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Erhvervsstyrelsen
04 mar. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1403044EogSN5082896

Group
Annual
Report

PA

 

 

 

Financial highlights 2013

 

 

 

Revenue Organic Cash
growth conversion

78,459 DKkKm 4.3% 102%

2012: 79,454 DKKm 2012: 1.7% 2012: 103%

Operating Operating Number of

profit” margin employees

4,315 pkkm 5.5% 533,544

2012: 4,411 DKKm 2012: 5.6% 2012: 534,273

 

 

1 before other items

Key events 2013

   
   
       
     
  
    
 

     
  

   
 

11 January 22 March 8 May
ISS awarded NATO ISS to deliver integrated facility ISS named world's best
management advisory services to Citi in the Asia and outsourcing company,

   

services contract, page 66 Pacific regions, page 77 page 19

  
    
 

  
  
 

26 June

ISS Portugal services
Banco Santander Totta,
page 69

4 April

ISS Australia supports
indigenous employment,
page 54

28 February
Red Cross and ISS in close
cooperation, page 46

        

DANISH

 

Front page photo:
Jeanette Hinge
Receptionist, ISS HQ, ISS Denmark

 

 

Contents

Overview
4 ISS at a glance

6 Letter to our stakeholders
9 Outlook

11

Key figures and financial ratios

Our performance

15
21
29

Highlights of the year
Regional performance
Financial review

Our business

Strategy — The ISS Way

KPIs — Measuring our performance
Business development

Corporate responsibility

Our employees

Risk management

36
40
43
47
57
57

   
  
  
       
  

10 July

 
  
  
  

ISS delivers integrated facility
services for H. J. Heinz in
Europe, page 50

 
  
  
  

21 August
Lord Allen of Kensington
elected as new Chairman
of ISS, page 68

    
 

    

" 1403044EogSN602391

27 September
ISS superheroes swing
into action, page 52

25 October

ISS named Facilities
Management Company of
the Year in the Asia and
the Pacific regions, page 55

Governance

65 Corporate governance

71. Remuneration report

75. Internal controls relating to financial reporting
79. Executive Group Management Board

80 Group Management Board

82 Board of Directors

Financial statements
89 Consolidated financial statements
166 Management statement
167. Independent auditors' report
169 Definitions

Additional company
information

173. Country revenue and employees
175. Group COOs and regional CEOs
176. Heads of Group functions

177. Country managers

 

4 November

Royal opening of the
new ISS headquarters,
page 44

  

27 December
ISS explores new business
segment in Brazil, page 20

  

   
 
   

 

 

 

4

Group Annual Report 2013

ISS at
a glance

ISS was founded in Copenhagen in 1901.
Today, we are one of the world's largest
facility services providers with more than
half a million employees in over 50
countries across Europe, Asia, North
America, Latin America and the Pacific.
We offer single-service, multi-service and
integrated facility service (IFS) solutions
to our public and private sector
customers around the globe, including
cleaning services, property services,
catering services, support services,
security services and facility management
services.

REVENUE BY REGION

HE Western Europe, 51%
Mi Nordic, 21%

CI Asia, 10%

CE Pacific, 7%

DCN Latin America, 5%
LD North America, 4%
3 Eastern Europe, 2%

 

Qur vision

"We are going to be the world's greatest
service organisation.”

This is an ambitious goal, not least when you consider that
we are a team of 533,544 individuals, with millions of
customer interactions every day. To get there we will
self-deliver a consistent and excellent service performance,
as defined in our value proposition, enabling our custom-
ers to focus 100% on their core business.

in May 2013, the International Association of Outsourcing
Professionals ranked ISS as the world's best outsourcing
provider, which shows that we have taken an important
step towards achieving our vision.

Our business model

ISS's business model is based on creating value for our
customers by taking on their non-core facility services and
allowing them to focus on what they do best. Focusing on
our selected customer segments, we offer leading value
propositions based on our philosophy of self-delivery
excellence within each of our facility service deliverables.

REVENUE BY SERVICE

 

HE Cleaning services, 49%
TEE Property services, 20%
DE Catering services, 11%
CA Support services, 8%

[3 Security services, 8%

ET] Facility management, 4%

 

 

 

Our value proposition

”Service performance that facilitates our
customers' purpose through people
empowerment.”

This is what we deliver to our customers, boiled down
into a single sentence. Our value proposition identifies

the overall customer benefits upon which we focus our
operations in order to anticipate and meet our customers"
evolving needs. By combining our self-delivery capabilities
with people and process management, we lead the way in
service performance and facilitate our customers" purpose.
In other words, ISS adds value by providing greater
efficiency in customer facilities, ease of mind in doing
business with us, and a better service experience for our
customers” stakeholders.

Our market

Integrated facility services (IFS)

We constantly develop and evolve the ISS service offerings
in order to meet customer needs. In recent years, our
customers have realised the benefit of having fewer
providers take care of their facilities. In response, we have
expanded our offering and developed a full range of
services, with particular emphasis on our IFS concept.

REVENUE BY DELIVERY

HEE Single-services, 57%
Da Multi-services, 17%
[3 Integrated facility services, 26%

 

1403024FogSN608398

 

ISS at a glance | Overview 5

IFS gives customers a single point of contact and the
benefit of having only one company delivering all facility
services instead of having many different service providers
on their premises.

The key market trends are going our way

There are a number of trends in the market for facility
services that ISS is well positioned to benefit from. These
include:

o Rapid growth in emerging markets

A shift towards the use of IFS contracts

& An increase in central procurement by major corporate
customers

ae A continued increase in outsourcing of facility services

ec

Our global presence

ISS is uniquely positioned to meet the growing demand
from multinational corporations for the delivery of IFS
across borders. We are present in countries accounting for
more than 90% of the world's GDP. We aim to provide a
consistent service delivery globally across sites, countries
and regions while meeting customer demands for flexibil-
ity. We have a particularly strong position in emerging
markets, where we have more than half of our employees
and generate 23% of our revenue.

REVENUE BY CUSTOMER SEGMENT

 

HE Business Services & IT, 29%
HEN Industry & Manufacturing, 14%
OR Public Administration, 13%
TO Healthcare, 11%
CI Retail & Wholesale, 7%
[ID Transportation & Infrastructure, 7%
[1 Energy & Resources, 4%
OM Hotels, Leisure & Entertainment, 4%
"3 Food & Beverage, 4%
iLJ Pharmaceuticals, 3%
I Other, 4%

 

 

6

Group Annual Report 2013

Letter to

our stakeholders

2013 was an important year for ISS.

We accelerated the implementation of
our key strategic priorities, aligned and
focused our business platform, reduced
our debt significantly, strengthened our
Executive Group Management Board
and implemented several large
international IFS contracts — all while
maintaining a solid business performance
throughout the year.

At the end of 2013, ISS had 533,544 employees, making
our company one of the largest private employers in the
world and one of the largest employers in many of the
countries where we operate. Our employees are our most
important asset. They add the power of the human touch
to every service that we deliver to our many customers
around the globe. We care about our customers” busi-
nesses as if they were our own, and this attitude is at ihe
heart of our ability to empower every ISS employee to
provide the best possible service that they can. This is the
key ingredient of our value proposition, which is to create
value for our customers by taking over their non-core
activities and allowing them to focus on what they do
best.

Transformation and acceleration are the words that best
describe ISS in 2013.

Firstly, we successfully implemented several large, complex
integrated facility services (IFS) contracts, including one
that is probably the largest of its kind: the Barclays
contract, under which we deliver services globally at more
than 4,900 sites. Through strong organic growth IFS
contracts now constitute more than 26% of our overall
revenue. Furthermore, during the course of just a few
years we have expanded our portfolio of Global Corporate
Clients to a total of 15 major contracts, with the result that
they now account for 8% of our global business.

Secondly, in pursuit of our strategy, The ISS Way, we
accelerated the alignment of our business platform
through the successful! divestment of several non-core
activities, including pest control in 12 countries and the
Nordic damage control activities. In the countries involved,
the divestments have further strengthened local manage-
ment's focus on our core business.

Thirdly, we implemented a new organisational structure.
We expanded and strengthened the Executive Group
Management Board and established two new COO
Boards, for the Europe, Middle East & Africa (EMEA) region
and for the Americas & Asia Pacific region. This change has
allowed us to sharpen the focus and reinforce collaborative
ties between our significant operations in Europe, as well as
strengthening the contro! environment and support of our
emerging markets. Emerging markets continued to report
high growth rates, and they now represent more than half
of our employees and deliver 23% of our revenue.

Lastly, in support of the ongoing execution of our strategy,
we continued to deleverage ISS and further simplified the
Capital structure.

As always, the efforts of the entire organisation have had
a significant impact on our operational results. Organic
growth for 2013 came in higher than we had estimated
in our guidance at the beginning of the year, as did our
cash conversion. However, we experienced some margin
pressure that was primarily due to the continuing weak
global economy, particularly in certain parts of Europe,
and the divestment of the margin-accretive pest control
business.

During the year, we strengthened our focus on certain
forward-looking KPIs, which provide indications about
the future performance of ISS, as a supplement to our
financial KPIs of organic growth, operating margin and
cash conversion. We increased our emphasis on both
customer and employee engagement as well as Health,
Safety and Environment (HSE) KPIs, which have led to
improved leadership scores and stronger customer and
employee ratings — all of which are essential to our
retention strategies.

 

Letter to our stakeholders | Overview

"| was delighted and honoured to become
chairman of the Board and I very much
enjoy working with the leadership of

ISS and the rest of the Board.”

Lord Allen of Kensington CBE

In May 2013, for the first time ever, the International
Association of Outsourcing Professionals (IAOP) ranked
ISS as the world's best outsourcing provider ahead of a
number of other leading global facility services providers,
business process and IT outsourcing brands.

In August 2013, Ole Andersen announced his resignation
after serving more than eight years on the Board of
Directors. Ole Andersen has been an excellent chairman,
serving ISS very well. During his tenure ISS has transformed
into a truly global IFS provider.

During the autumn of 2013, ISS moved to new state-of-

the-art corporate headquarters designed to support our
ISS Way strategy by facilitating collaboration and interac

Yours faithfully

TE

Lord Allen of Kensington CBE
Chairman

1403024E0gSN66299

 

 

Jeff Gravenhorst
Group Chief Executive Officer

tion across departmenis and functions. The new head-
quarters are a showcase of what ISS stands for: a
workplace of the future delivering innovative service
performance based on people, processes and technology.

On 18 February 2014, following several months of
preparation, we announced our intention to launch an
Initial Public Offering (IPO) of ISS shares and to list on
NASDAQ OMX Copenhagen.

Looking ahead, we expect to benefit from increasing
tailwinds from the successful execution of our strategy,
partly offset by sustained headwinds from the continuing
weak macroeconomic setting in some of our most
important markets.

 

7

    

Dave Fitzgerald
Service worker, Heinz

ISS United Kingdom

Dave's eye for detail is crucial working at

the Heinz warehouse in the United Kingdom.
He makes sure everything is in the right place,
making it much easier for everybody else to
carry out their job. Dave enjoys seeing the
difference he and his colleagues make.

 

 

Outlook

The outlook should be read in conjunction with ”Forward-
looking statements” (see Definitions on page 169) and Risk
management on pages 57-60.

The outlook for 2014 is based on a mixed global macro-
economic forecast. We expect continued low positive GDP
growth and challenging macroeconomic conditions with
possible improvements in parts of Europe. In emerging
markets we expect to continue to deliver high growth
rates which are expected to be negatively impacted by
the slow-down in certain economies, especially in Asia.

In 2014, we will remain focused on our key financial
objectives; (i) organic revenue growth, (ii) operating margin
and (iii) cash conversion.

140304 4Rog SN S0900

 

Outlook | Overview 9

KEY FINANCIAL OBJECTIVES

Revenue growth

We expect revenue growth
in 2014 to be 3% to 4%
assuming constant foreign
exchange rates ” and

before the impact of any
acquisitions or divestments
completed in 2013 and 2014.

3-4%

Changes in foreign exchange rates
are expected to negatively impact
revenue growth in 2014 by approxi-
mately 3 percentage points 2).
Divestments and acquisitions
completed in 2013 and divestments
completed in 2014 are expected to
negatively impact revenue growth in
2014 by approximately 5 percentage
points ?, We expect total revenue
growth in 2014 to be negative by
4% to 5%.

 

above

5.5%

Operating margin

Operating margin in 2014 is
expected to be above the
5,5% realised in 2013.

 

Cash conversion

Cash conversion is expected
to be above 90%.

>90%

1) For the purpose of the outlook for the year ending 31 December 2014,
constant foreign exchange rates are the realised average exchange rates for
the financial year 2013.

2) Calculated revenue for 2014 at exchange rates at 31 December 2013, less
the same revenue calculated at the average exchange rates for the financial
year 2013, relative to revenue realised in 2013 less estimated revenue from
divestments completed in 2013 and 2014.

3) At 31 December 2013 we had certain businesses held for sale, see page 18.
The outlook for the year ending 31 December 2014 includes only divestments
completed in 2014 as of and including 28 February 2014, comprising the
landscaping activities in France, the pest control activities in India, the security
activities in Israel and the HVAC activities in Belgium. Expectations for the year
ending 31 December 2014 exclude the divestment of the commercial security
activities in Australia and New Zealand, which had revenue of approximately
DKK 0.8 billion in 2013.

 

 

     
     

 

"I nurture the
flowers to ensure
a blooming

business”

Polona Oblak

Head of Ground and Landscaping, Novartis

ISS Slovenia

Polona knows how important first impression

is, and that is why she always goes the extra mile
to make the premises at Novartis in Ljubljana,
Slovenia, look beautiful. Polona believes that

a well-kept environment makes a positive impact
for a better workplace.

Key figures and financial ratios | Overview 11

Key figures and financial ratios

 

 

 

 

 

 

DKK million (unless otherwise stated) 2013 2012 2011 2010 2009
Income statement | ”
Revenue 78,459 79,454 71,644 74,073 69,004
Operating profit before other items?” 4,315 4,411 4,388 4,310 3,911
EBITDA 5,002 4,956 5,020 5,042 4,182
Adjusted EBITDA2 5,102 5,264 5,243 5,160 4,779
Operating profit? 4,215 4,103 4,165 4,192 3,314
Financial income 170 217 197 198 223
Financial expenses? . (2,446) (2,943) (2,999) (2,609) (2,568)
Profit before goodwill impairment/amortisation and

impairment of brands and customer contracis ?” 1,026 421 475 1,031 385
Net profit/(loss) for the year ? "— (397) (450) (503) (532) (1,629)
Cash flow
Cash flow from operating activities 3,715. 3,855 3,676 4,036 3,732
Acquisition of intangible assets and property, "

plant and eguipment, net (803) (762) (1,010) (886) (897)
Financial position . .
Total assets —— 48,576 53,888 54,980 55,455 54,354
Goodwill 23,155. 25,841 27,170 27,747 27,434
Additions to property, plant and equipment "7 754 789 938 861 954
Net debt — 22,651 25,955 29,905 30,623 30,886
Total equity (attributable to owners of ISS A/S) ? 4,237 5,097 2,127 2,626 2,190
Employees .
Number of employees at 31 December 533,500 534,200 534,500 522,700 485,800
Full-time employees, % 7 74 73 73 73 71
Growth, % . |
Organic growth & . 4.3 1.7 6.3 3.5 0.6
Acquisitions o 0 0 0 3
Divestments (2) (2) (2) (2) (1)
Currency adjustments & (3) 2 1 5 (3
Total revenue growth (1) 2 5 7 0
Other financial ratios, %
Operating margin? . 5,5 5.6 5.7 5.8 5.7
Equity ratio 8.7 9.5 3.9 4.7 4,0
Interest coverage? 2.2 1.9 1.9 2.1 2.0
Cash conversion 2 102 103 93 98 96
Basic earnings per share (EPS), DKK (2.9) (4.0) (5,1) (5,5) (16.5)
Diluted earnings per share, DKK (2.9) (4.0) (5.1) (5,5) (16.5)
Adjusted earnings per share, DKK 7.6 3.8 4.7 10.3 3.9

 

Note; See page 169 for definitions.

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 calculations instead of Operating 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 the Group's normal ordinary
operations, such as gains and losses arising from divestments, the winding up of operations, acquisition and integration costs, dispøsals of property and restructurings. Some
of these items are recurring and some are non-recurring in nature.

3) Excluding Goodwill impairment and Amortisation and impairment of brands and customer contracts.

2) Effective 1 January 2013, the Group implemented IAS 19 (2011) "Employee Benefits" with no material impact on the Group's consolidated financial statements, cf, note 1.1,
Basis of preparation, of the consolidated financial statements. Comparative figures for 2012 and 2011 have been restated accordingly, corresponding to the comparative years
of the consolidated financial statements.

S) Previously, the effect of acquisitions and divestments was adjusted in the actual consolidated revenue for the current year. This was changed in 2013 so that the effect
of acquisitions and divestments is now adjusted in the actual prior year's consolidated revenue, to have a more logical calculation methodology. The change has been
implemented retroactively for the financial years 2008 — 2013. There was no significant impact on the reported organic growth figures as a result of the €hange.

6) Caiculated a5 total revenue growth less organic growth and less net acquisition/divestment growth, Currency adjustments thereby include the effect stemming from exdusion
of currency effects from the calculation of organic growth and net acquisition/divestment growth.

Øs

1403D14EogSN68205

 

 

 

 

 

1403D44EogSsN60202

Our performance

Highlights of the year 15
Regional performance 21

Financial review 29

ISS HQ, The new office

The new building 15 open and light with very few walls
Courages interaction across departments and

and the break down of silos It is a clever

ng inability, collaboration and mobility are

key In the design It shows how a well-thought-through
building and working environment can significantly
reduce water and energy consumption

 

 

 

"My job is to
help passengers
get to their
destination
safely”

2 0 v . mangen ar aber sn

Daniel Reddy

Security officer, Brisbane Airport

ISS Australia

The Brisbane Airport is one of the busiest
airports in Australia, so it demands the skills
and overview of Daniel to keep up. Daniel likes
to help the travellers get where they are going
by taking the time to listen to them and
explaining.

 

Highlights of
the year

In 2013, we followed up on the large
multinational contract wins of 2012 by
winning IFS contracts with H.J. Heinz in
Europe and Nordea Bank in the Nordic
region. We were ranked best outsourcing
provider in the world by the International
Association of Outsourcing Professionals.
Profitable organic growth remained a
key priority and by successfully divesting
certain non-core activities, we achieved

a more focused business platform in

line with our strategy. The divestment
proceeds were used to repay a significant
part of our debt.

Operating results and performance

Group revenue decreased 1.3% to DKK 78.5 billion in
2013. Organic growth amounted to 4.3% which was
more than offset by a negative effect from exchange rate
movements of 3% and the negative impact from the
successful divestment of non-core activities of 2%.

In 2013, we remained focused on generating profitable
organic growth and ensuring a customer base with
satisfactory payment conditions in a still-challenging
macroeconomic environment. Organic growth increased
to 4.3% and the start-up of the Barclays and Novartis
contracts combined with continuing strong growth in
emerging markets were the main drivers of increased
organic growth. All regions, apart from the Pacific region,
delivered positive organic growth rates. Western Europe,
our largest region, delivered strong organic growth of 5%

and Asia once again reported a double-digit performance.

Partly offsetting the growth were the challenging market
conditions, particularly in certain European countries, and
generally weak demand for non-portfolio services.

1403024EogSN5692U3

 

Highlights of the year | Our performance 15

REVENUE AND ORGANIC GROWTH

DKK billion %
dd

80
å

 

75

70

65

60

 

 

2009 2010 2011 2012 2013

TE Revenue, DKK billion
II Organic growth, %

OPERATING PROFIT AND OPERATING MARGIN

 

DKK billion %
5,0 7
4,5 6

 

4,0 (enn —— ————H —

 

35 — HR —— HH

 

 

2000 2000 2011 2012

IE Operating profit before other items, DKK billion
EJ Operating margin, %

CASH CONVERSION

%
110

 

20
80 |.
70

60

mm uuemn —i

 

 

50 ————— mm [——— ——— —
2009 2010 2011 2012 2013

16 Group Annual Report 2013

REVENUE AND GROWTH”

 

 

 

 

Revenue Growth components, %
DKK million 2013 2012 Growth Organic Aca. Div. Currency Total
Western Europe 39,704 39,414 1% 5 0 (3) (1) 1
Nordic 16,853 17,736 (5)% 1 - (3) (3) (5)
Asia 8,019 7,367 9 % 15 Q - (6) 9
Pacific 5,105 6,007 (15)% (1) - (4) (10) (15)
Latin America 3,708 3,820 (3)% 7 - - (10) (3)
North America 3,459 3,539 (2)% 2 - (1) (3) (2)
Eastern Europe 1,657 1,605 3 % 5 - - (2) 3
Other countries 38 36 4% 18 - - (14) 4
Corporate / eliminations (84) (70) (20)% - - - - -
Group 78,459 79,454 (1% 4.3 0 (2) (3) (1)
Emerging markets 17,732 16,833 5 % 11 0 - (6) 5

 

1 See page 169 før definitions.

Operating profit before other items was down by 2% to
DKK 4,315 million in 2013, negatively influenced by both
divestments and currency effects. The impact from the
divestment of ihe pest control activities in 12 countries
reduced the operating profit before other items by
approximately DKK 115 million and the operating margin
by 0.1 percentage point compared with 2012. The effect
of exchange rate movements reduced operating profit
before other items by DKK 126 million compared with
2012. The operating margin was 5.5% for 2013 compared
with 5.6% in 2012. Adjusted for the impact of the divested
pest control activities the operating margin for 2013 was
slightly improved compared with 2012. The operating
margin was in line with expectations, supported by
improved margins in the Nordic region and Latin America.
However, this was offset by the strategic divestments of
non-core activities as well as the start-up of multinational
lFS contracts and the impact of operational challenges in
certain countries in Europe and the Americas. A number
of initiatives are in progress to address these challenges
including a review of the customer base and implementa-
tion of structural changes. Corporate costs increased
from DKK 404 million to DKK 534 million, as a resuit of

a redistribution of procurement savings to countries and
the strengthening of Corporate functions to support the
execution of our strategy.

The net profit/(loss) for the year was a loss of DKK 397
million compared with a loss of DKK 450 million in 2012,
positively impacted by a decrease in other income and
expenses, net, and lower financial expenses, net, which

were partly offset by higher non-cash expenses related
to goodwill impairment.

We define emerging markets as comprising Asia, Eastern
Europe, Latin America, Israel, South Africa and Turkey.
These markets, which account for more than half of our
employees, delivered organic growth of 11% and 23% of
Group revenue. In addition to significantly increasing the
Group's organic growth, emerging markets delivered an
operating margin of 6.3% in 2013 (2012: 5.8%). We aim
to capitalise on the attractive market characteristics in
emerging markets and continue to grow our footprint

in these countries in a balanced and controlled manner.

Cash conversion for 2013 was 102% as a result of strong
cash flow performance across the Group. Ensuring a
strong cash performance continues to be a key priority,
and the result reflects our efforts to ensure payment for
work performed and to exit customer contracts with
unsatisfactory payment conditions. These efforts led to a
decrease in debtor days of more than one day compared
with 2012.

At the end of 2013, ISS had more than 533,000 employees
worldwide. The Group's headcount remained approxi-
mately at the same level as at year-end 2012, as the impact
from organic growth was offset by 14 divestments made
during the year.

 

Highlights of the year | Our performance 17

OPERATING RESULTS

 

 

 

 

Operating profit
before other items Operating margin ”
DKK million 2013 2012 Change 2013 2012 Change
Western Europe 2,388 2,407 (1)% 6.0 % 6.1 % (0.1)%
Nordic 1,246 1,190 5 % 7.4 % 6.7 % 0.7 %
Asia 608 564 8 % 7.6 % 7,7 % (0.1)%
Pacific 253 311 (19)% 5.0 % 5,2 % (0.2)%
Latin America 145 91 59 % 3.9 % 2.4 % 1,5 %
North America 101 151 (33)% 2.9 % 4,3 % (1.4)%
Eastern Europe 109 102 7 % 6,6 % 6,4 % 0.2 %
Other countries (1) (1) - (3.2)% (3.0)% (0.2)%
Corporate / eliminations (534) (404) (32)% (0.7)% (0.5)% (0.2)%
Group 4,315 4,411 (2)% 5,5 % 5,6 % (0.1)%
Emerging markets 1,115 978 14 % 6,3 % 5,8 % 0,5 %

 

1) See page 169 for definitions.

Strategy update

In May 2013, the International Association of Outsourcing
Professionals (IAOP) announced that ISS is ranked number
one on IAOP's list of the world's leading outsourcing
providers — ”The Global Outsourcing 100”. The ranking
shows that ISS is regarded as a global, professional and
reliable outsourcing partner and is an important milestone
in achieving our vision of becoming the world's greatest
service organisation.

We progressed the implementation of our strategy and
moved closer to realising our vision. We continued to
align the organisation behind our value propositions and
optimising delivery to selected customers by investing in
leadership and segment capabilities and implementing
standard procurement processes to extract synergies.
We continued divesting activities that are non-core to
the delivery of our promise, We are transitioning towards
a more focused approach to customer segments, including
certain industries as well as multinationals looking for a
provider able to self-deliver multiple services globally.
Emerging markets continued to support growth and
margins and are becoming an ever bigger part of our
global footprint.

Our strategic focus on delivering portfolio-based services
led to sustained organic growth in the portfolio business.
Historically, the portfolio business” share of total revenue
has been 75% — 80% and during the period 2009 to 2013
our portfolio business” share of total revenue increased
within this range.

1403044og2 Ng 49 på

 

Global Corporate Clients

In 2012, ISS won three new multinational IFS contracts
with Barclays, Novartis and with Citi in the Asia and Pacific
regions. These contracts are some of the largest in ISS's
history and represent significant milestones for ISS

in the efforts to confirm our position as a leading global
facility services provider. At the end of 2013, all three
contracts were fully operational in all key geographies.

In 2013, these wins were followed by the win of an

IFS contract covering all of Europe with H.J. Heinz, an
international food producer, and an IFS contract with
Nordea Bank in the Nordic region. The new facility
management partnership with H.J. Heinz, includes a
five-year contract for a full IFS solution, including catering,
cleaning, property, reception and security services to 15
food manufacturing and office locations in eight countries.
The IFS contract with Nordea Bank covers 39 office
buildings in the Nordic region and ISS provides facility
management, property, cleaning, catering, security and
support services as part of the contract. The revenue
generated from Global Corporate Clients amounted to
DKK 6.5 billion in 2013, an increase of more than 60%
compared with 2012.

In addition to the new Global Corporate Clients contracts,
several other important contract wins were secured in
2013, both involving new contracts and expanding the
scope of existing contracts. Going forward, our Global
Corporate Clients organisation will continue to focus on
møbilising and starting-up the new contracts as well as on

 

18 Group Annual Report 2013

winning new contracts within selected customer segments
where ISS can offer market-leading value propositions.

Divestments

The ongoing review of the strategic rationale and fit of
business units under The ISS Way strategy has led to the
identification of certain activities that are non-core to The
ISS Way. In 2013, we divested the pest control activities

in 12 countries, I.e. Australia, Austria, Belgium, Denmark,
Germany, Italy, the Netherlands, New Zealand, Norway,
Portugal, Spain and Switzerland for a total enterprise value
of approximately DKK 2 billion. Other divestments included
the Nordic damage control activities and Minor activities
within property services, cleaning services, security services
and support services in the Nordic and Western Europe
regions and the USA. The divestments reflect a more
strategic focus in the countries involved, resulting in a
more focused business platform.

In January and February 2014, we announced the sale

of our landscaping activities in France, our commercial
security business in Australia and New Zealand, our pest
control! activities in India and our security activities in Israel.
These divestments in aggregate have an approximate
annual revenue of DKK 3.2 billion of which approximately
DKK 2.4 billion related to the completed divestments at

28 February 2014.

At 31 December 2013, six business units have been
classified as held for sale, comprising net assets of DKK
0.9 billion including the four divestments made in January
and February 2014 as described above. The divestments
completed in 2013, resulted in a net gain of DKK 758
million recognised in Other income and expenses, net,

an impairment loss related to goodwill of DKK 202 million
and a DKK 21 million loss on customer contracts. In
addition, classification of certain activities in the Western
Europe and Pacific regions as held for sale during 2013
resulted in a loss of DKK 24 million recognised in Other
income and expenses, net as well as a non-cash impair-
ment loss on goodwill of DKK 283 million and DKK 12
million on customer contracts.

Including the divestments announced during 2014, to date,
our strategic divestment programme is to a large extent
complete. None the less, our strategy execution process
will continue to identify non-core businesses which will
result in further divestments going forward.

Financing

In April 2013, ISS refinanced its EUR 600 million Second
Lien Facility and received strong support from lenders
consenting to a three-year extension of the predominant
part of the Group's senior debt to either December 2017

 

or April 2018. As part of the amendments, lenders
approved the capacity to increase the revolving credit
facility by an additional DKK 1,0 billion and implemented
other amendments intended to increase both operational
and refinancing flexibility around the use of potential
future divestment proceeds as well as certain post-IPO
flexibilities. The new tranches refinancing the EUR 600
million Second Lien Facility were split between two new
senior tranches of EUR 330 million and USD 350 million,
respectively.

The commitment to deleverage the Group continued

in 2013. With the proceeds from divestment of activities
together with the improved conditions to repay debt,

ISS in 2013 completed two excess proceeds offers and
conditional partial redemptions in an aggregate amount
of EUR 325.2 million of its EUR 581.5 million 8.875%
Senior Subordinated Notes due 2016, At the end of 2013,
this leaves an aggregate principal amount of approximately
EUR 256.3 million of Notes outstanding. With these two
processes it has been possible for ISS to repay more than
half of the most expensive part of the debt, in itself
eliminating DKK 215 million in interest expenses on an
annualised basis. Currently, ISS has no significant short-
term financing Maturities.

The two excess proceed offers and conditional partial
redemptions of a total of EUR 325 million of the 8.875%
Senior Subordinated Notes due 2016 in July and December
2013 together with the repayment of EUR 525 million 11%
Senior Notes due 2014 in December 2012, respectively,
resulted in significantly reduced interest expenses in 2013,
which has been a supporting factor behind deleveraging.
Finally, the underlying operational performance also
contributed to the continued deleveraging.

In August 2013, the securitisation programme was
extended by one year to September 2015. The size of the
credit facility was kept unchanged, but the pricing of the
programme was reduced by 25bps following the extension.

Following the announcement of the intended IPO, se
below, ISS was upgraded by rating agencies who currently
assign Corporate ratings of BB/Positive Watch (S&P) and
Ba3/Positive Review (Moodys) and assigned ratings of BB
and Ba2/Positive review, respectively, to the senior credit
facilities.

For further information, see the notes to the consolidated
financial statements as well as the section below regarding
financing subject to an IPO.

ISS intends to launch an IPO

ISS announced on 18 February 2014 its intention to launch
an Initial Public Offering (IPO) of its shares and to list on
NASDAQ OMX Copenhagen

The intended IPO is expected to consist primarily of an
issue of new shares to raise proceeds of approximately
DKK 8 billion. Proceeds from the IPO are proposed,
together with amounts drawn under a new banking
facilities agreement subject to the IPO, to repay existing
credit facilities during the course of 2014.

Drawings can be made under the new facilities agreement,
which was put in place on 18 February 2014, subject to
satisfaction of certain conditions precedent, including that
the offering of shares contemplated by way of the IPO has
occurred or will occur concurrently with the first drawing
under the new facilities. The new facility, with investment
grade like terms, is in place with a smaller number of
relationship banks and includes a more attractive and
flexible interest margin depending on our leverage.

This Group Annual Report for 2013 including the financial
statements has in line with previous years been prepared
based on the rules applicable for Class-D companies and
on rules for companies with listed debt instruments.
Subject to completion of the IPO, the Annual Report for
2014 will be based on the rules applicable for companies
with listed shares.

For further information regarding the proposed IPO,
including effects from the proposed refinancing, incentive
programmes and corporate governance changes, please
refer to the offering circular for ISS A/S if and when such
document is published.

Management changes

On 7 March 2013, ISS announced that Leif Ostling, Deputy
Chairman of the Board of Directors (the Board), had
decided to resign from the Board. At the same time, ISS
announced that Lord Allen of Kensington CBE and Thomas
Berglund had been elected as new members of the Board.
Furthermore, on 3 April 2013, ISS announced that Michel
Combes had decided to resign from the Board.

On 31 May 2013, ISS announced that the majority owners
of ISS, funds advised by affiliates of The Goldman Sachs
Group, Inc. and funds advised by EQT Partners, had
appointed new representatives, which meant that Steven
Sher and Harry Klagsbrun were replaced by Andrew E.
Wolff and Morten Hummelmose, respectively.

On 21 August 2013, ISS announced that Ole Andersen,
Chairman of the Board, had decided to resign as chairman
and leave the Board. Lord Allen was elected new chairman
of the Board. Furthermore, ISS announced that Henrik
Poulsen had been elected as new member of the Board.

On 20 March 2013, ISS announced two key appointments
strengthening the Executive Group Management Board
(the EGM). Henrik Andersen was appointed to the new

14030440 N 099 0%

Highlights of the year | Our performance 19

KEY EVENTS 201913

8 May . '
ISS named the world's -
best outsourcing .
service provider

 

 

 

(— AP —

The International Association of
Outsourcing Professionals ranked ISS as
41 on its annual list of the world's'best
outsourcing service providers — The .
Global Outsourcing 100.

Commenting on the award, ISS Group
CEO Jeff Gravenhorst said that he was
very proud and deeply honoured that
the IAOP had recognised ISS as the
world's best outsourcing company, and
that ISS sees the ranking as a vote of
confidence in the global platform from
which ISS integrates and self-delivers a
complete set of facility services such as
catering, cleaning, security, property
and support services across the globe.

Jeff Gravenhorst also thanked the
533,544 employees around the world,
saying that without their engagement,
purpose and pride in serving ISS's
customers, ISS would never have
achieved this honourable title.

20 Group Annual Report 2013

KEY EVENTS 2013

27 December

ISS explores new
business segment
in Brazil

 

The granting of consessions to private
contractors to operate public airports
has opened new opportunities for ISS in
Brazil. ISS has started providing an IFS
solution for the International Airport of
Såo Paulo, whose more than 32 million
passengers in 2012 make it one of the
most important travel hubs in Latin
America.

With møre than 850 ISS employees
involved in the 24/7 operation, this

is the first project in this segment
awarded to ISS in Brazil, opening new
opportunities in a large and unexplored
market in the country.

The second and third largest airports
in Brazil are also being privatised.

This is a huge opportunity for ISS Brazil
in terms of the potential for expanding
current contracts and for a future
implementation of IFS,

position of Group Chief Operating Officer (COO) EMEA.
Heine Dalsgaard was appointed Group Chief Financial
Officer (CFO), replacing Henrik Andersen in August 2013.
Furthermore, on 8 July 2013, ISS announced that it had
further strengthened and expanded the EGM by appoint-
ing John Peri as Group Chief Operating Officer (COO)
Americas & APAC. The appointments allow ISS to further
align the organisation and focus even more on the markets
in which ISS operates.

Subsequent events

On 8 January 2014, we announced the divestment of
our commercial security business in Australia and New
Zealand. The transaction is subject to the satisfaction of
certain customary conditions and we expect the sale to
be completed in the first quarter of 2014.

On 29 January 2014, we completed the divestment of the
pest control! activities in India.

On 3 February 2014, we announced the extension of the
global IFS contract with HP until the end of 2018. This is
one of the largest global facility services agreements in the
industry, whereby we will continue to deliver IFS to more
than 500 HP sites in 58 countries across five continents.

On 5 February 2014, we completed the divestment of the
security activities in Israel.

On 18 February 2014, ISS announced that the Board
of Directors (Board) had elected board member Thomas
Berglund as Deputy Chairman of the Board.

On 18 February 2014, ISS announced that it is contemplat-
ing an Initial Public Offering (IPO) of shares and to have its
shares listed for trading on NASDAQ OMX Copenhagen.
A detailed description of the IPO is provided on page 18
under "ISS intends to launch an IPO".

On 28 February 2014, we completed the divestment of our
landscaping activities in France.

Apart from the above and the events described elsewhere
in this Group Annual Report, we are not aware of events
subsequent to 31 December 2013, which are expected to
have a material impact on the Group's financial position,

 

 

Regional
performance

ISS is all about service.

We aim to provide consistent
service globally and across regions
to our customers in more than 50
countries. We have a unique and
leading market position which supports
local, regional and global customers.

Our business characteristics and regional presence have
changed considerably since 2006. We have transformed
ISS from primarily being a European-based company to
becoming a true global player with a leading market
position. We are leveraging our global presence in order
to meet the continuing growth in demand from multina-
tional corporations for the delivery of integrated facility
services (IFS) across borders. Our IFS revenue share has
grown significantly and our ability to deliver IFS is a key to
serving global customers and grasping new local market
opportunities.

In 2013, we remained focused on generating profitable
organic growth and securing payment for work per-
formed. This led to strong organic growth in 2013 with all
regions but the Pacific delivering positive organic growth
rates. The operating margin of 5.5% (2012: 5.6%) was in
line with expectations and favourably impacted by margin
increases in the Nordic region and Latin America. Detract-
ing from the performance were the strategic divestment of
non-core activities as well as the start-up of multinational
IFS contracts and the impact of operational challenges
faced in certain countries in Europe and the Americas.

Our Global Corporate Clients organisation is a key driver
of organic growth, especially in our European countries of
operation, as demonstrated by the start-up of the Barclays
and Novartis contracts. These contracts are some of the
largest in ISS's history and they were supplemented by the
win in 2013 of a new large IFS contract with H.J. Heinz in
Europe. Global Corporate Clients also supported growth
in our emerging markets, as illustrated by the start-up of
Citi in the Asia and Pacific regions in 2013.

1403044R073 9908

Regional performance | Our performance 21

 
  
  

a 7”

The "ISS world” consists of seven regions

ml Western Europe
ml Nordic
[1] Asia

ml Latin America
ml North America
Sl Eastern Europe

Our seven regions generally follow the geographical structure, the
exception being the Nordic region, which is presented separately from
the Western Europe region. In order to highlight the growth and
performance of emerging markets, we present certain information
for these markets separately.

ISS operates in a number of countries which due to the insignificant
amount of revenue we generate there are not included in this review.
Those countries include, among others: Bahrain, Egypt, Nigeria,
Pakistan, South Africa and United Arab Emirates.

We are well positioned in emerging markets, where we
have more than half of our employees and generate

23% of our total revenue. Emerging markets represent a
large growth potential as well as an opportunity to serve
our many regional and global customers operating there.
Going forward, emerging markets wil! continue to support
our top-line growth and will be an ever-bigger part of our
global footprint.

22 Group Annual Report 2013

Western Europe

 

The markets of the Western Europe
region are generally characterised as
developed markets but with differ-
ences from country to country in terms
of IFS market maturity and macroeco-
nomic environment. Key segments for
the region are Business Services & IT,
Public Administration, Industry &
Manufacturing, Healthcare as well as
the Hotels, Leisure & Entertainment
segment. 2013 was a milestone year
for ISS in Western Europe, buoyed by
the successful launch of two of the
largest and most complex IFS contracts
the FM world has ever seen: Barclays
and Novartis. This illustrates both the
demand for IFS solutions across
countries within Western Europe and
our ability to deliver in line with our
value proposition and on our promise
to our customers.

Going forward, we will increase our
focus on IFS readiness as demand for
this service type continues to grow,
while at the same time working to
enhance organic growth, improve win
rates and retain key accounts. The
ongoing analysis of the customer base
and alignment of the business platform
will continue in order to ensure high
organic growth rates and sound
profitability for the region.

United Kingdom 23% mn

' France 18% mmm
Spain 11% mm

" Switzerland 10% mM
Netherlands 6% Mm
Belgium & Luxembourg 7% OM
Turkey 6% FM

Germany 5% må

… Israel 5% må

" Austria 4% MM

Greece 2% I

t Italy 1% I
Ireland 1% I

” Portugal 1% I

| 205,738

38%

Revenue by country

% of total Western Europe revenue

Employees

of Group employees

Revenue increased by 1% to DKK
39,704 million driven by organic
growth of 5%. The successful divest-
ment of non-core activities in 2012
and 2013 reduced revenue by 3%
while currency adjustments in 2013
reduced revenue by 1%. Operating
profit before other items decreased
by 1% to DKK 2,388 million for an
operating margin of 6.0%, down
0.1 percentage point from 2012.

Several countries delivered strong
organic growth rates, with the United
Kingdom, Switzerland and Turkey all

in double digits and Germany, Austria
and Portugal also contributing. A
slight increase in non-portfolio services
was seen compared with 2012, but
demand for non-portfolio services
remained at a relatively low level.

The operating margin for the region
was supported by strong performance
in the United Kingdom, Switzerland
and Turkey. Margins came under
pressure from challenging macroeco-
nomic conditions and operational
challenges in certain countries as well
as from the start-up of the Barclays
and Novartis contracts following initial
investments. The divestment of the

'
j

39,704 okkm

Revenue

51%

of Group revenue

6.0%

' Operating margin

5%

. Organic growth

” Integrated facility services

2013: 29%
2006: 14%

io 2 40 6 8. 10

DKK billion

margin accretive washroom activities
in the Netherlands, Belgium and
Luxembourg in 2012 and the pest
control activities in certain countries
in 2013 also had an adverse impact
on the margin compared with 2012.
Lastly, the 2012 operating margin was
positively impacted by a gain of DKK
92 million related to negative past
service costs for defined benefit plans
in Switzerland, while the 2013
operating margin was positively
impacted by a one-off gain of DKK
64 million related to a settlement
gain on defined benefit plans in the
Netherlands.

Major contract wins, extensions and
renewals included renewal of the large
IFS contract with East Coast Mainline,
increase and extension of the IFS
contract with Telefonica and a large
cleaning contract win with CO-opera-
tive Group Ltd. in the United Kingdom.
Spain has extended and increased the
catering contract with the healthcare
State Administration in Valencia
providing food for patients at 11
hospitals. Furthermore, France
extended a large cleaning contract
with Eurotunnel and Switzerland won
a large IFS contract with PWC.

 

  

 

The markets of the Nordic region are
mature and developed and we hold

a relatively large market share. The
strategic focus remains to leverage the
strong market position mainly through
the implementation 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, Retail & Wholesale
and Hotels, Leisure & Entertainment
segments as well as country-specific
segments.

The alignment and centralisation of
processes and organisations in the
region continued. In a thorough
analysis of the customer base in
certain countries in 2013, we reviewed
the organisational structures as well
as the capabilities and focus of the
support functions. The primary result
of the review is an adjusted business
structure tailored to strengthen our
focus on large site-based customers
as well as achieving a lean and
cost-efficient structure for serving
small and mid-sized customers. Along
with the new structure, strengthened
capabilities for sales, development

14093044EggSN88887

 

Revenue by country

Norway 34% REE
Finland 23% EEN
Sweden 23% mm
Denmark 18% må

Iceland 1% I

Greenland 1% i

% of total Nordic revenue

 

40,343

Employees

8%

of Group employees

and operations of large customers will
also be implemented. These initiatives
will continue across the region in
2014. '

In order to continue aligning our
business platform with our strategy
certain businesses were divested in
2013, including the Nordic damage
control activities. Furthermore, we
entered into a new partnership with
Securitas regarding security services
in Denmark.

Revenue in 2013 was down by 5%
to DKK 16,853 million. Organic
growth amounted to 1%, while the
divestment of non-core activities in
2012 and 2013 and currency adjust-
ments each reduced revenue by 3%.
Operating profit before other items
was DKK 1,246 million, reflecting an
operating margin of 7.4%, up by 0.7
percentage point from 2012.

The organic growth rate of 1%
reflects a strong performance of 10%
in Norway driven by increased sales to
large IFS customers. This was offset by
negative organic growth in Denmark,
Finland and Sweden due to lower
demand for non-portfolio services

 

Regional performance | Our performance 23

16,853 oxkm

Revenue

21%

of Group revenue

7.4%

Operating margin

1%

Organic growth

 

Integrated facility services

 

2013: 20%
2006: 12%

 

 

 

DKK billion

from a number of large customers
and exit of certain contracts in 2012
and 2013.

The increase in the operating margin
to 7.4% was the result of margin
increases in Finland, Sweden and
Denmark due to improvements in the
operational performance across most
service lines and strong customer
focus. This was partly offset by a
margin decrease in Norway mainly
due to 2012 being positively impacted
by one-off income related to the sale
of certain assets.

Contract wins and extensions in the
region included large IFS contract wins
with Nordea Bank across the region
and with the Danish Defence Com-
mand. Furthermore, we won local IFS
contracts with the Maersk Group in
Denmark and Skanska AB in Sweden
and a catering contract with DNB,
the largest financial services group in
Norway. Additionally, we extended
and expanded the IFS contract with
Vattenfall, under which ISS now
provides services to all nuclear power
plants in Sweden.

24 Group Annual Report 2013

Asia

The Asia region consists of large and
more established markets, such as
Hong Kong and Singapore, as well as
developing markets, such as China,
India, Indonesia and the Philippines.
The key segments for the region are
Business Services & IT, Industry &
Manufacturing and Retail & Whole-
sale. Our ambition is for the region
to remain one of the Group's growth
engines, maintain a high level of
profitability, expand our self-delivery
Capabilities, and further sharpen our
business platform as well as to
continue improving the commercial
planning and strategy towards our
selected key customer segments.

Going forward, focus will be on
service excellence within cleaning and
on the transition from input-based
contracts to true output-based
contracts. Further efforts will be
directed towards the continuous
development of our IFS readiness,
identifying improvement areas and
developing skills to improve our
delivery capabilities to local and
global IFS customers. Investment in
people and leadership development
to further strengthen the local
organisations is an important factor

" Hongkong 22% REE

. Singapore 16% REE
Indonesia 16% me

"India 14% EM
Thailand 14% EM

' China 9% mM

| Taiwan 4% EM
Philippines 2%

- Malaysia 1% I

"| Japan 1% I
Brunei 1% I

 

Revenue by country

% of total Asia revenue

192,544

Employees

36%

of Group employees

in managing current and future
growth in a controlled manner.

In recognition of the recent achieve-
ments of ISS in the region, ISS was in
2013 named Facilities Management
Company of the year in the Asia and
Pacific regions at the annual Frost &
Sullivan Best Practices Awards in
Singapore.

Our Asia region once again delivered
a strong performance in 2013.
Revenue was DKK 8,019 million,

an increase of 9%, driven by contin-
ued strong organic growth of 15%
while currency adjustments reduced
revenue by 6%. Operating profit
before other items increased by 8%
to DKK 608 million reflecting an
operating margin of 7.6%, whereby
Asia once again delivered the highest
margin of any ISS region.

Several countries reported double-
digit organic growth rates, with
Indonesia as the largest nominal
contributor in the region based on
an organic growth rate of 25%,
which was mainly driven by a strong,
positive effect of contract wins in the
fourth quarter of 2012 and higher

8,019 okkm

” Revenue

10%

of Group revenue

7.6%

" Operating margin

15%

 

Organic growth

2013: 27%
2006: 30%

....DKK billion

minimum wages passed on to
customers. India, Thailand, Hong
Kong and China also continued the
positive trends driven by strong
retention of existing customers as
well as a high rate of new sales.

The operating margin decreased
slightly from 7.7% in 2012 to 7.6%
in 2013, mainly due to the start-up
of the Barclays and Citi contracts in
the Asia and Pacific regions, which

in the short term have influenced the
margin negatively following initial
investments. This was partly offset
by strong operational performance in
Thailand, Hong Kong and Singapore.

During 2013, ISS China extended and
increased the cleaning and support
service contract with Shenzhen
Bao'an International Airport and ISS
Hong Kong won a security contract
with Discovery Bay.

Pacific

ISS Australia delivers almost 90%

of the revenue in the region. The
strategic focus in Australia remains
on further developing and refining
the IFS value proposition to selected
customer segments, including Public
Administration, Energy & Resources
(mainly the remote site resource
segment), Healthcare and the
Transportation & Infrastructure
segments (mainly airports). This led
to the successful retender of all the
remote site contracts that were up for
retender during 2013. Going forward,
the focus will be on further develop-
ing the value proposition to the
selected customer segments and the
overall efficiency of the business in
the Pacific region. ISS Australia has
focused on implementing tools for
improved control and increased
operational efficiency. This includes
implementation of a CRM-tool to
enhance our sales efficiency.

In 2010, ISS Australia entered into a
28-year contract with Sydney's Royal
North Shore hospital (RNS). This is a
public private partnership contract
won by a consortium in which ISS
Australia is a major partner. Consider-
ing the length and complexity of the

1493944F6GSNG0998

 

 

Revenue by country

Australia 90% HERE
New Zealand 10% EM

% of total Pacific revenue

 

14,244

Employees

3%

of Group employees

contract, the first few years of
operating the contract have been
challenging. We continue to build
experience and knowledge of
operating the contract which can
support profitability improvements
in future years.

In 2013, the pest control activities

in Australia and New Zealand were
divested and in the beginning of
2014, we divested the commercial
security activities in the Pacific region.
These divestments will result in a
stronger and more aligned business
platform for ISS in the Pacific region,
as it will allow us to focus on our core
activities.

Revenue for the region decreased by
15% to DKK 5,105 million negatively
impacted by currency adjustments
of 10%, while revenue was further
reduced by 4% from the successful
divestment of the pest control
activities in 2013 and with 1%
stemming from negative organic
growth. Operating profit before other
items was DKK 253 million egual to
an operating margin of 5.0%, which
was 0.2 percentage point lower than
in 2012.

 

 

Regional performance | Our performance

5,1 05 DKKm

Revenue

7%

of Group revenue

5.0%

Operating margin

-1%

Organic growth

 

Integrated facility services

2013: 27%
2006: 8%

 

 

 

 

DKK billion

Organic growth was negatively
impacted by the loss of certain large
security contracts and a reduction in
services delivered on certain contracts
in Australia. There has been a pick-up
in new sales and in the fourth quarter
of 2013 we achieved significant
contract wins and extensions.

The 0.2 percentage point decrease

in operating margin was mainly

a result of the divestment of the
margin-accretive pest control
activities in 2013 as well as of weaker
demand for non-portfolio services

in Australia.

Contract wins and renewals in
Australia included the win of a large
IFS contract with the global resources
company BHP Billiton, the renewal

of the large security contract with
Melbourne Airport and the security
contract with Adelaide Airport as
well as the renewal of the large IFS
contract with Eastern Health Hospital.

25

 

26 Group Annual Report 2013

Latin America

We have built a unique position in
Latin America with a strong geo-
graphical presence and a developed
service offering. No one else in the
market is capable of self-delivering

a comparable number of services in
the countries where ISS provide IFS.
Focus is on selectively expanding the
geographical platform as markets
mature. Key segments within Latin
America are Industry & Manufactur-
ing and Business Services & IT. The
region supports a number of our
multinational IFS contracts and
maintaining a presence in the region
is an important means of targeting
this customer segment.

Despite the systematic and customer-
focused sales approach, 2013 was

a year of recovery following the
decision to exit certain less profitable
contracts and restore the run-rate
profitability from our contract
portfolio following restructurings

in certain countries in 2012. During
the year, we continued to focus on
strengthening the organisations

and processes across the region to
increase efficiency, predictability and
transparency.

 

Revenue by country

- Brazil 44% RENEE
Chile 19% mM
Mexico 18% EM
Argentina 12% mM
"— Uruguay 5% 8
Other countries — 2% I

% of total Latin America revenue

48,536

Employees

9%

== of Group employees

Going forward we remain focused

on delivering profitable organic
growth through an assessment of the
customer base and our key selected
customer segments. In addition, we
will continue to focus on having the
right organisational structures and
management teams in place to
support our aims.

Revenue was DKK 3,708 million in
2013 down 3% compared with 2012.
Organic growth amounted to 7%,
which was more than offset by a
negative impact from currency
adjustments of 10%. Operating profit
before other items increased by 59%
to DKK 145 million, reflecting an
operating margin of 3.9%, which
was 1.5 percentage point higher
than in 2012.

All countries of the region reported
positive organic growth rates driven

by a continued high level of new sales

and higher demand for project work,
especially in Argentina and Chile.
Brazil returned to positive organic
growth following the steps taken to
exit certain less profitable contracts
in 2012,

3,708 DKKm

Revenue

5%

— of Group revenue

 3.9%

: Operating margin

7%

" Organic growth

. Integrated facility services

2013: 19%
HE 2006: 24%
i 0 0.5 10) 15 20
DKK billion

The increase in operating Margin was
the result of improved margins in all
countries of the region driven by our
continued efforts to improve opera-
tional efficiencies, induding amend-
ing or exiting certain customer
contracts with unsatisfactory profit-
ability conditions following the
restructurings initiated in 2012.

Contract wins and extensions
included large IFS contracts with
Philip Morris in Argentina, ITAU in
the banking segment, Cliaro in the
telecommunications segment, the
international airport in Såo Paulo,
all three in Brazil, and Telefonica in
Mexico.

 

North America

 

ISS has extensive geographical
coverage in several parts of the USA
experiencing economic growth and
we continue to focus on enhancing
our geographical footprint in specific
metropolitan areas. Key segments are
Business Services & IT, Public Adminis-
tration and Transportation & Infra-
structure. The continued focus on
developing segments such as Aviation
produced significant contract wins
that contributed positively to the
growth performance. Segmentation
of the business will also be a future
focus, our goal being to ensure that
clear value propositions are developed
and delivered by industry experts who
truly understand individual customer
needs and requirements.

Growth in 2013 was primarily driven
by the multinational IFS contract with
Barclays. We made considerable
changes to the operating model of the
Barclays contract in 2013, as instead
of working with multiple subcontrac-
tors we now self-deliver a significant
portion of the services. This together
with additional transformations
currently being made to the HP
contract shows that the region has
the ability to serve customers with a
self-performing operating model that

)3044E0gSNDE 4

 

Revenue by country

97% ERE
3% I

% of total North America revenue

USA
Canada

 

14,324

Employees

3%

of Group employees

gives customers the benefit of a
consistently high level of self-delivery,
ensuring high compliance with HSE
standards and risk processes at a
competitive price. Through these
contracts, we further developed the
IFS business, which now accounts for
31% of our revenue in the region.

The synergies from building up an

IFS platform have not yet been fully
realised, A significant amount of work
has been shared across the IFS back
office function but there are still
synergies to be achieved from
ensuring that the platform is fully
utilised across all our IFS contracts.
However, the geographical size of the
region represents a challenge, making
synergies from IFS contracts more
difficult to achieve.

Revenue was DKK 3,459 million, a
decrease of 2% compared with 2012,
Organic growth was 2%, while the
adverse impact of currency adjust-
ments and divestments reduced
revenue by 3% and 1%, respectively.
Operating profit before other items
was DKK 101 million resulting in an
operating margin of 2.9%, 1.4
percentage point lower than in 2012.

 

Regional performance | Our performance 27

3,459 DKKm

Revenue

4%

of Group revenue

2.9%

Operating margin

2%

Organic growth

 

Integrated facility services

BRREEREE 71 2013: 31%

2006: 0%
0 05 10 15 2.0

DKK billion

 

 

 

 

Organic growth of 2% was primarily
driven by the start-up of the Barclays
contract in September 2012, but
with the termination of certain less
profitable contracts and the loss of
certain large contracis both detract-
ing from the organic growth.

The decrease in operating margin was
mainly due to the loss of certain large
contracts combined with the initial
investments related to the start-up of
several new contracts. In addition, the
margin was negatively impacted by
steps to restructure the business in
the eastern part of the USA. We have
in 2013 strengthened the manage-
ment team in the USA to ensure that
the business continues to develop and
that ISS becomes a competitive
market player going into 2014.

In 2013, the USA won a large
cleaning and facility management
contract with Delta Airlines and now
provides services for Delta in three
major airports in the New York City
Area, Finally, the USA strengthened
their portfolio of Airport contracts by
winning a cleaning contract with
Phoenix Sky Harbor International
Airport.

28 Group Annual Report 2013

Eastern Europe

 

ISS has established a wide geographi-
cal 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 multinational

blue chip companies. The selected
customer segments are Business
Services & IT, Healthcare and Industry
& Manufacturing, while the propor-
tion of customers in the public sector
has deliberately been reduced.

In 2013, we added two additional
international IFS contracts in the
region as we started up the Novartis
contract in Slovenia and the Barclays
contract in Lithuania. The skills and
competencies required to manage
such contracts are complex but
through our continued focus on IFS
readiness and on sharing knowledge
and best practice in the region, we
successfully started up and began

to operate these contracts. We have
thereby expanded our local service
offering to a full IFS offering in these
countries and thus both strengthen-
ing our regional capabilities and
meeting our customers' requirements.
Through these international contracts
the countries in the region gain

"| Czech Republic 24% RENE
Slovakia 14% HEM
Poland 13% EM
Slovenia 12% RER

… Hungary 9% må
Romania 9% EM
Russia 9% mM
Estonia 8% MM
Croatia 1% Ii

Revenue by country

% of total Eastern Europe revenue

17,662

Employees

3%

of Group employees

knowledge and experience, which
can be deployed when targeting new
customers as wel! as benefit existing
customers.

The efforts to strengthen the
management teams and leadership
capabilities throughout the region as
well as developing the sales organisa-
tions remained a priority in 2013. This
included establishing joint country
management teams in the region.

In addition, focus remained on the
implementation and utilisation of
shared business development
resources across the region in order
to empower best practise operations
resource sharing and drive regional
solution sales.

Revenue increased by 3% to DKK
1,657 million in 2013, driven by
organic growth of 5% while currency
adjustments reduced revenue by 2%.
Operating profit before other items
increased to DKK 109 million, for

an operating margin of 6.6%, which
was 0.2 percentage point higher than
in 2012.

1,657oxxm

” Revenue

2%

" of Group revenue

6.6%

.. Operating margin

5%

Organic growth

Integrated facility services

2013: 26%
— 2006: 8%
0 05 10 15 2.0

DKK billion

Slovenia, Russia, Hungary and
Slovakia all delivered strong organic
growth rates. Organic growth in
Slovenia was mainly driven by the
start-up of the Novartis contract,
while in Russia, Hungary and Slovakia
growth was supported by higher
new sales and greater demand for
non-portfolio services.

The increase in operating margin was
mainly a result of improved margins
in the Czech Republic and Hungary
deriving from the strong focus on
operational efficiencies and cost
savings. This was partly offset by a
margin decrease in Slovenia that was
mainly due to initial investments
related to the Novartis contract.

Eastern Europe continued to progress
with the sales strategy focused on
providing well-proven value proposi-
tions to multinational blue chip
companies in the region. This was
illustrated by the win of a large
contract with Telenor in Hungary.

 

   

Financial
review

In 2013, we remained focused on driving
profitable growth. In addition, in line
with our strategy we successfully
completed the divestment of certain
non-core activities, which allowed us

to repay a large part of our debt.

This combined with our operational
performance was a supporting factor

in the deleveraging of ISS.

Operating profit

The Group's revenue and operating profit before other
items is reviewed in Highlights of the year on pages
15-20 and in Regional performance on pages 21-28.

The Net profit/(loss) improved from a loss of DKK 450
million in 2012 to a loss of DKK 397 million in 2013. The
positive development in net loss was mainly impacted by
lower financial expenses, net of DKK 450 million and a
decrease in other income and expenses, net of DKK 208
million. Partly offsetting these positive developments was
an increase in higher non-cash expenses related to
goodwill impairment of DKK 600 million.

Of the total net losses in 2013 and 2012, expenses of DKK
284 million and DKK 436 million, respectively, resulted
from fair value adjustments relating to the acquisition

of ISS World Services A/S in May 2005, See Fair value
adjustments in May 2005 on page 31.

Working capital and cash flows

Our continued focus on securing satisfactory payment for
services performed and on exiting customer contracts with
unsatisfactory payment conditions led to a decrease in
debtør days of more than one day.

Trade receivables amounted to DKK 10,299 million (2012:
DKK 11,433 million). The change compared to 2012 was

3Q44F8gSN8099 0

Financial review | Our performance 29

UNDERSTANDING THE FINANCIAL REVIEW

For increased clarity, the commentary in the Financial review has
been structured in accordance with relevant themes to provide
commentary to the sections in the consolidated financial
statements. No comments are made to section 6 Governance
as this is covered by the Remuneration report on pages 71-73.
Furthermore, no comments are made to section 1 Basis of
preparation and section 8 Other required disclosures as
information included in these sections are immaterial.

mainly a result of the continued focus on reducing our
working capital.

Changes in working capital was an inflow of DKK 80
million, which resulted in a cash conversion of 102%
in 2013 compared with 103% in 2012.

Cash flow from operating activities

Cash inflow from operating activities was DKK 3,715
million in 2013 (2012: DKK 3,855 million). The decrease
was primarily due to a DKK 162 million decrease in the
cash inflow from operating profit before other items
adjusted for depreciation and amortisation and a DKK 48
million increase in the cash outflow from income tax paid,
which was partly offset by a DKK 145 million decrease in
the cash outflow from changes in provisions, pensions and
similar obligations.

Other expenses paid of DKK 388 million mainly related to
restructuring projects initiated and expensed in 2012 and
2013 as well as onerous contracts and the build-up of IFS
capabilities in North America.

Cash flow from investing activities

Cash flow from investing activities was a net cash inflow of
DKK 1,331 million (2012: cash outflow of DKK 747 million).

"The cash inflow relating to acquisitions and divestments,

net, amounting to DKK 2,169 million, was mainly due to

30 Group Annual Report 2013

the divestment of the pest control activities and the
Nordic damage control! activities. This was partly offset
by investments In intangible assets and property, plant
and equipment, net, of DKK 803 million (2012: DKK 762
million), which represented 1.0% of revenue and was

in line with last year.

Cash flow from financing activities

Cash flow from financing activities was a net cash outflow
of DKK 5,159 million (2012: DKK 3,643 million). The
amount was mainly made up of DKK 7,983 million in
repayments of borrowings and DKK 1,599 million in
interest payments, net. This was partly offset by proceeds
from borrowings of DKK 4,425 million. Repayment of
borrowings was related to the refinancing of the Second
Lien Facility and the Term Loan B and Acquisition Facility B
facilities expiring in 2013, as well as the partial redemption
(56%) of the 8.875% Senior Subordinated Notes due
2016. Proceeds from borrowings were mainly related to
the two new senior tranches of EUR 330 million and USD
350 million, respectively, used to refinance the Second Lien
Facilities as well as drawings on working capital facilities.

Strategic divestments and
investments

Divestments and assets held for sale

The ongoing review of the strategic rationale and fit of
business units led to the identification of certain activities
that are non-core to our strategy. In 2013, we divested the
pest control activities in 12 countries mainly in the Pacific
and Western Europe regions for a total enterprise value of
approximately DKK 2 billion. Other divestments included
the Nordic damage control! activities and other minor
activities within property, cleaning, security and support
services in the Nordic and Western Europe regions and
the USA.

The proceeds from the divestments were used to repay
a significant part of our debt, thereby contributing to the
continued deleveraging of ISS, see net debt on page 32.

Our continued strategic focus led to six businesses being
classified as held før sale at 31 December 2013, including
four businesses in the Nordic and Western Europe regions,
one activity in the Asia region as well as one in the Pacific
region. At 31 December 2013, assets and liabilities held
for sale amounted to DKK 1,950 million and DKK 1,016
million, respectively.

Divestments completed in 2013 and revaluation of net
assets of businesses classified as held for sale resulted in
a net gain of DKK 216 million, which comprises a gain
of DKK 734 million recognised in Other income and
expenses, net as well as impairment losses on goodwill

and customer contracts of DKK 485 million and DKK 33
million, respectively.

Intangible assets, goodwill and goodwill impairment

Intangible assets at 31 December 2013 were DKK 28,346
million and comprise mainly goodwill, customer contracts
and brands. The majority of these intangible assets related
to the acquisition of ISS World Services A/S in May 2005,
when a carrying amount of DKK 31,844 million of
intangible assets, of which DKK 22,035 million related to
goodwill, was recognised in ISS's statement of financial
position, Furthermøore, a significant number of acquisitions
made over the years have added more intangible assets.

At 31 December 2013, goodwill was DKK 23,155 million,
a decrease of DKK 2,686 million relative to 31 December
2012 which was mainly due to foreign exchange adjust-
ments of DKK 1 billion, impairment losses of DKK 985
million and transfer of assets classified as held for sale of
DKK 561 million. Of the total impairment losses, DKK 500
million derived from impairment tests in France and the
Netherlands due to an update of the assumptions in the
business plans in the two countries as well as an increase
in the discount rate applied in the Netherlands and DKK
485 million derived from completed divestments and
businesses classified as held for sale, mainly in Western
Europe and the Pacific region.

Of the total goodwill impairment recognised in 2013,
expenses of DKK 119 million (2012: DKK 176 million)
resulted from fair value adjustments from the acqguisition
of ISS World Services A/S in May 2005. See Fair value
adjustments in May 2005 on page 31.

Of the total amortisation and impairment of brands and
customer contractis DKK 398 million (2012: DKK 319
million) resulted from fair value adjustments from the
acquisition of ISS World Services A/S in May 2005. See
Fair value adjustments in May 2005 on page 31.

Capital structure

Equity

Total equity amounted to DKK 4,246 million at the end of
2013 equivalent to an equity ratio of 8.7%. The DKK 861
million decrease in eguity was primarily driven by negative
currency adjustments relating to investments in foreign
subsidiaries of DKK 796 million and the net loss for the
year of DKK 397 million which were partly offset by
actuarial gains of DKK 271 million, net of tax. The negative
currency adjustments were mainly related to a depreciation
of AUD, NOK and TRY against DKK.

Financial review | Our performance 31

ACQUISITION OF ISS WORLD SERVICES A/S IN MAY 2005

In May 2005, ISS World Services A/S was acquired for a purchase

 

 

price of approximately DKK 22 billion. The acquisition resulted in a Fair value Fair value
significant step-up of carrying amounts and thus has had a significant adjustments — adjustment
impact on the Group's statement of financial position as well as on following  remaining at
the Group's results in the subsequent years. When comparing our DKK milli . Os 31 December
financial statements to companies in our industry, this is a significant mon in May
difference.
Goodwil! 6,443 4,330-
In accordance with IFRS the purchase price was allocated to Brands 1,657 1,590
identifiable assets, liabilities and contingent liabilities (”net assets”) Customer contracts 6,665 1,831
with the residual being recognised as goodwill. As the carrying Other non-current and current
amount of the net assets was approximately DKK 9 billion at the assets (156) -
acquisition date, the purchase price allocation resulted in significantly Pensions (30) -
higher carrying amounts for intangible assets, i.e. goodwill, brands Deferred tax liabilities (2,960) (866)
and customer contracts. Furthermore, deferred tax liabilities increased . .
sn , . Non-current loans and borrowings 1,811 20
primarily as a result of the increase in the value of customer contracts N trolling interests and oth . .
and brands. On the other hand, the fair value of non-current loans on-controting Interests and other
, . non-current and current liabilities (299) (1)
and borrowings was lower than the carrying amount due to a .
decrease in the market value of the Medium Term Notes following the . …
announcement of the intended acquisition of ISS World Services A/S. Total identifiable net assets
including goodwill 13,131 6,904

 

The aggregate fair value adjustments (i.e, change in carrying
amounts) following the acquisition and such fair value adjustments
remaining at 31 December 2013 are shown in the table to the right. that a test of the aggregate values at Group leve! would not have led

to impairment. This illustrates the fact that negative developments in

The purchase price allocation was performed at country level (ISS's
relevant CGU level) as required by IFRS resulting in the net assets of
each country being adjusted to fair value based on our best estimate
at the acquisition date of each country's future performance
(estimated NPV of the country). This allocation is binding and
subsequent impairment tests must be performed at country level
based on these higher values. As a result impairment tests have led to
recognition of impairment losses in certain countries despite the fact

certain countries have been møre than offset by positive develop-
ments in other countries. However, according to IFRS the evaluation
must be done at country level and impairment losses in individual
countries can not be offset against positive development in other
countries.

The impact on the Group's results of the fair value adjustments made
in May 2005 are presented below.

 

 

 

 

 

 

2013 2012
Fair Actual Fair Actual
value excl. value excl.

DKK million Actual adj. adj. Actual adj. adj.
Operating profit before other items 4,315 - 4,315 4,411 - 4,411
Other income and expenses, net (100) 97 (197) (308) (24) (284)
Operating profit 4,215 97 14,118 4,103 (24) 4,127
Share of result from equity-accounted investees 6 ” — 6 4 - 4
Financial income and financial expenses, net (2,276) (22) (2,254) (2,726) (22) (2,704)
Profit before tax and goodwill impairment/

amortisation and impairment of brands and .

customer contracts 1,945 75 1,870 1,381 (46) 1,427
Income taxes (919) 5 (924) (960) 5 (965)
Profit before goodwill impairment/amortisation and

impairment of brands and customer contracts to26 80 946 421 (41) 462
Goodwill impairment (985) (119) (866) (385) (176) (209)
Amortisation and impairment of brands and

customer contracts . (667) (398) (269) (679) (319) (360)
Income tax effect . 229 153 76 193 100 93
Net profit/(loss) for the year " (397) (284) (113) ' (450)" (436) (14)

 

Øs

 

32 Group Annual! Report 2013

Net debt

Net debt amounted to DKK 22,651 million, a decrease of
DKK 3,304 million compared with 2012 which was mainly
the result of the significant divestments in 2013. With

the proceeds from the divestment activities, ISS in 2013
completed two excess proceeds offers and conditional
partial redemptions in an aggregate amount of EUR 325.2
million of our EUR 581.5 million 8.875% Senior Subordi-
nated Notes due 2016. At the end of 2013, this left an
aggregate principal amount of approximately EUR 256.3
million of Notes outstanding.

With these two processes, we have addressed 56% of the
most expensive part of our debt, in itself eliminating DKK
215 million in interest expenses on an annualised basis.
This and the underlying operational performance have
been a supporting factor in the deleveraging of ISS.

Financial income and expenses, net

Financial income and expenses, net decreased by DKK
450 million or 17% to a net expense of 2,276 million.

The decrease was mainly the result of a DKK 443 million
reduction in interest expenses, net following the redemp-
tion in December 2012 of the 11% Senior Notes due 2014
and the EUR 232 million partial redemption in July 2013 of
8.875% Senior Subordinated Notes due 2016. Further-
more, the lower average net debt reduced financial
expenses compared with 2012.

FINANCIAL LEVERAGE

DKK billion x
40 - - … - 10
8
;——F

5.8 6

4.5
4
— 2

— 2009 2010 2011 2012 2013

HE Net debt, carrying amount
EC1 Financia! leverage (x pro forma adjusted EBITDA)"

” Pro forma adjusted EBITDA is calculated as Adjusted EBITOA adjusted to reflect
as if all acquisitions and divestments had occurred on 1 January of the respective
year. At 31 December 2013, the Pro forma adjusted EBITDA was estimated at
approximately DKK 4,979 million (2012: .DKK 5,253 million)

In 2013, financial income and expenses, net, mainly
comprised DKK 1,760 million of net interest expenses, DKK
262 million in net loss on foreign exchange and unamor-
tised financing fees and call premiums of DKK 141 million
being expensed as a consequence of the refinancing of the
EUR 600 million Second Lien Facility and partial redemp-
tion of the 8.875% Senior Subordinated Notes.

Tax

Effective tax rate

The effective tax rate for 2013 was 47.3% compared with
69.5% in the same period of 2012, calculated as Income
taxes of DKK 919 million divided by the Profit before tax
and goodwill impairment / amortisation and impairment of
brands and customer contracts of DKK 1,945 million. The
rules concerning limitation on the deductibility of financial
expenses in Denmark, France and Brazil impacted the 2013
tax expense adversely by approximately DKK 196 million.
The limitation is significantly impacted by non-deductible
costs relating to the 2013 refinancing. The effective tax
rate amounted to 39.0% when adjusted for the impact of
the Danish limitation on deductibility of financial expenses.
Further, a valuation allowance on deferred tax assets in
France and the USA following an update of the assump-
tions in the business plans had an adverse impact on the
effective tax rate. Adjusted for this, the effective tax rate
was 30.2%

 

 

Hm not just feeding

"the employees, I make
. sure they havethe
"energy to keep going”

 

 

 

1403024E0ogSN60288

 

 

Derya Ece

Waitress, Schneider Electric

ISS Turkey

Derya is part of the big ISS team delivering

IFS services at Schneider Electric in Kocaeli,
Turkey. As a waitress she is in contact with
many people every day and she likes to talk to
them and hear how their day is going. It's all
about treating people with care and respect.

 

 

 

 

1403024EogSN58283

 

 

Our business

Strategy — The ISS Way

KPIs — Measuring our
performance

Business development
Corporate responsibility
Qur employees

Risk management

ISS HQ, The reception
At the heart of the new ISS headguarters you find
the unique reception area with a sp cuiard
designed especially for iSS
sa one-of-a-kind supg
ere the skilled receptior
employees and guests to the bu:
meeting rooms and internal
Safe:

 

36 Group Annual Report 2013

Strategy
— The ISS Way

Looking back, we achieved significant
progress in realising our vision in 2013.
We have identified five key value-driving
themes which capture the essence of
The ISS Way and which will act as our
strategic compass in connection with our
implementation efforts going forward.
In line with The ISS Way, they are all
about focusing our efforts on what will
have greatest positive impact on the
delivery of our value proposition and
thereby our own value creation.

Our vision

"We are going to be
the world's greatest
service organisation”

This is an ambitious goal, not least when you consider
that we are a team of 533,544 individuals, with millions
of customer interactions every day. To get ihere we will
self-deliver a consistent and excellent service performance,
as defined in our value proposition, enabling our custom-
ers to focus 100% on their core business.

Our vision gives us a clear sense of purpose and promotes
pride in the role we play, individually and as an organisa-
tion, and inspires us to drive the accelerated implementa-
tion of our five strategic themes described below under
The ISS Way. It is the responsibility of our leaders to
transfer the vision into a shared ambition among all our
employees so as to make the difference between good
and great every day on every site.

How willwe know when we have reached our vision?
When our customers as well as our employees have
become loyal ambassadors and active promoters of the
ISS brand and the services we deliver. We measure this
through our globally applied employee and customer
net promoter score methodology.

The following sections outline our overall strategic
direction and the strategy we are pursuing to fulfil our
vision. However, before we move to the details of the
strategy, we will outline some key elements of the market
in which we play an active role.

Our marketplace

The market for facility services has an estimated value
of =USD 1 trillion (outsourced market).

The market includes services such as cleaning, catering,
property maintenance and security. Services are delivered
on a recurring basis such as daily cleaning of facilities or
the running of an in-house canteen. Services can be
delivered as single services, multi-services and/or inte-
grated facility services (IFS). Furthermore, the services

can be offered to customers as a self-delivered service or
as a managed service, which means the service is managed
by one party (the facilities management firm) on behalf of
the customer and delivered by other parties (sub-contrac
tors). In addition to recurring business, services can also be
delivered on an ad-hoc basis such as hospitality events.
These so-called once-only jobs are typically delivered as
single-services directly on order from the end-user and are
often provided by existing service providers. In our case,
approximately 80 percent of our revenue is based on
recurring business (portfolio business) while the balance
comes from once-only jobs (non-portfolio business).

The contractual relationship with the customer is either
”input-based” or ”output-based”, Generally speaking, the
former involves committing an agreed number of full-time
employees to the delivery of the given service at a set
cost plus a margin to the provider while the latter (also
known as a "performance contract”) involves establishing
together with the customer specifications for the result

 

 

(the ”output”) of our service delivery, e.g. a certain
measurable level of cleanliness. Traditionally, the market
has been dominated by input-based contracts while
output-based contracts are gaining ground.

There is also a geographical aspect to the market. Some
markets are mature and have shown themselves to be
receptive to new developments, e.g. output-based
contracts and iFS, not least the markets in Europe, while
the emerging markets are growing quickly from a base
dominated by the more traditional input-based contract
structure. There are also differences within the overall
market types (mature and emerging). In ihe markets of
northern Europe, IFS is a known quantity where a material
part of the market is already receptive to service bundling
and integration while in the southern European markets
service integration is at a More nascent stage.

In other words, there are many different ways to address

this market and it has many different aspects to consider.

We therefore see it as paramount that our strategy clearly
defines which part of the market we are targeting.

Our market focus

Our market choices have naturally focused on identifying
the market segments where our value proposition
resonates and that have the greatest potential to contrib-
ute to the value we want to generate for our stakeholders.
In this vast and diverse market, ISS has chosen to focus on
large and medium-sized Business-to-Business customers
such as banks, hospitals, the food manufacturing industry
or remote sites where the need for our services makes a
difference to their business as a strategic partner helping
to fulfil their objectives. We provide these customers with
a value added offering which, in addition to a cost-effi-
cient solution, delivers among other things risk manage-
ment and a sustainable and transparent solution.

Our focus is on the self-delivery of on-site facilities services
within cleaning, property services and catering, globally
and locally. We deliver these offerings as single service,
multi-services or IFS. We further provide other support
services, security and facilities management principally as
part of IFS contracts but also as single services. Our core
services share a number of traits. They are site-based,
asset-light, personnel-intensive, suitable for self-delivery
and integration with the other services we provide. We
also provide mainly services, which are delivered on a
recurring basis and thus give us greater top-line transpar-
ency. Our intention is that non-portfolio (”once-only”)
jobs will principally be provided to our existing customers
as an integral part of our overall offering.

1403044EogSN50228

 

Strategy — The ISS Way | Our business

How do we meet the customer's
needs?

Basically, our job is to take over on-site facility services that
are non-core for our customers. Hence, we ensure that
facilities are clean, that users are courteously greeted and
guided, that facilities have a consistently comfortable
temperature and are properly maintained, that users

can get a coffee or a meal, that access is monitored and
controlled and that the delivery of all this is orchestrated
in an efficient manner. In some cases, we provide only
one service, and in some cases we provide many services.
In this way, we meet the basic needs of the customer by
providing a service vital to ensure the proper and orderly
operation of their facility.

However, the actual delivery of the service is only part
of the value we contribute. The elements of our value
proposition actually assist customers in living up to their
specific purposes and priorities, e.g. when:

o a customer in the oil and gas industry requires us
to deliver reliable and consistent health and safety
compliance given the hazardous environments in which
they work;

o a hospital demands our reliable delivery of specific
and measured levels of hygiene to minimise the risk of
cross-infection and with the overall purpose of healing
patients; or

G aslaughterhouse needs us to help them meet certain
regulatory requirements for cleanliness levels and to
minimise the risk of infections or food poisoning and
overall purpose of ensuring quality and avoid product
recalls.

THE ISS VALUE PROPOSITION IN A NUTSHELL

Service performance.

EFFECTIVENESS

   

  
     
 

…facilitating
our customers'
purpose.

EASE

EXPERIENCE

….through people
empowerment

 

 

37

38 Group Annual Report 2013

Our self-delivery model is a fundamental component

to successfully delivering our value proposition to the
customer. Without our own frontliners where we can
establish a common corporate culture, brand, values,
processes and procedures (to name but a few) we would
not be able to lead the way in service performance that
facilitates our customers" purposes. Our self-delivery model
allows us to address core customer needs such as risk
transfer, brand protection, flexible delivery and integration
of services. Caring as if the customer's business were our
own is at the heart of. each empowered ISS individual who
makes a difference in facilitating our customers' purpose.
Ultimately, it is about unleashing the potential of ”The
Power of the Human Touch” which is our lever In becom-
ing the world's greatest service organisation.

Self-delivery allows us to provide the customer with a
transparent and sustainable solution as we can impact

THE ISS WAY - THE FIVE STRATEGIC THEMES

the cost of delivery through the implementation of our
best practices, processes and service integration. With
our own frontliners, we are also able to share site-level
information with customers to facilitate strategic and
operational decision-making by the customer with respect
to the optimisation of their facility portfolio.

What does this imply for our
strategic direction?

To continue to deliver — and refine — this value proposition,
requires that we continue the implementation of our
strategy. We are aligning the organisation behind our value
proposition by investing in leadership and supplementing
service and segment capabilities (excellence) where
necessary. We are divesting businesses that are not core

to the delivery of our promise, We are transitioning our

 

1. Empowering people
through great leadership

Leadership is our key strategy enabler.
Great leaders extract the value
embedded in The ISS Way by
establishing a sense of purpose and
driving alignment. Through effective
communication, our leaders empower
people, motivate the organisation and
attract new talent. We will continue
to invest in leadership through
development programmes — at many
levels of our organisation — and in the
implementation of our Leadership
Principles.

We have established a number of
measures to follow the development
of leadership at ISS. We have a
globally aligned measure of customer
and employee satisfaction (the ”net
promoter score” methodology) as
well as a leadership survey measure.
There is a direct correlation between
these scores and the financial and
operational measures we follow —
strong leadership and employee
engagement translates into strong
financial performance.

2. Transforming our
customer base

We must make conscious choices
with respect to our customer focus
to deliver a unique and compelling
value proposition. Making choices
also means making trade-offs.
Implementatiori of The ISS Way will
continue to drive the transformation
of our customer base towards
customers who are more likely

to appreciate the benefits of our
offering and with whom our value
proposition resonates. We must
match our value proposition with
our customer base.

  

3. Fit for purpose organisation

Transforming our customer base

will require organisational changes.
Over time, we will migrate from a
service-based to a customer-based
organisation model. Ensuring a
customer-oriented, lean and effective
organisation is at the heart of The ISS
Way. By extracting synergies, sharing
best practises, enabling the deploy-
ment of excellence and balancing
group standardisation with local
adaption, we can optimise the
delivery of our value proposition.
Furthermore, ensuring that the
organisation Mirrors our choices

on the customer base facilitates our
commercial strategy and allows us

to continue to right-size the organisa-
tion and optimise above unit costs
(overhead).

 

commercial focus towards a more specific approach to
customer segments where our value proposition clearly
resonates. We are also looking to align our business
behind optimising delivery to our chosen customers. We
are working to ensure that the organisation is IFS ready,
as this delivery type continues to grow apace as customer
demand continues to evolve. We furthermore seek to
extract synergies such as through implementing standard
procurement processes.

Our characteristics will change as a consequence of our
strategy and as we continue on our journey of strategy
implementation. Our customer segment mix will evolve
and our IFS activities will grow as a percentage of Group
revenue. Emerging markets will also be accretive to our
top-line growth and be an ever-bigger part of our global
footprint.

 

4. Ready to deliver IFS

Our IFS revenue has almost trippled
since 2006. Our ability to self-deliver
the services needed to run a facility
as a ”one-stop shop” for customers
locally, regionally and globally, is

at the core of our differentiated
value proposition. IFS readiness is
therefore key to serving global

Strategy — The ISS Way | Our business 39

The ISS Way

We are on the right path. We have the right strategy.

We continue to implement this strategy. We just want to
do it quicker. Going forward we have therefore identified
five strategic themes which we will focus on and which
will move us closer to realising our vision. These are: 1)
Empowering people through great leadership; 2) Trans-
forming our customer base; 3) Ensuring a fit for purpose
organisation; 4) IFS readiness; and 5) Striving for excellence
— please see below for elaboration.

The past years have been an exciting period for ISS — not
least in terms of our transformation into a global provider
of facility services. The continued implementation of The
ISS Way — in the form of the five strategic priorities — will
take us to the next level of service performance to the
benefit of all our stakeholders.

 

5. Striving for excellence

To become the world's greatest
service organisation, we Must
identify and implement relevant
excellence initiatives per site in
an aligned and standardised way.
To achieve this, excellence must
permeate the entire organisation
from procurement to frontline

customers and grasping new local
market opportunities. To this end,
we have established a number of
IFS Centres of Excellence globally.
These centres are used as showcases
to demonstrate to customers and
ISS managers, the benefits and
workings of IFS.

training. It is not about implement-
ing everything — it is about identify-
ing, prioritising and driving the
excellence initiatives that generate
the most value.

An example is our efforts in
procurement where we have
established a central global procure-
ment team which has mapped our
major spend categories. Extracting
procurement benefits on these
major categories is well under way
and a substantial further savings
potential is being pursued.

 

40 Group Annual Report 2013

KPIs — Measuring
our performance

Achieving our vision of becoming the
world's greatest service organisation is
an ambitious goal. To ensure that we
are moving in the right direction and
progressing in terms of our five strategic
themes, we measure our performance
using a wide range of financial and
non-financial KPIs.

At ISS, we have a long history of measuring our financial
performance at all levels of the organisation — from Group
level and all the way down to the individual contracts. We
measure our financial performance throughout the Group
mainly in terms of our three primary financial KPIs: 1)
organic growth; 2) operating margin; and 3) cash conver-
sion. These KPis are well-established and integrated in
bonus plans throughout the organisation to ensure that
objectives are aligned at all levels of the organisation.

FINANCIAL KPIs

Organic growth

new customers.
Operating margin

more efficiently.

Cash conversion

and borrowings.

DESCRIPTION OF MEASURE

Measures our ability to grow our business
organically by increasing sales to existing and

Measures our ability to improve operational
performance by managing costs and working

Measures our ability to convert operating
profit into cash. A strøng cash conversion
allows us to deleverage by repaying loans

In addition to our three primary financial KPIs, we measure
a number of non-financial KPIs at various levels of the
organisation, In recent years, we have worked on imple-
menting balanced scorecard reporting and on defining
which KPIs, financial and non-financial, could be relevant
for measuring and reporting on a regular basis. As we
continue our strategy implementation and progress on
our five strategic themes, we also continue to implement
additional relevant KPIs.

The following are examples of the most significant
financial and non-financial KPIs at Group level that we
measure and report on a regular basis. The list is not
exhaustive, as we Measure a number of other KPIs at
Group level as well as at other levels of the organisation.

Most of the KPIs are relevant for all five strategic themes.
The descriptions set out below refer only to the theme(s)
that are the most relevant for each KPI.

REFERENCE TO STRATEGIC THEME

B Transforming our customer base
Ready to deliver IFS

aA Transforming our customer base
Fit for purpose organisation
Ready to deliver IFS

Striving for excellence

a Transforming our customer base
Fit for purpose organisation
Striving for excellence

 

KPIs — Measuring our performance | Our business 41

NON-FINANCIAL KPIs DESCRIPTION OF MEASURE REFERENCE TO STRATEGIC THEME

Employee engagement .

Measures the engagement of our employees
on a scale from 1 to 5. The measure and the
result of the survey for 2013 is described in
"Qur employees”.

Empowering people through great
leadership

 

Employee Net Promoter Score
(E(NPS))

Measures the loyalty of our employees
through a direct question of how likely the
employee is to recommend ISS to others as a
place to work.

Empowering people through great
leadership

 

Lost working days

The estimated number of full-day equivalent
working days lost due to workplace injury
and/or work-related illness for people
employed in the 12-month reference period.

Empowering people through great
leadership

 

Customer Net Promoter Score
(NPS)

Measures the loyalty of our customers
through a direct question of how likely the
customer is to recommend ISS to others as
business partner.

a Transforming our customer base
Striving for excellence

 

Revenue by segment

Measures the revenue split between our
identified customer segments.

aA Transforming our customer base

 

Revenue by service

Measures the revenue split between our
services. ”

as Transforming our customer base

 

Revenue by delivery

Measures the.revenue split between our
delivery types.

EJ transforming our customer base

 

Share of revenue self-delivered

Measures proportion of self-delivered
revenue to total revenue.

Ready to deliver IFS
Striving for excellence

 

Portfolio value including growth
and loss rate

Measures the revenue value of our recurring
business (i.e. once-only jobs are not
included) based on current base of customer
contracts as well as the portfolio growth and
loss rate.

Aa Transforming our customer base

 

Cost percentage benchmark

Measures the level of variable and fixed costs
per country for benchmarking purposes.

aA Transforming our customer base
Fit for purpose organisation

 

IFS share of revenue

 

Measures the relative share of IFS revenue to
total revenue.

Ready to deliver IFS
Striving for excellence

 

 

14093944E09SN 9916

 

 

& | ensure a great
: shopping experience”

 

   

Zeng Suoshi
Security guard, Far East Department Store

ISS China

In the Far East Department Store in Wuxi City,
China, Zeng helps guarantee the safety of the
customers. He patrols the store and makes
sure that everything is in order. When the
customers experience a safe and great
shopping trip, Zeng is happy.

Business
development

Consistent with our strategy, we have
developed our business substantially over
the past decade. Our characteristics have
changed — and they will continue to
change as we continue on our journey
of strategy implementation.

Since 2006, we have transformed ISS from being primarily
a cleaning provider into a full facility services provider,
while also significantly increasing revenue from integrated
facility services (IFS) contracts, international contracts
(through our Global Corporate Clients organisation) and
emerging markets.

Our business model has transformed from a product-
oriented to a customer-oriented approach focusing on
developing leading value propositions to our chosen
customer segments founded on our philosophy of self-
delivery of excellence within each of our service offerings.

During 2013, we continued to make progress in developing
our business. Focused on customer needs, we continued
to leverage efficiencies and implement best practices
globally in order to align the organisation behind our value
proposition and 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 promote a strong
and uniform commercial culture and craft 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 corpora-
tions for the delivery of IFS across borders.

3

1403944E0g5N86393

Business development | Our business 43

The progress we have made and how the characteristics
of our business have changed since 2006 is demonstrated
by the following three measures:

oa Revenue by customer segment
& Revenue by service delivery type
& Revenue by service type

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 Classification.

Our service concepts are tailored to address specific
customer needs in order to provide added value offerings
to our selected customers. This entails defining variations
of our service offerings built on our fundamental compe-
tencies and presenting an integrated solution of services
customised for a given segment, We focus on key
accounts, large and medium-sized Business-to-Business
customers where the need for our services makes a
difference to their business as a strategic partner helping
to fulfil their objectives. It is also within this segment that
our value proposition resonates fully as these customers
demand a value-added solution with characteristics such
as risk management and brand protection. This segment
already represents a majority of our revenues and we plan
to continue building strategic relationships with our largest
customers.

From an industry segment perspective, Business Services

& IT, Industry & Manufacturing, Public Administration and
Healthcare are our largest and most important customer
segments, and our focus remains to develop service
solutions for these segments. Not least Business Services
&IT has grown as a result of our focus on this segment
through our Global Corporate Clients organisation and
regional and national sales force efforts. This focus
produced several major contract wins, such as the multina-
tional IFS contract with Barclays in 2012 and Nordea in
2013, increasing revenue in the Business Services & IT
segment, which increased its share of revenue to 29% and
thereby remained the largest customer segment in 2013.

 

44 Group Annual Report 2013

USUS IEA AE

4 November
Royal opening of the
new ISS headquarters

 

ISS celebrated the opening of its

new global head office together with
clients, employees and special guests.
The building was officially inaugurated
by HRH The Crown Prince of Denmark.

The new global head office is designed
to motivate people to break down silos
and interact across departments and
functions — a workplace showcasing
what ISS stands for: world-class
innovation, efficiency and flexibility.

Many prominent visitors stopped by at
the inauguration to congratulate ISS on
the new state-of-the-art headquarters.
HRH The Crown Prince of Denmark was
there to cut the ribbon. The official
opening speeches were given by the
Chairman of ISS, Lord Allen of
Kensington CBE; ISS Group CEO, Jeff
Gravenhorst; the Danish Minister for
Employment, Mette Frederiksen; Head
of Workplaces at Nordea Bank, Ove
Hygum; and Mayor Karin Søjberg Holst.

The share of revenue from Industry & Manufacturing
remained on a level with 2012 at 14% in 2013, while
revenue from Public Administration decreased from 14%

in 2012 to 13% in 2013. The slight decrease is a result of
divestments, the impact from reduced public spend in
several countries in Western Europe and the decision to
exit public sector customers in certain regions. The revenue
share from Healthcare was unchanged 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 IFS.

In a single-service outsourcing, the customer buys one
service solution from ISS, for example by outsourcing their
Catering 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 services under
one contract with a single point of contact on-site, which
allows us to integrate the facility service functions taken
over by ISS at the customer's premises. The customer recei-
ves both the full potential of single-service outsourcing
and the advantages of integrating services, including cost
efficiencies and a more efficient and flexible service set-up.

Qur strategy clearly focuses on IFS solutions to our selected
customers. This has over the past decade led to significant
growth in our IFS revenue, from approximately DKK 8
billion in 2006 to approximately DKK 21 billion in 2013.
Our IFS solution revenue base has been fully organically
grown through our Global Corporate Clients organisation
as well as at country and regional level.

We will continue to ensure that our organisation is ready
to deliver IFS, something that we have identified as one of
the key focus areas of our strategy. Accordingly, we expect
our IFS revenue to grow further as we continue our
strategy implementation.

In 2013, IFS generated 26% of our revenue compared with
14% in 2006. Multi-services and single services generated
17% and 57%, respectively, compared with 15% and 71%
in 2006. The increase in the share of revenue origin from
delivering IFS or multi-services increased by 14 percentage
points from 2006 to 2013 with a similar reduction in the
share of revenue stemming from delivery of single services.
This illustrates that we have continued to attract customers
who see the benefits of our IFS offering, and have thus
progressed in implementing our strategy.

Business development | Qur business 45

The relative share of revenue origin from delivering multi-

services or IFS solutions is increasing in all regions, with the
largest increases seen in Western Europe (primarily in the

United Kingdom, Switzerland, Germany, Spain and Turkey), — 222.83 mme
North America and Asia, driven by the large multinational FEE 14% Industry & Manufacturing
IFS contract wins in recent years but also by large local ORE 132% Public Administration
ms
Cam

29% Business Services & T

multi-service and IFS contracts. Multi-service and IFS
contracts allow ISS to exploit synergies in the provision

11% Healthcare
7% Retail and Wholesale

of services and create stronger customer relationships. IO 7% Transportation & Infrastructure
LI] 4% Energy & Resources
i | 4% Hotels, Leisure & Entertainment
Revenue by service type Em 4% Food & Beverage
td 3% Pharmaceuticals

 

ISS offers a range of facility services within cleaning services, …… 4% Other
support services, catering services, security services and 0 5 10 15 20 25 30
facility management. Our focus is to understand customer

needs and provide the services required to meet them.

The transformation from primarily being a cleaning provi-

 

 

 

 

 

der to becoming a fuil facility service provider is illustrated

by our increasing volume of non-cleaning services and the

fact that non-cleaning services now make up 51% of our DKK billion

business compared with 43% in 2006. Individually, all BEER 2013: 57%

service types have grown in absolute terms. i j 2006: 71%
2013: 17%

Cleaning services have been at the heart of our opera- 2006: 15%

tions for a very long time, and over the years we have 2013: 26%

developed a wide range of cleaning services — from m 2006: 14%

providing basic general cleaning to highly specialised niche 0 10 20 30 40 50

cleaning services, Our cleaning services offering encom- EEN Single-services

passes a range of services within daily office and facility CI Multi-services

cleaning for commercial customers, industrial cleaning, KL Integrated facility services

cleaning in transport systems, dust control, washroom
services and specialised cleaning, such as cleaning of
nuclear plants, hospitals or food production facilities. Our
cleaning service offering in many instances also serves as
an entry point to supply additional! services to customers.

REVENUE BY SERVICE

In 2013, cleaning services remained our largest business .
area with revenue of DKK 38.5 billion, representing 49% DKK billion

 

 

 

 

 

 

of Group revenue down from 57% (DKK 32.1 billion) in BENENE 2013: 49%
2006. In line with our strategy to broaden the service | ' 2006: 57%
platform, cleaning services" relative share of Group revenue É | 2013: 20%
has consistently declined in recent years, while the revenue meen | | 2006: 23%
share from support services, catering services and security Ca | | 2013: 11%
services in particular has steadily increased. Since 2006, (al ! | | 2006: 7%
the cleaning services share of revenue has therefore == | | | 2013: 8%
continued to decrease partly as a result of the building of O ; | 2006: 5%
the service platform through acquisitions of services other Im | | | 2013: 8%
than cleaning, especially in 2007-2009, and partly as a Q | | 2006: 4%
result of the subsequent utilisation of the existing service mm | | 2013: 4%
platform to grow organically since 2010. In the short term, d | | | 2006: 4%
we may, experience a slight increase in the cleaning 0 10 20 30 40 50
services share of revenue as we continue to divest busi- IHRE Cleaning services

nesses that are non-core to our strategy. HEE Property services

DI Catering services
i . |. . Support services
Property services includes building maintenance, ET Security services

technical maintenance, landscaping and pest control. HT Facility management

" 1403044EogSNB0998

   

46 Group Annual Report 2013

KEY EVENTS 2013

28 February
Red Cross and ISS in
close cooperation

DANISH
RED
CROSS

 

The Danish Red Cross has appointed ISS
to provide a wide range of services in
Denmark.

The Red Cross has more than 13 million
volunteers in 186 countries and more
than 20,000 volunteers in Denmark
alone. ISS delivers a service solution to
the Danish Red Cross, which comprising
cleaning, technology, washrooms,
indoor plant service, waste, snow
removal, green care and window
cleaning.

Price and quality were both crucial
parametres for the Danish Red Cross in
choosing a new service provider. It was
also important to the Red Cross that ISS
as a company emphasises corporate
social responsibility. Since 2011, ISS has
cooperated with the Danish Red Cross in
organising an annual holiday camp for
marginalised families.

In 2013, revenue from property services was DKK 15.3
billion, representing 20% 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, 2012 and 2013, including the pest
control activities in 12 countries as well as the Nordic
damage control activities in 2013. These divestments
involved non-portfolio-based services and thereby underline
the strategic focus on portfolio-based on-site services.

Catering services includes in-house restaurants, hospital
canteens, catering services to remote sites, corporate
catering and office catering services.

In 2013, revenue from catering services amounted to DKK
8.5 billion (2006: DKK 3.6 billion) equal to 11% of Group
revenue, which is an increase of 4 percentage points from
2006 despite the divestment of the coffee vending
business in Denmark and Norway in late 2011. in 2013,
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 large IFS contracts.

Support services includes the operation of receptions,
internal mail handling, scanning, other office logistics, call
centres, manpower supply and outplacement services.

In 2013, support services accounted for approximately
8% of Group revenue, up from 5% in 2006. In absolute
figures, revenue increased from DKK 2.9 billion in 2006
to DKK 6.5 billion in 2013. In 2013, support services were
favourably impacted by an increase in services provided to
Global Corporate Clients customers and cross-selling of
services mainly to cleaning customers, which was partly
offset by lower demand for manpower supply services.

Security services includes manned guarding, access
control and patrolling of customer facilities and the
installation of alarm and access systems.

Revenue was. DKK 6.3 billion, equivalent to 8% of Group
revenue in 2013, an increase of 4 percentage points from
2006 (DKK 2.4 billion). The increase is mainly due to
strategic acquisitions during the period, including the
acquisition of the Indian company SDB Cisco Ltd. in 2010
which added approximately DKK 400 million in annual
revenue. The growth in our security services mainly takes
place in the emerging markets while in certain mature
markets we see greater benefits in establishing strategic
partnerships with large security service providers. This led
to the divestments of security activities in Norway, the
Netherlands and Denmark in 2012 and 2013, respectively.

Facility management includes on-site management of
facility services, change management, space management
and consulting. Revenue increased to DKK 3.3 billion in
2013 (2006: DKK 2.1 billion), equivalent to 4% of Group
revenue, the same relative share as in 2006.

 

14030447 50219

Corporate
responsibility

We believe that long-term sustainable
business success relies on a high level
of Corporate Responsibility (CR), as
economic, social and environmental
issues are inevitably interconnected.
Due to our long-held corporate values
for quality, honesty and responsibility,
our commitment to CR has evolved
organically, and today it is an integral
part of our corporate values and our
strategy The ISS Way. In addition,
credible and effective risk management
of HSE and labour law management is
a major part of the value proposition
we offer.

As a global company with more than 533,000 employees
serving both private and public sector customers in more
than 50 countries, we influence the lives of many people
every day through providing employment and training as
well as safe and healthy work environments for millions
of employees and customers in the facilities we service.

Our business is based on human capital. We need capable
and engaged employees who are motivated and proud of
working at ISS to ensure a positive customer experience.
We believe, that having sound CR policies embedded in
the way we conduct our business is the best way to
motivate our key resource, our employees, and thereby

to take care of our customers, if our employees feel safe,
satisfied and engaged, our customers will experience the
service we deliver in a more positive way.

Furthermore, CR is becoming increasingly important for
our customers as they strive to improve their own business
performance and make a positive impact on society.

Corporate responsibility | Our business 47

The leading global companies require a consistent CR
performance from their partners, which is increasingly
becoming a key factor in winning and retaining contracts
with most customers. It is therefore important for us to
be able to demonstrate that we understand their CR goals
and are capable of addressing them. Our systematic
approach to CR, such as our Group Health, Safety and
Environment management system, supports this ability
and understanding and helps us in our efforts to become
a preferred partner to our customers and the employer
of choice in our industry.

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 Organisation. ISS has made a
strong commitment as a signatory and supporter of the
United Nations Global Compact since its inception in 1999.
In line with membership regulations, we are 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

We have adopted a principles-based approach to CR that
contributes to sustainable development as defined by
the international community. This approach effectively

COMPULSORY REPORTS

This CR chapter does not constitute ISS's full report

on CR. The fuli CR Report as per section 99a of the
Danish Financial Statements Act is available at

wwwwyri nsibility,isswor! rt2013 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.

 

 

48 Group Annual Report 2013

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.

We have developed and rolled out across the Group a
strategy for Health, Safety and Environment (HSE) and CR.
This strategy supports the overall Group strategy and the
HSE Vision ”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.

Qur initiatives and actions

For the past four years we have built and implemented an
operational framework to create a consistent approach to
HSE across the Group. The objective is to achieve continu-
ous improvements in quality and performance. The Group
HSE manual, based on four international standards (OHSAS
18001, ISO 14001, ISO 22000 and ISO 9001), provides

a systematic approach to HSE management across the
Group. Our systematic approach supports the delivery

of our services consistently across the world and thereby
helps our customers reduce their risks.

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 performance, and the
stated targets and actions are reviewed and amended
annually as deemed appropriate to meet our HSE Vision.
Actions that countries were required to incorporate in
their country action plans in 2013 were for instance:

& Individual Personal Safety Action Plan for management
including KPIs (lagging and leading indicators).

&. Establishment of an HSE Leadership Team comprising
the country management team and the country's HSE
responsible.

A part of the overall strategy for HSE and CR is to demon-
strate our performance through measuring, Monitoring
and reporting. To support this goal, in 2011 we began to
implement an HSE IT tool, a performance management
system that enables us to monitor and document our

HSE performance, compliance and risk management. The
implementation continued in 2013, and the system has
now been implemented in all regions of the Group. Our
HSE system has two main purposes; first and very impor-
tantly raising the awareness for employees and stakehold-
ers to ensure that HSE gets prioritised, and secondly
improving the quality of our reporting globally. We believe
that a systematic approach to reporting, investigating and

developing corrective actions will improve our HSE culture.
More importantly, it will also help to ensure that responsi-
bility and ownership of HSE is transferred to operations,

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 keep ISS management and
external stakeholders informed of our performance and
track progress towards the achievement of our HSE and
CR commitments.

In order to stay On course and keep HSE in constant focus,
we run an annual global campaign "Me and You". The
campaign covers safety, health and the environment and
emphasises that HSE is a common responsibility and that
we all play an important role in HSE. Since the launch in
2010, the campaign has been repeated each year but with
changing focus points reflecting the challenges currently
faced within the three areas. In 2013, the safety campaign
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 environmental 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 environmental impact
from ISS's operations derives from our cleaning services
and consists of the use of chemicals as well as water and
energy consumption. We also emit CO, through the use
of cars in our operations and travel activities.

There are three ways we can influence the extent of our
impacis:

2 Through conscious behaviour in terms of consumption
at our own sites;

& Through the design of processes and the equipment
we use at customer sites;

e Through the portfolio of services we offer to our
customers.

We have developed the Green Cleaning Tool, a simple
computer-based program to help our operations develop
and offer our customers cleaning solutions that use less
chemicals, less energy and less water. We are now able

to govern our own impact on the environment in a More
structured and systematic way with the implementation of
the HSE manual, including the management and reporting
system. In addition, many ISS operations are already
certified to environmental standards such as ISO 14001.

In 2013, we also continued to roll out the ISS Green
Offices Programme (GOP) bringing the number of partici-
pating countries to eight. The GOP is an office-based
programme designed to reduce the environmental impact
of our own ISS offices and daily work practices. By

 

 

changing our behaviour, we can reduce our environmental
footprint by using resources efficiently and disposing our
waste responsibly.

Other CR initiatives

Qur supply chain is part of our value proposition and

to ensure that our suppliers, subcontractors and other
providers are aligned with our commitment, we have
developed and implemented the ISS Supplier Code of
Conduct. It contains ISS's key principles and requirements
to our suppliers, subcontractors and other providers with
respect to responsible social, environmental and ethical
practices.

All suppliers — and their sub-suppliers — must comply with

this code and ISS expects all suppliers to communicate the
obligations set out in the code and ensure compliance with
the code throughout their organisations and supply chains.

We have also developed a supplier self-assessment
questionnaire for our major suppliers dealing with issues
such as our Code of Conduct, forced labour, non-discrimi-
nation, human rights and child labour. This is to ensure
that we also include the supply chain in our CR scope. In
2013, we followed up on this process with an audit carried
out at a supplier's factory in Ningbo, China.

Our performance and targets

Consistent with the ISS values, our highest priority is to
protect our employees from injury. We will be steadfast

in our commitment to make our workplaces free from
hazards, and we will operate under the assumption that
all injuries can be prevented and that injuries are unaccep-
table. Our goal will always be zero injuries and zero
environmental incidents, and this must be clear to
everyone in the organisation.

Corporate responsibility | Our business 49

The following Group targets were established for 2013:

1. Fatalities

In accordance with the HSE Vision, our first priority is

to prevent fatalities at our work places. Our Group target
is zero.

2. Lost Time Injury Frequency (LTIF)
The Group target for 2013 was to reduce LTIF by 45%
relative to our baseline figure to less than 7.

3. Lost Work Days (LWD)

The Group target for 2013 was a reduction of 35%

per 1,000 exposure hours relative to the baseline figure
in 2010.

4. Audits
To carry out audits on CR issues of at least 20% of the
countries we operate in.

5. Employee engagement survey

Conduct an annual survey with the target of having given
400,000 of our employees in 50 countries an opportunity
to respond to the questionnaire by the end of 2013.

Our performance in relation to the targets is summarised
below.

Sadly, the 2013 reporting shows a number of fatalities
associated with our operations: six people have died at our
workplaces in 2013. As our HSE Vision is zero fatalities at
our workplaces, the number of fatalities is not acceptable.
To achieve our HSE Vision of zero fatalities, we are
focusing our efforts on embedding HSE culture in our
operations. As five of the fatalities were traficrelated, our
focus for the global safety campaign in 2014 will be driving
safely. We are also working on making safety a common
responsibility. We will focus our efforts going forward on
getting management at all levels to understand their roles
and responsibilities in terms of safety. Our success depends

HSE PERFORMANCE

 

 

Target Performance
2013 2013 2012 2011 2010
Fatalities Zero 6 7 7 5
Lost Time Injury Frequency (LTIF) Less than 7 7 8 10 11
Lost Work Days (LWD), % More than 35 34 17 0 -
Audits on CR (% af countries) More than 20 28 30 25 -
Employee engagement survey 400,000 337,154 235,548 150,000 -

 

1403044HogSN60920

50 Group Annual Report 2013

KEY EVENTS 2013

10 July

ISS delivers integrated
facility services for H. J.
Heinz in Europe

 

ISS and H, J. Heinz, one of the world's
leading marketers of branded foods to
retail and foodservice channels, entered
into a new partnership covering the
delivery and management of integrated
facility services (IFS) throughout Heinz
in Europe.

Building on almost 20 years of
cooperation in the United Kingdom,

the new five-year contract covers 15
food manufacturing and office locations
in eight countries across Europe:

the United Kingdom, Ireland, the
Netherlands, Italy, Spain, Belgium,
Poland and France.

ISS provides catering, cleaning, grounds
maintenance, mechanical and electrical
engineering maintenance, pest control,
property services, reception services,
security and waste management as part
of the new contract.

on the full commitment of all levels of management
starting at country management level and this is a vital
requirement of our Group HSE manual.

Going forward

We believe that we 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 identification and risk
management in our operations and continuing to improve
our incident investigation performance. We will also
further develop the value propositions for our customers
by identifying the needs, providing solutions and outcomes
based on our skills and experience in these areas.

Our employees

Our 533,544 employees worldwide
represent ISS on a daily basis when they
deliver our services and engage with our
customers. Our customers are constantly
evaluating the strength of the ISS brand
based on their interactions with our
people. When we are recognised as

a great company it is because our
employees are delivering a great service
day in and day out, 365 days a year.
This reinforces our firm belief that

by engaging and empowering our
employees we can ensure that our
people choose to do the right thing

and that they are great ambassadors of
ISS no matter where they live or work.

The importance of great leadership

We place strong emphasis on leadership and the quality
of the people that we appoint to leadership positions
because that is the root of our people”s engagement and
what gives ISS the strength that differentiates us from the
competition.

Ensuring the right leadership behaviour is a high priority
for us as it enables us to continuously improve our services
and to do so in a values-based way. Our approach to
leadership is expressed in our Leadership Principles and

in the way we have integrated them into how we select
and develop our leaders. From the recruitment process to
the annual appraisal our Leadership Principles is part of
living the ISS culture.

As our greatest strategy enabler, leadership is the key
focus of our Human Resources strategy around the world.
We make this happen by focusing on five key initiatives:

HOGAN GENRODN

Our employees | Our business 51

1. Leadership development — Ensuring global and
regional leadership development programmes are in place
and adhere to our strategy and Leadership Principles.

2. Performance management — Ensuring each employee
has a purpose for their role as well as objectives which are
aligned with the overall purpose of the Group.

3. Talent management — Focusing on talent identifica-
tion through the succession planning process and working
with regions on development plans to prepare people for
key roles.

4. Succession planning — Creating a continued focus on
succession planning to mitigate risk and drive our strategy.

5. Engagement and pride — Using a global survey to
measure employee engagement and alignment to the
purpose of ISS.

Our Human Resource vision guides the HR agenda of ISS:

"it is our ambition that all leaders at every level of the
organisation lives and breathes according to the ISS
Leadership Principles — promoting teamwork and collabo-
ration across borders and business — ensuring that each
and every one of our more than 533,000 employees work
towards our shared vision of being the greatest service
organisation in the world”.

Great leaders are able to connect the frontline employees
to the senior executives, ensuring that the organisation as
a whole understands its purpose and how it creates value
to our customers. It is this alignment of purpose, which
drives the empowerment of our frontline employees.

Leadership development and training

Communication and training are two'key elements of
developing leadership at ISS. To this end, we have invested
heavily in leadership programmes at ISS since the launch of
The ISS Way in 2008. We launched the Strategy and the

52 Group Annual Report 2013

UR Æ SEK El

27 September
ISS superheroes swing
into action

 

Three ISS team members in Rochester,
Minnesota — Roger Corcoran, John
Carroll and Kyle Smith — displayed their
inner superheroes by bringing a little bit
of magic to the halls of Mayo Eugenio
Litta Children's Hospital and smiles to
the faces of paediatric patients.

The crew gathered paediatric patients

in front of the atriums on the third floor
of the hospital for a surprise. A collective
gasp of surprise came from the kids,
their parents and their caregivers when
Batman dropped into view, followed by
other superheroes.

After a short game of tag on the
windows, the three superheroes
dropped out of view, only to arrive
inside the atrium minutes later to meet
with the cheering children and their
parents.

Value Chain programme in 2010, which was mandatory for
regional and country management and held at least once
in every region. We continue to run the ISS Advantage
senior manager induction programme, which is also
focused on our strategy and the ISS value chain manage-
ment tool.

More recent additions are the Leadership Mastery pro-
gramme for top management and a number of pro-
grammes at supervisor level, which provide our employees
with the essential understanding of the key elements of
our strategy and give them tools relevant in their daily
work. Ensuring that our leaders are equipped to communi-
cate the strategy and engage the organisation is a key
focus area for leadership development; and equally that
they have the tools and skills necessary for financial and
operational follow-up.

Fundamentally, all the programmes revolve around the
same themes, although individually adjusted to match the
target group. In Leadership Mastery — a comprehensive
five-module programme for selected top leaders — the
focus is on personal leadership development and behav-
iour, developing a team as well as securing a deep
understanding of our strategy and facilitating a greater
understanding of customers and employees.

For supervisors, the key messages and tools revolve around
e.g. the overall strategic direction of the Group, our
leadership fundamentals and ”the Human Touch” concept,
the purpose and application of the ISS Value Chain,

key principles for designing a value proposition for the
customer as well as financial management. Our supervisors
are specifically in focus here. After all, they have the

daily delivery responsibility to, and interaction with, our
customers and frontline employees. It is essential that

their conduct is consistent with the business fundamentals
of The ISS Way and that they are able to instill these
fundamentals in their teams. Furthermore, relatively high
frontline employee turnover is a natural part of our
business and therefore it is essential that we have continu-
ity at supervisor level by investing in them and providing

a clear career progression path.

Empowering our people

An organisation where all employees push towards the
same objective and understand the role they play is
powerful and as a result it is one of the strengths that
we rely upon to be able to move quickly and respond to
our customers' needs while operating in a consistent
manner across the globe.

Empowering our people and enabling them to take
responsibility for their roles and how they interact with
our customers also drives a feeling of cohesion with the

company. Having the feeling of being part of the company
also makes it easier to engage in what we do and take
pride in the difference we make to our customers.

Creating a sense of purpose is extremely important in this
respect. To facilitate the process of employees defining and
living their own purpose, we introduced ”The Apple”
concept in certain countries in 2011. The idea is for each
employee to find their own ”Apple” i.e, their contribution
(and the contribution of their colleagues on site as a team)
to the realisation of our customers" value propositions and
the job satisfaction this provides. The apple concept is
gaining momentum with various guides and award
systems under development. It is expected to continue to
contribute to creating a greater sense of purpose and
thereby engagement at ISS — employee-by-employee and
site-by-site.

Creating engagement and pride

Employee engagement is a key driver of the customer
experience, Measuring and improving employee engage-
ment is therefore a key focus area at ISS.

In 2011, we piloted a global Employee Engagement Survey
(EES) and the scope of the survey has since been expanded
year by year. In 2013, we invited more than 300,000
employees across all continents to participate in the
engagement survey with close to 200,000 responding.
Intentionally, we use the same questions globally to
compare the results around the world. Based on the results
of the survey, which showed an overall employee engage-
ment of 4.3 (2012: 4.4) out of a possible 5, we know we
have a high degree of engagement in the company, and
we know what is important for our people in their work
environment.

Our employees | Our business 53

Engagement builds upon a sense of purpose and pride in
our people and:

a strong belief in ISS's goals and values;

a willingness to ”go the extra mile” for our customers;
a strong desire to stay with ISS;

employees who believe in ISS and in what they do; and
managers who understand and lead our people as
individuals.

Q & & 0 0

Besides measuring employee engagement in itself, we
also measure four key drivers of employee engagement:

co

Capability: ”] feel able to do my job well”
Motivation: ”I am Motivated to do my job well”
Pride: ”! feel proud to work for ISS”

Retention: ”I would like to continue working for ISS”

GQ 0 0

Knowing what lies behind the employee's engagement is
critical in driving employee engagement. Through our
survey, we are able to provide managers at all levels with
specific information about their teams and their employ-
ees, allowing them to address the causes of low engage-
ment and help make individual employees feel a higher
sense of engagement. The five key priorities in our Human
Resource strategy also provide support and focus for our
managers and leaders.

We continuously work to improve our insights into what
drives engagement in our employees and how we can
become better at creating a sense of pride in the services
each of us deliver, as well as the difference we make to
our colleagues, to our customers, and to the society we
live in. We will also work further on connecting employee
engagement scores to our customer satisfaction scores as
we strongly believe that the two are connected and that
they are key drivers of financial and operational
performance.

GLOBAL EMPLOYEE ENGAGEMENT SURVEY RESULTS

Overall engagement

Capability

Motivation

Retention

 

1403044Heg8N6B929

 

54 Group Annual Report 2013

KEY EVENTS 2013

4 April

ISS Australia
supports indigenous
employment

 

ISS has developed a close relationship
with the Australian Employment
Covenant and GenerationOne since
its inception in 2008, joining other
employers to commit to a total of
more than 60,000 jobs for Indigenous
Australians.

ISS supports GenerationOne's campaign
for demand-driven and employer-
directed training. Since signing the

first covenant, ISS has provided 550
employment opportunities to Indigenous
Australians and plans to continue
developing its successful initiatives.

The Australian Employment Covenant
and GenerationOne have generated
unprecedented corporate support in
achieving their goals to fix welfare
dependency and employment disparity
in a single generation, and ISS has been
a key contributor in this.

In March 2013, ISS signed a new
covenant with GenerationOne to
provide a further 650 employment
opportunities and expects to achieve
this by the first quarter of 2014.

Diversity

As one of the largest private employers in the world

and with operations in more than 50 countries, we are
committed to fostering, cultivating and preserving a
culture of diversity and inclusion. With møre than 533,000
employees, ISS embraces and encourages diversity in its
broadest terms, including age, gender, ethnicity, national-
ity, culture, language, religion, physical ability, education
and skills.

At ISS, we recognise that our diverse workforce gives us a
key competitive advantage and we consider our employees
to be our most valuable asset. Diversity makes ISS creative,
productive and an attractive place to work.

We recognise the importance of promoting gender
diversity at management levels. When making appoint-
ments to management level positions at ISS, we are
committed to selecting the best person for the job based
on qualifications, experience and competencies, while also
considering other factors, such as diversity.

In order to promote, facilitate and increase the number of
women in management level positions at ISS, we adopted
a diversity policy in March 2013 defining a number of
objectives to be pursued. This includes initiatives such as
ensuring that female candidates are identified for vacant
positions, developing succession plans aiming at identify-
ing female successors as well as tabling the matter of
women in leadership at ISS for discussion at least once

a year at ihe EGM and the GMEB level.

Employee and trade union relations

We want to ensure that our people take pride in what they
do, the role they fulfil and the difference they make every
day at our customer locations around the world.

Being among the first signatories to the UN Global
Compact we are fully committeed to observing the basic
human rights of all of our employees and to contribute to
the improvement of employment conditions within the
service industry. In line with this decision, we have a global
agreement with Union Network International (UNI), and
we support the social dialogue between management and
employees through works councils and employee
representatives.

In June 2013, we renewed this commitment by signing
another agreement with the European Workers Council
for the continuation of our relationship. We see these
agreements as a basis for how we work together rather
than as a limit to what we can do together.

 

 

Employee retention

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 employ-
ment. To counter that we put a lot of effort into retaining
our employees, e.g. our five key initiatives explained above
all support our retention efforts, which are key to our
strategy.

In 2013, our total workforce headcount remained stable
despite a number of divestments being made. A total of
74% of our employees were full-time employees, which

is a slight increase from last year. This is an important
indicator, as generally full-time employees develop
stronger ties with ISS, Employee seniority provides another
perspective on employee loyalty towards ISS. In 2013,
68% of the Group's employees had been with ISS for
more than one year, a slight decrease from 69% in 2012.

PEOPLE INDICATORS

 

2013 2012 2011
Total employees 533,544 534,273 534,519
Full time employees 74% 73% 73%
Total employees > 1 year 68% 69% 66%

 

1403DMHogsN068223

 

Our employees | Our business 55

USL EFTA]

25 October .

; ISS named Facilities

" Management Company
of the Year in the Asia
and Pacific regions

   

;
KE nen ennen

ISS was named Facilities Management
Company of the Year in the Asia and
Pacific regions at the annual Frost &
Sullivan Best Practices Awards in

. Singapore. The award was given to

ISS in recognition of the success and
strong growth ISS has achieved in the
Asia and Pacific regions.

Over the past decade, ISS has
successfully built a regional platform

.from which ISS integrates and self-

delivers a complete set of facility
services such as catering, cleaning,
security, property and support services
throughout these regions and across
the globe.

The regional CEO for ISS Asia Pacific,
Thomas Hinnerskov, sent his personal
thanks to the 203,337 ISS employees in
the two regions. Without their deep
engagement and all the purpose and
pride they put into their daily efforts

for our customers, ISS would never have
achieved this recognition.

 

Klaus Thirup-Nielsen je
Service coordinator, Maersk … gemme TT

ISS Denmark met

At the Danish shipping group Maersk's u TT
headquarters in Copenhagen, Denmark, eee

Klaus and his team are making sure employees seet TT
and visitors get the highest quality service. …. me
Klaus takes pride in creating a welcoming er TT

atmosphere in the company's offices, T

meeting rooms and reception.

"I'm on board
to make sure
everyone gets
world-class

service”

   
     

 

 

 

 

 

Risk
management

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
management reduces risk and ensures
that the risks we take on in respect

of our customers and ourselves are
calculated and well-managed. Effective
risk management is therefore an
important tool in helping us reduce
uncertainty and ultimately achieve

our objectives.

Risk governance

Operational and financial risks are managed in accordance
with policies adopted by the Board of Directors (the

RISK GOVERNANCE STRUCTURE

Risk management | Our business

Board). It is the responsibility of directors and managers at
all levels of the organisation to ensure that ihe assessment
of risk is formalised and that risk is understood, appropri-
ately managed and reported in accordance with the ISS
Group Risk Policy. Our risk governance structure is
illustrated below. The ISS Group Risk Policy and other
Group policies set out the requirements and Minimum
levels of achievement necessary to implement the risk
management requirements of the ISS Corporate Govern-
ance Guidelines.

Operational risk

Generally, we are exposed to operational risks through our
actions 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, operational risks are
assessed on an individual site-by-site basis at customer
premises where we provide our services.

 

BOARD OF DIRECTORS

AUDIT AND RISK COMMITTEE

EXECUTIVE GROUP
MANAGEMENT BOARD

 

e Reviews and monitors key risks and related risk management,
action plans and controls
 Approves Group Risk policies

e Monitors performance of risk management and key risks
e Decides Group Risk Policy and key risk strategies
e Ensures alignment of risk management activities and business strategy

GROUP
FUNCTIONS

e Supervises-
compliance
with internal
risk standards

Implements the Group Risk Policy and other related risk policies
Ensures sufficient resources to support major risk management projects
Ensures appropriate parties are aware of their risk responsibilities

and policies
s Monitors risk and evaluates risk management
GROUP MANAGEMENT BOARD HK)
.
.
eee NEN pennen e Develops risk recommendations
e

Ensures that risks are adequately identified and managed

e Monitors risk activities and initiatives

1403044HegsN60938

 

57

58 Group Annual Report 2013

When considered appropriate, operational risks are insured
through global or local insurance programmes. This is
managed centrally by Group Risk Management.

In general, we believe that the Group is not subject to
material operational risks except for risks common in the
ordinary course of business in the service industry.

Financial risk management

We are exposed to financial risks as a result of our
operating activities, investing activities and financing
activities. The Group's financial risks are managed centrally
by Group Treasury based on policies approved by the
Board. The Group's financial risk management is described
in detail in the notes to the consolidated financial
statements.

Status on 2013 and focus areas
for 2014

In 2013, we focused on embedding risk processes and
controls throughout the organisation to raise awareness

of risk responsibilities and ensure that risk management is
embedded in relevant business processes. For this purpose,

selected stakeholders have been trained in risk manage-
ment and related tools. Examples of training activities are
internal training seminars for local risk managers, local
legal professionals and local internal auditors. In 2014, our
focus remains on improving our risk management through
incorporating it in existing activities and processes and by
monitoring relevant risk-related indicators.

Group key risks

We use a risk mapping approach to keep the Board as
well as the various management levels within the Group
informed of the key risks the Group faces, their potential
impact and likelihood of occurring. The framework
deployed for risk reporting and risk assessment is consist-
ent with acknowledged risk and contro! frameworks.

Each of the key risks are presented in detail below together
with current and planned risk mitigating initiatives aimed
at mitigating the risk to an appropriate level. Implementa-
tion is monitored at Group level.

The risks listed in the following are those that the Board
and the Executive Group Management Board currently
view as being the most significant to our business.

GROUP KEY RISKS

Major
sl
U
2 o
£ High o
y
5 GG
OC oe
£ Significant oOo
o
oa
i %9
Minor

Remote  Unlikely Possible  Probable

Likelihood of risk occurring

Contract governance

Growth strategy — ISS service delivery model
Operational risks and contract execution
Financial reporting, fraud and corruption
Customer retention and competition
Macroeconomy

Employee risks

Growth strategy — market demand
Regulatory environment

oOo U h WN må

 

Risk management | Our business 59

GROUP KEY RISKS MITIGATING MEASURES

1. Contract governance

The Group is subject to risks associated with our contracts,
including our ability to correctly assess pricing terms, employee
and other financial obligations, the increased complexity of our
integrated facility services (IFS) contracts and the potential early
termination or change of scope of contracts by customers. The
profitability of our contracts will generally depend upon our ability
to successfully calculate prices by taking all economic factors, legal
and other risk elements into consideration, and to manage our
day-to-day operations under these contracts.

Contract governance is managed through various management
policies, frameworks and procedures. Among other measures, we
have developed a formal framework and IT tool for contract risk
management and contract approval as well as a formal procedure
for the approval of large contracts, In addition, for specific
customer industries contract risk reviews are performed by

Group Risk Management and contract governance is included

in Group internal Audit's scope.

 

2. Growth strategy — 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 multinational 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.

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 and as part of the annual strategy process to
ensure that it reflects both the current and future requirements of
our customers.

In 2012, we developed Insight&ISS, our management information
system, to address this and other risks in relation to large and
complex contracts. The system allows information to be collated,
reviewed and analysed on a global basis to provide information on
and support operational and financial contract management.
Further, the risk is managed through a continuous focus on
operational excellence and implementation of our five process
frameworks, which cover all processes from sales to operations as
well as detailed risk and compliance analysis when entering new
markets and segments.

 

3. Operational risks and contract execution
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 customers' value streams, there is a
risk of causing a disruption of our customers" business operations
and/or brand damage, if operational procedures or contract
requirements are not complied with.

 

We apply best operational practices through the implementation
of our transition and operation process frameworks. Further, by
using our facility management IT system, FEMSØISS, the operating
processes are automated, which ensures that services are delivered
and managed according to these process frameworks. Additionally,
our management information system, Insight&iSS, mentioned
above under ”Growth strategy”, addresses this risk and for selected
contracts, where ISS maintains critical infrastructure for the
customer, operational risk reviews are performed as part of the
global risk management framework. The ongoing implementation
of our Group HSE manual is also an important tool in terms of risk
mitigation.

 

4. Financial reporting, fraud and corruption

Our decentralised structure of financial IT systems and operational
control structures increases the risk of financial fraud and
corruption. Our growing emerging market presence also increases
our exposure to compliance risks in countries where improper
practises may be common. Overall, this risk encompasses scenarios
such as overstatement of revenue, false or misstatement of
expenses, misappropriation of assets, kick-backs, bribery,
over-pricing and theft.

 

A well-established and documented financial controlling process

is in place at corporate level for analysing and reviewing financial
reporting from subsidiaries. This is described in detail in the chapter
"Internal controls related to financial reporting”, Furthermore,
Group Controlling, Group Treasury and Group Internal Audit
evaluate and implement additional measures to increase transpar-
ency over interfaces to local finance systems. A review of the
integrity and robustness of interfaces has been embedded as a
standard item in internal audit assignments in 2013. Implementa-
tion of key controls is also monitored through the system of Control
Self-Assessments. Additionally, e-learning modules on anti-corrup-
tion, anti-bribery and competition laws have been deployed at
corporate level in the ”ISS Advantage” course, which is attended
by all country management teams, senior officers executives and
procurement personnel.

 

5. Customer retention and competition

Our strategic direction towards increasing the share of IFS
customers will gradually increase our customer concentration.
Our ability to target selected customer segments with attractive
and competitive value propositions is the key to attracting and
retaining IFS, multi-service and single-service customers. Failure to
develop and execute on value propositions may lead to increased
price competition and increasing contract portfolio losses. In
general, the facility services market is fragmented with relatively
low barriers to entry and there is significant competition from
local and regional companies.

1403D24EogSN682293

 

 

To address the risk, implementation of our sales and operation

process frameworks continues as well as the roll out of the IT-tool,

CRMØISS, which enables our country organisations to execute on

the sales process framework. Since 2011, we have alsø carried out

global customer surveys covering most of the Group's revenue and

enabling us to measure customer satisfaction (Net Promoter Score)
. and work on developing improvements.

60 Group Annual Report 2013

RISK FACTORS MITIGATING MEASURES

6. Macroeconomy

We believe that growth in the demand for our services generally
correlates with economic conditions, including growth in the gross |
domestic product (GDP) of the countries we operate in. 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.

We monitor market developments on an ongoing basis, both
locally and globally, as part of our generaf management and
annual strategy process and we have taking appropriate steps to
adapt our cost structure. in addition, we strive to predict market
dynamics and 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, 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.

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.

i
During the recent economic downturn, in certain regions and |
customer segments, we have experienced reduced activity levels |
that have adversely impacted our revenue and depressed our |
operating margins. |

7. Employee risks
Employee qualifications ;
Our continued success strongly relies 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 |
|
|
|
|
|

Our management structure and processes are set up to support
the continuous improvement of local managers” and employees"
qualifications. For example, our operation 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.

Our HR strategy has five priorities that all work towards attracting,
engaging and retaining our employees, i.e. 1) Leadership
development, 2) Engagement, 3) Talent management, 4)
Succession planning and 5) Performance management. These

are further described in the chapter ”Our employees”, including
global employee engagement surveys, which we have carried out
since 2011 to gain insights into where and how we can improve
employee engagement.

as well as Group policies and operational processes.

Employee retention and attraction
Our competitive strength is highly dependent upon our ability to
attract, train and retain employees at all levels of the organisation.

8. Growth strategy — market demand
Our organic growth strategy depends on the underlying GDP
growth outlook, the current and future trend across both the |
private and public sectors to continue to outsource facility services, |
bundle services and procure contracts nationally or internationally "
as well as to sustain robust growth in emerging markets. 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 IFS.

Whereas the key growth building blocks have all been established,
the existing strategy and business platform is evaluated and
refined 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. To address the risk we also apply our standard
operational procedures and perform detailed risk analysis before
entering new markets or segments.

Our ability to accurately project near-term and future growth
rates from Global Corporate Clients or in key markets may cause
financial results to significantly deviate from budgets due to
reduced volumes or capacity constraints to manage high growth
rates in parts of the business.

9. Regulatory environment
Due to the nature of our industry and the global reach of our
operations, we are subject to a variety of laws and regulations

Both locally and globally we strive to monitor and foresee changes
in legislation, which could have a negative impact on our financial

governing areas such as labour, employment, immigration, health
and safety, tax (including social security, salary taxes and transfer
pricing), corporate governance, customer protection, business
practices, competition and the environment. We incur, and expect
to continue to incur, substantial costs and to commit a significant
amount of our management's time and resources to comply with
increasingly complex and restrictive laws and regulations.

performance. Operationally several measures are in place as an
integral part of Group policies such as the Group Corporate
Governance Guidelines and the 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. Other examples are HSE standards based
on best practice being implemented across the Group as well as
mandatory training modules in anti-corruption, anti-bribery and
competition laws for our møre than 2,000 top managers
throughout the Group. As of end of 2013 more than 4,000
training sessions have taken place.

 

 

 

 

 

 

 

 

 

 

  
 
  
   

 

Chen Ning
Station platform assistant, Shenzhen Subway
ISS China

Helping passengers is Chen's favourite part of
the job. She enjoys making sure that everyone
gets a pleasant journey and with a smile she
guides them to where they are going. Chen also
patrols the station ensuring that things are in
order. ”

     

 

FE

1403014EogSN68$%20

 

 

 

1403D14EogSN608921

 

Governance

Corporate governance
Remuneration report

Internal controls relating to
financial reporting

Executive Group Management Board
Group Management Board

Board of Directors

ISS HQ, New ways of working

The new office offers many different ways of

working Soft chairs are great for the informai
meeungs between colleagues or for phone calls. T
shielded phone niches allow you to have phone c

mn private, without disturbing or being disturbed

 

Anthony Masson

Landscaping specialist, CERN

ISS Switzerland

Together with rest of the ISS team delivering
an IFS solution at CERN, Anthony is working
effectively to ensure a consistent high level
of service and a pleasant workplace for all
employees. Anthony enjoys making the
grounds surrounding the nuclear research
centre look their best.

property a gr
ce to work”

 

1403024EogSN5$9323

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 Board of Directors regularly reviews the Group's
corporate governance in relation to the Group's activities,
business environment and statutory 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
QOwnership and Good Corporate Governance as well as
corporate governance practices for companies of ISS's size
and global reach.

Corporate governance | Governance 65

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),
funds advised by affiliates of The Goldman Sachs Group,
Inc. (GSCP), as well as the Ontario Teachers” Pension Plan
Board through 2337323 Ontario Limited (OTPP) and KIRKBI
Invest A/S (KIRKBI). EQT and GSCP indirectly hold approxi-
mately 40% and 33% of the share capital, respectively.
OTPP and KIRKBI indirectly hold approximately 138% and
8% of the share capital, respectively. The remaining
approximately 1% of the share capital is indirectly held

by certain current and former members of the Board of
Directors, current and former members of the Executive
Group Management Board as well as a number of current
and former senior officers of the Group through Director
and Management Participation Programmes as described
below.

FS INVEST S.Å

FS INVEST IL S.

R.L (LUXEMBOURG) ”

Å R.L (LUXEMBOURG)

 

 

ISS WORLD SERVICES A/S

ISS GLOBAL A/S

 

OPERATING SUBSIDIARIES

ISS AS

 

 

1 Certain current and former members of the Board of Directors, current and former

members of the Executive Group Management Board as well as a number of current and

former senior officers of the Group have invested, directly or indirectly, in shares, warrants or loan notes in FS Invest S,å r.l. (FS 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.

66 Group Annual Report 2013

KEY EVENTS 2013

11 January

ISS awarded NATO
management advisory
services contract

 

ISS won a six-year contract to provide
management advisory services to NATO.

Under the contract, ISS — along with
URS and two other strategic sub-
contractors, Capita Symonds and Grant
Thornton — will compete for future task
orders to support NATO's transition

to its new headquarters in Brussels,

as well as other current and future
organisational change and improvement
initiatives.

Specific task orders could include the
design of soft facility management
services and, in particular, catering,
retail and welfare services, operational
office support, logistics consulting,
infrastructure and management
consulting, business process design and
management, programme and project
management support and human capital
management consulting. In addition,
the contract can be used by all NATO
commands to support current and future
NATO missions globally.

Management

ISS has a two-tier governance 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 management and
organisation. The EGM is responsible for ISS's day-to-day
management. The two bodies are separate and have no
overlapping members.

Board of Directors

The Board has seven members elected by the general
meeting for a term of one year. Board members are eligible
for reelection. Four members are considered independent,
while three members represent ihe Group's controlling
shareholder due to their affiliation with EQT, GSCP and
OTPP.

In addition to the board members elected by 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 employ-
ees of ISS World Services A/S as further described in the
company's Articles of Association. Employee representa-
tives serve for terms of four years. The current employee
representatives joined the Board following the annual
general meeting in March 2011. The employee representa-
tives have the same rights and obligations as other
members of the Board.

The Board functions in accordance with applicable
statutory rules, the Articles of Association and its rules of
procedure, which provide guidelines for the Board's work
in general. Board resolutions are passed by simple majority,
and in the event of equal votes, the Chairman, or in his
absence the Deputy Chairman, shall have the casting vote.

The Board convenes at least six times a year, including for
one strategy meeting each year. Extraordinary meetings
are convened by the Chairman when deemed necessary
or when requested by a board member, a member of the
EGM or by the external auditors. A total of eight board
meetings were held in 2013. The EGM provides the Board
with a monthly financial reporting package and the Board
is briefed about important matters occurring between
board meetings. The Board approves the strategy plan, the
annual budget and certain large acquisitions, divestments
and customer contracts based on recommendations from
the Transaction Committee (see Board Committees). The
Board annually performs an evaluation of the performance
of the Board, and of its individual members and the
collaboration with the EGM. More details on the board
members are available on pages 82-83. Remuneration to

 

 

Corporate governance | Governance 67

AGENDA ITEMS TO BE TRANSACTED BY THE BOARD OF DIRECTORS EACH YEAR

 

December

+ Approval of annual budget

» Review of material risks, including risks related to oe
financial reporting, and risk management reporting

s Review of Remuneration Policy and Overall |
Guidelines on Incentive Pay el

November
» Approval of Q3 report i

October Å

» Review and assessment of the competencies and
composition of the Board, including assessment
of independence of board members

e Review of charters for committees ånd TS SD
composition of members | .

+ Consider the composition of the'EGM, as well
as development, risk and succession plan

« Evaluation of (i) performance of individual
members of the Board (ii) performånce of the
EGM and (iii) cooperation between the Board
and the EGM, including presentation of results

« Consider the Group's activities with the view
to ensure relevant diversity in other management
levels and set specific targets in this regard

August
s Approval of Q2 report
Review of whistleblower system

the Board is disclosed in note 6.1 to the consolidated
financial statements and in the Remuneration report on
page 71.

Board Committees

Currently, four committees report to the Board, one of
which was established after 31 December 2013.

The Audit and Risk Committee (previously the Audit
Committee) evaluates the external financial reporting, the
main accounting policies and estimates and monitors
systems of internal controls and risk management. Its
duties also include supervision of the external auditør and
the internal audit function. In addition, the committee also
considers the relationship with the external auditors and
reviews the audit process. The committee consists of three
members (currently Henrik Poulsen (chairman), Morten
Hummelmose and Jo Taylor). The external auditor attends
the meetings if requested and must attend at least one
meeting per year at which the EGM is not present. The

1403024EogSN58923

 

 

February

» Annual general meeting preparation

Review of capital structure and financing, etc.

e Review of Dividend and Share Buyback Policy

+ Review of Corporate Governance, including
"Rules of Procedure of the Board and the EGM
and other corporate governance documents

March

» Approval 'of Annual Report, including review

. of.gøing concern assumption

- Approval of CR report

s Session with external auditor and Head of
Group Internal Audit without the EGM

April |
s Constitution of the Board, including election
of Chairman and Deputy Chairman

 

May
" Approval of Q1 report
» Review of insurance cover, including D&O

June

» Approval of engagement of the Group's
external auditor including fees upon
recommendation from the Audit and Risk
Committee

" Review of material risks, including risk related
to financial reporting, and risk management
reporting

+ Approval and review of overall strategy,
business and action plan, including review
of necessary competencies and financial
resources

Head of Group Internal Audit shall also attend at least one
meeting per year at which the EGM is not present. The
committee held six meetings in 2013.

The Remuneration Committee is described as part of
the Remuneration report on page 71.

The Nomination Committee was established after 31
December 2013 and assists the Board in ensuring that
appropriate plans and processes are in place for the
nomination of candidates for the Board and the EGM and
in evaluating the composition of the Board and the EGM.
The committee consists of three members (currently Lord
Allen of Kensington CBE (chairman), Jennie Chua and
Morten Hummelmose). As the committee was established
in 2014, no meetings were held in 2013.

The Transaction Committee makes recommendations
to the Board in respect of certain large acquisitions,
divestments and IFS contracts, reviews the transaction
pipeline, considers ISS's procedures for large transactions
and evaluates selected effected transactions. The commit-

 

68 Group Annual Report 2013

KEY EVENTS 2013

21 August

Lord Allen of
Kensington elected
new Chairman of ISS

 

Lord Allen of Kensington CBE was
elected Chairman of the Board

of Directors of ISS A/S and ISS World
Services A/S.

Lord Allen is currently Chairman of
Global Radio Group, the largest
commercial radio group in Britain, and 2
Sisters Food Group.

He was previously Chief Executive of
Granada Group and Executive Chairman
of Granada Media Plc, and has also
served as chairman of EMI Music and
CEO of Compass Group. In 2002, Lord
Allen successfully chaired the
Commonwealth Games, and he was the
vice chair of the London 2012 Olympic
Bid Committee.

Lord Allen said he was very much
looking forward to working even closer
with the leadership of ISS and the rest
of the Board.

tee consists of four members (currently Lord Allen of
Kensington CBE (chairman), Morten Hummelmose,
Andrew Wolff and Jo Taylor). The committee held four
meetings in 2013.

Executive Group Management Board

The EGM consists of Group CEO Jeff Gravenhorst, Group
CFO Heine Dalsgaard, Group COO EMEA Henrik Andersen
and Group COO Americas & APAC John Peri. The primary
tasks of the EGM are to carry out the day-to-day manage-
ment of the Group, develop and implement strategic
initiatives, develop Group policies, monitor Group perfor-
mance and evaluate invesitments as well as acquisitions,
divestments and large IFS contracts.

Diversity

ISS recognises the importance of promoting diversity at
management levels. When considering nominations to the
Board or the EGM, we are committed to selecting the best
person for the position, but aspire to have diversity in
gender as well as in broader terms such as international
experience.

The assessment of candidates is based on an evaluation
of qualifications, experience and competencies as well as
other relevant factors. Emphasis is put on:

1, experience and expertise (such as industry, finance,
strategy, international business, HR, management and
leadership);

2. diversity (including in respect of age, gender, new talent
and international experience) as well as diversity of
perspectives brought to the Board or the EGM; and

3. personal characteristics matching ISS's values and
leadership principles.

To support our commitment to gender diversity, in March
2013 the Board adopted a target of increasing the number
of women on our Board elected by the general meeting
from one to at least two members at the annual general
meeting in 2017. The Board seeks to identify female
candidates when nominating new board members,
however, remains committed to always selecting the best
candidate for the position. Presently, the Board has one
female board member elected by the general meeting and
one female board member elected by the employees.

In terms of international experience, the Board targets
at all times to have sufficient international experience at
all management levels taking into account the size and
activities of ISS. The EGM is considered to have the
necessary international experience if half of its members
have international experience from large international
companies. Presently, all four members of the EGM have
international experience.

 

.

Group Management Board

The Group Management Board (the GMB) is headed by
the Group CEO and consists of the Group CFO, the Group
COOs, Regional CEOs, CFO EMEA, CFO Americas & APAC,
Head of Global Corporate Clients, Head of Group Human
Resources, Head of Group Strategy & Corporate Develop-
ment and the Group General Counsel. The primary tasks
of the GMB are to develop and execute new strategic
initiatives, develop and implement 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. A member of the GMB is not permitted
to hold directorships in companies outside the Group
unless specific consent is granted.

An overview of the GMB, Group COOs and Regional CEOs
as well as heads of Group functions is available on pages
80-81, 175 and page 176, respectively.

Country management

In each of the countries in which ISS operates, country
management teams are appointed to manage 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 manage-
ment teams including management of operations in their
relevant markets, financial reporting, local tax and
compliance with local legislation and practices.

An overview of the country managers of the Group is
available on pages 177-179. The country management
teams are set out under each relevant country on the ISS
website at www.issworld.com.

1403024EogSN68380

 

Corporate governance | Governance 69

KEY EVENTS 2013

26 June |

ISS Portugal
services Banco
Santander Totta

 

ISS Portugal renewed its contract with
Banco Santander Totta, providing
hygiene and cleaning services at the

. bank's facilities.

1SS's services to Banco Santander Totta
in Portugal involve approximately 800
ISS employees. ISS's mission is to ensure
quality services that provide comfort
and a great atmosphere at the bank's
facilities. ISS has been providing hygiene

"and cleaning services at approximately

-700 Santander Totta facilities for about
five years. ”

In Portugal, Santander Totta serves
around two million customers and has
more than 650 divisions across the
country, representing approximately
12% of the Portuguese banking system.

ISS entered the Portuguese market in
1992 and is the ninth largest private
employer in Portugal.

 

”A great banking
experience begins
with a smile”

    

Ana Paula
Receptionist, Barclays

ISS Brazil

Working as a receptionist at Barclays in Såo
Paulo, Brazil, Ana takes pride in servicing
visitors with a smile. Ana believes that the
most important thing in the work environment
is to do your job with care and respect, and
treat all customers and employees well.

 

 

1403024EogSN586983

Remuneration
report

Our remuneration policy aims to attract,
motivate and retain qualified members
of the Board of Directors and the
Executive Group Management Board.

To achieve the objective, remuneration is based on the
individual member's responsibilities and performance,
Furthermore, remuneration has been designed to be
competitive and in line with market practice in comparable
listed companies as well as to support our strategic goals
and promote value creation for the benefit of our
shareholders.

Remuneration of members of the Group Management
Board (the GMB) other than members of the EGM follows
the same principles as laid down in the remuneration
policy for the EGM.

The remuneration policy is reviewed at least annually and
the remuneration policy applicable for 2013 was approved
by the Board on 25 June 2012.

Activities in 2013 and objectives for 2014

In 2013, the Remuneration Committee focused on
establishing a consistent approach to remuneration for
members of the EGM and the GMB. Furthermore, the
Committee focused on ensuring that remuneration of the
EGM and the GME, respectively, in general is linked to
ISS's results; in line with market practice in comparable
listed companies; and aligned to the interests of the
shareholders.

Our objective for 2014 is further alignment of remunera-
tion programmes. In 2014, we expect to introduce new
short-term incentive plans (STIP) for the EGM and the GMB
as well as other incentive plans subject to the intended
IPO, see "intended Initial Public Offering (IPO)” on page
73. Furthermore, the objective for 2014 is to ensure that
the remuneration approach on country level is aligned with
the remuneration policy for the Group.

Remuneration report | Governance 71

THE REMUNERATION COMMITTEE

The Remuneration Committee was established in 2010 by the
Board to ensure that ISS maintains a remuneration policy and
overall guidelines on incentive pay for the members of the
Board and the EGM.

The Remuneration Committee assists the Board in preparing
the remuneration policy and the overall guidelines on incentive
pay and recommends to the Board the remuneration of the
members of the Board and the EGM as well as the
remuneration policy applicable to ISS in general.

In 2013, the committee consisted of three members (currently
Lord Allen of Kensington CBE (Chairman), Thomas Berglund,
and Andrew Wolff). The Group CEO attends the meetings
unless when the Group CEO's remuneration is tabled for
discussion. The committee held four meetings in 2013,

In 2013, the Remuneration Committee engaged Kepler
Associates to advise the Committee as external and
independent advisor. The role of the advisor is to provide
independent advice to the Committee on remuneration
matters. Kepler Associates do not provide any other services
to ISS.

The aim for the incentive schemes expected to apply

for 2014 for the EGM and the GMB and certain other
employees is to take into account the achievement of
targets for employee engagement, customer experience
as well as health and safety related KPIs. This is in addition
to targets for the Group's key financial objectives (i.e.
organic growth, operating margin and cash conversion),
which are already taken into account.

Board of Directors

Each Board member (except representatives of EQT, GSCP
and OTPP) received a fixed annual fee in 2013. The
Chairman of the Board received 3 times of the fixed annual
fee and the Deputy Chairman 1.5 times. Members of the
Board Committees (except for the Chairman) received an
additional fixed fee and the size depended on the compe-
tencies, effort and scope of work required by the member
of each committee. The Chairman of the Audit and Risk

72

Group Annua! Report 2013

Committee (previously the Audit Committee) received

1 time of the annual fixed fee and other Audit and Risk
Committee members received 50%. Members of other
committees received 25% of the annual fixed fee.

Members of the Board did not participate in any incentive
schemes in 2013.

Certain members of the Board have invested indirectly in
shares of FS Invest as part of the Directors Participation
Programme as described on page 73.

Expenses, such as travel and accommodation in relation to
board meetings as well as relevant training are reimbursed.
If members of the Board have to travel overseas to attend
board meetings, a fixed travel allowance per meeting may
be paid.

Remuneration to the Board is disclosed in note 6.1 to the
consolidated financial statement.

Executive Group Management Board
and Group Management Board

The main elements of the remuneration to the EGM and
the GMB in 2013 are summarised in the table below.

Annual base salary and customary benefits The
members of the EGM and the GMB are remunerated with

ELEMENT OBJECTIVE

!
i I
;… Annual base salary

1

Attract and retain high-
performing GMB members
reflecting their position, skills,
; Competencies and experience
emne en nn em men

Customary benefits in

i

j

:. Non-monetary benefits |

| t accordance with market
;

E

i

|

i standards to support
recruitment and retention

Annual bonus

a combination of fixed salary and customary benefits in
accordance with market standards.

Annual bonus The EGM and most members of the GMB
receive a performance-based annual bonus of up to 60%
of their annual base salary, which in the event of extraordi-
nary performance (significantly above budget) can be up
to 90% of the annual base salary. The bonus is subject

to achieving performance targets for the Group's key
financial KPIs; organic growth, operating margin and cash
conversion. Bonuses and any other variable component

of remuneration are subject to claw-back if in exceptional
cases it is subseguently determined that payment was
based on information that was manifestly Misstated.
Reclaim in full or in part of the variable component of
remuneration is determined at the discretion of the Board.

Løong-Term Incentive Programmes The EGM and the
GMEB participate in a Long-Term Incentive Programme
(LTIP). The LTIP is cash-based and the annual 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 grant
value, The maximum pay-out in such event is 22.53% of

the annual base salary.

Termination and severance payment All employment
contracts of the EGM and the GMB members may be

AWARD LEVEL PERFORMANCE MEASURES
i
Take into account competitive

| Reviewed annually based on
| market rate of industry peers |

|

|

i

individual performance and
a5 well as skills, competencies market alignment

and experience
|

 

Benefits corresponding to N/A

;… market standards

mme hunnen

i
i

hor me er menu mr
|

Long-Term iIncentive
Programme (LTIP)

 

Pension

nunne REN

Drive delivery of short-
| term financial results,
implementation of The ISS
;… Way and behaviour consistent
| with the ISS Leadership
Principles
Åse nem ne

Drive delivery of long-term
financial results, retention of
GMB members and alignment
to shareholder value creation

i

Except for one member, the
members of the GMB are not
covered by a pension plan of
the Group but shall arrange
for their own pension planning

Target bonus is 60% of annual
:… base salary. Maximum bonus

;… opportunity is 90% and is

;= awarded for performance
significantly above budget.
Objectives are set for one year

fm … n

The LTIP focuses on value
creation towards an IPO. Target
LTIP grant is 15% of annual base
salary. The plan is cash-based
and the grant vests in case of an
initial public offering or other
change of control event.

 

|
i
1
|
rdr as —… mm HE - …… mm
|
|
|
i

Measures and weighting:
organic growth (30%), EBITA
(30%), cash conversion (30%),
and individual objectives (10%).
Performance is measured for
each financial year

The LTIP rewards increasing
operating profit and
decreasing net debt. Subject
to achieving performance
targets, the plan can pay out
in the range 20-150% of the
grant value

N/A

 

 

terminated at 12-24 months' notice, except for one
contract where termination is subject to Portuguese law.
Each of the EGM and the GMB members may terminate
their positions with 6 months" notice. One employment
contract includes a severance payment of approximately
two years” salary in the event of termination by ISS. No
other members of the EGM or the GMB are entitled to
severance payments. Members of the EGM and the GMB
are subject to non-competition clauses. Members of the
GMB (other than members of EGM) are subject to
non-solicitation of customers clauses for a period of 12
months from the expiry of their notice periods, except for
two members who are only subject to non-competition
clauses, and one member who is only subject to a non-
solicitation clause regarding customers and certain
employees. The employment contracts contain no other
special termination rights and no change of control
clauses.

Directors' and Management Participation Pro-
gramme In 2006, EQT and GSCP established a Manage-
ment 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 EGM and certain
senior officers of the Group remained 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 part of their investment in cash —
invested directly or indirectly in shares or loan notes of FS
Invest. During 2013, the new members of the EGM and

a number of senior officers entered the MPP by investing
indirectly in a mix of shares and warrants in FS Invest and
certain senior officers of the Group entered the MPP by
investing indirectly in shares in FS Invest. At 31 December
2013, the investments amounted to a total of DKK 192
million, covering 127 executives and officers.

Certain members of the Board participate in a Director"
Participation Programme (DPP), under which they have
invested indirectly in shares in FS Invest. At 31 December
2013, the investments amounted to a total of approxi-
mately DKK 15 million covering four members of the
Board. In addition, three former members of the Board
who resigned during 2013 participate in the DPP under
which they have invested in a mix of shares and warrants

Remuneration report | Governance 73

of FS Invest which at 31 December 2013 amounted to a
total of approximately DKK 9 million.

At 31 December 2013, the investments under the pro-
grammes were as follows:

PARTICIPATION PROGRAMMES

 

 

Number investment

of measured

DKK million persons at cost

Board of Directors . 10 27
Executive Group Management Board 4 19.

Corporate Officers 26 48

Country Management 97. 125

Total 137 219

 

In addition, one former member of the Board who
resigned in 2013 has co-invested with EQT and GSCP for
approximately DKK 7 million at 31 December 2013.

Remuneration to the individual members of the EGM is
disclosed below, whereas total remuneration to the GMB
is disclosed in section 6.1 to the consolidated financial
statement.

Intended Initial Public Offering (IPO)

Certain members of the EGM and the GMB as well as
certain other employees are subject to a cash bonus
scheme totaling DKK 13 million triggered by the comple-
tion of the intended IPO or a sale of the company.

In preparation for the intended IPO, the Remuneration
Committee in January 2014 established selected incentive
schemes to apply for the EGM, the GMB and certain other
employees subject to the completion of an IPO. The new
incentive schemes consist of both cash-based bonus
schemes and share-based schemes. Cash-based bonus
schemes include a short-term incentive programme which
will be partially settled in restricted share units. Share-
based schemes include a transition share programme and
a long-term incentive programme. For further information
regarding the incentive schemes, please refer to the
offering circular for ISS A/S if and when this is published.

REMUNERATION TO THE EXECUTIVE GROUP MANAGEMENT BOARD

 

 

 

 

2013 2012

Jeff Heine Henrik John Jeff Henrik

DKK thousand Gravenhorst Dalsgaard Andersen Peri Gravenhorst Andersen
Salaries and other remuneration 7,901 2,839 6,431. 2,507. 7,909 6,420
Bonus 5,044 1,550 4,046 1,451 2,060 1,500
Share-based payments - - - - 563 -
Total remuneration 12,945 4,389 ' 10,477 3,958 10,532 7,920

 

1403D14KOgSN683235

  
 
 
 
 
 
 
 
  

Jose Carlos Camara
Maintenance worker, La Sagrada Familia

ISS Spain

La Sagrada Familia is Barcelona's most famous
landmark and a UNESCO World Heritage Site.
Maintaining an iconic monument like this, fills
Jose Carlos with pride and purpose. Every day,
he helps to get the famously unfinished church
a little closer to completion.

Familia is ierally ad
monumentål task".

    

 

 

 

Internal controls relating to financial reporting | Governance 75

Internal controls relating
to financial reporting

We consider our internal control
procedures to be 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 investments as well as
its financial reporting.

The Group's internal control and risk management systems
are developed to mitigate rather than eliminate risks
identified in the financial reporting process and to ensure
a true and fair view of ISS's financial reporting without
material errors.

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 Procedures.

The Audit and Risk Committee is responsible for monitor-
ing the internal controls and risk management systems
as well as challenging the Executive Group Management
Board (the EGM) in its assessment of material financial
reporting risks. Any risk that may cause a material error
in the Group's financial reporting is considered a material
financial reporting risk.

Group Internal Audit is responsible for providing assurance
concerning the internal control environment in accordance
with the internal audit plan approved by the Audit and Risk
Committee. Group Internal Audit operates under a charter
approved by the Board.

The EGM has established a Group Controlling department
responsible for controlling the financial reporting from
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

1403044RogSN$9963

internal control environment and to manage identified
risks. However, as a risk of misuse of assets, unexpected
losses, etc., will always exist, such controls can provide
reasonable, but 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:

eo the financial reporting is reliable and in compliance with
internal policies and procedures and gives a true and
fair view of the Group's financial performance and
financial position;

oa material risks are identified and minimised;

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

e our business is conducted in compliance with applicable
legislation, standards, regulations and ISS policies.

Risk assessment

Risks related to the financial reporting process are identi-
fied and assessed annually based on a materiality test
including a risk assessment of the impact of quantitative
and qualitative factors. The evaluation of the risks includes
an assessment of the likelihood of an error occurring and
whether such error may be material. The risk of errors is
relatively higher for accounting areas that require manage-
ment judgement and/or are transactions that are gener-
ated through complex accounting processes. Accounting
areas that require management to make estimates and
judgements are described in the relevant notes to the
consolidated financial statements, under Critical account-
ing estimates and judgements.

On an ongoing basis the Audit and Risk Committee
discusses:

o& material and relevant new accounting pronouncements
and implementation of such; '

9 evaluation of the overall effectiveness of the internal
controls for financial reporting; and

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

 

76 Group Annual Report 2013

Control activities

In order to sustain a sound control! environment, control
activities are designed to obtain the desired assurance.
These measures must ensure that all relevant aspects

of a specific area are covered, and that the combination
of control activities monitors all relevant aspects of the
business. The control activities are based on the risk
assessment made by the EGM. The purpose of the control
activities is to prevent, detect and correct any material
misstatements in the financial reporting.

The Group has implemented a formalised financial
reporting process that includes the reporting requirements
and related control activities illustrated in the table to

the right.

Whistleblower policy

ISS has developed a whistleblower policy to enable
employees, business partners and other stakeholders to
report suspected violations or concerns relating to any
matter of exceptional gravity or sensitivity. The whistle-
blower system can be accessed from a link on ISS's website
and is supported by an externally hosted IT system to
secure a reporting tool in full confidentiality. Reports filed
through the whistleblower system are managed by Head
of Group Internal Audit and Group General Counsel under
instruction from the Audit and Risk Committee.

Information and reporting systems

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

Information and communication systems to ensure
accounting and internal control compliance have been
established, including an Accounting Manual, 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 execution of tasks including carrying
out the established control activities.

Monitoring

Every month the Group's subsidiaries report financial
information on financial developments to Group Control-
ling. This information is used to prepare consolidated
financial statements and reports submitted to the Board
and the EGM. Financial reporting from the subsidiaries is
controlled on a monthly basis (see Control activities).

REPORTING CONTROL ACTIVITIES

Financial performance and financial position

All countries must report a full ; Group controlling monitors
income statement, statement | and controls the reporting for
of financial position, statement | significant deviations from

of cash flows, portfolio analysis | the budget.

and three-months forecasts
etc, on a monthly basis.

 

Cash flow forecasts

All countries must report
bi-weekly their daily cash
flow forecasts for a rolling
three-month period.

» Actual figures are continuously
; monitored and validated by
| Group Treasury for deviations
" from the forecasted figures.

Business reviews

All countries must report a full — Monthly meetings between
income statement, statement regional management and
of financial position, statement : country management with
of cash flows, portfolio | a focus on the current
analysis, three-month forecasts : performance and the state
and contract performance etc. |; of the business.

on a monthly basis. !

 

Budgets and financial plans
All countries must prepare
budgets and plans for the
following financial year in

a pre-defined format.

 

Regional management teams
review the proposed budgets
and plans with the countries.

 

Fuli-year forecasts

All countries must update and
report their full-year estimates
twice a year.

Monthly meetings between
regional management and
country management with a
focus on the current perfor-
mance and the state of the
business.

Strategy reviews

Country management must
provide annual updates of a
predefined strategy template,
including both assessments
and conclusions on each of our |"
business fundamentals. This is
combined with figures related |

Annual meetings held with
country managers at which the
strategy is discussed and
priorities and plans for the
coming year are agreed.

i
i
i
!

to our markets supporting the
conclusion.

Acquisitions and divestments
All acquisition and divestment ; Transaction Committee/Board
proposals must be presented in ! approval is required for large
a predefined report format and or strategic acquisitions and
valuation model for approval. divestments.

Large contracts

Certain large contracts must
be presented in a predefined
format focusing on risk
evaluation for approval.

, Transaction Committee/Board
approval is required.

Contro! self-assessments

Every six months, country
managements must self-assess
the implementation of certain — countries” control
key internal control activities — | self-assessment.
and develop plans to close any "

implementation gaps.

: Group Internal Audit performs
” ongoing audits based on the

 

1403D14EogSN68358

The country management teams are responsible for
ensuring that the control! environment in each operating
country is sufficient to prevent material errors in the
country's financial performance and financial position
reported for consolidation purposes. The regional manage-
ment teams provide governance of the country operations.

Additionally, in order to ensure that adequate internal
control procedures are maintained locally Group Internal
Audit visits the country organisations regularly. These visits
take place according to a plan for the year approved by the
Audit and Risk Committee. The findings and conclusions
of internal audits, including recommendations on how to
improve the control environment, are presented 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
and Risk Committee, which evaluates the results reported
and uses the conclusions to assess the general control
environment when reviewing the internal audit plan for
the coming year.

External audit

The Board nominates the external auditors for election at
an annual general meeting. The nomination follows an
assessment of the competencies, objectivity and independ-
ence of the external auditor and the effectiveness of the
audit process.

An independent business relationship with the Group's
external auditors is essential for the control environment.
As part of the safeguards to ensure independence, the
external auditoørs cannot perform certain non-audit services
for ISS indluding, but not limited to, the preparation of
accounting records and financial statements or participate
in recruitment for senior 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 relevant 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 and Risk Committee.

The Board reviews the Annual Report at a Board meeting
attended by the external auditors. The findings of the
external auditors and any major issues arising during the
course of the audit are discussed, and significant account-
ing policies and critical accounting estimates and judge-
ments are reviewed.

 

Internal controls relating to financial reporting | Governance 77

KEY EVENTS 2013

22 March .

ISS to deliver
integrated facility
services to Citi in the
Asia and Pacific regions -

 

Citi, aleading global bank, entered into

a new partnership agreement with ISS
granting ISS a two-year extension to its
existing contract covering all Citi sites in

the EMEA region.

As part of the new agreement ISS
delivers a wide range of services to more
than 1,500 Citi sites — covering a total of
around 1.3 million square metres — in
the Asia and Pacific regions. A total of
19 countries are covered by the new "
extended partnership, including Japan,
India, South Korea, Singapore, China/
Hong Kong and Australia.

The new agreement in the Asia and

Pacific regions makes Citi one of ISS's
largest global customers.

"A friendly smile
is the first step
to recovery”

kb.

 

Man Lizhen
General worker, Hospital Authority
ISS Hong Kong

When patients come to the Hospital Authority,
Man wants to make them fee! as good as
possible. She does this by taking the time to
talk to them — always with a smile. She
understands the patients" situation and she
does what she can to help them.

 

Executive Group Management Board | Governance

Executive Group
Management Board

NT magre menn ned

 

Jeff Gravenhorst
Group CEO since April 2010, Joined ISS in 2002. Born 1962.

Previously Jeff Gravenhørst held positions within ISS as Group COO,
Group CFO and CFO of ISS UK.

Deputy chairman of the board of directors of Rambøll Gruppen A/S
and a member of the board of directors of Danish Crown A/S and
Statsautoriseret revisor Ove Haugsted og Hustru Lissi Haugsteds
Familiefond. !n addition, a member of the central board of the
Confederation of Danish Industry (DI).

Prior to joining ISS, Jeff Gravenhorst was Managing Director of
ALTO Danmark A/S (heading up the European divisions) and Finance
Director of Wittenborg UK Ltd (both subsidiaries of Incentive A/S).
Jeff Gravenhorst also held positions as Vice President of ALTO U.S.
Inc. and Manager at Arthur Andersen, Denmark.

Education: Bachelor in Business Administration and a Master of
Science in Business Administration and Auditing, both from
Copenhagen Business School.

 

Henrik Andersen
Group COO EMEA since March 2013. Joined ISS in 2000. Born 1967.

Previously Henrik Andersen held positions within ISS as Group CFO,
Country Manager and CFO of ISS UK Lid, International Business
Director Northern Europe, Head of Group Treasury and other finance
positions.

Member of the board of directors of Vestas Wind System A/S and a
member of the Investment Committee of Maj Invest Equity 4 K/S.

Prior to joining ISS, Henrik Andersen held various positions with Jyske
Bank Markets, including Director for large Nordic Corporate Clients.

Education: Graduate Diploma in International Trade and Finance (HD)
from Aarhus School of Business and a Master of Law from Aarhus
University.

1403024EogSN5890685

 

 

|
E
|
E
i

Heine Dalsgaard
Group CFO since August 2013 where he joined ISS. Born 1971.

Prior to joining ISS, Heine Dalsgaard was Group CFO and a member
of the executive management board of the Grundfos Group where
he held management positions at Grundfos Holding A/S (and two
of its subsidiaries). He was also previously Group CEO of Tæppeland
Holding A/S (and certain of its subsidiaries), Finance Director at
Hewlett-Packard/Compaq Computer in Denmark, auditor at Arthur
Andersen and bank assistant at Privatbanken/Unibank.

Education: Business School Diploma in Economics (HD) and a Master
of Science in Business Economics and Auditing from Copenhagen
Business School as well as the part I and II diploma from the Bank
School.

 

John Peri
Group COO Americas & APAC since August 2013 where he joined ISS.
Born 1961,

Prior to joining ISS, John Peri was COO and Executive Vice President
of Global Operations of Celestica Inc.

Education: Bachelor of Applied Science in Industrial Engineering
from the University of Toronto.

 

The members of the Executive Group Management Board
are also members of the Group Management Board.

 

79

80 Group Annual Report 2013

Group Management

  

NDR

Luis Andrade

Regional CEO Latin America since
August 2009.

Joined ISS in 1992. Born 1960.

Previously Luis Andrade held positions within
ISS as Regional Director of Latin America as
well as Country Manager of ISS Portugal.

Education: Degree in Mechanical Engineer-
ing from instituto Superior de Engenharia
de Lisboa.

 

Daniel Patrick Brennan

Head of Group Human Resources since
August 2010.

Joined ISS in 2010. Born 1956.

Prior to joining ISS, Daniel Brennan was Vice
President of Human Resources EMEA of
Electronic Data Systems (EDS) and Vice
President of Human Resources Americas of
Hewlett-Packard.

Education: Diploma in Business Administra-
tion with specialty in Personnel Management
from Niagara College and a Bachelor of
Administrative Studies from York University,
Atkinson College.

 

 

Flemming Bendt

Regional CEO Eastern Europe since
February 2013.

Joined ISS in 1998. Born 1971.

Previously Flemming Bendt held positions
within ISS as interim Country Manager and
CFO of ISS Denmark, Executive General
Manager and Country Manager of ISS
Australia, CFO of ISS Belgium, Head of
Controlling in the ISS Group and various
positions at ISS Netherlands.

Education: Diploma in Financial! Manage-
ment Accounting (HD-R) and a Master of
Science in Business Economics and Auditing,
both from Copenhagen Business School.

 
   

ms

Jacob Gåtzsche

Regional CEO Central Europe since July 2008.

Joined ISS in 1999. Born 1967.

Previously Jacob Gåtzsche held positions
within ISS as COO Central Europe and
Regional Director Central Europe as well as
International Business Director Central
Europe.

Education: Master of Science in Business
Economics and Auditing from Syddansk
University and is also Chartered Public
Accountant (FSR-Danish Auditors).

Troels Bjerg
Regional CEO Nordic since August 2011.
Joined ISS in 2009. Born 1963.

Previously Troels Bjerg held positions within ISS
as Regional CEO Eastern Europe.

Prior to joining ISS, Troels Bjerg was Group

CEO of Stenhøj Group, Vice President of Daimler
South East Asia Pte Ltd and Director of Daimler
AG.

Troels Bjerg is a member of the board of directors
of Ejner Hessel Holding A/S (and three of its
subsidiaries).

Education: Bachelor in Business Administration
from Copenhagen Business School and Master
of Business Administration from IMD.

 

Thomas Hinnerskov
Regional CEO APAC since February 2012.
Joined ISS in 2003. Born 1971.

Previously Thomas Hinnerskov held positions
within ISS as Country Manager of ISS Austria and
ISS Ireland, respectively, and COO Key Accounts
of ISS Sweden as well as responsible for Task
Force as Vice President at the ISS Group.

Prior to joining ISS, Thomas Hinnerskov was
Senior Investment Manager of TEMA Kapital,
Senior Associate at McKinsey & Company and
Vice President at Gudme Raaschou Investment
Bank/WestLB Panmure.

Education: Master of Science in Finance and
Accounting from Copenhagen Business School.

 

1403024EogSn066930

Henrik Langebæk

CFO EMEA & Group Procurement since
February 2013.

Joined ISS in 2004. Born 1966.

Previously Henrik Langebæk held positions
within ISS as COO Projects & Group
Procurement, interim Regional CEO APAC,
COO Business Carve-Out & Group Procure-
ment, Regional CFO APAC and Regional
Director (India, Thailand, Malaysia, Singapore
& the Philippines).

Education: Bachelor in Accounting &
Business Finance and a Master of Science in
Business Administration and Audit, both from
Copenhagen Business School.

Bjørn Raasteen
Group General Counsel since January 2005.
Joined ISS in 1999, Born 1964.

Prior to joining ISS, Bjørn Raasteen was
attorney-at-law with Danish law firm Bruun
& Hjejle.

Education: Master of Law from the
University of Copenhagen, admitted to the
Danish Bar in 1991 and obtained right of
audience before the Danish Supreme Court in
1997.

 

Todd O'Neill

Head of Group Strategy & Corporate
Development since September 2008.
Joined ISS in 2008. Born 1966.

Prior to joining ISS, Todd O'Neill was a
Director of SEB Enskilda.

Education: Bachelor of Science from St.
Michael's College and Graduate Diploma
in Accounting (HD) from Copenhagen
Business School.

 

Jørn Vestergaard
CFO Americas & APAC since October 2013.
Joined ISS in 2002. Born 1968.

Previously Jørn Vestergaard held positions
within ISS as CFO of ISS Norway, Regional
CFO Nordic, International Business Director,
Head of Group Controlling and Group
Controller.

Education: Bachelor and Master in Auditing
from Aarhus School of Business and a part I
and II diploma from the Bank School.

 

Group Management Board | Governance

den

Andrew Price
Head of Global Corporate Clients since 2011.
Joined ISS in 1995. Born 1964,

Previously Andrew Price held positions
within ISS as COO Facility Services as well as
Managing Director of Integrated Solutions
and Commercial Director, Healthcare of

ISS UK.

Prior to joining ISS, Andrew Price was Director
at Taylorplan Services Ltd and held various
positions at Securiguard Group Plc.

Education: BA (hons) in modern Language
and Economics from the University of
Northumbria.

81

82 Group Annual Report 2013

Board of Directors

 

Lord Allen of Kensington CBE
(Chairman)

First elected in March 2013.
Independent. Born 1957,

Lord Allen is chairman of Global Radio Group
(and a member of the board of directors of
seven of its subsidiaries), Boparan Holdings
Ltd and 2 Sisters Food Group Ltd and a
member of the board of directors of
Endemol, Edam Acquisition Holding I
Cooperatief UA, Brand investments Vehicle

2 Ltd, Grandmet Management Ltd, Grandmet
Development Ltd, Get AS as well as a partner
of Xseqour Partners. In addition, Lord Allen

is Chairman of the management board of the
British Labour Party and Join In Trust Ltd and
acts as senior advisor to Goldman Sachs
Capital Partners and advisor to Boparan
Holdings itd and Powerscourt.

Previously Lord Allen was Chief Executive
Officer of Compass as well as Chief Executive
of Granada Group Plc. and executive
chairman of Granada Media Plc. Lord Allen
has also been chairman of EMI Music, a
member of the board of directors of Virgin
Media Ltd and Tesco Plc. In addition, Lord
Allen was chairman of the British Red Cross
and a member of the London Organising
Committee of Olympic and Paralympic
Games as well as Vice Chairman of the
London 2012 Bid Committee for the Olympic
and Paralympic Games.

Education: FCMA from Institute of
Management Accountants and Honorary
Doctorate Degrees from the University of
Salford, the Manchester Metropolitan
University and the Southampton Solent
University.

Competencies: Professional experience
in managing multi industry companies,
significant financial and commercial skills
and extensive board experience.

Thomas Berglund
(Deputy Chairman)
First elected in March 2013.
Independent. Born 1952.

Thomas Berglund is President and Chief
Executive Officer of Capio Holding AB
(including management positions on the
board of directors and/or executive manage-
ment of 12 of its subsidiaries). In addition,
Thomas Berglund is a member of the
executive management of TA Consulting
GmbH and a member of the board of the

Swedish Association of Private Care Providers.

Previously Thomas Berglund was president
and Chief Executive Officer of Securitas and
Chief Executive Officer of Eltel.

Education: Bachelor of Science in Business
administration and Economics from
Stockholm School of Economics.

Competencies: Extensive experience in
leading and growing international service
companies.

  

pr.
i dl:

Jennie Chua
First elected in December 2011.
Independent. Born 1944.

Jennie Chua is chairman of the Old Parliament
House Ltd and GLH Management Group Pte Ltd
and deputy chairman of Temasek Foundation
CLG Ltd as well as a member of the board of
directors of Yishun Community Hospital Pte Ltd,
Far East Orchard Ltd, CapitaMalls Asia Ltd and
GuocoLeisure Ltd (and one of its subsidiaries),
Sentosa Development Corporation (and one of
its subsidiaries), MOH Holdings Pte Ltd (and
chairman and a member of two of its subsidiar-
ies), Pas De Deux Holdings Pte Ltd, Beeworks
Inc., the Singapore Chinese Girls" School and
CapitaLand Hope Foundation. In addition, Jennie
Chua is director and trustee of the Nanyang
Technological University, chairman of the
Advisory Committee of Singapore Institute of
Technology and a member of the Joint Advisory
Board of Cornell Nanyang Institute of Hospitality
Management and the Singapore Pro-Enterprise
Panel. Jennie Chua is also Justice of the Peace
of the Prime Minister's Office (Singapore) and
Singapore's Non-Resident Ambassador to the
United Mexican States, President Emeritus of
Philippines Bayanihan Society (Singapore),
Co-Chairman of Governing Council of the
Institute of Service Excellence and committee
member of MOH Holdings Healthcare
Infrastructure and Planning Committee.

Previously Jennie Chua held a number of
management positions in the hotel and tourism
industry, including as Chief Corporate Officer
of CapitaLand Ltd and President and Chief
Executive Officer of the Ascott Group Ltd as
well as chairman and Chief Executive Officer of
Raffles Holdings Ltd and Raffles International
Ltd, respectively.

Education: Bachelor of Science from the School
of Hotel Administration, Cornell University.

Competencies: Executive management
experience from international companies,
strategic planning, extensive board experience,
property and facility management, management
expertise from the service and hotel industries.

 

 

      

ra 3
Morten Hummelmose
First elected in June 2013.

Not independent. Born 1971.

Morten Hummelmøse is partner at EQT
Partners and head of its Copenhagen office
as managing director of EQT Partners A/S and
a member of the board of directors of EQT
Partners A/S and Zebra A/S.

Previously Morten Hummelmose worked at
Enskilda Securities in Copenhagen, Goldman
Sachs International in London and Nordea in
Copenhagen.

Education: Master of Science in Economics
from the University of Copenhagen and a
Master of Science in Finance from the
University of London.

Competencies: Professional experience in
investing in large international companies,
broad experience within banking and private
equity, expertise in complex financing
structures and M&A.

1403044E0ogSN58337

Henrik Poulsen
First elected in August 2013,
Independent. Born 1967.

Henrik Poulsen is Chief Executive Officer

of DONG Energy A/S and a member of the
board of directors of Chr. Hansen Holding
A/S, Falck Holding A/S (and two of its
subsidiaries). In addition, Henrik Poulsen is
independent industrial advisor to EQT and is a
member of the board of the Denmark-Ameri-
ca Foundation as well as a member of the
Advisory Board of Danske Bank A/S.

Previously Henrik Poulsen was Chief Executive
Officer and President of TDC A/S, Operating
Executive at Capstone/KKR in London and has
held various positions with Lego including
executive Vice President of Markets and
Products.

Education: Bachelor of Science in Interna-
tional Business and a Master in Finance and
Accounting, both from Aarhus School of
Business.

Competencies: International as well as
executive management experience from large
Danish companies.

 

Board of Directors | Governance 83

 

Jo Taylor
First elected in August 2012.
Not independent. Born 1961.

Jo Taylor is Vice President and Senior
Representative of the private capital team

of Ontario Teachers" Pension Plan Board and
head of its London office and holds various
positions as director and President in its
subsidiaries. In addition, Jo Taylor serves as
chairman of the board of directors of Teodin
Holdco AS (and one of its subsidiaries) as well
as a member of the board of directors of Helly
Hansen Group AS, Acorn Care 1 Ltd (and
three of its subsidiaries), Eagle Holdco Ltd
(and four of its subsidiaries), Frontier Holdco
Ltd (and two of its subsidiaries), Premier
Lotteries UK Lid (and two of its subsidiaries),
Camelot Business Solutions Ltd (and two of its
subsidiaries), Busy Bees Benefits Holdings Ltd,
JoKa Consulting Ltd and Kainos Software Ltd.

Previously Jo Taylor held a number of
non-executive positions with both public and
private companies following a 20-year career
at 3i Group Plc, where he was head of
venture, member of the Group Management
and Investment Committees and CEO of a
US investment subsidiary.

Education: Bachelor of Arts in History from
the University of London and a Master of
Science in Business Administration from
Manchester Business School.

Competencies: Professional experience in
investing in international companies, broad
experience within private equity and wide
ranging non-executive roles working with
growing companies.

84 Group Annual Report 2013

 

Andrew Evan Wolff
First elected in June 2013.
Not independent. Born 1969.

Andrew Evan Wolff is head of the Goldman
Sachs Merchant Banking Division in Europe,
the Middle East and Africa and co-head of
Merchant Banking Division in APAC. In
addition, Andrew Evan Wolff is a member of
the board of directors of Hastings Insurance
Group (Investment) Plc, Get AS and Taikang
Life Insurance Co. Ltd.

Previously Andrew Evan Wolff was a member
of the board of directors of Anhui Kouzi
Distillery Co. Ltd, Geo Young Corporation,
PagesJaunes Groupe SA, CS Wind Corpora-
tion, Leed International Education Group Inc.,
C&M Co. Ltd and Mindsay International
Holdings Ltd.

Education: Bachelor in Philosophy from
Yale University and a JD degree in law and a
Master of Science in Business Administration,
both from Harvard University.

Competencies: Experience investing
across global markets and extensive global
experience from serving on the boards of
companies in the United States, Canada,
Argentina, Brazil, Japan, China, Korea,
France, Norway and Denmark.

  
 

FE

Pernille Benborg (E)

Joined the Board in March 2011 as
employee representative.

Not independent. Born 1970.

Pernille Benborg is Group Vice President and
Head of Group Compliance since January
2007.

Previously Pernille Benbørg held various
positions with the ISS Group including as Vice
President of Compliance and Group Financial
Controller of Group Finance. Joined the ISS
Group in 2000.

Education: Master of Science in Business
Administration and Auditing from Copenha-
gen Business School.

 

Joseph Nazareth (E)

Joined ihe Board in March 2011 as employee
representative.

Not independent. Born 1960.

Joseph Nazareth is Group Vice President and
Head of Group Health, Safety and Environ-
ment and Corporate Responsibility since
February 2010. Joined the ISS Group in 2010
from A.P. Møller-Mærsk, where he was Head
of Group HSSE.

Education: Civil Engineering degree from
McGill University and Master of Science in
Business Administration from the University
of Ottawa.

 
 
 

i

| | .
[TT]
Palle Fransen Queck (E)

Joined the Board in March 2011 as employee

representative.
Not independent. Born 1975.

Palle Fransen Queck is Group Vice President
and Business Development Director, Central
Europe since July 2012. Previously Palle Fransen
Queck held various positions with the ISS
Group including as Vice President of Process
Improvement and Business Solutions. Joined
the ISS Group in 2000.

Education: Bachelor of Science (Hons) in
Engineering from Copenhagen University
College of Engineering and a Master of
Science in Business Administration (MBA)
from Henley Business School.

All members of the Board of Directors, except employee
representatives (E€) are nominated for re-election at the
annual general meeting.

 

 

Dominique Beauchamps
Team manager, Safran Aircelle

ISS France

In Toulouse, France, Dominique and his team
of hard-working ISS employees are helping to
reinforce Safran Aircelle's values of guality
products, customer service and innovation.
Dominique is dedicated to helping the
customer achieve their goals.

 
 
 
 
 
 
 
 
  

My hard work on

the ground gets

the customer ready
or take-off”

 

 

1403024EogSN509382

 

 

 

 

1403D14EogSN58939

 

Financial
statements

Consolidated financial statements 89
Management statement 166
Independent auditors' report 167
Definitions 169

ISS HQ, New ways of working
The headquarters :s designed with activity-based
seating. Working in an activity based way 15 all abcut
providing everybody with a working environment that
KVESTN Terese REE Teen: lars e
collaboration Quiet zones are available for
need to focus without being disturbed

 

 

 

 

 

     

Raquel Espino
. en Supervisor, National Instruments

ms ON ae” ISS USA

se In Austin, Texas in the USA, Raque! and her
team are taking care of the buildings and
surroundings at National Instruments. Raquel
enjoys keeping things in order and she likes
that she gets to meet many different people in
a workday.

 

The
consolidated
financial
statements
and notes

1403044EogsN$0319

90
91
92
93
94

97
97

101

101
102
105
106
106

108

108
109
111
111

112

112
117
119
121
125

126

127
128
130
133
135
136
137

138

138
140
141

142

142
144

146

146
147
149
150
154
156
157
158
159
160
161

Consolidated financial statemenis | Financial statements — 89

Consolidated financial Statements

Consolidated income statement

Consolidated statement of comprehensive income
Consolidated statement of cash flows
Consolidated statement of financial position
Consolidated statement of changes in equity

Section 1 Basis of preparation

Note 1.1 Basis of preparation

Section 2 Operating profit

Note 2.1  Revenue

Note 2.2 Segment information

Note 2.3 Translation and operational currency risk
Note 2.4. Staff costs

Note 2,5 Other income and expenses, net

Section 3 Working capital

Note 3.1. Changes in working capital

Note 3.2 Trade receivables and related credit risk
Note 3.3 Other receivables

Note 3.4. Other liabilities

Section 4 Strategic investments and divestments

Note 4.1. Acquisition and divestment of businesses
Note 4.2. Assets held for sale

Note 4,3. Intangible assets

Note 4.4. Impairment tests

Note 4.5. Goodwill impairment

Section 5 Capital structure

Note 5.1. Share capital

Note 5.2. Loans and borrowings

Note 5.3. Liquidity risk

Note 5,4 Currency risk

Note 5,5 interest rate risk

Note 5.6 Derivatives

Note 5,7 Financial income and financial expenses

Section 6 Governance

Note 6.1  Remuneration to the Board of Directors and the Group Management Board
Note 6.2. Related parties .
Note 6.3 Fees to auditors elected at the Annual General Meeting

Section7 Tax

Note 7,1 Income taxes
Note 7.2 Deferred tax

Section 8 Other required disclosures

Note 8.1 Earnings per share

Note 8.2. Property, plant and equipment

Note 8.3 Other financial assets

Note 8.4 Pensions and similar obligations

Note 8.5. Provisions

Note 8.6 Contingent liabilities

Note 8.7 Financial assets and liabilities

Note 8,8 Reconciliation of segment information

Note 8.9 Subsequent events

Note 8.10 New standards and interpretations not yet implemented
Note 8.11 Subsidiaries, associates, joint ventures and SPEs

 

90 Group Annual Report 2013

Consolidated income statement
1 January — 31 December

 

 

 

 

 

DKK million Note 2013 2012 2011
Revenue 2.1, 2.2 78,459 79,454 71,644
Staff costs 2.4 (51,234) (52,071) (50,089)
Consumables (6,949) (7,009) (6,751)
Other operating expenses 6.3 (15,174) (15,110) (15,561)
Depreciation and amortisation ” 4.3, 8.2 (787) (853) (855)
Operating profit before other items ? 4,315 4,411 4,388
Other income and expenses, net 2.5 (100) (308) (223)
Operating profit ” 2.2 4,215 4,103 4,165
Share of result from equity-accounted investees 6 4 0
Financial Income 5.7 170 217 197
Financial expenses 5,7 (2,446) (2,943) (2,999)
Profit before tax and goodwill impairment/amortisation

and impairment of brands and customer contracts 1,945 1,381 1,363
Income taxes I 7,1 (919) (960) (888)
Profit before goodwill impairment/amortisation

and impairment of brands and customer contracts 1,026 421 475
Goodwill impairment 4.5 (985) (385) (501)
Amortisation and impairment of brands and customer contracts 4.3 (667) (679) (708)
Income tax effect ? 7.1, 7.2 229 193 231
Net profit/(loss) for the year (397) (450) (503)
Attributable to:
Owners of ISS A/S (399) (453) (510)
Non-controlling interests 2 3 7
Net profit/(loss) for the year (397) (450) (503)
Earnings per share:
Basic earnings per share (EPS), DKK 8.1 (2.9) (4.0) (5.1)
Diluted earnings per share, DKK 8.1 (2.9) (4.0) (5.1)
Adjusted earnings per share, DKK I 8,1 7.6 3.8 4.7

 

1 Excluding Goodwill impairment and Amortisation and impairment of brands and customer contracts.

2) Excluding Other Income and expenses, net, Goodwill impairment and Amortisation and impairment of brands and customer contracts.

I Eycluding tax effect of Goodwill impairment and Amortisation and impairment of brands and customer contracts.

4) Income tax effect of Goodwill impairment and Amortisation and impairment of brands and customer contracts.

5) Calculated as Profit before goodwill impairment/amortisation and impairment of brands and customer contracts diwvided by the average number
of shares (diluted)

 

Consolidated financial statements | Financial statements

Consolidated statement of comprehensive income
" 1 January — 31 December

 

 

 

 

 

 

DKK million Note 2013 2012 2011
Net profit/(loss) for the year (397) (450) (503)
Other comprehensive income
Items not to be reclassified to the income statement

in subsequent periods:
Actuarial gains/(losses) ” 8.4 410 (516) (133)
Impact from asset ceiling regarding pensions 8.4 (63) 1 8
Tax 7.1 (76) 120 29
Items to be reclassified to the income statement

in subsequent periods:
Foreign exchange adjustments of subsidiaries and .

non-controlling interests (796) 184 (46)
Fair value adjustment of hedges, net 5.6 4 (114) (14)
Fair value adjustment of hedges, net, transferred to Financial

expenses ” 5,6 80 52 106
Limitation to interest deduction . 7.1 - le (16) -
Tax 7.1 (21) 16 (23)
Total other comprehensive income/(loss) (462) (273) (73)
Total comprehensive income/(loss) for the year (859) (723) (576)
Attributable to:
Owners of ISS A/S (860) (726) (583)
Non-controlling interests 1 3 7
Total comprehensive income/(loss) for the year (859) (723) (576)

 

1403024EogSN509423

 

81

 

 

92 Group Annual! Report 2013

Consolidated statement of cash flows
1 January — 31 December

 

 

 

 

 

DKK million Note 2013 2012 2011
Operating profit before other items 4,315 4,411 4,388
Depreciation and amortisation 4.3, 8.2 787 853 855
Changes in working capital 3.1 80 116 (317)
Changes in provisions, pensions and similar obligations (146) (291) (235)
Other expenses paid (388) (349) (266)
Income taxes paid (933) (885) (749)
Cash flow from operating activities 3,715 3,855 3,676
Acauisition of businesses 4.1 (14) (60) (89)
Divestment of businesses 4.1 2,183 212 761
Acquisition of intangible assets and property, plant and equipment (902) (881) (1,103)
Disposal of intangible assets and property, plant and equipment 99 119 93
(AcquisitionY/disposal of financial assets (35) (137) 6
Cash flow from investing activities 1,331 (747) (332)
Proceeds from borrowings 4,425 81 468
Repayment of borrowings (7,983) (5,180) (1,110)
Interest received 135 137 137
Interest paid (1,734) (2,373) (2,361)
Proceeds from issuance of share capital - 3,696 -
Non-controlling interests (2) (4) (8)
Cash flow from financing activities (5,159) (3,643) (2,874)
Total cash flow (113) (535) 470
Cash and cash equivalents at 1 January 3,528 4,037 3,606
Total cash flow (113) (535) 470
Foreign exchange adjustments (138) 26 (39)
Cash and cash equivalents at 31 December 3,277 3,528 4,037

 

 

Consolidated financial statements | Financial statements — 93

Consolidated statement of financial position
At 31 December

 

 

 

 

 

DKK million ' Note 2013 2012 2011
Assets

Intangible assets 4.3, 4.4 28,346 31,969 34,097
Property, plant and equipment 82 1,715 1,887 2,077
Investments in equity-accounted investees ' 5 11 7
Deferred tax assets 7.2 .— 627 550 535
Other financial assets 8.3 302 427 " 300
Non-current assets EN 30,995 34,844 37,016
Inventories 309 - 312 334
Trade receivables 3.2 10,299 11,433 11,871
Tax receivables 204 207 330
Other receivables 3.3 1,542 1,295 1,227
Cash and cash equivalents 3,277 3,528 4,037
Assets classified as held for sale 42 1,950 2,269 165
Current assets ' 17,581 19,044 17,964
Total assets ' " 48,576 53,888 54,980

 

DKK million Note 2013 2012 2011

 

Equity and liabilities

 

 

 

 

 

 

 

Total equity attributable to owners of ISS A/S 4,237 5,097 2,127
Non-controlling interests 9 10 12
Total equity 5.1 4,246 5,107 2,139
Loans and borrowings 5,2 20,416 24,011 28,181
Pensions and similar obligations 8.4 838 1,433 1,099
Deferred tax liabilities 7.2 1,590 1,755 2,051
Provisions 8,5 470 352 338
Non-current liabilities "23,314 27,551 31,669
Loans and borrowings 5,2 5,648 5,607 . 5,778
Trade payables 3,436 3,669 3,466
Tax payables 443 339 422
Other liabilities 3.4 10,156 10,657 11,161
Provisions 8.5 - 317 225 255
Liabilities classified as held for sale 42 1,016 733 90
Current liabilities ” "21,016 21,230 21,172
Total liabilities 44,330 48,781 52,841
Total equity and liabilities ' 48,576. 53,888 54,980

 

1403D24EogSN68322

 

94 Group Annual Report 2013

Consolidated statement of changes in equity

1 January — 31 December

Attributable to owners of ISS A/S

 

 

 

2013 Trans- Non-con-
Share Share Retained lation Hedging trolling Total

DKK million capital premium earnings reserve reserve Total interests equity
Equity at 1 January 135. 11,430 (6,741) 367 (94) 5,097 10 5,107
Comprehensive income for the year
Net profit/(loss) for the year - - (399) - - (399) 2 (397)
Other comprehensive income
Foreign exchange adjustments of subsidiaries

and non-controlling interests - - - (795) - (795) (1) (796)
Fair value adjustment of hedges, net - - - - 4 4 - 4
Fair value adjustment of hedges, net,

transferred to Financial expenses - - - - 80 80 - 80
Actuarial gains/(losses) - - 410 - - 410 - 410
Impact from asset ceiling regarding pensions - - (63) - - (63) - (63)
Tax - - (76) - (21) (97) - (97)
Total other comprehensive income/(loss) - - 271 (795) 63 (461) (1) (462)
Total comprehensive income/(lass)

for the year - - (128) (795) 63 (860) 1 (859)
Transactions with owners
Dividends paid - - - - - ” (2) (2)
Total transactions with owners - - - - - ” (2) (2)
Total changes in equity - - (128) (795) 63 (860) (1) (861)
Equity at 31 December 135. 11,430 (6,869) (428) (31) 4,237 9 4,246

 

Dividends

No dividends have been proposed or declared before the Annual Report was issued.

Consolidated financial statements | Financial statements — 95

Consolidated statement of changes in equity

1 January — 31 December

Attributable to owners of ISS A/S

 

 

2012 Trans- Non-con-

Share Share Retained lation Hedging trolling Total
DKK million capital premium earnings reserve reserve Total interests — equity
Equity at 1 January 100. 7,772. (5,896) 183 (32) 2,127 12. 2,139

 

Comprehensive income for the year

 

 

 

 

 

 

 

 

Net profit/(loss) for the year - - (453) - - (453) 3 (450)
Other comprehensive income
Foreign exchange adjustments of subsidiaries .

and non-controlling interests - - - 184 - 184 0 184
Fair value adjustment of hedges, net - - - - (114) (114) - (114)
Fair value adjustment of hedges, net,

transferred to Financial expenses - - - - 52 52 - 52
Actuarial gains/(losses) - - (516) - - (516) - (516)
Impact from asset ceiling regarding pensions - - 1 - - 1 - 1
Limitation to interest deduction - - - - (16) (16) - (16)
Tax - - 120 - 16 136 - 136
Total other comprehensive income/(loss) - - (395) 184 (62) (273) 0 (273)
Total comprehensive income/(loss)

for the year - ” (848) 184 (62) (726) 3 (723)
Transactions with owners
Share issue 35 3,686 - - -… 3,721 - 3,721
Costs related to the share issue - (28) - - - (28) - (28)
Impact from acauired and divested

companies, net - - - - - - (1) (1)
Dividends paid - - - - - - (4) (4)
Share-based payments - - 3 - - 3 - 3
Total transactions with owners 35 3,658 3 - - 3,696 (5) 3,691
Total changes in equity 35 3,658 (845) 184 (62) 2,970 (2) 2,968
Equity at 31 December 135 11,430 (6,741) — 367 (94) 5,097 10 5,107
Dividends

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

1403044EogSN58923

96 Group Annual Report 2013

Consolidated statement of changes in equity

1 January — 31 December

Attributable to owners of ISS A/S

 

 

 

2011 Trans- Non-con-
Share Share Retained lation Hedging trolling Total

DKK million capital premium earnings reserve reserve Total interests equity
Equity at 1 January 100 7,772. (5,276) 227 (197) 2,626 25 2,651
Change in accounting policy due to

implementation of IAS 19 (2011) - - 81 2 - 83 - 83
Adjusted equity at 1 January 100. 7,772. (5,195) 229 (197) 2,709 25 2,734
Comprehensive income for the year
Net profit/(loss) for the year - - (510) - - (510) 7 (503)
Other comprehensive income
Foreign exchange adjustments of subsidiaries

and non-controlling interests - - - (46) - (46) 0 (46)
Adjustment relating to previous years - - (96) - 96 - - -
Fair value adjustment of hedges, net - - - - (14) (14) - (14)
Fair value adjustment of hedges, net,

transferred to Financial expenses - - - - 106 106 - 106
Actuarial gains/(losses) - - (133) - - (133) - (133)
Impact from asset ceiling regarding pensions - - 8 - - 8 - 8
Tax - - 29 - (23) 6 - 6
Total other comprehensive income/(loss) - - (192) (46) 165 (73) 0 (73)
Total comprehensive income/(loss)

for the year - - (702) (46) 165 (583) 7 (576)
Transactions with owners
Impact from acquired and divested

companies, net - - - - - - (12) (12)
Dividends paid - - - - - - (8) (8)
Share-based payments - - 1 - - 1 - 1
Total transactions with owners - - 1 ” - 1 (20) (19)
Total changes in equity - - (701) (46) 165 (582) (13) (595)
Equity at 31 December 100 7,772. (5,896) 183 (32) 2,127 12. 2,139

 

Dividends

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

 

Section 1

Basis of preparation

Section 1 Basic of preparation | Financial statements

In 2013, significant changes to the structure of the consolidated financial statements have been implemented with the
alm to ensure a more readable report with a logical structure taking the characteristics of ISS's business into account.
The notes have been grouped into eight sections based on theme rather than in consecutive order based on line items in
the primary statements. Furthermore, compared to prior years a number of notes have been excluded from the consoli-
dated financial statements based on a reassessment of materiality as described below in ”Defining materiality”. Finally,
the Group's accounting policies as well as critical accounting estimates and judgements (in prior years note 1 and note 2)

are included in the beginning of each relevant section or note.

Due to the intended Initial Public Offering (IPO) and the requirement of two years of comparative figures in the offering
circular, the consolidated financial statements for 2013 including notes contain two years of comparative figures. These
comparative figures for the financial years 2012 and 2011 have been derived from the published consolidated financial
statements for 2012 and 2011, respectively, as prepared and approved by the Executive Group Management Board and
the Board of Directors on 7 March 2013 and 5 March 2012, respectively. These comparative figures have been restated
due to certain amendments to IAS 19 as adopted by EU, cf. note 1.1, Basis of preparation, below.

Included in this section are required disclosures relevant for the understanding of the basis of preparation of the consoli-

dated financial statements, i.e.:

e Reporting entity

e Statement of compliance

e Functional and presentation currency
e Basis of measurement

se Defining materiality

e Changes in accounting policies for 2013, 2012 and 2011

es Going concern
s Basis of consolidation
e Foreign currency '

e Accounting policies, i.e. policies not relevant for a specific section

e Equity

s Use of critical accounting estimates and judgements

e Financial risk management

NOTE 1.1 Basis of preparation

Reporting entity

ISS A/S is a company domiciled in Denmark. The consolidated financial
statements of ISS A/S as of and for the year ended 31 December 2013
comprise ISS A/S and its subsidiaries (together referred to as ”the
Group”) and the Group's interests in equity-accounted investees.

A group chart is included in note 8,11, Subsidiaries, associates, joint
ventures and SPEs. '

Statement of compliance

The consolidated financial statements have been prepared in accord-
ance with lERS as adopted by the EU and Danish disdlosure require-
ments 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 A/S for 2013 was discussed and approved
by the Executive Group Management Board (the EGM) and the Board
of Directors (the Board) on 3 March 2014 and issued for approval at
the subsequent Annual General Meeting on 3 March 2014.

1403044EogSN589128

Functional and presentation currency

The consolidated financial statements are presented in Danish kroner
(DKK), which is ISS A/S's functional currency, All amounts have been
rounded to nearest DKK million, unless otherwise indicated.

Basis of measurement

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.

Defining materiality

The income statement and the statement of financial position sepa-
rately present items that are considered individually significant, or are
reguired under the minimum presentation requirements of IAS 1.

In determining whether an item is individually significant ISS considers
both quantitative and qualitative factors. If the presentation or disclo-
sure of an item does not increase the value of information to users,
the information is considered insignificant.

97

 

98 Group Annual Report 2013

NOTE 1.1 Basis of preparation (continued)

Explanatory disclosure notes related to the income statement, the
statement of financial position and the statement of cash flows are
presented for individually significant items. Where separate presenta-
tion of a line item is made solely due to the minimum presentation
requirements in IAS 1, no further disclosures are provided in respect of
that line item.

Changes in accounting policies 2013

Except for the changes below, the Group has consistently applied the
accounting policies set out below to all periods presented in these
consolidated financial statements. However, based on new informa-
tion minor adjustments to comparative figures in primary statements
and notes have been implemented.

With effect from 1 January 2013, the Group has implemented:

& Amendments to lAS 1 ”Presentation of Items of Other
Comprehensive Income”;

Amendments to lFRS 7 "Financial Instrument Disclosure”;
IFRS 10 ”Consolidated Financial Statements”;

lFRS 11 ”Joint Arrangements”;

IFRS 12 ”Disclosure of Interests in Other Entities”;

IAS 27 (2011) "Separate Financial Statements”;

Amendments to IAS 27 (2011) ”Separate Financial Statements”;
IAS 28 (2011) ”Investments in Associates and Joint Ventures”;
IFRS 13 ”Fair Value Measurement”;

IAS 19 (2011) "Employee Benefits”;

Amendments to JAS 36 "Impairment of Assets"; and

& Annual improvements to IFRSs 2009-2011 cycle.

Doc

vD0O00D000 35

o

As a result of the amendments to IAS 1, the Group has modified the
presentation of items of Other comprehensive income to present
separately items that would be reclassified to the income statement
from those that would never be, Comparative figures have been
restated accordingly.

As a result of IFRS 10 the Group changed the accounting policy for
determining whether it has control over and consequently whether it
consolidates its investees. The new standard introduces a new control
model that focuses on whether the Group has power over an investee,
exposure or rights to variable returns from its involvement with the
investee and ability to use its power to affect those returns.

In accordance with the transitional provision of IFRS 10 the Group
reassessed the control conclusion for its investees in 2013. The reas-
sessment had no quantitative impact on the Group's consolidated
financial statements.

IFRS 11 removes the option to account for jointly controlled entities
using proportionate consolidation. Instead jointly controlled entities
that meet the definition of a joint venture must be accounted for us-
ing the equity method. The application of this new standard impacted
the Group by replacing proportionate consolidation of the Group's
joint ventures with the equity method of accounting. The implemen-
tation did not have a material impact on the Group's consolidated
financial statements.

IFRS 13 changes the principles for calculation of fair value of financial
and non-financial assets and liabilities and introduces a number of
new disclosure requirements. The Group already complies with the
fair value calculation principles. Consequently, the new standard only
affects disclosure requirements for the Group.

The amendments to JIAS 19 results in interest income no longer
being calculated and recognised in the income statement on the
basis of the expected return on plan assets, but instead by using the
applied liability discount rate. Furthermore, risk sharing between the
Group and the plan participants has been changed. Comparative
figures have been restated and the impact on Equity is shown in the

statement of changes in equity. The impact on the income statement
was an increase in financial expenses of DKK 8 million in 2012 and 3
reduction in financial expenses of DKK 5 million in 2011. Net of tax
the implementation increased Net loss for the year from DKK 444 mil-
lion to DKK 450 million in 2012 and reduced Net loss for the year from
DKK 507 million to DKK 503 million in 2011,

Except for IFRS 11 and IAS 19, the adoption of these standards and
interpretations did not affect recognition and measurement in the
consolidated financial statements for 2013.

Changes in accounting policies 2012
With effect from 1 January 2012, the Group has implemented:

& Amendments to lFRS 7 ”Financial Instrument Disclosures”;

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

& Amendmenis to lAS 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.

Changes in accounting policies 2011
With effect from 1 January 2011, the Group has implemented:

& Amendmenis to IFRIC 14 "Prepayments of a Minimum Funding
Requirement”;

2 IFRIC 19 ”Extinguishing Financial Liabilities with Equity Instru-
ments”;

o Revised IAS 24 "Related Party Disclosures”;

& Amendments to IAS 32 "Classification of Rights Issues”;

& Amendments to lFRS 1 ”First-time Adoption of International
Financial Reporting Standards”; and

o Improvements to IFRSs (May 2010).

The adoption of these Standards and Interpretations did not affect
recognition and measurement in the consolidated financial statements
for 2011 including earnings per share and diluted earnings per share.

Change in classification In 2011, the Group changed the classifica-
tion of interest on defined benefit plans (interest on obligation and
expected return on plan assets) and interest on other long-term
employee benefits from Staff costs to Financial expenses to reflect
more appropriately the nature of these items and the way they affect
the business. The change in classification increased Operating profit
before other items with DKK 36 million but had zero impact on Net
profit/(loss) for the year. Comparative figures were reclassified for
consistency, which resulted in DKK 43 million being reclassified from
Staff costs to Financial expenses, i.e. Operating profit before other
items was increased by DKK 43 million but Net profit/(foss) for the
year was unchanged.

Going concern

The Board and the EGM have during the preparation of the consoli-
dated financial statements of the Group assessed the going concern
assumption. The Board and the EGM believe that no events or condi-
tions 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 avail-
able 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.

 

1403044EogSN589285

NOTE 1.1 Basis of preparation (continued)

Basis of consølidation

Subsidiaries are entities controlled by ISS A/S, ISS A/S controls an
entity when it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements
of subsidiaries are indluded in the consolidated financial statements
from the date on which control commences until the date on which
control ceases.

Changes in the Group's interest in a subsidiary that do not result in
loss of control are accounted for as equity transactions.

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.

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. 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,

Written put options held by non-controlling shareholders are ac
counted 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 meas-
ured at the present value of the exercise price of the option.

Subsequent fair value adjustments of put options held by non-control-
ling 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.

Upon loss of control the Group derecognises the assets and liabilities
of the subsidiary, any non-controlling interests and the other com-
ponents of equity related to the subsidiary. Any resulting gain or loss
is recognised in the income statement. Any interest retained in the
former subsidiary is measured at fair value at the date that control is
lost. Subsequently it is accounted for as an equity-accounted investee
ør as an available-for-sale financial asset depending on the level of
influence retained.

The Group's interests in equity-accounted investees comprise
interests in associates and joint ventures.

Associates are entities in which the Group has significant influence,
but not control or joint control, over the financial and operating
policies. A jøint venture is an arrangement in which the Group has
joint control, whereby the Group has rights to the net assets of the
arrangement, rather than rights to its assets and obligations for its
liabilities.

Interests in associates and joint ventures are accounted for using the
equity method. They are recognised initially at cost, which includes
transaction costs. Subsequent to initial recognition, the consolidated
financial statements include the Group's share of the profit or loss and
other comprehensive income of equity-accounted investees, until the
date on which significant influence or joint control ceases,

Section 1 Basic of preparation | Financial statements — 99

Transactions eliminated on consolidation On consolidation, intra-
group income and expenses, shareholdings, intra-group balances and
dividends and realised and unrealised gains and losses arising from
intra-group transactions are eliminated. Unrealised gains arising from
transactions with equity-accounted investees are eliminated against
the investment to the extent of the Group's interest in the investment.
Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.

Foreign currency

Transactions denominated in currencies other than the functional cur-
rency of the respective Group companies are considered transactions
denominated in foreign currencies.

On initial recognition, transactions denominated in foreign currencies
are translated to the respective functional currencies of the Group
companies 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 for-
eign 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 of transaction or the exchange rate in the latest finan-
cial statements is recognised in the income statement under Financial
income or Financial expenses.

On recognition in the consolidated financial statements of Group
companies with a functional currency other than DKK, the income
statements and statements of cash flows are translated at the ex-
change 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 devi-
ate 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 transla-
tion difference is allocated to the non-controlling interest.

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 other than DKK 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.

Accounting policies

The Group's significant accounting policies and accounting policies
related to IAS 1 minimum presentation items are described in the
relevant individual notes to the consolidated financial statements or
otherwise stated below. A list of the notes is shown in the overview
on page 89.

Presentation of income statement. 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.

 

100 Group Annual Report 2013

NOTE 1 Basis of preparation (continued)

Presentation of statement of cash flows The consolidated state-
ment of cash flows shows the Group's cash flows from operating, in-
vesting and financing activities for the year. Interest paid and received
is include in Cash flow from financing activities as this most appropri-
ately reflects the distinction between operating and financing activi-
ties following the acquisition of ISS World Services A/S by ISS A/S.

Inventories are measured at the lower of cost under the FIFO princi-
ple and net realisable value. Net realisable value of inventories is calcu-
lated 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.

Share-based payments The value of services received in exchange
for granted warrants is measured at fair value. The fair value of equity-
settled programmes is measured at grant date and recognised over
the vesting period.

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.

Other long-term employee benefits The Group's net obligation
in respect of long-term employee benefits is the amount of future
benefit that employees have earned in return for their service in
current and prior periods. That benefit is discounted to determine its
present value. Gains and losses on remeasurement are recognised in
the income statement in the period in which they arise.

Equity

Share premium comprises amounts above the nominal share capital
paid by shareholders when shares are issued by ISS A/S. The share
premium is part of the Group's free reserves.

Translation reserve comprises all foreign exchange differences aris-
ing from the translation of financial statements of foreign entities with
a functional currency other 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 a foreign entity where control is lost
the foreign exchange adjustments are transferred to the income state-
ment 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.

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.

Use of critical accounting estimates and judgements

In preparing these consolidated financial statements, management
has made various judgements, estimates and assumptions concerning
future events that affect the application of the Group's accounting
policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.

Estimates and assumptions are reviewed on an ongoing basis and
have been prepared taking the financial market situation into consid-
eration, 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.

Information about judgement, assumptions and estimation uncertain-
ties that have a significant risk of resulting in a material adjustment is
included in the following notes:

Le]

Revenue (note 2.1)

Other income and expenses, net (note 2.5)

Trade receivables and related credit risk (note 3.2)
> Acquisition and divestment of businesses (note 4.1)
Assets held for sale (note 4.2)

Impairment tests (note 4.4)

Deferred tax (note 7.2)

Pensions and similar obligations (note 8.4)
Provisions (note 8.5)

gGaCcos eo

2

Financial risk management

The Group is exposed to a number of financial risks arising from its
operating and financing activities, mainly currency risk, interest rate
risk, liquidity risk and credit risk. These financial risks are managed
centrally by Group Treasury based on the treasury policy. The treasury
policy is reviewed annually and approved by the Board. Additionally,
the treasury policy complies with current loan documentation, e.g. the
Senior Facility Agreement and the Intercreditor Agreement.

It is not the Group's policy to take speculative positions in the financial
markets. The Group's financial risk management is focused on manag-
ing risks arising from the Group's operating and financing activities,
mainly by use of interest rate instruments and currency instruments
with the purpose of managing volatility in the Group's results.

The areas involving the most significant financial risks are trade
receivables, loans and borrowings and financial income and expenses,
Information about the Group's objectives, policies and processes for
measuring and managing the risk exposure related to these items is
included in these notes:

e Trade receivables and related credit risk (note 3.2)
& Liquidity risk (note 5.3)

Currency risk (note 5.4)

Interest rate risk (note 5.5)

ad

G

The Group has not identified additional financial risk exposures in
2013 compared to 2012 and 2011, and the approach to capital man-
agement and risk management activities is unchanged compared with
2012 and 2011.

The Group is exposed to risk in relation to translation into DKK of
income statements and net assets of foreign subsidiaries, including
intercompany items such as loans, royalties, management fees and in-
terest payments between entities with different functional currencies,
since a significant portion of the Group's revenue and operating profit
is generated in foreign entities. This risk is described in the following
note:

o Translation and operational currency risk (note 2.3)

To limit the exposure to credit risk related to securities, cash and cash
equivalents it is Group policy only to enter into transactions with
financial institutions carrying a minimum required short-term credit
rating assigned by Standard & Poor's (S&P) (A-1 rating) or Moody's
(P-1 rating). Other banks may be approved separately by Group
Treasury. Group Treasury monitors credit ratings and given that the
Group generally enters into transactions only with financial institutions
with high credit ratings, management assesses that sufficient steps
are taken in order to mitigate potential counterparties failing to meet
contractual obligations.

 

Section 2 Operating profit | Financial statements 101

Section 2
Operating profit

This section comprise notes which provide specifications and explanations related to the composition of the Group's
operating profit for the year, including disclosures on revenue and operating segments. Segment information is presented
in three ways: reportable segments, service types, and geographical information.

In this section, the following notes are presented:

2.1 Revenue

2.2 Segment information

2.3 Translation and operational currency risk
2.4 Staff costs

2.5 Other income and expenses, net

NOTE 2.1 Revenue

Accounting policy

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

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 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. |

Critical accounting estimates and judgements
Management makes estimates and judgement in relation to presentation of revenue as gross or net as well as in relation to treatment of signifi-
cant contracts.

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 man-
agement considers whether ISS is acting in the capacity of an agent or a principal, which requires judgement in the evaluation of relevant facts
and circumstances.

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.

Specification of revenue

 

 

DKK million 2013 2012 2011
Rendering of services 76,105 76,987 75,019
Sale of goods . 2,354 2,467 2,625
Revenue 78,459 79,454 71,644

 

1403024EogSN58926

102 Group Annual Report 2013

NOTE 2.2 Segment information

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 Global Corporate Clients organisation are excluded from the geographical segments and combined in a separate segment called "Other
countries”,

Accounting policy

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

For the purpose of segment reporting, 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 liabili-
ties, 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.

Reportable segments

The segment reporting is prepared in a manner consistent with the Group's internal management and reporting structure. A reconciliation of
total reportable segments to the income statement and statement of financial position is provided in note 8.8, Reconciliation of segment infor-
mation.

Transactions between reportable segments are made on market terms.

 

 

 

2013 Western latin North Eastern Other en
DKK million Europe Nordic Asia Pacific America America Europe countries segments
Revenue! | MENE 39,704 i 16,853 8,019 . 5,105 3,708 NE 3,459 — 1,657 — 38 78,543.
Depreciation and amortisation? 4381) (170) (67) (64) (45) 7) 4) 7 (761)
Operating profit before other items” — — 2,388 — 1,246 608 == 253  m45 — 7017 109 md 4849
Other income and expenses, net —— — —— (748) an 45) 499 (773) 3) 7 CO
Operating profit? — — 2,240 1237 5683 732 …B0 (72) 4 nn 4813
Goodwill impairment — (822) 33) 80) 7" (985)
Amortisation and impairment

of brands and customer contracts — (401) (124) (44) (40) — 0 0) (32) . 0 6) i SEK — (667)
Totalassets 78270 14822 4215 — 2,640 1,484 — 1,792 — 1,297 —— 8 4,528
Hereof assets classified as held for sale 1,373 303 122 152 HE SENER - 1,950
Additions to non-current assets 4 EN 485 | 180 … HK-LÆN 5 91 30 . Bo 11 7 897
Total liabilities |. 18,901 |. 8,766 — 1,785 — 11637 1,796 — 1,085 527 — 8 34,505
Hereof liabilities classified as held for sale 800 131 16 69 - - - - 1,016

 

1 Induding internal revenue which due to the nature of the business 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, Goodwill impairment and Amortisation and impairment of brands and customer contracts.

4) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment including acquisitions through business combinations.

 

 

Section 2 Operating profit | Financial statements 103

NOTE 2.2 Segment information (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012 ' Western Latin North Eastern Other rr
DKK million Europe Nordic Asia Pacific America America Europe countries segments
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 I 2,407 1,190 564 311 91 151 102 (1) 4,815
"Other income and expenses, net (72) 27 (23) (2) (128) (62) - - (260)
Operating profit ? 2,335 1,217 541 309 (37) 89 102 (1) 4,555
Goodwill impairment (372) -0 (13) - - - - - (385)
Amortisation and impairment
of brands and customer contracts (372) (146) (54) (44) (12) (32) (19) - (679)
Total assets 30,144 15,576 4,452 3,674 1,732 1,838 1,292 9 58,717
Hereof assets classified as held for sale 873 928 145 323 - - - - 2,269
Additions to non-current assets ? 519 195 107 96 45 8 12 - 982
Total liabilities 20,944 9,666 1,997 2,800 1,793 876 535 8 38,619
Hereof liabilities cassified as held for sale 194 415 20 104 - - - - 733
2011 Western Latin North Eastern Other ri
DKK million ' Europe Nordic Asia Pacific America America Europe countries segments
Revenue ” 39,321 18,085 6,090 5,525 3,648 3,369 1,641 30 71,109
Depreciation and amortisation ” (362) (240) (65) (52) (38) (16) (21) - (794)
Operating profit before other items I 2,268 1,268 486 358 215 116 107 (1) 4,817
Other income and expenses, net (72) 61 (4) (3) (20) (53) (0) - (91)
Operating profit » 2,196 1,329 482 355 195 63 107 (1) 4,726
Goodwill impairment (478) (23) - - - - - - (501)
Amortisation and impairment
of brands and customer contracts (370) (168) (55) (45) (14) (34) (22) - (708)
Total assets 30,584 14,902 4,250 3,545 1,972 1,833 1,338 6 58,430
Hereof assets classified as held for sale 165 - - - - - - - 165
Additions to non-current assets % 539 222 56 119 81 26 19 - 1,062
Total liabilities 20,913 9,403 1,958 2,682 1,612 1,404 624 5 38,601
Hereof liabilities classified as held før sale 90 - - SE - - - - 90

 

1-4) Refer to the segment reporting for 2013

 

 

104 Group Annual Report 2013

 

NOTE 2.2 Segment information (continued)

Grouping of countries into regions
Western Europe: — Austria, Belgium & Luxembourg, France, Germany, Greece, Ireland, Israel, Italy, the Netherlands, Portugal, Spain,
Switzerland, Turkey and the United Kingdom

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

Asia: Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, Taiwan and Thailand
Pacific: Australia and New Zealand

Latin America: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Panama, Peru, Puerto Rico, Uruguay and Venezuela

North America: Canada and the USA
Eastern Europe: — Croatia, the Czech Republic, Estonia, Hungary, Poland, Romania, Russia, Slovakia and Slovenia

Other countries: — Bahrain, Cayman Islands, Cyprus, Egypt, Morocco, Nigeria, Pakistan, Qatar, Saudi Arabia, South Africa, South Korea, Ukraine
and the United Arab Emirates

Service types
The Group's revenue derives from the following service types:

 

 

DKK million 2013 2012 2011
Cleaning services 38,494 39,514 39,470
Property services 15,307 14,987 15,003
Catering services 8,535 8,558 7,710
Support services 6,514 6,607 6,162
Security services 6,316 6,418 5,767
Facility management 3,293 3,370 3,532
Revenue 78,459 79,454 71,644

 

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

 

 

 

2013 2012 2011

Non-current Non-current Non-current

DKK million Revenue assets Revenue assets Revenue assets
United Kingdom 9,322 3,184 8,792 3,304 7,835 3,246
France 7,122 3,304 7,248 4,554 7,560 4,981
Norway 5,762 2,165 6,080 2,420 5,940 2,910
Australia 4,572 1,606 5,476 2,072 5,033 2,334
Spain 4,173 1,445 4,410 1,384 4,467 1,617
Switzerland 4,005 1,618 3,471 1,645 3,323 1,779
Finland 3,986 2,892 4,131 2,965 4,154 3,020
Sweden 3,948 2,031 4,047 2,129 4,172 2,058
Denmark (country of domicile) 2,965 2,118 3,293 2,217 3,640 2,307
Other countries 32,604 10,005 32,506 11,604 31,520 12,229
Total 78,459 30,368 79,454 34,294 77,644 36,481

 

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 2013 (2012/2011: none/none).

 

 

Section 2 Operating profit | Financial statements 105

NOTE 2.3 Translation and operational currency risk

The Group is exposed to a low level of currency risk on transaction level, since the services are produced, delivered and invoiced in the same
local currency with minimal exposure from imported components. The Group is, however, exposed to risk in relation to translation into DKK of
income statements and net assets of foreign subsidiaries, including intercompany items such as loans, royalties, management fees and interest
payments between entities with different functional currencies, since a significant portion of the Group's revenue and operating profit is gen-
erated in foreign entities.

In 2013, the currencies in which the Group's revenue was denominated decreased with an average of 3.3% (2012/2011: increased with
2.4%/0.4%) relative to DKK, decreasing the Group's revenue by DKK 2,094 million (2012/2011: an increase of DKK 1,966 million/DKK 432 mil-
lion). Currency movements decreased the Group's operating profit before other items by DKK 126 million (2012/2011: an increase of DKK 127
million/DKK 41 million). The effect of the translation of net assets in foreign subsidiaries decreased other comprehensive income by DKK 796
million (2012/2011: an increase of DKK 184 million/a decrease of DKK 46 million).

Sensitivity analysis It is estimated that a change in foreign exchange rates of the Group's main currencies would have impacted revenue,
operating profit before other items and other comprehensive income by the amounts shown below. The analysis is based on foreign exchange
rate variances that the Group considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in par-
ticular interest rates, remain constant and ignores any impact of forecasted sales and purchases. The analysis is prepared on the same basis
for 2012 and 2011.

 

 

 

 

 

 

 

2013 2012

Change in Change in
foreign Operating Net assets foreign Operating Net assets
exchange profit before in foreign exchange profit before in foreign
DKK million rates Revenue  otheritems  subsidiaries rates Revenue other items  subsidiaries
GBP 10% 929 . 66 308 10% 877 60 287
AUD . 10% 457 . 23 94 10% 548 29 76
CHF 5% ” 200 . 17 ' 74 10% 347 38 115
USD 10% 337 10 78 10% 347 16 98
NOK . 5% 288 21 65 5% 304 22 62
EUR 1% 266" 14 59 1% 278 15 57
TRY 10% 241 18 . 28 10% 221 16 43
SEK 5% 197 15 56 5% 202 14 52
Other . 10% 1,548 94 332 10% 1,480 81 358
Total - 4,463 ' 278 1,094 - 4,604 291 1,148
2011

Change in
foreign Operating Net assets
exchange profit before in foreign
DKK million ' rates Revenue other items  subsidiaries
GBP 10% 781 54 255
AUD ' 10% 503 34 75
CHE 10% 332 32 144
USD 10% 330 12 44
NOK 5% 297 21 50
EUR 1% 293 15 64
TRY 10% 184 13 36
SEK 5% 209 15 45
Other 10% 1,321 87 378
Total - 4,250 283 1,091

 

1403044FogsSN79323

     

 

 

106 Group Annual Report 2013

NOTE 2.4 Staff costs

 

 

 

DKK million 2013 2012 2011
Wages and salaries 40,824 41,577 39,756
Defined benefit plans 139 64 159
Defined contribution plans 1,830 1,868 1,839
Social security costs 5,936 6,084 6,111
Other employee benefits 2,505 2,478 2,224
Staff costs 51,234 52,071 50,089
Average number of employees 533,792 536,731 533,573

 

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 employ-
ees such as trainees, disabled persons, long-term unemployed and employees in certain age groups.

NOTE 2.5 Other income and expenses, net

Accounting policy

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 items such as subsequent adjustments
to 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.

Critical accounting estimates and judgements
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.

Specification of other income and expenses, net

 

DKK million 2013 2012 2011
Gain on divestments 806 83 90
Other 5 19 16
Other income 811 102 106
Restructuring projects (379) (187) (66)
Onerous contracts (228) - -
Labour related claims (100) - -
Loss on divestments (72) (42) (24)
Build-up of IFS capabilities in North America (50) (62) (52)
Costs related to exit processes (15) (2) (111)
Misstatement of accounts - (98) -
Revised estimate for social security contributions prior years - - (47)
Other (67) (19) (29)
Other expenses (911) (410) (329)

 

Other income and expenses, net (100) (308) (223)

 

 

Section 2 Operating profit | Financial statements 107

NOTE 2.5 Other income and expenses, net (continued)

Gain on divestments in 2013 related to a number of divestments, most significantly the pest control activities in 12 countries and the Nordic
damage control activities. In 2012, the gain mainly related to the sale of Reaktorskolen AS, the governmental outplacing services in Norway, and
the washroom activities in the Netherlands and Belgium & Luxembourg, 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.

Restructuring projects in 2013 related to structural adjustments in a number of countries, mainly the United Kingdom, Greece, France, Brazil,
Denmark and the USA. The restructuring projects include cost reductions to make ISS more efficient going forward and primarily comprise re-
dundancy payments, termination of leaseholds, relocation costs, exceptional provisions for impairment losses on receivables as well as redundan-
Cy and severance payments relating to senior management changes. In 2012, costs mainiy 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. 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.

Onerous contracts related to the expected losses on a few large specific contracts which were entered into in previous years. Following recent
development in assumptions it is nøt considered probable that the contracts will be profitable over the lifetime.

Labour related claims consisted of claims related to previous years on specific contracts.

Løss on divestments in 2013 related to a number of divestments, mainly occupational health and safety (Arbo) activities in the Netherlands and
building services and hardware services in Belgium as well as the remeasurement of net assets of the security activities in Israel in connection
with the classification as held før sale as per 31 December 2013. In 2012, the loss mainly related to the landscaping activities in the Netherlands
and the mailroom services in France, In 2011, the loss mainly related to the sale of the industrial services business in Belgium.

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 the USA. The build-up of the IFS platform was completed in 2013.

Costs related to exit processes comprised costs for external advisors. In 2013, the costs related to the initiated IPO process, which was an-
nounced on 18 February 2014. In 2012 and 2011, the costs primarily related to the initiated IPO process announced in February 2011 and subse-
quently cancelled in March 2011 due to the extraordinarily high level of uncertainty and volatility in the global financial markets.

Misstatement of accounts in 2012, related to Uruguay, India and Mexico. The loss was a result of the expansion of the businesses in these
high-growth markets not being sufficiently supported by a satisfactory control environment.

Revised estimate for social security contributions prior years in 2011 related to Greece for the period 2006 to 2010.

1403044EogSN689239

 

 

108 Group Annual Report 2013

Section 3
Working capital

Cash flows and in particular working capital is given high priority at ISS. Our approach to managing working capital is
structured and well proven through continued delivery of steady cash flows reflected in cash conversion of 102% in 2013
which is consistent with performance in prior years with cash conversion realised in the range of 93% to 103% in the
period from 2008 to 2012.

The approach to improving capital efficiency consists primarily of the following tools: i) working capital projects which
focus on the order-to-cash process and in particular sharing of best practices within the Group, creating awareness of the
different components influencing working capital and strengthening internal training to continue anchoring the cash flow
culture across various functions (sales, operations, finance etc.); ii) particular focus on trade receivables, especially overdue
receivables and unbilled receivables; iii) standardised reporting of cash flow forecasts and ongoing follow-up in order to
monitor the cash performance on a regular basis; and iv) inclusion of cash conversion in the Group's incentive structure.

This section comprises notes to understand the development in working capital:
3.1 Change in working capital
3.2 Trade receivables and related credit risk

3.3 Other receivables
3.4 Other liabilities

NOTE 3.1 Changes in working capital

 

DKK million 2013 2012 2011
Changes in inventories (39) (15) (43)
Changes in receivables (593) (65) (1,394)
Changes in payables 712 196 1,120

 

Changes in working capital 80 116 (317)

 

 

Section 3 Working capital | Financial statements 109

NOTE 3.2. Trade receivables and related credit risk

Trade receivables are exposed to credit risk which might result in impairment losses. This note includes general information about trade receiva-
bles as well as specifications and explanations of the related credit risk.

Accounting policy
Trade 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.

Impairment losses are recognised when objective evidence indicates that an individual receivable or a portfolio of receivables with similar risk
Characteristics is impaired, This is based on an individual review for impairment due to customer insolvency, past due amounts and mathemati-
cally computed impairment losses based on classification of debtors, maturity and historical information.

Impairment losses, both individual and collective, are recognised in a separate account unless the Group is satisfied that no recovery of the
amount owing is possible; at that point the amount is considered irrecoverable and is written off against the receivable directly.

When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income
statement.

Critical accounting estimates and judgements

Impairment losses are based on management's assessment of the customer's ability to make the required payments. Following the global
economic downturn in recent years particularly in Western Europe the general credit risk has increased for groups of customers in certain coun-
tries in this region. Furthermore, in 2013, 2012 and 2011 a slight increase in the ageing of trade receivables and debtor days was seen most
significantly in some Mediterranean countries and Latin America. Such developments and the economic downturn may have an adverse effect
on the earnings in the industry in general and are taken into consideration in the assessment of impairment losses.

Trade receivables and related credit risk
The carrying amount of trade receivables of DKK 10,299 million (2012/2011: DKK 11,433 million/DKK 11,871 million) recognised in the state-
ment of financial position represents the maximum credit exposure.

Exposure to credit risk on trade receivables is managed locally in the operating entities and credit limits set as deemed appropriate for the
customer taking into account the customer's financial position and the current market conditions. Generally, the Group does not hold collateral
as security for trade receivables.

The Group's customer portfolio is diversified in terms of geography, industry sector and customer size, The Group is not exposed to credit risk
related to significant individual customers. In some geographies, mainly the Mediterranean countries and Latin America, the general credit risk
has increased for groups of customers, which has led to an increase in the level of impairment losses recognised in 2013. However, historically
amounts written off as uncollectible have been relatively low, which is also the case in 2013.

The maximum credit risk exposure for trade receivables at the reporting date, i.e. the carrying amount, by geography was:

 

 

 

2013 2012 ' 2011

Impair- Carrying Impair- — Carrying Impair-  Carrying

DKK million Gross ment amount Gross ment amount Gross ment amount
Western Europe 6,117 (195) 5,922 6,683 (124) 6,559 6,862 (136) 6,726
Nordic 1,511 (24) 1,487 1,728 (22) 1,706 2,077 (39) 2,038
Asia 1,112 (21) 1,091 1,134 (22) 1,112 1,003 (22) 981
Pacific 575 (7) 568 687 (8) 679 740 (6) 734
Latin America 583 (48) 535 657 (14) 643 623 (14) 609
North America 390 (7) "… 383 441 (10) 431 469 (7) 462
Eastern Europe 318 (8) 310 306 (8) 298 327 (9) 318
Other countries 3 - 3 5 - 5 3 - 3
Total 10,609 (310) 10,299 11,641 (208) 11,433 12,104 (233) 11,871

 

1403044EogsN58339

 

 

110 Group Annual Report 2013

NOTE 3.2 Trade receivables and related credit risk (continued)

Impairment losses

The ageing of trade receivables at the reporting date was:

 

 

 

2013 2012 2011

Impair-  Carrying Impair-  Carrying Impair-  Carrying

DKK million Gross ment amount Gross ment amount Grøss ment amount
Not past due 8,204 - 8,204 8,860 (0) 8,860 9,135 (3) 9,132
Past due 1 to 60 days 1,594 (0) 1,594 1,911 (0) 1,911 2,048 (2) 2,046
Past due 61 to 180 days 322 (19) 303 434 (13) 421 466 (7) 459
Past due 181 to 360 days 199 (33) 166 151 (34) 117 201 (56) 145
More than 360 days 290 (258) 32 285 (161) 124 254 (165) 89
Total 10,609 (310) 10,299 11,641 (208) 11,433 12,104 (233) 11,871

 

The Group believes that the unimpaired amount at 31 December 2013 is still collectible based on historical behaviour and analysis of the un-
derlying customers' financial position and credit ratings.

The movement in the allowance for impairment losses during the year was as follows:

 

 

 

DKK million 2013 2012 2011

Impairment losses at 1 January (208) (233) (241)
Impairment losses recognised (162) (75) (78)
Impairment losses reversed 8 21 39

Amounts written off as uncollectible 38 67 51

Reclassification to Assets held for sale 14 12 (4)

Impairment losses at 31 December (310) (208) (233)
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.

As at 31 December 2013, trade receivables of DKK 4,535 million (2012/2011: DKK 4,818 million/DKK 4,961 million) recognised in the statement
of financial position were provided as security for securitisation debt with a face value of DKK 2,773 million (2012/2011: DKK 2,635 million/
DKK 2,638 million).

 

Section 3 Working capital | Financial statements 111

NOTE 3.3 Other receivables

Accounting policy

Other receivables are recognised initially at cost and subsequently at amortised cost. Prepayments are measured at cost. Costs relating to sales

work and securing contracts are recognised in the income statement as incurred.

Specification of other receivables

 

 

DKK million 203 2012 2011
Prepayments 631 622 575
Loan to FS Invest S.å r.l 98 . -
Currency swaps 21 48 -
Other 792 625 652
Other receivables 1,542 1,295 1,227

 

Prepayments comprise mainly prepayments to suppliers and sign-on fees related to customer contracts.

Other comprise various receivables such as supplier rebates and bonuses, refunds from customers and other recoverable amounts, contract
work in progress, refunds and recoverable amounts related to employees, outlay for customers, costs related to PPP/PFI contracts, loans to cus-

tomers, accrued interest, VAT, etc.

NOTE 3.4. Other liabilities

Accounting policy
Other liabilities are recognised initially at cost.

Specification of other liabilities

 

 

DKK million 2013 2012 2011
Accrued wages, pensions and holiday allowances 4,675 5,056 5,067
Tax withholdings, VAT etc. 2,849 3,111 3,401
Prepayments from customers 407 463 536
Other 2,225 2,027 2,157
Other liabilities 10,156 10,657 11,161

 

Other comprise supplier expenses, utilities such as rent, telephone, electricity etc., contingent consideration and deferred payments, accrued

interests, fees to advisors and auditors, customer discounts and insurance, etc.

1403024EogSN58933

 

 

 

112 Group Annual Report 2013

Section 4

Strategic investments and divestments

In 2013, the Group continued to review the strategic rationale and fit of business units, which led to identification of
activities that were non-core to the strategy. As a result ISS has divested 14 businesses in 2013 induding the pest control
activities in 12 countries and the damage control activities in the Nordics as the most significant. Further, as a result of
this on-going review of our business platform, sales processes have been initiated for six businesses, and these have been
classified as held for sale as per 31 December 2013.

In terms of acquisitions, in recent years the number of acquisitions have been few, and we expect to continue the
disciplined and focused acquisition strategy going forward. In 2013, ISS acquired one minor business in Spain, which
added an expanded service offering within the hotel segment.

Our acquisition strategy in previous years added more than 600 businesses to the Group in the period 2000 to 2010,
which resulted in a significant amount of acquisition-related intangibles in addition to the significant amount of intangi-
bles being recognised in May 2005 when ISS World Services A/S was acquired. This continues to make the Group
exposed to possible impairment losses, both due to impairment tests and due to divestments. In 2013, intangibles have
been reduced by both categories of impairment losses.

In this section, the following notes are presented:

4.1 Acquisitions and divestment of businesses
4.2 Assets held for sale

4.3 Intangible assets

4.4 Impairment tests

4.5 Goodwill impairment

NOTE 4,1. Acquisition and divestment of businesses

 

Accounting policy

Business combinations Acquired businesses or entities formed during the year are recognised in the consolidated financial statements from the
acquisition date, which is the date when the Group effectively obtains control of the acquired business, or date of formation. Businesses which
are divested or wound up are recognised in the consolid