% Floating Cashflow 2013 13,022 7,885 12,952 12,851
Acquisition facility A Libor + 2.25% Floating Cashflow — 2012 532 599 532 1,280
Acquisition facility B Libor + 2.25% Floating Cashflow — 2013 2,125 - 2,125 1,467
Other bank loans - - - - 13 - 13 23
Finance lease obligations - - - - 115 - 115 122
Debt to companies within the ISS Group 5.09% - - 2016 343 - 343 325
Long-term debt 5.82% ” 21,547 21,225 24,247
1 Weighted average interest rate taking the effect of interest rate hedges into account.
2) The amount hedged for term facility A and acquisition 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:
2009 2008
DKK 0.1% 0.1%
EUR 87.7% 88.6%
GBP 6.8% 5.5%
NOK 2,2% 2,1%
SEK 1.2% 1.6%
USD 0.0% 0.1%
Others 2.0% 2.0%
100.0% 100.0%
Finance lease obligations
Finance lease obligations are payable as follows:
2009 2008
Minimum Minimum
lease lease
DKK million payments interest Principal payments Interest Principal
Within 1 year 100 (7) 93 79 (10) 69
1-5 years 120 (7) 113 136 (15) 121
After 5 years 2 (0) 2 1 (0) 1
222 (14) 208 216 (25) 191

 

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

1004126EogSN18987

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. 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 recognised 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 recognised in the statement of financial position
(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 and pension costs 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. 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 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. The pension schemes are therefore
accounted for as defined contribution plans with pension costs being expensed as incurred and recognised in Staff costs, see note 4,
Staff costs. There is a risk that the plans are not sufficiently funded. However, information on surplus or deficit in the schemes is not
available.

Recognised in the statement of financial position

 

DKK million 2009 2008
Present value of funded obligations 3,171 2,860
Fair value of plan assets (2,877) (2,591)
Funded obligations, net 294 269
Present value of unfunded obligations 487 478
Unrecognised past service costs (3) 1
Accumulated impact from asset ceiling 1 14
Transfer to liabilities related to assets held for sale (14) -
Recognised in the statement of financial position for defined benefit obligations 765 762
Other long-term employee benefits 72 72
Pensions and similar obligations at 31 December 837 834

Specification of defined benefit obligations:

Present value of funded obligations 3,171 2,860
Present value of unfunded obligations 487 478
Defined benefit obligations at 31 December 3,658 3,338

continues

 

ANNUAL REPORT 20089 / Consolidated Financial Statements
84

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. PENSIONS AND SIMILAR OBLIGATIONS (CONTINUED)

 

Recognised in the statement of financial position (continued)

DKK million 2009 2008
Movement in defined benefit obligations (funded and unfunded):

Present value of obligations at 1 January 3,338 3,244

Foreign exchange adjustments 48 32

Reclassifications 2 47

Additions from acquired companies, net 8 32

Interest on obligation 153 139

Current service costs 117 149

Benefits paid (315) (96)
Employee contributions 81 74

Actuarial (gains)/losses 224 (244)
Recognised past service costs 11 2

Liabilities extinguished on settlements and curtailments (9) (41)
Present value of obligations at 31 December 3,658 3,338

Movement in fair value of plan assets:

Fair value of plan assets at 1 January 2,591 2,617
Foreign exchange adjustments 30 43
Reclassifications 3 53
Additions from acquired companies, net - 14
Expected return on plan assets 124 134
Actuarial gains/(losses) 179 (426)
Assets distributed on settlements (10) (16)
Employee contributions 81 74
Employer contributions 121 139
Benefits paid (242) (41)
Fair value of plan assets at 31 December 2,877 2,591

Realised return on plan assets:

Expected return on plan assets 124 134
Actuarial gains/(losses) 179 (426)
Realised return on plan assets at 31 December 303 (292)

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

Bonds 58% 60%
Equities 26% 21%
Property 6% 10%
Cash 1% 1%
Other 9% 8%
Total 100% 100%

The Group expects to contribute DKK 181 million to its defined benefit plans in 2010.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
85

1004126EogSN18988

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. PENSIONS AND SIMILAR OBLIGATIONS (CONTINUED)

 

Recognised in the income statement
DKK million

Current service costs

Interest on obligation

Expected return on plan assets
Recognised past service costs, net

Gains on curtailments and settiements, net

Recognised in the income statement as staff costs

Lasses on settlements related to restructuring projects

Recognised in the income statement as other expenses

Recognised in the statement of comprehensive income

Cumulative (gains)/losses recognised in the statement of comprehensive income at 1 January
Actuarial (gains)/losses during the year

Impact from asset ceiling

Cumulative (gains)/losses recognised in
the statement of comprehensive income at 31 December

Hereof accumulated actuarial (gains)/losses

Actuarial assumptions
Actuarial calculations and valuations are performed annually for all major defined benefit plans.

267
45
(18)

294

293

2008
149
139

(134)

(30)

126

110
182
(25)

267

248

The actuarial assumptions vary from

 

Couritry to country due to local conditions" The range of actuarialassumptions used Is as follows:

Discount rates at 31 December

Expected return on plan assets at 31 December
Future salary increases

Future pension increases

2009

1.7-11.0%
1.7-8.0%
0.0-10.3%
0.0-4.8%

2008

1.8-13.0%
1.8-8.0%
2.0-10.0%
1.3-5,1%

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 54% of the gross obligation (2008: 56%), the discount
rate was 3.3% (2008: 3.8%) and in the euro countries representing 23% of the gross obligation (2008: 23%) the discount rate was

between 5.2% and 5.5% (2008: 5.6%-6.0%).

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

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements

86

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. PENSIONS AND SIMILAR OBLIGATIONS (CONTINUED)

Historical information

 

 

 

 

 

 

 

 

DKK million 2009 2008 2007 2006 2005
Present value of obligations (funded and unfunded) 3,658 3,338 3,244 3,446 2,240
Fair value of plan assets (2,877) (2,591) (2,617) (2,606) (1,441)
Unrecognised past service costs (3) 1 1 1 2
Asset ceiling 1 14 44 3 .
Transfer to liabilities related to assets held for sale (14) - - - -
Net obligations at 31 December 765 762 672 844 801
Actuarial (gains)/losses on obligations 224 (244) (200) (59) 253
Actuarial gains/(losses) on plan assets 179 (426) (48) (13) 29
Actuarial (gains)/losses during the year 45 182 (152) (46) 224
Cumulative actuarial (gains)/losses at 31 December 293 248 66 218 264
ANNUAL REPORT 2009 / Consolidated Financial Statements
87

1004

126EogSN18989

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

30. OTHER PROVISIONS
Acquisition
and  Contingent
Legal Self- integration  liabilities in

DKK million cases insurance costs acquisitions Other Total
2009
Other provisions at 1 January 176 166 45 45 400 832
Foreign exchange adjustments 7 6 2 0 9 24
Transfers, net ” (4) 4 1 34 (76) (41)
Additions from acquired companies, net 2 - - 14 17 33
Provisions for the year (included in goodwill) - - 27 - - 27
Provisions for the year (included in the income statement) 95 124 46 - 100 365
Provisions reversed (against the income statement) (14) (1) (0) - (42) (57)
Provisions used during the year (39) (99) (95) - (148) (381)
Other provisions at 31 December 223 200 26 93 260 802
Current 126 74 26 - 197 423
Non-current 97 126 0 93 63 379

223 200 26 93 260 802
2008
Other provisions at 1 January 163 167 41 14 268 653
Foreign exchange adjustments (8) (17) (3) - (8) (36)
Transfers, net ” 3 8 (1) - 7 17
Additions from acquired companies, net 30 - - 31 61 122
Provisions for the year (included in goodwill) - - 68 - - 68
Provisions for the year (included in the income statement) 57 103 66 - 179 405
Provisions for the year (dismantling costs) - - - - 30 30
Provisions reversed (against the income statement) (27) (18) (1) - (38) (84)
Provisions used during.the year. (42) (Z7) (125) - (100) (344)
Unwinding of discount - - - - 1 1
Other provisions at 31 December 176 166 45 45 400 832
Current 89 70 43 13 220 435
Non-current 87 96 2 32 180 397

176 166 45 45 400 832

 

Legal cases
The provision comprises various obligations in relation to a number of legal cases mainly in Australia, France and the Netherlands.
Additionally, the provision comprises labour related obligations in Belgium, Brazil, France, Israel, Portugal, 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 20 million (DKK 18 million in 2008) for employers' liability. The USA is
self-insured up to a limit of DKK 1.3 million per claim (DKK 1.3 million in 2008). Australia is self-insured up to a limit of DKK 2.3 million
per claim (DKK 1.8 million in 2008). 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 52 million (DKK 42 million in 2008).

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.

” In 2009, transfers, net consisted of DKK 64 million transferred to Liabilities related to assets held for sale partly offset by provisions of DKK 23 million
transferred from Other liabilities and Pensions and similar obligations. In 2008, transfers, net consisted of provisions transferred from Other liabilities and
Pensions and similar obligations.

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30. OTHER PROVISIONS (CONTINUED)

 

Contingent liabilities in acquisitions
The provision relates to contingent liabilities assumed in connection with acquisitions and mainly relates to legal cases.

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

 

 

31. OTHER LIABILITIES

DKK million 2009 2008
Accrued wages and holiday allowances 4,283 4,311
Tax withholdings, VAT etc. 3,065 2,840
Prepayments from customers 440 420
Interest rate swaps 196 184
Gurrency swaps 31 -
Other payables and accrued expenses 2,497 2,462
Other liabilities 10,512 10,217

 

32. 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, ISS Global A/S and certain material subsidiaries of ISS Global 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 2009, the aggregate approximate values of assets provided as security for the borrowings under the senior facilities

were:

DKK billion 2009 2008
Goodwill 2.7 2,0
Customer contracts 0.5 0.4
Intellectual property rights 0.0 0.0
Other intangible and tangible assets 0.3 0.3
Trade receivables 2,4 3.2
Other receivables 0.2 0.2
Bank accounts 1.7 1.8
Total 7.8 7.9

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

continues

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
89

1004126EogSN18990

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. CONTINGENT LIABILITIES (CONTINUED)

 

Securitisation

As part of the refinancing of the EUR 850 million of the EMTNs maturing in September 2010, the Group has during 2009 launched a
securitisation programme in 5 major countries. Under the securitisation programme securitised trade receivables of the participating
countries are provided as security for the securitisation debt. As at 31 December 2009, trade receivables of DKK 2,267 million have
been placed as security for securitisation debt.

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 2,049 million (DKK 1,856 million in 2008). 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 5years  payments
At 31 December 2009 1,381 909 613 373 249 447 3,972
At 31 December 2008 1,282 915 646 399 284 394 3,920

 

Additional future lease payments of DKK 6 million (DKK 7 million in 2008) existed regarding associates at 31 December 2009.

Commitment vehicle leases

On 1 January 2008 the Group extended the global car fleet lease framework agreement for another three year term 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 2009 amounted to DKK 462 million (31 December 2008: DKK 318 million).

Performance guarantees

 

The Group has issued performance guarantee bonds for service contracts with an annual revenue of DKK 1,517 million (37 December
2008: DKK 1,305 million) of which DKK 1,288 million (31 December 2008: DKK 1,112 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 Gorporation (CSC) running until 2015. The Group's contractual
obligations related to the agreement at 31 December 2009 amounted to approximately DKK 41 million (31 December 2008: DKK 60
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 2009 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 statement of financial position at 31 December 2009.

Furthermore, restructuring projects aiming at adjusting capacity to lower activity have been undertaken across different geographies
and service areas. Labour laws especially in Western Europe include restrictions on dismissals and procedural rules to be followed.
The procedures applied by ISS could be challenged in certain jurisdictions resulting in liabilities. Management believes that this would
not have a material impact on the Group's financial position beyond the assets and liabilities already recognised in the statement of
financial position at 31 December 2009.

 

 

ANNUAL REPORT 2009 / Consolidated Financial Statements
90

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. 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 well as availability of funding.

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. Generally, the Group seeks to apply hedge accounting in order to manage
volatility in the Group's results. It is not the Group's policy to take speculative positions in the financial markets.

The Group has not identified any additional financial risk exposures in 2009. However, the individual risk associated with the
exposures identified have changed following the current financial crisis.

Market risk
Market risk is the risk that changes in market prices, such as currency and interest rates, will affect the Group's result or value of its
holdings of financial instruments.

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 international business with the majority of revenue and operating profit originating 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, management fees and interest payment