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a
Erhvervsstyrelsen
19 apr. 2013
Annual report 2012
ISS Global A/S
e
øm arvet f7
fererdørsandbye din G . Apvil ÅOiz
ZF . Å
Bjørn Raastéen
Senior Vice President
ISS Global A/S
Bredgade 30
DK — 1260 Copenhagen K
Denmark
CVR 21 40 83 95
Phone:+45 38 17 00 00
1304196EogSN05658
Contents
OUR PERFORMANCE
Key figures and financial ratios
The year at a glance
Outlook
Business review
Regional review
Financial review
OUR BUSINESS
Strategy — The ISS Way
Corporate Responsibility
Our employees
Risk management
GOVERNANCE
Corporate governance
Internal controls relating to financial reporting
FINANCIAL STATEMENTS
Consolidated financial statements
Parent company financial statements
Management statement
Independent auditors' report
om w
10
21
24
27
31
34
37
42
45
121
149
150
1304196EogSN05659
Key figures and financial ratios | Our performance 3
Key figures and financial ratios
DKK million (unless otherwise stated) 2012 2011 2010 2009 2008
Income statement
Revenue 79,492 77,681 74,101 69,024 68,848
Operating profit before other items ” 4,820 4,804 4,738 4,275 4,432
EBITDA 4,193 4,317 4,341 3,448 3,968
Adjusted EBTDA 2 5,652 5,639 5,570 5,124 5,287
Operating profit ? 3,361 3,482 3,509 2,599 3,113
Financial income 270 155 182 279 215
Financial expenses (2,386) (2,419) (1,997) (1,900) (2,153)
Profit before goodw ill impairment/amortisation and impairment
of brands and customer contracts 477 480 1,045 502 727
Net profit/(loss) for the year 1 (90) 467 (594) (42)
Cash flow
Cash flow from operating activities 3,243 3,071 3,932 3,471 3,675
Acquisition of intangible assets and property, plant
and equipment not related to acquisitions, net (736) (989) (864) (882) (705)
Financial position
Total assets 46,856 47,044 46,071 44,126 42,532
Goodw ill 21,217 22,674 23,096 22,262 21,742
Additions to property, plant and equipment not related to acquisitions, gross 786 937 861 953 963
Carrying amount of net debt 20,297 24,277 24,989 25,130 23,963
Total equity (attributable to owners of ISS Global A/S) 3,562 323 464 (632) (48)
Employees
Number of employees at 31 December 534,100 534,400 522,600 485,700 472,700
Full-time employees, % 73 73 73 71 69
Growth, %
Organic growth 1.7 6.2 35 0,6 5,9
Acaquisitions 0 0 0 3 7
Divestments (2) (2) (2) (1) (2)
Currency adjustments ” 2 1 5 (3) (3)
Total revenue growth 2 5 7 0 8
Other financial ratios, %
Operating margin ? 6.1 6.2 6.4 6.2 6.4
Equity ratio 7.6 0.7 1.0 (1.4) (0.1)
Interest coverage 2.7 2,5 3.1 3.2 2,7
Cash conversion ? 102 94 99 97 103
1) Excluding Other income and expenses, net, Goodwill impairment and Amortisation and impairment of brands and customer contracts.
2) The Group uses Operating profit before other items for the calcufations instead of Operaling profit. Consequently, the Group excludes from the calculations those items recorded under Other income and expenses, net, in
Which the Group includes income and expenses that it believes do not form part of tha Group 's normal ordinary operations, such as gains and losses arising fram divestments, the winding up of operations, acquisition and
integration costs, disposals of property and restructurings. Some of these items are recurring and some are non-regurring in nature.
3) Excluding Goodwil impairment and Amortisation and impairment of brands and customer contracts.
4) Calculated as total revenue grovh less organic growth and less net acquisition/divestment growth, Currency adjustments thereby include the effect stemming from exelusion of currency effects from the calculalion of organic
growth and net acquisition/divestment growth,
1304196EogSN05660
Definitions
Acquisitions, %
Adjusted EBITDA
Carrying amount of net debt
Cash conversion, %
Divestments, %
EBITDA
Equity ratio, %
Interest coverage
Operating margin, %
Organic growth 9, %
Total revenue growth, %
tt
MH
Definitions | Our performance 4
Revenue from acquired businesses ) x 100
Revenue prior year at current year's exchange rates
1) Revenue from acquired busi Is based on atthe ition date,
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 equivalents - Positive fair
value of derivatives
(Operating profit before other items last twelve months +
Changes in working capital last twelve months) x 100
Operating profit before other items last twelve months
Revenue from divested businesses 9 x 100
Revenue prior year at current year's exchange rates
1) Revenus from divested isbasedøn actual revenue where available at the di date,
Operating profit + Depreciation and amortisation
Total equity attributable to owners of ISS Global A/S x 100
Total assets
Operating profit before other items + Depreciations and amortisation
Financial income and financial expenses, net
Operating profit before other items x 100
Total revenue
(Comparable revenueu current year - comparable revenuev prior year) x 100
Comparable revenue” prior year
1) Comparable revenue implies the exclusion of changes in revenue attributable to businesses acquired or divested and the effect of changes in
foreign exchange rates. In order to present comparable revenue and thereby organic growth excluding any effect from changes in foreign
currency exchange rates, comparable revsnue in the prior year is calculated at tie subsequent year's foreign currency exchange rates. Acqulsi-
tions of businesses are treated as having been integrated into ISS upon acquisition and 155's calculation of organic growth indudes changes in
revenue of these acquired businesses compared with revenue expectations at the date of acquisition. Organic growth is not a measure of
frnandal performance under Danish GAAP or IFRS and the organic growth figures have notbeen audited.
(Revenue current year - revenue prior year) x 100
Revenue prior year
1304196EogSN05661
The year at a glance i Our performance 5
The year at a glance
The transformation towards making ISS
the world's greatest service organisation
continued in 2012, as illustrated by the
fact that we won two of our largest multi-
national integrated facility services con-
tracts to date. ISS continued to focus on
generating profitable organic growth, ca-
tering to the needs of the customer base
and ensuring satisfactory conditions in a
challenging macroeconomic environment.
ISS Global A/S is a wholly owned subsidiary of ISS
AS, an international provider of facility services.
ISS Global A/S (referred to as "ISS” or "the Group")
owns — directly or indirectly — the ISS Global
Group's operating companies.
HIGHLIGHTS OF THE YEAR
Group revenue amounted to DKK 79.5 billion in
2012, an increase of 2% compared with 2011, driv-
en by organic growth of 1.7% and a positive effect
from exchange rate movements of 2% which was
partly offset by the divestment of non-core activities
amounting to 2%.
The organic growth of 1.7% followed the highest
organic growth rate for more than 10 years in 2011
and was affected by the challenging macroeconom-
ic conditions, particularly in certain European coun-
tries where our main focus is to ensure a profitable
customer base with satisfactory conditions. This
has led to the identification of certain contracts that
were subsequently exited in 2012, resulting in re-
duced organic growth. Furthermore, a decline in
non-portfolio services in 2012 as well as the timing
of contract start-ups negatively impacted organic
growth. Western Europe, Latin America and Asia
delivered positive organic growth rates in 2012, with
Asia once again reporting double-digit organic
growth.
Operating profit before other items amounted to
DKK 4,820 million, reaching the highest level in ISS
history. The operating margin (operating profit be-
fore other items as a percentage of revenue) was
6.1% in 2012 compared with 6.2% in 2011. The
operating margin was in line with expectations and
supported by strong margins in Switzerland, the
United Kingdom, Norway and the Asia region in
particular. However, this was offset by the negative
impact from the introduction of one-off austerity
measures in a number of our mature markets, mar-
gin declines in Latin America and the Pacific re-
gions as well as certain operational challenges in
the Netherlands, France and Brazil. We are execut-
ing a number of initiatives to address performance
issues in the selected markets and are deliberately
reducing our exposure to certain customer seg-
ments, mostly relating to the public sector, particu-
larly in certain Mediterranean countries. Operating
profit amounted to DKK 3,361 million, a slight de-
crease compared with DKK 3,482 million in 2011.
Emerging markets, comprising Asia, Eastern Eu-
rope, Latin America, Israel, South Africa and Turkey
where we have more than half of our employees,
delivered organic growth of 11% and represented
21% of Group revenue. In addition to boosting or-
ganic growth, the emerging markets delivered an
operating margin of 5.8% in 2012, negatively im-
pacted by a margin decline in Latin America.
The cash conversion for 2012 was 102% as a result
of a strong cash flow performance in all regions,
despite challenging conditions, reflecting a contin-
ued focus on securing payments for work per-
formed and exiting customer contracts with unsatis-
factory conditions. In addition, cash conversion was
affected by a decrease in debtor days compared
with 31 December 2011 of more than one debtor
day.
At the end of 2012, ISS had more than 534,100
employees worldwide. The Group's headcount has
remained at the same level as year-end 2011, as
organic growth was being offset by eight divest-
ments made during the year.
We progressed the implementation of The ISS Way
strategy in 2012, Our focus on emerging markets
continued to enhance growth as did our strong
market position within the delivery of services to
multinational corporations. The implementation of
The year at a glance | Our performance 6
Revenue and growth 2012
Revenue
Growth Components, %)
Total growth
2012 2011 Growth Organic Acq. Div. excl. currency Currency Total growth
Western Europe 39,414 39,321 0% 1 - (2) (1) 1 (0)
Nordic 17,736 18,085 (2)% (1) - (3) (4) 2 (2)
Asia 7,367 6,090 21% 15 0 (0) 15 6 21
Pacific 6,007 5,525 9% (0) - . (0) 9 9
Latin America 3,820 3,648 5% 7 - 7 (2) 5
North America 3,539 3,369 5% (3) - (3) 8 5
Eastern Europe 1,605 1,641 (27% (1) (1) (1) (2)
Other Countries 36 30 20% 19 - 19 1 20
Corporate / eliminations (32) (28) 14%
Total 79,492 77,681 2% 1.7 0 (2) (0) 2 2
Emerging Markets 16,833 15,014 12% 11 0 0 11 1 12
1 See page 4 fordefinitions
global standards remained a priority. We continued
to roll out our process frameworks which will ensure
consistency across the entire contract lifecycle from
sales to operations. We have also introduced addi-
tional standard measures of performance such as
net promoter scores for both customers and em-
ployees.
Our strategic focus on delivering portfolio-based
services led to sustained organic growth in the port-
folio business. Historically, the portfolio business"
share of total revenue has been 75% - 80% and
during the period 2009 to 2012 our portfolio busi-
ness' share of total revenue increased within this
range.
In 2012, ISS continued the strong focus on the
Global Corporate Clients organisation, winning new
multinational IFS contracts with Barclays, Novartis
and a leading global bank for the Asia-Pacific re-
gion. The new global facility management partner-
ship with Barclays Bank, a major global financial
services provider, includes a five-year contract for a
fully integrated facility services (IFS) solution includ-
ing catering services, property services, cleaning
services, support services and security services to
Barclays' operations in the United Kingdom, Eu-
rope, the Americas, Asia Pacific and the Middle
East covering more than 5,000 buildings. At the end
of 2012 approximately 80% of the contract value
had been started up. The IFS contract with Novar-
tis, a large pharmaceutical company, covers 22
sites in Switzerland, Germany, Austria and Slove-
nia. The IFS contract with a leading global bank
covers more than 1,500 sites in 19 countries across
the Asia-Pacific region in addition to the EMEA con-
tract won with the bank in 2011. These are some of
the largest contracts in ISS history and they repre-
sent significant milestones for ISS in the efforts to
confirm our position as a leading global facility ser-
vices provider. Going forward, our Global Corporate
Clients organisation will continue focusing on mobi-
lising and starting-up the new contracts as well as
on winning new contracts within selected customer
segments where ISS can offer market-leading value
propositions.
In 2012 we designed and implemented a new man-
agement information system "Insightæ!SS” that
allows information to be collated, reviewed and
analysed on a global basis to inform and support
management decisions. This system provides our
customers and ISS with real time data on the per-
formance of the customer's global facilities man-
agement services.
On 16 August 2012, ISS announced that global
investors Ontario Teachers' Pension Plan (Teach-
ers') and KIRKBI Invest A/S (KIRKBI) had agreed to
invest EUR 500 million (approximately DKK 3,721
million) in ISS. Teachers' invested approximately
DKK 2,605 million and KIRKBI approximately DKK
1,116 million. The new investors own approximately
26% of the ultimate holding company of ISS. ISS's
existing owners, funds advised by EQT Partners
("EQT”) and GS Capital Partners funds ("GSCP”"),
did not sell any shares in the transaction and re-
main majority owners of ISS.
1304196EogSN05663
The year at a glance | Our performance 7
Operating results
Operating profit Operating margin
before other items
2012 2011 Change 2012 2011 Change
Western Europe 2,407 2,268 6% 6.1 % 5.8 % 0.3 %
Nordic 1,190 1,268 (6)% 6.7% 7.0 % (0.3)%
Asia 564 486 16% 7.7% 8.0 % (0.3)%
Pacific 311 358 (13)% 5.2 % 6.5 % (1.3)%
Latin America 91 215 (58)% 2.4 % 5.9 % (3.5)%
North America 151 116 30% 4.3 % 3.4% 0.9 %
Eastern Europe 102 107 (5)% 6.4% 6.5 % (0.1)%
Other Countries (1) (1) - (3.0)% (3.5)% 0.5 %
Corporate / eliminations 5 (13) (138)% 0.0 % (0.0)% 0.1%
Total 4,820 4,804 0% 6.1% 6.2 % (0.1)%
Emerging Markets 971 1,035 (6)% 5.8 % 6.9 % (1.1)%
1) See page 4 for definitions
DIVESTMENTS
The ongoing review of the strategic rationale and fit
of business units under The ISS Way strategy led to
the identification and evaluation of certain activities
that are non-core to The ISS Way. As a conse-
quence, in 2012, ISS divested the specialised con-
sulting business in Finland, the governmental out-
placing services and security activities in Norway,
the landscaping activities in the Netherlands, the
washroom activities in the Netherlands, Belgium
and Luxembourg and the office support and mail-
room services in France.
We will continue the evaluation of our activities in
the light of accelerating The ISS Way to ensure that
our core businesses remain in focus in the coming
years. At 31 December 2012 certain business units
have been classified as held for sale, comprising
net assets of DKK 1.5 billion. We expect to gener-
ate at least DKK 2 billion in net proceeds from di-
vestments in 2013.
FINANCING
The proceeds from the investment by Teachers' and
KIRKBI were used to repay the EUR 525 million
11% Senior Notes due 2014 after the December
2012 call date. By this repayment, ISS addressed
one of the first upcoming maturities, eliminating an
expensive part of the debt and achieving significant
interest cost savings going forward. Following this
investment, ISS was upgraded from B2 to B1 by
Moody's and was put on BB- Positive Outlook by
S&P.
In August 2012, the securitisation programme was
extended by one year to September 2014, and both
the size of the credit facility and the pricing of the
programme were kept unchanged following the
extension.
Currently, ISS has no significant short-term financ-
ing maturities.
MANAGEMENT CHANGES
At the end of February 2013, as a reflection of his
increasing role on the operational side of ISS,
Group CFO, Henrik Andersen, was appointed
Group COO Europe. On 20 March 2013, it was
announced that Heine Dalsgaard was appointed
Group CFO replacing Henrik Andersen. Heine
Dalsgaard joins ISS from Grundfos, where he has
1304196EogSN05664
been the Group CFO and member of the Group
Management Team since 2007. He will take up the
position with ISS during the third quarter of 2013. In
the interim period, Henrik Andersen will continue to
act in his current role of Group CFO.
SUBSEQUENT EVENTS
On 4 March 2013, ISS announced that it is seeking
consent of its lenders under the Senior Facilities
Agreement to amend and extend its debt maturities
with additional three years, including a refinancing
of the Second Lien Facility.
Consent was obtained to all requested amend-
ments well in excess of the required majority. Fur-
thermore, extensions were accepted by 92% of the
lenders in the tranches for which ISS requested
extension, meaning that approximately DKK 17.1
billion of ISS's debt will be extended to either De-
cember 2017 or April 2018. The refinancing of the
EUR 600 million Second Lien Facility was oversub-
scribed multiple times, and the refinancing has
been split between two tranches of EUR 330 million
and USD 350 million, respectively. The new tranche
in USD will provide ISS with a natural currency
hedge against its USD-related revenues portion.
The refinancing of the Second Lien Facility and the
extension of the relevant facilities is expected to be
completed by the end of April.
A waiver fee of 10 bps will be paid to all consenting
lenders, and the extending lenders will receive an
The year at a glance | Our performance 8
additional fee of up to 40 bps. Once effective, the
margin will increase 50 bps on Term Facility B and
25 bps on the Revolving Credit Facility, the Letter of
Credit Facility as well as Acquisition Facility B leav-
ing all extended tranches at an initial margin of 400
bps, but with step-downs applying following a lev-
erage ratchet. On the new term facilities refinancing
the Second Lien Facility margins applying to the
EUR and USD tranches will initially be 350 bps and
275 bps, respectively.
During this process, in March 2013 ISS was further
upgraded by Moody's from B1 Stable Outlook to B1
Positive Outlook, and the Senior Credit Facilities
were assigned a BB- rating from S&P and a Ba3
rating from Moody's.
On 18 March 2013, ISS announced the divestment
of the pest control activities in Australia, Austria,
Belgium, Denmark, Germany, Italy, the Nether-
lands, New Zealand, Norway, Portugal, Spain and
Switzerland for an enterprise value of approximate-
ly DKK 2 billion. The transaction is subject to ap-
proval from the relevant authorities with expected
closing at the end of May 2013.
Apart from the above and the events described in
this Annual Report, the Group is not aware of
events subsequent to 31 December 2012, which
are expected to have a material impact on the
Group's financial position.
1304196EogSN05665
Outlook
The outlook set out below should be read in con-
junction with "Forward-looking statements” (see
opposite) and Risk management on pages 34-36.
In 2013, ISS will remain focused on the key opera-
tional objectives; (i) organic growth, (ii) operating
margin and (iii) cash conversion.
The outlook for 2013 is based on a mixed global
macroeconomic outlook on the ISS world map with
continued strong growth in emerging markets com-
bined with weak growth and difficult macroeconom-
ic conditions in large parts of Europe, including the
uncertainty surrounding current and future austerity
measures, The recent launch of several large inte-
grated facility services (IFS) contracts will positively
impact organic growth in 2013 and we will continue
to focus on developing the increasingly larger part
of the business based in emerging markets.
In 2013, we have a solid starting point following the
wins of several large IFS contracts in 2012. Com-
bined with the underlying business development,
we therefore expect to deliver around 3% organic
growth in 2013.
Despite the expected difficult macroeconomic con-
ditions the operating margin for 2013 is expected to
be maintained at the level realised in 2012.
Continuing the deleveraging of ISS in accordance
with The ISS Way strategy, cash flows will remain a
priority in 2013, and we expect our cash conversion
for 2013 to be above 90%.
Outlook | Our performance 9
FORWARD-LOOKING STATEMENT
This Annual Report contains forward-looking statements, including,
but not limited to, the guidance and expectations contained in the
"Qutiook” 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 variations of these words, as well as other statements regarding
matters that are not historical fact or regarding future events or
prospects, constitute forward-looking statements. ISS has based
these forward-looking 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 actual results to
differ materially from those predicted in the forward-Iooking state-
ments and from the past performance of ISS. Although ISS be-
lieves that the estimates and projections reflected in the forward-
looking statements are reasonable, they may prove materially
incorrect, and actual results may materially differ, e.g. as the result
of risks related to the facility service industry in general or ISS in
particular including those described in this report and other infor-
mation made available by ISS.
As a result, you should not rely on these forward-looking state-
ments. ISS undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new infor-
mation, future events or otherwise, except to the extent re-
quired by law.
1304196EogSN05666
Business review
Our customers' needs and how we meet
them is a main driver for The ISS Way
strategy. Our response to their needs is
self-delivery, thereby giving them the
benefits of one point of contact, efficien-
cies, consistent and flexible delivery and
credible risk transfer.
BUSINESS MODEL
Our business model targets customers' facilities
and aims at maximising the value at every single
facility. We offer a range of facility services within
cleaning services, support services, property ser-
vices, catering services, security services and facili-
ty management which can be delivered as either a
single-service, multi-service or integrated facility
service (IFS) solution. Our value proposition offers
customers the efficiencies and financial certainty
which emerge from our ability to share best practic-
es across our operations in the individual services,
our ability to provide flexible solutions through our
self-delivery model and our ability to provide an
integrated solution as well as one point of contact.
Through our philosophy of self-delivery we can also
provide a flexible service solution delivered in a
consistent manner across all customer sites as well
as a credible risk transfer. We are acutely aware of
the increased demands being put on customers
from a corporate responsibility perspective and
design our offerings to address these demands and
help our customers to better achieve their objec-
tives. In addition to meeting these fundamental
needs, we support our customers in delivering on
their specific value proposition — from Healthcare
providers to Business Services & IT companies —
through a segmented approach and using our deep
insight into our customers” markets.
Our service offering is built on a strong foundation
of service excellence, which means that our cus-
tomers enjoy the benefits of partnering with a ser-
vice expert — a company that truly understands
customer needs and provides the services required
to meet them. We focus primarily on delivering site-
Business review | Our performance 10
based services under portfolio contracts, where ISS
employees become an integrated part of the cus-
tomers' daily operations. ISS also offers selected
route-based services.
Our business model is refined on an ongoing basis
to be in line with The ISS Way. We have since 2004
transformed ISS from primarily a cleaning provider
to a full facility services provider, while also signifi-
cantly raising revenue from integrated facility ser-
vices (IFS) contracts. Our business model has been
transformed from a product-oriented to a customer-
oriented approach focusing on developing leading
value propositions to our chosen customer seg-
ments founded on our philosophy of self-delivery of
excellence within each of our facility service offer-
ings.
BUSINESS DEVELOPMENT
During 2012, we continued to make progress in
developing our business. Focused on customer
needs, we continued to leverage efficiencies and
implement best practice globally in order to align
the organisation behind the consistent delivery of
excellence. We have, over the past decade, built
global capabilities in the delivery of a well-defined
set of services which are equally well-suited for
delivery as a single service or as part of an IFS
offering. The ISS Way is focused on leveraging this
unique platform by the global implementation of
best practices and standard processes. We are
promoting a strong and uniform commercial culture
and crafting market leading value propositions by
customer segment, We are uniquely positioned to
grasp the huge opportunities in our markets and we
are putting our global footprint to work by meeting
increased demand from multinational corporations
for the delivery of integrated facility services across
borders.
ISS measures and monitors the overall business
development based on the following three
measures:
+ Revenue by customer segment
» Revenue by service delivery type
1304196EogsSN05667
» Revenue by service type
Developments within these three categories are
reviewed in the following.
Revenue by customer segment
Revenue is classified into ten customer segments
identified by ISS based on the section classification
level of the International Standard Industrial Classi-
fication.
Qur service concepts are developed to address
specific customer needs in order to provide added
value to our customers. This entails defining varia-
tions of our service offerings built on ISS's funda-
mental competencies and presenting an integrated
solution of services customised for a given seg-
ment.
The Business Services & IT, Public Administration
and Healthcare segments are among our largest
and most important customer segments, and we
focus on developing service solutions for these
segments. Simultaneously, we focus on service
delivery to the public sector, which includes both
the Public Administration segment as well as part of
the revenue from Healthcare, Transportation &
Infrastructure and Energy & Resources.
REVENUE BY CUSTOMER SEGMENT 2012
BENENE 29%, Business Services &T
14% Industry & Manufacturing
14% Public Adminsstratton
11% Healthcare
7% Transportation & Infrastructure
7% Retail & Wholesale
5% Energy & Resources
4% Hotels, Leisure & Entertamment
3% Food & Beverage
2% Pharmaceuticals
4% Other
eo
um
oa
(r
N
Sa
N
um
w
oa
% of Group revenue
In line with expectations, the revenue split by cus-
tomer segment in 2012 was quite stable compared
with 2011. Many of the recent major contract wins
such as the multinational IFS contract with Barclays
have increased revenue within the Business Ser-
vices & IT segment. Business Services & IT thereby
remained the largest customer segment in 2012
representing 29% compared with 28% in 2011. The
share of revenue from Public Administration re-
mained at level with 2011 at 14% in 2012, while
Business review | Our performance 11
revenue from Industry & Manufacturing decreased
from 15% in 2011 to 14% in 2012, negatively im-
pacted by a decrease in the manufacturing industry
in certain countries of the Western Europe region.
The revenue share from Healthcare remained un-
changed at 11%.
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-
services, multi-services or integrated facility ser-
vices (IFS). During 2012, we continued to develop
and strengthen our single-service excellence con-
cepts, while at the same time enhancing our IFS
capabilities.
In a single-service outsourcing, the customer buys
one service solution from ISS, such as outsourcing
their catering services.
la he] SENE TAG
BENENE 2012: 60%
BEER 2006: 71%
Cr 2012: 17%
DE 2006: 15%
2012: 23%
: 2006: 14%
o 10 20 30 40 50
DKK billion
EH Single-services
Multi-services
ml Integrated facitity services
In a 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- service outsourcing but with the additional
benefits of service integration where possible.
In an IFS solution, ISS delivers two or more ser-
vices under one contract with a single point of con-
tact on-site, which allows ISS to integrate the facility
service functions taken over by ISS at the custom-
er's premises. The customer receives both the full
potential of single- service outsourcing and the ad-
vantages of integrating services, including cost effi-
ciencies and a more efficient and flexible service
set-up. Our IFS solution revenue base has been
fully organically grown through our Global Corpo-
rate Clients organisation as well as at country level
1304196EogSN05668
and regionally.
In 2012, single services, multi-services and IFS
generated 60%, 17% and 23% of our revenue, re-
spectively, compared with 71%, 15% and 14% in
2006. The development illustrates that the share of
revenue origin from delivering two or More services
or IFS increased by 11 percentage points from
2006 to 2012 with a similar reduction in the share of
revenue stemming from delivery of single services.
This illustrates that we have come a long way in
implementing our strategy, including in transforming
our company from a cleaning provider to becoming
a full facility services provider and in continuing to
attract strøng demand for our IFS offering. The rela-
tive share of revenue origin from delivering two or
more services or IFS solutions is increasing in all
regions with the largest increases seen in Western
Europe (primarily in the United Kingdom, Switzer-
land, Germany, Spain and Turkey), North America
and Asia driven by the large multinational IFS con-
tract wins in recent years but also by large local
multi-service and IFS contracts. Multi-service and
IFS contracts allow ISS to exploit synergies in the
provision of services and create stronger customer
relationships.
Revenue by service type
ISS offers a range of facility services within clean-
ing services, support services, catering services,
security services and facility management. Our
focus is to understand customer needs and provide
the services required to meet them.
The transformation from primarily being a cleaning
provider to becoming a company providing the full
range of services is illustrated by our increasing
volume of non-cleaning services and that non-
cleaning now makes up half of our business com-
pared with 43% in 2006.
Cleaning services The ISS cleaning services offer-
ing has been at the heart of the ISS operations for
many years and we have developed a wide range
of cleaning services — from providing basic general
cleaning to highly specialised niche cleaning ser-
vices, The ISS cleaning services offering encom-
passes a range of services within daily office and
facility cleaning, industrial cleaning, cleaning in
transport systems, dust control, washroom services
and specialised cleaning, such as cleaning of nu-
clear plants, hospitals or food production facilities.
Business review | Our performance 12
In 2012, cleaning services remained ISS's largest
business area with revenue of DKK 39.5 billion,
representing 50% of Group revenue down from
57% (DKK 32.1 billion) in 2006. In line with the
strategy to broaden the service platform, cleaning
services" relative share of Group revenue has con-
sistently declined in recent years, while the revenue
share from support services, catering services and
security services in particular has steadily in-
creased. Since 2006, the cleaning services share of
revenue has therefore continued to decrease partly
as a result of the building of the service platform
through acquisitions in services other than cleaning,
especially in 2007-2009, and partly as a result of
the subsequent utilisation of the existing service
platform to grow organically since 2010.
REVENUE BY SERVICE
ERR 2012: 50%
REESE 2006: 57%
2012: 19%
2006: 23%
FT 2012: 11%
ET 2006: 7%
[7] 2012: 8%
[] 2006: 5%
di 2012: 8%
d 2006: 4%
EM 2012: 4%
E 2006: 4%
0 10 20 30 40 50
DKK billion
al Cleaning services
za Property services
mm Catering services
ET support services
ml Security services
Em Facility management
Property services The ISS property services offer-
ing encompasses building maintenance, technical
maintenance, landscaping, pest control and dam-
age control.
In 2012, revenue from property services amounted
to DKK 15.0 billion, representing 19% of Group
revenue, down from 23% (DKK 12.6 billion) in
2006. Property services revenue was adversely
affected by a number of divestments completed in
2011 and 2012, most significantly the damage con-
trol business in Germany and the industrial services
business in Belgium in 2011 as well as by divest-
1304196EogSN05669
ments completed during 2012 such as the land-
scaping business in the Netherlands. These di-
vestments all involved non-portfolio-based services
and thereby underline the strategic focus on portfo-
lio-based on-site services.
Catering services The ISS catering services offer-
ing includes in-house restaurants, hospital can-
teens, catering services to remote sites, corporate
catering and office catering services.
In 2012, revenue from catering services increased
to DKK 8.6 billion (2006: DKK 3.6 billion) equal to
11% of Group revenue, which is an increase of 4
percentage points from 2006 despite the divest-
ment of the coffee vending business in Denmark
and Norway in late 2011. In 2012, catering services
continued to be positively impacted by cross selling
to existing customers combined with an increased
level of catering services delivered under some of
the larger IFS contract wins. The effect was partly
offset by lower public spend, especially in the public
sectors of certain European countries.
Support services The ISS support services offer-
ing encompasses the operation of receptions, inter-
nal mail handling, scanning and other office logis-
tics, call centres, manpower supply and outplace-
ment services.
In 2012, support services accounted for approxi-
mately 8% of Group revenue, an increase of 3 per-
centage points from 2006. In absolute figures, sup-
port services revenue increased from DKK 2.9 bil-
lion in 2006 to DKK 6.6 billion in 2012. In 2012,
support services were positively impacted by great-
er demand for outplacement services and cross-
selling of services mainly to cleaning customers,
which was partly offset by lower demand for man-
power supply services.
Security services The ISS security services offer-
ing includes manned guarding, access control and
patrolling of customer facilities and the installation
of alarm and access systems.
Revenue increased to DKK 6,4 billion, equivalent to
8% of Group revenue in 2012, an increase of 4
percentage points from 2006 (DKK 2.4 billion). The
increase in revenue from security services is mainly
due to strategic acquisitions during the period, in-
cluding the acquisition of the Indian company SDB
Cisco Ltd. in 2010 which added approximately DKK
Business review | Our performance 13
400 million in annual revenue as well as a number
of other strategic bolt-on security acquisitions over
the years which was partly offset by the divestment
of the security activities in Norway in 2012.
Facility management The ISS facility management
offering includes on-site management of facility
services, change management, space management
and consulting. Revenue from facility management
services increased to DKK 3.4 billion in 2012 (2006:
DKK 2.1 billion), equivalent to 4% of Group reve-
nue, the same relative share as in 2006.
HOW WE MEASURE OUR PERFORMANCE
At ISS we measure the performance in the Group
through a Business Scorecard which includes spe-
cific financial value creation measures as well as
non-financial leading indicators, such as portfolio
data, revenue segmentation, customer retention
rates, Net Promoter Scores for employees and cus-
tomers, control environment assessment and pro-
curement compliance.
We measure our value creation by focusing on
three well-established operational objectives which
are used throughout the Group: (i), organic growth
(ii) operating margin and (iii) cash conversion. The
operational objectives are embedded deep in the
organisation, which ensures alignment of objectives
as they are applicable at Group level and all the
way down to individual contracts.
Organic growth
ISS's objective is to focus on organic growth
through new sales and cross-selling of services to
both new and existing customers as well as on high
customer retention. ISS aims to continue to lever-
age its international market position and service
offering in order to increase its local market posi-
tions. We work with a wide range of initiatives, in-
cluding the further development of the Corporate
Clients organisation, enhancing our focus on specif-
ic customer segments and implementing commer-
cial planning processes and tools.
Operating margin
ISS's objective is to improve its operating margin.
ISS seeks to improve operational efficiencies by
implementing group-wide excellence and best prac-
tice initiatives combined with specific initiatives
aimed at increasing the operating margin in certain
1304196EogSN05670
countries.
Cash 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 positive cash fiow from operations.
Our 2012 performance in terms of these three op-
erational objectives is described in detail elsewhere
in this report.
ACQUISITIONS AND DIVESTMENTS
In 2012, we made one minor acquisition, Shanghai
B&A Property Management Co. Ltd. in China,
which provides ISS with a good platform to continue
developing our operations in one of the world's
most promising and fastest growing markets. We
expect to continue the disciplined acquisition policy
going forward and expect that any acquisition activi-
ties 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 acquisi-
tions may also include selective competence-
enhancing acquisitions in developed markets.
Business review | Our performance 14
The strategic rationale and fit of business units is
reviewed on an ongoing basis consistent with our
strategy and customer needs. This process leads to
the identification and evaluation of certain activities
that are non-core to The ISS Way strategy, some of
which were divested in 2010 and 2011, and an ad-
ditional eight divestments were completed in 2012.
The divestments completed in 2012 comprised the
governmental outplacing services and security ac-
tivities in Norway, the landscaping activities in the
Netherlands, the washroom activities in the Nether-
lands, Belgium and Luxembourg, the mailroom and
office support services in France and the special-
ised consulting business in Finland.
We expect to continue evaluating our activities con-
sistent with our plan to accelerate The ISS Way by
focusing on our core businesses and to deleverage
debt.
The divestments completed in 2012, resulted in a
gain of DKK 65 million recognised in Other income
and expenses, net, an impairment loss related to
goodwill of DKK 196 million and a DKK 7 million
loss on customer contracts. In addition, classifica-
tion of certain activities in Asia as held for sale dur-
ing 2012 has resulted in a non-cash impairment
loss on goodwill of DKK 13 million.
1304196EogSN05671
Regional review
ISS is all about service. We deliver ser-
vice in more than 50 countries. In 2012,
we added two significant new contracts to
our growing portfolio of multinational IFS
contracts.
We are uniquely positioned to capitalise on the
huge opportunities available in our markets and we
are leveraging our global presence in order to meet
the growing demand from multinational corpora-
tions for the delivery of integrated facility services
(IFS) across borders. We aim to provide a con-
sistent service delivery globally across sites, coun-
tries and regions while meeting customer demands
for flexibility. We have come a long way in this re-
spect and today we have a leading market position.
Our regional presence clearly documents the trans-
formation ISS has undergone since 2004. At that
time, ISS was primarily a European-based compa-
ny. Today we are a true global player with a strong
position in emerging markets, where we have more
than half of our employees and generate more than
21% of our revenue.
In 2012, we maintained our focus on generating
profitable organic growth in a challenging macroe-
conomic environment, especially in certain Europe-
an countries where the main goal is to ensure a
profitable customer base with satisfactory condi-
tions. Western Europe, Latin America and Asia de-
livered positive organic growth rates in 2012, with
Asia once again reporting double-digit organic
growth. The operating margin for 2012 was favour-
ably impacted by margin increases especially in
certain Western European countries. However, this
was partly offset by the introduction of austerity
measures in a number of our mature markets, mar-
gin declines in Latin America and the Pacific re-
gions as well as operational challenges in the
Netherlands, France and Brazil.
Our Global Corporate Clients organisation is one of
our most powerful growth engines. Especially in our
European countries, Corporate Clients is a key
driver of organic growth which in 2012 and 2013
has found support in the recent wins of the signifi-
Regional review | Our performance 15
cant multinational IFS contracts like Barclays and
Novartis. In addition, Corporate Clients secured an
IFS contract with a leading global bank in Asia and
Pacific, adding to the EMEA contract won with the
bank in 2011.
We have a number of initiatives underway to ad-
dress performance issues in selected markets of
Western Europe and are deliberately reducing our
exposure to certain customer segments, mostly
relating to the public sector. We are furthermore
focused on taking advantage of the attractive mar-
ket characteristics in emerging markets and contin-
ue to grow our footprint in these countries in a bal-
anced manner.
Our seven regions follow the geographical struc-
ture, with the exception of the Nordic region which
is presented separately from the Western Europe
region. In order to highlight the growth and perfor-
mance of emerging markets, we present certain
information for these markets separately.
ISS operates in a number of countries which due to
the amount of revenue we generate there are not
included in this review. Those countries include,
among others: Bulgaria, Colombia, Costa Rica,
Puerto Rico, South Africa and United Arab Emir-
ates.
Western Europe
The markets of the Western Europe region are
generally characterised as developed markets but
with differences from country to country in terms of
IFS market maturity and macroeconomic environ-
ment. The demand for multi-services and IFS solu-
tions continues to pick up momentum driven by
search for cost savings and risk transfer. We con-
tinue to focus on utilising the well-established ser-
vice plat forms and delivery models, such as de-
ployment of country-specific sales strategies and
tailor-made value propositions. This was a main
driver behind the wins of the multinational IFS con-
tracts with Barclays and Novartis. Going forward,
our focus remains on ensuring a standardised ap-
proach and prioritisation of customer segments to
ensure higher organic growth and improved win
eee EET El
1304196EogSN05672
rates.
Revenue was DKK 39,414 million in 2012 which
was in line with 2011. Organic growth and currency
adjustments increased revenue by 1% each. Di-
vestment of non-core activities in 2011 and 2012
reduced revenue by 2%. Operating profit before
other items increased by 6% to DKK 2,407 million
for an operating margin of 6.1%, up 0.3 percentage
point from 2011.
The development and performance varies across
the region with strong performances in Switzerland,
the United Kingdom, Spain, Turkey and Italy and
challenging conditions in France, the Netherlands
and Israel. In France and the Netherlands, our fo-
cus remains on resolving certain structural and op-
erational challenges. Among the latest initiatives,
we have divested the landscaping activities in the
Netherlands as well as the washroom activities in
the Netherlands, Belgium and Luxembourg. Fur-
thermore, we made changes to the country man-
agement teams in France and the Netherlands in
2012.
Several countries delivered strong organic growth
rates, notably Italy and Turkey which both reported
double-digit growth rates, and the United Kingdom,
Germany and Switzerland also contributed to the
positive development. However, the demand for
non-portfolio services has generally decreased in
the region compared with last year and in order to
ensure a profitable customer base certain contracts
were exited in 2012.
The increase in operating margin was due to strong
performances in Switzerland, the United Kingdom,
Turkey and Italy. The operating margin in Switzer-
land was positively impacted by a gain of DKK 92
million related to negative past service costs for
defined benefit plans and one-off income related to
sale of certain assets. These positive developments
were partly offset by the challenging macroeconom-
ic conditions in certain European countries, inc!ud-
ing the negative impact from the introduction of
austerity measures in several countries, as well as
the operational challenges in the Netherlands and
France.
Major contract wins in 2012 included an IFS con-
tract with Telefonica in Spain, a significant increase
in the contract with the Royal Air force in the United
Regional review | Our performance 16
Kingdom and large cleaning contracts with the Uni-
versity of Gent in Belgium and Continental Automo-
tive in France.
Nordic
The markets of the Nordic region are mature and
developed and we hold a relatively high market
share. The strategic focus remains to leverage the
strong market position mainly through the imple-
mentation of best practices, utilising the footprint to
develop solutions and concepts tailored to specific
customer segments. The Nordic key customer
segments are Business Services & IT, Industry &
Manufacturing, the Retail and Hotels sectors as
well as country specific sectors. Alignment and cen-
tralisation of processes and organisations in the
region is progressing, including procurement pro-
cesses, harmonisation of organisational principles
and administrative procedures as well as establish-
ing a regional sales unit supporting the Nordic
countries. In order to pursue a continued alignment
of the business platform certain businesses in Nor-
way were divested in 2012. Furthermore, we en-
tered into a partnership with Securitas in Norway
regarding security services.
Revenue in 2012 was down by 2% to DKK 17,736
million. Organic growth was negative by 1%, while
divestments had a negative impact of 3%. Currency
adjustments mainly stemming from the appreciation
of SEK and NOK against DKK increased revenue
by approximately 2%. Operating profit before other
items was. DKK 1,190 million, reflecting an operat-
ing margin of 6.7%, down by 0.3 percentage point
from 2011.
The negative organic growth of 1% reflects a nega-
tive performance in Sweden and Denmark, which
were partly offset by positive organic growth in
Norway and Finland. The negative performance
was mainly a result of reduction in non-recurring
services such as snow removal compared with
2011 as well as a strong focus on securing satisfac-
tory conditions of the customer contract base
through contract trimming combined with a lower
customer retention rate. Norway delivered the high-
est organic growth rate, achieved through improved
customer retention and increases on existing cus-
tomer contracts.
The operating margin was 6.7% in 2012 reflecting
the second highest margin of all our regions. The
1304196EogSN05673
decrease from 7.0% to 6.7% was mainly due to
Finland following a lower level of non-portfolio ser-
vices and certain one-off austerity measures related
to a special employee-related levy paid in the first
half of 2012. Furthermore, the divestment of the
coffee vending business in Denmark and Norway in
2011 and of the governmental outplacing services
in Norway has had an adverse impact on margins
compared with last year. This negative development
was partly offset by margin increases in Norway
resulting from an improvement in operational per-
formance across most service areas. The operating
margin in 2012 was positively impacted by one-off
income related to the sale of certain assets at the
level realised in 2011.
Contract wins in the region included a strategic,
regional IFS contract with Telenor covering Norway,
Denmark and Sweden, a strategic cleaning contract
with PostNord covering Sweden, Denmark, Norway
and Finland as well as an IFS contract with
Rambøll, an engineering, design and consultancy
company based in Denmark.
Asia
The Asia region consists of some larger and more
well established markets, such as Hong Kong and
Singapore as well as emerging markets, such as
China, India, Indonesia and the Philippines. The
ambition for the region is to remain one of the
Group's growth engines, expand our self-delivery
capabilities and to continue the sales strategy in-
tended to push IFS penetration within selected cus-
tomer segments as quickly as local markets mature.
Key segments for the region are Business Services
& IT, Energy & Resources, Transportation & Logis-
tics and Healthcare.
Going forward, focus will be on establishing compe-
tence centres to develop these key segments and
on establishing excellence in our service offering
within cleaning, security, catering and property. Fur-
thermore, alignment and standardisation continues
to be a focus area as does the development of an
even more distinct value proposition to existing and
new customers in the key customer segments of
each country. In order to continue the strong organ-
ic growth and the delivery of services at the re-
quired quality, sourcing and training of employees
remain a priority.
The region delivered a strong performance in 2012.
Regional review | Our performance 17
Revenue was DKK 7,367 million, an increase of
21% consisting of organic growth of 15% and cur-
rency adjustments of 6%. Operating profit before
other items increased by 16% to DKK 564 million,
reflecting an operating margin of 7.7%, compared
with 8.0% in 2011. In other words, Asia again deliv-
ered the highest margin of any ISS region.
Several countries reported double-digit organic
growth rates, favourably impacted by the successful
implementation of a sales strategy targeting e.g. the
Transportation & Infrastructure segment and the
Energy & Resources segment. India, Indonesia and
Thailand were the largest nominal contributors to
organic growth in the region with organic growth
rates of 22%, 19% and 23%, respectively. Hong
Kong, China and Singapore also showed positive
developmenits, delivering organic growth of 10%,
32% and 8%, respectively.
The slight decrease in the operating margin was
mainly due to an expected temporary margin reduc-
tion resulting from strong growth and the start-up of
new contracts as well as a timing issue in certain
countries of passing on unexpected minimum wage
increases to customers.
Contract wins in the region included a large security
contract with Thai Oil in Thailand, a security ser-
vices contract covering 23 airports in India, a signif-
icant contract with Changi General Hospital in Sin-
gapore comprising mainly cleaning and washroom
services as well as the increased scope of the ex-
isting contract with Singapore General Hospital.
Furthermore, the Barclays contract went live in 10
countries in the region during Q4 2012 and we are
closely following the progress and similar custom-
ers on the same strategy.
Pacific
ISS Australia delivers more than 90% of the reve-
nue in the region. The strategic focus in Australia
continued to be on further developing and refining
the IFS value proposition to selected customer
segments, including the Energy & Resources
(mainly the remote site resource sector), the
Healthcare and the Transportation & Infrastructure
segments (mainly airports). This led to the success-
ful retender of the majority of the remote site con-
tracts within the Energy & Resources segment.
Going forward, continued focus will be on further
developing the value proposition and expertise
1304196EogSN05674
within the key customer segments through compe-
tence centres. Operationally, the roll-out of best
practice projects within cleaning services and secu-
rity services combined with leveraging procurement
savings and synergies will continue.
In 2010, ISS Australia entered into a 28 year con-
tract with Sydney's Royal North Shore hospital
(RNS). The contract is a Public Private Partnership
through a consortium in which ISS Australia is a
major partner. The contract is complex and has a
high level of innovation illustrated by the fact that
the RNS hospital is the very first hospital in Austral-
ia to introduce automated guided vehicles (robots)
to transport food, linen and other supplies around
the hospital. Considering the length and complexity
as well as a recent dispute surrounding the service
scope of the contract, the first years of operation
will be very challenging. However, we believe that
the contract will increase in profitability during the
coming years as the knowledge of the complexity
and experience from operating the contract in-
creases as well as the impact from any other future
measures.
Revenue increased by 9% to DKK 6,007 million
driven by positive currency adjustments of 9% while
organic growth amounted to 0%. Operating profit
before other items amounted to DKK 311 million
equal to an operating margin of 5.2%, which was
1.3 percentage points lower than 2011.
The slightly negative organic growth has been sup-
ported by såme important renewals of large con-
tracts within the Resource and Transportation seg-
ments e.g. the IFS contract with Searipple Mining
Camp and the security contract at Perth Airport. ISS
New Zealand won two small but strategically im-
portant contracts in the Business & IT segment
providing security. The growth was offset by the
delayed start-up of a large security contract as well
as a number of remote sites in Australia being
forced to temporarily shut down due to cyclones in
early 2012. Furthermore, the negative development
of the iron ore spot prices have caused the Austral-
ian mining industry to reduce the production pace
which has had a negative impact on organic
growth.
The decrease in operating margin was mainly a
result of the termination of a workers' compensation
incentive scheme, whereby ISS in prior years re-
Regional review | Our performance 18
ceived income from the Australian government.
Furthermore, operating losses relating to the RNS
hospital as well as the temporary forced shut-down
of certain remote sites have affected the operating
margin.
Latin America
ISS has built a unique position in Latin America with
a strong geographical presence and a developed
service offering. No one else in the market is capa-
ble of self-delivering a comparable number of ser-
vices in the countries where ISS is present. Focus
is on exploiting our first mover advantage and se-
lectively expanding the geographical platform as
markets mature. 2012 has, despite the systematic
and customer-focused sales approach, been im-
pacted adversely as a result of the decision to exit
certain less profitable contracts and certain opera-
tional challenges in Brazil. We have also chosen to
make management changes and strengthen the
control! environment in Mexico and Uruguay follow-
ing the identification of accounting misstatements
from prior years which has negatively impacted the
performance in 2012.
Looking ahead our main focus is on profitable or-
ganic growth through an assessment of the cus-
tomer base and our key selected customer seg-
ments. In addition, we will continue to focus on hav-
ing the right management teams as well as an ade-
quate control environment in place.
Revenue was DKK 3,820 million in 2012, an in-
crease of 5% driven by organic growth of 7% partly
offset by a negative currency adjustment of 2%.
Operating profit before other items was down by
58% to DKK 91 million for an operating margin of
2.4%, 3.5 percentage points lower than in 2011.
All countries, except for Brazil, delivered double-
digit organic growth rates driven by a continued
high level of new sales, which was achieved on top
of the region's strong organic growth in 2011. Brazil
realised negative organic growth of 1% mainly as a
result of a decision to restructure the Route Based
Maintenance division, exit certain less profitable
contracts as well as dealing with operational chal-
lenges.
The operating margin was negatively impacted by
Brazil, Mexico and Uruguay in particular, which all
reported declining operating margins compared
1304196EogSN05675
with 2011. The decrease in Brazil was mainly a
result of operational challenges, while in Mexico
and Uruguay the decreases were mainly a result of
restoring the run-rate profitability from our contract
portfolio.
Contract wins in Mexico included the win of a large
IFS contract with ICA as well as GIA, a large corpo-
ration in Mexico building hospitals and prisons,
where we entered into a Public Private Partnership,
with phased start-ups in 2012 and 2013 and the win
of a large catering contract with Autoliv. In Brazil,
we won a large support service contract with
Bridgestone.
North America
ISS has extensive geographical coverage in several
parts of the USA experiencing economic growth and
we continue to focus on enhancing our geograph-
ical footprint in targeted metropolitan areas. In
2011,the IFS contract with a large technology com-
pany was a catalyst for building up the IFS delivery
capabilities to capitalise further on market opportu-
nities within IFS solutions. This has resulted in sev-
eral IFS contract wins in recent years, and in-
creased the proportion of self-delivery in the operat-
ing model. Furthermore, the multinational IFS con-
tract with Barclays is expected to have a significant
impact and we are beginning to see synergies from
the established IFS platform. The IFS business has
been organically developed and now accounts for a
27% share of the revenue generated in the region.
The IFS platform is expected to be a strong founda-
tion for future growth in the region.
We continued the development of more customer-
focused and segmented value propositions, target-
ing customer segments such as Business Services
and IT, Healthcare as well as the Events, Retail and
Aviation sectors. Finally, the implementation of a
customer retention programme has led to fewer
contract losses.
In September the Barclays contract went live in the
USA. The majority of Barclays' facilities are located
in the New York City area and the capabilities of
ISS were truly tested shortly after when Hurricane
Sandy hit the Northeastern United States. Through-
out the period the hurricane lasted, ISS continued
to deliver the service agreed to all of Barclays" facili-
ties.
Regional review | Our performance 19
Revenue increased by 5% to DKK 3,539 million.
Organic growth was negative at 3% while currency
adjustments increased revenue by 8%. Operating
profit before other items amounted to DKK 151 mil-
lion for an operating margin of 4.3% compared with
3.4% in 2011. The increased margin was a result of
improvements stemming from the IFS business.
Following a year of 35% organic growth due to the
start-up of the contract with the large technology
company mentioned above, the region experienced
negative organic growth in 2012, primarily driven by
a general reduction in non-portfolio services such
as project work.
The operating margin was favourably impacted by
several operational improvements, especially within
the IFS business, which were partly offset by gen-
eral increases in payroll taxes in the USA. In order
to gain the necessary IFS delivery capabilities to
support and deliver on major contracts in North
America, costs have been incurred in 2011 and
2012 to build up the IFS platform. Due to their na-
ture, these costs have been classified as Other
income and expenses, net.
Eastern Europe
ISS has established a wide geographical reach and
a unique service platform in Eastern Europe with
the capability to self-deliver a full range of services.
The strategic goal is to provide services to multina-
tional blue chip companies. The selected customer
segments are Business Services & IT, Industry &
Manufacturing and Healthcare, while the proportion
of customers in the public sector is deliberately
being reduced.
During 2012, the efforts to strengthen the manage-
ment teams and leadership capabilities through-out
the region as well as develop the sales organisa-
tions continued to be a priority. In addition, focus
was on the further implementation and utilisation of
shared business development resources across the
region in order to empower best practise operations
resource sharing and drive regional solutions sales.
The development and performance varies across
the region, mainly as a result of different market
conditions from country to country. In 2012, reve-
nue fell to DKK 1,605 million, driven by negative
organic growth of 1% and a negative impact from
currency adjustments of 1%. Russia and Poland
1304196EogSN05676
both delivered a solid organic growth thanks to high
non-portfolio revenue and high customer retention
rates. This was more than offset by negative organ-
ic growth in especially Slovakia and Slovenia pri-
marily due to continued difficult economic market
conditions.
Operating profit before other items fell slightly to
DKK 102 million for an operating margin of 6.4%,
0.1 percentage point lower than in 2011. The drop
was mainly the result of general pressure on prices,
losses relating to customer receivables as well as
unexpected minimum wage increases that, despite
an ongoing focus on passing these on to custom-
ers, had a negative impact in 2012.
The sales strategy focused on delivering services to
blue chip companies is progressing according to
Regional review | Our performance 20
plan, as illustrated by the IFS contract wins in 2012,
including Danone and Tieto in the Czech Republic
and AstraZeneca in Russia. In 2013, the largest
contract mobilisation in the region will be completed
when the Novartis contract starts up in Slovenia.
Furthermore, ISS won a significant expansion of an
existing contract with a large nuclear power plant
business covering seven sites in the region, where
ISS expands its service offering to a full IFS offer-
ing. The skills and competencies required to man-
age such a contract are complex. Through sharing
of knowledge and best practices with ISS Sweden,
which has several years of experience servicing
nuclear power plants and built up a substantial
knowledge and experience, it was possible to ten-
der, win and subsequently operate the contract.
1304196EogSN05677
Financial review
In 2012 ISS focused on generating profit-
able organic growth and ensuring a cus-
tomer base with satisfactory conditions in
a world where many countries, particularly
in Europe, are influenced by the challeng-
ing macroeconomic environment.
INCOME STATEMENT
Revenue amounted to DKK 79,492 million repre-
senting a revenue growth of 2% driven by organic
growth of 1.7%. Western Europe, Latin America
and Asia delivered positive organic growth rates in
2012, with Asia once again reporting double-digit
organic growth. The organic growth in 2012 was
affected by the challenging macroeconomic condi-
tions in certain European countries, decline in non-
portfolio services, exiting customer contracts with
unsatisfactory conditions and timing of contract
start-ups. Revenue was lifted by exchange rate
movements of 2% offset by the divestment of non-
core activities of 2%.
REVENUE AND ORGANIC GROWTH
82 - - mrnnensennnrnee 7%
2008 2009 2010 2011 2012
mms Revenue, DKK billon == Organic growth, %
Operating profit before other items was DKK
4,820 million in 2012. The operating margin was
6.1%, a slight decrease compared with 6.2% in
2011. The operating margin is in line with expecta-
tions and was positively impacted by margin in-
creases especially in certain Western European
countries as well as gains related to sale of certain
assets and negative past service costs for defined
benefit plans. However, this was partly offset by the
negative impact from the introduction of austerity
measures in a number of our mature markets, mar-
Financial review ] Our performance 21
gin declines in Latin America and the Pacific region
as well as certain operational challenges in the
Netherlands, France and Brazil. In addition, the
margin was affected by the strategic divestments of
certain non-core activities.
OPERATING PROFIT AND OPERATING MARGIN
49 r 7%
a8
aT
46
45
44
43
42
41
40
2008 2009 2010 2011 2012
ER Oper sting profit before after iterne, DKK billion -—%— Operating margin, %
Other income and expenses, net was a net ex-
pense of DKK 236 million in 2012 compared with a
net expense of DKK 96 million in 2011. Gain from
divestments was DKK 107 million and was more
than offset by costs related to restructuring projects
mainly in the Netherlands, France, Brazil and Nor-
way amounting to DKK 157 million. Furthermore,
the gain was offset by accounting losses arising
from prior periods accumulated misstatement of
accounts in Uruguay, Mexico and India of DKK 98
million, costs related to build-up of IFS capabilities
in North America of DKK 62 million and loss on
divestments of DKK 42 million.
Financial income and financial expenses, net
decreased by DKK 148 million, or 7%, to DKK
2,116 million in 2012. The decrease was achieved
in spite of the costs incurred in relation to the re-
demption of the 11% Senior Notes due 2014 of
DKK 174 million, which consisted of a call premium
of DKK 108 million and unamortised financing fees
of DKK 66 million. On the other hand interest ex-
penses, net, and foreign exchange losses, net, de-
creased DKK 149 million and DKK 11 million, re-
spectively. Furthermore, 2011 was negatively im-
pacted by unamortised financing fees of DKK 79
million being expensed as a consequence of the
amendment and extension of certain tranches un-
1304196EogSN05678
der the Senior Facilities Agreement.
Income taxes were DKK 772 million in 2012. The
Group's effective tax rate in 2012 was 61.9% com-
pared with 60.6% in 2011, calculated as the consol-
idated tax expense of DKK 772 million divided by
Profit before tax and goodwill impairment / amorti-
sation and impairment of brands and customer con-
tracts of DKK 1,249 million. The effective tax rate is
impacted by a valuation allowance on deferred tax
assets mainly in France and interest limitation in
Denmark. The rules on limitation on the deductibility
of financial expenses in Denmark impacted the tax
expense in 2012 adversely by approximately DKK
188 million. The effective tax rate amounted to
46.8% when adjusted for the impact of the limitation
on deductibility of financial expenses.
Goodwill impairment amounted to DKK 209 mil-
lion deriving from divestments and related mainly to
the divestment of activities in Western Europe.
Amortisation and impairment of brands and
customer contracts was DKK 360 million (2011:
DKK 365 million) of which DKK 35 million derived
from an impairment loss in Greece due to the con-
tinued unstable economic environment.
Net profit was improved from a loss of DKK 90
million in 2011 to a profit of DKK 1 million in 2012.
Net profit was positively impacted by growth in rev-
enue combined with lower financial expenses, net,
lower amortisation and impairment of brands and
customer contracts as well as lower non-cash ex-
penses related to goodwill impairment. Partly offset-
ting these positive developments was an increase
in other income and expenses, net and an increase
in income taxes.
STATEMENT OF CASH FLOWS
Cash flow from operating activities was DKK
3,243 million in 2012 (2011: DKK 3,071 million).
The improvement was due primarily to an increase
in inflow from changes in working capital of DKK
419 million and an increase in inflow in operating
profit before other items of DKK 16 million which
were partly offset by an increase in outflow from
other expenses paid, payments related to royalty
and changes in provisions, pensions and similar
obligations of DKK 164 million, DKK 69 million and
DKK 46 million, respectively.
Financial review |] Our performance 22
The cash inflow from changes in working capital of
DKK 111 million was due to increased focus on
billing and collection throughout the Group as well
as a lower organic growth compared with 2011.
This positive effect was partly offset by an increase
in cash outflow regarding payables compared with
2011 mainly stemming from the increase in the lev-
el of activity.
Other expenses paid of DKK 310 million mainly
related to restructuring projects initiated and ex-
pensed in both 2011 and 2012 as well as build-up
of IFS capabilities in North America.
Cash flow from investing activities in 2012 was a
cash outflow of DKK 721 million (2011: cash outflow
of DKK 311 million). Cash outflow retating to intan-
gible assets and property plant and equipment, net
was DKK 736 million (2011: DKK 989 million) rep-
resenting 0.9% (2011: 1.3%) of revenue. Partly
offsetting these outflows was a cash inflow of DKK
152 million from acquisitions and divestments, net
(2011: DKK 672 million).
Cash flow from financing activities in 2012 was a
net cash outflow of DKK 3,054 million compared
with a cash outflow of DKK 2,297 million in 2011.
This was mainly a result of repayment of borrow-
ings of DKK 5,180 million and interest payments,
net of DKK 1,702 million. Repayments of borrow-
ings were mainly related to repayment of the EUR
525 million 11% Senior Notes due 2014 following
the equity investment by Teachers' and KIRKBI and
repayments of the remaining part of Term Loan A
and Acquisition Facility A. This cash outflow was
partly offset by the proceeds from issuance of share
capital following the investment made by Teachers"
and KIRKBI of DKK 3,696 million, net of expenses
and proceeds from borrowings of DKK 71 million.
Proceeds from borrowings were related to drawings
on working capital facilities.
Cash conversion Changes in working capital
comprised of an inflow of DKK 111 million, which
resulted in a cash conversion of 102% in 2012
compared with 94% in 2011. Cash conversion ratios
for individual years may vary. The cash flows from
operations for the individual periods 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.
1304196EogSN05679
CASH CONVERSION
36
120
100 ge —
80 +:
60
40
20
2008 2009 2010 2011 2012
STATEMENT OF FINANCIAL POSITION
Total assets was DKK 46,856 million at 31 De-
cember 2012, of which DKK 26,261 million was
non-current assets, primarily acquisition-related
intangible assets, and DKK 20,595 million was cur-
rent assets, primarily trade receivables of DKK
11,433 million.
Intangible assets were DKK 23,379 million (2011:
DKK 25,254 million). Intangible assets primarily
comprise goodwill and customer contracts related
to a significant number of acquisitions over the
years.
At 31 December 2012, goodwill was DKK 21,217
million, a decrease of DKK 1,457 million compared
with 2011 mainly due to activities classified as held
for sale being reclassified to a separate line in the
statement of financial position as well as impair-
ment losses of DKK 209 million deriving from di-
vestments, mainly in Western Europe. Customer
contracts decreased by DKK 455 million to DKK
1,732 million at 31 December 2012, mainly due to
amortisation of customer contracts.
Trade receivables were DKK 11,433 million (2011:
DKK 11,871 million). The change was a result of a
continued focus on securing payments for our ser-
vices performed as well as a slight decrease in
debtor days compared with 31 December 2011.
Åssets and liabilities held for sale amounted to
DKK 2,331 million and DKK 699 million, respective-
ly, and included the assets and liabilities attributable
to the activities for which sales processes have
been initiated.
Financial review | Our performance 23
Equity increased by DKK 3,237 million to DKK
3,571 million at 31December 2012. The increase
was due to the share issue amounting to DKK
3,693 million following the investment made by
Teachers' and KIRKBI.
Partly offsetting the increase was actuarial losses,
net on defined benefit pension schemes (including
new contracts and the effect of asset ceiling) of
DKK 428 million and a negative effect of DKK 47
million related to hedges net of tax.
The equity ratio, defined as total equity attributable
to owners of ISS Global A/S relative to total assets
was 7.6% (2011: 0.7%).
Other liabilities were DKK 10,487 million at 31
December 2012 (2011: DKK 10,990 million). Other
liabilities consists mainly of accrued wages and
holiday allowances, tax withholdings, VAT and other
payables and accrued expenses. The main reason
for the decrease was reclassifications due to activi-
ties being classified as held for sale and presented
in a separate line in the statement of financial posi-
tion.
The carrying amount of net debt amounted to
DKK 20,297 million at 31 December 2012, down by
DKK 3,981 million from DKK 24,277 million at 31
December 2011. Main reason for the decrease was
the proceeds from the capital increase of DKK
3,696 million, net of expenses. Furthermore, the
decrease was related to the cash inflow from opera-
tions and proceeds from divestments, net which
were partly offset by the negative effects of pay-
ment of interest as well as investments in intangible
assets and property, plant and equipment, net. At
31 December 2012, non-current loans and borrow-
ings amounted to DKK 16,624 million (2011: DKK
19,890 million), current loans and borrowings
amounted to DKK 8,822 million (2011: DKK 9,384
million) while securities, cash and cash equivalents
and receivables from companies within the ISS
Group totalled DKK 5,030 million (2011: DKK 4,997
million), receivable from FS Invest was DKK 71
million (2011: DKK 0 million) and positive fair value
of currency swaps was DKK 48 million.
1304196EogSN05680
Strategy — The ISS Way ! Our business 24
Strategy — The ISS Way
2012 was a successful year in furthering
the implementation of our strategy - The
ISS Way. Many of the processes and
tools that are an essential part of The ISS
Way have now been developed, launched
and are subject to continuous refinement.
We have come a long way, and we will
continue our journey towards becoming
the world's greatest service organisation.
Rather than moving straight to strategy and its for-
ward looking implications, let us look at our current
status from an operational perspective — what is the
market we are in, what do our customers demand
and what is it we do?
THE MARKET AND EVOLVING CUSTOM-
ER DEMAND
The market for facility services comprises six main
service types: cleaning services, support services,
property services, catering services, security ser-
vices and facility management.
The decision on whether a given service is better
undertaken by an in-house or external service or-
ganisation is typically the first evaluation point for
the customer. The trend on outsourcing is evolving
positively for the facility service industry as custom-
er segments are choosing, at varying rates, to focus
on their core activities, and consequently outsourc-
ing rates increase, which is one of the key drivers
for growth in the facility services market.
Drivers of the decision to outsource include a lack
of in-house resources and expertise or a desire to
improve service quality and efficiency, increase
— FACILITY
MANAGEMENT
BHU
flexibility, reduce costs, manage risks and provide
brand protection. In a recent market study, an anai-
ysis of customer requirements was undertaken
through a survey of over 600 customers. The study
confirmed that these are the key requirements of
customers of facilities services. An offering must
address each of these drivers in order to demon-
strate to the customer that the chosen provider has
the ability to provide a superior solution to his own -
and the offerings from other service providers.
It is the role of the facility service provider to coor-
dinate and oversee that the facilities are managed
and maintained in a safe, secure, and environmen-
tally-sound manner and that maintenance of these
facilities are performed in a cost effective manner
with the aim of providing the customers or users a
good working environment as well as preserving
the long-term value of the facility.
A decision to outsource will also entail a decision on
whether to choose a single service outsourcing
model or a multi-service or integrated facility ser-
vices (IFS) outsourcing model. Though it varies
from market to market, the single service model still
remains a dominant choice. However, there is
clearly a growing trend in our customers” overall
propensity to procure bundled or integrated ser-
vices (locally, regionally and globally) as business-
es generally attempt to limit complexity, enhance
efficiencies and add value by reducing the number
of service suppliers.
The market has an estimated value of approximate-
ly USD 900 billion and is highly fragmented with
many players ranging from large multi-nationals
such as ISS to small local operators. The universe
of providers of facilities services can be broadly
divided into two camps, those adhering to the tradi-
tional facilities management model where services
are provided through sub-contractors and those
committed to a self-delivery model where the pro-
vider delivers essentially all services through their
own personnel. The traditional facilities manage-
ment model was established primarily as a cost
reduction exercise while the self-delivery model
allows for a greater level of added value in the ser-
1304196EogSN05681
vice provision. For example, the extended use of
sub-contractors, each with their own values and
processes, is not able to deliver the same level of
risk mitigation, nor is it able to provide consistent
delivery across sites, in comparison with self-
delivery.
OUR OFFERING AND VALUE PROPOSI-
TION
We have built a comprehensive offering in order to
meet customers” evolving demand for high quality
self-delivered services with credible risk transfer
and operational efficiencies.
Qur offering is comprised of six services, cleaning
services, support services, property services, cater-
ing services, security services and facilities man-
agement. Today we deliver this offering as single-
service, multi-services or IFS. IFS is the provision
of multiple services under one contract, together
with on-site management through a single point of
contact with the customer. This allows us to inte-
grate the facility service functions at the customer's
premises. By offering an IFS solution, we provide
customers not only the benefits of specific service
types, such as service excellence, labour manage-
ment, the transfer of operational risk and our pro-
curement expertise, but also the integration of the
services which allows our customers to benefit from
added convenience, efficiencies and financial cer-
tainty.
Strategy — The ISS Way | Our business 25
A key enabler for us to deliver this value proposition
is our self-delivery model. We have developed ser-
vice concepts tailored to specific customer seg-
ments thereby ensuring the delivery of a strong and
customised value proposition. Ultimately, we are
focused on supporting our customers in delivering
their value proposition and reaching their goals.
Qur broad geographic footprint allows us to deliver
this value proposition locally, nationally and globally.
THE ISS WAY
The current ISS business platform was built through
a period of organic and acquisitive growth in order
to transform the company to a provider of multiple
services, able to self-deliver globally. In 2008, we
launched The ISS Way where we changed the fo-
cus from building the platform to ensuring greater
alignment of our global business. At its core, The
ISS Way is about aligning the organisation behind
the consistent delivery of our value proposition to
customers. Everything we do should support us in
the delivery of our unique value proposition to the
benefit of our customers and thereby move us for-
ward towards our vision to be the world's greatest
service organisation.
To this end, The ISS Way drives the communication
and implementation of our business fundamentals.
Our vision, values and leadership principles form
our core fundamentals. We also have Group poli-
OUR UNIQUE VALUE PROPOSITION AND COMPETENCIES
Value added offering
e Credible and effective risk management,
including HSE and local labour law
management
ae Brand protection
Delivery capabilities
e Single-service excellence
= Consistent delivery globally
e Flexible delivery model
Integration of services
e One point of contact — convenience
e Efficiencies and financial certainty
aa
na
Aa:
1304196EogSN05682
cies, which are our formalised "rules of the game”
such as our Code of Conduct and Health, Safety
and Environment (HSE) policies. We have estab-
lished common processes — based on tried and true
internal best practices — for all the phases of the
customer contract lifecycle to ensure the uniform
and consistent delivery of our value proposition. We
are also establishing more formalised group-wide
policies for key functions such as procurement in
order to better leverage our scale.
The ISS Way has also led to the global implementa-
tion of consistently applied measures of non-
financial performance such as of customer experi-
ence and employee engagement. These data
points provide us invaluable input on how our value
proposition is being delivered and how we can bet-
ter establish a global workforce, who are aligned
behind and share our overall corporate purpose.
OUR BUSINESS FUNDAMENTALS
Adapted løcally and
regionally based on
Group strategie direction
Ære
Group poinss Universat application
across the Group
Finally, we have four strategic cornerstones which
provide the overriding strategic direction in which
the entire Group is moving and, together with our
other business fundamentals, describe what is ex-
pected of us collectively and as individuals.
Ås part of our transformation, we have become
much clearer on which services, segments and
geographies are essential for the delivery of our
value proposition. This is yielding a much more
focused and cohesive business platform. As a con-
sequence of this focus, we have made a number of
divestments during the past few years, and in 2012,
we divested eight businesses with aggregate annu-
al revenue of DKK 872 billion. The divestment of
non-core activities benefit the organisation two-fold:
we become more focused and able to deliver in the
core areas and help accelerate the deleveraging of
the Group.
Strategy — The ISS Way | Our business 26
Qur continued success in Corporate Clients is a
tribute to the organisation's ability to drive the im-
plementation of the alignment strategy and deliver
on our unique offering. Looking back, we experi-
enced significant progress in the implementation of
our strategy in 2012. The roadmap to becoming the
world's greatest service organisation has been for-
mulated and we are well on our way.
Strategic cornerstones
Customer focus
We focus on our customers. We serve selected cus-
tomer segmenits locally, regionally and globally with
specific value propositions through focusing on identi-
fying customer needs and wants. We build sustainable
partnerships with customers who value our approach
to service.
People management
People management is our core competence. We
excel in people management in order to deliver excel-
lence in our service offerings to our selected customer
segments. We mitigate risks and volatility transferred
from our customers by applying leadership skills, hu-
man resource and HSE policies, employee training
and skills in complying with local labour legislation. We
achieve these benefits by sharing knowledge and best
practices within the Group.
IFS strategy
IFS is our strategic aim. We advance our service offer-
ing towards IFS by building the ISS palette of services
and developing our facility management capabilities.
We self-deliver multiple site-based services, and we
integrate our service deliveries seamlessly in our cus-
tomers' organisations and facilities.
Multi-local approach
We strike a balance between autonomy and align-
ment. We operate with strong local leadership and
autonomy to ensure timely responses to operational
demands and to benefit from our knowledge of local
market conditions. We implement our fundamental
Group policies and strategic direction to enable us to
exploit best practices and leverage our geographical
footprint. We are disciplined and use tight financial
control.
1304196EogSN05683
Corporate responsibility | Our business 27
Corporate responsibility
As a global company with more than
534,200 employees serving both private
and public sector customers in more than
50 countries, ISS influences the lives of
many people through providing employ-
ment and training as well as providing
safe and healthy work environments for
millions of employees and customers in
the facilities we service.
AtISS we believe that long-term sustainable busi-
ness success relies on a high level of Corporate
Responsibility (CR), as economic, social and envi-
ronmental issues are inevitably interconnected. Due
to our long-held corporate values for quality, hones-
ty and responsibility, our commitment to CR has
evolved organically, and today it is an integral part
of our values and business strategy as well as an
important part of our value proposition to our cus-
tomers.
We believe, that having sound CR policies embed-
ded in the way we conduct our business is the best
way to take care of and motivate our key resource,
our employees, and thereby also our customers. If
our employees feel safe, satisfied and engaged, our
customers are also safe, satisfied and engaged.
Furthermøre, CR is increasingly becoming an im-
portant area for our customers as they strive to
improve their performance and make a positive
impact on society. The leading global companies
require a consistent CR performance from their
partners, which is a key factor in winning and retain-
ing contracts with most customers. It is therefore
important for us to be able to demonstrate our un-
derstanding of their CR goals and our ability to ad-
dress them. Our systematic approach to CR, such
as our Group Health, Safety and Environment
management system, supports this and helps us in
our efforts to become a preferred partner to our
customers and the employer of choice in our indus-
try.
As our company is based on human capital, we
need capable and engaged employees who are
motivated and proud of working at ISS. We strongly
believe that our efforts in CR will contribute to a
sense of purpose amongst our employees. Our
capable, engaged and motivated employees also
contribute to a positive customer experience.
We respect, support and promote human rights and
are aligned with the ambitions stated in the United
Nations Declaration of Human Rights and the Core
Conventions of the International Labour Organisa-
tion.
ISS has made a strong commitment as a signatory
and supporter of the United Nations Global Com-
pact since its inception in 1999. In line with mem-
bership regulations, ISS is committed to aligning
our strategy and operations with the ten Global
Compact principles on human rights, labour rights,
environmental protection and anti-corruption.
OUR APPROACH TO CR
At ISS, we have adopted a principles-based ap-
proach to CR that contributes to sustainable devel-
opment as defined by the international community.
This approach effectively integrates universally
accepted principles into the way we conduct our
business, forming a foundation that is embedded in
our corporate values, our Code of Conduct and our
strategy, The ISS Way.
COMPULSORY REPORTS
This CR chapter does not constitute ISS's full report on
CR. The full CR Report as per section 99a of the
Danish Financial Statements Act is available at
www.responsibility,issworid,com/report2012 and in
accordance with guidelines from the UN Global Compact
to the signatory companies. The CR Report also serves as
ISS's communication on progress in implementing the ten
principles of the Global Compact.
ISS holds a unique position in contributing to the
following focus areas:
e facilitating the right to work;
non-discrimination, equal opportunities and di-
versity; and
« access to education.
1304196EogSN05684
OUR INITIATIVES AND ACTIONS
We have developed and rolled out across the
Group a strategy for Health, Safety and Environ-
ment (HSE) and CR. This strategy is consistent
with the overall Group strategy, The ISS Way, and
the HSE Vision.
QUR HSE VISION IS CALLED "100"
1: We aim to be number 1 in our industry and recognised
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 injuries
at our workplaces.
For the past three years we have built and imple-
mented an operational framework to create a con-
sistent approach to HSE across the Group. The
objective is to achieve continuous improvement in
quality and performance. The Group HSE manual,
based on four international standards, (OHSAS
18001, ISO 14001, ISO 22000 and ISO 9001), pro-
vides a systematic approach to HSE management
across the Group. Our systematic approach sup-
ports the delivery of our services and thereby helps
our customers to reduce their risks in our efforts to
become us a preferred partner. All ISS countries
have now developed their management systems in
accordance with the Group HSE manual ensuring
this consistent approach across the Group.
To improve our overall HSE and CR performance, a
Group HSE and CR action plan is issued each year.
The plan is based on our current HSE and CR per-
formance, and the stated targets and actions are
reviewed and amended annually as deemed ap-
propriate to meet our HSE Vision. Actions that
countries were required to incorporate in their coun-
try action plans in 2012 were for instance:
» Develop a three-year HSE strategy to meet our
HSE Vision ”100';
» Develop and report on their environmental per-
formance and plans for improvement;
Investigate incidents to determine the root
causes and take corrective action in order to
ensure that the incidents do not re-occur.
A part of the overall strategy for HSE and CR is to
demonstrate our performance through measuring,
monitoring and reporting. To support this goal, in
Corporate responsibility I Our business 28
2011 we began to implement an HSE — IT tool, a
performance management system that enables us
to monitor and document performance, compliance
and risk management within HSE. The implementa-
tion continued in 2012, and the system has now
been rolled out to all regions of the Group. Our HSE
system has two main purposes; first and very im-
portantly raising the awareness for employees and
stakeholders, and secondly improving the quality of
our reporting globally. We believe that a systematic
approach to reporting, investigating and developing
corrective action will improve our HSE culture. More
importantly, it will also help ensuring that responsi-
bility and ownership of HSE is transferred to opera-
tions, i.e. the individual ISS regions, countries and
business units.
The primary purpose of gathering HSE and CR
data is to manage HSE and CR risks by monitoring
performance. The data will also be used to inform
ISS management and external stakeholders of our
performance and track progress towards the
achievement of our HSE and CR commitmenis.
HSE initiatives
In order to stay on course and keep HSE in con-
stant focus, in 2010 we ran the global campaign
”Me and You' for the first time. The campaign cov-
ered safety, health and the environment and em-
phasised that HSE is a common responsibility and
that we all play an important role in HSE. In 2012,
the campaign was re-launched in March, June and
September focusing on the challenges we currently
face in each of the three areas. The safety cam-
paign focused on working at heights, slips, trips and
falls, driving safely and working alone. The health
campaign focused on a healthy back, chemicals
and personal protection equipment, while the envi-
ronmental campaign focused on reducing energy,
reducing waste and conserving water.
Environment is one area that we plan to focus on
even more in the coming years. The main environ-
mental impact from ISS's operations derives from
our cleaning services and consists of the use of
chemicals as well as water and energy consump-
tion. We also emit CO2 through the use of cars in
our operations and travel activities. There are three
ways in which we can influence the extent of our
impacts:
« Through conscious behaviour in terms of con-
1304196EogSN05685
sumption at our own sites;
… Through the design of processes and equip-
ment, which we use at our customer sites;
e Through the portfolio of services we offer to our
customers.
Many ISS operations are already certified to envi-
ronmental standards such as ISO 14001, LEED,
Green Seal, but with the implementation of the HSE
manual, including the management and reporting
system, we are now able to govern our own impact
on the environment in a more structured and sys-
tematic way.
In 2012, we continued to measure and take actions
to reduce the consumption of electricity and water
at our own sites, enabling us to establish baseline
data for these consumptions. We also continued to
measure the COz emissions from our car fleet and
business travel. Furthermore, we are developing
concrete value propositions that we can offer our
customers to help them reduce their COz impact.
Other CR initiatives
ISS has developed a whistleblower policy to enable
all ISS employees, business partners and other
stakeholders to report suspected violations or con-
cerns relating to any matter of exceptional gravity or
sensitivity. The policy was approved by the Danish
Data Protection Agency in 2011, To support the
policy, during 2012 we have implemented and
launched a reporting system and protocol for man-
aging incidents reported under the Whistleblower
Policy. The policy is supported by an externally
hosted IT system that provides a secure reporting
tool in full confidentiality. The tool is open to all our
stakeholders and can be accessed from a link on
our corporate website.
In terms of responsible procurement, ISS devel-
oped a supplier self-assessment questionnaire for
our major vendors dealing with issues such as our
Code of Conduct, forced labour, non-discrimination,
human rights and child labour. This was to ensure
that we also include the supply chain in our scope.
in 2012, we followed up on this process with two
audits carried out at our suppliers” factories in Dha-
ka, Bangladesh and Sharjah, United Arab Emirates.
OUR PERFORMANCE AND TARGETS
Consistent with the ISS values, our highest priority
Corporate responsibility I Our business 29
is to protect our employees from injury. Therefore,
we will be steadfast in our commitment to making
our workplaces free from hazards, and we will op-
erate under the assumption that all injuries can be
prevented, and that injuries in the workplace are
unacceptable. Our goal will always be zero injuries
and zero environmental incidents, and this must be
clear to everyone in the organisation.
The following Group targets were established for
2012:
1.In accordance with the HSE Vision, our first pri-
ority is to prevent fatalities at our workplaces. Our
Group target is zero.
2,In terms of Lost Time Incidents Frequency (LTIF),
the Group target was to reduce LTIF by 40% from
our baseline figure to less than 8, with further re-
ductions in the coming years.
3.In terms of Total Reportable Cases Frequency
(TRCF), the Group target was to reduce our
TRCF by at least 30% from the baseline of 23
with further reductions in the coming years.
4. At least one management review by country
management of the suitability, adequacy and ef-
fectiveness of the country's HSE management
system as per the Group HSE manual.
5. To conduct an annual employee engagement
survey with a target to have offered 250,000 of
our employees to respond to the questionnaire by
the end of 2012.
6. To carry out audits of at least 20% of the coun-
tries we operate in regarding CR-related issues.
Qur performance for the last three years in relation
to the established targets is shown below.
Sadly, the 2012 reporting shows a number of fatali-
ties associated with our operations: seven people
have died at our workplaces in 2012, The number
of fatalities is not acceptable and to achieve our
HSE Vision of zero fatalities, we have improved our
investigation techniques to ensure that we deter-
mine the root causes of such incidents, learn from
them and prevent them from re-occurring. We are
also working on driving our safety culture through-
out the organisation and making safety a common
responsibility. We will focus our efforts going for-
ward on getting management at all levels to under-
stand their roles and responsibilities for safety. Our
success depends on the full commitment from all
levels of management starting at country manage-
1304196EogSN05686
ment level and this is a vital requirement of our
Group HSE manual.
GOING FORWARD
We believe that we now have a solid foundation for
both systematic risk management and reporting
supported by management systems and IT tools.
Going forward, our focus is on embedding hazard
Corporate responsibility I Our business 30
identification and risk management in our opera-
tions and continuing to improve our incident investi-
gation performance. We will also further develop
the value propositions for our customers by identify-
ing the needs, providing solutions and outcomes
based on our competencies and experience in the-
se areas.
HSE PERFORMANCE
Target Performance
2012 2012 2011 2010
Fatalities zero 7 7 5
Lost Time Incident Frequency (LTIF) less than 8 8 10 11
Total Recordable Case Frequency (TRCF) less than16 13 16 19
Management reviews (% of countries) 100 94 98 -
Employee engagement survey (number of employees covered) >250,000 251,746 150,000 -
Audits on CR (% of countries) 20 30 25 -
1304196EogSN05687
Our employees
ISS is one of the world's largest private
employers with more than 534,200 em-
ployees. We deliver all services through
our employees and count our employees
as our most valuable asset and factor to
success. The services they provide on a
daily basis are the main reason for our
success — it is through their work, we de-
liver our services and create and sustain
value for our customers.
THE HUMAN RESOURCES VISION AND
STRATEGY
Engaged employees are a prerequisite for satisfied
customers. This principle is at the heart of our
strategy, The ISS Way, and the core of our belief
system. Consequently, the Human Resource (HR)
vision and strategy plays an extremely important
role in achieving our strategic objectives.
Implementation of the HR strategy is supported by
"The Role of Direction of HR” developed in 2011 for
the purpose of aligning the global HR efforts. "The
Role and Direction of HR" describes the link be-
tween HR competencies, the HR strategy, our stra-
tegic cornerstones and The ISS Way strategy. We
have identified eight core HR competencies that we
must excel in within our Group. To ensure that we
progress to uniform high levels within all ISS organ-
isations globally, we have selected five key compe-
tencies to focus on and hence intensify activities
through:
+ Leadership development
e Employee engagement
- Talent management
« Succession planning
Performance management
These key priorities move the company towards the
vision that leaders at every level of the organisation
live and breathe the ISS leadership principles —
promoting teamwork and collaboration across bor-
ders and across our organisation — ensuring that
each and every one of our more than 534,200 em-
Our employees | Our business 31
ployees work towards our shared vision of being
the world's greatest service organisation. This is a
journey which is challenging and hugely inspiring
for both employees and leaders of the Group.
ISS's performance management system plays an
important role in each of the above key initiatives,
but especially in relation to talent management,
succession planning and performance manage-
ment. The system is the principal tool for assessing
individual capabilities. Feedback during an annual
performance evaluation and target-setting process,
including a mid-year review, helps to develop the
full potential of the individual managers. In addition
to facilitating the process, the performance man-
agement system provides ISS with a basis for talent
management and succession planning.
LEADERSHIP DEVELOPMENT AND
TRAINING
Leadership development is a must-win battle for
ISS, and people management is a strategic corner-
stone in order for us to deliver excellence in our
service offering. The ability of our leaders at all lev-
els to guide and motivate must be based on human
understanding, respect and responsibility.
1SS LEADERSHIP PRINCIPLES
At ISS we put the customer first
At ISS we have a passion for performance
AtISS we encourage innovation
AtISS we treat people with respect
AtISS we lead by example
At ISS we lead by empowerment
AtISS we develop ourselves and others
At ISS teamwork is at the heart of our performance
At ISS we are one company with shared
values, one brand and one strategy
VONGSGSMRØWØN må
The ISS Way of managing and leading is described
in our nine leadership principles. These outline how
we relate to our customers, how we bring out the
best in our employees and how we ensure that eve-
ryone is treated fairly and with respect. The leader-
ship principles help create a working environment
that benefits our employees and the customers we
serve.
1304196EogSN05688
It is a core HR discipline to ensure that we have
appropriate training and leadership development
programmes in place, at all levels of management.
Training and leadership development is a priority as
we build human resource excellence, because we
believe that an investment in our employees is an
investment in our customers and our business.
Qur company requires many different sets of people
skills. This places great emphasis on our ability to
train and develop employees. While some employ-
ees may want to stay in their current jobs, we need
to encourage development whenever we see the
possibility. Every business unit must ensure that
employees are properly skilled through local train-
ing and development programmes. This enables us
to offer our employees flexibility in their job func-
tions, thereby strengthening our collaboration with
our customers.
The philosophy is to offer tailored training at all
functional levels to enhance employee skills and
encourage upward staff mobility. Much attention is
devoted to developing the first level of management
e.g. team leaders, supervisors and contract man-
agers, in their responsibilities towards their immedi-
ate staff and customer interfaces. Most training is
conducted at ISS academies and training facilities
in national and local operations.
Additionally, in order to implement strategic initia-
tives, such as cleaning excellence and the integrat-
ed facility service (IFS) concept, ISS continues to
develop key specialists and leaders for train-the-
trainer. This is supplemented by local initiatives.
The ISS University focuses on continuously en-
hancing the competencies of ISS executives. The
"ISS Advantage” management induction pro-
gramme for executives of the Group highlights The
ISS Way strategy and our ISS value chain man-
agement tool. As in previous years, the ISS Univer-
sity programme portfolio consisted of internal and
external seminars designed in cooperation with
institutions such as IMD and Henley Management
College.
EMPLOYEE ENGAGEMENT AND RETEN-
TION
The success of each service delivered depends on
the people delivering it. With more than 534,200
Our employees | Our business 32
employees worldwide, this makes employee en-
gagement one of the most important elements at
ISS. Employee engagement exists when every lev-
el of the organisation is staffed with people who
understand what is expected of them, have the
necessary skills and desire to deliver services in a
way that strengthens the customer's experience of
service value.
In 2011, we piloted a global Employee Engagement
Survey (EES) to gain insights into where we can
improve employee engagement in order to improve
ISS's profitability and customer satisfaction. Around
150,000 employees were surveyed in 2011. During
2012, the survey was fully rolled out with more than
250,000 employees across all continents being
surveyed using a uniform questionnaire globally,
which enables us to compare the results around the
world. The survey focuses on measuring four key
drivers of employee engagement:
Capability — do our employees feel that they are
capable of fulfilling their roles?
e Motivation — are our employees motivated to de-
liver what is expected of them?
e Pride — do our employees feel proud about
working for ISS?
… Retention — how likely are our employees to
stay with ISS?
Based on the result of the survey, which showed an
overall employee engagement of 4.4 out of a possi-
ble 5, which we are very pleased with, we know that
we have a high degree of engagement in the
Group, but more importantly we now have a much
better insight into what is important to our employ-
ees in their work environment.
While we are pleased with the results of 2012, we
will continue to work on improving employee en-
gagement at ISS. Understanding what drives our
employees” engagement is critical for improving
employee engagement and in that respect the EES
is an extremely important tool. Through the survey
we are able to provide managers at all levels with
specific information about their teams and their
employees, allowing them to address the causes
for lower engagement and drive the individual em-
ployee's engagement higher. Going forward, the
employee engagement surveys will be linked to
carrying out the customer satisfaction survey, which
will enable leaders to draw parallels between the
1304196FogSN05689
different surveys.
The service industry generally has a high degree of
employee turnover, as part of the industry is often
considered suitable for short-term or secondary
employment. At ISS, we pursue a range of strate-
gies to retain our employees by offering training and
development as explained above, more full-time
and daytime work, multi-task jobs, teamwork, ca-
reer opportunities, leisure activities, etc.
In 2012, the share of full-time employees (working
30 hours or more a week) was 73%, unchanged
from 2011. This indicator is important, as in general,
full-time employees develop stronger ties with ISS.
The distribution of employee seniority (in years)
provides another perspective for employee loyalty
within ISS. In 2012, approximately 69% of the
Group's employees had been with ISS for more
than one year, an increase from 66% in 2011.
PEOPLE INDICATORS
2012 2011 2010
Total employees 534,100 534,400 522,600
Full time employees 73% 73% 73%
Part time employees 27% 27% 27%
Total employees > 1 year 69% 66% 61%
EQUAL OPPORTUNITIES
ISS rewards its employees solely on the basis of
merit. When recruiting, developing and promoting,
ISS focuses on the individual capabilities and quali-
fications 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 lan-
guage courses and adapted training materials, ISS
is an employer of choice for many immigrants and
ethnic minorities. In all regions but especially in
Our employees | Our business 33
Western Europe, ISS is among the largest employ-
ers of ethnic minorities. For ISS, diversity is a
strength.
EMPLOYEE AND TRADE UNION RELA-
TIONS
Employee and trade union relations are a natural
part of a people-centred business such as ISS. The
corporate policy of involvement and dialogue is
applied locally in the country operations. Estab-
lished in 1995, the European Works Council (EWC)
is an in-house forum for dialogue between ISS ex-
ecutives and ISS employee representatives from
across Europe.
In June 2009, the EWC and ISS signed a new four-
year EWC agreement. The EWC meeting agenda
includes information and consultation on matters
relating to the Group's subsidiaries in Europe, in
particular concerning the structure, financial situa-
tion, development of ISS, the current situation and
probable trends of employment. Discussions have
also involved the introduction of new working meth-
ods and processes, training and HSE issues, pro-
vided that such issues may affect the interests of
the employees of the Group in more than one coun-
try in Europe. A total of 25 representatives from
17 countries took part in the 2012 EWC annual
meeting.
The global agreement between Union Network In-
ternational (UNI) and ISS was renewed in 2008.
The agreement aims at enabling all ISS employees
worldwide to exercise rights to union membership
and collective bargaining. As part of the agreement,
ISS and UNI created the Global UNI-ISS Founda-
tion in 2009 for the purpose of monitoring and im-
proving employment standards within the service
industry globally.
1304196EogSN05690
Risk management
At ISS we consider risk as an integrated
part of doing business. Risk-taking provides
opportunities, but it can also hinder the
achievement of our goals. Risk manage-
ment reduces risk and ensures that the risks
we take on for customers and ourselves are
calculated and well-managed. Effective risk
management is therefore an important tool
in helping us reduce uncertainty and ulti-
mately achieve our objectives.
ISS continuously seeks to identify, evaluate and
mitigate risks that may have an adverse effect on
the Group's ability to achieve the strategic objec-
tives and financial performance.
Operational and financial risks are managed in ac-
cordance with policies adopted by the Board of
Directors (the Board). Detailed plans and business
procedures for a number of functions are also de-
scribed in manuals and guidelines. The policies for
operational and financial risk management and
Group standards are documented and distributed to
the operating companies.
It is the responsibility of directors and managers at
all levels of the organisation to ensure that the as-
sessment of risk is formalised and understood, ap-
propriately managed and reported in accordance
with the internal policies. Group Controlling, Group
Internal Audit, Group Risk Management, Group Tax,
Group Legal and Group Treasury supervise compli-
ance with these standards.
OPERATIONAL RISK MANAGEMENT
ISS is exposed to operational risks through its ac-
tions and activities at own premises as well as at
customer premises. Operational risks are assessed
based on the activities of each operating company,
historic and current claims events, and the markets
in which the companies operate. Furthermore, op-
erational risks are assessed on an individual site-
Risk management | Our business 34
by-site basis at customer premises where we pro-
vide our services. Operational risk is monitored and
mitigated in accordance with Group standards for
risk management, risk financing, Health, Safety and
Environment (HSE) management and good opera-
tional practice.
Operational risk is managed based on insurance
and own funding, primarily through global insurance
programmes managed centrally by ISS.
ISS believes that the Group is not subject to mate-
rial operational risks except for risks common in the
ordinary course of business in the service industry.
FINANCIAL RISK MANAGEMENT
ISS is exposed to financial risks as a result of its
operating activities, investing activities and financ-
ing activities. The Group's financial risks are man-
aged centrally in Group Treasury based on policies
approved by the Board. The Group's financial risk
management is described in detail in note 36 to the
consolidated financial statements.
KEY RISK FACTORS
The risks listed in the following are those that the
Board and the Group Management Board currently
view as being the most significant to our business.
The purpose of the key risks is to provide a high-
level perspective on risk areas related to The ISS
Way strategy, including related risk initiatives. The
risks are presented in the context of the entire
Group, which means that risks are considered
globally applicable in the organisation. The exam-
ples of mitigation action plans presented are there-
fore largely Group initiatives. As a consequence,
the risk environment and prioritisation of Group risk
mitigation action plans may be different at country
level, reflecting the decentralised nature of our or-
ganisation.
1304196EogSN05691
Macroeconomy
RISK FACTORS RISK MITIGATION EXAMPLES
Growth: We consider that the growth in demand for our services
generally correlates with economic conditions, including growth
in gross domestic product, in the countries in which we operate.
We believe that the facility services industry is less sensitive to
macroeconomic cycles than a number of other industries are.
However, economic downturns or otherwise uncertain economic
outlooks in the markets in which we operate or on a global scale
could adversely affect demand for outsourcing facility services.
Periods of recession or deflation may adversely impact prices,
payment terms and demand for services, particularly if customers
downsize their businesses or reduce their demand for services.
Growth strategy
RISK FACTORS RISK MITIGATION EXAMPLES
Market demand: Our organic growth strategy depends on the
current and future trend across both the private and public sectors
to outsource facility services and procure contracts nationally or
internationally. In particular, the growth of our business depends
on the continued growth in demand for the outsourcing of facility
services, either as single services, multi-services or integrated
facility services (IFS).
Risk management | Our business 35
| We monitor market developments on an ongoing basis, both
; locally and globally, as part of our general management and
| annual strategy process. In addition, we strive to predict market
:… dynamics including market trends within the services industry
that could affect our business in the long term. For example, in
cooperation with the Copenhagen Institute for Futures Studies
(CIFS), we have carried out a study on the future of Facility
;… Management seen in a global perspective, The study is available
at www.issworld.com.
During the recent economic downtumn, in certain regions and in
certain customer segments, we have experienced reduced activity
levels that have negatively impacted our revenue and put pressure
on our operating margins Generally speaking, however, we have
been able to offset these factors by taking appropriate steps to
adapt our cost structure, Our portfolio business tends to be more
resilient and therefore less affected during periods of economic
downturn than our non-portfolio business.
Sustaining the organic growth of our business requires us to adapt
continuously to meet the needs of our existing and potential
customers, Consequently, the existing business platform is
evaluated on an ongoing basis. Further, we strive to meet our
customers" requirements by adapting appropriate sales,
operational and risk management processes to reflect the needs
of our customers.
The ISS service delivery model: Our organic growth strategy
relies on various factors including our ability to cross- and up-sell,
our ability to continue to self-deliver IFS 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 services,
whether on a global or a local scale.
Emerging markets: Gur ability to establish a presence in new
markets and to grow our market share in existing ISS related
emerging markets. In recent years our growing Corporate Clients
portfolio has brought growth to existing ISS markets as well as
new markets, increasing the risk.
Customer contracts
RISK FACTORS RISK MITIGATION EXAMPLES
Contract risk: The profitability of our contracts generally depends
on our ability to successfully calculate prices by taking into
consideration all economic factors, use of subcontractors, direct as
well as inherent liabilities, and our ability to manage our day-to-
day operations under these contracts. Examples of risk factors to
our contracts include the potential failure to predict the costs of
and identify all risks associated with our contracts, e.g. employee-
related liabilities or the complexity of the services delivered, which
may result in lower-than-expected margins, losses under these
contracts or even the loss of customers.
Operational risk: Operational error or contract non-compliance
in general constitutes a risk that could result in unexpected costs.
Furthermore, as our services are increasingly becoming an
integrated element of our customer's value streams, there is a risk
of causing a disruption of our customers" business operations and/
or brand damage, if operational procedures and contract
requirements are not complied with.
We 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 that it reflects both
;
i
| the current and future requirements of our customers.
The risk is managed through applied standard operational
procedures as well as detailed risk analysis when going into new
markets and segments.
The risk is managed through various management policies and
frameworks. Among other measures, a formal framework and IT
platform for contract risk management and contract approval has
been developed as well as a formal framework for the approval
of large contracts.
We seek to mitigate these risks by applying best operational
practices using the ISS Operational Process Framework when
entering into contractual agreements with our customers. To
address the risk, in 2012, we developed a management information
system, "InsightQISS", allowing information to be collated, reviewed
and analysed on a global basis to support the operational and
financial management of contracts. In addition, operation risk
reviews and audits are performed within selected industries where
deemed appropriate.
1304196EogSN05692
Employee capacity
RISK FACTORS RISK MITIGATION EXAMPLES
Employee qualifications: For our continued success we rely
strongly on our effective decentralised organisational structure in
which country and regional managers retain substantial autonomy
regarding the management of operations in their local markets.
As a result, we depend strongly on these local managers. Similarly,
qualified local and regional managers are essential in order to
ensure best practices being shared across the Group, effective
management continuity and the implementation and management |;
of our growth strategies as Group policies and operational i
processes. i
Employee retention and attraction: Our competitive strength
depends strongly upon our ability to attract, train and retain i
employees.
Competition
RISK FACTORS RISK MITIGATION EXAMPLES
Competitors: The facility services market is fragmented with |
relatively low barriers to entry and there is significant competition j
from local, regional, national and international companies of !
varying sizes and financial abilities offering an array of service
capabilities. We also face competition from in-house providers.
Regulatory environment
RISK FACTORS RISK MITIGATION EXAMPLES
Regulatory environment: Due to the nature of our industry and |
the global reach of our operations, we are subject to a varietyof — |
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 providing our services. |
|
|
i
|
|
i
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,
because of our large workforce, laws and regulations relating to
labour, employment (including the transfer of employees), social
security, health and safety of employees and immigration affect
our operations and the cost of compliance significantly affects our
results and financial condition.
Risk management | Our business 36
ISS's management structure and processes have been set up
to support the continuous improvement of local managers' and
employees" qualifications. For example, the ISS Operational Process
Framework best practices are shared and implemented through
formalised train-the-trainer programmes supporting continuous
improvement and compliance with Group policies and procedures
as well as the enhancement of our local managers" and employees'
capabilities.
The ISS HR strategy has five priorities that all work towards
attracting, engaging and retaining our employees:
Leadership development: Ensures global and regional leadership
development programmes are in place and adhere to The ISS Way
strategy and leadership principles.
Engagement: We have established a global survey to measure
employee engagement and commitment to the purpose of ISS.
Talent management: Focuses on talent identification through the
succession planning process and on working together with regions
on development plans that help people prepare for key roles.
Succession planning: Creates a continued focus on succession
planning to mitigate risk and drive The ISS Way strategy.
Performance management: We strive to ensure that each
employee knows the purpose of his or her role as well as objectives
which are aligned with the overall purpose of the company.
We believe that our self-delivering capabilities, our ability to deliver
reliable and flexible service concepts and services across borders,
Group-wide HSE standards, credible risk transfer as well as our
general process and management systems ali contribute towards
positioning ISS very favourably in the markets in which we operate.
Furthermore, the market for large and complex international
contracts generally has higher barriers to entry than the facility
services market in general.
Both locally and globally we strive to monitor and foresee changes
in legislation which could have a negative impact on our financial
performance. Operationally several measures are in place as an
integrated part of Group policies such as the Group Corporate
Governance Guidelines and the ISS Operational Excellence
Framework, including the contract risk framework. As part of the
formal contract framework, contract price regulation mechanism
risks as well as other uncertainties must always be considered,
assessed and approved before a contract is signed to mitigate
the potential risk of unexpected costs during the contract period.
Other examples are HSE standards based on best practice being
implemented throughout the Group as well as mandatory training
modules in Anti-Corruption/Bribery and Competition laws for our
more than 2,000 top managers throughout the Group.
1304196EFogSN05693
Corporate governance | Governance 37
Corporate governance
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.
The management team of the Group formally con-
sists of the Board of Directors and the Managing
Director of ISS Global A/S. Since ISS Global A/S
has no operating activities of its own, the Group
relies on the management team of ISS A/S, the
ultimate parent company in Denmark. As a subsid-
iary of ISS A/S, ISS Global A/S is subject to the
same corporate governance policies applicable in
ISS A/S, which is described in the sections below.
The Board of Directors regularly reviews the
Group's corporate governance in relation to the
Group's activities, business environment and statu-
tory requirements.
Corporate governance policies and procedures at
ISS take into account the Danish Companies Act,
the Danish Financial Statements Act, International
Financial Reporting Standards (IFRS), the Danish
Venture Capital and Private Equity Association's
(DVCA) Guidelines for Responsible Ownership and
Good Corporate Governance as well as corporate
governance practices for companies of ISS's size
EQT 40% GS CAPITAL PARTNERS 33% TEACHERS' AND KIRKBI 26%
and global reach. The DVCA Guidelines for Re-
sponsible Ownership and Good Corporate Govern-
ance are available at www.dvca.dk.
SHAREHOLDERS
ISS A/S is a limited liability company incorporated
and operating under Danish law. The company's
share capital is indirectly owned by funds advised
by EQT Partners (EQT) and Goldman Sachs Capi-
tal Partners (GS Capital Partners), as well as Ontar-
io Teachers' Pension Plan (Teachers') and KIRKBI
Invest A/S (KIRKBI). EQT and GS Capital Partners
(together referred to as the Principal Shareholders)
indirectly hold approximately 40% and 33% of the
share capital respectively. Teachers" and KIRKBI
indirectly hold approximately 26% of the share capi-
tal. The remaining approximately 1% of the share
capital is indirectly held by certain members of the
Board of Directors, the Executive Group Manage-
ment Board and a number of senior officers of the
Group through Director and Management Participa-
tion Programmes as described below.
For information about the shareholders, reference
is made to www.goldmansachs.com regarding GS
Capital Partners, www.eqgt.se regarding EQT,
www.otpp.com regarding Teachers” and
www.KIRKBI.com regarding KIRKBI.
FS INVEST S.Å R.L (LUXEMBOURG) »
FS INVEST II S.Å R.L (LUXEMBOURG)
ISS WORLD SERVICES A/S
ISS GLOBAL A/S
OPERATING SUBSIDIARIES
ISS A/S
” Certain members of the Board of Directors, members of the Executive Group Management Board and a number of senior officers of the Group have invested, directly or
indørectly, In shares, warrants or loan notes in FS Invest $.å r1(F5 Invest), ISS's ultimate parent company. The total number of shares held by these directors and officers is
approximately 1% of the total share capital.
1304196EogSN05694
MANAGEMENT
ISS has a two-tier management structure consisting
of:
the Board of Directors (the Board), and
the Executive Group Management Board (the
EGM).
The Board determines the overall Group strategy
and supervises the company's activities, its man-
agement and organisation. The EGM is responsible
for ISS's day-to-day operations. The two bodies are
separate and have no overlapping members.
BOARD OF DIRECTORS
The Board has seven members appointed by the
general meeting for a period of one year. Board
members are eligible for reelection. Six Board
members have been nominated jointly by the Prin-
cipal Shareholders and one Board member has
been nominated by Teachers”. Four members are
independent, while three members are representa-
tives of the Principal Shareholders and Teachers”.
In addition to the Board members elected at the
general meeting, three employee representatives
also serve on the Board. They have been elected
on the basis of a voluntary arrangement regarding
Group representation for employees of ISS World
Services A/S as further described in the articles of
association. Employee representatives serve for
terms of four years. The current employee repre-
sentatives joined the Board following the annual
general meeting on 1 March 2011. The employee
representatives have the same rights and obliga-
tions as other members of the Board.
The Board functions in accordance with the rules of
the Danish Companies Act, the articles of associa-
tion and its rules of procedure, which provide guide-
lines for the Board's work in general. Board resolu-
tions are generally passed by a simple majority, and
in the event of an equality of votes, the Chairman
casts the deciding vote.
Corporate governance | Governance 38
The Board convenes at least six times a year. Ex-
traordinary meetings are convened whenever spe-
cific matters require attention between scheduled
meetings. A total of eight Board meetings were held
in 2012. The Board receives a monthly financial
and operational reporting package and is briefed
about important matters between Board meetings.
The Board approves the strategy plan, the annual
budget and certain large acquisitions, divestments
and integrated facility service (IFS) contracts based
on recommendations from the Transaction Commit-
tee (see Board Committees).
An appraisal of the Board is carried out annually to
assess the competencies of the Board, the effec-
tiveness of its work and how the Board ensures that
relevant corporate governance principles are ap-
plied.
Remuneration to the Board is disclosed in note 5 to
the consolidated financial statements.
BOARD COMMITTEES
Currently there are three committees that report to
the Board.
The Audit Committee evaluates the external fi-
nancial reporting, and monitors and challenges the
main accounting policies and estimates as well as
the systems of internal controls and risk manage-
ment. Its duties also include supervision of the ex-
ternal auditor and the internal audit function in addi-
tion to evaluating the relationship with the external
auditors and reviewing the audit process. The
Board appoints the committee members and the
chairman of the committee who cannot be the
Chairman of the Board. The committee consists of
four Board members (currently Leif Ostling, Michel
Combes, Steven Sher and Jo Taylor), and meetings
are also attended by the Group CFO, the Head of
Group Controlling, the Head of Group Internal Audit
and the Group General Counsel. Leif Ostling is
chairman of the committee, which held six meetings
in 2012.
1304196EogSN05695
Corporate governance | Governance 39
AGENDA ITEMS TO BE TRANSACTED BY THE BOARD OF DIRECTORS EACH YEAR
December
es Approval of annual budget
« Review of capital structure and financing
" Corporate governance afsessment
e Review of insurance cover
” Review of remuneration policy
November d
+ Approval of Q3 report |
é
October i ul
+ Review of approval thresholds for matters mur un v
that are unusual or of great significance. i
” Review of charters for committees and
composition of members, and consider. ;
new committees W
» Description of skills of the Board
« List of independent board members. |
Assessment of the competencies and "0"
composition of the Board Al
N .
Kr
August
» Approval of Q2 report
s Review of whistleblower policy
« Review of Group Internal Audit and its charter
The Transaction Committee considers ISS's pro-
cedures for acquisitions, divestments and larger
IFS contracts, reviews the transaction pipeline, ap-
proves certain large transactions in accordance
with adopted procedures, and evaluates selected
effected transactions. The committee consists of
three Board members (currently Steven Sher, Harry
Klagsbrun and Jo Taylor), and meetings are also
attended by the Group CEO, the Group CFO, and,
as applicable, the Head of Group Strategy and Cor-
porate Development and the Head of Global Corpo-
rate Clients. Steven Sher is chairman of the com-
mittee, which held three meetings in 2012.
The Remuneration Committee recommends the
remuneration packages and incentive schemes for
the Group CEO, and provides input on remunera-
tion in respect of other EGM members, certain sen-
ior officers, and compensation levels and bonus
systems in general. The committee consists of four
members of the Board (currently Ole Andersen,
Harry Klagsbrun, Steven Sher and Jo Taylor), and
the Group CEO participates in meetings except
when the Group CEO's remuneration is tabled for
discussion. Ole Andersen is chairman of the com-
mittee. The committee held three meetings in 2012.
March
Approval of Annual Report
» Decide on going concern assumption
+ Session with external auditor and Head of
Group Internal Audit without the EGM
May
» Approval of Qi report
+ Review of rules of procedure for the Beard and
the EGM including review of internal rules
» Review of enterprise risk management
» Evaluation of (i) performance of individual
"members of Board (ii) performance of the EGM
and (iii) cooperation between the Board and
the EGM
June
- Review of communication and stakeholder
policy indluding communication strategy and
"| identification of key stakeholders
+ Review of CR policy
» Review of organisational structure of the
Company
+ Review and approval of overall strategy,
business and action plan including review of
necessary competencies and financial resources
EXECUTIVE GROUP MANAGEMENT
BOARD
The EGM consists of Group CEO Jeff Gravenhorst
and Group CFO Henrik Andersen. The primary
tasks of the EGM are to carry out the day-to-day
management of the Group, develop new strategic
initiatives, develop Group policies, monitor Group
performance and evaluate investments as well as
acquisitions, divestments and large facility service
contracts.
GROUP MANAGEMENT BOARD
The Group Management Board (the GMB) is head-
ed by the Group CEO, and includes the Group
CFO, Regional CEOs, Regional CFO Europe, Head
of Global Corporate Clients, Head of Group Human
Resources, Head of Group Strategy and Corporate
Development and the Group General Counsel. The
primary tasks of the GMB are to develop and exe-
cute new strategic initiatives, develop and imple-
ment Group policies, monitor Group performance,
review financial matters, coordinate and evaluate
acquisitions, divestments and large IFS contracts
and to provide the EGM with input for decision-
making purposes.
1304196EogSN05696
A member of the GMB is not permitted to hold di-
rectorships in companies outside the Group unless
specific consent is granted.
COUNTRY MANAGEMENT
In each of the countries in which ISS operates,
country management teams are appointed to man-
age the business in accordance with Group policies
and procedures as well as local legislation and
practice. ISS delegates substantial autonomy and
considerable power to the country management
teams including management of operations in their
relevant markets, financial reporting, local tax and
compliance with local legislation and practices.
The country management teams are set out under
each relevant country on the ISS website at
www, issworld.com.
REMUNERATION
Each Board member (except representatives of the
Principal Shareholders and Teachers") receives a
fixed annual fee and members of the Board com-
mittees receive an additional fixed fee. Remunera-
tion to the Board is reported in note 5 to the consol-
idated financial statements. The investment by cer-
tain Board members in the Directors” Participation
Programme is described below.
The members of the EGM and the GMB are remu-
nerated with a combination of fixed salary, standard
benefits in accordance with market standards and,
for most members, a performance-based bonus of
up to 60% of their fixed salary, which in the event of
extraordinary performance (significantly above
budget) can be up to 90% of the fixed salary. The
bonus is subject to achieving performance targets
for the Group's key operational objectives; cash
conversion, organic growth and operating margin.
The EGM and the GMB also participate in a Long-
Term Incentive Programme (LTIP). The LTIP is
cash-based and the initial grant has a value of up to
15% of the annual base salary. Subject to achieving
performance targets for operating profit and net
debt and the occurrence of a vesting event (e.g. an
IPO or a sale of the majority of shares in ISS to a
third party), the LTIP will pay out in the range of
20% to 150% of the initial grant. The maximum pay-
Corporate governance i Governance 40
out in such event is 22.5% of the annual base sala-
ry.
All employment contracts of the EGM and the GMB
members may be terminated at 6-24 months' no-
tice. One employment contract includes a sever-
ance payment of two years” salary in the event of
termination by ISS. No other members of the EGM
or the GMB are entitled to severance paymenits.
The employment contracts contain no special ter-
mination rights.
Directorships with companies of the Group held by
members of the EGM and the GMB are not remu-
nerated separately.
Detailed reporting on remuneration made to the
members of the EGM is disclosed in note 5 to the
consolidated financial statements. The investment
by the EGM and certain senior officers of the Group
in the Management Participation Programme is
described below.
DIRECTORS' AND MANAGEMENT PAR-
TICIPATION PROGRAMME
In 2006, the Principal Shareholders established a
Management Participation Programme (MPP)
through which the EGM and a number of senior
officers of the Group have invested. In March 2012,
the programme was re-designed to introduce two
investment profiles. The Executive Group Man-
agement Board and certain senior officers of the
Group remain indirect investors in a mix of shares
and warrants of FS Invest, whereas the remaining
senior officers of the Group — having had the oppor-
tunity to settle part of their investment in cash —
invest directly or indirectly in shares or loan notes of
FS Invest. At 31 December 2012, the investments
amounted to a total of DKK 197.0 million, covering
144 executives and officers.
In addition to the investments — as part of the initial
MPP programme — the Executive Group Manage-
ment Board and a number of Corporate Officers
were granted warrants in FS Invest with a vesting
schedule (based on value of shares and time). At
31 December 2011 a total of 277,632 of these war-
rants were outstanding. As part of the redesign of
the MPP programme in March 2012 these warrants
were all settled and consequently, the remaining
fair value in respect of the granted warrants of DKK
1304196EogSN05697
3 million was recognised under Other income and
expenses, net.
Certain members of the Board participate in a Di-
rectors Participation Programme, which was also
re-designed in March 2012, and under which they
continue to have invested in a mix of shares and
warrants of FS Invest amounting to a total of ap-
proximately DKK 11.7 million. In addition, they have
co-invested with the Principal Shareholders for a
total of approximately DKK 7.5 million.
At 31 December 2012, the investments under the
programmes were as follows:
PARTICIPATION PROGRAMMES
Number Investment
of measured
DKK million persons at cost
Board of Directors 3 16.2
Executive Group Management Board 2 9.4
Corporate Officers 30 60.7
Country Management 116 129.9
Total 151 216.2
Corporate governance | Governance 41
1304196EogSN05698
Internal controls relating to financial reporting I Governance 42
Internal controls relating to finan-
cial reporting
At ISS internal controls are an essential
management tool. Care is taken to ensure
that a sound framework of controls is in
place for safeguarding the business, the
Group's assets and shareholder invest-
ments as well as its financial reporting.
The Group's internal control and risk management
systems are developed to mitigate rather than elim-
inate risks identified in relation to the financial re-
porting process and thus assist in ensuring a true
and fair view of the financial performance and fi-
nancial position of the Group without material er-
rors.
The Board of Directors (the Board) has approved
policies, standards and procedures in key areas
related to financial reporting, including the Code of
Conduct, Accounting and Reporting Policies,
Treasury Policies and Procedures and Control Pro-
cedures.
The Audit Committee is responsible for monitoring
the internal controls and risk management systems
as well as challenging the Executive Group Man-
agement Board (the EGM) in its assessment of
material financial reporting risks. Any risk that may
cause a material error in the consolidated financial
statements of the Group is considered a material
financial reporting risk.
The Audit Committee has set up a Group Internal
Audit department that is responsible for providing
assurance concerning the internal control environ-
ment in accordance with an approved internal audit
plan.
The EGM has established a Group Controlling de-
partment that is responsible for controlling the fi-
nancial reporting by subsidiaries and preparing the
consolidated financial reporting.
Internal control procedures at Group level have
been established to assess on an ongoing basis the
Group's internal control environment and to man-
age identified risks. However, as a risk of misuse of
assets, unexpected losses, etc., will always exist,
such controls can provide only reasonable and not
absolute assurance against material misstatements,
omissions or losses.
The aim of the established control environment is
therefore to provide the Board and the EGM with
reasonable assurance that:
management reporting is reliable and in compli-
ance with internal policies and procedures and
gives a true and fair view of the financial per-
formance and financial position;
material risks are identified and minimised;
” internal controls are in place to support the qual-
ity and efficiency of the business processes and
to safeguard the Group's business and assets;
and
… |SS's business is conducted in compliance with
applicable legislation, standards, regulations
and ISS policies.
RISK ASSESSMENT
Risks related to the financial reporting process are
identified and assessed annually based on a mate-
riality test including a risk assessment of the impact
of quantitative and qualitative factors. The evalua-
tion of the risks includes an assessment of the like-
lihood of an error occurring and whether such 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 com-
plex accounting processes. Accounting areas that
require management to make estimates and
judgements are described in note 2 to the consoli-
dated financial statements, Critical accounting esti-
mates and judgements.
1304196EogSN05699
On an ongoing basis the Audit Committee discuss-
es:
- material and relevant new accounting pro-
nouncements and implementation of such;
e evaluation of the overall effectiveness of the in-
ternal controls for financial reporting; and
accounting for material legal and tax issues and
significant accounting estimates.
Although no material errors were noted in respect
of the consolidated financial statements, it was dur-
ing 2012 discovered that the control environment in
certain countries was not sufficiently developed to
support the business expansion, resulting in ac-
counting losses in Mexico, Uruguay and India. The
Audit Committee, the EGM and Group Internal Au-
dit have discussed such incidents and based on
this various initiatives to improve the control envi-
ronment in especially emerging markets have been
or will be implemented.
CONTROL ACTIVITIES
In order to sustain a sound control environment,
specific control activities are designed to obtain the
FINANCIAL PERFORMANCE AND FINANCIAL POSITION
Reporting: All countries must : Control activities: The
report a full income statement, | reporting is monitored and
statement of financial position, | controlled by Group Controlling.
statement of cash flows, | Any significant variance from
portfolio analysis and | budgets must be explained.
three-months forecasts etc. |
on a monthly basis. i
CASH FLOW FORECASTS
Reporting: All countries must : Control activities: Actual
report bi-weekly their daily cash | figures are continuously
flow forecasts for a rolling i monitored by Group Treasury
three-month period. | for deviations from the
| forecasted figures.
BUSINESS REVIEWS
Reporting: All countries must | Control activities: Monthly
report a full income statement, | meetings between regional
statement of financial position, | management and country
statement of cash flows, port- | management with a focus on
folio analysis, three-months [the current performance and
forecasts and contract perfor- | the state of the business.
mance etc. on a monthly basis.
BUDGETS AND FINANCIAL PLANS
Reporting: All countries must" Control activities: Regional
prepare budgets and plans for | management teams review the
the following financial year in a | proposed budgets and plans
pre-defined process and format. ' with the countries.
Internal controls relating to financial reporting I Governance 43
desired assurance. These measures must ensure
that all relevant aspects of a specific area are cov-
ered, and that the combination of control activities
monitors all relevant aspects of the business. The
control activities are based on the risk assessment
made by the EGM. The purpose of the control activ-
ities is to ensure that material errors in the financial
reporting are prevented, detected and corrected.
The Group has implemented a formalised financial
reporting process that includes the reporting re-
quirements and related control activities illustrated
in the table below.
INFORMATION AND REPORTING SYS-
TEMS
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 reduced.
Information and communication systems to ensure
accounting and internal control compliance have
been established, including an Accounting Manual,
FULL-YEAR FORECASTS
Reporting: All countries must | Control activities: Monthly
update and report their full-year ; meetings between regional
estimates twice a year. | management and country
i management with a focus on
fthe current performance and
' the state of the business.
ACQUISITIONS AND DIVESTMENTS
Reporting: All acquisition and | Control activities: Transaction
divestment proposals must be | Committee/Board approval is
presented in a predefined t required for large or strategic
report format and valuation i acquisitions and divestments.
model for approval. i
LARGER INTEGRATED FACILITY SERVICE (FS) CONTRACTS
Reporting: Certain large lFS | Control activities: Transaction
contracts must be presented in | Committee/Board approval is
a predefined format focusing — " required.
on risk evaluation for approval.
CONTROL SELF-ASSESSMENTS
1304196EogSN05700
Reporting: Country manage- | Control activities: Group
ment must every six months ; Internal Audit performs ongoing
self-assess the implementation | audit based on the countries"
of certain key internal control! — , control self-assessment.
activities and develop action
plans to close any implemen- |
tation gaps. !
Reporting Instructions, Budgeting Manual and other
relevant guidelines. The aim is to ensure that all
employees receive the relevant information on a
timely basis to ensure efficient and reliable execu-
tion of tasks including carrying out the established
control activities.
MONITORING
Each month the Group's subsidiaries report finan-
cial information on financial developments to Group
Controlling. This information is used to prepare
consolidated financial statements and reports sub-
mitted to the Board and the EGM. Financial report-
ing 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 oper-
ating country is sufficient to prevent material errors
in the country's financial performance and financial
position reported for consolidation purposes. The
regional management 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 the
country organisations regularly. The visits take
place according to a plan for the year approved by
the Audit Committee. The findings and conclusions
of internal audits, including recommendations on
how to improve the control environment, are pre-
sented in reports addressed to country and regional
management teams, representatives of the EGM
and the external auditor.
Group Internal Audit performs follow-up audits to
ensure that the recommendations are implemented.
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.
Internal controls relating to financial reporting | Governance 44
EXTERNAL AUDIT
The Board nominates the external auditors for elec-
tion at an annual general meeting. The nomination
follows an assessment of the competencies, objec-
tivity and independence of the external auditor and
the effectiveness of ihe audit process.
An independent business relationship with the
Group's external auditors is essential for the control
environment. Ås part of the safeguards to ensure
independence, the external auditors cannot perform
certain non-audit services for ISS including, but not
limited to, the preparation of accounting records
and financial statements and in recruitment for sen-
ior management positions.
The company collaborates with its external auditors
at country level and at Group level in relation to
procedures and internal controls by exchanging
internal audit reports and by generally sharing rele-
vant knowledge.
All Board members receive the external auditors'
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 discussed in detail by the Audit Committee.
The Board reviews the Annual Report at a Board
meeting attended by the external auditors. The find-
ings of the external auditors and any major issues
arising during the course of the audit are discussed
and significant accounting principles and critical
accounting estimates and judgements are re-
viewed.
1304196EogSN05701
Consolidated financial statements 45
Consolidated financial statements
ISS Global A/S
1304196EogSN05702
Consolidated financial statements 46
Consolidated income statement
1 January — 31 December
DKK million Note 2012 2011
Revenue 3,4 79,492 77,681
Staff costs 5,6 (51,798) (49,818)
Consumables 20 (7,009) (6,751)
Other operating expenses 7 (15,033) (15,473)
Depreciation and amortisation ” 14, 16 (832) (835)
Operating profit before other items ? 4,820 4,804
Other income and expenses, net 8 (236) (96)
Royalty — (1,223) (1,226)
Operating profit ” 3 3,361 3,482
Share of result from associates 17 4 0
Financial income 9 270 155
Financial expenses 9 (2,386) (2,419)
Profit before tax and goodwill impairment/
amortisation and impairment of brands and customer contracts 1,249 1,218
Income taxes ? 10 (772) (738)
Profit before goodwill impairment/
amortisation and impairment of brands and customer contracts 477 480
Goodwill impairment 11, 14, 15 (209) (322)
Amortisation and impairment of brands and customer contracts 14 (360) (365)
Income tax effect ” 10, 18 93 117
Net profit/(loss) for the year 1 (90)
Attributable to:
Owners of ISS Global A/S (2) (97)
Non-controlling interests 3 7
Net profit/(loss) for the year 1 (90)
1) Excluding Goodwill impairment and Amortisation and impairment of brands and customer contracts.
2) Excluding Other income and expenses, net, 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) Income tax effect of Goodwili impairment and Amortisation and impairment of brands and customer contracts.
1304196EogSN05703
Consolidated statement of comprehensive income
1 January — 31 December
Consolidated financial statements 47
DKK million Note 2012 2011
Net profit/(loss) for the year 1 (90)
Other comprehensive income
Foreign exchange adjustments of subsidiaries and non-controlling interests 23 (105)
Fair value adjustment of hedges, net 37 (94) (11)
Fair value adjustment of hedges, net, transferred to Financial expenses 37 47 97
Actuarial gains/(losses) 30 (557) (91)
Impact from asset ceiling regarding pensions 30 1 8
Limitation to interest deduction 10 (12) -
Tax on other comprehensive income 10 140 0
Total other comprehensive income (452) (102)
Total comprehensive income for the year (451) (192)
Attributable to:
Owners of ISS Global A/S (454) (200)
Non-controlling interests 3 8
Total comprehensive income for the year (451) (192)
1304196EogSN05704
Consolidated statement of cash flows
1 January — 31 December
Consolidated financial statements 48
DKK million Note 2012 2011
Operating profit before other items 4,820 4,804
Depreciation and amortisation 14, 16 832 835
Changes in working capital 12 111 (308)
Changes in provisions, pensions and similar obligations (281) (235)
Other expenses paid (310) (146)
Income taxes paid 23 (690) (709)
Payments related to royalties (1,239) (1,170)
Cash flow from operating activities 3,243 3,071
Acquisition of businesses 13 (60) (89)
Divestment of businesses 13 212 761
Acquisition of intangible assets and property, plant and equipment (855) (1,082)
Disposal of intangible assets and property, plant and equipment 119 93
(Acquisition)/disposal of financial assets (66) 6
Loan to FS Invest S.å r.l (71) -
Cash flow from investing activities (721) (311)
Proceeds from borrowings 71 362
Repayment of borrowings (5,180) (987)
Interest received from companies within the ISS Group 52 -
Interest received, external 137 137
Interest paid to companies within the ISS Group (138) (122)
Interest paid, external (1,753) (1,725)
Proceeds from issuance of share capital 3,696 59
Payments (to)/from ISS Group companies, net 65 (13)
Non-controlling interests (4) (8)
Cash flow from financing activities " (3,054) (2,297)
Total cash flow (532) 463
Cash and cash equivalents at 1 January 4,028 3,603
Total cash flow (532) 463
Foreign exchange adjustments 26 (38)
Cash and cash equivalents at 31 December 26 3,522 4,028
1304196EogSN05705
Consolidated statement of financial position
At 31 December
Consolidated financial statements 49
DKK million Note 2012 2011
Assets
Intangible assets 14, 15 23,379 25,254
Property, plant and equipment 16 1,874 2,066
Investments in associates 17 11 7
Deferred tax assets 18 575 553
Other financial assets 19 422 295
Non-current assets 26,261 28,175
Inventories 20 312 334
Trade receivables 21 11,433 11,871
Contract work in progress 22 72 129
Tax receivables 23 226 335
Receivables from companies within the ISS Group 1,465 938
Other receivables 24 608 519
Prepayments 25 610 558
Securities 26 16 17
Cash and cash equivalents 26 " 3,522 4,028
Assets classified as held for sale 27 2,331 141
Current assets 20,595 18,870
Total assets 46,856 47,045
DKK million Note 2012 2011
Equity and liabilities
Total equity attributable to owners of ISS Global A/S 3,562 323
Non-controlling interests 9 11
Total equity 28 3,571 334
Loans and borrowings 29 16,624 19,890
Pensions and similar obligations 30 1,541 1,172
Deferred tax liabilities 18 680 853
Provisions 31 352 338
Non-current liabilities 19,197 22,253
Loans and borrowings 29 8,822 9,384
Trade payables 3,628 3,425
Tax payables 23 227 314
Other liabilities 32 10,487 10,990
Provisions 31 225 255
Liabilities classified as held for sale 27 699 90
Current liabilities 24,088 24,458
Total liabilities 43,285 46,711
Total equity and liabilities 46,856 47,045
1304196EogSN05706
Consolidated statement of changes in equity
1 January — 31 December
Attributable to owners of ISS Global A/S
Consolidated financial statements 50
Non-con-
Share Share Retained Translation Hedging trolling Total
DKK million capital premium earnings reserve reserve Total interests equity
Equity at 1 January 2012 160 1,881 (1,969) 281 (30) 323 11 334
Comprehensive income for the year
Net profit/(loss) for the year - - (2) - . (2) 3 1
Other comprehensive income
Foreign exchange adjustments of subsidiaries .
and non-controlling interests - - - 23 - 23 0 23
Fair value adjustment of hedges, net - - - - (94) (94) - (94)
Fair value adjustment of hedges, net,
transferred to Financial expenses - - - - 47 47 " 47
Actuarial gains/(losses) - - (557) - - (557) - (557)
Impact from asset ceiling regarding pensions - - 1 - - 1 - 1
Limitation to interest deduction … - - - (12) (12) - (12)
Tax on other comprehensive income - - 128 - 12 140 - 140
Total other comprehensive income - - (428) 23 (47) (452) 0 (452)
Total comprehensive income
for the year - - (430) 23 (47) (454) 3 (451)
Transactions with owners
Share issue 20 3,701 - - -… 3,721 - 3,721
Costs related to the share issue - (28) - - - (28) - (28)
Impact from acquired and divested
companies, net - - - - - - (1) (1)
Dividends paid - - - - - - (4) (4)
Total transactions with owners 20 3,673 - - -… 3,693 (5) 3,688
Total changes in equity 20 3,673 (430) 23 (47) 3,239 (2) 3,237
Equity at 31 December 2012 180 5,554 (2,399) 304 (77) 3,562 9 3,571
Dividends
No dividends have been proposed or declared before the Annual Report was issued.
1304196EogSN05707
Consolidated financial statements 51
Consolidated statement of changes in equity
1 January — 31 December
Attributable to owners of ISS Global A/S
Non-con-
Share Share Retained Translation Hedging trolling Total
DKK million capital premium earnings reserve reserve Total interests equity
Equity at 1 January 2011 160 1,881 (1,874) 387 (90) 464 23 487
Comprehensive income for the year
Net profit/(loss) for the year - - (97) - - (97) 7 (90)
Other comprehensive income
Foreign exchange adjustments of subsidiaries
and non-controlling interests - - - (106) - (106) 1 (105)
Adjustment relating to previous years - ” 5 - (5) - - -
Fair value adjustment of hedges, net - - - - (11) (11) - (11)
Fair value adjustment of hedges, net,
transferred to Financial expenses - - - - 97 97 - 97
Actuarial gains/(losses) - - (91) - - (91) - (91)
Impact from asset ceiling regarding pensions - - 8 - - 8 - 8
Tax on other comprehensive income - - 21 - (21) 0 - 0
Total other comprehensive income - - (57) (106) 60 (103) 1 (102)
Total comprehensive income
for the year " " (154) (106) 60 (200) 8 (192)
Transactions with owners
Capital increase - 59 - - 59 - 59
Impact from acquired and divested
companies, net - - - - - - (12) (12)
Dividends paid - - - - - - (8) (8)
Total transactions with owners - - 59 ” " 59 (20) 39
Total changes in equity - - (95) (106) 60 (141) (12) (153)
Equity at 31 December 2011 160 1,881 (1,969) 281 (30) 323 11 334
Dividends
No dividends have been proposed or declared before the Annual Report was issued.
1304196EogSN05708
Notes to the
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Consolidated financial statements 52
Accounting 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
Statement of cash flows
Changes in working capital
Acquisition and divestment of businesses
Statement of financial position
Intangible assets
Impairment tests
Property, plant and equipment
Investment in associates
Deferred tax
Other financial assets
Inventories
Trade receivables
Contract work in progress
Tax receivables and tax payables
Other receivables
Prepayments
Securities, cash and cash equivalents
Assets held for sale
Equity
Løoans 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
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1304196EogSN05709
Consolidated financial statements 53
NOTE 1. Significant accounting policies
ISS Global A/S is a company domiciled in Denmark. The consolidated financial statements of ISS Global A/S as of and for the year
ended 31 December 2012 comprise ISS Global A/S and its subsidiaries (together referred to as "the Group") and the Group's interests
in jointly controlled entities and associates.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and Danish disclosure requirements for consolidated financial statements (class D).
In addition, the consolidated financial statements have been prepared in compliance with the IFRSs issued by the IASB.
The Annual Report for ISS Global A/S for 2012 was discussed and approved by the Executive Group Management Board (the EGM)
and the Board of Directors (the Board) on 4 April 2013 and issued for approval at the subsequent Annual General Meeting on 4 April
2013.
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 liabilities,
which are measured at fair value: derivatives, financial instruments designated as fair value through the income statement and
financial assets classified as available-for-sale.
Non-current assets and disposal groups classified as held for sale are measured at the lower of the carrying amount before the
changed classification and fair value less costs to sell.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements except for the changes as explained below in "Changes in accounting policies”. However, based on new information minor
adjustments to comparative figures in primary statements and notes have been implemented.
Going concern
The Board and the EGM have during the preparation of the consolidated financial statements of the Group assessed the going
concern assumption. The Board and the EGM believe that no events or conditions give rise to doubt about the ability of the Group to
continue in operation within the next reporting period. The conclusion is made based on knowledge of the Group, the estimated
economic outlook and identified risks and uncertainties in relation thereto. Further, the conclusion is based on review of budgets,
including expected development in liquidity and capital etc., current credit facilities available including contractual and expected
maturities and covenants. Consequently, it has been concluded that it is reasonable to apply the going concern concept as underlying
assumption for the consolidated financial statements of the Group.
Changes in accounting policies
With effect from 1 January 2012, the Group has implemented:
+ Amendmenits to IFRS 7 "Financial Instrument Disclosures”;
+ Amendmenits to IFRS 1 "First-time Adoption of International Financial Reporting Standards”; and
- Amendments to IAS 12 "Deferred tax" (Recovery of Underlying Assets).
The adoption of these Standards and Interpretations did not affect recognition and measurement for 2012 including earnings per
share and diluted earnings per share.
Basis of consolidation
Subsidiaries The consolidated financial statements comprise the parent company ISS Global A/S and subsidiaries in which ISS
Global A/S has control of financial and operating policies in order to obtain a return or other benefits from its activities. Control is
presumed to exist when ISS Global A/S directly or indirectly owns or controls 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 Group 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 to the SPEs' operations and net
assets, being exposed to the majority of risks incident to the SPEs' activities, and retaining the majority of the residual or ownership
risks related to the SPEs or their assets.
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 control 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 are entities in which the Group has a significant influence, but which it does not control. Significant influence is presumed
to exist when the Group owns or controls more than 20% of the voting rights but less than 50%.
When assessing whether the Group has control or significant influence, potential voting rights that are exercisable at the reporting
date are taken into account.
1304196EogSN05710
Consolidated financial statements 54
NOTE 1 Significant accounting policies (continued)
Joint ventures are those entities which by contractual agreement are controlled jointly with one or more other parties. Joint ventures
are consolidated proportionally, and the individual accounting entries are recognised in proportion to the ownership share.
A group chart is included in note 43, Subsidiaries, associates, joint ventures and SPEs.
The consolidated financial statements have been prepared as a consolidation of the financial statements of ISS Global AIS,
subsidiaries, SPEs and proportionally consolidated entities prepared according to the Group's accounting policies. On consolidation,
intra-group income and expenses, shareholdings, intra-group balances and dividends and realised and unrealised gains and losses
on intra-group transactions are eliminated. Unrealised gains on transactions with associates and proportionally consolidated entities
are eliminated in proportion to the Group's ownership share of the entity. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that impairment has not taken place.
Investments in subsidiaries and proportionally consolidated entities are set off against the proportionate share of the subsidiaries' fair
value of identifiable net assets, including recognised contingent liabilities, at tne 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 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 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 financial statements until the date of divestment or winding-up. Comparative figures are not restated for businesses
acquired, divested or wound up. Assets held for sale are presented separately, refer to the description below.
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
recognised as goodwill under Intangible assets. Goodwill is not amortised but tested for impairment annuailly. 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 in profit for the year at the acquisition date.
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) or satisfaction of agreed terms, 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.
lf uncertainties exist 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. Thereafter no adjustments are made to goodwill.
Changes in estimates of contingent consideration relating to business combinations effected on or after 1 January 2010 are generally
recognised in the income statement under Other income and expenses, net. 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.
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 disposal or winding-up including any carrying amount of allocated goodwill.
Non-controlling interests At initial recognition a non-controlling interest is measured at fair value 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 interest 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. The measurement principle is elected on a transaction-by-transaction basis and is
disclosed in the notes together with the description of the acquired businesses.
1304196EogSN05711
Consolidated financial statements 55
NOTE 1. Significant accounting policies (continued)
Written put options 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.
Subsequent fair value adjustments of put options held by non-controlling interests relating to business combinations effected on or
after 1 January 2010 are recognised directly in equity. Subsequent fair value adjustments of put options held by non-controlling
interests related to business combinations effected prior to 1 January 2010 are recognised in goodwill. The effect of unwind of
discount is recognised under Financial expenses.
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.
Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the
reporting date. The difference between the exchange rates at the reporting date and at the date at which the receivable or payable
arose or the exchange rate in the latest financial statements 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 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. However, if the foreign
entity is a non-wholly owned subsidiary, the relevant proportion of the translation difference is allocated to the non-controlling interest.
Foreign exchange adjustment of intra-group balances which are considered part of the investment in the foreign entity with a
functional currency other than DKK, is recognised in the consolidated financial statements 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.
On recognition in the consolidated financial statements of associates with a functional currency other than DKK, 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 associates 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.
On complete or partial disposal of wholly owned foreign subsidiaries such that control is lost, the cumulative amount of foreign
exchange adjustments recognised in other comprehensive income related to that foreign subsidiary is transferred to the income
statement under Financial income or Financial expenses when the gain or loss on disposal is recognised.
On disposal of non-wholly owned foreign subsidiaries, such that control is lost, the part of the translation reserve relating to the non-
controlling interest is not transferred to the income statement.
On partial disposal of foreign subsidiaries while retaining control, the relevant proportion of the cumulative amount is transferred from
the equity share of the parent company shareholders to that of the non-controlling interests.
On partial disposal of associates or joint ventures the relevant proportion of the cumulative translation reserve recognised in other
comprehensive income is transferred to the income statement under Financial income or Financial expenses when the gain or loss on
disposal is recognised.
Repayment of intra-group balances, which constitute part of the net investment in the foreign entity, is not in itself to be considered a
partial disposal of that subsidiary.
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.
Fair value hedges Changes in the fair value of derivative financial instruments designated as and qualifying for recognition as a fair
value hedge of recognised assets and liabilities are recognised in the income statement together with changes in the value of the
hedged asset or liability as far as the hedged portion is concerned. Hedging of future cash flows in accordance with a firm
commitment, except for foreign currency hedges, is treated as a fair value hedge.
1304196EogSN05712
Consolidated financial statements 56
NOTE 1. Significant accounting policies (continued)
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.
lf the hedging instrument no longer meets 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 transferred 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 transferred to the income
statement,
For other 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
the reporting date. Revenue is recognised when the amount of revenue can be measured reliably, the recovery of the consideration is
probable, the stage of completion can be measured reliably and the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
In assessing whether revenue should be reported on a gross or a net basis (i.e. net of related costs), the Group considers whether it:
(i) is the primary obligor in the arrangement; (ii) has the general inventory risk; (iii) has latitude in establishing price; (iv) changes the
product or performs part of the service; (v) has discretion in supplier selection; (vi) is involved in the determination of product or service
specifications; (vii) has physical loss inventory risk; or (viii) carries the credit risk. If these assumptions are fulfilled revenue is reported
on a gross basis.
Contract revenue is recognised in the income statement in proportion to the stage of completion of the contract when the outcome 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. 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 recognised only to the extent of contract costs incurred that are likely to
be recoverable. An expected loss on a contract is recognised immediately in the income statement.
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 costs.
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
reliably.
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. Furthermore, gains and losses
arising on the disposal of (or right to use) certain internally generated intangible assets, which are not recognised in the statement of
financial position, are also included.
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 does not
consider to be part of normal ordinary operations, such as gains and losses arising from divestments, remeasurement of disposal
groups classified as held for sale, the winding-up of operations, disposals of property, restructurings and acquisition and integration
costs. Acquisition costs comprise earn-out adjustments, direct acquisition costs related to external advisors and other acquisition
related costs such as reversal of provisions in opening balances. integration costs comprise costs incurred as a consequence of the
integration such as termination of employees, contract termination costs mainly related to leasehold and advisory fees.
1304196EogSN05713
Consolidated financial statements 57
NOTE 1 Significant accounting policies (continued)
Royalty comprises royalty and management fee invoiced by ISS World Services A/S (the parent of ISS Global A/S).
Share of result from associates comprises the share of the associates' result after tax and non-controlling interests. Share of result
from associates is recognised in the income statement after elimination of the proportionate share of unrealised intra-group
profits/losses.
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, expected
return on plan assets and interest on obligations related to defined benefit plans as well as interest on other long-term employee
benefits. Additionally realised and unrealised gains and losses on derivative financial instruments which are not designated as
hedging arrangements and the ineffective portion of those designated as hedging arrangements are also included.
Dividends paid to non-controlling shareholders holding a put option are recognised under Financial expenses using the effective
interest method.
Income taxes for the year consists of current tax and changes in deferred tax and is recognised in profit for the year, other
comprehensive income or equity.
ISS Global A/S is jointly taxed with all Danish resident subsidiaries. The Danish income tax payable is allocated between the jointly
taxed Danish companies based on their proportion of taxable income (full absorption including reimbursement of tax deficits). The
jointly taxed companies are included in the Danish tax on account scheme. Additions, deductions and allowances are recognised
under Financial 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 impairment of brands and customer contracts includes amortisation of acquired brands and acquired customer
contract porifolios and related customer relationships, impairment losses arising from impairment tests and impairment losses in
connection 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.
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, other income and
expenses 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, cash
flow related to derivatives hedging net investments and dividends to non-controlling shareholders. 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 (the parent of ISS Global A/S) by ISS 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 cash-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.
1304196EogSN05714
Consolidated financial statements 58
NOTE 1. Significant accounting policies (continued)
Brands Acquisition related brands are recognised at fair value at the acquisition date. Subsequently, acquired brands with indefinite
useful lives are measured at historical cost less any accumulated impairment losses while acquired brands with finite useful lives are
measured at historical cost less accumulated amortisation and any accumulated impairment losses. Amortisation is provided on a
straight-line basis over the expected useful life of the brand, which is usually in the range 2-5 years.
A deferred tax liability is calculated at the local tax rate on the difference between the carrying amount and the tax value. The initial
recognition of this deferred tax liability increases the amount of goodwill.
The value of brands is allocated to cash-generating units and tested for impairment as part of the annual impairment test of non-
current assets.
Customer contract portfolios and related customer relationships ("Customer contracts") Acquisition related customer contracts
are recognised at fair value at the acquisition date 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 nøn-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.
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. Other development costs for which it cannot be rendered probable that future economic
benefits will flow to the Group are recognised in the income statement as and when incurred.
Amortisation is 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 for 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 useful 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 depreciation and accumulated impairment losses.
Cost of assets comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is ready
for use. 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.
The cost of assets held under finance leases is stated at the lower of fair value of the asset and the net present value of future
minimum lease payments. When calculating the net present value, the interest rate implicit in the lease or an approximated rate is
applied as the discount rate.
Subsequent costs, e.g. for replacing part of an item, are recognised in the carrying amount of the asset if it is probable that the future
economic benefits embodied by the item will flow to the Group. The replaced item is derecognised 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
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 useful lives, they are accounted for as separate items of property, plant and equipment. The estimated useful life and residual
value is determined at the acquisition date. If the residual value exceeds the carrying amount depreciation 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 the 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 20-40 years
Leasehold improvements (the lease term) 5-12 years
Plant and equipment 3-10 years
Land is not depreciated.
1304196EogSN05715
Consolidated financial statements 59
NOTE 1. Significant accounting policies (continued)
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.
Investment in associates are recognised initially at cost and subsequently accounted for using the equity method. Investments in
associates are 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 the associate, the deficit is recognised under Provisions.
Receivables from associates are recognised initially at fair value and subsequently measured at amortised cost, less any impairment
losses.
Acquisition of associates are accounted for using the acquisition method, see description under Business combinations.
Other financial assets comprises mainly deposits and regulatory long-term Ioans. Other financial assets are initially recognised at cost
and subsequently 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, initially
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 value in use is calculated as the present value of expected future cash flows from the asset
or the cash-generating unit to which the asset belongs.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable
amount. Impairment losses are recognised in the income statement.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses are only reversed if there has
been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation,
if no impairment loss had been recognised.
Inventories are measured at the lower of cost under the FIFO principle and net realisable value.
Finished goods and work in progress are measured at the lower of cost plus attributable overheads and net realisable value. The cost
of raw materials and supplies includes the purchase price plus costs directly related to the purchase.
Net realisable value of inventories is calculated as the estimated selling price less costs of completion and costs necessary to complete
the sale and is determined taking into account marketability, obsolescence and development in expected sales price.
Receivables are recognised initially at fair value. Subsequent to initial recognition receivables are measured at amortised cost using
the effective interest method, less any impairment losses. An impairment loss is recognised when objective evidence indicates that a
specific 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 considers evidence of impairment at both a specific receivable and portfolio level. All individually significant receivables are
assessed for specific impairment. Receivables, that are found not to be specifically impaired, are collectively assessed for impairment
on portfolio level by grouping together receivables with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of
loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual
losses are likely to be greater or less than suggested by historical trends.
1304196EogSN05716
Consolidated financial statements 60
NOTE 1. Significant accounting policies (continued)
Impairment losses during the year are recognised under Other operating expenses and reflected in an allowance account against
receivables. 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.
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 are recognised initially at cost and subsequently at amortised cost. Other receivables comprises various
receivables, e.g. supplier rebates and bonuses, receivable divestment proceeds, refunds from and 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 (Public Private Partnership)/PFI (Private Finance Initiative) contracts and certain other significant contracts. Costs related to
tenders for public offers for PPP/PFI 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 comprises various prepaid expenses such as prepayments to suppliers, sign-on fees, rent, leasing and insurance as
well as mobilisation costs for certain significant contracts. Prepayments are measured at cost.
Securities that are designated as fair value through profit or loss upon initial recognition are measured at fair value. Attributable
transaction costs are recognised in the income statement as incurred. Changes in fair value are recognised in the income statement.
Pensions and similar 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 liabilities.
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
eamed 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.
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.
lf 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 Financial expenses.
Other long-term employee benefits are recognised based on an actuarial calculation. Actuarial gains and losses are recognised in the
income statement immediately under Staff costs. Interest on long-term employee benefits are recognised under Financial expenses.
Other long-term employee benefits comprise jubilee benefits, long-service or sabbatical leave etc.
1304196EogSN05717
Consolidated financial statements 61
NOTE 1 Significant accounting policies (continued)
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 option 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.
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 settlement of
the liability, respectively.
Deferred tax assets, including the tax base of tax losses carried forward, are recognised under non-current assets at the expected
value of their utilisation: either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal
tax entity and jurisdiction.
Deferred tax assets are assessed yearly and only recognised to the extent that it is more likely than not that they can be utilised.
Deferred tax assets and liabilities are offset if the Group has a legal right to offset current tax assets and tax liabilities or intends to
settle current tax assets and tax liabilities on a net basis or to realise the assets and settle the liabilities simultaneously.
Deferred tax is adjusted for elimination of unrealised intra-group profits and losses.
Deferred tax is measured according to the taxation rules and tax rates in the respective countries applicable at the reporting date when
the deferred tax is expected to be realised as current tax. The change in deferred tax as a result of changes in tax rates is recognised
in the income statement.
Provisions comprises 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 8 result of a
past event has a present legal or constructive obligation, and it is probable that an outflow of economic benefits will be required to
settle the obligation. The amount recognised as a provision is management's best estimate of the amount required to settle the
obligation.
When measuring provisions, the costs required to settie 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 unavoidable 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 liabilities are recognised at the date of borrowing at fair value less related transaction costs paid. Subsequently, financial
liabilities are measured at amortised cost using the effective interest method. Any difference between the proceeds initially received
and the nominal value is recognised in the income statement under 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.
1304196EogSN05718
Consolidated financial statements 62
NOTE 1. Significant accounting policies (continued)
Assets held for sale comprises non-current assets and disposal groups held for sale. A disposal group is defined as a group of
assets to be disposed of by sale or otherwise together as a group in a single transaction. Liabilities classified as 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 or disposal groups 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, deferred tax assets or employee benefit 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 initial classification as held for sale, and subsequent gains and losses on remeasurement are recognised in the
income statement. Gains and losses are disclosed in the notes.
Non-current assets and disposal groups held for sale 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. Comparative figures are not adjusted accordingly.
Segment information
The Group's reportable segments have been identified based on the Group's internal management reporting. Operations are generally
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. However, countries with activities managed
by the central Corporate Clients organisation are excluded from the geographical segments and combined in a separate segment
called "Other countries".
The accounting policies of the reportable segments are the same as the Group's accounting policies described above. Segment
revenue, costs, assets and liabilitites 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.
Key figures and financial ratios
Key figures and financial ratios are calculated in accordance with the Danish Society of Financial Analysts' guidelines on the
calculation of financial rations, "Recommendations and Financial Ratios 2010", unless specifically stated, see Definitions on page 4.
Key figures and financial ratios are illustrated on page 3.
NOTE 2 Critical accounting estimates and judgements
The preparation of the consolidated financial statements of the Group requires management to make various judgements, accounting
estimates and assumptions concerning future events that affect the presentation, recognition and measurement of the Group's assets
and liabilities, income and expenses at the reporting date.
Estimation uncertainty
The estimates, judgements and assumptions are made based on historical experience and various 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 arising from operating and financing activities. As a result of these risks and uncertainties actual results may deviate from
estimates, both positively and negatively. Specific financial risks for the Group are discussed in the notes.
Estimates and assumptions are reviewed on an ongoing basis. Most economies are still facing challenges and the volatility in the
financial markets continued to lead to high uncertainty regarding a number of key assumptions about the future, e.g. interest rates,
growth rates, volatility and credit risk. Estimates in the consolidated financial statements for 2012 have been prepared taking this into
consideration, but still ensuring that one-off effects which are not expected to exist in the long term do not affect estimation and
determination of these key factors, including discount rates and expectations of the future.
Management believes that the following are the most significant areas involving assumptions about the future, and other major
sources of estimation uncertainty at the end of the reporting period and therefore have a significant risk of resulting in material
adjustments to the carrying amounts of assets and liabilities within the next financial year.
1304196EogSN05719
Consolidated financial statements 63
NOTE 2 Critical accounting estimates and judgements (continued)
Impairment tests 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.
Estimates of expected future cash flows (value in use) are made based on financial budgets for the following financial year. The key
assumptions used to estimate expected future cash flows are discount rates and growth. During 2011 and 2012, in general increased
volatility in risk free interest rates has been experienced. Uncertainties reflecting historical performance and possible variations in the
amount or timing of the future cash flows 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.
Estimates used to measure recoverable amount and 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. Changes in these assumptions may
significantly affect the liabilities and pension costs under defined benefit plans. The range and weighted average of these assumptions
are disclosed in note 30, Pensions and similar obligations.
The net present value of expected future cash flows is calculated based on the discount rates used. The discount rates are based on
the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit
obligations.
In 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.
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 Impairment losses recognised are based on management's assessment of the customer's ability to make the required
paymenis. Following the international financial crisis in general the risk of impairment has increased. This has been taken into
consideration in the assessment of impairment losses at the reporting date and also in the management and control activities during
the year.
Impairment of receivables is described and disclosed in note 36, Financial risk management.
Contract work in progress Management assesses the stage of completion based on a method that measures reliably the work
performed. Depending on the nature of the contract, the methods include an assessment of the proportion that contract costs incurred
for work performed to date will bear to the estimated total contract costs, surveys of work performed or completion of a physical
proportion of the contract work.
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 (the final sales price) 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 intangible assets relating to the disposal groups, taking into consideration how to
separate the intangible assets relating to the disposal group from the Group's assets in the continuing business. Impairment of these
intangibles both on initial classification as held for sale and subsequently is considered. The estimation uncertainty relating to
impairment of intangibles is described above.
Assets held for sale are disclosed in note 27, Assets held for sale.
Divestments Management assesses the appropriate level of provisions to cover ciaims from purchasers or other parties in connection
with divestments and representation and warranties given in relation to divestments.
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 31, Provisions and contingent liabilities are disclosed in note 34, Contingent liabilities, pledges and
guarantees.
1304196EogSN05720
Consolidated financial statements 64
NOTE 2. Critical accounting estimates and judgements (continued)
Acquisition of businesses When acquiring businesses the acquirer recognises the acquired assets, liabilities and contingent
liabilities at fair value. The most significant assets acquired generally comprise goodwill, brands, customer contracts and trade
receivables. 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. The methods applied are based on the present value of
future cash flows calculated based on after-tax royalty payments, churn rates or other expected cash flows related to the specific
asset. Estimates of fair value may be associated with uncertainty and possibly adjusted subsequently.
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 time. Whether the conversion is effected immediately
or implemented over a period of time depends on the assessment of the fair value of the acquired brand, i.e. whether the acquired
brand is expected to separately generate future economic benefits.
The fair value is calculated based on a discounted cash flow model based on management's estimates of expected after-tax royalty
payments (the royalty relief method) and Weighted Average Cost of Capital (WACC) including a risk premium for the assumed risk
inherent in the brand.
Customer contracts The fair value of customer contracts acquired in business combinations is based on an evaluation of the
conditions relating to the acquired customer contract portfolio and related customer relationships in terms of local market conditions,
terms and conditions of the underlying contracts and historical experience relating to churn rates.
Measurement is based on a discounted cash flow model based on key assumptions about the estimated split of the acquired revenue
in business segments and the related churn rates and profitability of the revenue at the time of the acquisition, Further, management
considers the Weighted Average Cost of Capital (WACC) and a risk premium for the assumed risk inherent in customer contracts.
Judgement in applying accounting policies
In applying the Group's accounting policies, management makes judgements which may significantly influence the amounts
recognised in the consolidated financial statements.
Significant contracts The Group has entered into certain significant contracts with complex revenue and cost structures. Accounting
for these contracts requires management's judgement in terms of recognition of the individual items of revenue and costs, including
recognition in the correct periods over the term of the contract.
Gross or net presentation of revenue In some instances ISS will serve as reseller of goods such as cleaning materials, cleaning
equipment etc. or provide staff for canteens selling food etc. In other instances services on an ISS contract will be delivered to the
customer through a subcontractor of ISS. The issue is whether revenue should be presented gross or net, i.e. based on the gross
amount billed to the customer, or based on the net amount retained (the amount billed to the customer less the amount paid to the
supplier). To determine whether revenue should be presented gross or net of costs incurred management considers whether ISS is
acting in the capacity of an agent or a principal.
Other income and expenses, net The use of Other income and expenses, net entails management judgement in the separation from
the normal ordinary operations of the Group. When using Other income and expenses, net it is crucial that these constitute items that
can not be attributed directly to the Group's ordinary operating activities. Management carefully evaluates each item to ensure the
correct distinction between the Group's ordinary operating activities and Other income and expenses, net.
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.
Assets held for sale Non-current assets and disposal groups are classified as held for sale when the carrying amount of the assets or
disposal groups are expected to primarily be recovered through a sale within 12 months in accordance with a formal plan rather than
through continuing use. Management makes judgement to make the correct classification. The classification is significant as the
classification as held for sale changes the measurement basis of the non-current assets and disposal groups as well as the
presentation in the statement of financial position.
On business combinations and establishing new entities assessment is made in order to classify the acquired business as a
subsidiary, joint venture or associate. The assessment is made on basis of the agreement entered into on the acquisition of ownership
interests or voting rights in the entity etc.
1304196EogSN05721
Consolidated financial statements 65
NOTE 3 Segment information
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.
Operations are generally 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. However,
countries with activities managed by the central Corporate Clients organisation are excluded from the geographical segments and
combined in a separate segment called "Other countries".
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.
2012
Other Total
Western Latin North Eastern coun- reportable
DKK million Europe Nordic Asia Pacific America America Europe tries segments
Income statement
Revenue ” 39,414 17,736. 7,367 6,007 3,820 3,539 1,605 36 79,524
Depreciation and amortisation ? (391) — (206) (80) (62) (51) (20) (19) - (829)
Operating profit before other items ? 2,407 1,190 564 311 91 151 102 (1) 4,815
Other income and expenses, net (48) 27 (23) (2) (128) (62) ” - (236)
Royalty (584) (276) (117) (91) (65) (62) (28) (0) (1,223)
Operating profit ? 1,775 941. 424 218 (102) 27 74. (1) 3,356
Goodwill impairment (196) - (13) - - - - - (209)
Amortisation and impairment
of brands and customer contracts (188) (38) (45) (38) (10) (32) (9) - (360)
Statement of financial position
Total assets 26,180 11,459 4,065 3,782 1,779 1,838 1,138 9 50,250
Hereof assets classified as held for sale 860 856 145 470 - - - - 2,331
Additions to non-current assets ” 519 195 107 96 45 8 12 - 982
Total liabilities 20,424 9,287 1,974. 2,784 1,782 876 515 8 37,650
Hereof liabilities classified as held for sale 170 414 20 95 - - - - 699
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.
3) Excluding Other income and expenses, net, Royalty, Goodwill impairment and Amortisation and impairment of brands and customer contracts.
1) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment including acquisitions through business
combinations.
1304196EogSN05722
Consolidated financial statements 66
NOTE 3 Segment information (continued)
DKK million
2011
Other Total
Western Latin North Eastern coun- reportable
Europe Nordic Asia Pacific America America Europe tries segments
Income statement
Revenue ” 39,321 18,085 6,090 5,525 3,648 3,369 1,641 30 77,709
Depreciation and amortisation ? (362) (240) (65) (52) (38) (16) (21) - (794)
Operating profit before other items ? 2,268 1,268 486 358 215 116 107 (1) 4,817
Other income and expenses, net (72) 64 (4) (3) (20) (53) (0) - (88)
Royalty (581) (270) (109) (99) (62) (62) (43) (0) (1,226)
Operating profit ? 1,615 1,062 373 256 133 1 64 (1) 3,503
Goodwill impairment (299) (23) - - - - - - (322)
Amortisation and impairment
of brands and customer contracts (176) (47) (46) (39) (12) (34) (11) - (365)
Statement of financial position
Total assets 26,275 10,792 3,862 3,647 2,022 1,833 1,177 6 49,614
Hereof assets classified as held for sale 141 - - - - - - - 141
Additions to non-current assets ” 539 — 222 56 119 81 26 19 - 1,062
Total liabilities 20,308 8,998 1,932 2,664 1,599 1,404 603 5 37,513
Hereof liabilities classified as held for sale 90 - - - - - - - 90
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 contracis.
3) Excluding Other income and expenses, net, Royalty, Goodwill impairment and Amortisation and impairment of brands and customer contracts.
2) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment including acquisitions through business
combinations.
Grouping of countries into regions
Western Europe:
Nordic:
Asia:
Pacific:
Latin America:
North America:
Eastern Europe:
Other countries:
Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, italy, the Netherlands, Portugal,
Spain, Switzerland, Turkey and the United Kingdom
Denmark, Finland, Greenland, Iceland, Norway and Sweden
Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Taiwan and
Thailand
Australia and New Zealand
Argentina, Brazil, Chile, Columbia, Costa Rica, Ecuador, Mexico, Panama, Peru, Puerto Rico, Uruguay and
Venezuela
Canada and the USA
Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia
Bahrain, Cayman Islands, Cyprus, Egypt, Nigeria, Pakistan, South Africa, South Korea, Ukraine and the
United Arab Emirates
1304196EogSN05723
Consolidated financial statements 67
NOTE 3 Segment information (continued)
Service types
The Group's revenue derives from the following service types:
DKK million 2012 2011
Cleaning services 39,552 39,507
Support services 6,607 6,162
Property services 14,987 15,003
Catering services 8,558 7,710
Security services 6,418 5,767
Facility management 3,370 3,532
Total revenue 79,492 77,681
Geographical information
Revenue and non-current assets (excluding deferred tax assets) is specified below for each of the Group's significant countries ”:
2012 2011
Non-current Non-current
DKK million Revenue assets Revenue assets
United Kingdom 8,792 1,931 7,835 1,873
France 7,248 4,310 7,560 4,513
Norway 6,080 855 5,940 1,365
Australia 5,476 2,034 5,033 2,436
Spain 4,410 1,316 4,467 1,575
Finland 4,131 2,086 4,154 2,107
Sweden 4,047 1,668 4,172 1,605
Denmark (country of domicile) 3,293 1,059 3,640 1,091
Other countries ? 36,015 10,427 34,880 11,057
Total 79,492 25,686 77,681 27,622
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 in 2012 (2011: none).
1304196EogSN05724
Consolidated financial statements 68
NOTE 3 Segment information (continued)
Reconciliations to the income statement
DKK million 2012 2011
Revenue
Revenue for reportable segments |. 79,524 77,709
Elimination of internal revenue (32) (28)
Revenue according to the income statement 79,492 77,681
Operating profit
Operating profit for reportable segments 3,356 3,503
Unallocated corporate costs 5 (13)
Unallocated other income and expenses, net 0 (8)
Operating profit according to the income statement 3,361 3,482
Unallocated:
Share of result from associates 4 0
Financial income 270 151
Financial expenses (2,386) (2,415)
Profit before tax and goodwill impairment/amortisation and impairment of brands
and customer contracts according to the income statement 1,249 1,218
Reconciliations to the statement of financial position
DKK million 2012 2011
Total assets
Total assets for reportable segments 50,250 49,614
Elimination of internal assets ” (32,710) (34,541)
Unallocated assets ? 29,316 31,972
Total assets according to the statement of financial position 46,856 47,045
Additions to non-current assets ?
1) Eliminations mainly relate to intra-group balances.
2) Unallocated assets and liabilities mainly relate to the Group's holding companies as they are not included in the reportable segments. The assets and
liabilities comprise internal and external loans and borrowings, cash and cash equivalents and intra-group balances.
I Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment including acquisitions through business
combinations.
Additions to non-current assets for reportable segments 982 1,062
Unallocated additions to non-current assets 6 49 LO)
Q
Total additions to non-current assets according to the statement of financial position 988 1,111 p-
LØ)
OD
Total liabilities >
Total liabilities for reportable segments 37,650 37,513 UW
Elimination of internal liabilities ” (32,179) (34,030) &
Unallocated liabilities ? 37,814 43,228 og
(6
Total liabilities according to the statement of financial position 43,285 46,711 GV
re
bl
OD
co)
rd
Consolidated financial statements 69
NOTE 4 Revenue
DKK million 2012 2011
Rendering of services 75,843 73,323
Sale of goods 2,467 2,625
Contract work in progress 1,182 1,733
Revenue 79,492 77,681
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
control activities. The work performed is based on specifically negotiated contracts with customers.
NOTE 5 Staff costs
DKK million 2012 2011
Wages and salaries 41,318 39,499
Defined benefit plans 64 159
Defined contribution plans 1,868 1,839
Social security costs 6,070 6,097
Other employee benefits . 2,478 2,224
Staff costs 51,798 49,818
Average number of employees 536,610 533,451
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 costs primarily 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.
Remuneration to the Board of Directors and Group Management Board
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 significant operating activities of its own, the 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 A/S, i.e. the Board of Directors (the Board) and the Group Management Board (GMB) (i.e. the Executive Group Management
Board (EGM) and Corporate Senior Officers) of ISS World Services A/S.
Remuneration to key management personnel is paid by ISS World Services 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 below.
2012 2011
Group Management Board Group Management Board
Executive Executive
Group Corporate Group Corporate
Board of Management Senior Board of Management Senior
Directors of Board Officers ofISS Directors of Board Officers of ISS
ISS World of ISS World World ISS World of ISS World 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 3,197 14,329 43,912 3,999 13,893 48,723
Bonus - 3,560 14,120 - 2,850 17,086
Severance payments ” - - 10,719 - 15,607 7,476
Share-based payments ?” - 563 837. - 233 618
Total remuneration 3,197 18,452 69,588 3,999 32,583 73,903
1) Severance payments of DKK 11 million (2011: DKK 23 million) related to senior management changes at Corporate and 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.
1304196EogSN05726
Consolidated financial statements 70
NOTE 5 Staff costs (continued)
2012 2011
Executive Group Executive Group
Management Board Management Board
Jakob
Jeff Henrik Jeff Henrik Stausholm
DKK thousand Gravenhorst Andersen Gravenhorst Andersen. (former CFO)
Salaries and other remuneration ” 7,909 6,420 7,858 533 5,502
Bonus 2,060 1,500 2,850 - -
Severance payments ?” - - - - 15,607
Share-based payments ? 563 - 233 - -
Total remuneration ” 10,532 7,920 10,941 533 21,109
Members of the Board of ISS World Services A/S, except representatives of the Principal Sharehoiders and Ontario Teachers'
Pension Plan, received remuneration for duties performed in ISS Global A/S and other companies within the ISS Group. The
remuneration is a fixed annual fee and members of the Board Committees received an additional fixed fee. Certain members of the
Board of ISS World Services A/S have invested in a mix of shares and warrants as part of the Directors Participation Programme as
described in note 38, Related parties.
The members of the EGM of ISS World Services A/S and the GMB 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 consists of a combination of fixed salary,
standard benefits in accordance with market standards and, for most members, a performance-based annual bonus of up to 60% of
their fixed salary, which in the event of extraordinary performance (significantly above budget) can be up to 90% of the fixed salary.
The bonus is subject to achieving performance targets for the Group's key operational objectives; cash conversion, organic growth
and operating margin.
The EGM of ISS World Services A/S and the GMB of ISS World Services A/S also participate in a Long-Term Incentive Programme
(LTIP). The LTIP is cash-based and the initial grant has a value of up to 15% of the annual base salary. Subject to achieving
performance targets for operating profit and net debt and the occurrence of a vesting event (e.g. an IPO or a sale of the majority of
shares of ISS to a third party), the LTIP will pay out in the range of 20% to 150% of the initial grant. The maximum pay-out in such
event is 22,5% of the annual base salary.
All employment contracts of the members of the EGM of ISS World Services A/S and the GMB of ISS World Services A/S may be
terminated at 6-24 months' notice. One employment contract includes a severance payment of two years' salary in the event of
termination by ISS. No other members of the EGM of ISS World Services A/S or the GMB of ISS World Services A/S are entitled to
severance payments. The employment contracts contain no special termination rights.
Directorships in companies within the ISS Group held by members of the EGM of ISS World Services A/S and the GMB of ISS World
Services A/S are not remunerated separately.
The members of the EGM of ISS World Services A/S and certain Corporate Senior Officers of ISS World Services A/S participate in
the Management Participation Programme as described in note 38, Related parties.
Remuneration to the Board of ISS World Services A/S, the EGM of ISS World Services A/S and the GMB of ISS World Services A/S
is paid by ISS World Services A/S.
1 Henrik Andersen replaced Jakob Stausholm as Group CFO with effect from 1 December 2011. Consequently, salaries and other remuneration for
2011 reflect their respective remuneration when holding the position as Group CFO.
2) Severance payments of DKK 16 million in 2011 related to senior management changes at Corporate and were included in Other income and expenses,
net,
I Included in Other income and expenses, net, in ISS World Services A/S.
1304196EogSN05727
Consolidated financial statements 71
NOTE 6 Share-based payments
Management Participation Programme
The Executive Group Management Board (the EGM)” and a number of senior officers? of the Group have invested in a Management
Participation Programme (MPP). The initial programme was 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 company as described in note 38, Related
parties. In March 2012 the programme was redesigned to introduce two investment profiles. The EGM and certain senior officers of
the Group remain as indirect investors in a mix of shares and warrants of FS Invest, whereas the remaining senior officers of the
Group - having had the opportunity to settle partly in cash - invest directly or indirectly in shares or loan notes of FS Invest.
As part of the initial programme - in addition to the investments - warrants in FS Invest with a vesting schedule based on value of
shares and time were granted free of charge to the EGM and a number of Corporate Officers ” of the Group. These warrants were all
settled as part of the redesign of the MPP.
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 38, Related
parties. The warrants granted (as part of the initial MPP) to the EGM and a number of corporate officers of the Group were within the
scope of IFRS 2,
Warrants granted as part of the original Management Participation Programme
The warrants were granted in July 2006 as a one-time grant. 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 were accounted for as equity-settled transactions whereby the fair value at grant date is expensed in the
income statement over the vesting period.
At 1 January 2012, 277,632 warrants were outstanding. As part of the redesign of the MPP in March 2012 these warrants were all
settled and consequently, the remaining fair value in respect of the granted warrants of DKK 3 million (2011: DKK 1 million) was
recognised under Other income and expenses, net in ISS World Services A/S.
1) The Executive Group Management Board comprise the Executive Group Management Board of ISS World Services A/S.
2) Senior officers of the Group comprises Corporate Senior Officers of ISS World Services A/S (members of the Group Management Board of ISS World
Services A/S other than members of the EGM of ISS World Services A/S) and other corporate officers of ISS World Services A/S as well as certain
members of Country Management of certain countries.
3) Corporate officers of the Group comprises Corporate Senior Officers of ISS World Services A/S (members of the Group Management Board of ISS
World Services A/S other than members of the EGM) and other corporate officers of ISS World Services A/S.
NOTE 7 Fees to auditors elected at the Annual General Meeting
DKK million 2012 2011
KPMG ;
Audit fees 35 37
Other assurance services ” 4 10
Tax and VAT advisory services ' 10 10
Other services 5 3
Total KPMG 54 60
Audit fees comprised audit of the consolidated and local financial statements.
Other assurance services in 2012 comprised mainly work related to the half-year review. In 2011, other assurance services
comprised mainly work related to the exit processes and the half-year review. The costs related to the exit processes were included in
Other income and expenses, net.
Tax and VAT advisory services comprised general tax and VAT consultancy and assistance.
Other services comprised among other things work related to acquisitions and divestments such as financial and tax due diligence.
Furthermore in 2012 work related to the share issue following the investment by Ontario Teachers' Pension Plan and KIRKBI Invest
A/S was included. The costs related to the share issue amounted to DKK 2 million and were recognised in Equity.
1304196EogSN05728
Consolidated financial statements 72
NOTE 8 Other income and expenses, net
DKK million 2012 2011
Gain on divestments 107 93
Gain on sale of investment in associates - 6
Gain on sale of land and buildings 15 -
Other 4 10
Other income 126 109
Restructuring projects (156) (44)
Misstatement of accounts (98) -
Build-up of IFS capabilities in North America (62) (52)
Loss on divestments (42) (24)
Revised estimate for social security contributions prior years - (47)
Costs related to exit processes - (9)
Acquisition and integration costs (3) (7)
Other (1) (22)
Other expenses (362) (205)
Other income and expenses, net (236) (96)
Gain on divestments in 2012 mainly related to the sale of Reaktorskolen AS, the governmental outplacing services in Norway of
DKK 33 million, and the washroom activities in the Netherlands and Belgium & Luxembourg of DKK 43 miilion and DKK 25 million,
respectively. In 2011, the gain mainly related to the divestment of the coffee vending business in Norway and Denmark and the sale of
the industry service activities in Finland.
Gain on sale of investment in associates in 2011 related to the sale of ISS Industriservice AB.
Restructuring projects in 2012 amounted to DKK 156 million and mainly related to structural adjustments in France, Norway, Brazil
and the Netherlands, consolidation of office locations and other efficiency improvements in Norway as well as redundancy and
severance payments relating to senior management changes. The restructuring projects include cost reductions to make ISS more
efficient going forward and primarily comprise redundancy payments and termination of leaseholds. In 2011, costs related to a
number of projects in Brazil, Finland, Norway, the Netherlands and at Corporate covering consolidation of office locations and other
efficiency improvements as well as changes in the organisational setup.
Misstatement of accounts related to Uruguay, India and Mexico. The loss was a result of the expansion of the businesses in these
high-growth markets not being sufficientiy supported by a satisfactory control environment.
Build-up of IFS capabilities in North America comprised costs incurred in relation to the strategic build-up of the IFS platform to
support and deliver on major contracts in tne USA.
Loss on divestments in 2012 related to the landscaping activities in the Netherlands of DKK 32 million and the mailroom services in
France of DKK 10 million. In 2011, the loss mainly related to the sale of the industrial services business in Belgium.
Revised estimate for social security contributions prior years in 2011 related to Greece for the period 2006 to 2010.
Costs related to exit processes in 2011 comprised costs for external advisors incurred mainly as part of the initiated IPO process.
The IPO was cancelled in March 2011 due to the extraordinarily high level of uncertainty and volatility in the global financial markets.
1304196EogSN05729
Consolidated financial statements 73
NOTE 9 Financial income and financial expenses
DKK million 2012 2011
Interest income on cash and cash equivalents etc. 144 125
Interest income from companies within the ISS Group 52 4
Interest income from FS Invest S.å r.l 5 -
Amortisation of gain from settlement of interest rate swaps 1 1
Foreign exchange gains 68 25
Financial income 270 155
Hereof financial income on financial assets measured at amortised cost 201 129
Interest expenses on loans and borrowings etc. (1,683) (1,720)
Interest expenses to companies within the ISS Group (138) (178)
Amortisation of financing fees (102) (120)
Amendment and extension of the Senior Facilities Agreement - (79)
Net interest on defined benefit obligations (14) (29)
Net change in fair value of cash flow hedges transferred from equity (47) (97)
Foreign exchange losses (228) (196)
Redemption of Senior Notes (174) -
Financial expenses (2,386) (2,419)
Hereof financial expenses on financial liabilities measured at amortised cost (1,982) (2,090)
Amendment and extension of the Senior Facilities Agreement in 2011 related to unamortised financing fees being expensed as a
consequence of the amendment and extension of certain tranches under the Senior Facilities Agreement.
Redemption of Senior Notes In December 2012, the 11% Senior Notes due 2014 of DKK 3,917 million (EUR 525 million) were fully
redeemed via proceeds from the capital increase in ISS Global A/S following the investment by Ontario Teachers? Pension Plan and
KIRKBI Invest A/S in FS Invest S.å r.l (ISS Global A/S's ultimate parent company) as explained in note 38, Related parties. The
redemption resulted in an expense of DKK 174 million due to the call premium of DKK 108 million and unamortised financing fees of
DKK 66 million being expensed.
1304196EogSN05730
Consolidated financial statements 74
NOTE 10 Income taxes
DKK million 2012 2011
Current tax regarding Profit before impairment/amortisation of intangibles ” 682 586
Deferred tax regarding Profit before impairment/amortisation of intangibles ” 74 144
Tax on Profit before impairment/amortisation of intangibles ” 756 730
Adjustments relating to prior years, net 16 8
Income taxes 772 738
Tax effect of impairment/amortisation of intangibles ” (93) (117)
Total tax recognised in the income statement 679 621
Computation of effective tax rate
2012 2011
Statutory income tax rate in Denmark 25,0 % 25.0 %
Foreign tax rate differential, net (2.6)% 1.5 %
Total 22.4 % 26.5 %
Non-tax deductible expenses less non-taxable income 1.8 % 0.8 %
Adjustments relating to prior years, net 1.3 % 0.7 %
Change in valuation of net tax assets (0.6)% 1.9 %
Valuation allowance of tax assets in France 14.3 % 7.4 %
Effect of changes in tax rates (1.4)% (0.5)%
Other taxes ? 9.0 % 10.0 %
Limitation to interest deduction ? 15.1 % 13.8 %
Effective tax rate (excluding effect from impairment/amortisation of intangibles) 1) 61.9 % 60.6 %
1) Intangibles comprise the value of goodwill, brands and customer contracts.
2) Other taxes mainly comprise withholding tax and the French Cortisation sur La Valeur Ajoutee des Entreprises (CVAE).
3) In 2012, the level is impacted by costs relating to the redemption of the Senior Notes, and in 2011 the level is impacted by refinancing costs related to
the amendment and extension of the Senior Facilities Agreement.
Income tax recognised in Other comprehensive income mn
r-
2012 2011 LØ)
&
Before Net of Before Net of Fa
DKK million tax Tax tax tax Tax tax W
Om
Foreign exchange adjustment of subsidiaries eo
and non-controlling interests 23 - 23 (105) - (105) Lo
Fair value adjustment of hedges, net (94) 24 (70) (11) 3 (8) GY
Fair value adjustment of hedges, net, vej
transferred to Financial expenses 47 (12) 35 97 (24) 73 sp
Actuarial gains/(losses) (557) 128 (429) (91) 21 (70) OD
Impact from asset ceiling regarding pensions 1 - 1 8 - 8 Ø
Limitation to interest deduction - (12) (12) - - -
Total recognised in
other comprehensive income (580) 128 (452) (102) 0 (102)
Consolidated financial statements 75
NOTE 11 Goodwill impairment
DKK million 2012 2011
Impairment losses derived from impairment tests - 160
Impairment losses derived from divestment of businesses 209 162
Goodwill impairment 209 322
Impairment losses derived from impairment tests In 2011, impairment losses of DKK 160 million related to Spain and was mainly
attributable to the difficult macroeconomic conditions combined with an increase in the discount rate applied following the amendment
and extension of the Senior Facilities Agreement. For further description see note 15, Impairment tests.
Impairment losses derived from divestment of businesses of DKK 209 million in 2012 mainly related to the divestment of the
office support services in France resulting in a loss of DKK 196 million. The remaining loss related to the remeasurement of non-core
activities in Asia, which were classified as held for sale at 31 December 2012 resulting in a loss of DKK 13 million. In 2011,
impairment losses of DKK 162 million primarily related to the remeasurement of net assets of the landscaping activities in the
Netherlands of DKK 79 million, which were subsequently sold in 2012. The remaining loss related to the divestment of the damage
control business, VATRO, in Germany and three divested activities in Norway; Elektro Kristiansand, Elektro Oslo and Ventilasjon.
NOTE 12 Changes in working capital
DKK million 2012 2011
Changes in inventories (15) (43)
Changes in receivables (67) (1,391)
Changes in payables 193 1,126
Changes in working capital 111 (308)
1304196EogSN05732
Consolidated financial statements 76
NOTE 13. Acquisition and divestment of businesses
Acquisition of businesses
The Group made one acquisition during 2012 (2011: none). The acquisition and adjustments to prior years' acquisitions had the
following effect on the Group's consolidated financial statements at the reporting date:
2012 2011
Adjustments Adjustments
to prior years' Total to prior years' Total
DKK million SBA Co. Ltd. acquisitions acquisitions acquisitions acquisitions
Customer contracts 11 = 11 - -
Other non-current assets - (3) (3) - -
Trade receivables 9 - 9 - -
Other current assets 8 (2) 6 (29) (29)
Pensions, deferred tax liabilities and
non-controlling interests (1) - (1) 0 0
Other current liabilities (17) - (17) 44 44
Total identifiable net assets 10 (5) 5 15 15
Goodwill 18 6 24 5 5
Consideration transferred 28 1 29 20 20
Cash and cash equivalents in acquired businesses (8) - (8) - -
Cash consideration transferred 20 1 21 20 20
Contingent and deferred consideration (10) 49 39 69 69
Total payments regarding acquisition of businesses 10 50 60 89 89
Shanghai B&A Property Management Co. Ltd.
On 30 June 2012 the Group acquired 100% of the shares in the Chinese security company Shanghai B&A Property Management Co.
Ltd. (SBA Co. Ltd.). The acquisition added licensed security and property management services to the service offerings of ISS China.
The total annual revenue of SBA Co. Ltd. was estimated at DKK 49 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 2012, SBA
Co. Ltd. contributed revenue of DKK 20 million and operating profit before other items of DKK 2 million to the Group. The total number
of employees taken over was approximately 929.
Adjustments to prior years" acquisitions
In 2012 and 2011, adjustments to prior years' acquisitions mainly related to revised estimates relating to earn-outs as well as a
number of other minor adjustments to various acquisitions.
1304196EogSN05733
Consolidated financial statements 77
NOTE 13. Acquisition and divestment of businesses (continued)
Divestment of businesses
The Group made eight divestments during 2012 (2011: 12 divestments). The total sales price amounted to DKK 291 million (2011:
DKK 942 million). The total annual revenue of the divested businesses (approximate figures extracted from unaudited financial
information) is estimated at DKK 872 million (2011: DKK 1,997 million) based on expectations at the time of divestment.
The divestments had the following impact on the Group's consolidated financial statements at the reporting date:
DKK million 2012 2011
Goodwill 93 365
Customer contracts 18 32
Other non-current assets 63 117
Trade receivables 125 398
Other current assets 27 130
Provisions (2) (2)
Pensions, deferred tax liabilities and non-controlling interests (10) (32)
Non-current loans and borrowings (27) -
Current loans and borrowings - (13)
Other current liabilities (148) (226)
Total identifiable net assets 139 769
Gain/(loss) on divestment of businesses, net 65 69
Divestment costs, net of tax 87 104
Consideration received 291 942
Cash and cash equivalents in divested businesses (5) (88)
Cash consideration received 286 854
Contingent and deferred consideration (5) 2
Divestment costs paid, net of tax (69) (95)
Net proceeds regarding divestment of businesses 212 761
The eight divestments completed by the Group before or at 31 December 2012 are listed below:
Excluded from Annual
the income Percentage revenue ” Number of
Company/activity Country Service type statement interest (DKK million) employees ”
ISS Proko Infra OY Finland Facility management March 64% 9 14
Reaktorskolen AS Norway Support services April 100% 175 143
ISS Landscaping Netherlands Property services July 100% 268 261
Security Norway Security services August 100% 44 81
ISS Mailroom Services France Property services November 100% 39 74
Washroom Netherlands Cleaning services November 100% 126 62
Washroom Belgium & Luxembourg Cleaning services November 100% 38 25
Office support France Support services December 100% 173 853
Total 872 1,513
n Approximate figures based on information available at the time of divestment extracted from unaudited financial information.
1304196EogSN05734
Consolidated financial statements 78
NOTE 13. Acquisition and divestment of businesses (continued)
Pro forma revenue and operating profit before other items
Assuming all acquisitions and divestments in the year were included as of 1 January the effect on revenue and operating profit before
other items is estimated as follows:
DKK million 2012 2011
Pro forma revenue
Revenue recognised in the income statement 79,492 77,681
Acquisitions 20 -
Revenue adjusted for acquisitions 79,512 77,681
Divestments (467) (1,113)
Pro forma revenue 79,045 76,568
DKK million 2012 2011
Pro forma operating profit before other items
Operating profit before other items recognised in the income statement 4,820 4,804
Acquisitions 2 -
Operating profit before other items adjusted for acquisitions 4,822 4,804
Divestments (11) (66)
Pro forma operating profit before other items 4,811 4,738
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 2012
No acquisitions or divestments were completed by the Group in the period from 1 January to 31 March 2013.
1304196EogSN05735
Consolidated financial statements 79
NOTE 14. Intangible assets
Software
and other
Customer intangible
DKK million Goodwill Brands contracts assets Total
Cost at 1 January 2012 23,900 3 4,897 1,066 29,866
Foreign exchange adjustments 218 (0) 39 17 274
Additions 24 - - 168 192
Acquisitions through business combinations - - 11 - 11
Disposals through divestment of businesses (246) - (78) (6) (330)
Disposals ” - - (8) (8)
Reclassification from Property, plant and equipment - - - 35 35
Reclassification to Assets classified as held for sale (1,489) - (236) (85) (1,810)
Cost at 31 December 2012 22,407 3 4,633 1,187 28,230
Amortisation and impairment losses at 1 January 2012 (1,226) (3) (2,710) (673) (4,612)
Foreign exchange adjustments (6) 0 (21) (11) (38)
Amortisation - - (312) (133) (445)
Impairment losses ” (209) |. - (42) - (251)
Disposals through divestment of businesses 173 - 59 5 237
Disposals - - - 2 2
Reclassification to Assets classified as held for sale 78 - 125 53 256
Amortisation and impairment losses at 31 December 2012 (1,190) (3) (2,901) |. (757) (4,851)
Carrying amount at 31 December 2012 21,217 0 1,732 430 23,379
Cost at 1 January 2011 24,165 11 4,945 928 30,049
Foreign exchange adjustments (73) 0 (16) (7) (96)
Additions 5 - - 169 174
Disposals through divestment of businesses (71) - (15) - (86)
Disposals (22) (8) - (41) (71)
Reclassification from Property, plant and equipment - - - 22 22
Reclassification to Assets classified as held for sale (104) - (17) (5) (126)
Cost at 31 December 2011 23,900 3 4,897 1,066 29,866
Amortisation and impairment losses at 1 January 2011 (1,069) (6) (2,374) (576) (4,025)
Foreign exchange adjustments 3 (0) (4) 2 1
Amortisation - (5) (354) (127) (486)
Impairment losses n (322) - - (322)
Disposals through divestment of businesses 61 - 7 - 68
Disposals 22 8 - 29 59
Reclassification from Property, plant and equipment - - - (4) (4)
Reclassification to Assets classified as held for sale 79 - 15 3 97
Amortisation and impairment losses at 31 December 2011 (1,226) (3) (2,710) (673) (4,612)
Carrying amount at 31 December 2011 22,674 0 2,187 393 25,254
1) impairment losses on customer contracts related to Greece, DKK 35 million, and France, DKK 7 million. For a breakdown of
impairment losses related to goodwill see note 11, Goodwill impairment.
1304196EogSN05736
Consolidated financial statements 80
NOTE 15. Impairment tests
Impairment test procedure
The Group performs impairment tests on intangibles?” annually and whenever there is an indication that intangibles may be impaired.
The Group's intangibles relate to several hundred acquisitions carried out under varying circumstances and at different stages of
macro-economic cycles. The intangibles are distributed between most 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 (CGUs) to' which the carrying
amount of intangibles can be allocated and monitored with any reasonable certainty. This leve! of allocation and monitoring of
intangibles should be seen in the light of the Group's strategy to integrate acquired companies as quickly as possible in order to
benefit from synergies.
Acquired companies are typically organisationally integrated and merged with (or activities transferred to) existing Group companies
shortly after the completion of the acquisition. Furthermore, synergies and other effects resulting from cooperation with existing Group
companies in their geographical or business area normally influence the financial performance of an acquired company.
Consequently, after a short period of time, it is generally not possible to track and measure the value of intangibles of the individual
acquired companies (or activities) with any reasonable certainty.
Estimates used to measure recoverable amount
The recoverable amount of each CGU is determined on the basis of its value-in-use. The value-in-use is established using certain key
assumptions as described below. The key assumptions are revenue growth 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 country in
which the CGUs operate.
The country specific discount rates, which are calculated net of tax, are generally based on 10 year government bonds of the
individual countries. An interest premium is added to adjust for the inconsistency of applying government bonds with a short-term
maturity when discounting the estimated future cash flows with infinite maturity. In the PIIGS countries ?” the country specific discount
rates are based on a 20 year German government bond with the addition of a 10 year Credit Default Swap weighted with the exposure
to the public sector in the individual countries. This is due to the continued increased volatility and uncertainty related to interest rates
on government bonds in these countries.
Following the investment by Ontario Teachers' Pension Plan and KIRKBI Invest A/S the capital structure has been reassessed and a
target ratio of 30/70 (2011: 60/40) between the market value of debt and equity value has been applied in the calculation. As a
company based in Europe, the Group assumes the long-term market equity risk premium to be 6.0% (2011: 5.0%). Uncertainties
reflecting historical performance and possible variations in the amount or timing of the future cash flows are generally reflected in the
discount rates. Consequently, a country specific risk premium is added to the discount rates to reflect the specific risk associated with
each CGU.
Impairment test results 2012
The impairment test as per 31 December 2012 resulted in recognition of an impairment loss on customer contracts of DKK 35 million
in Greece. The impairment loss was due to the continued unstable economic environment. Following the recognition of the
impairment loss the carrying amount of intangibles in Greece is zero.
1 Intangibles comprise the value of goodwill, brands and customer contracts.
2) PIIGS countries include Portugal, Ireland, Italy, Greece and Spain.
1304196EogSN05737
Consolidated financial statements 81
NOTE 15. Impairment tests (continued)
Carrying amounts and key assumptions
The carrying amount of intangibles and the key assumptions” used in the impairment testing as per 31 December 2012 are presented
below for each CGU representing more than 5% of the carrying amount of the Group's intangibles.
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
France ? 3,880 - 89 3,969 2.5% 8.8% 14,3%
Finland 1,877 - 105 1,982 2.0% 8.5% 10.8%
Australia 1,655 - 208 1,863 3.0% 10.6% 14.0%
United Kingdom 1,510 - 164 1,674 2.5% 8,8% 10.9%
Netherlands 1,664 - 24 1,688 2.0% 9.0% 11.3%
USA 997 - 212 1,209 3.0% 9.0% 12.6%
Spain 1,020 - 159 1,179 2.5% 10.0% 13.5%
Other countries 8,614 0 771 9,385 - - -
Total carrying amount at
31 December 2012 21,217 0 1,732 22,949
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
France ? 4,062 - 127 4,189 2.5% 9.0% 14.6%
Australia 2,005 - 244 2,249 3.0% 10.5% 14.1%
Finland 1,871 - 119 1,990 2.0% 8.7% 11.1%
Netherlands 1,658 - 28 1,686 2.0% 9.2% 11.6%
United Kingdom 1,472 - 179 1,651 2.5% 8.5% 10.7%
Spain 1,220 - 212 1,432 2,5% 10.4% 14.1%
USA 1,012 - 247 1,259 3.0% 8.4% 11.6%
Switzerland 1,142 - 31 1,173 2.0% 6.9% 8.4%
Norway 1,050 - 110 1,160 2.0% 9.6% 12.9%
Other countries 7,182 0 890 8,072 - - -
Total carrying amount at
31 December 2011 22,674 0 2,187 24,861
1) 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.
2) Intangibles comprise the value of goodwill, brands and customer contracts.
3) The growth is expected to be in the range 0.5% to 5.0% over the next six years (2011: 1.1% to 5.0% over the next seven years).
1304196EogSN05738
Consolidated financial statements 82
NOTE 15 Impairment tests (continued)
Sensitivity analysis
A sensitivity analysis on the key assumptions in the impairment testing is presented below. The allowed change represents the
percentage points by which the value assigned to the key assumption as applied in the expected long-term rate can change, all other
things being equal, before the CGU's recoverable amount equals its carrying amount.
2012
Growth Discount rate, net of tax
Applied
expected Allowed Applied Allowed
long-term rate decrease rate increase
France 2.5% 0.0% 8.8% 0.0%
Finland 2.0% >2.0% 8.5% >3.0%
Australia 3.0% 1.3% 10.6% 0.8%
United Kingdom 2.5% >2.5% 8.8% >3.0%
Netherlands 2.0% 1.5% 9.0% 1.0%
USA 3.0% >3.0% 9.0% >3.0%
Spain 2.5% 1.1% 10.0% 0.7%
2011
Growth Discount rate, net of tax
Applied
expected Allowed Applied Allowed
long-term rate decrease rate increase
France 2.5% 0.4% 9.0% 0.3%
Australia 3.0% >3.0% 10.5% >3.0%
Finland 2.0% >2.0% 8.7% >3.0%
Netherlands 2.0% 1.4% 9.2% 0.9%
United Kingdom 2.5% >2.5% 8.5% >3.0%
Spain 2.5% 0.9% 10.4% 0.6%
USA 3.0% >3.0% 8.4% 2.5%
Switzerland 2.0% >2.0% 6.9% >3.0%
Norway 2.0% >2.0% 9.6% >3.0%
1304196EogSN05739
Consolidated financial statements 83
NOTE 16 Property, plant and equipment
2012 2011
Landand Piant and Land and Plant and
DKK million buildings equipment Total buildings equipment Total
Cost at 1 January 152 6,553 6,705 181 6,457 6,638
Foreign exchange adjustments 1 71 72 (3) (25) (28)
Additions 4 782 786 5 932 937
Disposals through divestment of businesses - (33) (33) - (96) (96)
Disposals (17) (534) (551) (16) (593) (609)
Reclassifications between categories 4 (4) - (3) 3 -
Reclassification to Intangible assets - (35) (35) - (22) (22)
Reclassification to Assets classified as held for sale (10) (407) (417) (12) (103) (115)
Cost at 31 December 134 6,393 6,527 152 6,553 6,705
Depreciation and impairment losses at 1 January (52) (4,587) (4,639) (60) (4,533) (4,593)
Foreign exchange adjustments 0 (46) (46) 1 3 4
Depreciation (3) (702) (705) (4) (710) (714)
Disposals through divestment of businesses - 26 26 - 72 72
Disposals 9 441 450 7 500 507
Reclassification between categories (3) 3 ” - -
Reclassification to Intangible assets - - - - 4 4
Reclassification to Assets classified as held for sale Q 261 261 4 77 81
Depreciation and impairment at 31 December (49) (4,604) (4,653) (52) (4,587) (4,639)
Carrying amount at 31 December 85 1,789 1,874 100 1,966 2,066
Hereof carrying amount at 31 December
of assets held under finance leases - 165 165 - 157 157
Plant and equipment under finance leases
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 2012, additions included assets held under finance leases of DKK 110 million (2011: DKK 97 million).
&
sp
cr=
LO)
OD
At 31 December 2012, the Group had interests in seven associates (2011: ten). Key financial figures for the associates and the æ
Group's share of net result and equity are illustrated below: G
O
DKK million 2012 2011 Fa
LO
Key financial figures: od
Revenue 250 213 Sa
Operating profit 9 (1) O
Net result 6 (2) m
Total assets 95 67 ri
Total liabilities 75 56
The Group's share of:
Net result 4 0
Equity 11 7
Consolidated financial statements 84
NOTE 18 Deferred tax
DKK million 2012 2011
Deferred tax liabilities/(assets), net at 1 January 300 313
Foreign exchange adjustments (18) (20)
Acquisitions through business combinations (5) -
Tax on other comprehensive income (128) (21)
Reclassification to Assets/(Liabilities) classified as held for sale (25) 1
Tax on Profit before impairment/amortisation of intangibles ” 74 144
Tax effect of impairment/amortisation of intangibles ” (93) (117)
Deferred tax liabilities/(assets), net at 31 December 105 300
Recognised in the statement of financial position as follows:
Deferred tax liabilities 680 853
Deferred tax assets (575) (553)
Deferred tax liabilities/(assets), net 105 300
1) Intangibles comprise the value of goodwill, brands and customer contracts.
Deferred tax specification
2012 2011
Deferred tax Deferred tax Deferred tax Deferred tax
DKK million assets liabilities assets liabilities
Tax losses carried forward 440 - 484 -
Goodwill 8 448 22 441
Brands - - - -
Customer contracts - 435 - 533
Property, plant and equipment 142 182 149 187
Provisions 275 - 192 -
Other liabilities, including pensions 107 - 19 -
Issued bonds - 12 - 5
Tax losses in foreign subsidiaries under Danish joint taxation - - - -
Set-off within legal tax units and jurisdictions (397) (397) (313) (313)
Deferred tax 575 680 553 853
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 internal budgets and estimates, taking into
account any restrictions in utilisation in the local tax legislation.
Deferred tax liabilities not recognised in the statement of financial position
DKK million 2012 2011
Temporary differences relating to investments in associates 0 0
Temporary differences relating to investments in subsidiaries and joint ventures 0 0
1304196EogSN05741
Consolidated financial statements 85
Ulsan kl DISSE ere (elel att a ETS Te
Deferred tax assets not recognised in the statement of financial position
The Group had unrecognised deferred tax assets regarding tax losses carried forward in the following countries:
2012 2011
Recog- Unrecog- Recog- Unrecog-
DKK million Total nised nised Total nised nised
Germany 370 68 302 363 - 363
France 348 99 249 258 127 131
USA 80 74 6 57 53 4
Brazil 79 12 67 51 19 32
Israel 65 16 49 16 2 14
Belgium 22 6 16 24 8 16
Chile 15 6 9 - - -
Austria 6 6 - - - -
Greece 5 4 1 5 4 1
Hong Kong 3 1 2 4 2 2
Argentina 2 - 2 2 - 2
Denmark 2 0 2 2 - 2
Portugal 2 - 2 - - -
New Zealand 1 - - - -
United Kingdom 1 - 1 1 -
Total . 707 567
The unrecognised tax losses can be carried forward indefinitely in the individual countries except for the USA (20 years) and
Argentina and Greece (5 years). Deferred tax assets have not been recognised in respect of the above tax losses because it is not
probable that future taxable profit will be available against which the Group can utilise these benefits. The increase in 2012 in
unrecognised deferred tax assets mainly related to a valuation allowance of tax assets in France of DKK 118 million.
NOTE 19 Other financial assets
DKK million 2012 2011
Deposits 148 138
Regulatory long-term loans 100 72
Loan to FS Invest S.å r.I 71 -
Other 103 85
Other financial assets 422 295
Deposits comprise deposits related to rent, security and juridical deposits mainly relating to legal and tax cases.
NOTE 20 Inventories
DKK million 2012 2011
Raw materials, consumables and supplies 175 165
Work in progress 0 0
Finished goods 137 169
Inventories 312 334
Inventories expensed as consumables 7,009 6,751
1304196FogSN05742
Consolidated financial statements 86
NOTE 21 Trade receivables
DKK million 2012 2011
Trade receivables, gross 11,641 12,104
Impairment losses (208) (233)
Trade receivables 11,433 11,871
The Group's exposure to credit risk and impairment losses related to trade receivables is disclosed in note 36, Financial risk
management.
Securitisation
Certain countries participate in the Group's securitisation programme where securitised trade receivables 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.
Ås at 31 December 2012, trade receivables of DKK 4,818 million (2011: DKK 4,961 million) recognised in the statement of financial
position were provided as security for securitisation debt with a face value of DKK 2,635 million (2011: DKK 2,638 million).
NOTE 22 Contract work in progress
DKK million 2012 2011
Contract costs 217 294
Recognised profits (less recognised losses) 29 67
Contract work in progress, gross 246 361
Progress billings (176) (238)
Contract work in progress, net 70 123
Recognised in the statement of financial position as follows:
Contract work in progress (assets) 72 129
Contract work in progress (liabilities) 2 6
Contract work in progress, net 70 123
Advances from customers 3 6
Retentions 1 1
Contract work in progress (liabilities) is recognised as part of Other liabilities, see note 32, Other liabilities.
Advances from customers are included in Other liabilities in the line Prepayments from customers, see note 32, Other liabilities.
1304196EogSN05743
Consolidated financial statements 87
NOTE 23 Tax receivables and tax payables
DKK million 2012 2011
Tax (receivables)/payables, net at 1 January (21) 15
Foreign exchange adjustments 72 49
Assumed in/(acquisitions through) business combinations 2 (15)
Disposals through divestment of businesses 1 (8)
Adjustment relating to prior years, net 16 8
Tax on profit before impairment/amortisation of intangibles n ' 682 586
Tax on other comprehensive income - 21
Reclassification to Liabilities classified as held for sale (44) 32
Joint taxation contribution (17) -
Income taxes paid (690) (709)
Tax (receivables)Y/payables, net at 31 December 1 (21)
Recognised in the statement of financial position as follows:
Tax payables 227 314
Tax receivables (226) (335)
Tax (receivables)/payables, net 1 (21)
” Intangibles comprise the value of goodwill, brands and customer contracts.
NOTE 24 Other receivables
DKK million 2012 2011
Supplier rebates and bonuses 179 123
Refunds from customers and other recoverable amounts 93 39
Refunds and recoverable amounts related to employees 67 47
Outlays for customers 54 104
Currency swaps 48 -
VAT 30 24
Receivables from companies within the ISS Group 27 14
Disposal of property, plant and equipment and divestment proceeds 22 35
Social insurance costs 18 18
Bid deposits 10 11
Other 60 104
Other receivables 608 519
Refunds from customers and other recoverablie amounts comprise receivables such as rent deposits with maturity less than 12
months, recoverable payments from insurance companies, recoverable payments from public authorities, customers and
subcontractors etc.
Refunds and recoverable amounts related to employees comprise employee-related receivables such as wage subsidies from
public authorities, payments from maternity funds, loans to employees, training subvention etc.
Receivables from companies within the ISS Group mainly 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 4.3% (2011: 4.6%).
Other comprise various receivables such as costs related to PPP/PFI contracts, loans to customers, accrued interest, etc.
1304196EFogSN05744
Consolidated financial statements 88
NOTE 25 Prepayments
DKK million 2012 2011
Prepayments to suppliers 292 216
Sign-on fees 109 107
Rent, telephone, electricity etc. 63 64
Insurance 32 41
Salary advances 15 16
Mobilisation costs 12 -
Fees 7 6
Other 80 108
Prepayments 610 558
Mobilisation costs comprise costs for transition and mobilisation of certain significant contracts.
NOTE 26 Securities, cash and cash equivalents
2012 2011
Average Average
effective effective
Carrying interest Carrying interest
DKK million amount rate amount rate
Securities 16 0.1% 17 (2.9)%
Cash and cash equivalents 3,522 1.4% 4,028 1.4%
Securities comprise investments funds, e.g. investments in various listed securities related to an employee scheme in the USA. The
funds are managed by ISS but restricted from general use.
Cash and cash equivalents included DKK 1,311 million (2011: DKK 1,313 million) held by the Group's consolidated SPEs handling
the Group's securitisation programme whereof DKK 110 million (2011: DKK 392 million) was not considered readily available for
general use by the parent company or other subsidiaries. In addition DKK 65 million (2011: DKK 32 million) of the total cash position
at 31 December 2012 was placed on blocked or restricted bank accounts due to legal circumstances.
1304196EogSN05745
Consolidated financial statements 89
NOTE 27 Assets held for sale
In 2012, the Group continued to review the strategic rationale and fit of business units, which lead to identification of activities that
were non-core to the strategy. Consequently, sales processes have been initiated for certain activities and these have been classified
as held for sale.
At 31 December activities classified as held for sale comprised the following assets and liabilities:
DKK million 2012 2011
Goodwill 1,416 24
Other intangibles 143 4
Property, plant and equipment 156 34
Other financial assets 15 0
Deferred tax assets 14 2
Inventories 23 5
Trade and other receivables 564 72
Assets classified as held for sale 2,331 141
Deferred tax liabilities 39 1
Tax payables 44 -
Pensions and similar obligations 23
Provisions 23 3
Loans and borrowings 21 -
Trade payables and other liabilities 549 86
Liabilities classified as held for sale 699 90
At 31 December 2012 assets held for sale comprised seven businesses in Western Europe, Nordic, Asia and Pacific. The assets and
liabilities of these activities were reclassified and presented separately in the statement of financial position at the lower of the carrying
amount at the date of the classification as held for sale and fair value less costs to sell. The revaluation resulted in a loss of DKK 13
million, which was recognised in the line Goodwill impairment.
During 2012, the businesses in Western Europe classified as held for sale at 31 December 2011 have been divested. The
divestments comprised the landscaping activities and the washroom activities in the Netherlands and resulted in the recognition of a
loss of DKK 32 million and a gain of DKK 43 million, respectively. Both were recognised in Other income and expenses, net.
Cumulative income or expense recognised in other comprehensive income
No cumulative income or expenses recognised in other comprehensive income related to assets held for sale.
1304196EogSN05746
Consolidated financial statements 90
NOTE 28 Equity
Share capital
2012 2011
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
Issued for cash 20 20 - -
Share capital at 31 December - fully paid 180 180 160 160
In August 2012, Ontario Teachers” Pension Plan and KIRKBI Invest A/S invested DKK 3,721 million (EUR 500 million) in FS Invest
S.å r.] (the Group's ultimate parent), see note 38, Related parties. Following the investment, the general meeting of shareholders of
ISS Global A/S decided on the issue of 20,000 of ordinary shares at a nominal value of DKK 1,000 per share, Costs related to the
share issue of DKK 28 million were recognised in Equity.
At 31 December 2012, a total of 180,000 shares with a nominal value of DKK 1,000 per share were issued and fully paid (2011:
160,000 shares). No shares carry special rights and are freely transferable.
Reserves
Share premium comprises amounts above the nominal share capital paid by shareholders when shares are issued by ISS Global
A!S. The share premium is part of the Group's free reserves.
Translation reserve comprises all foreign exchange differences arising from the translation of financial statements of foreign entities
with another functional currency than DKK as well as from the translation of non-current balances which are considered part of the
investment in foreign entities.
On full or partial realisation of the net investment the foreign exchange adjustments are transferred to the income statement under the
same line item as the gain or loss.
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,
On full or partial realisation of the hedged transaction, or when the hedging criteria is no longer met, the fair value of the hedging
instrument is transferred to the income statement.
Dividends are recognised as a liability at the date when they are adopted at the Annual General Meeting (declaration date). Dividends
proposed for the year are shown in a separate reserve under Equity.
Interim dividends are recognised as a liability at the date when the decision to pay interim dividend is made.
1304196EogSN05747
Consolidated financial statements 91
NOTE 29 Loans and borrowings
This note provides information about the contractual terms and carrying amounts of 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 36, Financial risk management.
DKK million 2012 2011
Issued bonds 826 4,622
Bank loans 17,202 17,865
Securitisation 2,617 2,604
Finance lease liabilities 146 146
Derivatives 93 76
Debt to companies within the ISS Group 4,562 3,961
Total loans and borrowings 25,446 29,274
Recognised in the statement of financial position as follows:
Non-current liabilities 16,624 19,890
Current liabilities 8,822 9,384
Total loans and borrowings 25,446 29,274
The fair value of loans and borrowings is disclosed in note 33, Financial assets and liabilities.
In 2012, financing fees amounting to DKK 8 million (2011: DKK 158 million) have been recognised in loans and borrowings while
accumulated financing fees recognised in loans and borrowings on 31 December 2012 amounted to DKK 111 million (2011: DKK 271
million).
1304196EogSN05748
Consolidated financial statements 92
NOTE 29 Loans and borrowings (continued)
Terms and maturity of loans and borrowings
2012 2011
Average
Nominal effective Year of Face Amount Carrying Carrying
DKK million interestrate interest rate Currency maturity value hedged amount amount
Issued bonds (fixed interest rate):
EMTNs 4.50% 4.48% EUR 2014 824 - 824 821
Senior Notes 11.00% 11.34% EUR 2014 - - - 3,797
interest rate swaps - - - - - - 2 4
Bank loans (floating interest rate):
Senior Facilities:
Term Facility A Libor + 2.00% 4.12% SEK, NOK, CHF 2012 - - - 318
Term Facility B Libor + 2.00% 2.64% EUR, GBP 2013 467 - 467 481
Term Facility B Libor + 3.50% 4.14% EUR, GBP 2015 12,203 10,842 12,110 12,445
Acaquisition Facility A Libor + 2.25% 2.82% EUR 2012 - - - 174
Acaquisition Facility B Libor + 2.25% 2,.82% EUR 2013 56 - 56 62
Acquisition Facility B Libor + 3.75% 4.32% EUR 2015 1,839 722 1,839 2,032
Revolving Credit Facility Libor + 3.75% - Multi currency 2012/14 1,815 - 1,815 1,760
Letter of Credit Facility Libor + 3,75% - Multi currency — 2012/14 161 - 161 208
Bank loans and overdrafts - - Multi currency - 754 - 754 385
Securitisation Euribor + 2.75% 3.01% Mult