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Erhvervs og Selskabsstyrelsen
20 apr. 2011
Annual report 2010
ISS Global A/S
— c .
(ei ondt JP? Øe Årold 4
Ørn Øde] OVSEL må 77
ISS Global A/S Arn Is. ( LØ 72]
Bredgade 30
ve
DK — 1260 Copenhagen K BG,
Denmark
CVR 21 40 83 95 SJ ll
Som dd: i D binde
u øf
Phone: +45 38 17 00 00
Fax: +45 38 17 00 11
1104204EogSN32222
Contents
1104204EogSN32223
MANAGEMENT REVIEW
Key figures and financial ratios
Operational review
Outlook
Financial review
Strategi — The ISS Way
Corporate Responsibility
Corporate governance and risk management
FINANCIAL STATEMENTS
Consolidated financial statements
Parent company financial statements
Management statement
Independent auditor's report
15
16
21
26
31
39
115
137
138
Key figures and hrancial ratos | Management remew 3
Key figures and financial ratios
DKK million (unless otherwise stated) 2010 2009 2008 2007 2006
KEY FIGURES
Income statement
Revenue 74,101 69,024 68,848 63,935 55,784
Operating profit before other items ” 4,695 4,238 4,418 4,183 3,293
EBITDA 4,298 3,411 3,954 3,868 3,536
Adjusted EBITDA ? 5,527 5,087 5,273 5,018 4,033
Operating profit ? 3,466 2,562 3,099 3,033 2,796
Financial income 182 279 215 373 95
Financial expenses (1,954) (1,863) (2,139) (1,645) (1,278)
Profit before goodwill impairment/amortisation and impairment
of brands and customer contracts 1,045 502 727 949 982
Net profit/(loss) for the year 467 (594) (42) 540 734
Cash flow
Cash flow from operating activities 3,932 3,471 3,675 3,021 3,006
Acquisition of intangible assets and property, plant and
equipment not related to acquisitions, net (864) (882) (705) (699) (831)
Financial position
Total assets 46,051 44,126 42,532 42,872 38,898
Goodwill 23,096 22,262 21,742 21,689 20,065
Additions to property, plant and equipment not related to
acquisitions, gross 861 953 963 937 864
Carrying amount of net debt 4) 24,986 25,130 23,963 23,159 20,146
Total equity (attributable to owners of ISS Global A/S) 464 (632) (48) 1,083 1,620
Employees
Number of employees at 31 December 522,600 485,700 472,700 438,000 391,400
Full-time employees, % 73 71 69 68 66
FINANCIAL RATIOS
Growth, %
Organic growth ? 3.5 0.6 5,9 6.0 5,5
Acquisitions 0 3 7 10 17
Divestments (2) (1) (2) (1) (2)
Currency adjustments ? 5 (3) (3) (0) 0
Total revenue growth 7 0 8 15 20
Other financial ratios, %
Operating margin ? 6.3 6.1 6.4 6.5 5.9
Equity ratio 1.0 (1.4) (0.1) 2.5 4.2
Interest coverage ? 3.1 3.2 2.7 3.9 3.4
Cash conversion 2”) 99 97 103 101 103
1 Excluding Other income and expenses, net, Acquisition and integration costs, Goodwill impainment and Amortisation and impalrment of brands and customer contracts.
2) The Group uses Operating profit before other items for the calculations instead of Operating profit. Consequently, the Group excludes from the calculations Acquisition and integration
costs and those items recorded under Otherincome and expenses, net, in which the Group includes income and expensøs that it believes do not form part of the Group's normat
ordinary operations, such as gains and losses arising from divestments, the winding up of operations, disposals of property and restructurings. Some of thase items are recurring and
some are nonrecuning in nature.
I Exeluding Goodwill impairment and Amortisation and impairment of brands and customer contracts.
With effect from 31 December 2010 the fair value of interest rate swaps hedging the interest rate of loans and borrowings has been reclassified from Other liabllities to Loans and
borrowings. Comparative figures have been restated accordingly.
3 Previously, acquisitions with reported annual revenue of DKK 50 million or more as well as acquisition of businesses that established ISS presence in a new Jurisdiction were
excluded from the calculation of orgaric growth during the first 12 months of ISS ownership. This has been changedin 2010 in order to align to a singte-string calcutation methodology
for acquisitions. The change has been implemented retroactiely for the financid years 2008, 2009 and 2010. There was no significant impact on ike reported f gures for 2009 and
2010 while organic growth for 2008 increased from 5.3% to 5.9% under the new calculation principte.
9 Calculated as total revenue growth less organic growth and less net acquisition/divestment growth, Currency adjustments thereby include the effect stemming from exclusion of
currency effects from the calculation of organic growth and net acquiition/divestment growth.
1 internal receivables/payables related to royalty have from 2010 been excluded from changes In working capital. Comparative figures have been restated accordingly.
1104204EogSN32224
Definitions
Acquisitions, %
Adjusted EBITDA
Carrying amount of net debt
Cash conversion, %
Divestments, %
EBITDA
Equity ratio, %
Interest-bearing debt, net
Interest coverage
Operating margin, %
Organic growth ”, %
Total revenue growth, %
1104204EogSN32225
NI
Defraucoes ft Maragqemertieview 4
Revenue from acquired businesses” x 100
Revenue prior year at current year's exchange rates
isbased on 5 ions at the ion date,
1) Revenue from acqulred
Operating profit before other items + Depreciation and amortisation
Non-current loans and borrowings + Current loans and borrowings - Receivables from
companies within the ISS Group - Securities - Cash and cash equilvalents - Positive
fair value of interest rate swaps
(Operating profit before other items + Changes in working capital) x 100
Operating profit before other items
Revenue from divested businesses ” x 100
Revenue prior year at current year's exchange rates
1) Revenue from divested businesses Is based on estimates or actual revenue where available at the divestment date.
Operating profit + Depreciation and amortisation
Total equity attributable to owners of ISS Global A/S x 100
Total assets
Carrying amount of net debt — Non-interest-bearing debt, net ”
1) Sum of non-nterest-bearing items included in carrying amount of net debt, e.g. fair value of interest rate swaps, unamortised gains from
settlement of interest rate swaps and unamortised loan costs. ”
Operating profit before other items + Depreciations and amortisation
Financial income and financial expenses, net
Operating profit before other items x 100
Total revenue
(Comparable revenue” current year - comparable revenue” prior year) x 100
Comparable revenue” prior year
N Comparable revenue implies the exclusion of changes In revenue attributable to businesses acqulred or dvested and the effect of
changes in forelgn exchange rates. In order to present comparable revenue and thereby organic grovdh excluding any effect from changes
in foreign currency exchange rates, comparable revenue in the prior year is calculated at the subsequent year's foreign currency exchange
i into ISS upon and IS5's
Includes changes in revenue of these acquired É& ip: vålh revenue exp at the date of acqulsiti
Is not a measure of financial performance under Danish GAAP or IFRS and the organic grovdh figures have not been audited.
rates, Acquisitions of businesses are treated as having been of organic grovdh
Organic growth
(Revenue current year - revenue prior year) x 100
Revenue prior year
1104204EogSN32226
Operatonal revew | Managererni revaw 5
Operational review
2010 was a successful year for ISS —
we strengthened our position as a
leading global facility services provider
through continuous increased presence
in emerging markets, several major
international contract wins and
improved performance on all key
operational objectives.
ISS Global A/S is a wholly owned subsidiary of ISS
AIS (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 indi-
rectly — the ISS Global Group's operating compa-
nies.
HIGHLIGHTS OF THE YEAR
In 2010, ISS has shown improvements on all key
operational objectives.
Group revenue amounted to DKK 74.1 billion, an in-
crease of 7.4.% compared with 2009, driven mainly
by doubledigit growth rates in the emerging markets,
including Latin America and Asia, which delivered
growth rates of 48% and 31%, respectively. The
emerging markets comprising Asia, Eastern Europe,
Latin America, Israel, South Africa and Turkey now
represent 18% of total Group revenue, 65% of total
organic growth for the Group and more than 50% of
our employees.
Organic growth for the year was 3.5% compared
with 0.6% in 2009. Five out of the seven regions
contributed positively to ISS's organic growth, with
Asia and Latin America once again delivering dou-
bledigit organic growth rates. The organic growth in
Q4 2010 mounted to 4.0%.
PERFORMANGE HIGHLIGHTS
REVENUE GROWTH -- excluding acquisitions and
divestments was 9% or DKK 6 billion in 2010
OPERATING MARGIN — increased by 0,2
percentage point to 6.3% in 2010
CASH CONVERSION — increased and reached
99% in 2010
NUMBER OF EMPLOYEES — surpassed
500,000, making ISS one the world's largest private
employers
Operating profit before other items increased by
11% to DKK 4.7 billion in 2010 compared with 2009,
and operating profit before other items as a percent-
age of revenue, i.e. the operating margin, increased
to 6.3% from 6.1% in 2009.
Operating profit increased by 35% from DKK 2,562
million in 2009 to DKK 3,466 million in 2010. The in-
crease was a result of a decrease in expenses rec-
ognised as other income and expenses, net follow-
ing the investments in restructuring projects in 2009
as well as the increase in operating profit before
other items as described above.
The turnaround initiatives initiated in France con-
tinue to progress. However, France remains in its
recovery phase from exposure to the manufacturing
and public sectors, In addition, the effects from the
turnaround initiatives have yet to substantially mate-
rialise. Excluding France, ISS's operating profit be-
fore other items improved by 11% compared with
2009, with an operating margin of 6.0% and organic
growth of 4.6%.
Profit before goodwill impairment / amortisation and
impairment of brands and customer contracts in-
creased to DKK 1,045 million in 2010 from DKK 502
million in 2009 driven by the increase in operating
profit partly offset by an increase in income taxes.
The net result for the year improved from a loss of
DKK 594 million in 2009 to a profit of DKK 467 mil-
lion in 2010, which was positively impacted by
growth in revenue and improved operational per-
formance in 2010, combined with a decrease in net
expenses recognised as other income and ex-
penses, net as well as lower non-cash expenses re-
lated to goodwill impairment and amortisation and
impairment of brands and customer contracts com-
pared with 2009.
In April 2010, the International Association of Out-
sourcing Professionals (IAOP) announced that ISS
had been ranked number six on IAOP's list of the
world's leading outsourcing providers — The Global
Outsourcing 100. This is one step up from last year
and underlines that ISS is a professional and reliable
outsourcing partner of choice.
In line with The ISS Way strategy, ISS continued to
promote a strong and uniform commercial culture by
focusing on meeting its customers' needs and the-
reby delivering a larger share of customers' facility
services requests, including demand from multina-
tional corporations for integrated facility service solu-
tions. Our focus has been on further developing and
refining the value propositions for customers within
selected customer segments, such as Business ser-
vices & IT, Public administration and Healthcare.
Over the past decade, ISS has built its global capa-
bility in the delivery of a well-defined set of facility
services that are equally well suited for delivery as
single services and as part of an integrated offering.
In order to fully leverage on its unique platform, ISS
continued to drive the global implementation of best
practices and standard processes during 2010.
The implementation of The ISS Way has a broad
and positive impact on our business — allowing us to
deliver to our customers consistent excellence in
single services and integrated services across bor-
ders. Evidence of the successful execution of our
strategy was reflected in the continued increase in
organic growth in 2010, which positions ISS com-
petitively in the industry. Continued successful im-
plementation of The ISS Way will boost our key
growth drivers — new sales, cross-sales and cus-
tomer retention.
Implementation of The ISS Way also focuses on se-
curing excellence in leadership through the relent-
less application of uniform principles and values
throughout the entire organisation, Successful im-
plementation aligns our corporate culture and con-
tributes to achieving our high ambitions.
1104204FogSN32227
Operational review | Management review 6
Our strategic focus on delivering portfolio-based
services has led to continued organic growth in the
portfolio business. Historically, the portfolio busi-
ness' share of total revenue has been between 75%
- 80% and during 2009 and 2010 there was an in-
creasing trend in the portfolio business" share of to-
tal revenue within this range.
Across ISS regions, we saw strong demand for our
integrated facility services (IFS) offering in 2010.
Multi-service and IFS, where we deliver two or more
services to the same customer comprised 35% of to-
tal Group revenue in 2010 compared with 33% in
2009. Multi-service and IFS revenues allow ISS to
exploit synergies in the provision of services, and
create stronger customer relationships.
The performance of ISS's business in 2010 demon-
strates the resilience of the business as a result of
the flexibility of ISS's cost base, the large size of
ISS's portfolio business and rigorous financial and
operational control.
ISS's continued focus on cash fi ow resulted in a re-
duction of 0.9 debtor days compared with 2009, lea-
ding to a robust cash conversion of 99%, which un-
derlines ISS' continued robust and stable cash gen-
eration.
In order to further strengthen our focus on sales
growth and leadership development, in 2010 ISS es-
tablished and appointed a Group Chief Commercial
Officer (CCO) and recruited a new Group HR Direc-
tor. Both have an international profi le through sev-
eral international positions and are part of ISS's
Group Management Board.
The Global Corporate Clients organisation continues
to successfully leverage on ISS's global footprint to
pursue and win multi-nationaf contracts. ISS fol-
lowed up on the EDS and Shell contract wins in
2009 by entering into a new international IFS con-
tract with Hewlett-Packard (HP) covering the Ameri-
cas, and a 3.5-year extension of the EMEA and APJ
contracts for HP and EDS. Additional, contract wins
included the United Kingdom Foreign Common-
wealth Office (FCO) in APJ and Citi in EMEA as well
as Sony Ericsson in APJ, EMEA and North America.
After winning the HP Americas contract, ISS now
services 850 HP and EDS sites in more than 50
countries in APJ, EMEA, and the Americas, which
includes delivery of cleaning services, property ser-
vices, support services, catering services, project
management and integrated facility management.
FCO is an IFS contract comprising 28 diplomatic
posts and over 700 dipiomatic residential properties
in 14 APJ countries. The Sony Ericsson contract
1104204EogSN32228
covers facilities management and substantial self
delivery of several facility services to 14 sites in nine
countries in APJ, EMEA and North America. The Citi
contract includes delivery of full facility management
services, project management, cleaning services
and technical property services to almost 800 sites
in 26 countries. These contract wins confirm ISS's
strategic direction, as an increasing number of
global customers now perceive ISS as one of the
only companies that can deliver facility services in
an integrated and standardised way on a global
scale.
REVENUE GROWTH ” 2910
Operatona! review I Management review 7
In September 2010, ISS completed the repayment of
the outstanding 2010 EMTNs. The remaining EUR
200 million of the original EUR 850 million were re-
deemed at maturity on 20 September 2010.
By the end of the year, ISS had more than 522,000
employees worldwide. Since year-end 2009, a net in-
crease of almost 37,000 employees joined the com-
pany as a result of organic growth and the acquisition
of SDB Cisco in India, which added approximately
27,000 employees.
Revenue growth, %
Organic Ace. Div. Currency Total
Western Europe 1 0 (2) 2 1
Nordic 4 0 (3) 5 6
Asia 13 5 (0) 13 31
Pacific 8 1 (0) 24 33
Latin America 29 - - 19 48
North America (1) - - 5 4
Eastern Europe (0) 0 - 3 3
Total 3.5 0 (2) 5 7
Emerging Markets 14 2 (0) 12 28
1) see page 4 for definitions.
REGIONAL DEVELOPMENT
The "ISS worid" consists of seven regions: Western
Europe, Nordic, Asia, Pacific, Latin America, North
America and Eastern Europe. The principle for the
regional grouping generally follows the geographica!
split, however the Nordic region is presented sepa-
rately from the Western European region. In addi-
tion, in order to highlight the performance of emerg-
ing markets, ISS discloses certain information for
emerging markets.
The description of regions below comprises coun-
tries generating significant revenue. In addition, ISS
operates in a number of countries which due to ne-
gigible revenue are not included. Those countries
are; Bosnia and Herzegovina, Bulgaria, Colombia,
Costa Rica, Ecuador, Latvia, Lithuania, Panama,
Peru, Puerto Rico and Venezuela.
Western Europe
The Western European region comprises France,
the United Kingdom, Spain, the Netherlands, Bel-
gium & Luxembourg, Switzerland, Germany, Turkey,
Israel, Austria, Greece, Irefand, Portugal, Italy and
South Africa.
The markets included in the Western European re-
gion are generally characterised as developed mar-
kets. Most countries in the region have experienced
improving but still challenging market conditions dur-
ing 2010. However, the market conditions in Greece
are still very difficult as a result of the economic in-
stability in the country. The ISS operations in the re-
gion generally have well developed service plat-
forms and delivery models.
Operational revæw 1 Management review 8
OPERATING RESULTS
Operating profit
Revenue before other items Operating margin
DKK million DKK million
2010 2009 Change 2010 2009 Change 2010 2009
Western Europe 39,121 38,632 1% 2,278 2,056 11% 5.8 % 5,3 %
Nordic 17,301 16,367 6% 1,228 1,219 1% 71% 74%
Asla 5,401 4,120 31% 407 308 32 % 7.5 % 75%
Pacific 5,018 3,768 33% 333 259 29% 6.6 % 6.9%
Latin America 3,070 2,077 48 % 178 131 36% 5.8 % 6.3%
North America 2,625 2,515 4% 132 134 (1% 5.0 % 5,3 %
Eastern Europe 1,602 1,561 3% 113 106 7% 7.1% 68%
Corporate / eliminations (37) (16) - 26 25 4% 0.0 % 0.0 %
Total 74,101 69,024 7% 4,695 4,23B 11% 6.3 % 6.1%
Emerging Markets 13,574 10,632 28 % 927 732 27% 6.8 % 6.9 %
In 2010 focus has been on further developing sales
processes targeting selected customer segments as
well as implementing best practice operational proc-
esses and concepis in order to develop the best
possible value proposition to support our chosen
customer segments.
In 2010, revenue in the Western European region
increased by 1% to DKK 39,121 million. Organic
growth was positive by 1% and currency adjust-
ments increased revenue for the region by approxi-
mately 2%. This was offset by 2% negative growth
from acquisitions and divestments, net. Turkey,
Germany, the United Kingdom, Israel, Spain, Italy,
Portugal and the Netherlands all delivered positive
organic growth rates resulting in a weighted organic
growth rate of 3.7% for these countries. The organic
growth was a result of improved economic condi-
tions combined with successful sales efforts. This
positive effect was partly offset by mainly France still
suffering from exposure to the manufacturing and
public sectors. In addition, the effect from the turn-
around initiatives has yet to substantially materialise.
Finally, Greece and Ireland were negatively im-
pacted by the economic instability, leading to nega-
tive organic growth as both public and private
spending was reduced.
Operating profit before other items in Western Euro-
pe increased by 11% to DKK 2,278 million in 2010.
The operating margin of 5.8% was 0.5 percentage
point higher compared with 2009, The increase was
a result of a generally strong development in operat-
ing margin across the region despite a still challeng-
ing economic environment, with the exception of
Greece, where the operating margin decreased sig-
nificantly due to economic instability in the country.
To a large extent, the operating margin
1104204EogSN32229
improvements are a result of the actions taken in
2009 to increase efficiencies and improve profitabil-
ity. In France, the operating margin was 4.2% which
was an increase of 0.4 percentage point compared
with 2009. The increase was mainly a result of a po-
sitive effect stemming from the newly introduced
Contribution économique territoriale (CET), which is
recognised as part of income taxes, replacing the
Taxe professionnelle, which historically has been re-
cognised as part of staff costs as well as a positive
effect from the turnaround plan initiated in 2009.
However, France remains in its early recovery phase
from the exposure to the manufacturing sector, as
well as to the public sector where reduced public
spending had a negative impact especially on land-
scaping services, which led to an overall negative
organic growth and consequential pressure on the
operating margin. In addition, the operating margin
in France was in 2010 negatively impacted by fur-
ther organisational changes related to the turn-
around initiatives started in 2009.
Nordic
The Nordic region, comprising Norway, Finland,
Sweden, Denmark, Greenland and Iceland, is
among the most developed. ISS is the leader within
the facility services market throughout the region.
During 2010, the Nordic region has been focused on
continuing the implementation of The ISS Way that
started in 2009. One of the most important success
criteria in the Nordic strategy is to create profitable
organic growth. This will be achieved through a
strong service delivery locally in each of the coun-
tries supported by the newly established Nordic sa-
les organisation that will mainly focus on sales to
larger complex customers within selected segments.
During 2010, a central safes and segmentation pro-
cess and structure has been implemented enabling
our Nordic region to focus on the right customer
segments going forward. Furthermore, a Nordic pilot
project focused on single service excellence and
best practices sharing within cleaning services
across the Nordic region has shown an attractive po-
tential for standardisation of concepts and methods.
The implementation and roll-out will continue within
cleaning services going into 2011. To further secure
a continued focus on best practices sharing and
business innovation across the region, it has been
decided to strengthen the regional organisation
within Business Development and Innovation.
In 2010, revenue in the Nordic region increased by
6% from DKK 16,367 million in 2009 to DKK 17,301
million. Organic growth amounted to 4% and re-
sulted from strategic initiatives focused on sales
combined with a positive effect from non-recurring
services such as snow removal. The impact from di-
vestments was a revenue reduction of 3%, resulting
primarily from the divestments completed in Sweden
and Norway in 2009 and 2010. Currency adjust-
ments increased revenue for the region by approxi-
mately 5%, which stemmed mainly from an appre-
ciation of NOK and SEK against DKK,
Operating profit before other items in the Nordic re-
gion amounted to DKK 1,228 million in 2010 com-
pared with DKK 1,219 million in 2009. The operating
margin in the region remained above 7.0%, in 2010
at 7.1% compared with 7.4% in 2009. The operating
margin in 2010 was positively impacted by one-off
income related to sale of certain assets. The drivers
behind the continued high operating margin in the
Nordic region are ISS's high market share and broad
service offering combined with a successful effort to
increase the services delivered to existing custom-
ers.
Asia
The Asian region comprises Hong Kong, Singapore,
Indonesia, Thailand, India, China, Taiwan, Malaysia,
Philippines, Japan and Brunei.
In 2010, the Asian region focused on building and
developing the service platform but also on leverag-
ing on several years of strong growth in the region
which has secured ISS a stronger market share and
service offering in the region. The strategy is to de-
velop and deliver IFS solutions to major global com-
panies in Chosen sectors as the IFS market matures
and at the same time continue to build leading local
presence. In 2010, the region continued the service
transformation with a decreasing share of revenue
stemming from cleaning services and with an in-
1104204EogSN32230
Operational review t Management review 9
crease in revenue share in mainly catering services,
security services and property services. Especially
property services and security services have been a
catalyst for organic revenue growth and cross selling
activities. Furthermore, the acquisition of SDB Cisco
Ltd. in India added competencies within security
services, mainly within manned guarding, enabling
India to deliver a full IFS offering. ISS India was in
2010 the fastest organic growing country operation
in the region.
Revenue in Asia increased by 31% from DKK 4,120
million in 2009 to DKK 5,401 million in 2010. The in-
crease was driven by organic growth of 13% and
acquisition-driven growth of 5% as well as a positive
impact of 13% from currency adjustments. All coun-
tries in the region except for the Philippines, Singa-
pore, Brunei and Japan delivered doubte-digit or-
ganic growth rates. The continued strong organic
growth was driven by strong GDP development in
the countries in the region. However, in most coun-
tries in the region, ISS delivered organic growth ra-
tes in excess of the GDP growth as a result of
among other things new sales and cross-selling ac-
tivities within property services and security ser-
vices.
Operating profit before other items in Asia increased
by 32% to DKK 407 million in 2010 compared with
DKK 308 million in 2009. The operating margin was
maintained at 7.5% in 2010, the highest margin of
any ISS region, and reflects a relatively stable de-
velopment in most countries in the region supported
by the double-digit growth rates and a continued fo-
cus on contract efficiencies.
Pacific
The Pacific region comprises Australia, which ISS
entered in 2002, and New Zealand, which ISS en-
tered in 2005. ISS in Australia delivers møre than
90% of the revenue in this region.
In 2010, the focus in Australia has been on further
developing and refining the IFS value proposition
within the remote site resource sector and within se-
curity services to the transportation segment (mainly
airports). In New Zealand the focus was mainly on
initiatives aimed at increasing the operating margin.
Revenue in the Pacific region increased by 33% to
DKK 5,018 million in 2010. Organic growth in-
creased revenue by 8%, which stemmed mainly
from an all-time high organic growth of 8.6% in Aus-
tralia due to positive effects of maintaining and in-
creasing revenue from the existing client base com-
bined with the positive effect from a large new con-
tract within the Healthcare segment. Growth from
acquisitions increased revenue by 1%. Currency ad-
justments increased revenue for the region by ap-
proximately 24%.
In the Pacific region, operating profit before other
items increased by 29% to DKK 333 million in 2010.
The operating margin in the region amounted to
6.6% in 2010, compared with 6.9% in 2009. The de-
crease in operating margin related primarily to New
Zealand, where the fullyear effect of margin im-
provement initiatives implemented during 2010 will
not fully materialise until 2011, The operating margin
in Australia was in line with expectations — slightly
below the level realised in 2009, mainly as a result
of start-up costs concerning a large new contract
within the Healthcare segment.
Latin America
The Latin American region comprises Brazil, Mexico,
Chile, Argentina and Uruguay.
ISS has built a unique position in Latin America, cur-
rently the fastest growing region within the ISS
Group. ISS has a strong geographical presence and
a developed service offering which means that no
other competitor is able to self-deliver a comparable
number of services in the countries in which ISS is
present. Focus is on exploiting our first mover ad-
vantage and selectively expand the geographical
platform as markets mature. In addition, Latin Amer-
ica will continue to establish and develop IFS and
facility management capabilities in all operating and
non-operating countries in order to leverage IFS of-
ferings and thereby position ISS as the top IFS pro-
vider in the region. In 2010, the strategic direction
combined with a very systematic and customer fo-
cused sales approach in line with The ISS Way stra-
tegy were the drivers behind an impressive organic
growth in the region.
Revenue in Latin America increased by 48% from
DKK 2,077 million in 2009 to DKK 3,070 million in
2010. Organic growth amounted to 29%, which was
driven mainly by organic growth of 37% in Brazil and
doubledigit organic growth rates in the remaining
countries in the region. The strong organic growth in
Brazil was driven by several contract wins within
mainly the telecommunications sector and with
shopping malls. Currency adjustments increased re-
venue for the region by approximately 19%.
In Latin America, operating profit before other items
increased by 36% to DKK 178 million in 2010. The
operating margin was 5.8% in 2010, 0.5 percentage
point lower than in 2009. Brazil, Mexico and Uru-
guay increased their margin compared with 2009 as
a result of strong organic growth combined with the
1104204EogSN32231
Operational review t Management review 40
continued focus on contract efficiencies, which was
more than offset by margin decreases in Chile and
Argentina. In Chile, the margin was impacted partly
by the effects of the earthquake earlier in 2010.
North America
The North American region comprises the USA,
which ISS entered in 2007, and Canada, which ISS
entered through a greenfi eld establishment in 2009
via our US operations.
ISS has established good geographical coverage in
several of the economical growth areas in the USA
and continues to focus on enhancing its geographi-
cal footprint in selected targeted metropolitan areas.
In 2010, the region continued the development of
more customer focused and segmented value pro-
positions, targeting specific customer segments.
Furthermore, IFS sales represent a significant op-
portunity for ISS, and a dedicated team is now in
place to capitalise on the market opportunities. The
presence in North America also represents a strong
platform to support additional bids on global con-
tracts which has most recently resulted the win of a
5 year global contract with HP for integrated facility
services, where the US operations will service 261
sites across the USA and Canada.
Revenue in the North American region increased by
4% to DKK 2,625 million in 2010. Organic growth
was negative by 1% while currency adjustments in-
creased revenue for the region by 5%. The slightly
negative organic growth is a result of difficult market
conditions that is still influenced by the uncertainty in
the North American economy and consequential low
level of new sales.
Operating profit before other items in North America
amounted to DKK 132 million in 2010 compared with
DKK 134 million in 2009. The operating margin in
2010 was 5.0% compared with 5.3% in 2009. 2010
was a transformational year where investments in
building up competencies led to the HP Americas
contract win. This together with the slightly negative
organic revenue growth and start-up costs for large
contracts won in 2010 led to the small margin de-
crease.
Eastern Europe
The Eastern European region comprises the Czech
Republic, Slovakia, Poland, Romania, Slovenia,
Hungary, Estonia, Russia and Croatia.
ISS has established a wide geographical reach and
a strong service platform in Eastern Europe which
means that no other competitor is able to self-deliver
a comparable number of services in the countries in
which ISS is present.
After a harsh macro economic climate during 2009
some of the countries in Eastern Europe started to
see a recovery during 2010 whereas other countries
in the region were still impacted by the economic
slowdown. Even though the outsourcing rates are
increasing all over Eastern Europe, it is still a devel-
oping region in terms of maturity in the facility ser-
vices market. We experience a growing demand for
multi services and integrated service solutions com-
ing from international and multinational clients. Dur-
ing 2010, the main focus has been on driving align-
ment of processes and implementation of best prac-
tices within sales, contract and risk management,
single service excellence, HR minimum standards
and procurement.
Revenue in Eastern Europe increased by 3% from
DKK 1,561 million in 2009 to DKK 1,602 million in
2010. This increase was driven by currency adjust-
ments of 3%. Organic growth was 0% and was im-
pacted by a general request for price reductions
from customers resulting from the still challenging
economic climate. Double-digit growth rates were
seen in Russia, Romania and Slovenia and were
driven by a strong development within IFS services
in Russia and Romania and a strong development in
catering in Slovenia. The strong development in the-
se countries was offset by the development in Czech
Republic and Slovakia, where revenue decreased
mainly as a result of lower demand within property
services,
Operating profit before other items in Eastern Euro-
pe increased by 7% to DKK 113 million in 2010. De-
spite requests for price reductions from customers,
the operating margin increased by 0.3 percentage
point to 7.1% in 2010. This was due mainly to oper-
ating margin improvements in Slovakia, Slovenia,
Hungary and Poland, and was a result of cost sav-
ings and increased contract efficiencies following
roll-out and implementation of best practices.
BUSINESS DEVELOPMENT IN 2010
During 2010, in line with The ISS Way strategy, ISS
continued to enhance its response to customer
needs by focusing on further developing and refining
the value proposition to customers within selected
customer segments.
ISS also focused on securing service excellence by
driving the global implementation of best practices
and standard processes in 2010. Investments have
been made in excellence centres both globally and
1104204EogSN32232
Operalonal review | Management revew 11
locally and the excellence centres, which ensure a
continuous improvement in efficiencies, have now
been established for several service types. The de-
velopment of best practices within the excellence
centres is not only focused on the services ISS de-
livers but also the way in which the service is deliv-
ered and on specific service offerings for specific
customer segments.
ISS measures and monitors the overall business de-
velopment based on the following three measures:
e Revenue by customer segment
. Revenue by service delivery type
e Revenue by service type
The development within these three categories is
described in the following.
Revenue by customer segment
In line with an increased focus on developing mar-
ketleading value propositions across a number of
selected customer segments, ISS has as of 2010
split its revenue by a set of defined customer seg-
ments.
The segmentation of revenue by customer segment
follows 10 customer segments identified by ISS ba-
sed on the section classification level of the Interna-
tional Standard Industrial Classification.
Qur service offerings are increasingly tailored to
specific customer segments in order to address the-
se customers' explicit needs resulting in additional
value added.
ISS focuses on promoting a strong and uniform
commercial culture through deployment of a com-
mercial strategy methodology and to leverage its
platform towards selected customer segments.
The Business services & IT, Public administration
and Healthcare segments are among our most im-
portant and largest customer segments, and we fo-
cus on developing services solutions for these seg-
ments. Simultaneously, we focus øn service delivery
to the public sector, which includes both the Public
administration segment as well as part of the reve-
nue included in Healthcare, Transportation & In-
frastructure and Energy & Resources.
Revenue by service delivery type
Fundamentally, ISS's delivery model includes three
different ways of delivering services to customers.
Service solutions are offered either as single ser-
vices, multi services or integrated facility services. In
2010, ISS continued to develop and strengthen the
single service excellence concepts and integrated
facility services capabilities.
In 2010, single services, including key accounts,
multiservices and integrated facility services gener-
ated 64.8%, 16.5% and 18.7% of our revenue, re-
spectively, compared with 67.0%, 15.3% and 17.7%
in 2009. The development illustrates that the share
of revenue origin from delivering two or more ser-
vices or integrated service solutions increased by
2,2 percentage points in 2010 with a similar reduc-
tion in the share of revenue stemming from deliver
ing of single services. This development is a conti-
nuation of the trend in recent years and fully in line
with the strategic aim of becoming the leading global
provider of integrated facility services.
Revenue by service type
Cleaning services ISS's cleaning services offering
encompasses a range of services within daily office
and facility cleaning, hospital cleaning, food hygiene,
industrial cleaning, cleaning in transport systems,
dust control, washroom services and specialised
cleaning e.g. of windows, communication equipment
etc.
In 2010, cleaning services remained ISS's largest
business area with revenue of DKK 38.4 billion, rep-
resenting 52% of total Group revenue, unchanged
compared with 2009, In line with the strategy to
broaden the service platform, cleaning services rela-
tive share of total Group revenue has in recent years
continuously been diluted, while the revenue share
from support services, catering services and security
services in particular has continued to increase, In
2010, cleaning services share of revenue was un-
changed compared with 2009 as a result of a recov-
ery in recurring portfolio-based services within clean-
ing services, which in 2009 were impacted by reduc-
tions in volume on contracts, price pressure and low
incremental spendings by customers. In addition, the
change in focus from building the service platform
through acquisitions within other services than clean-
ing to utilising the existing service platform combined
with a number of divestments within other service
types has maintained cleaning services share of
revenue at 52% in 2010.
Properly services ISS's property services offering
encompasses building maintenance, technical main-
tenance, landscaping, pest control and damage con-
trol.
In 2010, revenue from property services amaunted
to. DKK 14.6 billion, representing 20% of total Group
revenue compared with 21% in 2009. In 2010, pro-
perty services which encompasses non-portfolio-
based services was still negatively impacted by the
1104204FogSN32233
Operationaf review | Manngement revaw 12
downturn in the construction-based industries e.g.
building and grounds construction leading to few
building installation projects and landscaping pro-
jects. Furthermore, revenue within Property services
was negatively impacted by a number of divest-
ments completed in 2010, most significantly the
waste management business in France, the non-
core building maintenance business in Spain and
the non-core property services business in Norway.
Support services ISS's support services offering
encompasses the operation of receptions, internal
mail handling, scanning and other office logistics,
call centres, manpower supply and outplacement
services.
In 2010, support services accounted for approxima-
tely 8% of total Group revenue, up almost 1 percen-
tage point compared with 2009. In absolute
figures, revenue in support services increased from
DKK 5.0 billion in 2009 to DKK 5.6 billion in 2010. In
2010, support services was positively impacted by
higher demand for outplacement services and cross
selling of services to mainly cleaning customers off-
set by lower demand for manpower supply services.
Catering services ISS's catering services offering
includes in-house restaurants, hospital canteens, ca-
tering services to remote sites, corporate catering
and office catering services such as coffee solutions.
In 2010, revenue from catering services amounted
to DKK 7.1 billion egual to 10% of total Group reve-
nue, up almost 1 percentage point compared with
last year. In 2010, catering services continued to be
positively impacted by cross selling to existing
customers combined with a gradual recovery in re-
venue from non-portfolio-based services within cate-
ring services e.g. event catering.
Security services ISS's security services offering
includes manned guarding, access control! and pa-
trolling of customer facilities and the installation of
alarm and access systems.
Revenue increased by DKK 0.6 billion to DKK 5.2
billion, equivalent to 7% of total Group revenue in
2010, unchanged compared with 2009. ISS's service
offering within security services was strengthened
further in 2010 through the acquisition of SDB Cisco
Ltd. in India which added approximately DKK 400
million in annual revenue. The increase in revenue
from security services was also positively impacted
by strong organic growth in Asia which was partly
offset by the divestment of the security business in
France.
Facility management services ISS's facility man-
agement offering includes on-site management of fa-
cility services, change management, space man-
agement and consulting. In 2010, revenue from facil-
ity management services increased by DKK 0.6 bil-
lion to DKK 3.2 billion, equivalent to 4% of total
Group revenue, the same relative share as the year
before. The increase was positively impacted by
start-up of remote site mining contracts in Australia.
ACQUISITIONS AND DIVESTMENTS
Following several years with a high number of ac-
quisitions in order to build the business platform glo-
bally, since mid-2008 ISS has tightened its strategic
and financial filter, leading to a more disciplined ac-
quisition policy and to a focus on exploiting the plat-
form to generate organic growth and improved ope-
rational performance. In 2010, one acquisition was
completed.
In August, ISS acquired a 49% ownership share of
SDB Cisco Ltd. in India, a well-recognised security
services provider in India, with approximately 80% of
revenue stemming from manned guarding. Through
the acquisition, ISS in India added security services
to its service platform, and can now provide the full
house of services. The acquisition added approxi-
mately DKK 400 million in annual revenue and
27,000 employees.
The strategic rationale behind selected acquisitions
was reviewed in the light of the ISS Way strategy,
which led to the identification and evaluation of cer-
tain activities that were either non-core to The ISS
Way strategy or lacked critical mass. Some of these
activities were divested in 2009, and additional nine
divestments were completed in 2010. The divest-
ments in 2010 comprise the non-core waste mana-
gement activities and security activities in France,
non-core building maintenance activities in Spain,
non-core property service activities in Norway, con-
tact centres in Denmark and the washroom activities
in Denmark, Norway and Sweden.
The divestments completed in 2010, of which the
majority of the activities were classified as held for
sale at 31 December 2009, resulted in a positive ef-
fect of DKK 46 million in other income and expen-
ses, net and an impairment loss on goodwill of DKK
9 million.
Towards the end of 2010, sales processes have
been initiated for additionally two non-core activities
in Western Europe, which have been classified as
held for sale at 31 December 2010.
1104204EogSN32234
Operational review 1 Management revew 13
We expect to continue a disciplined acquisition poli-
cy in the future and expect that such acquisition ac-
tivities will primarily take place in emerging markets,
either by expanding our presence in existing mar-
kets through bolt-on acquisitions or by establishing a
service platform in new markets. Future acquisitions
might also include selective competence enhancing
acquisitions in developed markets. We expect that
the average annual amount to be spent on acquisi-
tions in the short term will be approximately half a
billion Danish kroner (although the actual amount in
any given year will depend on the timing of transac-
tions).
FINANCING
ISS has committed long-term financing in place fol-
lowing the repayment of the remaining 2010 EMTNs
in September 2010.
The outstanding EUR 350 million of the 2010
EMTNSs was successfully repaid by proceeds raised
from the receivables backed securitisation of trade
receivables, which was launched in 2009 in five
countries and increased by five additional countries
during 2010. EUR 150 million were tendered in Ja-
nuary and the remaining EUR 200 million were re-
deemed at maturity in September 2010. The tender
in January resulted in an accounting loss of DKK 13
million as the bonds were bought back at a price
slightly higher than their nominal value.
In March 2010, ISS took advantage of the strong
capital market environment and successfully raised
EUR 127,5 million through a tap issue of the existing
8.875% 2016 Senior Subordinated Notes (increasing
this to a total of EUR 581.5 million). The proceeds of
this tap issue were intended for general corporate
purposes, including potential acquisitions, liquidity
and back-up for the refinancing of the 2010 EMTNs.
MANAGEMENT CHANGES
On 1 April 2010, the former Group COO Jeff Gra-
venhorst took over the responsibility as new Group
CEO replacing Jørgen Lindegaard. The Executive
Group Management team consists of Group CEO
Jeff Gravenhorst and Group CFO Jakob Stausholm.
SUBSEQUENT EVENTS
On 17 February 2011, the Group announced that it
contemplates launching an Initial Public Offering
(IPO) of shares of ISS A/S (the ultimate parent com-
Operatonal revæw | Management review 14
pany in Denmark) and to list its shares on NASDAQ
OMX Copenhagen.
The contemplated IPO is expected to consist primar-
ily of a sale of new shares to raise gross proceeds of
approximately DKK 13.3 billion, which are proposed,
together with amounts drawn under a new facilities
agreement to repay all amounts under the Group's
current senior secured facilities and second lien fa-
cility. A partial secondary sell-down of shares by the
existing shareholder, FS Invest I! S.å r.l., which is
indirectly controlled by certain funds advised by EQT
Partners and funds affitiated with Goldman Sachs
Capital Partners, is expected to cover the obligations
under the Management Participation Programme.
The new facilities agreement, which was put in place
on 18 February 2011, will be able to be drawn upon
subject to satisfaction of certain conditions prece-
dent, including that the offering of the shares of ISS
AIS contemplated by the IPO has occurred or will
occur contemporaneously with the new facilities
agreement's first utilisation. The new facility is in
place with a smaller number of relationship banks
and gives the flexibility to pay margins dependant on
our leverage at a given time.
On 17 March 2011, the Group announced the deci-
sion to postpone the IPO due to the market uncer-
tainty.
Additionally, the investment in the associate ISS In-
dustriservice AB, which was classified as held for
sale as per 31 December 2010, has been sold 4 Fe-
bruary 2011.
Apart from the above and the events described in
this annual report, the Group is not aware of events
subsequent to 31 December 2010, which are expec-
ted to have a material impact on the Group's finan-
cial position.
1104204EogSN32235
1104204EogSN32236
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 36-38.
In 2011, ISS will maintain its focus on key operational
objectives; (i) organic growth, (ii) operating margin and
(iii) cash conversion.
The increased economic stability seen in 2010 in seve-
ral of the markets in which ISS operates is expected to
continue, In addition, the economic uncertainty expe-
rienced in certain countries in Western Europe is ex-
pected to continue to impact the countries in which ISS
operates in this region. The general increase in de-
mand for our services seen in 2010 is expected to con-
tinue in 2011. In addition, the three major Corporate
Clients contract wins in the second half of 2010 will
positively affect revenue growth in 2011. Consequent-
ly, ISS expects revenue growth in 2011 to be approxi-
mately 4% assuming constant foreign exchange rates
and before the impact of any acquisition or divestment
in 2011. This expected revenue growth is negatively
impacted by approximately 1%-point related to the net
effect of the acquisition and the divestments completed
in 2010.
ISS increased its profitability in 2010 and delivered an
operating margin of 6.3% compared with 6.1% in 2009.
Through the increase in revenue combined with a ge-
neral margin improvement, ISS expects its operating
margin for 2011 to be slightly above the level realised
in 2010.
ISS will continue to prioritise cash flow and we will fo-
cuUs on managing the absolute level of debt supported
by a continued low level of acquisition spending and
continued robust cash conversion, which in 2011 is
expected to be at the level realised in 2010.
Outiosk 1 Managements review 15
FORWARD-LOOKING STATEMENT
This report contalns forward-looking statements, including,
hut not limited to, the guidance and expectations contained
in the "Outlook" section on this page. 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 varlations of
these words, as well as other statements regarding matters
that are not historicat fact or regarding future events or prospacts,
constitute forward-looking statements. ISS has based
these forward-iooking statements on its current views with
respect to future events and financial performance, These
views involve a number of risks and uncertainties that could
cause acfual results to differ materially from those predicted
in the forward-looking statements and from the past performance
of ISS, Although ISS belleves that the estimates and
projections reflected in the forward-looking statements are
reasonable, they may prove materlally incorcect, and actual
results may materially differ, e.g. as the result of risks related
to the facility service industry in general or ISS in particular
including those described in this report and other information
made available by ISS.
As a resuit, you should not rely on these forward-looking
statements. ISS undertakes no obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or othenwise, except to the extent
required by law.
Financial review
Success in execution of the ISS Way
strategy as well of signs of recovery
of the global economy meant that ISS
was able to show improvemenis on all
key operational objectives in 2010.
INCOME STATEMENT
Revenue amounted to DKK 74,101 million representing
year-on-year revenue growth of 9%, excluding the im-
pact of acquisitions and divestments. Revenue growth
was driven by organic growth of 3.5% with positive or-
ganic growth rates delivered by five of seven regions
and with Latin America and Asia once again delivering
double-digit organic growth rates. Revenue was positi-
vely impacted by exchange rate movements of 5%,
mainly stemming from an appreciation of AUD, NOK
and SEK against DKK. Revenue growth was impacted
by 2% negative growth from acquisitions and divest-
ments, net.
Staff costs increased by DKK 3,170 million, or 7%,
from DKK 44,568 million in 2009 to DKK 47,738 million
in 2010. This increase was due primarily to currency
exchange-rate movements and an increase in the over-
ali number of employees as a result of organic growth
and the acquisition of SDB Cisco Ltd. in India partly off-
set by the effect from completed divestments. Staff
costs as a percentage of revenue decreased slightly
from 64.6% in 2009 to 64.4% in 2010.
Consumabies increased by DKK 315 million, or 5%,
from DKK 6,044 million in 2009 to DKK 6,359 million in
2010. Consumables which comprise items such as
chemicals, food costs and uniforms amounted to 8.6%
as a percentage of revenue in 2010, a slight decrease
compared with 8.8% in 2009.
Other operaling expenses increased by DKK 1,152
million, or 9%, from DKK 13,325 million in 2009 to DKK
14,477 million in 2010 and other operating expenses as
a percentage of revenue totalled 19.5%, up slightly com-
pared with 19.3% in 2009. The increase was a result of
an increase in costs related to subcontractors which as a
percentage of revenue increased from 7,1% in 2009 to
8.0% in 2010, mainly as a result of the increase in num-
ber of global contracts, where ISS in certain countries,
1104204EogSN32237
Frnancial revew | Manngement review 16
where there is no ISS operation, relies on the use of
subcontractors.
Operating profit before other items amounted to DKK
4,895 million in 2010, an increase of 11% from DKK
4,238 million in 2009. The increase was a result of
improved operational performance and an increase in
revenue as a result of organic growth and positive ex-
change rate movements. The operating margin increa-
sed to 6.3% compared with 6.1% in 2009. This was due
mainly to an increase in operating margin in Western
Europe and as to a large extent a result of the actions
taken in 2009 to increase efficiencies and improve profi-
tability combined with positive organic growth.
Other income and expenses, net, represented a net
expense of DKK 77 million in 2010 compared with a net
expense of DKK 540 million in 2009. Expenses of DKK
113 million related to prior year adjustments in Norway,
which was partly offset by a net gain of DKK 46 million
related to divestments, mainly stemming from a gain
from the divestment of ihe washroom activities in Den-
mark, Norway and Sweden partly offset by a loss from
divestment of mainly the waste management activities
and the security activities in France, both of which were
classified as held for sale at 31 December 2009.
In 2009, other income and expenses, net, represented
a net expense of DKK 540 million mainly related to
restructuring projects of DKK 426 million in France, Ger-
many, Spain, Australia, Belgium, Denmark, Finland and
the United Kingdom as well as impairment losses rela-
ted to activities classified as held for sale of DKK 159
million partly offset by a net gain from divestments of
DKK 83 million primarily related to the sale of the non-
core laundry activities in Sweden and Norway.
Financial Income and expenses, net represented an
increase in net expenses by DKK 188 million, or 12%,
to DKK 1,772 million in 2010 from DKK 1,584 million in
2009. The reason for the increase was mainly an in-
crease in interest expenses, net of DKK 115 million and
a decrease in gain related to partial redemption of
EMTNSs of.DKK 52 million and a decrease in amortisa-
tion of gain from settlement of interest rate swaps of
DKK 45 million partly offset by mainly a decrease in ex-
penses related to changes in fair value of hedges of
DKK 47 million. '
In 2010, financial income and expenses, net mainly
1104204EogSN32238
comprised DKK 1,506 million of net interest expenses,
DKK 190 million in expenses related to changes in fair
value of hedges, DKK 99 million in amortisation of fi-
nancing fees, DKK 21 million in net gains on foreign ex-
change, DKK 15 million refated to amortisation of gain
from settlement of interest swaps and a loss of DKK 13
million related to repayment of the 2010 EMTNs.
Income taxes increased from DKK 480 million in 2009
to DKK 659 million in 2010. The effective tax rate was
38.6% in 2010 compared with 48.9% in 2009, calcula-
ted as the consolidated tax expense of DKK 659 million
divided by the Profit before tax and goodwill impairment
1] amortisation and impairment of brands and customer
contracis of DKK 1,704 million. The tax expense in
2010 was adversely impacted by the rules on limitation
on the deductibility of financial expenses in Denmark of
approximately DKK 307 million compared with DKK 299
million in 2009. The effective tax rate amounts to 34.1%
when adjusted for the impact of the limitation on deduc-
tibility of financial expenses. The net effect on the inte-
rest limitation in 2010 amounted to DKK 77 million com-
pared with DKK 75 million in 2009. In addition, the tax
expense in 2010 was adversely impacted by the newly
introduced Contribution économique territoriale (CET) in
France replacing the Taxe professionnelle which histo-
rically has been recognised as part of staff costs as well
as write down of tax assets in certain countries in We-
stern Europe following divestments and classification of
activities as held før sale. These negative effects have
been partly offset by Danish credit possibilities for paid
withholding taxes that are non-proportional to the profit
before tax.
Goodwill inpairment amounted to DKK 259 million of
which DKK 250 million derived from impairment tests
and DKK 9 million derived from divestment of busines-
ses. Impairment losses derived from impairment tests of
DKK 250 million related to ISS Greece and was mainly
a result of an increase in the discount rate applied fol-
lowing an increase in the interest rate as well as chal-
lenging market conditions. Impairment losses of DKK 9
million derived from divestment of businesses related to
the divestment of the non-strategic call centre activities
in Denmark and the property services activities in Ire-
land.
In 2009, goodwill impairment amounted to DKK 721 mil-
lion, of which DKK 100 million derived from impairment
tests and DKK 621 million derived from divestment of
businesses, including classification of activities as held
for sale. Impairment losses derived from impairment
tests comprised losses of DKK 100 million in Germany
whereas impairment losses of DKK 621 million derived
from divestments mainly comprised losses related to
the waste management activities in France classified as
held for sale on 31 December 2009 as well as certain
fumancal rewew I Management revew 17
other activities sold during 2009 or classified as held for
sale on 31 December 2009.
A detailed specification is included in note 11 to the
consolidated financial statements.
ÅAmortisation and impairment of brands and cus-
fomer contracis amounted to DKK 435 million in 2010,
down from DKK 554 million in 2009. The decrease of
DKK 119 million compared with 2009 was mainly a re-
sult of an impairment loss on customer contracts of
DKK 68 million in 2009 related mainly to classification of
the waste management business in France as held for
sale on 31 December 2009 as well as a general
decrease in the amøortisation of customer contracts due
to the use of the declining balance method.
Tax effect of goodwill impairment and amortisation and
impairment of brands and customer contracts, which is
presented separately in the income statement to show
the effective tax percentage before impairment and
amortisation of intangibtes, was DKK 116 million in
2010 compared with DKK 179 million in 2009. The
decrease was due to the decrease in amortisation and
impairment of brands and customer contracts.
Not profit/(loss) improved from a loss of DKK 594 mil-
lion in 2009 to a profit of DKK 467 million in 2010, and
was positively impacted by growth in revenue and im-
proved operational performance in 2010, combined with
a decrease in net expenses recognised as other income
and expenses, net as well as lower non-cash expenses
related to goodwill impairment and amortisation and im-
pairment of brands and customer contracts compared
with 2009. A profit of DKK 447 million was attributable
to the owners of ISS, whereas a profit of DKK 20 million
was attributable to non-controlling interests.
STATEMENT OF CASH FLOWS
Cash flow from operating activities was DKK 3,932
million in 2010, up. DKK 4671 million from DKK 3,471 mil-
lion in 2009. The development was due primarily to an
increase in operating profit before other items of DKK
457 million, a decrease in cash outflow regarding pay-
ments related to other income and expenses, net of
DKK 182 million partiy offset by a decrease in cash out-
flow from changes in working capital of DKK 52 million
and higher tax payments of DKK 312 million.
Cash inflow from changes in working capital of DKK 63
million was due to a negative cash flow from trade re-
ceivables as a result of the increase in revenue of 7%
and despite a reduction of debtor days by approximately
one day. This negative effect was partly offset by a po-
sitive impact from trade payables mainly stemming from
the increase in activity level.
Payments related to other income and expenses, net of
DKK 171 million mainly related to restructuring projects
initiated and expensed in 2009.
Income taxes paid increased from DKK 311 million in
2009 to DKK 623 million in 2010 as a result of improved
performance in 2010 leading to higher tax payments. In
addition, income taxes paid in 2009 were impacted by
tax refunds.
Cash flow from investing activities in 2010 was a net
cash outflow of DKK 695 million, of which DKK 470 mil-
lion related to acquisitions completed during 2010 and
payment of earn-outs and deferred payments on acqui-
sitions completed in previous years. The sole acquisi-
tion completed in 2010 was the 49% ownership in SDB
Cisco Ltd. in India. The cash outflow from acquisitions
was more than offset by proceeds from divestments of
DKK 591 million that related primarily to the divestments
of non-core activities in the Nordic region and France.
Investments in intangible assets and property, plant and
equipment, net, (excluding acquisition-related intan-
gibles) amounted to DKK 864 million in 2010, represen-
ting 1.2% of revenue. Investments in financial assets,
net, amounted to an inflow of DKK 48 million in 2010
primarily related to sale of government bonds in ISS's
insurance captive company which activities ceased in
the second half of 2010.
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 partly offset by
DKK 22 million related to divestments. Investments in
intangible assets and property, plant and equipment,
net, (excluding acquisitionrelated 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.
Cash flow from financing activities in 2010 was a net
cash outflow of DKK 3,096 million. This was mainly a
result of repayment of borrowings of DKK 3,395 million
and interest payments, net of DKK 1,761 million, partly
offset by proceeds from borrowings of DKK 1,546 milli-
on. Repayment of borrowings was a result of DKK
2,606 million related to repayment of the 2010 EMTNs
and repayment of DKK 789 million on the Acquisition
and Term Loan facilities. Proceeds from borrowings
mainly related to additional debt raised under the secu-
ritisation programme of DKK 1,529 million since year-
end 2009.
Cash fiow from financing activities in 2009 was a net
1104204EogSN32239
Financial review I Manayement review 18
cash outfiow of DKK 1,301 million. This was mainly a
result of net interest payments of DKK 1,681 million and
repayment of borrowings of DKK 5,177 million due pri-
marily to settiement of EUR 500 million of ine 2010
EMTNs in July 2009 as well as amortisation on senior
facilities. This was partly offset by drawings on credit fa-
cilities 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 acquisition
facility up until 11 May 2009 when the acquisition facility
expired.
Cash conversion Changes in working capital was DKK
445 million, which resulted in a cash conversion of 99%
in 2010 compared with 97% in 2009.
Cash conversion ratios for individual years may vary.
The cash flows from operations for the individual pe-
riods 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 4.
STATEMENT OF FINANCIAL POSITION
Total assets amounted to DKK 46,051 million at 31 De-
cember 2010, of which DKK 29,020 million represented
non-current assets, primarily acquisition-related intangi-
ble assets, and DKK 17,031 million represented current
assets, primarily trade receivables of DKK 10,896 mil-
lion.
intangibie assets increased by DKK 666 million from
DKK 25,358 million at 31 December 2009 to DKK
26,024 million at 31 December 2010. Intangible assets
comprise primarily goodwill, customer contracts related
to a significant number of acquisitions over the years.
At 31 December 2010, goodwill amounted to DKK
23,096 million, an increase of DKK 834 million or 4%
from last year. Additions related to acquisitions in 2010
amounted to DKK 230 million white currency adjust-
ments increased goodwill by DKK 1,218 million. Good-
will was reduced by DKK 355 million due to goodwill
transferred to assets held for sale and due to impair-
ment losses of DKK 259 million that related to impair-
ment losses derived from impairment tests of DKK 250
million in Greece and impairment losses derived from
divestments of DKK 9 million related to the divestment
of the non-core call centre activities in Denmark and the
property services business in Ireland.
Goodwill is related to acquisitions, carried out under va-
rying circumstances and at different stages of macroe-
conomic cycles. The goodwill is distributed on most of
the countries in which the Group operates. The acqui-
red companies, to which the goodwill relates, 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 approxima-
tely 18% of the total carrying amount of goodwill.
Customer contracts decreased by DKK 217 million to
DKK 2,571 million at 31 December 2010. Amortisation
and impairment of customer contracts of DKK 428 was
partly offset by DKK 187 million in positive foreign ex-
change adjustments.
Assets and liabilities held for sale amounted to DKK
824 million and DKK 255 million, respectively, and in-
clude the assets and liabifities attributable to two non-
core activities in Western Europe for which sales pro-
cesses have been initiated.
Non-current assets other than intangible assets
amounted to DKK 2,996 million at 31 December 2010,
an increase of DKK 280 million from DKK 2,716 million
at 31 December 2009, The increase of DKK 280 million
related mainly to an increase in deferred tax assets as a
result of recognition of deferred tax assets in France.
Trade receivables increased from DKK 10,130 million
at 31 December 2009 to DKK 10,896 million at 31 De-
cember 2010. This increase was a result of the increase
in revenue of 7% and despite a reduction in debtor days
from 45.3 in 2009 to 44.4 in 2010.
Cash and cash equivalents increased from DKK 3,353
million at 31 December 2009 to DKK 3,603 million at 31
December 2010, of which DKK 2,428 million resided at
Group level with the remainder at country level. The
cash position was positively impacted by working capital
inflow in Q4 2010. The cash position may fluctuate sig-
nificantly over the months due to the frequency and tim-
ing of cash collection and outgoing paymenits, e.g. salary
payments.
Other current assets, comprising inventories, contract
work in progress, tax receivables, other receivables,
prepayments and securities amounted to DKK 1,708
million at 31 December 2010, a decrease of DKK 247
million from 31 December 2009. Other receivables
decreased from DKK 547 million at 31 December 2009
to DKK 359 million at 31 December 2010 as the figure
in 2009 was impacted by receivable sales price related
to divestments,
Total equity increased from negative DKK 611 million
at 31 December 2009 to positive DKK 487 million at 31
December 2010, of which DKK 464 million was equity
attributable to the equity holders of ISS Global A/S. The
total change in equity for the year attributable to the
equity holders of ISS Global A/S was an increase of
DKK 1,096 million.
1104204EogSN32240
Financial revew I Management revew 19
Net income and expenses recognised in equity in-
creased eguity by DKK 1,019 million. This included po-
sitive currency adjustments of DKK 613 million relating
to investments in foreign subsidiaries, a net profit of
DKK 467 million and a positive effect of DKK 52 million
related to hedges net of tax. Offsetting this was actua-
rial losses, net, including the effect of the asset ceiling
on defined benefit pension schemes that amounted to
DKK 113 million.
The equity ratio, defined as total equity attributable to
owners of ISS Global A/S relative to total assets, in-
creased from a negative ratio of 1.4% at 31 December
2009 to a positive ratio of 1.0% at 31 December 2010.
Non-current loans and borrowings decreased from
DKK 21,354 million at 31 December 2009 to DKK
20,780 million at 31 December 2010 primarily due to a
decrease in the non-current part of the Acquisition and
Term Loan facilities.
Other non-current liabilities comprise pensions and
similar obligations, deferred tax liabilities and provisions,
and amounted to DKK 2,384 million at 31 December
2010 compared with DKK 2,132 million at 31 December
2009. The increase was mainly a result of an increase in
pensions and similar obligations of DKK 216 million.
Pensions and similar obligations amounted to DKK
1,053 million at 31 December 2010, compared with
DKK 837 million at 31 December 2009, The majority of
the Group's pension plans are defined contribution
plans. The Group's contributions to such plans are ac-
crued and expensed on an ongoing basis. In certain
countries, mainly France, Germany, the Netherlands,
Sweden, Switzerland, Norway and the United Kingdom,
ISS has defined benefit plans. As mentioned above, ac-
tuarial losses of DKK 113 million, net of tax, including
the net effect from the asset ceiling, were taken directly
to equity. The losses were primarily a result of an in-
crease in the discount rate applied in Switzerland and a
number of other countries as well as an increase in the
pension obligation in Norway due to a general announ-
cement by the authorities that the plan is considered to
be under funded which will lead to additional contribu-
tions in coming years. These losses were partly offset
by gains in Sweden, the Netherlands and Italy. Due to ,
the current market conditions, the determination of the
discount rates in the individual countries is subject to
uncertainty. Exchange rate movements increased the
net pension obligation by DKK 80 million.
Provisions amounted to DKK 740 million at 31 Decem-
ber 2010, of which DKK 361 million had an estimated
maturity of more than one year. Comparative figures at
31 December 2009 were DKK 802 million and DKK 379
million, respectively. The provisions comprise acquisi-
tion-related provisions and various obligations incurred
in the course of business, e.g. self-insurance obligati-
ons, labour-related obligations, legal obligations,
restructurings, contract closures, etc.
Other current liabilities comprising current loans and
borrowings, trade payables, tax payables and provisi-
ons, amounted to DKK 11,400 million at 31 December
2010 compared with DKK 10,556 million at 31 Decem-
ber 2009. The decrease in current loans and borrowings
of DKK 605 million was mainly related to repayment of
2010 EMTNSs, which was partly financed from debt rai-
sed under the securitisation programme at year-end
2009.
Other liabilities amounted to DKK 10,745 million at 31
December 2010 compared with DKK 10,316 million at
31 December 2009. Other liabilities consist mainly of
accrued wages and holiday allowances, tax withhol-
dings, VAT and other payables and accrued expenses.
Carrying amount of net debt amounted to DKK 24,986
million at 31 December 2010, down DKK 144 million
from DKK 25,130 million at 31 December 2009. The
decrease was mainly related to repayments on the Ac-
quisition and Term Loan facilities as well as net pro-
ceeds from divestments and acquisitions, partly offset
by a negative impact from foreign exchange. At 31 De-
cember 2010, noncurrent loans and borrowings was
DKK 20,780 million, current loans and borrowings
amounted to DKK 7,838 million while securities, cash
and cash equivalents and receivables from companies
within the ISS Group totalled DKK 3,632 million.
1104204EogSN32241
Fmancsatrevew | Management review 20
Strategy -- The ISS Way I Managernent review 21
Strategy - The ISS Way
During 2010, we made substantial
progress in implementing The ISS Way
strategy and a number of key initiatives
to enhance customer focus, drive the
deployment of best practices and secure
service excellence.
STRATEGY AND BUSINESS MODEL
ISS's business model is based on creating value for our
customers by offering a range of facility services
withincleaning services, support services, property ser-
vices, catering services, security services and facility
management services. ISS's facility management ap-
proach represents a unique offering whereby the ser-
vice delivery can be integrated into one seamless solu-
tion.
The ISS Way strategy, launched in 2008, is based on
our four strategic cornerstones; customer focus, people
management, the IFS strategy and a multi-local ap-
proach. Combined with our corporate values and lea-
dership principles, these cornerstones provide the foun-
dation on which we pursue our vision to "Lead facility
services globally — by leading facility services locally".
The implementation of The ISS Way is well under way
and has shown substantial progress during 2010. We
are uniquely positioned to grasp the huge opportunities
in our markets, not least delivering integrated facility
service solutions to multinational corporations across
numerous countries.
ISS also focused on securing service excellence by dri-
ving the global implementation of best practices and
standard processes in 2010. Investments have been
made in excellence centres both globally and locally
and the excellence centres, which ensure a continuous
improvement in efficiencies, have now been established
for several service types. The development of best
practices within the excellence centres is not only focu-
sed on the services ISS delivers but also the way in
which the service is delivered and on specific service of-
ferings for specific customer segments.
1104204EogSN32242
CORPORATE VALUES
HONESTY - We respect
Our haoneésty is not negotiable, We respect
our customers, our colleagues and our
company. Honesty comes first.
enn”
ENTREPRENEURSHIP — We act
Action speaks louder than words. All our
employees have 2 "licence to act" and are
expected to do so.
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 passton for quality.
We deliver on our promises.
The continued successful implementation of The ISS Way
strategy is the foundation for robust and profitable growth
in the years to come.
HOW WE OPERATE OUR BUSINESS
Our corporate values, leadership principles and strategic
comerstones, together with The ISS Way strategy, provi-
de the roadmap by which we operate our business.
Corporate values
Ultimately, The ISS Way strategy is founded on the four
corporate values on which we base our strategic, opera-
tional and financial plans and actions.
Leadership principles
Our set of international leadership principles define the at-
titudes and behaviour ISS expects from its leaders:
AtISS we
. put the customer first
e have a passion for performance
" encourage innovation
e treat people with respect
e lead by example
e lead by empowerment
. develop ourselves and others
… believe teamwork is at the heart of our performance
« ISS is one company with shared values, one brand and
one strategy.
These principles, which are currently being integrated in
the processes surrounding recruitment, appraisals, deve-
lopment and talent management, are applicable for all ISS
leaders, Furthermøre, an ISS University programme on
the leadership principles was launched during 2010. As
the principles transiate our values into actions and beha-
viours by describing successful leaders, this initiative will
further enhance our leadership capabilities.
Our strategic cornerstones
The ISS Way is built on our strategic cornerstones: cus-
tomer focus, people management, the IFS strategy, and
our multilocal approach:
Customer focus We put customers in focus. We serve
our chøsen customers locally, regionally and globally with
specific value propositions through focusing on identifying
customer needs and wants. We build sustainable part-
nerships with customers who value our approach to ser-
vice.
People management People management is our core
competence. We excel in people management in order to
deliver excellence in our service offerings. We mitigate
1104204EogSN32243
Strategy - The ISS Way I Management review 22
risks and volatility transferred from our customers by ap-
plying leadership skills, Human Resource and HSE poli-
cies, employee training and skills in complying with local
labour legislation. We obtain these benefits by sharing
knowledge and best practices within the Group.
IFS strategy IFS is our strategic aim. We advance our
service offering towards IFS by building the ISS House of
services and developing our facility management capabili-
ties. We self-deliver multiple site-based services within the
ISS House and we integrate our service deliveries seam-
lessly in our customers' organisations.
IMluiti-local approach We strike a balance between auto-
nomy and alignment. We operate with strong local leader-
ship and autonomy to ensure timely responses to opera-
tional demands and to benefit from knowledge of local
market conditions. We also implement our Group funda-
mental policies and strategic direction to enable us to ex-
ploit best practices and leverage our geographical foot-
print. We are disciplined and use tight financial control.
OUR SERVICE OFFERING
ISS's service offering is developed to meet customer
needs. Our fundamental offering is iilustrated by the ISS
House, which has five pillars: cleaning services, support
services, property services, catering services and security
services. 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 meet them.
Our service concepts are developed to address specific
customer needs. This entails defining versions of the ISS
House that are built on ISS's fundamental competencies
and presenting an integrated solution of services custom-
ised for a given segment. For example, the ISS House for
the Business services & IT segment is illustrated on the
opposite page.
ISS focuses primarily on delivering site-based services
based on portfolio contracts, where ISS employees be-
come an integrated part of the clients' daily operations.
ISS also offers selected route-based services, such as
pest control.
The delivery model
ISS distinguishes between services offered and the way
in which these services are delivered. The three delivery
models are: single services, multi services and integrated
facility services. During 2010, we continued to develop
and strengthen our single service excellence and integra-
ted facility service capabilities.
Strategy - The ISS Way I Management review 23
THE ISS HOUSE
For the Business & IT segment
"FACILITY
MANAGEMENT
Supply Chain Risk Service Consultancy & Financiat Adm. Change Fadlity Man.
Management Management Desk Advisory Services — &Reporting Management System (CAFM)
Procurement Risk Identification Consumer Outsourcing Budgeting (Facility — Process Changes System & Process
Services Business Interface Partner Selection Related Costs) People Changes Implementation
Supplier Setection Continuity Fan Call Logging Construction Property Taxes Capital Projects Ongoing Support &
Supplier Disaster Recovery — Workflow Advisory (TCO) Insurance Maintenance
Performance Management Benchmarking Administration Performance
Reporting
Cc rr REN me ERE Er TEE EET rr TEE aa ERSkk, AR TE NT ER RR]
SUPPORT PROPERTY CATERING SECURITY
SERVICES SERVICES SERVICES SERVICES
Mesa pl & URE
internal Cleaning Front of House Building Maintenance Contract Catering Guarding
Daily Office Cleaning Switchboard (On-site) Preventive Maintenance Staff Dining Manned Guarding
Washroom Services Reception Services Handyman (Light Reactive z Management Contract Armed Guarding
Tee- & Computer Hostess Services Maintenance) Staff Dining Mobile Patrols
Cleaning MRE Services — Operational Contract ”Admission Control
Dust Control Back of House Building Installations Hospitality Serve — External & Internal
Collection & Deployment Printing &Copying & Fabric Executive Dining Keys & Cards
of Mats (On-Site)
Storage Management
Repairs & Replacements
Conference Facilities
Cash in Transit
Carpet Cleaning (Off-site) Lifts & Escalator Services Beverages incl.
Laundry Services Office Furniture Plumbing Servicés Colfee/ Tea Surveillance
Furniture Cleaning Management Carpentry Services Fru OL ENE Monitoring (CCTV)
Interior Landscaping Painting Services br SERDERNRRNP SNE TVENDE Alarm Response
External Cleening & Decor (Horticuitural Glazing Services Take-away Staff Dining
Emergency Evacuation
mr & Objet d'art) ”
Window Cleaning — Mason Services Vending Services
IR Statimnary / Office eee
Facade Cleaning Suppli Building Management om Technical Installations
Road Sweepi pplies Systems Service & Installation of mm
ping Document Handling Vending Machines Fire & Gas Detection
Grounds Cleaning (On-site) Supply & Refilling of Burglary Detection
Pavement & Sidewalk
Services (Sweeping 7
Document Management
& Archiving (Off-site)
Grounds Maintenance
Landscaping
Vending Machines
CCIV
Alarm Systems
Snow Removal) Mail Handling Grounds Maintenance Events Catering Access Control Systems
. . Shipping & Receivables Road Services Off-site Produced & mi
Technical Cleaning (Non-core Items) Delivered E8B Car Parking Control
Specialised Cleaning e.g. Moves, Adds & Changes Environment Off-site Dininc Re , .
I i Clea i -site Dining Services Security Duties
Fxtures, Lightning, Call Centre (Off-site) Management (Large Kitchens) - -
Duct Cleaning, In Bound & Out Bound Pest Control Event Management Visitor Escorting
Height Cleaning etc.
1104204EogSN32244
Welfare Facilities
Sports facilities (Indoor &
Outdoor)
Recreational & Medical/
Waste Management
Refuse Collection
& Recycle Management
Energy
Phystotherapy Services Energy Management
tabour Supply Water Supply
—=———— tghing Romer
Temporary Workers HVAC (ind Cooling)
Search & Selection
(Recruitment)
Damage Control!
Loss Prevention
Damage Recovery
Dehumidification
Lost Property
Workplace Safety
First Aid Services
1104204EogSN32245
With single service outsourcing, the customer buys one
service solution from ISS, outsourcing of catering ser-
vices, for instance.
With multi service outsourcing, which consists of two or
more services but not a fully integrated solution, the
customer achieves the same benefits as with single ser-
vice outsourcing with the additional benefits of service in-
tegration where possible.
With integrated facility service solutions, ISS delivers two
or Møre service under one contfract with a single point of
contact on-site, which allows ISS to integrate the facility
service functions taken over by ISS at the customer's
premises. The customer receives both the full potential of
single service outsourcing and the advantages of inte-
grating services, including cost efficiencies and a more
efficient and flexible service setup.
THE ISS WAY-STRATEGY
- IMPLEMENTATION STATUS
After a period of building our business platform through
acquisitions, our focus has now changed to unleashing
the full potential of our unique platform. We are well un-
derway with implementing The ISS Way based on a
number of key strategic priorities, where central themes
are focus and alignment.
We are pursuing standardisation, best practice and
knowledge sharing across the organisation. Excellence
centres and knowledge forums have been established
and are contributing to further increasing the efficiency
and consistency of our service delivery. Experts from
corporate, regional and country levels are working to-
gether in various global service forums, such as catering
services and security services, to further align key ISS
business processes and procedures.
Further, The ISS Way is promoting a strong and uniform
commercial culture through the deployment of a com-
mercial strategy methodology and ensuring market-
leading value propositions. Our service offerings are in-
creasingly tailored to specific customer segments to ad-
dress these customers' explicit needs, which adds more
value. We are also focusing on services within which we
consistently deliver service excellence and that are most
suitable for integration and are therefore consistent with
our IFS strategy.
In 2010, ISS expanded its portfolio of multi-national
customers procuring services in multiple jurisdictions
Strategy - The ISS Way I Managemenl review 24
through a number of major new contract wins and a
contract extension with a key customer while continuing
to invest in expanding the global Corporate Clients orga-
nisation established in 2007. This is a huge market op-
portunity for ISS and The ISS Way will continue to contri-
bute to ISS's ability to both win and successfully deliver
contracts to these customers.
The ISS Way focuses on organic growth and entails a
consolidation phase after a period of high acquisition vo-
lume in which ISS successfully built its existing business
platform.
THE ISS VALUE CHAIN
Qur strategy, The ISS Way, is being implemented by the
application of our management tool, the ISS Value Chain.
The links in the ISS Value Chain are best illustrated by
starting at the Business Growth end. The shared purpose
of our existence at ISS is to create shareholder value.
This emerges from profitable growth which in turn is dri-
ven by satisfied customers who expand their business
with ISS and renew their contracts. Customer satisfaction
is founded on capable employees who are engaged in
their jobs and motivated by being part of a strong team.
Capable employees are employees who have been trai-
ned to deliver 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 the services we choose to deliver to
these segments. Acquisitions are a useful too! in the con-
tinued 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.
The ISS Value Chain is our primary management tool
applied across the entire organisation which is designed
to ensure a structured and robust approach to the imple-
mentation of The ISS Way at a strategic, tactical and
operational level. It forms a central part of The ISS Way
of thinking and working. Management at all levels of the
organisation 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.
TRE ISS VALUE CHAIN
Customer
»Experience
Implementation of The ISS Way and the application of
the ISS Value Chain are supported by an ISS Universi-
ty programme for top management that addresses our
strategy and implementation tools — all of which drive
focus and alignment.
OPERATIONAL OBJECTIVES
ISS seeks to maintain and enhance operational effi-
ciency by focusing on three well-established operatio-
nal objectives which are used throughout the Group: (i)
organic growth, (ii) operating margin, and (iii) cash con-
version.
Organic growth
ISS's objective is to focus on organic growth through
new sales and cross-selling of service solutions to both
new and existing customers. ISS will aim to continue to
leverage its international market position and service
offering in order to increase its locaf market positions
and drive organic growth. ISS continue to work with a
wide range of initiatives, including the further develop-
1104204EogSN32246
Strategy - Ihe ISS Way t Management revww 25
Servicé
Concept
Employee
Engagement
Service
Value
ment of the Corporate Clients organisation, enhancing
our focus on specific customer segments and imple-
menting commercial planning processes and tools.
Operating margin
ISS's objective is to maintain or improve its operating
margin. ISS seek to improve operational efficiencies by
increasing its local positions and operational densities,
as well as by implementing group-wide excellence and
best practice initiatives.
Gash conversion
ISS's objective is to continue to maintain a robust rate
of cash conversion primarily by operating in a manner
that optimises working capital. Through this approach,
ISS expects to continue to generate a high level of po-
sitive cash flow from operations. ISS targets a conti-
nued consistent robust cash conversion.
Corporate Responsibility I Management review 26
Corporate responsibility
Ås a global company with more than
520,000 employees serving 200,000
customers in more than 60 countries, ISS
influences the lives of many people through
providing employment and training as
well as providing safe and healthy work
environments for millions of employees
and customers in the facilities we ser-
vice.
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. The-
refore CR is an integral part of our values and busi-
ness strategy and is closely linked to The ISS Value
Chain. Developing our values into concrete actions is
also our response to demand from several stakehol-
der groups, e.g. existing and potential employees
and customers. The leading global companies requi-
re a constant CR performance, which is a key factor
in winning and retaining contracts in the IFS custo-
mer segment.
ISS has made a strong commitment as a signatory
and upporter of the United Nations Global Compact
since its inception in 1999. In line with membership
regulations, ISS is committed to aligning strategy and
operations with the ten Global Compact principles on
human rights, labour rights, environmental protection
and anti-corruption. ISS respects, supports and pro-
motes human rights as stated in the United Nations
Declaration of Human Rights and the Core Conven-
tions of the International Labour Organisation.
CORPORATE RESPONSIBILITY AT ISS
As such, Corporate Responsibility for ISS means our
commitment to contributing to a sustainable econo-
mic development and responsible business practices
by:
1104204EogSN32247
6 Giving people an opportunity to enter the labour
market;
« Working with our employees and the local com-
munity and society at large in improving em-
ployees' lives in ways that support sustainable de-
velopment and our business;
. Ensuring fair and equal treatment and no discrimi-
nation or harassment;
+ Respecting employee's right to collective bargai-
ning and the right to join trade unions;
o Supporting introduction of minimum wages and
compliance with working time regulations;
s Avoiding use of child labour as well as forced or
compulsory labour;
» Providing proper working conditions including a sa-
fe working environment for our employees;
Managing our business activities in an environ-
mentally responsible way;
e Conducting our business in a lawful manner;
. Competing for business on fair terms and solely on
merits of our services;
« Combating corruption and bribery;
+ Carrying out our activities according to principles
of good corporate governance; and
Ensuring that the social, environmental and ethical
commitments of ISS are reflected in dealings with
customers, suppliers and other stakeholders
GOMPULSORY REPORT
This CR chapter does not constitute ISS's full report
on Corporate Responsibility. The full CR Report as
per section 994 of fhe Danish Financial Statements
Act is available at www.issworld.com and in
accordance with instructions from the UN Global
Compact to the members; the CR Report also serves
as ISS's communication on progress in implementing
the ten principles of the Global Compact.
QUR APPROACH TO CORPORATE RESPON-
SIBILITY
We have adopted a principles-based approach to Cor-
porate Responsibility that contributes to sustainable
development as defined by the international communi-
ty. This approach effectively integrates universally ac-
cepted principles into the way we do our business,
forming a foundation that is embedded in our Corpora-
te values, our Code of Conduct and our business stra-
tegy, The ISS Way. In line with The ISS Way, ISS
holds a unique position in contributing to the following
focus areas:
+ facilitating the right to work;
. non-discrimination, equal opportunities and diversity;
and
& access to education
Our initiatives
In 2010, ISS established a Health, Safety and Envi-
ronment (HSE) and Corporate Responsibility (CR)
function to set group-wide HSE and CR strategies and
policies, develop value propositions for our customers,
facilitate knowledge sharing and provide the best advi-
ce and coaching on HSE practices.
As our business is based on people, the first initiative
addressed by the HSE and CR function was to work
on the management of health and safety risks. A
Group HSE Vision and a Group HSE Policy was deve-
loped. Our HSE Vision is called '100':
e 1: We aim to be number 1 in our industry and recog-
nised as an industry leader in the way we deliver
health, safety and environmental performance;
. 0: We operate with 0 fatalities at our workplaces;
and
+ 0: We incur 0 serious incidents and occupational in-
juries at our workplaces.
A Group Health, Safety and Environment Manual has
been developed that outlines the key HSE require-
ments for development and implementation of effective
HSE management in the ISS Group in accordance
with internationally recognised standards. The Manual
sets minimum requirements and is a framework for the
countries to develop and tailor their HSE management
system to their specific activities and risk exposure le-
vels. Systematic risk management is fundamental for
effective HSE management within ISS. The aim is that
by the end of 2011, all countries must comply with the
requirements of the Group HSE Manual.
Another initiative was the development of ISS Safety
Rules to align our behaviours when carrying out our
daily tasks. The Rules were launched in September
1104204EogSN32248
Corporate Responsibilty | Management review 27
2010 with campaigns carried out in individual countries
to ensure commitment to these rules. The Rules cover:
. Stopping unsafe work
+ Work permits
+ Energy isolation
+ Electrical safety
+ Confined space entry
. Working at heights
s Housekeeping
+ Driving safety
+ Manual handling
» Working with chemicals
In order to identify the material issues relevant to ISS
in relation to our commitment to align our operations to
the ten UN Global Compact principles, ISS, with the
help of an external consultant, conducted a materiality
assessment to identify those human rights, labour
practices, environmental and Anti-Corruption issues of
greatest significance to our stakeholders and our futu-
re success topics in accordance with the United Nati-
ons Global Compact (UNGC).
This led us to strengthen the Code of Conduct and our
International Human Resource Standards in areas
such as Human Rights, Anti-Corruption, Forced and
Compulsory Labour, Child Labour and Working Hours.
In 2010, we also developed an Anti-Corruption Policy
in line with our Code of Conduct. To support our zero
tolerance Anti-Corruption policy and the importance of
our Competition Guidelines, 311 people from 32 coun-
tries have received training in these areas in 2010.
In 2011, we will be rolling out an e-learning module on
Anti-Corruption to further train our employees about
our Policy.
ISS has developed a whistleblower policy to enable all
ISS employees, business partners and other stakehol-
ders to report any suspected violations or concerns re-
lating to any matter of exceptional gravity or sensitivity.
The Policy was approved by the Board and subse-
quently submitted to the Danish Data Protection Agen-
cy for approval in October 2010.
In terms of responsible procurement, ISS developed a
Supplier Self-Assessment that was sent to our major
vendørs covering issues such as our Code of Conduct,
Forced Labour, Non-discrimination, Human Rights,
and Child Labour. This is to ensure that we also inclu-
de the supply chain in our scope.
Our performance
For the first time, in 2010 ISS developed a Group Re-
porting Manual to provide reporting principles and ru-
les to ensure a consistent basis for reporting HSE and
CR data. The primary purpose of gathering HSE and
CR data is to manage HSE and CR risks by monitoring
performance. A sound understanding and analysis of
HSE and CR data is necessary in order to direct ap-
propriate efforts and improve HSE and CR performan-
ce. The data will also be used to inform ISS manage-
ment and external stakeholders of our performance
and track progress towards the achievement of our
HSE and CR commitments.
Some of the key parameters we measure and monitor
are safety related. In 2010, we unfortunately suffered
five fatal injuries in the ISS Group. This is unaccep-
table and to achieve our Vision of zero fatalities, we
have implemented investigation procedures to ensure
that we determine the root causes of such incidents,
learn from them and prevent them for reoccurring. We
believe that the development of a systematic approach
to managing HSE risks through the development of the
Group HSE Manual requirements and our continued
focus on safety awareness will contribute to a reduc-
tion of incidents.
In terms of the environment, our environmental impact
stems primarily from our vehicles and business travel
as well as use of chemicals and cleaning products. In
2010, ISS continued to broaden the use of environ-
mentally friendly cleaning products and initiated a pro-
cess for measuring CO2 emissions in order to continue
our efforts to reduce emissions.
Going forward
Going forward, our objective is to expand the data pa-
rameters to include additional safety, social and envi-
ronmental indicators. The environmental indicators in-
clude electricity consumption at our own offices and
own sites and this will provide a baseline for setting
reduction targets in the coming years.
Our initiatives in 2010 are another step in our journey
towards embedding CR in our business. We have built
a solid foundation for our approach in this area and will
be building on this foundation both in terms of impie-
mentation and reporting.
Employees
August 2010 was an important month før ISS, as we
surpassed the 500,000 employee milestone and the-
reby one of the world's largest private employer.
PEOPLE INDICATORS 2010 2009
Tutal emplayees 5272,600 485, 700
Full-ume emp'oyees 73% 74%
Part.tame employees 279% 29%
Sensomy temploymemn » 1 year) bis 62%.
1104204EogSN32249
Corporate Responsibilty I Management review 28
At the end of 2010, ISS had more than 522,000 em-
ployees located in Europe, Asia, Pacific, Latin America
and North America.
At the end of 2010 aur employees in emerging markets
comprised more then half of our workforce.
Human Resources — Vision and Strategy
The ISS Human Resources vision "to be the preferred
employer in our industry" supports The ISS Way stra-
tegy by focusing on: upgrading leadership and mana-
gement capabilities, enhancing customers' service ex-
perience, integrating acquired businesses, and ensu-
ring competitiveness through cost efficiencies.
The Human Resources strategy is implemented
through "ISS international HR standards", which
comprise the framework for local initiatives covering
the following twelve topics:
e Recruitment
e Employee appraisals and reviews
e Motivation and loyalty
. Employee relations
» Training and development
. Talent management
. Managing sickness and absenteeism
6 Reporting and monitoring
se HR Support for M&A and contract integration
+ Health and safety
«+ Remuneration, benefits and incentives
. Succession planning
The standards were introduced in 2007. Since then,
the countries have been working on implementing the
requirements locally to ensure compliance with Group
policy. Improvements will continue in 2011, where the
following five prioritised HR initiatives that are all em-
bedded in The ISS Way will be in focus:
. Employee Engagement
+ Leadership Development
& Succession Planning
+ Talent Management
» Performance Management
ISS's performance management system plays an im-
portant role in all of the above key initiatives. The sy-
stem is the principal tool for assessing individual capa-
bilities. Feedback during an annual goal evaluation
and goalsetting process, followed up by a mid-year re-
view, help to develop the full potential of the individual
managers. In addition to facilitating the process, the
performance management system provides ISS with a
basis for talent management and succession planning.
Training and development
Resources are invested in staff and management de-
velopment — ranging from basic skills training through
middle management and executive management pro-
grammes to Global Talent Programmes.
The philosophy is to offer tailored training at all func-
tional levels to enhance employee skills and encoura-
ge upward staff mobility. Much attention is devoted to
developing the first management layer e.g. team lead-
ers, supervisors and contract managers, who are re-
sponsible for their immediate staff and customer inter-
face. Most training is conducted at ISS academies and
training facilities in national and local operations.
Additionally, in order to implement strategic initiatives,
such as cleaning excellence and the integrated facility
service concept, ISS University continues to develop
key specialists and leaders for train-the-trainers. This
is supplemented by local initiatives.
Ås 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 ISS
University seminars are based upon our nine Lea-
dership Principles.
The ISS University focuses on continuously enhancing
its executives' competences. The 'ISS Advantage' ma-
nagement induction programme for executives
throughout the Group, also highlights The ISS Way
strategy and our ISS Value Chain management tool. In
2010, the ISS University expanded its portfolio of pro-
grammes for our top management with two new man-
datory management programmes: 'Strategy and the
Value Chain', which features how to implement The
ISS Way strategy and training in change management,
and "ISS Leadership', which centres on our nine lea-
dership principles and how to manage our employees
in accordance with these principles. All programmes at
the University are based on case work and a dialogue-
based teaching style.
1104204EogSN32250
Gurporale Responsilulty + Managermen review 29
Employee engagement
The success of each service delivered depends on the
people delivering it. With more than half a million em-
ployees worldwide, this makes people management
and leadership some of the most important elements in
ISS. Employee engagement exists when every level of
the organisation is staffed with people who understand
what is expected of them and can and want to deliver
services in a way that strengthens the customers ex-
perience of service value, We therefore focus on two
main aspects of employee engagement:
. Motivation
. Capability
Our company requires many different sets of people
skills. This puts great emphasis on our ability to train
and develop employees. While some employees may
want to stay in their current jobs, we need to encoura-
ge development whenever we see the possibility. In
order to fulfil ISS's vision, HR - globally and locally -
and every business unit must ensure that employees
are properly skilled through local training and deve-
lopment programmes. This enables us to offer our em-
ployees flexibility in job functions, thereby strengthe-
ning our collaboration.
The service industry in general has high levels of em-
ployee turnover, as part of the industry is often consi-
dered suitable for short-term or secondary employ-
ment. HR pursues a range of strategies to retain its
employees by offering training and development, more
fult-time and daytime work, multi-task jobs, teamwork,
career opportunities, leisure activities, etc.
In 2010, the share of full-time employees (working 25
hours or more a week) increased from 71% in 2009 to
73% in 2010. This indicator is important, as, on avera-
ge, full-time employees develop stronger ties with ISS.
The distribution of employee seniority (in years) provi-
des another perspective for employee loyalty within
ISS. In 2010, approximately 61% of the Group's em-
ployees had been with ISS for more than one year, a
slight decrease from 62% in 2009.
To identify and monitor improvement areas, a Corpora-
te Employee Engagement Survey (EES) was carried
out during 2010 covering more than 60,000 em-
ployees. The EES is part of The ISS Way and is con-
sidered an important tool for indicating employee en-
gagement. The EES will be rolled out globally in the fu-
ture, based on the process used in 2010.
Corpoiate Responsibihty 1 Management review 30
Equal opportunities
ISS rewards its people solely on the basis of merit.
When recruiting, developing and promoting, ISS focu-
ses 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 our corporate culture, and aided by langua-
ge courses and adapted training materials, ISS is an
employer of choice før many immigrants and ethnic
minorities. In all regions but especially in Western Eu-
rope, ISS is among the largest employers of ethnic mi-
norities. Før ISS, diversity is a strength.
Employee and trade union 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-
cally in the country operations. Established in 1995,
the European Works Council (EWC) is an in-house fo-
rum for dialogue between ISS executives and ISS em-
ployee representatives from across Europe.
In June 2009, the EWC and ISS signed a new four-
year EWC agreement. The EWC meeting agenda in-
cludes information and consultation on matters relating
to the ISS Group in Europe, in particular concerning
the structure, financial situation, development of ISS,
the current situation and probable trends of employ-
ment. 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. A total of 22 representati-
ves from 16 counties took part in the EWC dialogue in
2010.
The globa! agreement between Union Network Interna-
tional (UNI) and ISS was renewed in 2008. The
agreement aims at enabling all ISS employees world-
wide to exercise rights to union membership and col-
lective bargaining. As part of the agreement, ISS and
UNI created the Global UNI-ISS Foundation in 2009
with the purpose of monitoring and improving employ-
ment standards within the service industry globally.
The agreement and collaboration has prompted UNI to
name ISS as an employer that treats its workers well
and is setting a good example for other global em-
ployers.
1104204EogSN32251
Corporate Governance and nisk management 1 Managementsevirew 31
Corporate Governance and risk
management
EQT 54% FS INVEST 5,Å R.L (LUXEMBOURG) ”
FS INVEST H S.Å R.L (LUXEMBOURG)
ISS AI/S2I
ISS WORLD SERVICES A/S Y
ISS GLOBAL A/S
OPERATING SUBSIDIARIES
1 As described in note 37 to the consolidated financial statements, certain members of the Board, he EGM members and a number of senior officers of the Group have invested,
directly or indirectly, in shares and warrants in FS Invast S.å r.l. (FS Invest), ISS's ultimate parent company, The tota] number of shares held by these directors and officers is below 2%
of the total share capitat,
)) Effective 17 February 2011 the company name was changed from ISS Holding A/S to iSS A/S.
3 Effective 17 February 2011 the company name was changed from ISS A/S to ISS World Services A/S.
CORPORATE GOVERNANCE
The management team of the Group formally consists
of the Board of Directors and the Managing Director of
ISS Global A/S. Since ISS Global A/S has no operat-
ing activities of its own, the Group relies on the man-
agement team of ISS A/S, the ultimate parent com-
pany in Denmark. As a subsidiary of ISS A/S, ISS
Global A/S is subject to the same corporate govern-
ance policies applicable in ISS A/S, which are de-
scribed in the sections below.
The Bøard of Directors of ISS A/S regularly reviews
the Group's corporate governance in relation to the
Group's activities, business environment and statutory
requirements. Good corporate governance practices at
ISS are implemented in a dynamic process with the
Board of Directors continuously assessing the need for
adjustments to benefit ISS stakeholders and the Group
itself.
Corporate governance policies and procedures at ISS
take into account the Danish Companies Act, the Dan-
ish Financial Statements Act, IFRS, the Action Plan for
Corporate Social Responsibility (CSR), the Danish
Venture Capital and Private Equity Association's
1104204EogSN32252
(DVCA) guidelines for responsible ownership and
good corporate governance as well as good corporate
governance practices for companies of ISS's size and
global reach. The DVCA guidelines for responsible
ownership and good corporate governance are avai-
labte at www.dvca.dk.
Shareholders
ISS A/S is a limited liability company incorporated and
operating under Danish law. The company's share ca-
pital is indirectly owned by funds advised by EQT
Partners (EQT) and Goldman Sachs Capital Partners
(GS Capital Partners).
EQT and GS Capital Partners are together referred to
as the Principal Shareholders and hold 54% and 44%
of the share capital respectively. The remaining appro-
ximately 2% of the share capital is held by certain
members of the Board of Directors, the Executive
Group Management and a number of senior officers of
the Group through director and management invest-
ment programmes.
EGT is the leading private equity group in Northern
Europe with møre than €13bn in raised capital and
multiple investment strategies. Together with a net-
GOLDMAN SACHS CAPITAL PARTNERS 44%
work of industrial advisers, EQT implements its busi-
ness conept by acquiring or financing good medium-
sized to large companies in Northern and Eastern
Europe, Asia and the United States, developing them
into leading companies. Development is achieved by
applying an industrial strategy with focus on growth.
To date, EQT has invested in more than 85 companies
(equivalent to €9.7bn) and exited around 40.
EGT Partners, acting as investment advisor to the ma-
nagers of each EQT fund, has more than 100 invest-
ment professionals with an extensive industrial and fi-
nancial competence. EQT Partners has offices in Co-
penhagen, Frankfurt, Helsinki, Hong Kong, Oslo, Lon-
don, Munich, New York, Shanghai, Singapore, Stock-
holm, Warsaw and Zurich.
GS Capital Partners is managed by Goldman, Sachs &
Co.or an affiliate thereof. Goldman Sachs & Co. isa
wholly owned subsidiary of the Goldman, Sachs Group
Inc. ("Goldman Sachs"). Goldman Sachs is a leading
global investment banking, securities and investment
management firm that provides a wide range of ser-
vices worldwide to a substantial and diversified client
base that includes corporations, financial institutions,
governments and high net worth individuals. Founded
in 1869, the firm is headquartered in New York and
maintains offices in London, Frankfurt, Tokyo, Hong
Kong and other major financial centres around the
world.
Management
ISS A/S has a two-tier management structure con-
sisting of:
» the Board of Directors (the Board), and
. the Executive Group Management (the EGM).
The Board determines the overall Group strategy and
supervises the Company's activities, its management
and organisation. The EGM is responsible for ISS's
day-to-day operations. The two bodies are separate
and no person serves as a member of both.
Board of Directors of ISS A/S
The Board has seven members appointed by the ge-
neral meeting for a period of one year. Re-election
may take place.
Board members have been nominated jointly by the
Principat Shareholders.
Four members are independent, while two members
are representatives of the Principal Shareholders and
one member has been a member of the EGM within
the past five years.
1104204EogSN32253
Corporale Governance and risk management I Management review 32
The Board functions in accordance with the rules of
the Danish Companies Act, the articles of association
and the 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,
The Board convenes at least six times a year. Extraor-
dinary meetings are convened whenever specific mat-
ters require attention between scheduled meetings.
Ten Board meetings were held in 2010. The Board re-
ceives a monthly financial and operational reporting
package and is briefed about important matters bet-
ween Board meetings. The Board approves the strate-
gy plan, the annual budget and large acaquisitions or
divestments based on recommendations from the Ac-
quisition Committee (see Board Committees below).
In a process led by the Principal Shareholders and the
Chairman an appraisal of the Board is carried out an-
nually to assess the competencies of the Board, the
effectiveness of its work and how the Board ensures
that good corporate governance is in place.
More details on the Board members are available in
note 37 to the consolidated financial statements. Re-
muneration to the Board is disclosed in note 5 to the
consolidated financial statements.
Board Committees
The Board has established four committees that all re-
port to the Board.
The Remuneration Committee recommends the remu-
neration packages and incentive schemes for the
Group CEO, and provides input on remuneration in re-
spect of other EGM members and certain senior offi-
cers, as weli as on compensation levels and bonus sy-
stems in general. The committee consists of three
members of the Board (currently Ole Andersen, Leif
Ostling and Jørgen Lindegaard), and the Group CEO
participates in its meetings. Ole Andersen is chairman
of the committee. The committee held no formal mee-
tings in 2010, but have had regular discussions during
the year.
The Audit Committee evaluates our external financial
reporting, and monitors and challenges our main ac-
counting policies and estimates as well as our systems
of internal controls and risk management. Its duties al-
so include supervision of our external auditors and our
internal audit function in addition to considering the re-
lationship with our external auditor and reviewing the
audit process. The Board of Directors appoints the
committee members and the chairman of the commit-
tee who cannot be the Chairman. The committee con-
sists of three members of the Board (currently John Al-
lan, Michel Combes and Peter Korsholm), and mee-
tings are also attended by the Group CFO, the Head of
Group Controlling, the Head of Group Internal Audit
and the Group Generat Counsel. John Alfan is chair-
man of the committee, which held three meetings in
2010.
The Acquisition Committee considers ISS's procedu-
res for acquisitions and divestments, reviews the ac-
quisition and divestment pipeline, approves certain
large acquisitions and divestments in accordance with
adopted procedures, and evaluates selected effected
acquisitions. The committee consists of three mem-
bers of the Board (currently Jørgen Lindegaard, Peter
Korsholm and Steven Sher), and meetings are also at-
tended by the Group CEO, the Group CFO and the
Head of Group Strategy and Corporate Development.
Jørgen Lindegaard is chairman of the committee,
which held two meetings in 2010.
The Financing Committee considers ISS's capital
structure, financing of future investments and hedging
policies. The committee consists of two members of
the Board (currently Peter Korsholm and Steven Sher),
and the Group CFO and Head of Group Treasury par-
ticipate in its meetings. The committee held ten mee-
tings in 2010.
Executive Group Management of ISS A/S
The EGM consists of Group CEO 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 eva-
luate investments including acquisitions and divest-
ments.
Group Management of ISS A/S
The Group Management (the GM) comprises the EGM
and the following Corporate Senior Officers: Regional
CEOs, Group CCO, COO-Projects, Head of Group
Human Resources, Head of Group Strategy and Cor-
porate Development, Group General Counsel, Head of
Group Treasury, Head of Group Controlling and Head
of Group IT. The members of the GM have been ap-
pointed by the EGM to carry out day-to-day manage-
ment within their functional areas, including providing
strategic direction, managerial support and financial
control, Two functional boards, the Group Manage-
ment Board and the Financial Board, were established
in 2009, The primary tasks of the two boards are to
develop and execute new strategic initiatives, develop
and implement Group policies, monitor Group perfor-
mance, review financial matters, coordinate and eva-
luate acquisitions and divestments and provide the
EGM with input for decision making. The Group Ma-
nagement Board is headed by the Group CEO, and
1104204EogSN32254
Corporate Governance and nisk management | Management review 33
includes Regional CEOs, Group CCO, COO-Projects,
Head of Group Human Resources and Head of Group
Strategy and Corporate Development. The Financial
Board is led by the Group CFO and includes Head of
Group Controlling, Head of Group Treasury, Head of
Group IT, Head of Group Internal Audit, Head of
Group Tax, Group General Counsel and Regional
CFOs.
No member of the GM is permitted to hold direc-
torships in companies outside the ISS Group unless
specific consent is granted.
Country Management
In each of the countries in which ISS operates, country
management teams are appointed to manage the
business in accordance with ISS Group policies and
procedures as well as local legislation and practice.
ISS delegates substantial autonomy and considerable
powers to the country management teams including
management of operations in their relevant markets,
financial reporting, local tax and compliance with local
legislation and practices. The country management te-
ams for each relevant country are described on the
ISS website at www.issworld.com.
Remuneration
Each Board member (except representatives of the
Principal Shareholders) receives a fixed annual fee
and members of the Board committees receive an ad-
ditional fixed fee.
Remuneration to the Board is reported in note 5 to the
consolidated financial statements. The investment by
certain Board members in the Directors' Participation
Programme is described below.
The members of the GM are remunerated with a com-
bination of a fixed salary, standard benefits in accor-
dance with market standards and, for most members,
a performance-based bonus of up to 60% of their fixed
salary. Most members of the GM are also subject to a
cash bonus scheme friggered by the completion of an
initial public offering or a sale of the company, the size
of such bonus depending on the price of the shares of
the company in the offering or the sales price respecti-
vely. Ali employment contracts of the GM members
may be terminated at 6-24 months' notice. One em-
ployment contract includes a severance payment of 2
years salary. No other members of the GM are entitled
to severance payments. The employment contracts
contain no special termination rights.
Directorships in companies in the ISS Group held by
members of the GM are not remunerated separately.
Detailed reporting on remuneration made to the mem-
bers of the EGM is included in note 5 to the consolida-
ted financiat statements. The investment by the EGM
and certain senior officers of the Group in the Man-
agement Participation Programme is described below.
Management Participation Programme
The Principal Shareholders have established a Man-
agement Participation Programme in which the EGM
and a number of senior officers of the Group have in-
vested. The programme is structured as a combination
of direct and indirect investments in a mix of shares
and warrants in FS Invest based on market values un-
til the Principal Shareholders' exit. At the introduction
of the programme in 2006, warrants in FS Invest were
granted free of charge to certain senior officers of the
Group with a vesting schedule (based on value of sha-
res and time) of which 277,632 were outstanding as of
31 December 2010.
Members of the Board (except representatives of the
Principal Shareholders) participate in a Directors' Par-
ticipation 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 Shareholders' exit.
As of 31 December 2010, the net investments were as
follows:
Number Investment
of measured at cost
persons DKK million
Board of Directors 5 27.4
Executive Group Management 2 10.1
Corporate Officers 33 56.7
Country Management 113 117.2
INTERNAL CONTROL AND RISK MANAGE-
MIENT SYSTEMS RELATING TO FINANCIAL
REPORTING
Overall control environment
The Board and the EGM have overall responsibility for
the Group's interna! control and risk management sy-
stems for the financial reporting process including
compliance with applicable laws and other regulations
related to financial reporting.
ISS considers internal controls to be an essential ma-
nagement tool, Accordingly, care is taken to ensure
that a sound framework of controls is in place for safe-
guarding the business, the company's assets and sha-
reholder investments as well as its financial reporting.
The Group's internal control and risk management sy-
1104204EogSN32255
Corporate Governance ang risk management | Management teview 34
stems are developed to mitigate rather than eliminate
risks identified in relation to the financial reporting pro-
cess and thus assist in ensuring that the consoølidated
financial statements provide a true and fair view of the
financial performance and financial position of the
Group without material errors.
The Board has approved policies, standards and pro-
cedures in key areas related to financial reporting,
including the Code of Conduct, Accounting and Repor-
ting Policies, Treasury Policies and Procedures, and
Control Procedures.
The Audit Committee is responsible for monitoring the
internal controls and risk management systems as well
as challenging the EGM in its assessment of material
financial reporting risks. A material financial reporting
risk is considered to be a risk that may cause a mate-
rial error in the consolidated financial statements of the
Group.
On an annual basis, the Audit Committee assesses
the need for establishing an internal audit function.
The Audit Committee has set up an internal audit de-
partment that is responsible for providing assurance
concerning the internal control environment in accor-
dance with an approved audit plan.
The EGM has established a Group Controlling de-
partment that is responsible for controlling the financial
reporting from subsidiaries.
Internal control procedures at Group level have been
established to assess on an ongoing basis the Group's
internal control environment and to manage identified
risks, However, as a risk of misuse of assets, unex-
pected losses, etc. always exists, such controls can
provide only reasonable and not absolute assurance
against material misstatements, omissions or losses.
The aim of the established control environment is the-
refore to provide the Board and the EGM with reaso-
nable assurance that:
+ management reporting is reliable and in compliance
with internal policies and procedures and gives a
true and fair view of the financial performance 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 sa-
feguard the Group's business and assets;
+ |SS's business is conducted in compliance with ap-
plicable legislation, regulation and ISS policies.
Risk assessment
Risks related to the financial reporting process are
identified and assessed annually based on a materiali-
ty 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 require management judgement and/or are
transactions that are generated through complex ac-
counting processes. Accounting areas that require
management judgement are described in note 2 to the
consolidated financial statements, 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 internal
controls for financial reporting; and
. accounting for material legal and tax issues and sig-
nificant accounting estimates.
Control activities
In order to sustain a sound control environment, speci-
fic control activities are designed to obtain the desired
assurance. These measures must ensure that all rele-
vant aspects of a specific area are covered, and that
the combination of control activities monitors all rele-
vant aspects of the business. The control activities are
based on the risk assessment made by the EGM. The
purpose of the control activities is to ensure that mate-
rial errors in the financial reporting are prevented, de-
tected and corrected.
The Group has implemented a formalised financial re-
porting process that includes:
+ reporting of financial performance and financial posi-
tion - all countries must report a full income state-
ment, balance sheet, cash flow statement, portfolio
analysis etc. on a monthly basis. The reporting is
monitored and controlled by Group Controlling. Any
significant variance from budgets must be explained;
reporting of cash flow forecasts — ail countries must
biweekly report the daily cash flow forecast for a rol-
ling three-month period. Subsequently, actual figu-
res are continuously monitored by Group Treasury
for deviations from the forecasted figures;
business reviews — monthly meetings between regi-
onal management and country management with a
focus on the current performance and the state of
the business;
budgets and financial plans — all countries must pre-
oe
1104204EogSN32256
Corporate Governance and nisk management | Management review 35
pare budgets and plans for the following financial
year in a pre-defined process and format. With the
countries, regional management teams review the
proposed budgets and plans with the countries;
+ 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 — al! acquisition and
divestment proposals must be presented in a prede-
fined acquisition or divestment report and valuation
model for approval. Board or Acquisition Committee
approval is required for large or strategic acquisi-
tions 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 number
of different ERP platforms is continuously being redu-
ced.
Information and communication systems to ensure ac-
counting and internal control compliance have been
established, including an Accounting Manual, Repor-
ting Instructions, Budgeting Manual and other relevant
guidelines. The aim is to ensure that all employees re-
ceive the relevant information on a timely basis to en-
sure efficient and reliable execution of tasks including
carrying out the established control activities.
Monitoring
Every month the Group's subsidiaries report financial
information and comments on financial developments
to Group Controlling. This information is used to pre-
pare consolidated financial statements and reports
submitted to the Board and the EGM. Financial repor-
ting from the subsidiaries is controlled on a monthly
basis (see Control! activities).
The country management teams are responsible for
ensuring that the control! environment in each opera-
ting country is sufficient to avoid material errors in the
country's financial performance and financial position
reported for consolidation purposes. The regional ma-
nagement teams provide governance of the country
operations.
Additionally, in order to independently evaluate the
adequacy of the local internal control environment and
procedures, Group Internal Audit visits ihe country or-
ganisations regularly. The visits take place according
to a plan for the year approved by the Audit Commit-
tee. The findings and conclusions of internal audits,
including recommendations on how to improve the
control environment, are presented in reports addres-
sed to country and regional management, representa-
tives of EGM and the external auditor.
Group Internal Audit performs follow-up audits to en-
sure that the recommendations are impiemented. The
key findings from internal audits are presented to the
Audit Committee, which evaluates the results reported
and uses the conclusions to assess the general control
environment and performance and financial position
when reviewing the Internal Audit Plan for the coming
year.
External audit
The Board nominates the external auditør for election.
The nomination follows an assessment of the compe-
tencies, objectivity and independence of the external
auditør and the effectiveness of the audit process.
An independent business relationship with the Group's
external auditor is essential for the control environ-
ment. As part of the safeguards to ensure indepen-
dence, the external auditor may not be used for certain
non-audit services for ISS including, but not limited to,
preparation of accounting records and financial state-
ments and recruitment for senior management positi-
ons.
The company coliaborates with its external auditor at
country level and at Group levej in relation to procedu-
res and internal controls by exchanging internal audit
reports and independent 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 by the Audit Committee.
The Board reviews the Annual Report at a Board mee-
ting attended by the external auditor. The findings of
the external auditor and any major issues arising du-
ring the course of the audit are discussed and signifi-
cant accounting principles and critical accounting
estimates and judgements are reviewed.
RISK MANAGEMENT
ISS continuously seeks to identify, evaluate and miti-
gate risks that may have an adverse effect on the
Group's ability to achieve the strategic objectives,
including financial performance, financial position and
growth.
Overall, operational and financial risks are managed in
accordance with policies adopted by the Board. Detai-
1104204EogSN32257
Corporate Governance and fisk management | Management review 36
led plans and business procedures for a number of
functions are also described in manuals and guide-
lines. The policies for operational and financial risk
management and ISS Group standards are documen-
ted and distributed to the operating companies. ISS's
Group Controlling, Group Internal Audit, Group Risk
Management and Group Treasury departments super-
vise compliance with these standards.
Operational risk management
ISS is exposed to operational risks through its actions
and activities on our own premises as well as on our
customers' premises. Operational risk is assessed ba-
sed on the activities of each operating company, histo-
ric and current claims events, and the markets in
which the companies operate. Furthermore, operatio-
nal risk is assessed on an individual site-by-site basis
on our customers' premises where we provide our ser-
vices. Operational risk is monitored and mitigated in
accordance with ISS Group standards for risk mana-
gement, risk financing, HSE management and good
operational practice. '
Operational risk financing is based on insurance and
own funding, primariiy through global insurance pro-
grammes managed centrally in ISS.
ISS considers that the Group is not subject to material
operational risks except for risks common in the ordi-
nary course of business in the service industry.
Financial risk management
ISS is exposed to financial risks as a result of its ope-
rating activities, investing activities and financing acti-
vities. The Group's financial risks are managed cen-
trally in Group Treasury based on policies approved by
the Board. The Group's financial risk management is
described in detail in note 35 to the consoølidated fi-
nancial statements.
Risk factors
The risks discussed below are those that the Board
and Group Management currently views as being most
significant to our business.
Viacro-economy We believe that the growth in de-
mand før our services generally correlates with eco-
nomic conditions, including growth in gross domestic
product, in the countries in which we operate. We be-
lieve that the facility services industry is less sensitive
to macroeconomic cycles than a number of other in-
dustries, However, economic downturns or otherwise
uncertain economic outlooks in the markets in which
we operate or on a global scale could adversely affect
the demand for outsourcing of facility services.
Periods of recession or deflation may adversely impact
prices, payment terms and demand for services par-
ticularly if customers downsize their businesses or re-
duce their demand for services.
During the recent economic downturn, in certain regi-
ons and in certain customer segments, we experien-
ced reduced activity levels that negatively impacted
our révenue and put pressure on our operating mar-
gins. However, generally speaking we were able to off-
set these factors by adapting our cost structure ap-
propriately. Our portfolio business tends to be more
resilient and was less affected during the recent eco-
nomic downturn than our once-only business.
Customer retention risk Our organic growth strategy
is dependent on various factors including our ability to
cross- and up-sell, the increased trend among multina-
tional companies to outsource facitity services and
procure cross-border contracts and our ability to sub-
sequently provide these services in a global, effective
and price-efficient manner. Sustaining the organic
growth of our business requires us to adapt conti-
nuously to meet the needs of our existing and potential
customers, In particular, our success will depend on:
e the continued growth in demand for the outsourcing
of facility services, either as single services, Multi
services or integrated facility services;
e our ability to continue to self-deliver integrated facili-
ty services to local and multi-national customers and
the recognition by such customers that we are one
of very few service providers positioned to provide
such integrated facility services, also on a global
scale;
. our ability to establish our presence in new markets
and to grow our market share in existing markets.
We strive to meet all these requirements by adapting
appropriate sales processes to reflect the needs of our
customers, evaluate our existing business platform —
in terms of the services delivered, our capabilities and
the geographies in which we operate - on an ongoing
basis to ensure it reflects both the current and future
requirements of our customers.
Risks associated with our customer confracis The
profitability of our contracts generally depends on our
ability to successfully calculate prices by taking into
consideration all economic factors, direct as well as
inherent liabilities, and our ability to manage our day-
io-day operations under these contracts. We may not
be able to accurately predict the costs of and identify
all risks associated with our contracts or the complexi-
ty of the services delivered, which may result in lower
margins than expected, losses under these contracts
or even the loss of customers.
1104204EogSN32258
Corporate Governance and risk management i Management review 37
We seek to mitigate these risks by applying good op-
erational practices when entering into contractual
agreements with our customers.
Qualified local managers and employees Our con-
tinued success depends largely on our effective decen-
tralised organisational structure in which country and
regional managers retain substantial autonomy regard-
ing the management of operations in their local mar-
kets. As a result, we largely depend on these local
managers. Qualified local and regional managers are
also important in order to ensure best practices are
shared across the Group, effective management conti-
nuity and the implementation and management of our
growth strategies. Our competitive strength also de-
pends partly upon our ability to attract, train and retain
employees,
Competition risk The facility services market is frag-
mented with relatively low barriers to entry and there is
significant competition from local, regional, national
and international! companies of varying sizes and fi-
nancia!l abilities offering an array of service capabili-
ties. We also face competition from in-house provi-
ders.
We believe that our self-delivering capabilities, our abi-
lity to deliver services across borders, group-wide HSE
standards, credible risk transfer as well as our general
process and management systems all contribute to-
wards positioning ISS very favourably in the markets in
which we operate.
Regulatory risks Due to the nature of our industry
and the global reach of our operations, we are subject
to a variety of laws and regulations governing areas
such as labour, employment, immigration, health and
safety, tax (including social security and salary taxes),
corporate governance, customer protection, business
practices, and the environment. Changes in such laws
and regulations may constrain our ability to provide
services to customers or increase the costs of provi-
ding the services.
To the extent that we are unable to pass on to our
customers the costs of compliance with stricter or
changing requirements (e.g. increases in labour costs
mandated by law or collective bargaining agreements)
and taxes, our margins may decline. In particular, be-
cause of our large workforce, laws and regulations re-
lating to labour, employment (including the transfer of
employees), social security, health and safety of em-
ployees and immigration affect our operations and the
cost of compliance significantly affects our results and
financial condition.
Corporate Covernance and psk management I Managqemem review 38
Financial risks The Group is exposed to a number of
financial risks including currency risk, interest rate risk,
liquidity risk and credit risk. The financial risks and
management hereof are described in note 35 to the
consolidated financial statements.
1104204EogSN32259
Consolidated financial statements 39
CONSOLIDATED FINANCIAL STATEMENTS
ISS GLOBAL A/S
1104204EogSN32260
Consolidated financial statements 40
Consolidated income statement
1 January — 31 December
DKK million Note 2010 2009
Revenue 3,4 74,101 69,024
Staff costs 5,6 (47,738) (44,568)
Consumables 20 (6,359) (6,044)
Other operating expenses 7 (14,477) (13,325)
Depreciation and amortisation ” 14, 16 (832) (849)
Operating profit before other items ? 4,695 4,238
Other income and expenses, net 8 (77) (540)
Acquisition and integration costs (6) (46)
Royalty (1,146) (1,090)
Operating profit ” 3 3,466 2,562
Share of result from associates 17 10 4
Financial income 9 182 279
Financial expenses 9 (1,954) (1,863)
Profit before tax and goodwill Impairment/
amortisation and impairment of brands and customer contracts 4,704 982
Income taxes 10 (659) (480)
Profit before goodwill impairment/
amortisation and impairment of brands and customer contracts 1,045 502
Goodwill impairment 11, 14, 15 (259) (721)
Amoriisation and impairment of brands and customer contracts ” 14 (435) (554)
Income tax effect ? 10, 18 116 179
Net profit/(loss) for the year 467 (594)
Attributable to:
Owners of ISS Global A/S 447 (612)
Non-controlling interests 20 18
Net profit/(loss) for the year 467 (594)
1 Excluding Goodwill impairment and Amortisation and impairment of brands and customer contracts.
2) Excluding Other income and expenses, net, Acquisition and integration costs, Royalty, Goodwill impairment and Amortisation and impairment of brands
and customer contracts,
3 Excluding tax effect of Goodwill impairment and Amortisation and impairment of brands and customer contracts.
4) including customer contract portfolios and related customer relationships.
9 Income tax effect of Goodwill impairment and Amortisation and impairment of brands and customer contracts.
1104204EogSN32261
Consolidated financial statements 41
Consolidated statement of comprehensive income
1 January — 31 December
DKK million Note 2010 2009
Net profit/(loss) for the year 467 (594)
Other comprehensive income
Foreign exchange adjustments of subsidiaries and non-controlling interests 613 63
Fair value adjustment of hedges, net 36 (120) (249)
Fair value adjustment of hedges, net, transferred to Financial expenses 36 190 237
Actuarial gains/(losses) 29 (129) (45)
Impact from asset ceiling regarding pensions 29 (20) 18
Tax regarding other comprehensive income 10 18 4
Total other comprehensive income 552 28
Total comprehensive income for the year 1,019 (566)
Attributable to:
Owners of ISS Global A/S 998 (584)
Non-controlling interests 21 18
Total comprehensive income for the year 1,019 (566)
1104204EogSN32262
Consolidated statement of cash flows
1 January — 31 December
DKK million
Operating profit before other items
Depreciation and amortisation
Changes in working capital
Changes in provisions, pensions and similar obligations
Other expenses paid
Integration costs paid
Income taxes paid
Payments related to royalties
Cash flow from operating activities
Acquisition of businesses
Divestment of businesses
Acquisition of intangible assets and property, plant and equipment
Disposal of intangible assets and property, plant and equipment
(Acquisition)/disposal of financial assets
Cash flow from investing activities
Proceeds from borrowings
Repayment of borrowings
Interest received
Interest paid
Payments (to)/from ISS Group companies, net
Non-controlling interests
Cash flow from financing activities
Total cash flow
Cash and cash equivalents at 1 January
Total cash flow
Foreign exchange adjustments
Gash and cash equivalents at 31 December
1104204EogSN32263
Consolidated financial statements 42
Note 2010 2009
4,695 4,238
14,16 832 849
12 (63) (115)
(85) (50)
(171) (353)
(15) (58)
23 (623) (311)
(638) (729)
3,932 3,471
13 (470) (914)
13 591 22
(965) (992)
101 110
48 (43)
(695) (1,817)
1,546 5,849
(3,395) (5,177)
105 67
(1,866) (1,748)
523 (278)
(9) (14)
(3,096) (1,301)
141 353
3,353 2,951
141 353
109 49
25 3,603 3,353
Consolidated financial statements 43
Consolidated statement of financial position
At 31 December
DKK million Note 2010 2009
Assets
Intangible assets 14, 15 26,024 25,358
Property, plant and equipment 16 2,045 1,992
Investments in associates 17 9 21
Deferred tax assets 18 657 432
Other financial assets 19 285 271
Non-current assets 29,020 28,074
Inventories 20 318 303
Trade receivables 21 10,896 10,130
Contract work in progress 22 125 195
Tax receivables 23 383 308
Other receivables 24 359 547
Prepayments 504 505
Securities 25 19 97
Cash and cash equivalents 25 3,603 3,353
Assets held for sale 26 824 614
Current assets 17,031 16,052
Total assets 46,051 44,126
Equity and liabilities
Total equity attributable to owners of ISS Global A/S 464 (632)
Non-controlling interests 23 21
Total equity 27 487 (611)
Loans and borrowings 28 20,780 21,354
Pensions and similar obligations 29 1,053 837
Deferred tax liabilities 18 970 916
Provisions 30 361 379
Non-current liabitities 23,164 23,486
Loans and borrowings 28 7,838 7,233
Trade payables 2,785 2,597
Tax payables 23 398 303
Other liabilities 31 10,745 10,316
Provisions 30 379 423
Liabilities related to assets held for sale 26 255 379
Current liabilities 22,400 21,251
Total liabilities 45,564 44,737
Total equity and liabilities 46,051 44,126
1104204EogSN32264
Consolidated statement of changes in equity
1 January — 31 December
DKK million
2010
Equity at 1 January
Comprehensive income for the year
Net profit/(loss) for the year
Other comprehensive income
Foreign exchange adjustments of subsidiaries
and non-controlling interests
Fair value adjustment of hedges, net of tax
Fair value adjustment of hedges, net of tax,
transferred to Financial expenses
Actuarial gains/(losses), net of tax
Impact from asset ceiling regarding pensions
Total other comprehensive income
Total comprehensive income
for the year
Transactions with owners
Remission of debt to parent company
Impact from acquired and divested
companies, net
Dividends paid
Total transactions with owners
Total changes in equity
Equity at 31 December
Dividends
No dividends have been proposed or declared.
1104204EogSN32265
Attributable to owners of ISS Global A/S
Consolidated financial statements 44
Non-con-
Share Share Retafned Translation Hedging trolling Total
capita! premium earnings reserve reserve Total interests equity
160 1,881 (2,306) (225) (142) (632) 21 (611)
. - 447 - - 447 20 467
- - - 612 - 612 i 613
- ” ” - (20) — (90) - (90)
- - - - 142 142 - 142
- ” (93) - ” (93) - (93)
- - (20) - - (20) - (20)
. - (113) 612 52 551 1 552
- . 334 612 52 998 21 1,019
- - 98 - - 98 - 98
- - - - - - (10) (10)
- - - - - - (9) (9)
- - 98 - - 98 (19) 79
. " 432 612 52 1,096 2 1,098
160 1,881 (1,874) 387 (90) 464 23 487
Consolidated finandat statements 45
Consolidated statement of changes in equity
1 January — 31 December
DKK million Attributable to owners of ISS Global A/S
Non-con-
Share Share Retained Translation Hedging trolling Total
2009 capita! premium earnings reserve reserve Total interests — equlty
Equlty at 4 January 160 1,881 (1,671) (288) (130) (48) 33 (15)
Comprehensive income for the year
Net profit/(loss) for the year - - (612) - ” (612) 18 (594)
Other comprehensive income
Foreign exchange adjustments of subsidiaries
and non-controlling interests - - - 63 - 63 " 63
Fair value adjustment of hedges, net of tax - - - - (187) (187) " (187)
Fair value adjustment of hedges, net of tax,
transferred to Financial expenses - - - - 178 178 - 178
Limitation to interest deduction in Denmark - - (3) (3) (3)
Actuarial gains/(losses), net of tax - - (41) - - (41) - (41)
Impact from asset ceiling regarding pensions - - 18 - - 18 " 18
Total other comprehensive income - - (23) 63 (12) 28 - 28
Total comprehensive income
før the year " ” (635) 63 (12) (584) 18 (566)
Transactions with owners
Impact from acquired and divested
companies, net - - - - ” " (16) (16)
Dividends paid - - - - - - (14) (14)
Total transactions with owners " - - - - - (30) (30)
Total changes in equity - - (635) 63 (12) (584) (12) (596)
Equity at 31 December 160 1,881 (2,306) (225) (142) (632) 21 (611)
Dividends
No dividends have been proposed or declared.
1104204EogSN32266
Notes to the
consolidated
financial
statements
1104204EogSN32267
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
Note
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=ODO08aNNN0då Ao
== så
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Consolidated financial statements 46
ACGOUNTING POLICIES
Significant accounting policies
Critical accounting estimates and judgements
INCOME STATEMENT
Segment information
Revenue
Staff costs
Share-based payments
Fees to auditors elected at the Annual General Meeting
Other income and expenses, net
Financial income and financial expenses
Income taxes
Goodwill impairment
SYATEMENT OF CASH FLOWS
Changes in working capital
Acquisition and divestment of businesses
STATEMENT OF FINANGIAL POSITION
Intangible assets
Impairment tests
Property, plant and equipment
Investments in associates
Deferred tax
Other financial assets
Inventories
Trade receivables
Contract work in progress
Tax receivables and tax payabtes
Other receivables
Securities, cash and cash equivalents
Assets and Liabilities held for sale
Share capital
Loans and borrowings
Pensions and similar obligations
Provisions
Other liabilities
Financial assets and liabilities
OTHER
Contingent liabilities, pledges and guarantees
Operating leases
Financial risk management
Derivatives
Related parties
Interests in joint ventures
Subsequent events
New standards and interpretations not yet implemented
Subsidiaries, associates, joint ventures and SPEs
47
58
61
65
65
67
68
68
69
70
71
71
72
77
78
81
82
83
84
84
85
85
86
86
87
87
88
88
91
94
95
96
98
99
99
104
106
108
108
109
110
Consolidated financial statements 47
ING N
ISS Global A/S is a company domiciled in Denmark. The consolidated financial statements of ISS Globat A/S as of and for the year
ended 31 December 2010 comprise ISS Global A/S and its subsidiaries (together referred to as "the Group") and the Group's
interests in jointly controlied entities and associates.
STATEMENT OF COMPLIANCE
The consolldated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and additional Danish disclosure requirements for consolidated financial statements (class D) 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.
The consolidated financial statements were discussed and approved by the Executive Group Management and the Board of Directors
on 15 April 2011 and issued for approval at the Annual General Meeting on 15 April 2011.
BASIS OF PREPARATION
The consolidated financial statements are presented in Danish kroner (DKK) (rounded to nearest DKK million), which is also 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 liabillties,
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 consistentiy 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 2010, the Group has implemented IFRS 3 (revised 2008) "Business Combinations", IAS 27 (amended
2008) "Consolidated and Separate Financial Statements", amendments to IAS 39 "Financial Instruments: Recognition and
Measurement: Eligible Hedged Items", parts of "Improvements to IFRSSs May 2008", amendments to IFRIC 9 and IAS 39
"Reassessment of Embedded Derivatives", amendments to IFRS 2 "Group Cash-settled Share-based Payment Transactions”,
amendments to IFRS 1 "Additional Exemptions for First-Time Adopters" and parts of "Improvements to IFRSs April 2009",
Except for IFRS 3 and IAS 27 the adoption of these Standards and Interpretations did not affect recognition and measurement in the
consolidated financial statements.
The adoption of IFRS 3 (revised 2008) and IAS 27 (amended 2008) has changed the Group's accounting policy in the following
areas:
= Transaction costs that the Group incurs in connection with business combinations, such as finder's fees, legal fees, due diligence
fees, and other professional and consulting fees are expensed as incurred. Previously such costs were considered part of the
consideration paid and included in the cost price.
+ Contingent consideration (earn-outs) payable is recognised at fair value at the acquisition date, and subsequent adjustments are
generally recognised in the income statement as incurred. Previously such adjustments were recognised against the original cost
price.
= VWVhen less than 100% of a subsidiary is acquired, the Group elects on a transaction-by-transaction basis to either recognise
goodwill relating only to its present ownership interest in the acquiree or to recognise 100% goodwill. Previously, only goodwill relating
to the present ownership interest was recognised.
= In business combinations achieved in stages, the Group remeasures its previously held equity interest at its acquisition-date fair
value and recognises the related gain or loss in the income statement. Previousty, in step acquisitions goodwill was measured
separately for each transaction.
= Acquisition/disposal of non-contfrolling interests, when control is maintained, is accounted for as transactions with equity holders and
therefore no gain/loss is recognised in the income statement in respect of such disposals and no goodwill is recognised as a result of
such acquisitions. Previously, goodwill was recognised for such transactions as the excess of the cost of the additional investment
over the carrying amount of the non-controlling interest.
The change in accounting policy relating to IFRS 3 and JAS 27 was applied prospectively for business combinations occuring in the
financial year starting 1 January 2010. In 2010, the change impacted Acquisition and integration costs in the income statement
negatively by DKK 5 million.
Business combinations occuring before 1 January 2010 are accounted for in accordance with the previous IFRS 3 whereby
subsequent adjustments to contingent consideration and transaction costs continue to be recognised in goodwill.
1104204EogSN32268
Cansolidated financial statements 48
ING:POBIGIES: (CONTINUED)
In addition to the adoption of the abovementioned Standards and Interpretafions, a change has been made in the classification in the
statement of cash flows of changes in internal receivables/payables related to royalty. From 2010, such changes in
receivables/payables have been reclassified from Changes in working capital to Payments related to royalties. Comparative figures
have been restated accordingly.
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 retur 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, e.g. by virtue of a statute or agreement.
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 risks and rewards, the Group concludes that it controls
the SPE. SPEs controlled by the Graup were established under terms that impose strict limitations on the decision-making powers of
the SPEs' management and that result in the Group receiving the majority of the benefits related ta 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.
Loss of control Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling
interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is
recognised in the income statement. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair
value at the date that controi is lost. Subsequently it is accounted for as an equity accounted investee or as an available-for-sale
financial asset depending on the level of influence retained.
Associates Entities in which the Group has a significant influence, but which it does not control, are considered assoclates.
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 and are accounted for
initially at cost. The cost of the investment includes transaction cost.
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 in note 41, Subsidiaries, assoclates, joint ventures and SPEs.
The consolidated financial statements have been prepared as a consolidation of the financial statements of ISS Global A/S,
subsidiaries, SPEs and proporlionally 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
unreafised gains, but only to the extent that there is no evidence of impairment.
Investments in subsidiaries and proportionally consolidated entities are set off against the proportionate share of the subsidfaries' fair
value of identifiable net assets, including recognised contingent liabilities, af 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. By virtue of agreement certain non-controlling shareholders are only
eligible of receiving benefits from their non-controlling interest when ISS Global A/S as controlling shareholder has received their
initial investment and compound interest on such. In such instances the subsidiaries' result and equity are fully allocated to ISS until
the point in time where ISS Global A/S has recognised amounts exceeding their investment including compound interest on such.
Business combinations Acquired businesses or entities formed during the year are recognised in the consolidated financial
statements from the acquisition date or date of 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.
For acquisitions where the Group obtains control of the acquired business the acquisition method is applied. The identifiable assets,
liabilities and contingent liabilities of acquired businesses are measured at fair value at the acquisition date. Identifiable intangible
assets are recognised if separable or if they arise from contractual or other legal rights. Deferred tax related to fair value adjustments
is recognised.
The acquisition date is the date when the Group effectively obtains control of the acquired business.
Any excess of the fair value of the consideration transferred, the recognised amount of any non-controlling interests and the fair value
of any existing equity interest in the acquiree over the fair value of identifiable assets, liabilities and contingent liabilities acquired is
1104204EogSN32269
Consolidated financial statements 49
recognised as goodwill under Intangible assets. Goodwiil 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.
When the excess is negative, a bargain purchase gain is recognised immediately in the income statement.
The consideration transferred comprises the fair value of the assets transferred and the liabilities and contingent liabilities incurred. If
parts of the consideration are conditional upon future events (contingent consideration), these parts are recognised at fair value at the
acquisition date. Transaction costs that the Group incurs in connection with the business combination are expensed as incurred.
if uncertainties exists at the acquisition date regarding identification or measurement of acquired identifiable assets, liabilities and
contingent liabilities or regarding the consideration transferred, 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 date and
comparative figures are restated accordingly.
Changes in estimates of contingent consideration relating to business combinations effected on or after 1 January 2010 are generally
recognised in the income statement. However, if new information becomes available within 12 months from the acquisition date and
provides evidence of conditions relating to the contingent consideration or circumstances that existed at the acquisition date, then the
acquisition accounting is adjusted with effect on goodwill. For business combinations effected prior to 1 January 2010 subsequent
adjustments to estimates of contingent consideration and transaction costs continue to be recognised in goodwill.
When less than 100% of a subsidiary is acquired, the Group elects on a transaction-by-transaction basis to either measure the non-
controlling interests at fair value at the acquisition date or at its proportionate interest in the fair value of the net assets acquired.
Measurement at fair value means that goodwill includes a portion attributable to the non-controlling interests while measurement at
its proportionate interest in the fair value of the net assets acquired, means that goodwill relates only to the controlling interest
acquired.
Written put options relating to business combinations effected prior to 1 January 2010 and held by non-controlling shareholders are
accounted for in accordance with the anticipated acquisition method, i.e. as if the put option has been exercised already. Such
options are recognised as other liabilities initially at fair value. Fair value is measured at the present value of the exercise price of the
option. At each reporting date the liability is remeasured at fair value and changes in the carrying amount, i.e. excluding the effect of
unwind of discount, which is accounted for as a financial expense, are recognised by adjusting the carrying amount of goodwill.
Gains or losses on the divestment or winding-up of subsidiaries, associates or joint ventures are measured as the difference between
the consideration received adjusted for directly related divestment or winding-up costs and the carrying amount of the net assets at
the time of dispøosal or winding-up including any carrying amount of allocated goodwill.
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 adjustments arising between the exchange rates at the transaction date and at the date of
payment are recognised in the income statement under Financial income or Financial expenses.
Receilvables, 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 financial statement is recognised in the income statement under Financial income or
Financial! expenses.
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 not significantly deviate from the exchange
rate at the transaction date. Foreign exchange adjustments arising on translation of the opening balance of equity of 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 in other comprehensive income and presented 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 other comprehensive income and presented in equity under a separate translation reserve. Foreign exchange gains and losses on
the part of 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 in other comprehensive income and presented in equity under a separate
translation reserve.
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Consolidated financial statements 50
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 or 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 adjustments arising on the translation of the
share of the opening balance of equity of foreign assøciates at the exchange rates at the reporting date, and on translation of the
share of profit/loss for the year from average exchange rates to the exchange rates at the reporting date, are recognised in other
comprehensive income and presented in a separate translation reserve in equity.
Foreign exchange adjustments of foreign entities are recognised in other comprehensive income, and presented in the separate
translation reserve in equity. However, if the foreign entity is a non-wholly-owned subsidiary, the relevant proportionate share of the
foreign exchange adjustment is allocated to the non-controlling interests. When a foreign entity is dispøsed off such that control,
significant influence or joint control is lost or on repayment of balances which constitute part of the net investment in the foreign entity,
the cumulative amount in the translation reserve related to that foreign entity is reclassified to the income statement under Financial
income or Financial expenses. When the Group disposes of only part of its interest in a subsidiary that includes a foreign entity while
retaining control, the relevant proportion of the cumulative amount is allocated to non-controlling interests. When the Group disposes
of only part of its investment in an associate or joint venture that include a foreign entity while retaining significant influence or joint
control, the relevant proportion of the cumulative amount is reclassified to the income statement under Financial income or Financial
expenses.
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 or Loans and borrowings,
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.
Falr value hedges Changes in the fair vafue 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.
For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income
statement under Financial income or Financial expenses.
Cash flow hedges Changes in the portion of the fair value of derivative financial instruments designated as and qualifying for
recognition as a cash flow hedge, and which effectively hedges changes in the value of the hedged item, are recognised in other
comprehensive income and presented in a separate hedging reserve in equity until the hedged transaction is realised. At this time,
gains or losses concerning such hedging transactions are transferred from other comprehensive income to the Income statement and
recognised under the same line item as the hedged item.
if the hedging instrument no longer meefs the criteria for hedge accounting, expires or is sold, terminated or exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. The accumulated change in fair value recognised in
other comprehensive income is reclassified to the income statement in the same period that the hedged item affects the income
statement. If the forecasted transaction is no longer expected to occur, then the accumulated change in fair value is reclassifled to the
income statement.
For derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income
statement under Financial income or Financial expenses.
CONSOLIDATED INCOME STATEMENT
Presentation The consolidated income statement is presented in accordance with the "nature of expense" method. Goodwill
impairment and Amortisation and impairment 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 most appropriately to reflect the
Group's profitability.
Revenue from rendering services is recognised in the income statement in proportion to the stage of completion of the transaction at
fhe 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 of
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.
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IND
Contract costs 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 recagnised 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.
The stage of completion of a contract is assessed by reference to the proportion that contract costs incurred for work performed to
date bear to the estimated total contract cøsts.
Revenue from the sale of goods in the course of the ordinary activities is recognised in the income statement provided that all
significant risks and rewards of ownership have been transferred to the customer, and that the amount of revenue can be measured
veliably.
Revenue is measured at fair value of the consideration received less VAT and duties as well as price and quantity discounts.
Government grants mainly comprises wage subventions. Grants that compensate the Group for expenses incurred are recognised
in the income statement on a systematic basis in the same periods in which the expenses are incurred.
Staff costs comprises salaries and wages, pensions, social security costs and other employee related expenses.
Consumables comprises material consumption related to the recognised revenue, e.g. food costs, 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 and impairment losses on receivables etc.
Depreciation and amortisation includes depreciation and amortisation of intangible and tangible assets excluding Goodwill
impairment and Amortisation and impairment of brands and customer contracts, which are presented in separate line items after
Profit before goodwill impairment/amortisation and impairment of brands and customer contracts.
Other income and expenses, net consists of income and expenses, both recurring and non-recurring, that the Group døes 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 and restructurings.
Acaquisition and integration costs Acquisition costs comprise earn-out adjustments, direct acquisition costs related to external
advisørs and other acquisition related costs such as reversal of provisions in opening balances. Integration costs comprise costs
iIncurred by the acquiring Group company and the acquired business that are a consequense of the integration. Integration costs
include costs for termination of employees, contract termination costs mainly related to lteasehold as well as advisory fees.
Royalty comprises royalty and management fee invoiced by ISS World Services A/S (formerly ISS A/S) (the parent of ISS Global
AIS).
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.
Financial income and financial expenses 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 unwind of discount.
Additionally realised and unrealised gains and løsses 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/loss for the year is
recognised in the income statement and the tax expense relating to items recognised in other comprehensive income is recognised
directly in other comprehensive income.
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 Financiat income or Financial expenses.
Goodwill impairment includes impairment losses arising from impairment tests as well as impairment of goodwill in connection with
divestments and classification of disposal groups as held for sale.
Amortisation and impalirment 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 impairment losses in
conneclion with divestments and classification of disposal groups as held for sale.
Income tax effect of Goodwill impairment and Amortisation and impairment of brands and customer contracts is presented in a
separate line item in connection with these two line items.
1104204EogSN32272
Consolidated financial statements 52
CONSOLIDATED 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 non-cash items, changes in working capital and provisions and payments regarding income taxes, ofher income and
expenses, acquisition and 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.
Acquisition 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 World Services A/S (formerly ISS A/S) (the parent of ISS
Globalt A/S) by ISS A/S (formerly 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.
CONSOLIDATED 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. Goodwill is not amortised.
The carrying amount of goodwill is allocated to the Group's Ccash-generating units at the acquisition date and tested at least annually
as part of the annual impairment test for non-current assets. Identification of cash-generating units is based on the management
structure and internal financial control, i.e. generally equal to country level,
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 accumutated impairment losses while acquired brands with finite useful lives are
measured at historicaf 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 non-
current assets.
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 non-current assets.
Software and other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less
accumulated amortisation and accumulated impairment losses.
1104204EogSN32273
Consolidated financial statements 53
The cost of software developed for internal use includes external costs to consultants and software as well as internal direct and
indirect costs related to the development. Olher development costs for which it cannot be rendered probable that future economic
benefits wili flow to the Group are recognised in the income statement as and when incurred,
Amortisation is based on the cost of the asset and recognised in the income statement on a straight-line basis over the estimated
useful lives of the assets. The estimated useful lives før the current and comparative years are as follows:
Estimated useful life
Software 5-10 years
Other intangible assets 5-10 years
Amortisation methods and useful lives are reassessed at each reporting date and adjusted if appropriate. When changing the
amortisation period due to a change in the usefut life, the effect on the amortisation is recognised prospectively as a change in
accounting estimates.
Property, plant and equipment is measured at cost less accumulated depreclation and accumulated impairment losses.
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 ihe 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 for common repairs and maintenance are recognised in the income
statement as and when incurred.
Depreciation is based on the cost of an asset less its residual value. When parts of an item of property, plant and equipment have
different usefu! lives, they are accounted for as separate items of property, plant and equipment. The residual value is determined at
the acquisition date and reassessed at each reporting date. If the residual value exceeds the carrying amount depreclation is
discontinued.
Depreciation of property, plant and equipment is recognised in the income statement on a straight-line basis over the estimated useful
lives of the assets. Assets under finance lease are depreciated over the shorter of the lease term and their useful lives unless it is
reasonably certain that ihe Group will obtain ownership by the end of the lease term. The estimated useful lives for current and
comparative years are as follows:
Estimated useful life
Buildings 5-40 years
Leasehold improvements (the lease term) 5-12 years
Plant and equipment 3-10 years
Land is not depreciated.
Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. 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 property, plant and equipment are measured as the difference between the
selling price less direct sales costs and the 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 are tested for impairment if
indications of impairment exists.
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 ihe associate, the deficit is recognised under provisions.
1104204EogSN32274
Consolidated financial statements 54
Recelvables from associates are measured at amortised cost. An allowance for impairment losses is recognised.
Investments in associates are accounted for using the acquisition method, see description under Business combinations.
Other financial assets comprise mainly deposits measured at amortised cost and regulatory long-term loans measured at amortised
cost with any resulting adjustment being recognised in the income statement.
Impairment of non-current assets Goodwill and brands with an indefinite useful life are subject to annual impairment tests, inittally
before the end of the acquisition year. Similarly, brands with definite useful life and customer contracts are tested for impairment
annually.
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. If the carrying amount exceeds the recoverable amount an impairment loss is recognised in a separate line
in the Income statement. 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.
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 vatue in use is calculated as the present value of expected future cash flows from the asset
ør 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,
Inventorles 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. An impairment loss is recognised when objective evidence indicates ihat a receivable
or a portfolio of receivables is impaired, Objective evidence that receivables are impaired can include default or delinquency by 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 cønsiders 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 simifar 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.
Impairment losses during the year are recognised under Other operating expenses and reflected in an allowance account against
receivables. Interest on the impaired receivable continues to be recognised. When a subsequent event causes the amount of
Impairment loss to decrease, the decrease in impairment loss is reversed through the income statement.
Contract work in progress represents the gross unbilled amount expected to be collected from customers for contract work
performed to date, It is measured at the contract revenue of the work completed (i.e. cost plus profit recognised to date) less progress
billings and recognised losses.
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Consolidated financial statements 585
The contract revenue is calculated in proportion to 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 on a contract-by-contract basis 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.
Other receivables comprise various receivables, e.g. receivable divestment proceeds, outlays for customers, employee receivables
and certain contract costs. Capitalised contract costs are amortised over the term of the contract. Contract costs relate to PPP/PFI
contracts and certain other significant contracts. Costs related to tenders far public offers for PPP (Public Private Partnershipy/PFI
(Private Finance Initiative) contracts are generally recognised in the income statement as incurred. However, if the Group is awarded
status as preferred bidder, directly attributable contract costs from that date, if any, are capitalised. If the Group is not awarded the
contract, all costs are recognised in the income statement.
Prepayments comprise various prepaid expenses such as rent, leasing and insurance as well as accrued interest expenses.
Prepayments are measured at cost.
Securities that are designated as fair value through profit or loss 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 subsidiaries/joint ventures and investments in associates with another functional currency than DKK as well as from the
translation of non-current balances which are considered part of the investment in subsidiaries/joint ventures, løans and borrowings 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 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.
Share premium comprises amounts above the nominal share capital paid by shareholders when shares are issued by the Group.
The share premium amount is a part of the Group's free reserves.
Treasury shares Proceeds related to the acquisition or disposal of treasury shares are recognised directly in equity.
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 ihe date when the decision to pay interim dividend is made.
Retirement benefit obligations and similar long-term obligations The Group has entered into retirement benefit schemes and
similar arrangements with the majority of the Group's employees.
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity
and will have no legal or constructive obligation to pay further amounts. Contributions to defined contribution plans are recognised in
the income statement under Staff costs in the periods during which services are rendered by employees. Any contributions
outstanding are recognised in the statement of financial position as Other fiabilities.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect
of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have
earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The
calculation is performed annually by a qualified actuary using the Projected Unit Credit Method. 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
actuarial present value less the fair value of any plan assets is recognised in the statement of financial position under Pensions and
similar obligations.
1104204EogSN32276
Consolidated financial statements 56
NOTE
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 in other comprehensive income.
If changes in benefits relating to services rendered by employees in previous years result in changes in the actuarial present value,
the changes are recognised 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.
If 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 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 optian pricing model 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 in 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 settiement of the liability, respectively.
Deferred tax assets, inciuding 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 ør 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.
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 ør 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.
1104204EogSN32277
Consolidated financial statements 57
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 unwind of discount is recognised under Financial
expenses.
Restructuring costs are recognised under 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 onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than
the unavoldable costs of meeting the obligations under the contract.
When the Group has a legal obligation to dismantle or 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 liabilitles are recognised at the date of borrowing at the amount of proceeds received less related transaction cøsts 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 Financial expenses over the term of the
loan.
Financial liabilities also include the capitalised residual obligation on finance leases, which are measured at amortised cost.
Leasing For 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 is described
under Property, plant and equipment and Financial liabilities, respectively.
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
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. Liabitities 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 is expected to primarily be recovered through a sale within 12 months of the reporting date in
accordance with a formal plan rather than through continuing use.
Immediately before classification as held for sale, the assets or disposal groups are remeasured in accordance with the Group's
accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value less costs to
sell. Any impairment loss is first allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no
loss is allocated to inventories, financial assets or deferred tax assets, which continue to be measured in accordance with the Group's
accounting policies. Intangible assets and property, plant and equipment once classified as held for sale are not amortised or
depreciated.
Impairment losses on initiat 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.
SEGMENT INFORMATION
The Graup'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 seven 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 Financial income, Financial
expenses and Income taxes.
For IFRS 8 purposes, segment profit has been identified as Operating profit (before Goodwill impairment and Amortisation and
impairment 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.
1104204EogSN32278
Consolidated financial statements 58
The preparation of the consolidated financial statements of ihe Group requires management to make judgements, accounting
estimates and assumptions that affect the application of accounting policies and the reported amounts of the Group's assets and
liabilities, ingøome and expenses.
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 financial risks for the Group are discussed 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 tø the carrying amount of assets or liabilities within the next financial year.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods affected.
In 2009 and 2010, the development in the global economy and financial markets lead to higher uncertainty regarding a number of key
assumptions about the future, e.g. interest rates, growth rates, volatility and credit risk.
Management believes the following are the areas involving significant accounting estimates in the preparation of the consolidated
financial statements of the Group:
Acquilsition of businesses When acquiring businesses the acquisition method is applied. The most significant assets acquired
generally comprise goodwill, brands, customer contracts 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 liabilities, in particular in respect of acquired intangible assets, management makes estimates of the fair value.
Goodwill is measured as the difference between the consideration transferred and the fair value of the net identifiable assets
acquired. 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 fair value of identifiable net assets is
specified in note 13, Acquisition and divestment of businesses.
Brands The fair value of the brands acquired in business combinations 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 lime. Whether the conversion is effected immediately
ør 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 paymenis (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.
Customer contracts The fair value of customer contracts acquired in business combinations 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 mode! 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 return requirement for assets supporling 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.
1104204EogSN32279
Consolidated financial statements 59
EMENT SCO
IUED)
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 Goodwill, 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 (CGU) 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 and discount rates.
Value-in-use cash flow projections are based on financial budgets approved by management covering the following financial year. The
assumptions applied in the short to medium term are based on management's expectations regarding the operational development
and growth. The terminal growth rates dø not exceed the expected long-term average growth rate including inflation for the countries
in which the CGU's operate,
Uncertainties reflecting historical performance and possible variations in the amount or timing of the future cash flow are generally
reflected in the discount rates. Consequently, 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 including sensitivity analyses are presented in note 15, Impairment tests.
Defined benefit plans 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. 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 assumptions are assessed at the reporting date. The range and weighted average for
these assumptions are disclosed in note 29, Pensions and similar obligations.
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, Provisions and contingent liabilities are disclosed in note 33, Contingent liabilities, pledges and
guarantees.
Deferred tax assets The recognition of deferred tax assets regarding tax losses carried forward is based on management's
assessment of 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, and uncertainties relating to recognition are described, in note 18, Deferred tax.
Receivables are measured at amortised cost. Impairment losses recognised are based øn management's assessment of the
customer's ability to make the required payments. Management performs analysis of impairment at both specific receivable and
portfolio leve! as described in note 1, Significant accounting policies.
The recognised allowance for impairment losses is expected to be sufficient to cover future losses. The financial uncertainty
associated with impairment of receivables is usually considered to be limited.
Impairment of receivables is described and disclosed in note 35, Financial risk management.
1104204EogSN32280
Consolidated financial statements 60
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 of intangibles both on initial classification as held for safe and subsequently. The estimation
uncertainty relating to impairment of intangibtes 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 provistons 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 comhinations 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.
Revenue is primarily generated from rendering of services or from contract work in progress. Management makes judgements to
distinguish between revenue generated from rendering of service and revenue from contract work in progress for the purpose of
classification of revenue either in accordance with IAS 18 "Revenue” or IAS 11 "Construction Contracts",
Othør income and expenses, net The use of Other income and expenses, net entalls management judgement in the separation
fram 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.
Management carefully evaluates each item to ensure the correct distinction between the Group's ordinary operating activities and
Other income and expenses, net.
Acquilsition and integration costs Acquisition costs comprise earn-out adjustments, direct acquisition costs related to external
advisøors and other acquisition related costs such as reversal of provisions in opening balances. Integration costs comprise costs
incurred as a consequence of the integration of acquired businesses and include cost for termination of employees, contract
termination costs mainly related to leasehold as well as advisory fees. The use of Acquisition and integration costs entails
management judgement in the separation of these costs from the ordinary operating activities in the Group.
Management carefully evaluates each item to ensure the correct distinction between the Group's ordinary operating activities and
Acquisition 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 recøgnised hedge instruments is
assessed on a monthly basis and any ineffectiveness is recognised in the income statement.
Assets held for safe Non-current assets and disposa! 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.
1104204EogSN32281
Consolidated financial statements 61
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 services, support services, property services, catering services, security services and facility management services.
Operations are managed based on a geographical structure in which countries are grouped into seven 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 Latin North Eastern reportable
DKK million Europe Nordic Asia Pacifico America America Europe segments
2010
Income statement
Revenue ” 39,121 17,301 5,401) 5,018 3,070 2,625 1,602 74,138
Depreciation and amortisation ? (374) (250) — (78) (47) (31) (15) (21) (816)
Operating profit before other Items 9 2,278 1,228 407 333 178 132 113 4,669
Other income and expenses, net (213) 136 0 - - - 0 (77)
Acquisition and integration costs 1 (0) (7) - - " - (6)
Royalty (617) (268) (64) (80) (49) (42) (26) (1,146)
Operating profit ? 1,449 1,096 336 253 129 90 87 3,440
Goodwill impairment (255) (4) - - - - - (259)
Amortisation and impairment
of brands and customer contracts (228) (55) (47) (42) (9) (41) (13) (435)
Statement of financial position
Total assets 26,808 10,269 3,637 3,487 1,803 1,662 1,184 48,850
Additions excluding acquisitions/divestments 459 222 107 88 64 15 21 976
Additions from acquisition of businesses 133 - 140 (2) - (3) 32 300
Disposals related to divestment of businesses n (12) (18) - - - - - (30)
Additlons to non-current assets, net ? 580 204 247 86 64 12 53 1,246
Total liabilities 20,567 8,930 1,879 2,560 1,521 1,191 610 37,268
Transactions between reportable segments are made on market terms.
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 Amortisation and impairment of brands and customer contracts.
2) Excluding Other income and expenses, net, Acquisition and integration costs, Royalty, Goodwill impairment and Amortisation and impairment of
brands and customer contracis.
4) Disposals related to divestment of businesses does not include Intangible assets and Property, plant and equipment from divestments that have been
classified as held for sale.
5) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
1104204EogSN32282
Consolidated financiat statements 62
Total
Western Latin North Eastern reportable
DKK million Europe Nordic Asia Pacific America America Europe segments
2009
Income statement
Revenue ” 38,632 16,367 4,120 3,768 2,077 2,515 1,561 69,040
Depreciation and amortisation ? (444) (237) (58) (35) (23) (15) (23) (835)
Operating profit before other items ? 2,056 1,219 308 259 131 134 106 4,213
Other income and expenses, net (567) 52 (4) (20) - - (1) (540)
Acquisition and integration costs ” (31) (4) (5) (2) (1) (2) (1) (46)
Royalty (610) (255) (66) (62) (33) (40) (24) (1,090)
Operating profit ? 848 14,012 233 175 97 92 80 2,537
Goodwill impairment (549) (172) - (0) - - - (721)
Amortisation and impairment
of brands and customer contracts (317) (81) (42) (38) (15) (46) (15) (554)
Statement of financial position
Total assets 25,384 9,951 2,757 3,012 1,354 1,544 1,138 45,140
Additions excluding acquisitions/divestments 526 319 88 58 41 12 17 1,061
Additions from acquisition of businesses 290 170 337 45 (10) 84 3 919
Disposals related to divestment of businesses ? (38) (366) (1) - - - - (405)
Additions to non-current assets, net? 778 123 424 103 31 96 20 1,575
Total llabilities 19,626 9,088 1,561 2,294 1,085 1,108 703 35,465
Transactions between reportable segments are made on market terms.
n 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 Amortisation and impairment of brands and customer contracts.
2 Excluding Other income and expenses, net, Acquisition and integration costs, Royalty, Goodwill impairment and Amortisation and impairment of
brands and customer contracts.
2 In 2009, Acquisition and integration costs only comprised integration costs as acquisition costs were recognised as part of goodwill.
2) Dispøsals related to divestment of businesses does not include Intangibte assets and Property, plant and equipment from divestments that have been
classified as held før sale.
&) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
Grouping of countries into regions
Western Europe: Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, Italy, the Netherlands, Portugal,
Spain, South Africa, Switzerland, Turkey and the United Kingdom
Nordic: Denmark, Finland, Greeniand, Iceland, Norway and Sweden
Asia: Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Taiwan and Thailand
Pacific: Australia and New Zealand
Latin America: Argentina, Brazil, Chile, Mexico and Uruguay
North America: Canada and the USA
Eastern Europe: Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia
1104204EogSN32283
Consolidated financial statements 63
Service types
The Group's revenue derives from the following service types:
DKK million 2010 2009
Cleaning services 38,400 36,070
Support services 5,606 4,981
Property services 14,626 14,503
Catering services 7,059 6,201
Security services 5,246 4,672
Facility management services 3,164 2,597
Total revenue 74,101 69,024
Geographical information
Revenue and non-current assets (excluding deferred tax assets) is specified below for each of the Group's significant countries 1);
2010 2009
Non-current Non-current
DKK million Revenue assets Revenue assets
France 8,084 4,553 8,879 4,564
United Kingdom 7,384 1,788 6,948 1,724
Norway 5,681 1,469 5,246 1,430
Australia 4,583 2,358 3,419 1,928
Spain 4,446 1,775 4,534 1,807
Sweden 3,898 1,589 3,536 1,398
Finland 3,841 2,172 3,678 2,295
Denmark (country of domicite) 3,714 1,137 3,731 1,148
Other countries? 32,470 11,522 29,053 11,348
Total 74,101 28,363 69,024 27,642
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.
1104204EogSN32284
Consolidated financial statements 64
NOTE. 3
Reconciliations
DKK million 2010 2009
Revenue
Revenue for reportable segments 74,138 69,040
Elimination of internal revenue (37) (16)
Revenue according to the income statement 74,101 69,024
Operating profit
Operating profit for reportable segments 3,440 2,537
Unallocated corporate costs 26 25
Operating profit according to the income statement 3,466 2,562
Unallocated:
Share of result from associates 10 4
Financial income 182 279
Financial expenses (1,954) (1,863)
Profit before tax and goodwill impairment/amortisation and impairment of brands
and customer contracts according to the income statement 1,704 982
Total assets
Total assets for reportable segments 48,850 45,140
Elimination of internal assets ” (32,311) (28,681)
Unallocated assets 29,512 27,667
Total assets according to the statement of financial position 46,051 44,126
Additions to non-current assets ?
Additions to non-current assets for reportable segments 1,246 1,575
Unallocated additions to non-current assets 20 13
Total additions to non-current assets according to the statement of financial position 1,266 1,588
Total llabilities
Total liabilities før reportable segments 37,258 35,465
Elimination of internal liabilities ” (31,653) (28,254)
Unallocated liabilities 39,959 37,526
Total liabilities according to the statement of financial position 45,564 44,737
W Etiminations mainly relate to intra-group balances.
2) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
1104204EogSN32285
Consolidated financial statements 65
DKK million
Rendering of services
Sales of goods
Contract work in progress
Revenue
2010 2009
69,157 64,668
2,928 2,495
2,016 1,861
74,101 69,024
Both revenue from rendering of services and contract work in progress have been determined based on the stage of completion
method. The amount of revenue recognised from contract work in progress mainly relates to the Group's landscaping and damage
contro! activities. The work performed is based on specifically negotiated contracts with customers.
DKK million
Wages and salaries
Defined benefit plans
Defined contribution plans
Social security costs
Other employee benefits
Staff costs
Average number of employees
2010 2009
37,458 34,903
172 150
1,791 1,573
5,622 5,338
2,695 2,604
47,738 44,568
506,580 482,427
The Group received government grants in the form of wage subventions, which have been recognised in the income statement as a
reduction of staff costs. The grants compensate the Group for staff cosis primarlly related to social security as well as hiring certain
categories of employees such as trainees, disabled persons, long-term unemployed and employees in certain age groups.
1104204EogSN32286
Consolidated financial statements 66
Remuneration to the Board of Directors, the Executive Group Management and Key management personnel
The management team of the Group formally consists of the Board of Directors and the Managing Director of ISS Global A/S. As ISS
Global A/S has no operating activities of its own, ihe Group relies on the management team of ISS World Services A/S, the parent of
ISS Global A/S. Consequently, key management personnel of the Group comprises the management team of ISS World Services
AJS, i.e. the Board of Directors, the Executive Group Management and Corporate Senior Officers of ISS World Services A/S.
Remuneration to key management personnel is paid by ISS A/S and is presented below. The Board of Directors and the Managing
Director of ISS Global A/S are not remunerated separately for their directorships in ISS Global A/S and are therefore not shown in the
table.
2010 2009
Executive Corporate Executive Corporate
Board of Group Senior Board of Group Senior
Directors of Management Officers of Directorsof Management Officers of
ISS World of ISS World ISS World ISS World of isSs World ISS World
DKK thousand Services A/S Services A/S Services A/S Services A/S Services A/S Services A/S
Salaries and other remuneration 2,173 15,003 50,098 1,969 20,027 37,036
Bonus - 5,450 15,830 - 5,703 7,409
Severance payments ” - 16,204 3,188 - - 7,091
Share-based payments ? - 233 1,413 - 233 2,021
Total remuneration 2,173 36,890 70,529 1,969 25,963 53,557
DKK thousand 2010 2009
Executive Group Management
Jeff Gravenhorst 10,246 7,483
Jakob Stausholm 8,362 7,351
Jørgen Lindegaard (former Group CEO) 18,282 10,879
Flemming Schandorff (former Group COO) - 250
36,890 25,963
The Board of Directors of ISS World Services 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 døes not participate in the warrant
programme described in note 6, Share-based payments. However, the non-executive members (except representatives of the
Principal Shareholders) have been offered to invest in a mix of shares and warrants as part of the Directors Participation Programme
described in note 37, Related parties.
The members of the Executive Group Management of ISS World Services A/S and Corporate Senior Officers of ISS World Services
AIS 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, standard benefits in accordance with market standards and, for most of these, a
performance-based bonus of up to 60% of their fixed salary. Most members are also subject to a cash bonus scheme triggered by the
completion of an initial public offering (IPO) or a sale of the company, the size of such bonus depending on the price of the shares of
the company in the offering or the sales price, respectively. 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 6, Share-
based payments.
Corporate Senior Officers comprises members of Group Management of ISS World Services A/S, other than members of the
Executive Group Management of ISS World Services A/S. Members of Group Management have authority and responsibility for
planning, implementing and controliing the Group's activities and are together with the Board of Directors of ISS World Services A/S
considered as the Group's key management personnel.
The employment contracts for the Executive Group Management of ISS World Services A/S and Corporate Senior Officers of ISS
World Services A/S may be terminated at 6-24 months' notice. One employment contract includes a severance payment of 2 years
salary. No other members are entitled to severance payments. The employment contracts contain no special termination rights,
W Severance payments related to senior management changes at Corporate of DKK 16 million (2009: DKK 7 million) were included in Other income
and expenses, net in ISS World Services A/S,
2) Included in Other income and expenses, net in ISS World Services A/S.
1104204EogSN32287
Consolidated financial statements 67
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.å r.l ("FS Invest"), ISS Global A/S's ultimate parent. As part of the initiaf 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 I 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 37, 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, A and B, both expiring on 1 June 2014.
The estimated FS Invest share price at the time of the grant was DKK 1,019 per share. The warrants 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 on 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 is expensed in the
income statement over the vesting period from July 2006 to June 2014. In 2010, DKK 2 million were recognised under Other income
and expenses, net in ISS World Services A/S in respect of warrants granted (2009: DKK 3 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 2010 and movements during 2009 and 2010 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
Outstanding at 1 January 2009 - 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 during 2010 - - - (7,577) (44,195) (51,772) (7,577) (44,195) (51,772)
Outstanding at 31 December 2010 - 57,888 57,888 22,275 197,469 219,744 22,275 255,357 277,632
Warrants settled relates to cash settlement by FS invest of warrants in connection with termination of emptoyment.
1) The Executive Group Management comprise the Executive Group Management of ISS World Services A/S.
2 Senior officers of the Group comprises Corporate Senior Officers of ISS World Services A/S (members of Group Management of ISS World Services A/S
other than members of the Executive Group Management) and other Corporate Olfficers of ISS World Services A/S as well as certain members of Country
Management of each country.
3) Corporate Officers of the Group comprises Corporate Senior Officers of ISS World Services A/S (members of Group Management of ISS World Services
AIS other than members of the Executive Group Management) and other Corporate Officers of ISS World Services A/S.
1104204EogSN32288
Consolidated financial statemenis 68
NOT!
DKK million 2010 2009
KPMG
Audit fees 38 38
Olher assurance services 3 7
Tax and VAT advisory services 10 8
Other services 3 9
Total KPMG 54 62
Audit fees comprised audit of the consolidated and local financial statements. Other assurance services in 2010 comprised mainly
work related to half year review. Tax and VAT advisory services comprised general tax and VAT consultancy and assistance. Other
services comprised among other things work related to acquisitions such as financial and tax due diligence.
DKK million 2010 2009
Gain on divestments 254 102
Gain on sale of properties 1 8
Other 0 6
Other income 255 116
Loss on divestments (208) (19)
Accounting irregularities in Norway in prior years (113) -
Redundancy and severance payments relating to senior management changes - (37)
Restructuring projects (0) (426)
impairment losses related to businesses classified as held for sale - (159)
Other (11) (15)
Other expenses (332) (656)
Other income and expenses, net (77) (540)
Gain on divestments in 2010 mainly related to completion of the divestment of the non-strategic washroom activities in Denmark,
Norway and Sweden. In 2009, the gain related to the sate of the non-core laundry activities in Sweden and Norway.
Loss on divestments in 2010 primarily related to completion of the sale of the waste management and security activities in France
and the non-core building maintenance activities in Spain which were classified as held for sale on 31 December 2009. In 2009, the
loss mainly related to the non-strategic landscaping activities in Norway and Sweden as well as the contact centre activities in the
Netherlands.
Accounting Irregutarities in Norway In prlor years related to one of ISS Norway's subsidiaries and took place in the period from
2005-2010 resulting in an accumulated impact of DKK 118 million stemming from an overstatement of revenue of DKK 75 million and
an understatement of cost of DKK 43 million, The impact from accounting irregularities carried out in prior years amounted to DKK 113
million.
Restructuring projects in 2009 related to a number of projects in France, Germany, Spain, Australia, Belgium, Denmark, Finland and
the United Kingdom covering closure of certain parts of business units or divisions as well as changes in the ørganisational setup,
consolidation of office locations and other efficiency improvements. Generally, restructuring projects include primarily redundancy
payments, termination of leaseholds and relocation costs.
Impairment losses related to businesses classified as held før sale in 2009 mainly related to net assets (excluding goodwill,
brands, customer contracts and the related tax effect) of the waste management activities in France, which were classified as held for
sale at 31 December 2009, and sold in 2010 as mentioned above.
1104204EogSN32289
Consolidated financial statements 69
DKK million 2010 2009
Interest income on cash and cash equivalents etc. 93 81
Interest income from companies within the ISS Group - 0
Amortisation of gain from settlement of interest rate swaps 15 60
Foreign exchange gains 74 86
Gain related to partial redemption of EMTNs ”2 - 52
Financial income 182 279
Hereof financial income on financial assets measured at amortised cost 93 81
Interest expenses on loans and borrowings etc. (1,483) (1,377)
Amortisation of financing fees (103) (87)
Interest expenses to companies within the ISS Group (116) (95)
Net change in fair value of cash flow hedges transferred from equity (190) (237)
Foreign exchange losses (49) (67)
Loss related to partial redemption of EMTNs ”? (13) -
Financial expenses (1,954) (1,863)
Hereof financial expenses on financial liabilities measured at amortised cost (1,702) (1,559)
1 In January 2010, a partial redemption of the EMTNs due 2010 was carried out through the completion of a tender offer for DKK 1,116 million (EUR 150
million). The redemption resulted in a loss of DKK 13 million primarily due to the purchase price being above nominal value. In 2009, the partial
redemption in July of the EMTNs due in 2010 resulted in a gain of DKK 52 million.
2) The EMTNs are measured at amortised cost.
1104204EogSN32290
Consolidated financial statements 70
DKK million
Current tax regarding profit before impairment/amortisation of intangibles n
Deferred tax regarding profit before impairment/amortisation of intangibles ”
Tax on profit before impairment/amortisation of intangibles n
Adjustments relating to prior years, net
Income taxes
Tax effect of impairment/amortisation of intangibles ”
Total tax recognised in the income statement
Income tax recognised in other comprehensive income
DKK million
Foreign exchange adjustment of subsidiaries
"and non-controlling interests
Fair value adjustment of hedges, net
Fair value adjustment of hedges, net,
transferred to Financial expenses
Limitation to interest deduction in Denmark
Actuarial gains/(losses)
Impact from asset ceiling regarding pensions
Total recognised in
other comprehensive income
Computation of effective tax rate
Statutory income tax rate in Denmark
Foreign tax rate differential, net
Non-tax deductible expenses less non-taxable income
Adjustments relating to prior years, net
Change of valuation of net tax assets
Effect of changes in tax rates
Other taxes ?
Limitation to interest deduction in Denmark
Effective tax rate (excluding effect from impairment/amortisation of intangibles) n
1 In this context intangibles comprise the value of goodwill, brands and customer contracts.
2) Other taxes mainly comprise withholding tax and the French Cotisation sur La Valeur Ajoutee des Enterprises (CVAE).
1104204EogSN32291
2010 2009
698 483
(25) (22)
673 461
(14) 19
659 480
(116) (179)
543 301
2010 2009
Before Net of Before Net of
tax Tax tax tax Tax tax
613 - 613 63 - 63
(120) 30 (90) (249) 62 (187)
190 (48) 142 237 (59) 178
- - - - (3) (3)
(129) 36 (93) (45) 4 (41)
(20) - (20) 18 - 18
534 18 552 24 4 28
2010 2009
25.0 % 25.0 %
(1.9)% (1.5)%
23.1 % 23.5 %
1.3 % 5,3 %
(0.8)% 1.9 %
3.7 % 9.0 %
(0.1)% (0.2)%
6.9 % 2,1 %
4.5 % 7.3 %
38.6 % 48.9 %
Consolidated financial statements 71
INOTI
DKK million 2010 2009
Impairment losses derived from impairment tests 250 100
Impairment losses derived from divestment of businesses 9 621
Goodwill impairment 259 721
Impairment losses derived from Impairment tests of DKK 250 million in 2010 related to ISS Greece, For further description see
note 15, Impairment tests. In 2009, impairment losses amounted to DKK 100 million and related to ISS Germany.
Impairment losses derived from divestment of husinesses of DKK 9 million in 2010 related to the divestment of properly services
in Ireland of DKK 5 million and the divestment of the non-strategic contact centre activities in Denmark of DKK 4 million. In 2009, the
impairment loss of DKK 621 million 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 impairment loss 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 contact centre activities in the Netherlands of DKK 69 million and the pest control activities in the United Kingdom of
DKK 42 million. The impairment loss 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.
ING
DKK miftion 2010 2009
Changes in inventories (7) (25)
Changes in receivables (476) (21)
Changes in payables 420 (69)
Changes in working capital (63) (115)
1104204EogSN32292
Consolidated financial statements 72
Acauisition of businesses
The Group uses acquisitions as a tool in the continued development of the business platform. Acquisitions are used selectively to
improve competitiveness, build critical mass and increase service capabilities and capacity where and when appropriate.
When acquiring businesses the Group seeks to generate value by restructuring and refining the acquired business by applying The
ISS Way strategy. The main impact from acquisitions derives from synergies, the value of human resources and the creation of
platforms for growth. Consequently, goodwill recognised on acquisition is attributable mainly to; i) assembled workforce, ii) technical
expertise and technological know how, lil) training expertise, training and recruitment programmes and iv) platform for growth.
Acquisitions occuring on or after 1 January 2010 are accounted for in accordance with IFRS 3 (revised 2008), whereas acquisitions
occuring before 1 January 2010 are accounted for in accordance with the previous IFRS 3. Consequently, for the latter adjustments
to contingent consideration and transaction costs continue to be recagnised in goodwill as described m note 1, Significant accounting
policies.
Acquisitions in 2010
The Group made one acquisition in 2010. The opening balance of the acquisition and adjustments to prior years' acquisitions had the
following effect on the Group's assets and liabilities at 31 December 2010:
2010
SDB Adjustments
Cisco to prior years" Total
DKK million Ltd. acqgulsitions acquisitions
Customer contracts 48 - 48
Other non-current assets 24 (3) 21
Trade receivables 70 (19) 51
Other current assets 83 (8) 75
Provisions - 2 2
Pensions, deferred tax liabilities and non-controlling interests (14) 9 (5)
Non-current loans and borrowings (1) - (1)
Other current liabllities (112) 7 (105)
Total identifiable net assets 98 (12) 86
Goodwill 118 112 230
Acquisition costs, net of tax - (1) (1)
Consideration transferred 216 99 315
Cash and cash equivalents in acquired businesses (49) - (49)
Cash consideration transferred 167 99 266
Contingent and deferred consideration (8) 206 198
Acquisition costs paid, net of tax 5 1 6
Total payments regarding acquisition of businesses 164 306 470
1104204EogSN32293
Consolidated financial statements 73
Acquisition of businesses (continued)
SDB Cisco Ltd.
On 9 August 2010, the Group acquired 49% of the shares in the Indian security company SDB Cisco Ltd. Under IFRS, the Group has
the power to govern the financial and operating policles of the company by virtue of the governance structure and consequently, SDB
Cisco is consolidated as a subsidiary. The non-controlling interest is accounted for in accordance with note 1, Significant accounting
policies.
Acquiring SDB Cisco adds security services to the service offerings of ISS India, provides national coverage within security services
and secures ISS a leading position in the market for outsourced services in India.
The total annual revenue of SDB Cisco was estimated at DKK 400 million (approximate figures extracted from unaudited financial
information) based on expectations at the time of the acquisition. In the period from the acquisition date to 31 December 2010, SDB
Cisco contributed revenue of DKK 181 million and operating profit before other items of DKK 11 million. Total number of employees
taken over is approx. 27,000.
Total consideration transferred amounted to DKK 216 million of which DKK 8 million has been deferred. No contingent consideration
has been agreed as part of the transaction. Adjusted for cash and cash equivalents acquired in the opening balance the cash
consideration transferred was DKK 167 million.
The Group incurred acquisition-related costs of DKK 5 million related to external legal fees and due diligence costs. The legal fees
and due diligence costs have been included in the income statement in the line Acquisition and integration costs.
In line with usual Group procedures for completion of opening balances of acquired businesses the review of the opening balance of
SDB Cisco has not yet been completed. Consequently, the opening balance is provisionally determined as at 31 December 2010.
Trade receivables of DKK 70 million are included in the provisionally determined opening balance. The trade receivables comprise
gross contractual amounts of DKK 74 million, of which DKK 4 million were expected to be uncollectible at ihe acquisition date based
on the preliminary assessment.
Based on the provisionally determined fair values of identifiable net assets goodwill amounts to DKK 118 million. The goodwill
recognised is not expected to be deduclible for income tax purposes.
Adjustments to prior years' acquisitions
Adjustments to prior years' acquisitions comprise various minor adjustments to the identifiable net assets of a number of acquisitions.
The goodwill addition is mainly related to a revised estimate of the purchase obligation for the remaining 10% of ISS Turkey, DKK
148 million, as well as the final settlement of the purchase obligation related to ISS Estonia with the acquisition of the remaining 49%,
DKK 30 million. The amounts recognised in goodwill reflect the excess over the originally estimated purchase obligations already
recognised in the statement of financial position in prior years. On the other hand the total addition to goodwill is reduced by a revised
estimate for contingent consideration (earn-out) related to Inbuilt Engineering in Singapore, DKK 49 million, as well as a number of
minor adjustments related to various acquisitions.
1104204FkogSN32294
Consolidated financial statements 74
Acquisition of businesses (continued)
Acquisitions in 2009
The Group made 22 acquisitions in 2009. The total purchase price amounted to DKK 680 million. The total annual revenue of the
acquired businesses (approximate figures extracted from unaudited financial information) is estimated at DKK 997 million based on
expectations at the time of acquisition.
Acquisitions made in 2009 (including adjustments to acquisitions in prior years) had the following effect on the Group's assets and
liabilities at the acquisition date:
2009
Fair value adj.
Pre-
acqulsition Current Recognised
carrying year Prioryear — values on
DKK million 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
Provisions (1) (8) (20) (29)
Pensions, deferred tax liabilities and non-controlling interests 7 (36) (4) (33)
Non-current loans and borrowings (2) (1) - (3)
Current loans and borrowings (16) - (2) (18)
Other current liabilities (113) (10) (15) (138)
Total identifiable net assets 50 114 (47) 117
Goodwill 66 589
Acqulsition costs, net of tax 2 (26)
Consideration transferred 21 680
Cash and cash equivalents in acquired businesses (15)
Cash consideration transfeørred 665
Contingent and deferred consideration 223
Prepaid acquisitions (3)
Acqulsition costs paid, net of tax 29
Total 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.
The purchase price of prior years' acquisitions increased by DKK 21 million, mainly due to revised estimates relating to earn-outs for
fhe 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.
Acquisition costs mainly comprised fees to lawyers, auditors and consultants (paid in relation to the acquisition).
1104204EogSN32295
STMENTOF BUSINESSE:
Divestment of businesses
The Group made 9 divestments during 2010 (8 during 2009). The total sales price amounted to DKK 412 million (DKK 240 million in
2009). The total annual revenue of the divested businesses (approximate figures extracted from unaudited financial information) is
estimated at DKK 1,548 million (DKK 640 million in 2009) based on expectations at the time of divestment.
The divestments had the following effect on the Group's assets and liabilities (carrying amounts) at the divestment date:
Consolidated financial statements 75
DKK million 2010 2009
Goodwill 15 34
Customer contracts 53 44
Other non-current assets 275 63
Trade receivables 218 51
Other current assets 89 11
Provislons (78) 0
Pensions, deferred tax liabilities and non-confrolling interests (16) (8)
Non-current loans and borrowings (3) (5)
Current loans and borrowings (2) (2)
Other current liabilittes (262) (45)
Total Identifiable net assets 289 143
Gain/(ioss) on divestment of businesses, net 69 83
Divestment costs, net of tax 54 14
Consideration received 412 240
Cash and cash equivalents in divested businesses (3) (5)
Cash consideration received 409 235
Contingent and deferred consideration 217 (200)
Divestment costs paid, net of tax (35) (13)
Net proceeds regarding divestment of businesses 591 22
The 9 divestments ” made by the Group during 2010 are listed below:
Excluded from Annual
the income — Percentage revenue >? Number of
Company/activity — Country Service type statement interest (DKK million) — employees ?
Refrigeration Spain Property March Activities 163 163
Industriservice Nomway Property March 100% 205 254
Contact Centre Denmark Support March Activities 127 680
Securite France Security April 100% 191 1,090
Europe Filtration France Property May 100% 1 10
Waste management France Property September 100% 698 850
Property services Ireland Property December Activities 8 13
Washroom Denmark/Norway/Sweden Support/Cleaning January 2011 Activities 137 21
18 Belgium Property January 2011 Activities 18 12
Total 1,548 3,093
D Includes all divestments completed prior to 1 January 2011.
2) Approximate figures based on information available at the time of divestment extracted from unaudited financial information.
1104204EogSWN32296
Consolidated financial statements 76
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 2010 2009
Pro forma revenue
Revenue recognised in the income statement 74,101 69,024
Acquisitions 219 184
Revenue adjusted for acquisitions 74,320 69,208
Divestments (758) (403)
Pro forma revenue 73,562 68,805
Pro forma operating profit before other items
Operating profit before other items recognised in the income statement 4,695 4,238
Acquisitions 21 19
Operating profit beføre other items adjusted for acquisitions 4,716 4,257
Divestments (59) (5)
Pro forma operating profit before other items 4,657 4,252
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,
Acquisitions and divestments subsequent to 31 December 2010
Divestments made by the Group in the period from 1 January to 28 February 2011 are listed below. No acquisitions were completed
in the period.
Excluded from Annual
the income — Percentage revenue”? — Number of
Company/activity Country Service type statement interest DKK million employees
ISS Batiservices France Property January 100% 6 7
Divestments 6 7
In accordance with usual Group procedures, divestment balances are prepared during the first months following the divestment.
Consequently, the final divestment bafances are not available for divestments completed from 1 January to 28 February 2011.
n” Approximate figures based on unaudited financial information available at the time of divestment.
1104204EogSN32297
Consolidated financial statements 77
Software
and other
Customer — intangible
DKK million Goodwill Brands contracts assets Total
2010
Cost at 1 January 23,079 11 4,619 756 28,465
Foreign exchange adjustments 1,220 0 326 31 1,577
Additions 230 - - 131 361
Additions from acqulsition of businesses - - 48 - 48
Disposals related to divestment of businesses - - - (6) (6)
Other disposals (9) - - (19) (28)
Reclassification from Property, plant and equipment - - - 47 47
Reclassification to Assets held far sale (355) - (48) (12) (415)
Cost at 31 December 24,165 11 4,945 928 30,049
Amortisation and impairment losses at 1 January (817) (4) (1,831) (455) (3,107)
Foreign exchange adjustments (2) (1) (139) (18) (160)
Amortisation - (1) (428) (113) (542)
Impairment losses ” (259) - - - (259)
Disposals related to divestment of businesses - - - 2 2
Other disposals 9 - - 14 23
Reclassification from Property, plant and equipment - - - (14) (14)
Reclassification to Assets held for sale - - 24 8 32
Amortisation and impairment losses at 31 December (1,069) (6) (2,374) (576) (4,025)
Carrying amount at 31 December 23,096 5 2,571 352 26,024
2009
Cost at 1 January 22,471 10 4,577 662 27,720
Foreign exchange adjustments 703 1 183 22 909
Additions 595 - - 121 716
Additions from acquisition of businesses - - 169 1 170
Disposals related to divestment of businesses (34) - (91) (6) (131)
Other disposals (641) - (99) (32) (772)
Reclassification to Assets held for sale (15) - (120) (12) (147)
Cost at 31 December 23,079 11 4,619 756 28,465
Amortisation and impairment losses at 1 January (729) (3) (1,438) (396) (2,566)
Foreign exchange adjustments (8) - (57) (8) (73)
Amorlisation - (1) (479) (90) (570)
Impairment losses ” (721) - (68) - (789)
Disposals related to divestment of businesses - - 46 2 48
Other disposals 641 - 99 29 769
Reclassification to Assets held for sale - - 66 8 74
Amortisation and impairment losses at 31 December (817) (4) (1,831) (455) (3,107)
Carrying amount at 31 December 22,262 7 2,788 301 25,358
1) In 2010, impairment løsses on brands and customer contracts were related to Greece derived from impairment tests. In 2009, impairment losses on
customer contracts was mainly related to non-core activities in France, which were classified as held for sale at 31 December 2009.
1104204EogSN32298
Consolidated financial statements 78
Impairment test procedure
The Group performs impairment tests on intangibles 1) annually and whenever there is an indication that intangibles may be
impaired. The Group's intangibles primarily 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.
Acaquired companies are typically organisationally integrated and merged with (or activities transferred to) existing Group companies
shortly after the completion of the acquisition. Furthermore, synergies and other effects resulting from cooperation with existing
Group companies in their geographical or business area normally influence the financial performance of an acquired company.
Consequently, after a short period of time, it is generally not possible to track and measure the value of intangibles of the individual
acquired companies (or activities) with any reasonable certainty.
Estimates used to measure recoverable amount
The recoverablte 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 and discount rates.
Value-in-use cash flow projections are based on financial budgets approved by management covering the following financial year.
The assumptions applied in the short to medium term are based on management's expectations regarding the operational
development and growth. 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.
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. Uncertainties reflecting historical performance and possible variations in the amount or timing of
the future cash flow are generally reflected in the discount rates. Consequently, a country specific risk premium has been added to
fhe 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 4.5%. When performing
impairment tests for individual CGU's, the risk premium applied may be higher than the Group's. When acquiring businesses the
Group typically applies a hurdle rate, which is significantly higher than the calculated cost of capital.
Impairment test results 2010
The carrying amount of intangibles and the key assumptions 2) used in the impairment testing as per 31 December 2010 are
presented below for each CGU representing more than 5% of the carrying amount of intangibles or where impairment losses have
been incurred during the year. Based on the impairment tests performed impairment losses on goodwill of DKK 250 million have
been recognised in 2010 in respect of ISS Greece as explained below.
ISS Greece
At 30 June 2010, the impairment test for ISS Greece resulted in recognition of an impairment loss of DKK 80 million mainly due to a
significant increase in the discount rate. However, as a consequence of the continuing challenging market conditions in Greece the
assumptions applied were reassessed at 30 September 2010, which resulted in recognition of an additional impairment loss of DKK
170 million. As per 31 December 2010 the assumptions in the business plan have been evaluated and updated as part of the annual
impairment testing. No additional impairment losses were identified. Consequently, during 2010 the total recognised impairment loss
on goodwill for ISS Greece amounted to DKK 250 million.
1) In this context intangibles cover the value of goodwill, brands and customer contracts resulting from the acquisition of businesses.
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.
1104204EogSN32299
Consolidated financial statements 79
ING
Carrying amounts and key assumptions
Carrying amount Applied key assumptions
Customer Total in- Long-term Discount rate, Discount rate,
DKK million Goodwill Brands contracts — tangibles ” growth net of tax pre tax
2010
France 4,073 - 147 4,220 3.0% 8.5% 13,5%
Australia 1,940 - 273 2,213 3.0% 10.7% 14.4%
Finland 1,893 - 137 2,030 3.0% 8.8% 11.1%
Netherlands 1,766 - 35 1,801 3.0% 9.3% 11.6%
Spain 1,383 - 249 1,632 3.0% 11.0% 14.8%
United Kingdom 1,432 - 196 1,628 3.0% 9.0% 11.4%
Greece? 2 - 52 54 3.0% 11.1% 13.6%
Other 10,607 5 1,482 12,094 - - -
Total carrying amount at
31 December 23,096 5 2,571 25,672
2009
France 4,066 - 168 4,234 3.0% 8.8% 12.0%
Finland 1,890 - 157 2,047 3.0% 9.1% 11.4%
Australia 1,581 - 255 1,836 3.0% 11.4% 15.4%
Netherlands 1,763 - 40 1,803 3.0% 9.6% 12.0%
Spain 1,381 - 292 1,673 3.0% 9.8% 13.0%
United Kingdom 1,357 - 210 1,567 3.0% 9.4% 12.1%
Germany 653 5 116 774 3.0% 9.8% 12.9%
Other 9,571 2 1,550 11,123 - - -
Total carrying amount at
31 December 22,262 7 2,788 25,057
1 in this context intangibles cover the value of goodwill, brands and customer contracts resulting from the acquisition of businesses,
2?) The applied long-term discount rate, net of tax of 11.1% is calculated based on a ten year average yield on a 10 year Greek government bond while the
short to medium term discount rate applied was 17,8% and was calculated based on the current interest yield on a 10 year Greek government bond.
1104204EogSN32300
Consolidated financial statements 80
Sensitivity analysis
A sensitivity analysis on the key assumptions in the impairment testing is presented befow. 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 Discount rate, net of tax
Applied
expected long- Allowed Applied Allowed
term rate decrease rate increase
2010
France 3.0% 0.4% 8.5% 0.3%
Australia 3.0% 2.2% 10.7% 2.3%
Finland 3.0% >3.0% 8.8% >3.0%
Netherlands 3.0% >3.0% 9.3% >3.0%
Spain 3.0% 0.1% 11.0% 0.1%
United Kingdom 3.0% >3.0% 9.0% >3.0%
Greece 3.0% 0.1% 11.1% 0.1%
2009
France 3.0% 1.0% 8.8% 0.8%
Finland 3.0% >3.0% 9,1% >3,0%
Australia 3.0% 1.0% 11.4% 1.1%
Netherlands 3.0% >3.0% 9,6% >3.0%
Spain 3.0% 1.2% 9.8% 0.9%
United Kingdom 3.0% >3.0% 9.4% >3.0%
Germany 3.0% 0.0% 9,8% 0.0%
1104204EogSWN32301
Consolidated financial statements 81
2010 2009
Landand Plant and Land and Plant and
DKK million buildings equipment Total buildings equipment Total
Cost at 1 January 161 6,134 6,295 344 6,386 6,730
Foreign exchange adjustments 7 342 349 3 214 217
Adjustment relating to prior years - - - - - -
Additions 9 852 861 68 885 953
Additions from acquisition of businesses 8 14 22 - 26 26 !
Disposals related to divestment of businesses - (24) (24) (6) (140) (146) |
Other disposals (4) (607) (611) (11) (717) (728) |
Reclassification to Intangible assets - (47) (47) - - -
Reclassification to Assets held for sale 0 (207) (207) (237) (520) (757)
Cost at 31 December 481 6,457 6,638 161 6,134 6,295
Depreciation and impaifrment losses at 1 January (56) (4,247) (4,303) (106) (4,362) (4,468)
Foreign exchange adjustments (2) (240) (242) 1 (153) (152)
Adjustment relating to prior years ” - - - - -
Depreciation (4) (722) (726) (14) (751) (765)
Impairment losses - - - (92) (67) (159)
Additions from acquisition of businesses - (3) (3) - (8) (8)
Disposals related to divestment of businesses 0 21 21 2 80 82
Other disposats 2 511 513 3 625 628
Reclassification tø Intangible assets - 14 14 - - -
Reclassification to Assets held for sale - 133 133 150 389 539
Depreciation and impairment at 31 December (60) (4,533) (4,593) (56) (4,247) (4,303)
Carrying amount at 31 December 121 1,924 2,045 105 1,887 1,992
Hereof carrying amount at 31 December
of assets held under finance leases - 194 194 - 177 177
Security
A minor part of the Group's Land and buildings and Plant and equipment in certain countries has been provided as security for the
borrowings under the senior facilities, see note 33, Contingent liabilities, pledges and guarantees.
Leased plant and equipment
The Group leases cleaning and office equipment under a number of finance lease agreements. Some leases provide the Group with
the option to purchase the equipment at a beneficial price at the end of the lease term. The leased equipment secures lease
obligations.
In 2010, additions included assets held under finance leases of DKK 101 million (2009: DKK 114 million).
1104204EogSN32302
Consolidated financial statements 82
DKK million
Cost at 1 January
Foreign exchange adjustments
Dispøsals
Reclassification to Assets held for sale
Cost at 31 December
Revaluation at 1 January
Foreign exchange adjustments
Net result for the year
Dividends received
Additions
Disposals
Reclassification to Assets held for sale
Revaluation at 31 December
Carrying amount at 31 December
2010 2009
12 17
1 1
(0) (0)
(10) (6)
3 12
9 7
1 1
10 4
0 (5)
1 -
(2) (0)
(13) 2
6 9
9 21
The Group's share
Operating Net Owner- Net
DKK million Country Revenue profit result Assets Liabilities — ship % Equity result
2010
NSB Trafikservice AS Noway 85 5 3 38 30 45 4 2
ISS Industriservice AB ” Sweden 286 19 12 - - 48 - 6
Other associates - 130 11 8 25 18 - 5 2
Carrying amount at 31 December 501 35 23 63 48 9 10
The Group's share
Operating Net Owner- Net
DKK million Country Revenue profit result Assets Liabilities — ship % Equity result
2009
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
Carrying amount at 31 December 429 18 11 159 118 21 4
1 As per 31 December 2010 ISS Industriservice AB was reclassified to Assets held for sale.
1104204EogSN32303
Consolidated financial statements 83
ING
DKK million 2010 2009
Deferred tax liabilities/(assets), net at 1 January 484 579
Foreign exchange adjustments 19 41
Additions from acquisition of businesses 7 17
Tax on other comprehensive income (36) (4)
Reclassification to Assets held for sale (20) 52
Tax on profit before impairment/amortisation of intangibles ” (25) (22)
Tax effect of impairment/amorlisation of intangibles ” (116) (179)
Deførred tax liabilities/(assets), net at 31 December 313 484
Recognised in the statement of financlal position as follows:
Deferred tax liabilities 970 916
Deferred tax assets (657) (432)
Deferred tax liabilities/(assets), net 313 484
Win this context intangibles comprise the value of goodwill, brands and customer contracts.
Deferred tax specification
2010 2009
Deferred tax Deferred tax Deferred tax Deferred tax
DKK million assefs liabiltities assets liabilities
Tax losses carried forward 425 - 333 -
Goodwill 29 413 59 301
Brands - 1 - 2
Customer contracts - 607 - 698
Property, plant and equipment 212 194 122 171
Provisions 211 - 152 .
Issued bonds - (25) - (22)
Set-off within legal tax units and jurisdictions (220) (220) (234) (234)
Deferred tax 657 970 432 916
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. Management's
assessment is based on relevant information available at the reporting date, including internat budgets and estimates, taking into
account any restrictions in utilisation in the local tax legislation.
Deferred tax on temporary differences relating to investments in subsidiaries, joint ventures and assoclates amounts to DKK 0 million
(2009: DKK 0 million).
1104204EogSN32304
Consolidated financial statements 84
Unrecognised deferred tax assets
The Group had unrecognised deferred tax assets regarding tax losses carried forward in the following countries:
2010 2009
Recog- Unrecog- Recog- Unrecog-
DKK million Total nised nised Total nised nised
Germany 332 5 327 297 57 240
Denmark 2 - 2 113 111 2
France 222 191 31 61 61 -
Brazil 47 - 47 51 4 47
Belgium 14 - 14 30 19 11
Israel 20 12 8 15 3 12
Austria 6 6 - 9 - 9
USA 30 29 1 8 8 -
Argentina 6 4 2 4 2 2
Hong Kong 4 2 2 3 1 2
Greece 6 5 1 2 1 1
New Zealand 2 2 - 1 1 -
Italy - - - 1 - 1
United Kingdom 10 7 3 - - -
Total 438 327
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 have not been recognised in respect of the above unrecognised tax losses
because it is not probable that future taxable profit will be available against which the Group can utilise these benefits thereon.
DKK million 2010 2009
Deposits 147 152
Regulatory long-term loans 64 54
Other 74 65
Other financial assets 285 271
Deposits comprise deposits related tø rent, security and juridical deposits mainly relating to legal and tax cases.
DKK million 2010 2009
Raw materials and supplies 136 136
Finished goods 182 167
Inventories 318 303
Inventories expensed as consumables 6,359 6,044
1104204EogSWN32305
Consolidated financial statements 85
DKK million 2010 2009
Trade receivables, gross 11,137 10,371
Impairment losses (241) (241)
Trade receivables 10,896 10,130
The Group's exposure to credit risk and impairment losses related to trade receivables is disclosed in note 35, Financial risk
management.
Securitisation
As part of the refinancing of (he EMTNs that matured in September 2010, the Group has during 2009 and 2010 launched a
securitisation programme in 10 major countries. Under the securitisation programme securitised trade receivables of the particlpating
countries are provided as security for the securitisation debt (bank loans). The securitised trade receivables continue to be recognised
in the Group's statement of financial position as the credit risk and rewards remain with the Group.
As at 31 December 2010, trade receivables of DKK 4,863 million (2009: DKK 2,267 million) recognised in the statement of financial
position have been provided as security for securitisation debt with a face value of DKK 2,466 million (2009: DKK 937 million).
DKK million 2010 2009
Contract costs 588 512
Recognised profits (less recognised losses) 89 105
Contract work in progress, grøss 677 617
Progress billings (575) (422)
Contract work in progress, net 102 195
Contract work in progress, net, comprise the following assets and liabilities:
Contract work in progress (assets) 125 195
Contract work in progress (liabilities) 23 -
Contract work in progress, net 102 195
Advances from customers 4 -
Retentions 3 -.
Contract work in progress (liabilities) are recognised as part of Other liabilities, see note 31, Other fiabilities.
Advances from customers is included in Other liabilities in the line Prepayments from customers, see note 31, Other Liabilities.
1104204EogSN32306
Consolidated financial statements 86
DKK million 2010 2009
er
Tax (receivables)/payables, net at 1 January (5) (110)
Foreign exchange adjustments (43) (58)
Additions from acquired companies, net 9 2
Adjustment relating to prior years, net (14) 19
Tax on profit before impairment/amortisation of intangibles ” 698 483
Tax on other comprehensive income 18 -
Joint taxation contribution (25) (30)
Tax paid (623) (311)
er een
Tax (receivables)/payables, net at 31 December 15 (5)
en
Recognised in the statement of financial position as follows:
Tax payables 398 303
Tax receivables (383) (308)
eee em TE
Tax (receivables)/payables, net 15 (5)
NE
1 In this context intangibles comprise the value of goodwill, brands and customer contracts.
DKK million 2010 2009
. ne
Outlays for customers 57 36
Receivable social insurance costs 54 55
Receivable training subvention 32 -
Costs related to PPP (Public Private Partnerships)/PFI (Private Finance Initiative) contracts 5 5
Receivable divestment proceeds 2 210
Receivable from companies within the ISS Group 11 7
Other 198 234
Other receivables 359 547
Receivable divestment proceeds 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 loans and
borrowings. It is management's intention to use the proceeds from the receivable sales price of DKK 2 million for acquisition of
businesses.
Receivable from companies within the ISS Group related to a joint taxation scheme with Danish resident companies within the ISS
Group. The effective interest rate regarding receivables from companies within the ISS Group was 5.1% (2009: 6.29%).
Other comprise various receivables such as employee receivables and certain contract costs etc.
1104204EogSN32307
Consolidated financial statements 87
2010 2009
Average Average
Carrying effective Average Garrying effective Average
amount interest duration amount interest duration
(DKK milllon) rate (years) (DKK million) rate (years)
Investment funds 19 14.1% - 12 29.0% -
Bonds - - - 85 4.0% 0.9
Securities 19 97
Cash and cash equivalents 3,603 1.3% 3,353 1.0%
Investment funds comprise investments in various listed securities related to an employee scheme in the USA. The funds are
managed by ISS but restricted from general use.
Bonds mainly consisted of listed Danish government bonds.
Cash and cash equivalents included DKK 936 million (2009: DKK 507 million) held by the Group's consolidated SPEs handling the
Group's securitisation programme whereof DKK 161 million (2009: DKK 157 million) was not considered readily available for general
use by the parent company or other subsidiaries. In addition DKK 30 million (2009: DKK 62 million) of the total cash position at 31
December 2010 was placed on blocked or restricted bank accounts due to legal circumstances.
DKK miltion 2010 2009
Goodwill 355 15
Other intangibles 28 58
Property, plant and equipment 74 218
Other financial assets 23 8
Deferred tax assets - 64
Inventories 8 2
Trade and other receivables 336 249
Assets held for sale 824 614
Deferred tax liabitities 20 12
Pensions and similar obligations - 14
Provisions 4 64
Loans and borrowings 0 11
Trade payables and other liabilities 231 278
Liabilities related to assets held for sale 255 379
At 31 December 2010, sales processes have been initiated for two non-core activities in Western Europe, which have been classified
as held for sale. The assets and Ilabilities of these activities have been reclassified and are presented separately in the statement of
financial position at the lower of the carrying amount at the date of ihe classification as held for sale and fair value less costs to sell.
No impairment losses were recognised in connection with the reclassification.
The businesses classified as held før sale at 31 December 2009 have been divested during 2010. The divestments comprised the
waste management activities and the security activities in France, the industry service activities in Norway and a part of the building
maintenance activities in Spain and resulted in a loss of DKK 177 million in addition to the impairment loss recognised in 2009 in
connection with classifying the businesses as held for sale. The additional impairment loss of DKK 177 million has been recognised in
Other income and expenses, net, see note 8, Other income and expenses, net.
1104204EogSN32308
Consolidated financial statements 88
2010 2009
Nominal Number of Nominal Number of
value shares (in value shares (in
(DKK million) thousands) (DKK million) thousands)
Share capital at 1 January 160 160 160 160
Share capital at 31 December 160 160 160 160
At 31 December 2010, a total of 160,000 shares with a nominal value of DKK 1,000 per share were issued and fully paid (2009:
160,000 shares). No shares carry special rights. Shares are freely transferable.
NOT
This note provides information about the Group's interest-bearing loans and borrowings, which are measured at amortised cost. For
more information about the Group's exposure to interest rate, foreign currency and liquidity risk, see note 35, Financial risk
management.
DKK million 2010 2009
Issued bonds 4,593 7,173
Bank loans 18,330 18,182
Securitisation 2,401 892
Finance lease liabilities 182 208
interest rate swaps 126 196
Debt to companies within ihe ISS Group n 2,986 1,936
Total loans and borrowings 28,618 28,587
Loans and borrowings are recognised in the statement of financial position as follows:
Non-current liabilities 20,780 21,354
Current liabilities 7,838 7,233
Total loans and borrowings 28,618 28,587
The fair value of loans and borrowings is discløsed in note 32, Financial assets and liabilities.
In 2010, financing fees amounting to DKK 39 million (2009: DKK 304 million) have been recognised in løans and borrowings while
accumultated financing fees recognised in loans and borrowings on 31 December 2010 amounted to DKK 312 million (2009; DKK 376
million).
In 2010 and 2009, the Group had no loans and borrowings convertible into equity.
Capital market transactions
During 2010, the 2010 EMTNs were fully redeemed through the proceeds from the securitisation programme that was launched in
2009 in five countries and further rolled out in five countries in 2010. The redemption was carried out in two steps with a tender offer
in January for DKK 1,116 million (EUR 150 million) and repayment of the remaining DKK 1,490 million (EUR 200 million) at maturity
in September.
” Debt to companies within the 1SS Group in 2009 included DKK 4 million to ISS Equity A/S related to a joint taxation scheme with Danish resident
subsidiaries, ISS Equity A/S has been merged with it's sole shareholder FS Invest II S,å r.] as at 22 December 2010 and consequently is no longer
part of the joint taxation scheme at 31 December 2010.
1104204EogSN32309
Consolidated financial statements 89
Terms and maturity of loans and borrowings
2010 2009
Average
Nomina! effective
interest — interest Interest Year of Face Amount Garrying Carrying
DKK million rate rate rate maturity value hedged amount amount
Issued bonds:
EMTNS due 2010 4.75% 4.71% Fixed 2010 - - - 2,627
EMTNSs due 2014 4.50% 4.47% Fixed 2014 823 - 823 821
Senior notes 2014 11.00% — 11.50% Fixed 2014 3,914 - 3,765 3,718
Interest rate swaps - - - - - - 5 7
Bank loans:
Senior facilities:
Term facility A Libor + 2.00% 3.77% Floating 2012 746 746 699 981
Term facility B Libor + 2.00% 2.81% Floating 2013 13,115 7,971 13,063 12,952
Acquisition facility A Libor + 2.25% 3.06% Floating 2012 616 600 616 985
Acquisition facility B Libor + 2.25% 3.06% Floating 2013 2,135 - 2,135 2,125
Bank loans and overdrafts - - - - 1,817 - 1,817 1,139
Securitisation Euribor + 3.00% 3.60% Floating 2011 2,466 - 2,401 892
Interest rate swaps - - - - - - 126 196
Finance lease liabilities - - - - 182 - 182 208
Debt to companies within
the ISS Group - 5.06% - - 2,986 - 2,986 1,936
Loans and borrowings 4.47% 28,800 28,618 28,587
Currency profile of loans and borrowings
The Group's loans and borrowings are denominated in the following currencies (excluding impact from currency swaps):
2010 2009
EUR 77.6% 82.4%
DKK 7.0% 5.4%
GBP 6.6% 5.2%
NOK 3.5% 3.2%
SEK 2.4% 1.9%
CHF 0.8% 0.7%
Others 2.1% 1.2%
Total 100.0% 100.0%
1104204EogSN32310
Consolidated financial statements 90
Maturity profile of loans and borrowings
The contractual maturities of loans and borrowings based on undiscounted contractual cash flows, including interest payments,
estimated based on expectations at the reporting date, are shown below:
Carrying Contractual
DKK million amount cash flows <lyear 1-2 years 2-3 years 3-4 years 4-5years > 5 years
2010
Issued bonds 4,593 6,369 467 467 467 4,968 - -
Other loans and borrowings 23,899 25,920 8,503 1,217 15,759 42 34 365
Total loans and borrowings
excluding derivatives 28,492 32,289 8,970 1,684 16,226 5,010 34 365
Hereof estimated interest payments 3,490 1,078 1,089 1,012 265 34 12
Interest rate swaps 126 126 108 18 - - - -
Total derivatives 126 126 108 18 " - - -
2009
issued bonds 7,173 9,430 3,071 467 467 467 4,958 -
Other loans and borrowings 21,218 24,230 5,188 1,346 1,436 15,836 34 390
Total loans and borrowings
excluding derivatives 28,391 33,660 8,259 1,813 1,903 16,303 4,992 390
Hereof estimated interest payments 4,941 1,086 1,162 1,265 1,117 264 47
interest rate swaps 196 196 169 16 11 - - -
Total derivatives 196 196 169 16 11 " - a
Finance lease liabilities
Finance lease liabilities are payable as follows:
2010 2009
Minimum Minimum
lease lease
DKK million payments Interest Principal payments Interest Principal
Within 1 year 80 (6) 74 100 (7) 93
1-5 years 118 (10) 108 120 (7) 113
After 5 years 0 (0) 0 2 (0) 2
Total 198 (16) 182 222 (14) 208
The lease arrangements are described in note 16, Property, plant and equipment where the carrying amount of assets held under
finance leases is also disclosed.
1104204EogSN32311
Consolidated financial statements 91
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, Norway 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 cøsts under defined benefit plans may be significantly affected by changes in the discount rate,
the expected return 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 ihat 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 ihe 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 5, 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 2010 2009
Present value of funded obligations 3,835 3,171
Fair value of plan assets (3,435) (2,877)
Funded obligations, net 400 294
Present value of unfunded obligations 557 487
Unrecognised past service costs (5) (3)
Accumulated impact from asset ceiling 21 1
Reclassification to Liabilities related to assets held for sale - (14)
Recognised in the statement of financial position for defined benefit obligations 973 765
Olher long-term employee benefits 80 72
Pensions and similar obligations at 31 December 1,053 837
Specification of defined benefit obligations:
Present value of funded obligations 3,835 3,171
Present value of unfunded obligations 557 487
Defined benefit obligations at 31 December 4,392 3,658
Movement in defined benefit obligations (funded and unfunded):
Present value of obligations at 1 January 3,658 3,338
Foreign exchange adjustments 471 48
Reclassifications from Other long-term employee benefits 12 2
Additions from new contracts 44 -
Additions from acquisition of businesses - 8
Disposals related to divestment of businesses (15) -
Interest on obligation 159 153
Current service costs 137 117
Benefits paid (360) (315)
Employee contributions 89 81
Actuarial (gains)/losses 207 224
Recognised past service costs 12 11
Liabilities extinguished on settiements and cu