Annual Report • Mar 12, 2015
Annual Report
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BASF appointed ISS as strategic partner in fi ve European countries Page 41
ISS won nine awards at the 2014 Australian Service Excellence Awards Page 57
ISS won IFS contract with Vattenfall in Germany Page 18
Revenue 74,105 DKKm
Operating profi t before other items 4,150 DKKm
1,816 DKKm
Profi t before goodwill impairment and amortisation/impairment of brands and customer contracts
3,177 DKKm 2.5%
Operating margin 5.6%
98%
Cash fl ow from operating activities
" We generated resilient organic growth, while improving our operating margin and ensuring strong cash conversion, in spite of diffi cult macroeconomic conditions throughout the year."
JEFF GRAVENHORST Group Chief Executive Offi cer
Cash conversion
Number of employees
510,968
In ISS, our objective is to create value for our customers by allowing them to focus on what they do best – their core business. By taking over their noncore facility services we help customers improve efficiency, mitigate their risks and provide a better service experience for their stakeholders.
ISS's partnerships with customers are based on openness and transparency. In that respect our management information system Insight@ISS plays an important role in providing the customer and ISS with real time data on the performance of the customer's facility via a web-based interface. This allows ISS to offer customers completely new insight and opportunities to optimise and improve the efficiency of their facilities.
BARCLAYS, ONE CHURCHILL PLACE, LONDON Daiva Revuckaite, Welcome team assistant, ISS United Kingdom
ISS's business model is based on creating value for our customers by allowing them to focus on what they do best – their core business. We service and maintain their facilities, ensuring that they are safe, efficient and pleasant places for our customers to pursue their own purpose. Focusing on our selected customer segments, we offer a leading value proposition based on our philosophy of self-delivery of our chosen services.
OUR VALUE PROPOSITION
Service performance
facilitating our customers' purpose
through people empowerment
53% Single-services
ISS made significant progress in 2014. We demonstrated the resilience of our business model through robust financial results. We accelerated the implementation of our strategy, added many new customers and, through the successful listing on Nasdaq Copenhagen in March, welcomed thousands of new shareholders. For the second straight year, ISS was named the world's best outsourcing provider by the International Association of Outsourcing Providers.
We generated resilient organic growth, while improving our operating margin and ensuring strong cash conversion, in spite of difficult macroeconomic conditions throughout the year. We strengthened the focus on our core service offerings, on improving the customer experience and employee engagement whilst also generating significant benefits through a number of strategic initiatives.
The successful IPO in March was an important step in our journey towards becoming the world's greatest service organisation as it created a strong foundation for our future growth. The resilience and attractiveness of our business model was a major factor in our successful return to Nasdaq Copenhagen, and we are determined to deliver on the trust that our investors have placed in us.
As planned, we used the proceeds from the IPO to significantly reduce our leverage. This, along with a successful refinancing, served to significantly strengthen our financial position. We are now classified as an investment grade company and, as a result, we were able to issue bonds of EUR 1.2 billion at very competitive pricing.
At the annual general meeting, we will propose a dividend for 2014 of DKK 4.90 per share of DKK 1, equivalent to a pay-out ratio of approximately 50% of Profit before goodwill impairment and amortisation/impairment of brands and customer contracts.
Our 510,968 colleagues and our thousands of valued customers around the world continue to be the most important factors behind the success that we enjoy in the enormous USD 1 trillion market in which we operate.
We express our gratitude to all our employees for their dedication and to our customers for the trust they have put in ISS.
Our global customer and employee surveys have shown further improvement over the year, and we recorded our best ever scores for employee engagement as well as customer experience. Around 207,000 (61%) of our surveyed employees and most of our major customers participated. Our employee engagement improved in all regions, on average from 4.3 to 4.4 (on a scale of 5). Employees' readiness to recommend ISS as an employer (known as the Net Promoter Score)
increased significantly to 46 (from 31). In an industry with inherently high employee turnover, the ability to attract the very best people is becoming increasingly important in order to win in the marketplace. We continue to carry out a range of initiatives to strengthen the relationship between employees and ISS even further.
Similarly, the satisfaction of our customers is crucial to our growth in all segments, from single services to multi-services and IFS. In 2014, we managed to further develop the IFS offering and grow the business through several contract extensions, expansions and wins with customers, including HP, Vattenfall, Molson Coors, Bankia and the Norwegian Defence Forces. IFS grew by 10% and now represents 31% of our total revenue.
We also made notable progress on our customer segmentation and procurement savings initiative during the year. We carried out extensive analysis of our operations in countries representing 56% of our total revenue, which has resulted in a sharpened customer focus in our organisational structure, performance excellence and cost leadership. As already demonstrated by the positive effect on those countries furthest in this process, we expect this increased focus to improve customer experience, drive growth and internal efficiency gains in coming years.
Our procurement savings initiative has already identified cost savings of DKK 350-450 million in the first two phases. It is the intention to launch phase III in 2015 and we are targeting additional savings from this phase. While some of these cost savings will support increased margins, we will also reinvest part of the savings to maintain and strengthen competitiveness.
Looking ahead, we expect the challenging economic climate to continue in 2015, but with our engaged employees, loyal customers and proven strategy we have confidence in our ability to continue delivering strong, resilient results across our business.
Lord Allen of Kensington Kt CBE Chairman
Jeff Gravenhorst Group Chief Executive Officer
| DKK million (unless otherwise stated) | 2014 | 2013 | 2012 | 2011 | 2010 |
|---|---|---|---|---|---|
| Income statement | |||||
| Revenue | 74,105 | 78,459 | 79,454 | 77,644 | 74,073 |
| Operating profit before other items 1) | 4,150 | 4,315 | 4,411 | 4,388 | 4,310 |
| Operating margin 2) | 5.6% | 5.5% | 5.6% | 5.7% | 5.8% |
| EBITDA | 4,722 | 5,002 | 4,956 | 5,020 | 5,042 |
| Adjusted EBITDA 2) | 4,882 | 5,102 | 5,264 | 5,243 | 5,160 |
| Operating profit 3) | 3,990 | 4,215 | 4,103 | 4,165 | 4,192 |
| Financial income | 303 | 176 | 222 | 198 | 208 |
| Financial expenses | (1,599) | (2,446) | (2,943) | (2,999) | (2,609) |
| Profit before goodwill impairment and amortisation/ impairment of brands and customer contracts |
1,816 | 1,026 | 421 | 475 | 1,031 |
| Net profit for the year | 1,014 | (397) | (450) | (503) | (532) |
| Cash flow | |||||
| Cash flow from operating activities | 3,177 | 3,715 | 3,855 | 3,676 | 4,036 |
| Acquisition of intangible assets and property, plant and equipment, net |
(783) | (803) | (762) | (1,010) | (886) |
| Cash conversion 2) | 98% | 102% | 103% | 93% | 98% |
| Financial position | |||||
| Total assets | 46,734 | 48,566 | 53,888 | 54,980 | 55,455 |
| Goodwill | 22,796 | 23,155 | 25,841 | 27,170 | 27,747 |
| Additions to property, plant and equipment | 692 | 772 | 789 | 938 | 861 |
| Total equity (attributable to owners of ISS A/S) | 12,910 | 4,213 | 5,097 | 2,127 | 2,626 |
| Equity ratio | 27.6% | 8.7% | 9.5% | 3.9% | 4.7% |
| Employees | |||||
| Number of employees at 31 December | 510,968 | 533,544 | 534,273 | 534,519 | 522,677 |
| Full-time employees | 73% | 74% | 73% | 73% | 73% |
| Growth | |||||
| Organic growth | 2.5 % | 4.3 % | 1.7 % | 6.3 % | 3.5 % |
| Divestments | (6)% | (2)% | (2)% | (2)% | (1)% |
| Currency adjustments 4) | (2)% | (3)% | 2 % | 1 % | 4 % |
| Total revenue growth | (6)% | (1)% | 2 % | 5 % | 7 % |
| Financial leverage | |||||
| Pro forma adjusted EBITDA | 4,792 | 4,979 | 5,253 | 5,146 | 5,111 |
| Net debt | 12,647 | 22,651 | 25,955 | 29,905 | 30,623 |
| Net debt / Pro forma adjusted EBITDA | 2.6x | 4.5x | 4.9x | 5.8x | 6.0x |
| Stock market ratios | |||||
| Basic earnings per share (EPS), DKK | 5.8 | (2.9) | (4.0) | (5.1) | (5.5) |
| Diluted earnings per share, DKK | 5.8 | (2.9) | (4.0) | (5.1) | (5.5) |
| Adjusted earnings per share, DKK | 10.3 | 7.6 | 3.8 | 4.7 | 10.3 |
| Proposed dividend per share, DKK | 4.90 | - | - | - | - |
| Number of shares issued (in thousands) | 185,668 | 135,443 | 135,443 | 100,000 | 100,000 |
| Number of treasury shares (in thousands) | 1,000 | - | - | - | - |
| Average number of shares (basic) (in thousands) | 175,049 | 135,443 | 112,008 | 100,000 | 100,000 |
| Average number of shares (diluted) (in thousands) | 175,847 | 135,443 | 112,008 | 100,000 | 100,000 |
See page 153 for definitions.
1) Excluding Other income and expenses, net, Goodwill impairment and Amortisation/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 do not form part of the Group's normal ordinary operations, such as gains and losses arising from divestments, the winding up of operations, disposals of property and restructurings. Some of these items are recurring and some are non-recurring in nature. 3) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts.
4) Calculated as total revenue growth less organic growth and less net acquisition/divestment growth. Currency adjustments thereby includes the effect stemming from exclusion of currency effects from the calculation of organic growth and net acquisition/divestment growth.
In 2015, we will continue to focus on the implementation of the ISS Way strategy, including the roll out of specific strategic initiatives focusing on leadership, IFS, excellence (including procurement), customer segmentation and organisational structure (our GREAT initiatives). Through these efforts we expect to realise tangible operational and financial improvements, in both the short and medium term. We remain focused on delivering:
For 2015 specifically:
Organic growth is expected to be 2%-4%. This reflects our expectation of continued growth in the existing portfolio, combined with the launch of new contracts won in recent months, especially within IFS. We anticipate only a very modest pick-up in economic growth across our markets and believe that conditions in Europe will remain challenging. As such, we remain cautious on the likelihood of a pick-up in non-portfolio services. Our emerging markets activities should continue to be a source of healthy growth.
Operating margin is expected to be above the 5.6% realised in 2014, thereby maintaining our focus on sustainable margin improvement. This development will be supported by ongoing strategic initiatives around procurement, customer segmentation, organisational structure and Business Process Outsourcing (BPO).
| Organic growth | 2%-4% |
|---|---|
| Operating margin | > 5.6% |
| Cash conversion | > 90% |
| Annual report 2013 | August 2014 | Realised 2014 | |
|---|---|---|---|
| Organic growth | 3%-4% | Around 2.4% | 2.5% |
| Operating margin | > 5.5% | > 5.5% | 5.6% |
| Cash conversion | > 90% | > 90% | 98% |
Cash conversion will continue to be a priority in 2015, as it has been historically, and we expect cash conversion to remain above 90%.
The outlook should be read in conjunction with "Forward-looking statements" (see page 153) and our exposure to risk (see Risk management on pages 66-69).
We expect the divestments and acquisition completed by 28 February 2015 (including in 2014) to negatively impact the revenue growth in 2015 by approximately 1 percentage point. We expect a positive impact on revenue growth in 2015 from the development in foreign exchange rates of approximately 4 percentage points based on the forecasted average exchange rates for the year 2015 1). Consequently, we expect total revenue growth in 2015 to be positive by 5-7 percentage points.
For our three key financial objectives, organic growth, operating margin and cash conversion, ISS ended 2014 in line with the outlook published in August 2014.
1) The forecasted average exchange rates for the financial year 2015 are calculated using the realised average exchange rates for the first two months of 2015 and the forecasted average exchange rates for the last ten months of 2015.
In response to international market demands for large and highly complex facility service contracts, ISS established a Global Corporate Clients function in 2007. This provides overall governance, contract management and business transformation for regional, cross-regional and global customers. The establishment of Global Corporate Clients has helped ISS to be recognised as a true global outsourcing provider.
The business has grown exponentially to cover the full range of facility services from soft through to hard services and facility management, which also includes energy management and workplace solutions.
HP, PALO ALTO Elijio Arechiga, Landscaper, ISS USA
EMMA DAVIES Hostess, ISS United Kingdom
At the ROYAL LIVERPOOL HOSPITAL, Emma Davies does her part in making sure patients get on their feet again. Helping patients with their nutritional needs on their way to recovery is an important part of Emma's workday. She loves interacting with the patients and helping them recover.
We delivered resilient organic growth and an improved operating margin in 2014. We made notable progress in our customer segmentation, organisational structure and procurement savings initiatives which supported increased margins. The successful listing of our shares allowed us to reduce our leverage leading to significantly lower financing costs.
Group revenue decreased DKK 4 billion to DKK 74.1 billion in 2014. Organic growth was 2.5% which was more than offset by the impact from the successful divestment of non-core activities of 6% and the negative currency effect of 2%.
Organic growth was driven by a continued strong performance in emerging markets and the Pacific region as well as in the integrated facility services (IFS) business in general. All regions, apart from Eastern Europe, delivered positive organic growth rates with Latin America and Pacific reporting double-digit growth performances. On the other hand, the persistently challenging macroeconomic environment in Europe and difficult market conditions in certain European countries reduced organic growth. Furthermore, the timing and scope of new Global Corporate Clients contracts adversely impacted organic growth relative to original expectations.
Operating profit before other items amounted to DKK 4,150 million in 2014 for an operating margin of 5.6% (2013: 5.5%). The higher operating margin was driven by a strong performance overall. Several regions delivered improved margins, especially the Western Europe and the Nordic regions, driven mainly by the implementation of our strategic initiatives. However, this was partly offset by the impact of operational challenges in certain European countries and the divestment of the margin-accretive pest control activities in 2013. Corporate costs amounted to 0.7% of revenue, the same level as in 2013.
We define emerging markets as comprising Asia, Eastern Europe, Latin America, Israel, South Africa and Turkey. These markets delivered organic growth of 9% and represented 24% of Group revenue. In addition to significantly contributing to the Group's organic growth, emerging markets delivered an operating margin of 6.3% in 2014 (2013: 6.3%). 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.
Profit before goodwill impairment and amortisation/impairment of brands and customer contracts was DKK 1,816 million (2013: DKK 1,026 million), supported by significantly lower financial expenses following the Initial Public Offering (IPO) and the subsequent refinancing of our pre-IPO debt.
Net profit for the year was up by DKK 1,411 million to DKK 1,014 million from a loss of DKK 397 million in 2013. The significant improvement was caused by
REVENUE AND ORGANIC GROWTH
OPERATING PROFIT AND MARGIN
PROFIT BEFORE GOODWILL IMPAIRMENT
lower financial expenses as described above and lower impairment losses as described in the Financial review on page 18.
Cash conversion for 2014 was 98%, driven by a general strong cash performance across the Group. Ensuring a strong cash performance continues to be a key priority, and the result reflects our consistent efforts to ensure timely payment for work performed.
Cash flow from operating activities was an inflow of DKK 3,177 million (2013: DKK 3,715 million). The reduction was primarily due to a lower operating profit before other items resulting from divestments, an increase in cash outflow from working capital as well as an increase in tax paid.
In 2014, we made substantial progress in our strategic initiatives (referred to as GREAT) which include customer segmentation, organisational structure and excellence projects such as our procurement programme and Business Process Outsourcing (BPO).
We have implemented a process of customer segmentation by size to establish a more detailed understanding of our customer base as well as additional profitability transparency. By the end of 2014, we had mapped our customer segments in countries representing 56% of Group revenue, which has resulted in a sharpened focus on
the organisational setup for our key accounts. The implementation phase has been initiated in several countries and is progressing as planned.
The initiatives implemented have resulted in a more efficient structure as well as a lower cost base.
We expect to achieve savings from the procurement excellence programme in phases and the programme continues to progress according to plan. We have now completed phase I and II of the programme and the total identified savings amount to DKK 350-450 million to be achieved during 2014- 2018. It is the intention to launch phase III in 2015 and we are targeting additional savings from this phase. While some of these cost savings will increase margins, other savings will be re-invested in the business in order to maintain and strengthen competitiveness.
We successfully launched a BPO project covering certain Finance & Accounting processes and targeting improved financial processes and cost savings in the Nordic region. Plans are to launch the project in additional European countries in 2015.
Historically, the portfolio business has accounted for 75%-80% of Group revenue. As a result of the divestment of certain non-portfolio based businesses such as pest control, damage control and landscaping our portfolio business' share of Group revenue is currently in the range of 80%-85%. Due to a challenging macroeconomic environment in Europe, among other things, we continue to see relatively weak demand for non-portfolio services.
Revenue generated from IFS was up 10% in 2014, adjusted for currency effects, to DKK 22.7 billion, which corresponds to 31% (2013: 26%) of Group revenue. Growth was mainly
driven by IFS contract launches as well as the successful conversion of traditional single service contracts to IFS contracts.
Significant IFS contracts won by ISS in 2014 included a contract within the remote site resource segment in Australia, BASF in five European countries, Swisscom in Switzerland, Bankia in Spain, Aller in the Nordic region, Vattenfall in Germany and a contract within the Business Services & IT segment in the Netherlands. In 2014, ISS UK lost a large local IFS contract within the healthcare sector which expired on 1 November 2014. Furthermore, ISS Norway lost a large local contract with Statoil which expired 1 June 2014.
Revenue generated from Global Corporate Clients amounted to DKK 6.8 billion in 2014, representing approximately 9% of Group revenue (2013: 8%). In local currencies, this was a 5% increase over 2013.
In 2014, Global Corporate Clients extended the contract with HP, which is one of the largest global facility services contracts in the industry. The three-year extension means that ISS will continue to deliver integrated facility services to more than 500 HP sites in 58 countries across five continents until the end of 2018. Global Corporate Clients also won an IFS framework contract with Nestlé that could potentially cover several countries in Europe and Asia, with delivery of services in Switzerland which commenced on 1 August. In addition, Global Corporate Clients won a contract with the brewing company Molson Coors in North America and the Czech Republic.
In 2014, we divested 14 businesses, the most significant of which were the landscaping activities in France, the commercial security activities in Australia and New Zealand and the Nordic temporary labour and staffing activities in Norway, Sweden and Finland. The divestments were a result of our continuous review of the strategic rationale and fit of business activities and they support a better strategic alignment in the affected countries.
With the divestments completed in 2014, we have completed most of the targeted significant divestments. Nonetheless, we will continue to review our existing business for potential divestments of non-core activities and likewise will consider making acquisitions which enhance our core competencies subject to tight strategic and financial filters.
ISS did not acquire any businesses in 2014, but announced in January 2015 the acquisition of GS Hall plc, a leading technical services company focused on mechanical and electrical engineering, energy management and compliance. The company has activities in the United Kingdom, Ireland and continental Europe. The estimated annual revenue is DKK 698 million and a total of 780 employees, primarily engineers and technicians, will transfer to ISS. The acquisition supports ISS's strategy by expanding our technical services self-delivery capabilities and in particular it supports the IFS offering in the United Kingdom.
The equity ratio at the end of 2014 was 27.6% (2013: 8.7%). The improvement was mainly the result of the successful listing of ISS A/S on Nasdaq Copenhagen.
At the annual general meeting to be held on 15 April 2015, the Board of Directors will propose a dividend for 2014 of DKK 4.90 per share of DKK 1, equivalent to a pay-out ratio of approximately 50% of Profit before goodwill impairment and amortisation/ impairment of brands and customer contracts.
In March 2014, we entered into a new unsecured senior facility agreement in connection with the listing of ISS A/S. Proceeds from the IPO and the new senior facilities were used to repay ISS's
| Revenue | Growth components | ||||||
|---|---|---|---|---|---|---|---|
| DKK million | 2014 | 2013 | Growth | Organic | Div. | Currency | |
| Western Europe | 37,318 | 39,704 | (6)% | 0 % | (7)% | 1 % | |
| Nordic Asia |
15,449 8,221 |
16,853 8,019 |
(8)% 3 % |
2 % 8 % |
(7)% (1)% |
(3)% (4)% |
|
| Pacific Latin America |
4,444 3,597 |
5,105 3,708 |
(13)% (3)% |
10 % 10 % |
(15)% - |
(8)% (13)% |
|
| North America Eastern Europe |
3,477 1,597 |
3,459 1,657 |
1 % (4)% |
1 % (0)% |
(1)% (0)% |
1 % (4)% |
|
| Other countries Corporate / eliminations |
87 (85) |
38 (84) |
129 % 1 % |
146 % - |
- - |
(17)% - |
|
| Group | 74,105 | 78,459 | (6)% | 2.5% | (6)% | (2)% | |
| Emerging markets | 17,779 | 17,732 | 0 % | 9% | (2)% | (7)% |
| Operating profit before other items |
Operating margin | |||||
|---|---|---|---|---|---|---|
| DKK million | 2014 | 2013 | Change | 2014 | 2013 | |
| Western Europe Nordic |
2,310 1,153 |
2,388 1,246 |
(3)% (7)% |
6.2 % 7.5 % |
6.0 % 7.4 % |
|
| Asia | 603 | 608 | (1)% | 7.3 % | 7.6 % | |
| Pacific Latin America |
220 173 |
253 145 |
(13)% 19 % |
5.0 % 4.8 % |
5.0 % 3.9 % |
|
| North America Eastern Europe |
125 109 |
101 109 |
24 % - |
3.6 % 6.8 % |
2.9 % 6.6 % |
|
| Other countries Corporate / eliminations |
(1) (542) |
(1) (534) |
- 1 % |
(1.4)% (0.7)% |
(3.2)% (0.7)% |
|
| Group | 4,150 | 4,315 | (4)% | 5.6% | 5.5% | |
| Emerging markets | 1,123 | 1,115 | 1 % | 6.3% | 6.3% |
entire pre-IPO financing eliminating approximately DKK 1.1 billion in interest expenses on an annualised basis compared with 2013. Hence, the IPO together with the significantly lower interest expenses as well as underlying operational performance made it possible to deleverage the company significantly during 2014.
In November 2014, a new EMTN programme was established to ensure increased flexibility to pursue refinancings in the bond market when considered relevant. The EUR 2 billion EMTN programme was listed on the Luxembourg Stock Exchange with ISS Global A/S as the issuing entity. Under the programme, ISS issued two EUR bonds for a principal amount of EUR 1.2 billion to address the shortest part of the maturity profile of the new senior facilities (Term Loan A maturing in February 2017).
ISS announced a three-year extension of its global IFS contract with HP to the end of 2018. As part of the agreement, ISS continues to deliver IFS services to more than 500 HP sites in 58 countries across five continents. The new contract is one of the largest global facility services contracts in the industry.
Jeff Gravenhorst, Group CEO, said: "We are proud and honoured about our extended agreement with HP, which is a very special customer to ISS. In 2010, HP became our first major global IFS customer. We have worked hard to build and extend the relationship to deliver world-class services and to add value to HP's core business activities."
The refinancings leave ISS with a diversified funding through the combination of bank and bond debt, and rates on a significant proportion of our debt have been locked at attractive levels. Furthermore, we have no short-term maturities.
Following the IPO, ISS was upgraded to investment grade by both Standard and Poor's and Moody's, which assigned corporate ratings of BBB-/Stable (S&P) and Baa3/Stable (Moody's). These ratings also apply to ISS Global A/S and the newly issued EMTNs. In line with our Financial Policy, our objective is to maintain an investment grade financial profile, and the target is to reduce our financial leverage to below 2.5x pro forma adjusted EBITDA. At 31 December 2014 the financial leverage was 2.6x.
The refinancings are described in detail in the Financial review under Capital structure and in section 5 of the consolidated financial statements.
In June 2014, ISS was for the second year in a row ranked the global number one outsourcing services provider by an independent jury for The International Association of Outsourcing Professionals (IAOP) in competition with other global outsourcing companies such as Accenture, Johnson Controls, CBRE and Aramark. ISS received highest possible scores from all jury members on the following parameters: size and growth; customer references; organisational competencies; and management capabilities.
During 2014, ISS received numerous industry awards. ISS was named the Best Facility Management Company of The Year in Asia Pacific, for the second consecutive year, and also received this year's Growth Excellence Leadership Award by Frost & Sullivan. ISS Australia won a record-breaking nine awards at the Customer Service Institute of Australia's (CSIA) 2014 Service Excellence Awards, and was named the 2014 Integrated Facilities Management Company of the Year. ISS in the United Kingdom was presented with several awards including Foodservice Cateys, Educatering and BIFM Awards, the latter including the prestigious Profound Impact Award. ISS United Kingdom also won the respected Corporate Social Responsibility (CSR) Team award at the Business Charity Awards.
ISS received the Global Outsourcing Social Responsibility Impact Award, and ISS Estonia won the Corporate Social Responsibility Initiative of the Year Award at the Swedish Business Awards 2014. ISS Greece took home six awards at the Greek Facilities Management Awards 2014.
A full list of the awards received in 2014 is available on our corporate website.
On 20 January 2015, ISS announced the acquisition of GS Hall plc, a leading technical services company with activities in the United Kingdom Ireland and continental Europe.
Other than as set out above or elsewhere in this Group Annual Report, we are not aware of events subsequent to 31 December 2014, which are expected to have a material impact on the Group's financial position.
We delivered profitable organic growth, solid cash conversion and strong net profit in 2014. Following the IPO, we also significantly reduced our net debt.
The Group's revenue and operating profit before other items is reviewed in Highlights of the year on page 13 and in Regional performance on page 23.
Net profit was up by DKK 1,411 million to DKK 1,014 million from a loss of DKK 397 million in 2013. The significant improvement was mainly due to financial expenses, net decreasing DKK 974 million and non-cash expenses related to goodwill impairment being DKK 537 million lower than in 2013. The decrease in financial expenses was a result of the refinancing of the pre-IPO debt and a lower average net debt during the year.
Ensuring a strong cash performance through efforts to ensure timely payments for work performed continued to be a key priority in 2014. These efforts were once again reflected in our cash flows for the year.
Trade receivables amounted to DKK 10,446 million (2013: DKK 10,299 million). The slight increase compared to 2013 was mainly the result of contracts won in 2014 and quarterly timing differences, partly offset by the impact from divestments.
The commentary in the Financial review is structured according to 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 75-79. Furthermore, no comments are made to section 1, Basis of preparation, and section 8, Other required disclosures, as this is deemed immaterial.
Changes in working capital was an outflow of DKK 71 million, which resulted in a cash conversion of 98% in 2014 compared with 102% in 2013.
activities In 2014, cash inflow from operating activities was DKK 3,177 million (2013: DKK 3,715 million). The decrease was due to operating profit before other items being DKK 165 million lower than in 2013 mainly due to divestments, changes in working capital of DKK 151 million and a DKK 149 million increase in cash outflows from income taxes paid. The increase in tax paid was mainly related to tax payable on the sale of the pest control activities in the Pacific region in 2013.
Other expenses paid of DKK 402 million mainly involved costs relating to the IPO and restructuring projects initiated and expensed in 2013 and 2014.
Cash flow from investing activities was a net cash inflow of DKK 552 million (2013: DKK 1,331 million). The cash inflow relating to acquisitions and divestments, net, was DKK 1,316 million and related mainly to the divestment of the landscaping activities in France, the Nordic temporary labour and staffing activities and the pest control activities in India. This was partly offset by investments in intangible assets and property, plant and equipment, net, of DKK 783 million (2013: DKK 803 million), which represented 1.1% of revenue (2013: 1.0%).
Cash flow from financing activities was a net cash outflow of DKK 3,535 million (2013: cash outflow of DKK 5,159 million) reflecting transactions relating to the completed IPO and the subsequent refinancings carried out during the year, see Capital structure on page 18. Repayment of borrowings of DKK 33,862 million mainly related to the repayment of the pre-IPO senior secured facilities, the redemption of the remaining outstanding Senior Subordinated Notes due 2016, the repayment of the Securitisation programme, as well as the 4.5% EMTNs. Finally, the part of the new unsecured senior facilities with the shortest maturity (Term Loan A expiring in February 2017) was repaid end 2014.
Proceeds from borrowings of DKK 23,483 million mainly related to the new unsecured senior facilities and the two bonds (EUR 1.2 billion in total) issued under the new EMTN programme. Proceeds from issuance of share capital of DKK 7,788 million reflected the net proceeds from the completed IPO.
ISS agreed to a new major IFS strategic partnership with Vattenfall in Germany. The new contract is the largest win ever for ISS in Germany. It covers a wide range of services, including facility services, work space management, cleaning, security, support services, catering, fleet management and maintenance. As part of the contract, ISS will deliver services to approximately 500 Vattenfall sites across Germany and more than 500 Vattenfall employees will transfer to ISS.
The strategic partnership will commence on 1 January 2015 and run for five years with an option for a two-year extension. The strategic partnership between ISS and Vattenfall in Germany builds on shared values of continuously developing services and respect for employees and local communities.
Jacob Götzsche, Regional CEO Central Europe, said: "This is a very important new contract to ISS within IFS and especially to our German business".
In 2014, we divested 14 non-core businesses (2013: 14 divestments). The most significant of these were the landscaping activities in France, the commercial security activities in Australia and New Zealand and the Nordic temporary labour and staffing activities in Norway, Sweden and Finland.
Cash consideration received, net of costs, amounted to DKK 1.3 billion. The proceeds from the divestments were used to repay part of our pre-IPO debt.
Our continued strategic focus led to three businesses being classified as held for sale at 31 December 2014, including businesses in the Western Europe and Nordic regions. At 31 December 2014, assets and liabilities held for sale amounted to DKK 472 million (2013: DKK 1,950 million) and DKK 176 million (2013: DKK 1,016 million), respectively.
Divestments completed in 2014 and revaluation of net assets of businesses classified as held for sale resulted in a net gain of DKK 70 million (2013: DKK 216 million), which comprised a net gain of DKK 100 million recognised in Other income and expenses, net and impairment losses on goodwill and customer contracts of DKK 28 million and DKK 2 million, respectively.
Intangible assets at 31 December 2014 amounted to DKK 27,465 million and comprised mainly goodwill, customer contracts and brands. A significant part of these intangible assets relates 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. Furthermore, a significant number of acquisitions made in subsequent years have added intangible assets.
At 31 December 2014, goodwill was DKK 22,796 million, DKK 359 million less than at 31 December 2013, the difference mainly being due to impairment losses of DKK 448 million and transfer of assets classified as held for sale of DKK 198 million, which amounts were partly offset by foreign exchange adjustments of DKK 298 million. Of the total impairment losses, DKK 420 million derived from impairment tests in the Netherlands due to an update of business plan assumptions and DKK 28 million derived from completed divestments, mainly in Western and Eastern Europe.
Of the total goodwill impairment and amortisation and impairment of brands and customer contracts, DKK 172 million (2013: DKK 517 million) resulted from fair value adjustments from the acquisition of ISS World Services A/S in May 2005. See Acquisition of ISS World Services A/S on page 20.
Following the completion of the IPO in March 2014, ISS entered into a new unsecured senior facility agreement. The new senior facilities consisted of a term facility of EUR 1.2 billion with a three-year maturity (Term Loan A), a term facility of EUR 800 million with a five-year maturity (Term Loan B) and a Revolving Credit Facility of EUR 850 million with a five-year maturity.
Proceeds from the IPO and the new unsecured senior facilities were used to repay the senior secured facilities, redeem the remaining outstanding Senior Subordinated Notes due 2016 and repay the securitisation programme. Furthermore, the 4.5% EMTNs due December 2014 were repaid at maturity.
In November 2014, a new EMTN programme of EUR 2 billion was established and proceeds of EUR 1.2 billion from the two bonds issued was used to repay the part of the new unsecured senior facilities with the shortest maturity (Term Loan A maturing in 2017).
As a result, the new financing consists of the unsecured senior facilities and the two bonds issued under the new EMTN programme. The IPO and subsequent refinancings leave ISS with a net debt of DKK 12,647 million and no short-term maturities.
Total equity was DKK 12,920 million at the end of 2014 equivalent to an equity ratio of 27.6% (2013: 8.7%). The DKK 8,698 million increase was mainly the result of the share issue in connection with the IPO of DKK 7,788 million net of costs of DKK 248 million. In addition, net profit of DKK 1,014 million and currency adjustments relating to investments in foreign subsidiaries of DKK 472 million increased equity. This was partly offset by actuarial losses of DKK 469 million, net of tax and the purchase of treasury shares of DKK 160 million. The positive currency adjustments were mainly due to appreciation of USD, GBP and HKD against DKK.
Net debt was DKK 12,647 million, a decrease of DKK 10,004 million compared with 2013. The significant drop was a result of the IPO, which allowed us to reduce our debt, and to a lesser degree divestment of businesses. The refinancing is described above and in note 5.2, Loans and borrowings, to the consolidated financial statements. At 31 December the Net debt / Pro forma adjusted EBITDA was 2.6x (2013: 4.5x).
net Financial income and expenses, net decreased by DKK 974 million or 43% to a net expense of DKK 1,296 million. The significant decrease was the result of a DKK 826 million reduction in interest expenses, net mainly due to the refinancing of the pre-IPO debt combined with the lower average net debt in 2014. In 2014, financial income and expenses, net, included a non-cash expense of unamortised financing fees of DKK 242 million caused by the repayment of the pre-IPO senior secured facilities, the securitisation programme, the redemption of the outstanding Senior Subordinated Notes as well as the repayment of the part of the new unsecured senior facilities with the shortest maturity (Term Loan A). Furthermore, financial income and expenses, net included a DKK 79 million net loss on foreign exchange.
The effective tax rate for 2014 was 32.6% (2013: 47.3%) calculated as Income taxes of DKK 878 million divided by Profit before tax and goodwill impairment and amortisation/ impairment of brands and customer contracts of DKK 2,694 million. Adjusted for the impact of non-deductible IPO costs of DKK 48 million and the impact of rules on limitation on the deductibility of financial expenses in Denmark, the effective tax rate amounted to approximately 30%.
Financial leverage (x pro forma adjusted EBITDA)1)
1) Pro forma adjusted EBITDA is calculated as Adjusted EBITDA adjusted as if all acquisitions and divestments had occurred on 1 January of the respective year. At 31 December 2014, the Pro forma adjusted EBITDA was estimated at approximately DKK 4,792 million (2013: DKK 4,979 million)
In May 2005, ISS World Services A/S was acquired for a purchase price of approximately DKK 22 billion. The acquisition resulted in a significant step-up of carrying amounts and thus a significant impact on the Group's consolidated financial statements in the subsequent years. Compared to companies in our industry, this is a significant difference.
In accordance with IFRS the purchase price was allocated to identifiable assets, liabilities and contingent liabilities (net assets) with the residual being recognised as goodwill. As the carrying amount of the net assets was approximately DKK 9 billion at the acquisition date, the purchase price allocation (PPA) resulted in significantly higher carrying amounts of goodwill, brands and customer contracts and as a result deferred tax liabilities also increased. On the other hand, the fair value of non-current loans and borrowings was lower than the carrying amount due to a decrease in the market value of the Medium Term Notes expiring in 2014 following the announcement of the intended acquisition of ISS World Services A/S.
The aggregate fair value adjustments following the acquisition and such fair value adjustments remaining at 31 December 2014, are shown in the table to the right.
| DKK million | Fair value adjustments following acquisition in May 2005 |
Fair value adjustment remaining at 31 December 2014 |
|---|---|---|
| Goodwill | 6,443 | 4,504 |
| Brands | 1,657 | 1,589 |
| Customer contracts | 6,665 | 1,501 |
| Other non-current and current assets | (156) | - |
| Pensions | (30) | - |
| Deferred tax liabilities | (2,960) | (694) |
| Non-current loans and borrowings | 1,811 | - |
| Non-controlling interests and other non-current and current liabilities |
(299) | - |
| Total identifiable net assets including goodwill |
13,131 | 6,900 |
The PPA was performed at country level (ISS's relevant CGU level) 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). Impairment tests are performed based on these higher values. As a result, impairment tests have led to recognition of impairment losses in certain countries despite the fact that a test of the aggregate values at Group level would not have led to impairment. This illustrates that
negative developments in certain countries have been more than offset by positive developments in other countries. However, according to IFRS, these can not be offset in the impairment test.
The impact on the Group's results of the fair value adjustments made in May 2005 are presented below.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Actual | Fair value adj. |
Actual excl. adj. |
Actual | Fair value adj. |
Actual excl. adj. |
| Operating profit before other items | 4,150 | - | 4,150 | 4,315 | - | 4,315 |
| Other income and expenses, net | (160) | 12 | (172) | (100) | 97 | (197) |
| Operating profit Financial income and financial expenses, net |
3,990 (1,296) |
12 (20) |
3,978 (1,276) |
4,215 (2,270) |
97 (22) |
4,118 (2,248) |
| Profit before tax, goodwill impairment and amortisation/ impairment of brands and customer contracts Income taxes |
2,694 (878) |
(8) 5 |
2,702 (883) |
1,945 (919) |
75 5 |
1,870 (924) |
| Profit before goodwill impairment and amortisation/ impairment of brands and customer contracts |
1,816 | (3) | 1,819 | 1,026 | 80 | 946 |
| Goodwill impairment | (448) | 160 | (608) | (985) | (119) | (866) |
| Amortisation/impairment of brands and customer contracts Income tax effect |
(588) 234 |
(332) 167 |
(256) 67 |
(667) 229 |
(398) 153 |
(269) 76 |
| Net profit for the year | 1,014 | (8) | 1,022 | (397) | (284) | (113) |
MICHAEL ANDERSEN Handyman, ISS Denmark
THE DANISH ARMED FORCES have a key role to play in promoting peace and security. Michael Andersen is well aware of this task and he does what he can to make sure the premises are well-functioning and up to the task. His workday consists of various different projects and he enjoys this diversity.
OLGA SEVEREVA Security guard, ISS Finland
At the MICROSOFT MOBILE headquarters in Espoo, Finland, Olga Severeva is in place to make the offices safe and secure. It takes the skills of a dedicated employee like Olga to keep up with the pace around the busy headquarters. She's always ready to help people and believes that treating people with respect is one of the most important aspects of her job.
ISS is all about creating value for our customers through consistent service delivery and by assisting them in living up to their specific purpose. We have a unique and leading market position, which supports local, regional and global customers across the ISS world map.
Our business characteristics and regional presence have changed considerably over the past decade. 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
ever growing demand from multinational corporations for the delivery of IFS across borders. Our IFS revenue share has grown significantly and our ability to deliver IFS is key to serving global customers and grasping new local market opportunities.
In 2014, we delivered a robust performance as we continued to grow profitably on the attractive global facility services market. Against a softer global macroeconomic backdrop, we delivered resilient organic growth supported by strong performance in emerging markets and the Pacific and Nordic regions as well as an increasing share of IFS revenue, which now accounts for 31% of Group revenue (2013: 26%).
Our focus on profitable growth, along with the progress made in our strategic initiatives, such as customer segmentation, organisational structure and excellence projects including our procurement programme and Business Process Outsourcing, supported a strong operating margin performance, especially in the Western Europe and Nordic regions.
We are well-positioned in emerging markets, where we generate 24% of our total revenue (2013: 23%). Emerging markets represent a large growth potential and an opportunity to serve our many regional and global customers operating there. Our emerging markets generated solid operating margin of 6.3% in 2014 (2013: 6.3%). Going forward, emerging markets will continue to support our top-line growth and will make up an ever-bigger part of our global footprint.
The markets of the Western Europe region are generally characterised as developed markets but with significant differences from country to country in terms of IFS market maturity and macroeconomic environment. In addition, our market positions vary considerably, as we hold leading market positions in the United Kingdom, Spain, Switzerland and Turkey. Key segments for the region are Business Services & IT, Public Administration, Industry & Manufacturing, Healthcare as well as the Hotels, Leisure & Entertainment segment.
2014 was an important year for the region. We continued to make significant wins of complex IFS contracts such as Bankia and Nestlé, which enabled several countries within the region to deliver positive organic growth rates on top of the strong organic growth in 2013, a year impacted by large contract wins with Barclays and Novartis. On the other hand, we also lost a large local IFS contract in the United Kingdom within the healthcare sector.
2014 was also the year when the procurement programme initiatives, based on leveraging the significant procurement spend within Western Europe, caught real momentum. Our margins were supported by significant realised cost savings. Further cost savings are expected in 2015 and subsequent years as customer demand for contract cost savings continues.
38% of Group employees
United Kingdom 27% France 14% Spain 11% Switzerland 11% Belgium & Luxembourg 7% Turkey 7% Netherlands 5% Germany 5% Israel 5% Austria 4% Ireland 1% Portugal 1% Greece 1% Italy 1% % of total Western Europe revenue
Revenue by country
195,139 Employees
Safeguarding future growth and profitability requires an increased focus on IFS customers and hence a strong focus on the strategic initiative – IFS strategy as part of GREAT. Across the Group, and not least in Western Europe, Global Corporate Clients will act as the incubator for future growth supporting large IFS contracts. We enter 2015 with a strong sales pipeline across most countries, and coupled with new contract wins (notably in the United Kingdom, Spain, Switzerland and Germany) already secured for start-up early in the year, we remain positive about the future organic growth rates and sound profitability of the region.
Revenue was DKK 37,318 million in 2014 (2013: DKK 39,704 million). Organic growth was 0% while the successful divestment of non-core activities in 2013 and 2014 reduced revenue by
7% and currency effects lifted revenue by 1%. Operating profit before other items decreased by 3% to DKK 2,310 million (2013: DKK 2,388 million) equal to an operating margin of 6.2%, which was 0.2 percentage point higher than last year.
0 3 6 9 12 15
Integrated facility services
DKK billion
37,318 Revenue
DKKm
50% of Group revenue
6.2% Operating margin
0% Organic growth
2014: 34% 2006: 14%
Several countries delivered positive organic growth rates, with Turkey, Israel, the United Kingdom and Austria as the most significant. The challenging macroeconomic conditions in certain European countries had a negative impact on the overall organic growth rate.
The operating margin for the region was driven by a strong performance in the United Kingdom, Switzerland, and Turkey as well as by our strategic initiatives. However, the operating margin was negatively impacted by operational challenges in the Netherlands and Israel as well as by the divestments of the margin-accretive pest control activities in 2013, which had an adverse impact on the margin compared with 2013.
DKK billion
The markets of the Nordic region are mature, developed and with a high outsourcing level, and ISS holds a relatively large market share in all countries of the region. The strategic focus remains to leverage the strong market position mainly through our strategy implementation, cost leadership, sharing best practices and utilising our footprint to develop solutions and concepts tailored to specific customer segments. The Nordic key customer segments are Business Services & IT and Industry & Manufacturing as well as country-specific segments such as Transportation & Infrastructure, Healthcare and Public Administration.
The Nordic region is a front-runner in the development and deployment of GREAT – our primary vehicle for accelerating our strategy implementation. Equipped with the knowledge gained from the process of detailed customer segmentation carried out in all Nordic countries in 2013, we aligned our organisational structures in each country at the beginning of 2014. The aligned business platforms are tailored to strengthen our focus on key accounts and large customers as well as establishing separate operating structures
for small customers with separate value propositions. This will lead to improved service performance, better customer experience and higher employee engagement with a competitive cost base.
Another element of implementing GREAT is the Business Process Outsourcing (BPO) project whereby certain Finance & Accounting processes in all Nordic countries were outsourced during 2014 as part of a strategic partnership with an international BPO provider. Furthermore, in 2014 we completed the divestment of two significant non-core activities comprising the Nordic temporary labour and staffing activities in Norway, Sweden and Finland as well as certain service activities related to asylum centres in Norway. The implementation of GREAT in the Nordic region resulted in improvements in 2014 across several KPIs as well as in the cost structures. The implementation efforts will continue in 2015 across the region with the focus on empowering people through leadership, delivering IFS, service excellence and nurturing a commercial focus.
Revenue in 2014 was DKK 15,449 million (2013: DKK 16,853 million) and organic growth was 2%. The divestment of non-core activities reduced revenue by 7% while currency adjustments reduced revenue by 3%. Operating profit before other items amounted to DKK 1,153 million (2013: DKK 1,246 million), reflecting an improved operating margin of 7.5% compared with 7.4% in 2013.
The organic growth of 2% reflected a strong performance in Denmark and Norway driven by contract start-ups and higher demand for non-portfolio services. This was partly offset by negative organic growth in Finland due to the impact from exiting contracts in 2013 and 2014 as well as a weakened demand for non-portfolio services across the region. Furthermore, ISS Norway lost a large local contract with Statoil which expired 1 June 2014.
The increase in the operating margin to 7.5% was primarily the result of a margin increase in Norway and Denmark due to the effect from the strategic initiatives implemented in 2014 regarding customer segmentation and the organisational structure as well as a generally strong operational performance across the region.
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, Thailand and the Philippines. The key customer segments for the region are Business Services & IT, Industry & Manufacturing, Transportation and Retail & Wholesale.
While in 2014 we felt the impact of certain Asian economies softening, the ambition for the region is to remain one of the Group's growth engines. In addition, focus is to maintain a high level of profitability, expand our self-delivery capabilities, further sharpen the business platform as well as to continue improving the commercial focus and strategy towards our selected key customer segments.
In 2014, ISS was named the Best Facility Management Company of The Year in Asia Pacific, for the second straight year, and also received the Growth Excellence Leadership Award at the annual Frost & Sullivan Best Practices Awards in Singapore. In its motivation for the awards, Frost & Sullivan highlighted ISS's ability to be a leader in the industry and grow
in a highly fragmented market with strong competition, largely due to our self-delivery model.
36% of Group employees
Hong Kong 22% Singapore 17% Indonesia 15% India 14% Thailand 13% China 10% Taiwan 4% Philippines 2% Japan 1% Malaysia 1% Brunei 1% % of total Asia revenue
186,009 Employees
Revenue by country
Going forward, focus will be on service excellence and on the transition from input-based contracts to true output-based contracts. In line with GREAT, further efforts will be on the continuous development of our IFS readiness and developing skills to improve our delivery capabilities to local and global IFS customers. Investing in people and leadership development to further strengthen the local organisations is an important factor in managing current and future growth in a controlled manner. The focus on investing in people and leadership development is essential especially as Asia is the region with the highest number of ISS employees relative to revenue.
In 2014, revenue was DKK 8,221 million (2013: DKK 8,019 million) driven by strong organic growth of 8% while the adverse impact from currency and divestments reduced revenue by 4% and 1%, respectively. Operating profit before other items was down 1%
to DKK 603 million for an operating margin of 7.3% (2013: 7.6%).
0 0.5 1.0 1.5 2.0 2.5
Integrated facility services
DKK billion
8,221 Revenue
DKKm
11% of Group revenue
7.3% Operating margin
8% Organic growth
2014: 29% 2006: 31%
Double-digit organic growth rates were seen in certain countries with Indonesia as the largest nominal contributor in the region partly due to a successful sales effort directed at public institutions. India, Singapore, China and Thailand also continued the positive trends driven by multinational and national contract wins, price increases as well as strong retention of existing customers.
The operating margin decreased from 7.6% in 2013 to 7.3% in 2014. Several countries continued to deliver high operating margins including Indonesia, which was more than offset by margin reductions in India, mainly a result of the divestment of the margin-accretive pest control activities in 2014 and investments in operational improvements as well as in Thailand mainly within the office support division.
ISS Australia generates more than 90% of this region's revenue. The main strategic focus in Australia has been to further develop and refine the IFS value proposition to selected customer segments, including Energy & Resources (mainly the remote site resource segment), Healthcare, Transportation & Infrastructure (mainly airports) and Public Administration. Furthermore, ISS Australia has focused on implementing tools for improved control and increased operational efficiency in resource planning and supply chain as well as sales efficiency. This focus led to strong organic growth for the year.
We continue the work on creating a stronger and more aligned business platform, as this will allow us to focus on our core activities. These efforts were supported by the divestment of the pest control activities in Australia and New Zealand in 2013 as well as the divestment of the commercial security activities in the region in early 2014. Furthermore, ISS Australia has successfully established themselves as a market leader in the delivery of support services to the remote site
resource segment through several contract wins and retenders in 2014. This was reflected in the strong organic growth and operating margin in 2014.
Going forward, we remain focused on further developing the value proposition to the selected customer segments and the overall efficiency of the business in the region.
Revenue for 2014 was DKK 4,444 million (2013: DKK 5,105 million). Organic growth was 10%, which was more than offset by divestments (15%) and negative currency effects (8%). Operating profit before other items was DKK 220 million (2013: DKK 253 million) equal to an operating margin of 5.0% (2013: 5.0%).
An organic growth rate of 10% is one of the highest to be reported in the Pacific region in recent years. The organic growth was driven by contract wins and expansions within the remote site resource segment in Australia as a direct result of our strategic focus on this customer segment as well as an overall strong customer retention rate.
The operating margin remained unchanged compared with last year supported by the strong performance in the IFS business in Australia and the divestment of the margin-dilutive commercial security activities in Australia and New Zealand. These positive effects were offset by the divestment of the margin-accretive pest control activities in 2013.
We have built a unique position in Latin America with a strong geographical presence and a developed service offering highly focused on IFS. ISS is one of the leading facility service providers in the region with the ability to self-deliver services all key countries where we offer IFS solutions. Focus continues to be on selectively expanding the geographical platform as markets mature. Key segments within Latin America are Industry & Manufacturing 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 these customers.
The main focus in 2014 for the region has been to return to strong profitable growth rates and improve the operational efficiencies, especially in Brazil. Furthermore, we continued to increase the predictability and transparency of the region by strengthening systems, processes and organisations. These efforts have assisted in improving the financial results for the region.
Going forward, we remain focused on delivering profitable organic growth
| and for Latin America to remain one |
|---|
| of the growth drivers of the Group. |
| This will be done through a segment |
| ed approach to the market with a |
| thorough assessment of the potential |
| customer base. In addition, we will |
| remain strongly focused on having |
| the right organisational structures and |
| management teams in place to sup |
| port our goals. The focus on improving |
| the operational efficiencies, especially |
| in Brazil, will continue in 2015. |
Revenue was DKK 3,597 million (2013: DKK 3,708 million), down 3% compared with 2013. Organic growth was 10%, which was more than offset by negative currency effects of 13%. Operating profit before other items was up 19% to DKK 173 million, reflecting an operating margin of 4.8%, which was 0.9 percentage point higher than last year.
Latin America delivered double-digit organic growth with the majority of the countries in the region reporting strong organic growth rates. The organic growth was driven by a sustained high level of new sales and increases from existing contracts, especially in Chile, Argentina and Mexico. This is a direct impact of a more customer-segmented approach in these countries.
The increase in operating margin was the result of improved margins in the majority of the countries in the region with Chile, Mexico and Argentina as the main contributors. The improved margins were mainly driven by wins of margin-accretive contracts, a customersegmented approach as well as the efforts initiated in 2013 to improve operational efficiencies, including amending or exiting certain customer contracts.
ISS has strong 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, Industry & Manufacturing and Transportation & Infrastructure. The continued focus on developing segments such as Aviation produced significant contract wins that contributed positively to the growth performance. We continue to develop our focus on customer segmentation across the business and our self-delivery capabilities within IFS solutions.
Following the investments made in previous years, we are now seeing growth within IFS, as illustrated by contract wins with CPS Energy, Molson Coors and Avago. The extension of the Global Corporate Clients contract with HP has allowed the region to strengthen the self-delivery capabilities within technical services and thereby deliver increased value to HP and other customers. During the year, we further strengthened the management team in North America with the appointment of a new country manager and we
continue the transformation of the North America region, which includes building capabilities to deliver larger IFS solutions across the region.
Our focus going forward is to further develop our IFS capabilities whilst maintaining single service excellence in cleaning and technical services. The region will in 2015 continue the implementation of GREAT, focusing on the customer segmentation and organisational structure, which is expected to accelerate the transformation of the region towards more focus on IFS and targeting large customers.
Revenue in the region was DKK 3,477 million (2013: DKK 3,459 million). Organic growth was 1%, while the adverse impact from divestments reduced revenue by 1% and currency effects lifted revenue by 1%. Operating profit before other items was DKK 125 million (2013: DKK 101 million) for an operating margin of 3.6% (2013: 2.9%).
The organic growth of 1% was primarily driven by the start-up of airport contract wins from Q4 2013, contract
wins in 2014 as well as a greater demand for non-portfolio services, especially in the IFS division.
The increase in operating margin of 0.7 percentage point was mainly due to the impact of stronger operational management controls, a higher demand for non-portfolio services, wins of margin-accretive contracts as well as local procurement savings.
ISS has a wide geographical reach and a unique service platform in Eastern Europe with the capability to self-deliver a full range of facility services. The strategic goal is to provide services to multinational blue chip companies. Key segments for the region are Business Services & IT, Healthcare and Industry & Manufacturing. In recent years, we have deliberately reduced the proportion of customers in the public sector while at the same time increasing business relations with multinational companies.
In 2014, we added several contracts with multinational companies, including Mondelez, Philip Morris International, Sokolow - Danish Crown and Molson Coors. Complex skills and competencies are required to manage these contracts and through our continued focus on IFS capabilities and by sharing knowledge and best practice across the region, we successfully started up these contracts in 2014 and they are currently in operation. We have thereby turned our local service offering into a full IFS offering in several countries, hence both strengthening our regional capabilities and meeting our customers' requirements. Through these international contracts the countries in the region gain knowledge and experience, which can be applied when targeting new customers as well as benefit existing customers. Furthermore, in 2014 we completed the divestments of the activities in Croatia, Bosnia and Herzegovina (country exits).
The efforts to strengthen the management teams and leadership capabilities throughout the region as well as developing the sales organisations remained a priority in 2014. This included establishing joint country management teams in the region and sharing resources on HR, Procurement, Finance, Sales and Key Account Management across the region. In addition, we initiated a shared business development function across the region in order to service customers with a regional set-up.
Revenue was DKK 1,597 million (2013: DKK 1,657 million). Organic growth was flat, while currency adjustments reduced revenue by 4%. Operating profit before other items was DKK 109 million (2013: DKK 109 million)
equal to an operating margin of 6.8% compared with 6.6% last year.
Organic growth was supported by strong double-digit organic growth in Russia from Global Corporate Clients contracts as well as contract wins with other multinational companies, which was offset by our termination of less profitable contracts, as well as contract losses in Slovenia.
The increase in operating margin was a result of improved margins in the Czech Republic, Slovakia, Poland and Romania, which were mainly due to the termination of less profitable contracts and a continued focus on operational efficiencies and cost savings.
AHSINATUL KHILDA Receptionist, ISS Indonesia
At the large PONDOK INDAH MALL in South Jarkarta, Indonesia, Ahsinatul Khilda welcomes the many visitors with a smile. She enjoys the many different experiences each day in this mall brings. Providing visitors with helpful information and guidance is what Ahsinatul finds the most rewarding.
Our focus on profitable contracts and the progress we achieved in our strategic initiatives produced a quarter of strong operating margins.
Group revenue in Q4 was DKK 19.0 billion (Q4 2013: DKK 19.7 billion).
Organic growth in Q4 was 2.7% (Q4 2013: 5.0%), the divestment of noncore activities reduced the total revenue growth by 6 percentage points.
Organic growth was driven by continued growth in IFS and emerging markets, with strong performances in Turkey, India, Singapore, Chile and Argentina. In the Pacific region, double-digit growth was mainly driven by contract wins within the remote site resource segment in Australia. Partly offsetting these developments was the persistently challenging macroeconomic environment in Europe and difficult market conditions in certain European countries.
items was up 1% to DKK 1,230 million (Q4 2013: DKK 1,218 million) for an operating margin of 6.5% in Q4 (Q4 2013: 6.2%). In line with previous years, operating profit before other items is influenced by seasonality and is typically higher in the third and fourth quarters than in the first and second quarters.
The Q4 operating margin was the highest since Q3 2010, supported by the continued roll-out of strategic initiatives as well as a robust performance in Western Europe and margin increases in Latin America,
| Q4 2014 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Revenue | Growth components | |||||||
| DKK million | Q4 2014 | Q4 2013 | Growth | Organic | Div. | Currency | ||
| Western Europe Nordic Asia Pacific Latin America North America Eastern Europe Other countries Corporate / eliminations |
9,511 3,868 2,237 1,139 918 938 416 28 (8) |
10,148 4,118 2,027 1,202 916 847 422 13 (19) |
(6)% (6)% 10 % (5)% 0 % 11 % (1)% 115 % (58)% |
0% 3% 7% 13% 6% 2% 3% 122% - |
(8)% (6)% (1)% (16)% - - (0)% - - |
2 % (3)% 4 % (2)% (6)% 9 % (4)% (7)% - |
||
| Group | 19,047 | 19,674 | (3)% | 2.7% | (6)% | 0% | ||
| Emerging markets | 4,691 | 4,484 | 5% | 7% | (2)% | 0% |
| Operating profit before other items |
Operating margin | ||||
|---|---|---|---|---|---|
| DKK million | Q4 2014 | Q4 2013 | Growth | Q4 2014 | Q4 2013 |
| Western Europe Nordic |
736 311 |
796 342 |
(8)% (9)% |
7.7 % 8.0 % |
7.8 % 8.3 % |
| Asia | 172 | 156 | 10 % | 7.7 % | 7.7 % |
| Pacific | 65 | 75 | (13)% | 5.7 % | 6.3 % |
| Latin America | 46 | 34 | 35 % | 5.0 % | 3.7 % |
| North America | 49 | 28 | 75 % | 5.2 % | 3.3 % |
| Eastern Europe | 34 | 34 | - | 8.2 % | 8.0 % |
| Other countries | 0 | 0 | - | (0.7)% | (2.7)% |
| Corporate / eliminations | (183) | (247) | (26)% | (1.0)% | (1.3)% |
| Group | 1,230 | 1,218 | 1% | 6.5% | 6.2% |
| Emerging markets | 329 | 304 | 8% | 7.0% | 6.8% |
North America and Eastern Europe. Furthermore, corporate costs were lower in Q4 2014 compared with Q4 2013, primarily as a result of quarterly timing differences in 2014. Corporate costs for 2014 ended on level with
2013 as a percentage of revenue at 0.7%-point. In Western Europe, the margin was supported by operational efficiencies including cost savings and procurement initiatives, including the United Kingdom and Switzerland.
| 2014 | 2013 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||
| Western Europe | 0% | 1 % | (1)% | 1 % | 5 % | 6% | 5 % | 3 % | |
| Nordic | 3% | 1 % | 3 % | 1 % | 2 % | 1% | 0 % | (1)% | |
| Asia | 7% | 5 % | 8 % | 13 % | 15 % | 16% | 15 % | 13 % | |
| Pacific | 13% | 11 % | 9 % | 6 % | 3 % | 0% | (3)% | (2)% | |
| Latin America | 6% | 11 % | 12 % | 10 % | 9 % | 5% | 5 % | 7 % | |
| North America | 2% | 0 % | 2 % | 1 % | (3)% | 2% | 1 % | 7 % | |
| Eastern Europe | 3% | (1)% | (1)% | (3)% | 6 % | 7% | 5 % | (0)% | |
| Group | 2.7% | 2.4% | 2.0% | 2.8% | 5.0% | 5.2% | 4.4% | 2.8% | |
| Emerging markets | 7% | 9% | 9% | 12% | 13% | 12% | 11% | 9% |
| 2014 | 2013 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||
| Western Europe | 7.7% | 6.7% | 5.7% | 4.6% | 7.8% | 6.1% | 5.5% | 4.6% | |
| Nordic | 8.0% 10.3% | 6.6% | 5.0% | 8.3% 10.1% | 6.5% | 4.9% | |||
| Asia | 7.7% | 7.5% | 7.0% | 7.1% | 7.7% | 7.9% | 7.4% | 7.3% | |
| Pacific | 5.7% | 5.6% | 4.1% | 4.4% | 6.3% | 4.5% | 4.4% | 4.7% | |
| Latin America | 5.0% | 4.5% | 4.7% | 5.0% | 3.7% | 4.1% | 4.1% | 3.7% | |
| North America | 5.2% | 3.4% | 3.2% | 2.3% | 3.3% | 4.1% | 1.4% | 2.9% | |
| Eastern Europe | 8.2% | 7.5% | 7.3% | 4.0% | 8.0% | 7.5% | 6.9% | 3.8% | |
| Group | 6.5% | 6.4% | 5.2% | 4.3% | 6.2% | 6.3% | 5.1% | 4.4% | |
| Emerging markets | 7.0% | 6.1% | 6.1% | 6.0% | 6.8% | 6.3% | 6.1% | 6.0% | |
leading telecom provider, Swisscom, resulting in a new IFS contract. As part of the agreement, ISS will take over infrastructure and technical facility management for Swisscom. The contract comprises approximately 90 office buildings and 1,000 operational buildings covering a total of 1.2 million square meters. With a view to strengthening our expertise in the information and communications technology (ICT) industry segment, ISS Switzerland has taken over the 220 operational employees from this area, who worked for Swisscom or its previous service provider.
By selecting ISS, which is well-established in Switzerland, Swisscom is aiming to increase its flexibility and freedom of choice, guarantee consistent quality for all the properties spread throughout Switzerland and improve economic efficiency.
The positive performance in North America was mainly a result of contract wins in the beginning of 2014 and higher demand for non-portfolio services, especially from IFS contracts.
tomer contracts increased to DKK 606 million from DKK 300 million in Q4 2013, driven by significantly lower financial expenses following the IPO and subsequent refinancings.
In Q4, financial income and expenses, net, included a non-cash expense of unamortised financing fees of DKK 69 million caused by the refinancing of the EUR 1.2 billion Term Loan A with the two bonds issued under the new EMTN programme.
Goodwill impairment in Q4 was DKK 448 million, a decrease of DKK 102 million compared to Q4 2013. Of the total impairment losses, DKK 420 million derived from impairment tests in the Netherlands due to an update of business plan assumptions and DKK 28 million derived from completed Divestments, mainly in Western and Eastern Europe.
Cash conversion (LTM) in Q4 2014 was 98% due to the 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 timely payment for work performed.
in Q4 represented an inflow of DKK 2,458 million (2013: inflow of DKK 2,466 million). The significant cash inflow in Q4 follows the usual pattern as cash flow from operating activities tends to become increasingly positive as the year progresses and usually peaks in the fourth quarter when revenue recognised in the third quarter of the year is collected.
Revenue generated from integrated facility services (IFS) was up 16% in Q4 when adjusted for currency developments to DKK 6.1 billion, which corresponds to approximately 32% of Group revenue (2013: 27%). Growth was mainly driven by IFS contract launches as well as the successful conversion of traditional single service contracts into IFS contracts.
In Q4, ISS won significant IFS contracts, including with Vattenfall in Germany, within the Business Services & IT segment in the Netherlands, within the remote site resource segment in Australia and with the brewing company Molson Coors in North America. Furthermore, ISS Singapore won a significant contract within the healthcare sector to provide Cleaning and Support services and ISS Australia extended its relationship with its largest aviation customer, Melbourne Airport.
Revenue generated from Global
Corporate Clients in Q4 amounted to DKK 1.9 billion representing approximately 10% of Group revenue (Q4 2013: 9%). In local currencies, this was a 9% increase over 2013.
| 2014 | 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| DKK million (unless otherwise stated) | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Revenue | 19,047 | 18,410 | 18,397 | 18,251 | 19,674 | 19,143 | 20,097 | 19,545 |
| Operating profit before other items 1) | 1,230 | 1,178 | 956 | 785 | 1,218 | 1,214 | 1,028 | 855 |
| Operating margin 2) | 6.5 % | 6.4 % | 5.2 % | 4.3 % | 6.2 % | 6.3 % | 5.1 % | 4.4 % |
| Profit before goodwill impairment and amortisation/ impairment of brands and customer contracts |
606 | 651 | 486 | 73 | 300 | 326 | 166 | 234 |
| Net profit/(loss) | 124 | 545 | 378 | (33) | (409) | (119) | 60 | 71 |
| Cash flow from operating activities | 2,458 | 857 | 606 | (744) | 2,466 | 932 | 780 | (463) |
| Cash conversion (LTM) | 98 % | 97 % | 98 % | 98 % | 102 % | 109 % | 98 % | 99 % |
| Organic growth | 2.7 % | 2.4 % | 2.0 % | 2.8 % | 5.0 % | 5.2 % | 4.4 % | 2.8 % |
| Divestments | (6)% | (6)% | (7)% | (5)% | (4)% | (3)% | (1)% | (1)% |
| Currency adjustments | (0)% | (0)% | (3)% | (5)% | (5)% | (6)% | (1)% | (1)% |
| Total revenue growth | (3)% | (4)% | (8)% | (7)% | (4)% | (4)% | 2 % | 1 % |
See page 153 for definitions and page 8 for note 1) and 2).
" My experience and knowledge keep my customer's business healthy"
MOHAMED TEMSAMANI Contract manager, ISS Belgium
Mohamed Temsamani is responsible for coordinating all the integrated facility services ISS delivers as a facility partner at UCB, a global biopharma company. He does this to benefit the ultimate end users - the patients using UCB products. Mohamed believes that knowing how facilities work is an essential cog in the wheel, and he is proud to be part of the professional ISS team at UCB.
SONY MOBILE. DOUGLAS WILHELM
site, eg. 'At the XX site, a full Integrated Facility Service (IFS) solution has been implemented, which gives XX 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.' Plus more text on the specific site/customer. ISS has built a global platform from which we integrate and self-deliver a complete set of facility services like catering, property, cleaning, support and security services. This offering is particularly relevant for truly global customers, ensuring a consistent and transparent service delivery across many countries.
An increasing demand among customers is risk management. In almost all larger relationships today, ISS is managing risk on behalf of the customer. Having developed solutions for risk mitigation for many years, ISS has the solutions to make customers less exposed in this area.
XX. XX XX, XX BARCLAYS, ONE CHURCHILL PLACE, LONDON Andrea Brotonova, General catering assistant, ISS United Kingdom
In 2014, we made substantial progress in our five key value-driving initiatives, which capture the essence of The ISS Way. They are all about directing our efforts towards what will have greatest positive impact on the delivery of our value proposition and thereby our value creation.
This is an ambitious goal, not least considering that we are a team of 510,968 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 customers 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 organisation, and inspires us to drive the accelerated implementation of our five strategic initiatives. It is the responsibility of our leaders to transfer the vision into a shared ambition among all our employees in order to make the difference between good and great every day at every site.
How will we know when we have reached our vision? When all 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 deployed employee and customer net promoter score methodology.
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 integrated facility services (IFS). Furthermore, the services can be offered to customers as a self-delivered service or as a managed service, which means that the service is managed by one party (the facilities management firm) on behalf of the customer and delivered by other parties (subcontractors). Other services, such as hospitality events, can also be delivered on an ad-hoc basis. These so-called once-only jobs are typically delivered as single-services directly by order of the end-user.
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-based contract") involves establishing, together with
Our strategy, The ISS Way, is all about focusing our organisation on the most significant levers ensuring that we can deliver successfully on our value proposition.
GREAT is our primary vehicle for accelerating our strategy implementation, hence constitute a principal driver moving us towards realising our vision of becoming the world's greatest service organisation. Within GREAT there are five overall themes, and each entail critical strategy implementation initiatives.
The five themes are:
Further elaboration on the five themes can be found on the following pages.
the customer, specifications for the result of our service delivery (the "output"), e.g. a certain measurable level of cleanliness. Traditionally, the market has been dominated by input-based contracts, but 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 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 the 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 choices have naturally focused on identifying the market segments where our value proposition resonates and that have the greatest potential to contribute 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 and makes us a strategic partner helping to fulfil their objectives. We provide these customers with a value added offering which, in addition to a cost-efficient solution, delivers among other things risk management and a sustainable and transparent solution.
Our focus is on the self-delivery of on-site facility services within cleaning, property services and catering, globally and locally. We deliver these offerings as single services, multi-services or IFS. We further provide other support services, security and facilities management principally as part of IFS contracts. Our core services share a number of traits. They are site-based, asset-light, personnel-intensive, and 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 transparency. Our intention is principally to provide non-portfolio services to our existing customers as an integral part of our overall offering.
In general, our main competitors in each market are national or regional service providers, as well as large international service companies. For large international facility services contracts based on a provider's self-delivery of services, competition is limited to a few players, all of which provide a more limited service offering compared to ISS. There are also a limited number of facility management companies which mainly rely on subcontractors to deliver
their services. We also face competition from in-house providers of facility services and regional and local facility service providers. However, competitors differ from market to market depending on the particular service.
Certain facility services providers are strengthening their IFS capabilities, which is especially important when servicing large customers, as these show a higher propensity to request IFS and centralised procurement. Still, only a few competitors have the scale to deliver IFS on a multinational and global basis providing ISS with a clear competitive advantage. We have positioned ourselves with strong capabilities to address the growing demand for bundled services and centralised procurement.
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 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 many. 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 only makes up 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:
• a customer in the natural resources sector requires us to deliver reliable and consistent health and safety compliance given the hazardous environments in which they work;
Our self-delivery model is a fundamental component for successfully delivering our value proposition to the customer. Without our own frontline employees where we can establish a common corporate culture, brand, values, processes and procedures, 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.
Self-delivery also allows us to provide the customer with a transparent and sustainable solution as we can impact the cost of delivery through the implementation of our best practices, processes and service integration. With our own frontline employees, 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.
In order for us to continue to deliver – and refine – this value proposition, we must continue to implement 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 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.
As a consequence of our 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 become an ever-bigger part of our global footprint.
In 2014, we continued to focus upon our five strategic initiatives which are the principal drivers moving us towards realising our vision.
Given our self-delivery model, our employees are our core asset and we dedicate significant resources to developing and managing them. We believe that strong leadership drives employee engagement which in turn drives customer satisfaction and as a result improves our financial results. Where we have higher employee net promoter scores (whether employees would recommend ISS to others as a good place to work) and customer net promoter scores (whether customers would recommend ISS to others as a good partner to work with), we generally also have higher operating margins. Therefore, we focus on measuring leadership performance through regular surveys and assessments as well as implementation of development programs at all levels of the organisation. Furthermore, we actively monitor leadership metrics such as staff turnover, sickness absence rates, employee net promoter scores and customer net promoter scores. The leadership focus is also being applied to health and safety, a core part of our value proposition, where we have increasingly focused on establishing safer working environments that limit work related injuries, manage lost time in our operations and mitigate risk for our customers. We also encourage our employees to take part in our multiple talent management programmes. Finally, we have developed a strong corporate culture within the organisation supported by our global values – Honesty, Entrepreneurship, Responsibility and Quality.
The ISS Way strategy has customer segmentation as a key priority. Building on our existing extensive knowledge of the varying needs of customers, whether by industry or size, is a central strategic theme. Our goal is to establish the optimal match between the value proposition we provide and customer needs.
We have implemented a process of customer segmentation by size to establish a more detailed understanding of our customer base. By the end of 2014 we had mapped our customer segments in countries representing 56% of the Group's revenue. The purpose of the mapping exercise is to establish how customers of various sizes are serviced by business units as well as undertaking a detailed activitybased costing methodology which provides additional transparency on the profitability of the various customer segments. Evidence from selected countries indicates that in some instances large and small customers are serviced by the same business unit and that this may have an adverse impact on customer experience, overhead cost efficiency and transparency.
Equipped with the knowledge provided by the process of detailed customer segmentation, we are better able to choose our target customers and align our organisational structure accordingly. Generally, we expect this to result in organisational structures which are more customer-oriented, efficient and focused on managing and growing profitable relationships with our target customer segments. This entails, for example, establishing business units focused on key accounts and large customers, providing higher levels of support, service excellence and innovation and establishing separate operating structures for small customers which are tailored to meet their needs. We may also divest certain customer segments in order to focus on others.
Where we have completed this initiative and established an optimised organisational structure, which may differ from country to country, we see the benefits of this strategy. We have a more efficient set-up with fewer layers between the country top management and the contract and hence a lower cost base.
IFS is a key part of our unique value proposition as well as being a higher growth and margin accretive activity. We aim to ensure that we can deliver IFS across our entire business, not least given the increased level of activity we see in our international contracts. By outsourcing two or more service areas to ISS with a single point of contact, our customers increase focus on their core business areas and in turn we can realise operational synergies through work sharing and on-site supervision. We are also able to generate synergies between customers by leveraging our scale and global presence by bringing know-how and best practices to each specific contract. As we provide the customers with one single point of contact, we are also able to drive synergies at the back office level with increased efficiency and simplicity of contract administration.
In order to enhance our value proposition and to improve our profitability, we focus on innovations related to customer segments, services, business systems and processes. These excellence initiatives allow an enhanced customer experience, greater control of our costs and the optimisation of our resources and underpin steady margin levels.
Excellence is also reflected in our procurement programme. In early 2013, we initiated an assessment of the potential associated with coordinating procurement across countries, starting with our Western Europe and Nordic operating countries. From this assessment, we concluded that while there are significant differences across countries, coordination potential exists in several categories within our significant external procurement expenses, the majority of which are in Western Europe and the Nordic countries. We plan to expand the cost savings plan to other purchasing categories to generate additional costs savings. We also expect the cost savings plan to result in increased transparency and improved compliance monitoring in local country operations.
We are also working diligently with other excellence and efficiency related initiatives, such as focus on our above unit costs and opportunities for Business Process Outsourcing within finance and accounting.
BASF, the world's leading chemicals company, chose ISS to provide IFS in five European countries effective from July 2014: Spain, France, Portugal, Belgium and the Netherlands. The successful bid, headed by ISS Belgium, was based on a strong partnership with BASF at its major Antwerp production site that has evolved over many years.
As part of the agreement, ISS took over the responsibility for onsite facility management, building maintenance, mailroom, cleaning, landscaping and related services. The overall portfolio consists of 56 sites across the five countries.
Henrik Andersen, Group COO EMEA, said: "BASF is one of the world's largest and most sophisticated operations. This partnership shows the strengths of our value proposition and of our focus on supporting our customers' purpose through scalable IFS solutions."
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 initiatives, 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 conversion. These KPIs are wellestablished and integrated in bonus plans throughout the organisation to ensure that objectives are aligned at all levels of the organisation.
In addition to our three primary financial KPIs, we measure a number of non-financial KPIs at various levels of the organisation. In 2014, we defined the KPIs, financial and non-financial, most suitable for measuring and reporting on a regular basis. These KPIs are the key metrics we use to drive our business forward. Consequently, bonus plans for the Group Management Board were adjusted in 2014 to also include certain of these non-financial KPIs as also described in the Remuneration
report on page 75. Furthermore, we are currently working on a GREAT KPI dashboard as well as a detailed value tracking model of GREAT that will enable us to benchmark performance across the Group.
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 initiatives. The descriptions set out below refer only to the initiative(s) that are the most relevant for each KPI.
| PRIMARY FINANCIAL KPIs | DESCRIPTION OF MEASURE | STRATEGIC INITIATIVE |
|---|---|---|
| Organic growth | Measures our ability to grow our business organically by increasing sales to existing and new customers. |
Optimising our customer base IFS strategy |
| Operating margin | Measures our ability to improve operational performance by managing costs and working more efficiently. |
Optimising our customer base Fit for purpose organisation IFS strategy Striving for excellence |
| Cash conversion | Measures our ability to convert operating profit into cash. A strong cash conversion allows us to deleverage by repaying loans and borrowings. |
Optimising our customer base Fit for purpose organisation Striving for excellence |
| NON-FINANCIAL KPIs | DESCRIPTION OF MEASURE | STRATEGIC INITIATIVE |
|---|---|---|
| Employee engagement | Measures the engagement of our employees on a scale from 1 to 5. The measure and the results of the survey for 2014 are reviewed in "Our employees". |
Empowering people through 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 leadership |
| Employee turnover | Measures the level of employees leaving the company versus the total number of employees. |
Empowering people through leadership |
| Sickness rate | Ratio of total absence in hours due to sickness relative to total hours paid. |
Empowering people through leadership |
| Lost Time Injury Frequency (LTIF) |
Measures the number of incidents classified as lost time injuries per millions of hours worked. |
Empowering people through leadership |
| Customer Net Promoter Score (c-NPS) |
Measures the loyalty of our customers through a direct question of how likely the customer is to recommend ISS to others as a business partner. |
Optimising our customer base Striving for excellence |
| Revenue by segment | Measures the revenue split between our identified customer segments. |
Optimising our customer base |
| Revenue by service | Measures the revenue split between our services. | Optimising our customer base |
| Revenue by delivery | Measures the revenue split between our delivery types. | Optimising our customer base |
| Share of revenue self-delivered |
Measures proportion of self-delivered revenue to total revenue. | IFS strategy Striving for excellence |
| Portfolio value including growth and loss rate |
Measures the revenue value of our recurring business (i.e. non-portfolio services are not included) based on current base of customer contracts as well as the portfolio growth and loss rate. |
Optimising our customer base |
| Non-portfolio value | Measures the revenue value of once only jobs (i.e. revenue that is non-portfolio). |
Optimising our customer base |
| Cost percentage benchmark |
Measures the level of variable and fixed costs per country for benchmarking purposes. |
Optimising our customer base Fit for purpose organisation |
| IFS share of revenue | Measures the relative share of IFS revenue to total revenue. | IFS strategy Striving for excellence |
BOND UNIVERSITY is one of the leading universities in Australia and Rebecca Ormsby and the rest of the ISS team make sure that the students can acquire new knowledge in a clean and safe environment. Rebecca likes to help out wherever she can and always with a big smile.
REBECCA ORMSBY Cleaning professional, ISS Australia
We have developed our business substantially over the past decade from being primarily a european cleaning service provider to becoming a global facility services provider.
This has significantly increased our revenue from integrated facility services (IFS) contracts and international contracts through our Global Corporate Clients organisation.
At the same time, our business model has transformed from a product-oriented to a customer-oriented approach focused on developing leading value propositions to our chosen customers founded on our philosophy of self-delivery of excellence within each of our service offerings.
The development continued in 2014, with particular focus on a review of our customer segmentation and organisational structure as part of GREAT. We have implemented a process of customer segmentation by size to establish a more detailed understanding of our customer base. By the end of 2014 we had mapped our customer segments in countries representing 56% of Group revenue in ten countries across the Nordic, Western Europe, Latin America and Pacific regions.
Having this knowledge enables us to align our organisational structure with our target customer segments and establish separate structures for key accounts/large customers and for medium- and small-sized customers.
We focus in particular on key accounts, large and medium-sized customers, for whom we become a strategic partner, because our services make a difference to their business by helping them fulfil their objectives. These segments already represent most of our revenue and we plan to continue building strategic relationships with our largest customers.
The progress we have made and how the characteristics of our business have changed since 2006 is demonstrated by the following three measures:
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 chosen customers. This entails defining variations of our service offerings built on our core service skills and presenting an integrated solution of services customised for a given segment.
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
ISS successfully divested its landscaping activities in France. The activities were acquired in 2001 and over the last decade ISS developed ISS Espaces Verts into France's leading landscaping provider with nearly 2,500 employees and annual revenue of DKK 2.1 billion in 2013. The divestment was part of ISS's strategy of focusing on its core activities and creating a more aligned business platform. The proceeds from the divestment were used to support the continued deleveraging of ISS.
Henrik Andersen, Group COO EMEA, said: "We carefully considered our ownership of the landscaping activities in France and decided that these activities were not key to the execution of our strategy."
After completion of the transaction, ISS remained the largest foreign employer in France with more than 27,000 employees delivering cleaning, property, support and facility management services.
grown as a result of our focus on this segment through our Global Corporate Clients organisation as well as regional and national sales force efforts. This focus produced several major contract wins, such as the multinational IFS contracts with Barclays in 2012 and Nordea in 2013, increasing Business Services & IT revenue. The segment thus remained the largest customer segment in 2014, accounting for 29% of our revenue.
The share of revenue from Industry & Manufacturing remained on a level with 2013 at 14% in 2014. Similarly the share of revenue from Public Administration and Healthcare remained level with 2013 at 13% and 11%, respectively, in 2014.
Despite the significant size of certain segments, including Business Services & IT, ISS is not depending on any individual customers. Our ten largest customers account for approximately 10% of Group revenue.
Our service offering to customers consists of single services, multi-services or IFS.
Our strategy is clearly focused on delivering IFS solutions to our selected customers, primarily to key accounts as well as large and medium-sized customers. Over the past decade, this has produced significant growth in our IFS revenue, from approximately DKK 8 billion in 2006 to approximately DKK 23 billion in 2014. Our IFS solution revenue base is built on organic growth through our Global Corporate Clients organisation as well as at country and regional level.
Our aim is to deliver IFS across our entire business, as this is a key part of our unique value proposition and also a higher growth and margin accretive activity. We expect to grow our IFS revenue further as we continue to implement our strategy.
In 2014, IFS accounted for 31% of our revenue compared with 14% in 2006. Multi-services and single services generated 16% and 53%, respectively, compared with 15% and 71% in 2006. The increase in the share of revenue origin from delivering IFS or multi-services increased by 18 percentage points from 2006 to 2014. This illustrates that we have continued to attract customers who see the benefits of our IFS offering, and have thus accelerated our strategy implementation.
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 Germany, France, Spain and the Netherlands), Nordics (primarily in Denmark and Norway) driven by large local multi-service and IFS contracts wins as well as divestments of non-core single service activities. Multi-service and IFS contracts allow ISS to exploit synergies in the provision of services and create stronger customer relationships.
ISS offers a range of facility services in cleaning services, property services, catering services, support services, security services and facility management. Our focus is to understand customer needs and provide the services required to meet them.
The transformation from primarily being a cleaning service provider to becoming a full facility service provider is illustrated by the growing volume of our non-cleaning services and the fact that non-cleaning services now make up 49% of our business compared with 43% in 2006. Individually, all service types have grown in absolute terms.
Cleaning services In 2014, cleaning services remained our largest business area with revenue of DKK 37.8 billion, representing 51% of Group revenue down from 57% (DKK 32.1 billion) in 2006. In line with our strategy to broaden the service platform, cleaning services' relative share of Group revenue has declined in the period, while the revenue share from support services and catering services in particular has steadily increased.
Cleaning services continues to be very important to us. In the short term, we may experience a slight increase in the cleaning services share of revenue as we continue to divest businesses that are non-core to our strategy. This was the case in 2014 when revenue as a percentage of Group revenue increased to 51% from 49% in 2013.
Property services In 2014, revenue from property services was DKK 12.9 billion, representing 17% of Group revenue, down from 23% (DKK 12.6 billion) in 2006. Property services revenue was adversely affected by a number of strategic divestments completed from 2011 to 2014, including the landscaping activities in France in 2014. These divestments included non-portfolio-based services and thereby underline the strategic focus on portfolio-based on-site services.
Catering services In 2014, revenue from catering services amounted to
DKK 8.8 billion (2006: DKK 3.6 billion) equal to 12% of Group revenue, which is an increase of 5 percentage points from 2006. Catering services continued to be positively impacted by cross-selling to existing customers combined with an increase in catering services delivered under some of the large IFS contracts.
Support services In 2014, 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 6.0 billion in 2014. Support services have been favourably impacted by an increase in services provided to Global Corporate Clients customers and in cross-selling services mainly to cleaning customers. Support services revenue was adversely impacted by a number of divestments including the Nordic temporary labour and staffing activities in 2014.
Security services Revenue was DKK 5.3 billion, equivalent to 7% of Group revenue in 2014, an increase of 3 percentage points from 2006 (DKK 2.4 billion). The increase was mainly due to strategic acquisitions during the period up to 2010. Our security services are mainly growing in emerging markets while in certain mature markets we see greater benefits in establishing strategic partnerships with large security service providers. This led to the divestment of security activities in Norway, Australia and New Zealand, the Netherlands, Denmark, Germany, Israel and Greece in 2012-2014. As a consequence of divestments revenue declined DKK 1.0 billion in 2014 or from 8% of Group revenue in 2013 to 7% of Group revenue in 2014.
Facility management Revenue increased to DKK 3.4 billion in 2014 (2006: DKK 2.1 billion), equivalent to 5% of Group revenue, which is an increase of 1 percentage point from 2006.
EDITH LIU General worker, ISS Taiwan
Edith Liu works at the well-renowned TZU CHI HOSPITAL in Taiwan. Here, she and her team are in charge of cleaning and changing the bed linen. Edith makes a virtue of remembering each patient's name so she can help relatives and visitors find the patients they have come to see. She finds it rewarding to see recovered patients leave the hospital with a 'thank you'.
We believe that long-term sustainable business success relies on a high level of 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 strategy.
As a global company with more than 510,000 employees serving both private and public sector customers 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.
To ensure a positive customer experience, we need capable and engaged employees who are motivated and take pride in working at ISS. To achieve this, we believe that having sound CR policies embedded in the way we conduct our business is a necessary prerequisite.
CR is becoming increasingly important for our customers as they strive to improve their own business performance and make a positive impact on society. Leading global companies require a consistent CR performance from their partners, and this 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 (HSE) management system, supports this ability and helps us in our efforts to become a preferred partner to our customers and the employer of choice in our industry.
We have adopted a principles-based approach to CR that contributes to sustainable development as defined by the international community. This approach effectively integrates universally accepted principles into the way we conduct our business, forming a foundation that is embedded in our corporate values, our Code of Conduct and our strategy. In other words, CR plays an important role in each of the five strategic initiatives of our strategy implementation initiative GREAT, most significantly in relation to IFS strategy and Striving for excellence. Due to our group-wide systematic approach to HSE, we promote consistency across services and locations, contributing to our customers' performance on health, safety and environment targets. In terms of excellence, we self-deliver services through our own employees who apply our contract lifecycle processes that incorporate HSE and people management.
We have developed and rolled out across the Group a strategy for HSE and CR. This strategy supports the overall Group strategy and the HSE vision "100".
For the past five years we have built and implemented an operational
On human rights, labour rights, environmental protection and anti-corruption, we have made a strong commitment as a signatory and supporter of the United Nations Global Compact since its inception in 1999. We remain committed to aligning our strategy and operations with the ten Global Compact principles. Furthermore, we respect, support and promote human rights and support the ambitions stated in the United Nations Universal Declaration of Human Rights and the Core Conventions of the International Labour Organisation.
29 April ISS UK ranked three stars in Business in the Community Corporate Responsibility Index
ISS UK was recognised in Business in the Community's (BITC's) annual benchmark of responsible business – BITC's Corporate Responsibility Index (CR Index). ISS was ranked as a three-star company and recognised as the best performing facility services provider of the companies that completed the updated and more challenging CR Index this year.
Richard Sykes, Country Manager UK, said: "Being a responsible and sustainable business is embedded in our corporate values. This year's CR Index result is recognition of the strong progress we have made in recent years. Our vision is to be 'the world's greatest service organisation' and to achieve this we need to be recognised as a responsible and sustainable company. BITC's CR Index provides a robust roadmap to continue that journey."
framework to create a consistent approach to HSE across the Group. This is documented in our Group HSE manual, which is based on four international standards (OHSAS 18001, ISO 14001, ISO 22000 and ISO 9001). As part of this approach, we have made a global agreement with a certification body, Det Norske Veritas, to implement and maintain ISO certification across the ISS Group. Our objective is to achieve continuous improvements in quality and performance.
To support our objective of continuous progress and improvement, we have implemented an HSE performance
management system, which enables us to measure, monitor and document our performance. It plays an important role in raising the awareness for employees and stakeholders to ensure that CR and HSE is prioritised, that risks are managed appropriately and that corrective action is taken. Furthermore, it ensures that responsibility and ownership of HSE is transferred to our operations, i.e. ISS regions, countries and business units.
To continuously 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 for meeting our HSE vision. Actions that countries were required to incorporate in their country action plans in 2014 were for instance:
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 have important roles to play 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 2014, 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. As in 2013, the majority of the work-related fatalities that occurred in 2014, i.e. six out of seven, were traffic-related. Thus, we concentrated our safety efforts on a 'Driving Safely' campaign that included the launch of the 'Driver Safety Handbook'.
Environment is one area 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 CO2 through the use of cars in our operations and travel activities.
There are three ways we can influence the extent of our impacts:
We have developed the Green Cleaning Tool, a simple computer-based programme 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 2014, we continued to roll out the ISS Green Offices Programme (GOP). The programme has now become mandatory in all countries. 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, use resources efficiently and dispose of our waste responsibly.
Our 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.
Our 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-discrimination, human rights and child labour. This is to ensure that we also include the supply chain in our CR scope.
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 unacceptable. Our goal will
always be zero injuries and zero environmental incidents, and this must be clear to everyone in the organisation.
Group performance for 2014 and targets for 2015 for selected CR KPIs are shown below:
Fatalities In accordance with the HSE vision, our first priority is to prevent fatalities at our work places. Sadly, in 2014 we experienced seven work-related fatalities associated with our operations. 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 six of the fatalities were traffic-related, our focus for the global safety campaign in 2015 will again 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 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.
We have improved our performance by 54% from the baseline figure at 13 in 2010 to an LTIF of 6 in 2014, the fourth straight year of improvement. This shows that the strategy we developed and implemented five years ago is producing results.
Audits We are firmly embedding CR in our operations by carrying out audits in our countries. This year, we again exceeded the target of 20% of the countries by carrying out CR audits in more than 20 countries.
target in 2014 was to give 400,000 of our employees in 48 countries an opportunity to respond to the questionnaire by the end of 2014. We covered 339,659 employees, yet another increase on 2013. The response rate increased to 61% in 2014 from 59% in 2013.
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 further 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 full CR report as per section 99a of the Danish Financial Statements Act is available at www.responsibility. issworld.com/report2014. The CR Report also serves as ISS's communication on progress in implementing the ten principles of the Global Compact.
| Target | Performance | |||||
|---|---|---|---|---|---|---|
| 2014 | 2014 | 2013 | 2012 | 2011 | 2010 | |
| Fatalities | Zero | 7 | 6 | 6 | 7 | 5 |
| Lost Time Injury Frequency (LTIF) | Less than 7 | 6 | 7 | 8 | 10 | 11 |
| Audits on CR (% of countries) Employee engagement survey |
More than 20 400,000 |
30 339,659 |
28 337,154 |
30 235,548 |
25 150,000 |
– – |
ALICIA MOVILLA Facility manager, ISS Spain
Alicia Movilla plays a central role in ensuring that financial institution BANKIA can focus on what they do best. She is a facility manager and every day she encourages and motivates her team of dedicated ISS employees to deliver excellent services at Bankia's 1,944 offices throughout Spain.
Our 510,968 employees represent ISS on a daily basis. When we are recognised as a great company it is because our employees are delivering a great service day in and day out. This reinforces our firm belief that by engaging and empowering our employees they become great ambassadors of ISS.
We place strong emphasis on leadership and the quality of the people 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 continually improve our services and to do so in a value-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 are part of living the ISS culture.
An organisation where all employees push towards the same objective and understand the role they play is a powerful organisation. This is one of the strengths 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 Award programme. 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 Award programme has gained considerable momentum, and 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.
As our greatest strategy enablers, leadership and empowerment are key focus areas of our Human Resources strategy around the world. We make this happen by focusing on five key initiatives:
Continue to develop programmes for key leaders and act as role models for leadership development initiatives.
culture Continually assess whether we have the right people to make the journey to becoming the world's greatest service organisation and assess how to bridge gaps.
KEY EVENTS 2014
For the second straight year, ISS was ranked the global #1 outsourcing service provider by an independent industry jury for The International Association of Outsourcing Professionals (IAOP) ahead of companies such as Accenture, Johnson Controls, CBRE and Aramark. ISS received the highest possible scores from all jury members on the parameters: size and growth; customer references; organisational competencies; and management capabilities.
Jeff Gravenhorst, Group CEO, said about his more than 510,000 colleagues as ISS's key factor for success:
"I am so proud of my colleagues throughout the world. It is their appreciation and understanding of how our services help our customers' businesses, coupled with their strong engagement in delivering those quality services day after day that make our customers happy and satisfied."
business continuity and mitigate risk through systematic succession planning and secure long-term development of individuals to replace key positions as the need arises.
Align our performance with strong compensation programmes, keep leaders focused on supporting our strategy through aligned objective setting, review key positions and focus on continued development of key talent.
Our Human Resource vision guides the HR agenda of ISS:
"We are going to be the world's greatest service organisation by being the enabler of best practices in HR globally – making sure we have the right people in the right place at the right time creating superior results".
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.
Communication and training are two key elements of developing leadership at ISS. To this end, we have invested heavily in leadership programmes since the launch of The ISS Way in 2008. We continue to run the ISS Advantage senior manager induction programme, which is also focused on our strategy and the ISS value chain management tool.
In 2013, we launched the Leadership Mastery programme for top management, the Acorn programme for key account managers and the Service with a Human Touch (SWAHT) programme for supervisors – programmes which provide our employees with an essential understanding of the key elements of our strategy and give them tools relevant for their daily work. Ensuring that our leaders are equipped to communicate 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.
In 2014, we had 35 graduates from the Leadership Mastery programme and 25 from the Acorn programme and we aim to have similar or slightly higher attendance for 2015. The SWAHT programme was rolled out to approximately 250 supervisors in 2014 but will be upscaled for 2015 with an expected attendance of approximately 1,000 supervisors.
Fundamentally, all the programmes revolve around the same themes, although individually adjusted to match the target group in question. In Leadership Mastery, a comprehensive five-module programme for selected top leaders, the focus is on personal leadership development and behaviour, developing a team as well as securing a deep understanding of our strategy and facilitating a greater understanding of customers and employees.
The Acorn programme targets talented managers with the aim of developing them into top-notch IFS Key Account Managers. The programme is based
on three modules focused on understanding and working with complex commercial models and operational excellence in a global environment including focus on intercultural aspects and communication.
For supervisors, the key messages and tools revolve around the overall strategic direction of the Group, our leadership fundamentals and the SWAHT programme, 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 instil 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 continuity at supervisor level by investing in them and providing a clear career progression path.
We have introduced SWAHT training, which is a suite of training workshops and activities that have been specifically designed by ISS for ISS, to engage and motivate employees and managers, and spur them on to provide exceptional service both to our customers and to each other. The programme creates awareness of the importance of meeting and exceeding customer expectations, enables our people to clearly understand their purpose in helping to build the world's greatest service organisation, and it empowers our people to use their initiative and to make a difference by creating those winning moments for our customers.
Employee engagement is a key driver of the customer experience. Measuring and improving employee engagement is therefore a key focus area at ISS. Since the service industry generally has a high degree of employee turnover, as part of the industry is often considered suitable for shortterm or secondary employment, our efforts in terms of engagement and retention are even more important.
In 2011, we piloted a global Employee Engagement Survey (EES) and the scope of the survey has since been
expanded year by year. In 2014, we invited 339,659 employees across all continents to participate in the engagement survey with 207,545 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 engagement of 4.4 (2013: 4.3) out of a possible 5, we know we have a high degree of engagement in the company, and we know what is important to our people in their work environment.
Engagement builds upon a sense of purpose and pride in our people and:
ISS Czech Republic won a contract to provide a wide range of services for Philip Morris in the central part of the Czech Republic.
Philip Morris is the leading producer and marketer of tobacco products in the Czech Republic, and is also present in 55 other markets globally.
Jan Boháček, Country Manager Czech Republic & Slovakia, said: "The Industry & Manufacturing sector is one of our three top-priority customer segments. We provide services to other customers within this sector and we are very proud to have won the Philip Morris contract, as this is an extremely important customer and a great opportunity for us."
Besides measuring employee engagement in itself, we also measure four key drivers of employee engagement:
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 employees, allowing them to address the causes of low engagement and help make individual employees feel a greater 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 purpose 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 are part of. We will also work further on connecting employee engagement scores to our customer satisfaction scores as we have seen a correlation and believe that the two are connected and that they are key drivers of financial and operational performance.
The service industry generally has a high degree of employee turnover, as part of the industry is often considered suitable for short-term or secondary employment. 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.
As one of the world's largest private employers and with operations in our 48 countries, we are committed to fostering, cultivating and preserving a culture of diversity and inclusion. With more than 510,000 employees, ISS embraces and encourages diversity in its broadest sense, including age, gender, ethnicity, nationality, culture, language, religion, physical ability, education and skills.
With operations in 48 countries and more than 510,000 employees, ISS employs a wealth of nationalities. In ISS Denmark alone, we have more than 130 nationalities. This also means that our Employee Engagement Survey globally can be answered in 52 languages, and as an example in ISS Sweden 17 different languages are offered for the survey.
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 appointments 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 global head office, we continue leveraging our diversity policy which defines a number of objectives. Our initiatives include ensuring that female candidates are identified for vacant positions, developing succession plans aiming at identifying female successors as well as tabling the matter of women in leadership at ISS for discussion at least once a year at the Executive Group Management Board
| PEOPLE INDICATORS | |||
|---|---|---|---|
| 2014 | 2013 | 2012 | |
| Total employees | 510,968 | 533,544 | 534,273 |
| Full time employees | 73% | 74% | 73% |
| Total employees > 1 year | 69% | 68% | 69% |
and Group Management Board levels. Furthermore, we ensure that women are adequately represented in various leadership development programmes as well as in graduate programmes across EMEA and at the ISS global head office.
In 2014, the amount of women at management level at ISS global head office increased slightly compared to last year and diversity focus will continue in 2015.
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 sites around the world.
Being among the first signatories to the UN Global Compact, we are fully committed 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 commitment, we have a global agreement with Union Network International (UNI), and we support the social dialogue between management and employees through workers councils and employee representatives. In 2014, we sponsored a UNI project in Mexico, where we worked with local government to ensure a minimum wage for people working in the service industry.
We also continue to stay committed to working closely with the European Workers Council (EWC) and hold quarterly meetings with the steering committee and annual meetings with the entire EWC. We gather the EWC for 3 days at our head office and spend considerable executive management time with them to ensure alignment of our priorities and common understanding of our strategy and the Group's direction.
We see these agreements as a basis for how we cooperate and as an opportunity to explore what we can accomplish together.
ISS Australia won nine awards at the Customer Service Institute of Australia's (CSIA) 2014 Service Excellence Awards – the result was even better than last year when ISS received eight awards. These awards recognise the highest achievement in customer service for individuals and organisations. ISS was proud to take home for the second year in a row the coveted 'National Training Excellence' award, acknowledging leadership in training and development.
At the event, Group CEO Jeff Gravenhorst spoke of ISS's drive to deliver the ultimate in customer service: "Across the ISS Group we are working on common themes – our value proposition is to facilitate our customers' purpose through people empowerment. This is about putting the customers' vision and purpose into focus and figuring out how we can support them to become even better at their jobs. That type of customer service is what we aspire to achieve at ISS."
Welcoming and well-maintained buildings and surroundings are important elements in a property's value. Owning a building is a question of deciding a time horizon for the investment to prevent deterioration, breakdowns or damage. Partnering with ISS supports an increase in our customers' property value whatever the investment horizon.
58 GROUP ANNUAL REPORT 2014
Our services can be combined in numerous ways either as selected services or as a complete solution focused on resource optimisation, efficiency and systematic planning.
HP, PALO ALTO Francisco Martinez, O&M technician, ISS USA
RIDHA OUNI Cleaning professional, ISS Norway
NORDEA is the largest financial services group in Northern Europe, and Ridha Ouni is proud to be part of keeping the offices in Oslo, Norway clean and inviting for the many customers and employees. He enjoys the numerous interactions he has with people during his workday and always greets everyone with a smile.
It is important to us that we exercise sound corporate governance practices and comply with statutory requirements and the Danish Corporate Governance Recommendations.
The Board of Directors (the Board) regularly reviews the Group's corporate governance framework and policies in relation to the Group's activities, business environment, corporate governance recommendations and statutory requirements; and continuously assesses the need for adjustments that will benefit the Group and our stakeholders.
Corporate governance policies and procedures at ISS are based on openness, transparency, constructive dialogue with our stakeholders, sound processes and controls and take into account the Danish Companies Act, the Danish Financial Statements Act, IFRS, Nasdaq Copenhagen's Rules for Issuers of Shares, our Articles of Association as well as applicable law.
Nasdaq Copenhagen has incorporated the Danish Corporate Governance Recommendations in its Rules for Issuers of Shares. These were last updated in November 2014 and are available at www.corporategovernance.dk. In respect of the recommendations, companies shall either comply or explain any deviation. Our statutory report on corporate governance provides an overview of ISS's position on each of the recommendations and
is available at http://inv.issworld.com/ governancereport.cfm. At the end of 2014, we complied with all but one recommendation: no. 4.1.4 regarding share-based remuneration as certain share units vest earlier than three years from the date of grant. This is explained in more detail in the report referred to above.
ISS A/S is a limited liability company incorporated and operating under Danish law. The company's shares are admitted to trading and official listing on Nasdaq Copenhagen.
The shareholders of ISS A/S exercise their rights at the general meeting which is the supreme governing body of ISS. Resolutions are generally passed by simple majority, unless they involve amendments to the Articles of Association, dissolution, merger or demerger. Such resolutions must be adopted by at least 2/3 of the votes cast as well as of the share capital represented at a general meeting. Shareholders are entitled to have specific business considered at our general meetings provided that a written request to that effect is submitted to our Board not later than six weeks prior to the general meeting. At general meetings, the attending shareholders are able to ask questions to our Board and our Executive Group Management Board (the EGM) concerning the items on the agenda. Further information regarding the governance of general meetings can be found in our Articles of Association, which are available on our website. The Board strives to plan the general meetings in a manner that encourages active ownership by shareholders.
KEY EVENTS 2014
ISS successfully priced an issuance of EUR bonds for a principal amount of EUR 1.2 billion under the EUR 2.0 billion EMTN programme.
The notes were issued in two tranches of EUR 700 million maturing in 5 years with a coupon of 1.125% and EUR 500 million maturing in 10 years with a coupon of 2.125%. These rates are the lowest interest rates ever for a Danish company and the lowest ever internationally for a company with ISS's financial rating.
Group CFO, Heine Dalsgaard, said: "We are very pleased with the strong support from investors regarding the issue of EUR notes. By issuing EMTN bonds we have optimised our debt structure through a more diversified split between bank and bond debt and at the same time increased tenors at slightly reduced interest costs."
As is current practice in Denmark, management powers are distributed between our Board and our Executive Group Management Board (the EGM). No person serves as a member of both of these corporate bodies. Our EGM carries out the day-to-day management, while our Board supervises the work of our EGM and is responsible for the overall management and strategic direction.
The primary responsibilities of the Board are to approve the strategy plan, the annual budget and, based on recommendations from the Transaction Committee (see Board Committees), certain large acquisitions, divestments and customer contracts. The Board annually performs an evaluation of the performance of the Board, and of its individual members and its collaboration with the EGM.
The Board is responsible for determining annually the appropriate qualifications, experience and competencies required of the members of the Board as well as the EGM in order for these boards to best perform their tasks, taking into account ISS's needs and the existing composition of these boards. Nomination of Board candidates to be submitted to the general meeting are prepared on this basis.
The Board considers that the present capital and share structure serves the best interests of both the shareholders and ISS as it gives ISS the flexibility to pursue strategic goals thus providing long-term shareholder value, combined with short-term shareholder value by way of ISS's dividend policy.
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 independent auditors. A total of 13 board meetings were held
in 2014. The EGM provides the Board with a monthly financial reporting package and the Board is briefed about important matters occurring between board meetings.
All Board members elected by the general meeting stand for election each year at our annual general meeting. Board members are eligible for re-election. According to our Articles of Association, only persons younger than 70 at the time of election may be elected to our Board of Directors. All board members elected by the shareholders at the general meeting are considered to be independent as defined in the Corporate Governance Recommendations.
In addition to the board members elected by the general meeting, three employee representatives also serve on the Board. They are elected on the basis of a voluntary arrangement regarding Group representation for employees of ISS World Services A/S as further described in the Articles of Association. Employee representatives serve for terms of four years. The current employee representatives joined the Board following the annual general meeting in March 2011. A new election will be held in March 2015, and the elected candidates will join our Board after the annual general meeting in April 2015. The employee representatives 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, has the casting vote.
The principles of remuneration of the Board are described in the Remuneration report on page 75 and remuneration for the year is disclosed in note 6.1 to the consolidated financial statements.
More details on the individual board members are available on pages 84-85.
The Board has established four committees. Each committee has a charter which sets out its purpose, responsibility and procedural matters. The committees report to the Board.
The Audit and Risk Committee is re-
sponsible for the review and monitoring of the Group's risk management and internal controls related to financial reporting which are described on page 66 and 70, respectively. Furthermore, the committee evaluates the external financial reporting as well as the main accounting policies and estimates. Its duties also include the supervision of the independent auditor and the internal audit function. In addition, the committee considers the relationship with the independent auditors and reviews the audit process. The committee consists of three members (currently Henrik Poulsen (chairman), Morten Hummelmose and Jo Taylor). The independent auditors attend the meetings if requested and must attend at least one meeting per year at which the EGM is not present. The Head of Group Internal Audit shall also attend at least one meeting per year at which the EGM is not present. The committee held nine meetings in 2014.
described as part of the Remuneration report on page 75.
The Nomination Committee 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 Kt CBE (chairman), Jennie Chua and Morten Hummelmose). The committee held one meeting in 2014. In addition, the committee members have had several update calls during
2014 to discuss the search for new non-executive directors including desired competencies and profiles of potential candidates.
The Transaction Committee makes recommendations to the Board in respect of certain large acquisitions, divestments and customer contracts, reviews the transaction pipeline, considers ISS's procedures for large transactions and evaluates selected effected transactions. The committee consists of four members (currently Lord Allen of Kensington Kt CBE (chairman), Morten Hummelmose, Andrew Wolff and Jo Taylor). The committee held eight meetings in 2014.
The primary responsibilities of the EGM are to carry out the day-to-day management of the Group, develop and implement strategic initiatives, develop Group policies, monitor Group performance and evaluate investments as well as acquisitions, divestments and large customer contracts.
An overview of the EGM is available on page 82.
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.
• financial reporting • Review of Remuneration Policy and Overall Guidelines on
Incentive Pay
The assessment of candidates is based on an evaluation of qualifications, experience and competencies as well as other relevant factors. Emphasis is placed on:
experience and expertise (such as industry, risk management, finance, financing, strategy, international business, labour force management and HR, management and leadership);
To support our commitment to gender diversity the Board has 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 at the latest in 2017. The Board seeks to identify female candidates when nominating new board members, but remains committed to always selecting the best candidate for the position. Presently, the Board has one female board member elected by the general meeting who is not standing for re-election due to the age limitation of 70 years in our Articles of Association.
In terms of international experience, the Board aims at all times to have sufficient international experience at all management levels taking into account the size and activities of ISS. The Board considers that it has adequate and broad international experience. 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.
The primary tasks of the Group Management Board (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 customer 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 is available on pages 82-83.
In each of the countries in which ISS operates, country management teams have been appointed to manage the business in accordance with Group policies and procedures as well as local legislation and practice. Substantial autonomy and considerable power resides with the country management 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 160-163. The country management teams are set out under each relevant country on the ISS website at www. issworld.com.
External audit The Board nominates the independent auditors for election at the annual general meeting. The nomination follows an assessment of the competencies, objectivity and independence of the independent auditor and the effectiveness of the audit process.
An independent business relationship with the Group's independent auditors is essential for the control environment. As part of the safeguards to ensure independence, the independent auditors cannot perform certain non-audit services for ISS including, but not limited to, the preparation of accounting records and financial statements or participate in recruitment for senior management positions.
ISS collaborates with the independent auditors at country and 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 independent 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 independent auditors. The findings of the independent auditors and any major issues arising during the course of the audit are discussed, and significant accounting policies and critical accounting estimates and judgements are reviewed.
In 2014, the statutory Group auditors (formerly KPMG) joined the EY network. KPMG remained statutory auditors of foreign subsidiaries.
Internal audit Group Internal Audit reports to the Audit and Risk Committee and the Group CFO and its activities are governed by a charter approved by the Board. Group Internal Audit is responsible for providing the EGM and the Audit and Risk Committee with independent and objective assurance on the design and operation of the system of internal controls. Annual audit plans are agreed with the Audit and Risk Committee.
Whistleblower policy The Group has adopted a whistleblower policy to enable employees, business partners and other stakeholders to report any serious and sensitive concerns. Such concerns may be reported to the Head of Group Internal Audit via a secure and externally hosted reporting site which is accessible via the ISS website.
TIMOTHY O'BANON Facility engineer, ISS USA
Timothy O'Banon provides facility management services and maintenance at CPS ENERGY, San Antonio, Texas. His approach to doing a great job is talking with the customer to get their viewpoint. It helps him to understand what is most important to them, and how to assure them that their issues will be solved before he leaves the job.
We consider risk an integral part of doing business. Risk-taking provides opportunities, but it might also prevent us from achieving our strategy. Effective risk management ensures that the risks we take on in respect of our customers and ourselves are calculated and well-managed and is therefore an important tool in helping us reduce uncertainty and ultimately achieving our strategy.
The Board of Directors (the Board) and the Audit and Risk Committee review and monitor key risks and related risk management and approve Group risk policies. It is the responsibility of management at all levels to ensure that the assessment of risk is formalised and that risks are understood, appropriately managed and reported in accordance with the Group Risk Policy. Our risk governance structure is illustrated below. The Group Risk Policy and other Group policies set out the requirements and minimum levels of achievement necessary to implement the risk management requirements of our Corporate Governance Guidelines.
Operational risks are insured through global or local insurance programmes when considered appropriate. This is managed centrally by Group Risk Management.
In 2014, 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 management and related tools. Examples of training activities are internal training seminars for local risk managers, local legal professionals
| RISK GOVERNANCE STRUCTURE | ||
|---|---|---|
| BOARD OF DIRECTORS | • Reviews and monitors key risks and related risk management, action plans and controls |
GROUP FUNCTIONS |
| AUDIT AND RISK COMMITTEE | • Approves Group Risk Policy | • Supervise compliance with internal risk standards |
| EXECUTIVE GROUP MANAGEMENT BOARD |
• Monitors performance of risk management and key risks • Decides Group Risk Policy and key risk strategies • Ensures alignment of risk management activities and business strategy and policies |
|
| GROUP MANAGEMENT BOARD | • Monitors risk and evaluates risk management • 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 |
|
| COUNTRY MANAGEMENT | • Develops risk recommendations • Ensures that risks are adequately identified and managed • Monitors risk activities and initiatives |
and local internal auditors. In 2015, our focus remains on improving our risk management through incorporation in existing activities and processes and by monitoring relevant risk-related indicators.
We are exposed to various risks through our actions and activities at our 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 as well as on an individual site-by-site basis at customer premises where we provide our services.
We use a risk mapping approach to identify and assess the key risks the Group faces, their potential economic impact and the likelihood of their occurrence. In addition hereto risk aspects such as the reputational impact is considered when assessing
GROUP KEY RISKS
each risk. The framework deployed for risk reporting and risk assessment is consistent with acknowledged risk and control frameworks. The Board reviews material risks and risk management reporting yearly; the Audit and Risk Committee reviews twice a year.
The risks listed below are those that the Board and the Executive Group Management Board currently view as being the most critical to our business.
Additionally, we are exposed to financial risks, including currency risk, interest rate risk, credit and liquidity risk, as a result of our operating, investing 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 note 5.3, to the consolidated financial statements.
The profitability of our contracts depends 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. With the increased complexity of our integrated facility services (IFS) contracts this is increasingy important.
As our services are increasingly becoming an integral part of our customers' value streams, there is a risk of causing a disruption of our customers' operations and/or brand damage, if operational procedures or contract requirements are not complied with.
Our decentralised structure of financial IT systems and operational control structures increases the risk of fraud and corruption. Our growing emerging market presence increases our exposure to compliance risks in countries where improper practises may be common. This may result in overstatement of revenue, misstatement of expenses, misappropriation of assets, kick-backs, bribery and theft.
Our ability to target selected customer segments with attractive and competitive value propositions is 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 contract portfolio losses as the facility services market is fragmented with relatively low barriers to entry and significant competition from local and regional companies.
The facility services industry is less sensitive to macroeconomic cycles than a number of other industries. However, economic downturns or uncertainties in the financial markets could adversely impact prices, payment terms and demand for services, particularly if customers downsize their businesses or reduce their demand for services. During the recent economic downturn, in certain regions and customer segments, we experienced reduced activity levels that adversely impacted our revenue and depressed our operating margins.
Our organisational structure is decentralised and country and regional managers have substantial autonomy regarding the management of operations in their local markets. Our success strongly relies on qualified local and regional managers in order to ensure best practices being shared across the Group, effective implementation and management of our growth strategy as well as Group policies and operational processes.
Our competitive strength is highly dependent upon our ability to attract, train and retain employees at all levels of the organisation.
We are subject to a variety of laws and regulations 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 substantial costs and commit a significant amount of our management's time and resources to complying with increasingly complex and restrictive laws and regulations.
We use subcontractors where we do not have self-delivery capabilities. This represents a risk primarily in respect to:
Compliance: The use of subcontractors might increase the risk of non-compliance with labour laws or other regulatory requirements. See risk no. 7.
GROUP KEY RISKS MITIGATING MEASURES
where and how we can improve employee engagement.
Our internal control procedures are an essential management tool. Care is taken to ensure that a sound framework of controls is in place to support the quality and efficiency of our financial reporting.
The Group's internal control system is an integral part of its risk management systems developed to mitigate rather than eliminate significant risks identified in the financial reporting process and to ensure a true and fair view of the Group's financial reporting without material errors.
The governance structure applied for internal controls related to financial reporting follows our risk governance structure illustrated on page 66.
The Board of Directors (the Board) has the overall responsibility for the Group's internal control environment and has approved policies, standards and procedures in key areas related to financial reporting, including the Code of Conduct, the Accounting Manual, the Reporting Manual, Treasury Policy, the Financial Policy and Control Procedures.
The Audit and Risk Committee is responsible for monitoring 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, i.e. any risk that may cause a material error in the Group's financial reporting.
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 and reports – in addition to the Group CFO – directly to the Audit and Risk Committee.
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 related to the financial reporting process at Group level have been established to assess on an ongoing basis the Group's internal control environment and to manage significant 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 control environment is therefore to provide the Board and the EGM with reasonable assurance that:
• our business is conducted in compliance with applicable legislation, standards and other regulations.
Risks related to the financial reporting process and consolidated accounts are identified and assessed annually based on a materiality test including an assessment of the impact of quantitative and qualitative factors as well as an assessment of the likelihood of any material error occurring. The risk of errors is higher for accounting areas that require management judgement and for transactions generated through complex accounting processes, e.g. impairment and divestments. Accounting areas that require management to make estimates and judgements are described in the relevant notes to the consolidated financial statements, under Critical accounting estimates and judgements.
On an ongoing basis the Audit and Risk Committee discusses:
In order to sustain a sound control environment, control activities are designed to obtain the desired assurance. These control 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 and the purpose is to prevent, detect and correct any material misstatements in the financial reporting.
In 2014, Group Internal Audit sustained and strengthened its focus on key process audits and a new comprehensive audit programme was developed and piloted. The new programme provides broader and more consistent assurance on the effectiveness of the system of internal control activities. The scope includes approximately 70 key control activities designed to mitigate risks of significant errors relating to financial reporting, governance and compliance, and operational processes. The implementation of the programme, which will extend to all ISS country organisations, commenced in the second half of 2014 and is the primary focus area for Group Internal Audit in 2015.
The Group has implemented a formalised financial reporting process that includes the reporting requirements and related control activities for key areas illustrated in the table to the right.
All countries use a standardised financial reporting tool. Due to the decentralised structure, various ERP platforms exist within the Group, but the number of different ERP platforms is being reduced on an ongoing basis.
Furthermore, the roll-out of automated interfaces between local ERP platforms and the Group's standardised financial reporting tool for all countries is in progress.
Information and communication systems to ensure accounting and internal control compliance have been established, including an Accounting Manual, Reporting Instructions, a Budgeting Manual and other relevant
| ITEM | REPORTING | CONTROL ACTIVITIES |
|---|---|---|
| Financial position and results |
All countries must report a full income statement, statement of financial position, statement of cash flows, portfolio analysis and three-month forecasts etc. on a monthly basis. |
Group controlling monitors and controls the reporting for significant deviations compared to budget. |
| Cash flow forecasts |
All countries must bi-weekly report their daily cash flow forecasts for a rolling three-month period. |
Actual figures are continuously monitored and validated by Group Treasury for deviations compared to forecasted figures, incl. e.g. daily follow-up on local material cash balances. |
| Business reviews |
All countries must report a full income statement, statement of financial position, statement of cash flows, portfolio analysis, three-month forecasts and contract performance etc. on a monthly basis. |
Monthly meetings between regional management and country management with a focus on the current performance and the state of the business. |
| Budgets and financial plans |
All countries must prepare budgets and plans for the following financial year in a pre-defined format. |
Regional management reviews the proposed budgets and plans with the countries. |
| Full-year forecasts |
All countries must update and report their full-year estimates twice a year. |
Monthly meetings between regional management and country management with focus on the cur rent performance and the state of the business. Regional management reviews the proposed full-year estimates with the countries. |
| Strategy reviews |
Country management must provide annual updates of a predefined strategy template, including progress on key strategic priorities. |
Annual meetings held with country managers at which the strategy is discussed and priorities and plans for the coming year are agreed. |
| Acquisitions and divestments |
Acquisition and divestment proposals must be presented for approval in a predefined report format and valuation model. |
Transaction Committee/Board approval is required for large or strategic acquisitions and divestments. |
| Large contracts |
Certain large contracts must be presented for approval in a predefined format focusing on risk evaluation. |
Depending on size, approval is required by regional management, EGM or Transaction Committee/ Board. |
| Control self assessments |
Twice a year, country management must self-assess the implementation of certain key internal control activities and develop plans to close any implementation gaps. |
Group Internal Audit performs ongoing audits based on the countries' control self assessment. |
ISS North America won a new IFS contract with the globally leading brewing company Molson Coors. ISS oversee and delivers integrated facility services to major Molson Coors sites throughout Canada including breweries in Toronto, Montreal, Vancouver, St. John's and Moncton as well as to corporate buildings in Toronto and Montreal. The contract commenced November 2014 and will run for five years. In December, services expanded into Distribution Centres located throughout the Province of Quebec.
Jennifer Bonilla, CEO of ISS North America, said: "We are extremely proud and excited that Molson Coors has chosen to partner with ISS in Canada. This is a very important win for ISS in North America, as our expansion continues in the market, and we are fully committed to making this partnership a success."
guidelines. The aim is to ensure that employees receive relevant information on a timely basis to ensure efficient and reliable execution of tasks including for carrying out the established control activities.
Each month the Group's subsidiaries report financial position and results to Group Controlling, see Control activities. This information is used to prepare consolidated financial statements and reports submitted to the Board and the EGM.
Local country management is responsible for ensuring that the control environment in each operating country is sufficient to prevent material errors in the country's financial reporting. Regional management provides governance of the country operations.
In order to ensure that adequate internal control procedures are maintained locally, Group Internal Audit visits the country organisations on a regular basis. These visits take place according to a plan for the year approved by the Audit and Risk Committee with a primary focus on providing assurance on a consistent set of key control activities across the Group. The findings and conclusions of internal audits, including recommendations on how to improve the control environment, are reported to country and regional management, representatives of the EGM and the independent 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 and uses the conclusions when reviewing the internal audit plan for the coming year.
Rohrhuber with pride and purpose. He goes the extra mile to keep the premises neat so that Audi can focus on developing innovative solutions, revolutionary engineering and progressive design. Micha finds the cooperation with people from different cultures the most rewarding part of his workday.
At the luxury HOTEL MARMARA in Istanbul, Turkey, Oğuz Kalaycı takes pride in ensuring the safety of all guests and visitors. After a day of exploring the city or business meetings, guests are welcomed by Oğuz and he does what he can to make them all feel at home at the hotel.
" I welcome people at the door with a smile on my face"
OĞUZ KALAYCI Security guard, ISS Turkey
Remuneration at ISS is designed to support our strategic goals and to promote value creation for the benefit of our shareholders.
The overall objectives of the Remuneration Policy are:
Remuneration is based on responsibilities, competencies and performance
and is designed to be competitive and in line with market practice in comparable listed companies.
The principles outlined in the Remuneration Policy also apply to members of the Group Management Board (the GMB) in addition to the EGM.
In 2014, the Remuneration Committee continued to focus on aligning ISS's remuneration programmes with our strategic goals.
In connection with the IPO in March 2014, we redesigned our incentive plans for the EGM, the GMB and certain other senior officers. The incentive plans were designed to create alignment and to strike a balance between the short-term and long-term focus of the incentive plans. Two long-term share-based incentive programmes were implemented; a Long-Term Incentive Programme (LTIP) and a Transition Share Programme (TSP) (the latter being a one-time grant). To cover the obligation under the incentive plans ISS A/S purchased treasury shares during 2014.
Furthermore, adjustments were made to the short-term incentive plan (the annual bonus) so as to include targets for non-financial KPIs (i.e. employee engagement, customer experience and health and safety) in addition to targets for the Group's key financial KPIs (i.e. organic growth, operating margin and cash conversion), which were already taken into account. The non-financial KPIs focus on how we conduct our business. Setting targets for these together with our financial KPIs ensure that high financial performance is
The Remuneration Committee was established in 2010. The 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.
The Remuneration Committee has engaged Kepler Associates to advise the committee as external and independent advisors on remuneration matters. Kepler Associates do not provide any other services to ISS.
The applicable remuneration policy was approved by the shareholders at the Annual General Meeting held on 3 March 2014. The remuneration policy is reviewed at least annually by the Remuneration Committee.
The Remuneration Policy and the Overall Guidelines on Incentive Pay are available at http://inv.issworld.com/policies.cfm.
The committee consists of three members (currently Lord Allen of Kensington Kt CBE (Chairman), Thomas Berglund and Andrew Wolff).
The committee held six meetings in 2014.
recognised and that our Leadership Principles are supported.
The short-term incentive plan also includes an element of deferral to create a balance between the shortterm and the long-term objectives of the incentive programmes. This balance is furthermore supported by the introduction of share ownership guidelines, which also aligns the interests of the shareholders with the EGM and other employees in key positions. These initiatives are described in more detail on the next pages.
Our objective for 2015 is the further alignment of remuneration programmes, particularly incentive programmes at country level. We do not expect to launch any major new programmes.
The main remuneration elements are summarised in the table below and applies to the members of the EGM and the GMB unless otherwise stated.
All members receive an annual base salary based on experience, qualifications, responsibilities and performance and customary non-monetary benefits such as a company car, insurance, communication and IT equipment.
In addition, an annual bonus of up to 60% of the annual base salary is targeted, which in the event of overachievement can reach 90%. The bonus is subject to achieving performance targets for the Group's key financial KPIs; organic growth, operating margin and cash conversion; and to non-financial
KPIs; employee engagement, customer experience and health and safety. Twothirds of the bonus is paid out in cash the following year, while one-third is deferred and settled in restricted share units, of which 50% are converted into shares after one year and 50% are converted into shares after two years.
(LTIP) is granted as Performance Share Units (PSUs) and the annual grant has a value of 100% of the annual base salary for the Group CEO, 70% for other members of the EGM and 70% for members of the GMB. The performance targets for vesting of the PSUs are total shareholder return (TSR) and earnings per share (EPS). The vesting criteria are illustrated in the table on the next page. TSR is compared to a peer group of listed Danish companies (Nasdaq Co-
| ELEMENT | OBJECTIVE | AWARD LEVEL | PERFORMANCE MEASURES |
|---|---|---|---|
| Annual base salary | Attract and retain high-performing leaders reflecting their position, skills, competencies and experience. |
Take into account competitive market rate of industry peers as well as competencies and experience. |
Reviewed annually based on individ ual responsibilities, qualifications and performance. |
| Non-monetary benefits |
Customary benefits in accordance with market standards to support recruitment and retention. |
Benefits corresponding to market standards. |
N/A. |
| Annual bonus | Drive delivery of short-term financial results, implementation of The ISS Way and behaviour consistent with the ISS Leadership Principles. |
Target bonus is up to 60% of annual base salary. Maximum bonus oppor tunity is up to 90% and is awarded for performance significantly above budget. Objectives are set for periods of one year. One-third of the bonus is deferred for up to two years and settled in restricted share units. |
Measures and weighting: organic growth (25%), EBITA margin (25%), cash conversion (25%), employee engagement, customer experience and health and safety (15%) and individual objectives (10%). Performance is measured for each financial year. |
| Long-Term Incentive Programme (LTIP) |
Drive delivery of long-term financial results, retention of leaders and alignment to shareholder value creation. |
Face value of grant of PSUs is 100% of annual base salary for the Group CEO, and 70% for other members of the EGM and the GMB. |
The vesting criteria of the LTIP are TSR measured against peers and growth in EPS. Performance conditions are measured over three years from the date of grant. |
| Pension | The members of the EGM and the GMB are not - apart from one member of the GMB - covered by a pension plan of the Group but shall arrange for their own pension planning. |
N/A. | N/A. |
penhagen OMX C20) and a peer group of comparable international service companies. The EPS-target weighs 50% and each of the two TSR-targets weigh 25%. The peer groups are illustrated in the table below.
The PSUs vest three years after grant, provided the performance targets are met, i.e. the 2014 grant vests in 2017. Prior to vesting, holders of PSUs do not have any of the rights that holders of shares would otherwise be entitled to, such as voting and dividend rights, and all unvested PSUs will lapse in the event that employees terminate their employment without cause or if ISS terminates their employment with cause.
gramme (TSP), members of the EGM and the GMB received a number of PSUs at no cost (one time grant). The TSP was granted as PSUs at the time of the IPO and the grant had a value of 100% of the annual base salary for the Group CEO; 75% for other members of the EGM and 70% for members of the GMB. The PSUs vest with 50% in 2015 and 50% in 2016. The performance criteria are the non-individual criteria of the annual bonus plans for 2014, and 2015, respectively.
Remuneration to each member of the EGM and an overview of granted PSUs are disclosed in the tables on this page. Total remuneration to the GMB is disclosed in note 6.1 to the consolidated financial statements.
| No vesting EPS grows below 12% annually ISS performs below median of peer group |
|
|---|---|
| 25% vesting EPS grows 12% annually ISS performs at median of peer group |
|
| 100% vesting EPS grows 18% annually or more ISS performs at upper quartile of peer group or better |
Linear vesting between 25% and 100% vesting
International service companies: ABM Industries, Adecco, Aramark, Bunz, Berendsen, Compass Group, Capita, G4S, Interserve, Mitie Group, Randstad, Rentokil Initial, Securitas, Serco, Sodexo.
OMX C20 companies: AP Møller – Maersk A, AP Møller – Maersk B, Carlsberg, Chr Hansen Holding, Coloplast, Danske Bank, DSV, FLSmidth & Co, Genmab, GN Store Nord, Jyske Bank, Nordea Bank, Novo Nordisk, Novozymes, Pandora, TDC, Topdanmark, Tryg, Vestas Wind Systems, William Demant Holding.
| TSP (number of PSUs) | Jeff Gravenhorst |
Heine Dalsgaard |
Henrik Andersen |
John Peri |
|---|---|---|---|---|
| Granted during the year | 49,725 | 29,063 | 29,935 | 29,063 |
| Total | 49,725 | 29,063 | 29,935 | 29,063 |
| Jeff | Heine | Henrik | John | |
| LTIP (number of PSUs) | Gravenhorst | Dalsgaard | Andersen | Peri |
| Granted during the year | 49,725 | 27,125 | 27,939 | 27,125 |
| 2014 | 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| DKK thousand | Jeff Gravenhorst |
Heine Dalsgaard |
Henrik Andersen |
John Peri |
Jeff Gravenhorst |
Heine Dalsgaard |
Henrik Andersen |
John Peri |
| Base salary and non-monetary benefits |
8,215 | 6,499 | 6,619 | 6,429 | 7,901 | 2,839 | 6,431 | 2,507 |
| Annual bonus | 4,314 | 3,388 | 3,470 | 3,389 | 5,044 | 1,550 | 4,046 | 1,451 |
| Bonus related to the IPO | 8,798 | 2,325 | 5,031 | 1,705 | – | – | – | – |
| Share-based payments | 3,977 | 2,274 | 2,343 | 2,274 | – | – | – | – |
| Total remuneration | 25,304 | 14,486 | 17,463 | 13,797 | 12,945 | 4,389 | 10,477 | 3,958 |
ISS was successfully listed on Nasdaq Copenhagen and was the largest IPO in Denmark in two decades. The offer price was set at DKK 160 per share equivalent to a market capitalisation of DKK 29.6 billion. The proceeds from the IPO were used to deleverage ISS, and were together with the senior facilities used to completely take out the pre-IPO financings, thereby strengthening the financial profile of the company.
Lord Allen of Kensington Kt CBE, Chairman of the Board of Directors, said: "ISS has grown into a global facility services leader and we are pleased that private and institutional investors have appreciated the qualities of our business. I am also delighted for our team, which is led with such drive, focus and enthusiasm by Jeff Gravenhorst. Becoming a listed company is just the beginning not the end and the management team is focused on delivering for all shareholders, employees and, importantly, our customers."
Employment contracts of the EGM may be terminated at 18-24 months' notice. Employment contracts of the GMB may be terminated at 12 months' notice, with the exception of one contract. Members of the EGM and the GMB may terminate their positions at six months' notice. Apart from one employment contract with a member of the GMB that includes severance payment of approximately two years' salary in the event of termination by ISS, no members of the EGM or the GMB are entitled to severance payments. The employment contracts contain no special termination rights and no change of control clauses.
Bonuses and any other variable components of remuneration are subject to claw-back if in exceptional cases it is subsequently 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.
In order to strengthen the alignment of interests between the EGM, the GMB
and the shareholders, the Remuneration Committee has introduced share ownership requirements for the members of the EGM and the GMB. The Group CEO is expected to build up a holding of shares equivalent to 100% of the annual base salary, while other members of the EGM are expected to build up a holding of shares equivalent to 70% of their annual base salary, and finally each member of the GMB is expected to build up a holding of shares equivalent to 35% of their annual base salary. To build up the required holding of shares over time, the members of the EGM and the GMB will be required to retain a minimum of 50% of the shares received from the LTIP, the TSP or deferred bonus shares (subject to disposals required to meet any tax and other associated obligations) until the required share ownership is met. The actual holdings for the members of the EGM as per 31 December 2014 is shown below.
In 2006, EQT Partners (EQT) and The Goldman Sachs Group, Inc. (GSCP the owners of ISS at the time) established a Management Participation Programme
| Jeff Gravenhorst |
Heine Dalsgaard |
Henrik Andersen |
John Peri |
|
|---|---|---|---|---|
| Share ownership requirement of annual base salary (over time) Required shares to be retained from vested incentive programmes at 31 |
100% | 70% | 70% | 70% |
| December 2014 | 0% | 0% | 0% | 0% |
| Actual holding at 31 December 2014 | 127% | 142% | 101% | 142% |
| Unvested PSUs at 31 December 2014 | 99,450 | 56,188 | 57,874 | 56,188 |
(MPP) through which the members of the EGM and a number of senior officers of the Group invested. Following the IPO in March 2014, the MPP investment was settled in ISS shares. The ISS shares received by members of the EGM and the GMB are subject to lock up for a period of 360 days ending on 9 March 2015. After this date the shares may be sold independently of the share ownership guidelines.
Certain members of the Board of Directors participated in a Directors' Participation Programme (DPP) established by EQT and GSCP, under which they invested indirectly in shares in FS Invest S.à r.l. Following the IPO in March 2014, the DPP investment was settled in ISS shares. The ISS shares received are subject to lock up for a period of 360 days ending on 9 March 2015. At 31 December 2014, the members of the Board held a total of 133,372 shares in ISS A/S.
In January 2014, a cash-based bonus scheme was established for the EGM, the GMB and certain other employees subject to the completion of an IPO. The scheme paid out DKK 14 million to the EGM.
The EGM, the GMB and certain other employees participated in our pre-IPO long-term incentive plan. This plan was cash-based and was subject to an IPO or a sale of the majority of shares in ISS to a third party. The pre-IPO long-term incentive plan paid out DKK 3 million to the EGM.
One member of the EGM, three members of the GMB and certain other employees participated in an MPP 2012 Transaction Bonus Scheme. The MPP 2012 Transaction Bonus Scheme was designed for a limited number of employees in connection with the unwinding of the MPP. The MPP 2012 Transaction Bonus Scheme paid out DKK 1 million to one member of the EGM.
Members of the Board (except represen-
tatives of EQT, GSCP and Ontario Teachers' Pension Plan Board (OTPP)) received remuneration for duties performed in ISS A/S and other companies of the ISS Group based on a fixed fee approved by the general meeting for the current year. Remuneration guidelines are illustrated in the table below.
Members of the Board (employee representatives excepted) did not participate in any incentive programmes in 2014.
Expenses, such as travel and accommodation in relation to board meetings, relevant training as well as reasonable office expenses for the Chairman, are reimbursed by ISS. If members of the Board are required to travel overseas to attend board meetings, a fixed travel allowance per day of travelling and physical meeting attendance is paid to such Board members.
| Name Lord Allen of |
Number |
|---|---|
| Kensington Kt CBE | 86,843 |
| Thomas Berglund | 8,676 |
| Jennie Chua | 8,676 |
| Morten Hummelmose | None |
| Henrik Poulsen | 26,052 |
| Jo Taylor | None |
| Andrew Evan Wolff | None |
| Pernille Benborg | None |
| Joseph Nazareth | 3,125 |
| Palle Fransen Queck | None |
| Base fee | Additional fee, % of base fee |
|
|---|---|---|
| Board members | DKK 400,000 | |
| Chairman of the Board | 200% | |
| Deputy chairman of the Board | 50% | |
| Chairman of the Audit and Risk Committee | 100% | |
| Chairman of other committees | 75% | |
| Members of committees | 38% |
| Base fee |
Additional fee |
Travel allowance |
Total |
|---|---|---|---|
| 1,200 | 900 | 74 | 2,174 |
| 600 | 150 | 60 | 810 |
| 400 | 150 | 179 | 729 |
| - | - | - | - |
| 400 | 400 | - | 800 |
| - | - | - | - |
| - | - | - | - |
| 400 | - | - | 400 |
| 400 | - | - | 400 |
| 400 | - | - | 400 |
| 5,713 | |||
| 3,800 | 1,600 | 313 |
Our shareholders are important to us. We are committed to maintaining a constructive dialogue and a high level of transparency in our communication with the market, aiming to ensure fair and efficient pricing of our shares.
ISS A/S's shares were listed on Nasdaq Copenhagen on 13 March 2014 and became part of the Nasdaq Copenhagen OMX C20 index in June 2014. In addition, ISS Global A/S, an indirect subsidiary of ISS A/S, has issued bonds under an EMTN programme which are listed on the Luxembourg Stock Exchange's regulated market. For more information regarding the Group's financing see page 15 and section 5 to the consolidated financial statements.
The share price ended the year at DKK 178.1, an increase of 11.3% from the initial listing price of DKK 160 per share. During the same period, the Nasdaq Copenhagen OMX C20 index increased 5.5%.
The average daily trading volume of ISS shares on Nasdaq Copenhagen was 484,000 shares in 2014, with volume picking up during the year.
At year end 2014, ISS had a market capitalisation of DKK 33.1 billion, compared with DKK 29.7 billion at the time of the IPO in March 2014.
At 31 December 2014, our largest single shareholder was FS Invest II S.à r.l, holding 19.3% of our shares.
As of 31 December 2014, the free float, i.e. excluding shares held by FS Invest II S.à r.l and ISS A/S's holding of treasury shares, was 80%.
Major shareholders at 31 December 2014 based on direct and indirect holdings reported to ISS by investors are illustrated above.
The Board of Directors has adopted a dividend policy with a target initial pay-out ratio of approximately 50% of Profit before goodwill impairment and amortisation/impairment of brands and customer contracts. At the annual general meeting to be held on 15 April 2015, the Board of Directors will propose a dividend for 2014 of DKK
4.90 per share of DKK 1, equivalent to a pay-out ratio of approximately 50%.
ISS A/S's total share capital of nominally DKK 185,668,226 is divided into 185,668,226 shares of DKK 1 each. All shares are fully paid up. As of 31 December 2014, ISS held a total of 1,000,000 shares in treasury for the purposes of covering obligations under existing share-based incentive programmes.
ISS has one class of shares and no shares carry special rights. Each share gives the holder the right to one vote at our general meetings.
Shares shall be issued in the name of the holder and shall be recorded in the holder's name in the register of shareholders. Reference is made to ISS's shareholder portal on the ISS website.
In line with our Financial Policy, our objective is to maintain an investment grade financial profile, and the target is to reduce our financial leverage to below 2.5x pro forma adjusted EBITDA.
We aim to ensure that investors have adequate and equal access to relevant information by providing quality communications to the financial markets in an accurate and timely manner in order to support normal trading and a fair pricing of ISS's shares and other listed ISS securities.
We comply with the statutory requirements concerning the publication of material information relevant to investors and the financial markets' evaluation of our activities, business objectives, strategies and results.
We strive to be recognised by the investor community as an honest, open and reliable company and to be well-known among institutional investors as well as among private investors. We seek to achieve this by communicating with investors, analysts and other stakeholders through company announcements, press releases, conference calls, investor presentations, meetings, capital market days, our website and direct communication with key stakeholders. We have an investor section on our corporate website, where investors can subscribe to company announcements, ISS news etc.
As part of our investor relations efforts, ISS maintains an active dialogue with current as well as potential new investors and analysts through road shows and conferences in Europe and North America.
We aim to maintain broad coverage by analysts. Year-end 2014, we were covered by 13 Danish and international sell-side analysts who regularly publish their recommendations. For a full list of analysts, please visit http://inv.issworld. com/analysts.cfm
We observe a four-week silent period prior to the release of annual and interim financial reports, during which we do not comment on any matters related to our financial results or expectations or take part in meetings or presentations with analysts or investors.
Nicholas Ward Head of Group Investor Relations Tel. +45 38 17 00 [email protected]
Annual General Meeting 15 April
Q1 2015 report 21 May
Q2 2015 report 27 August
Q3 2015 report 18 November
ISS published 40 company announcements in 2014, of which a selection are listed below:
Sale of 25,000,000 existing shares in ISS A/S by FS Invest II S.à r.l 3 December
ISS issues EUR 1.2 billion notes in 5 and 10 years 24 November
ISS completes divestment of Nordic staffing activities 3 October
Sale of 31,000,000 existing shares in ISS A/S by FS Invest II S.à r.l and Ontario Teachers' Pension Plan Board 9 September
ISS to fully redeem EUR 256.3 million Senior Subordinated Notes Due 2016 3 April
ISS completes divestment of commercial security activities in Pacific Region 31 March
Completion of the offering, registration of share capital increase and repayment of senior secured facilities 18 March
ISS completes divestment of landscaping activities in France 28 February
ISS extends global facility services agreement with HP until 2018 3 February
A complete overview of published company announcements are available at inv.issworld.com/announcements.cfm
Jeff Gravenhorst Group CEO since April 2010. Joined ISS in 2002. Born 1962.
Member of the board of directors and management of certain ISS Group companies.
Deputy chairman of the board of directors of Rambøll Gruppen A/S, member of the board of directors of Danish Crown A/S and member of the Confederation of Danish Industry's (DI) Permanent Committee on Business Policies.
Previously held management positions within ISS as Group COO, Group CFO and CFO of ISS UK.
Prior to joining ISS, held management positions
in Europe and US.
Heine Dalsgaard Group CFO since August 2013. Joined ISS in 2013. Born 1971.
Member of the board of directors and management of certain ISS Group companies.
Prior to joining ISS, held senior management positions latest as Group CFO of Grundfos Group.
Luis Andrade Regional CEO Latin America since August 2009. Joined ISS in 1992. Born 1960.
Previously held positions within ISS as Regional Director of Iberia & Latin America as well as Country Manager of ISS Portugal.
Henrik Andersen Group COO EMEA since March 2013. Joined ISS in 2000. Born 1967.
Member of the board of directors and management of certain ISS Group companies.
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.
Previously held several management positions within ISS among others as Group CFO, Country Manager and CFO of ISS UK Ltd, International Business Director Northern Europe and Head of Group Treasury.
John Peri Group COO Americas & APAC since August 2013. Joined ISS in 2013. Born 1961.
Member of the board of directors and management of certain ISS Group companies.
Prior to joining ISS, COO and Executive Vice President of Global Operations of Celestica Inc.
Flemming Bendt Regional CEO Eastern Europe since February 2013. Joined ISS in 1998. Born 1971.
Previously 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.
Troels Bjerg Regional CEO Northern Europe since January 2015. Joined ISS in 2009. Born 1963.
Member of the board of directors of Ejner Hessel Holding A/S (and three of its subsidiaries) and member of the central board of the Confederation of Danish Industry (DI).
Previously held positions within ISS as Regional CEO Nordic and regional CEO Eastern Europe.
Jacob Götzsche Regional CEO Central Europe since July 2008. Joined ISS in 1999. Born 1967.
Previously held positions within ISS as COO Central Europe and Regional Director Central Europe, International Business Director Central Europe and various other positions within M&A, Corporate Finance and Controlling.
Todd O'Neill Head of Group Strategy & Corporate Development since September 2008. Joined ISS in 2008. Born 1966.
Prior to joining ISS, was a Director of SEB Enskilda.
Bjørn Raasteen Group General Counsel since January 2005. Joined ISS in 1999. Born 1964.
Prior to joining ISS, attorney-at-law with Danish law firm Bruun & Hjejle. Has right of audience before the Danish Supreme Court.
Thomas Hinnerskov Regional CEO APAC since February 2012. Joined ISS in 2003. Born 1971.
Previously Thomas 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.
Andrew Price Head of Global Corporate Clients since 2011. Joined ISS in 1995. Born 1964.
Previously held positions within ISS as COO Facility Services as well as Managing Director of Integrated Solutions and Commercial Director, Healthcare of ISS UK.
Jørn Vestergaard CFO Americas & APAC since October 2013. Joined ISS in 2002. Born 1968.
Previously held positions within ISS as CFO of ISS Norway, Regional CFO Nordic, International Business Director, Head of Group Controlling and Group Controller.
Henrik Langebæk CFO EMEA & Group Procurement since February 2013. Joined ISS in 2004. Born 1966.
Previously held positions within ISS as COO Projects & Group Procurement, interim Regional CEO APAC, COO Business Carve-Out & Group Procurement, Regional CFO APAC and Regional Director (India, Thailand, Malaysia, Singapore & the Philippines).
Lord Allen of Kensington Kt CBE (Chairman) Born: 1957 Nationality: British First elected: March 2013 Independence: Independent
Chairman of the Remuneration Committee, Chairman of the the Nomination Committee and Chairman of the Transaction Committee.
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 Grandmet Management Ltd and Grandmet Development Ltd as well as a partner of Xseqour Partners. In addition, chairman of the management board of the British Labour Party and Join In Trust Ltd and senior advisor to Goldman Sachs Capital Partners and advisor to Boparan Holdings Ltd and Powerscourt.
Previously CEO of Compass as well as chief executive of Granada Group Plc. and ITV plc and executive chairman of Granada Media Plc. He has also been chairman of EMI Music, a member of the board of directors of Virgin Media Ltd and Tesco Plc. In addition, previously 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) Born: 1952 Nationality: Swedish First elected: March 2013 Independence: Independent
Member of the Remuneration Committee.
President and CEO of Capio Holding AB (including management positions on the board of directors and/or executive management of 12 of its subsidiaries). In addition, a member of the executive management of TA Consulting GmbH.
Previously president and CEO of Securitas and CEO 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.
Jennie Chua Born: 1944 Nationality: Singaporean First elected: December 2011 Independence: Independent
Member of the Nomination Committee.
Chairman of Alexandra Health System Pte Ltd (and three of its subsidiaries), GLH Management Group Pte Ltd and Geriatric Education and Research Institute Limited and deputy chairman of Temasek Foundation CLG Ltd as well as a member of the board of directors of Far East Orchard Ltd, GuocoLand Ltd, GuocoLeisure Ltd, MOH Holdings Pte Ltd (and committee member of MOH Holdings Healthcare Infrastructure and Planning Committee), Pas De Deux Holdings Pte Ltd, The Singapore Chinese Girls' School, Beeworks Inc, The RICE Company Ltd and CapitaLand Hope Foundation. In addition, a member of the Singapore Pro-Enterprise Panel, Justice of the Peace of the Prime Minister's Office (Singapore) and Singapore's Non-Resident Ambassador to the United Mexican States.
Previously held a number of management positions in the hotel and tourism industry, including as chief corporate officer of Capita-Land Ltd and president and CEO of the Ascott Group Ltd as well as CEO and chairman 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.
Born: 1971 Nationality: Danish First elected: June 2013 Independence: Independent
Member of the Audit and Risk Committee, member of the Nomination Committee and member of the Transaction Committee.
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, R. Færch Plast A/S, Færch Plast Group A/S and Zebra A/S.
Previously 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.
Henrik Poulsen Born: 1967 Nationality: Danish First elected: August 2013 Independence: Independent
Chairman of the Audit and Risk Committee.
CEO of DONG Energy A/S and deputy chairman of Danfoss A/S. In addition, independent industrial advisor to EQT and a member of the board of the Denmark-America Foundation as well as a member of the Advisory Board of Danske Bank A/S.
Previously CEO and president of TDC A/S, operating executive at Capstone/KKR in London and held various positions with Lego including executive vice president of Markets and Products.
Education: Bachelor of Science in International Business and a Master in Finance and Accounting, both from Aarhus School of Business.
Competencies: International as well as executive management experience from large international companies.
Jo Taylor Born: 1961 Nationality: British First elected: August 2012
Independence: Independent
Member of the Audit and Risk Committee and member of the Transaction Committee.
Managing director, EMEA 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, 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, Frontier Holdco Ltd (and three of its subsidiaries), Premier Lotteries UK Ltd (and two of its subsidiaries), Camelot Business Solutions Ltd (and two of its subsidiaries), Busy Bees Benefits Holdings Ltd (and five of its subsidiaries) and Jaeger Eins Holdings Ltd.
Previously 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.
Andrew Evan Wolff Born: 1969 Nationality: U.S.A First elected: June 2013 Independence: Independent
Member of the Remuneration Committee and member of the Transaction Committee.
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, a member of the board of directors of Hastings Insurance Group (Investment) Plc and Taikang Life Insurance Co. Ltd.
Previously a member of the board of directors of several companies in a number of countries.
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 Kingdom, the United States, Canada, Argentina, Brazil, Japan, China, Korea, France, Norway and Denmark.
Pernille Benborg (E) Born: 1970 Nationality: Danish First elected: March 2011 Independence: Not independent
Group Vice President and Head of Group Compliance since 2007.
Previously she 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 Copenhagen Business School.
Joseph Nazareth (E) Born: 1960 Nationality: Canadian First elected: March 2011 Independence: Not independent
Group Vice President and Head of Group Health, Safety and Environment and Corporate Responsibility since 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.
Palle Fransen Queck (E) Born: 1975 Nationality: Danish First elected: March 2011 Independence: Not independent
Group Vice President and Business Development Director, Central Europe since 2012. Previously he 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.
SONIA BROCARD Receptionist, ISS Switzerland
and they are his pride. Marco thrives from the recognition he gets for a job well done. As a receptionist at NESTLÉ's offices in Orbe, Switzerland, Sonia Brocard is in contact with people from all over the world every day. Sonia finds that the contact with all the visitors and the numerous colleagues in a multicultural environment gives her a very diverse approach to life.
At the premises of AMBEV in Rio de Janeiro, Brazil, Marcos works hard to create beautiful gardens and seeing the area
| 96 | Section 1 | Basis of preparation |
|---|---|---|
| 96 | Note 1.1 | Basis of preparation |
| 99 | Section 2 | Operating profit |
| 99 | Note 2.1 | Segment and revenue information |
| 102 | Note 2.2 | Translation and operational currency risk |
| 102 | Note 2.3 | Staff costs |
118 Note 5.1 Equity 120 Note 5.2 Loans and borrowings 121 Note 5.3 Financial risk management 122 Note 5.4 Liquidity risk 123 Note 5.5 Currency risk 124 Note 5.6 Interest rate risk 126 Note 5.7 Derivatives 127 Note 5.8 Financial income and financial expenses
128 Note 6.1 Remuneration to the Board of Directors and the Group Management Board 129 Note 6.2 Share-based payments 131 Note 6.3 Related parties 131 Note 6.4 Fees to auditors
1 January – 31 December
| DKK million | Note | 2014 | 2013 |
|---|---|---|---|
| Revenue | 2.1, 8.7 | 74,105 | 78,459 |
| Staff costs | 2.3 | (48,849) | (51,234) |
| Consumables | (6,413) | (6,949) | |
| Other operating expenses | 6.4 | (13,961) | (15,174) |
| Depreciation and amortisation 1) | 4.3, 8.2 | (732) | (787) |
| Operating profit before other items 2) | 4,150 | 4,315 | |
| Other income and expenses, net | 2.4 | (160) | (100) |
| Operating profit 1) | 2.1, 8.7 | 3,990 | 4,215 |
| Financial income | 5.8 | 303 | 176 |
| Financial expenses | 5.8 | (1,599) | (2,446) |
| Profit before tax, goodwill impairment and amortisation/impairment of brands and customer contracts |
2,694 | 1,945 | |
| Income taxes 3) | 7.1 | (878) | (919) |
| Profit before goodwill impairment and amortisation/impairment of brands and customer contracts |
1,816 | 1,026 | |
| Goodwill impairment | 4.5 | (448) | (985) |
| Amortisation/impairment of brands and customer contracts | 4.3 | (588) | (667) |
| Income tax effect 4) | 7.1, 7.2 | 234 | 229 |
| Net profit for the year | 1,014 | (397) | |
| Attributable to: | |||
| Owners of ISS A/S Non-controlling interests |
1,011 3 |
(399) 2 |
|
| Net profit for the year | 1,014 | (397) | |
| Earnings per share: | |||
| Basic earnings per share (EPS), DKK | 8.1 | 5.8 | (2.9) |
| Diluted earnings per share, DKK | 8.1 | 5.8 | (2.9) |
| Adjusted earnings per share, DKK 5) | 8.1 | 10.3 | 7.6 |
1) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts.
2) Excluding Other income and expenses, net, Goodwill impairment and Amortisation/impairment of brands and customer contracts.
3) Excluding tax effect of Goodwill impairment and Amortisation/impairment of brands and customer contracts.
4) Income tax effect of Goodwill impairment and Amortisation/impairment of brands and customer contracts.
5) Calculated as Profit before goodwill impairment and amortisation/impairment of brands and customer contracts divided by the average number of shares (diluted).
1 January – 31 December
| DKK million Note |
2014 | 2013 |
|---|---|---|
| Net profit for the year | 1,014 | (397) |
| Other comprehensive income | ||
| Items not to be reclassified to the income statement in subsequent periods: | ||
| Actuarial gains/(losses) 8.4 |
(621) | 446 |
| Impact from asset ceiling regarding pensions 8.4 |
14 | (27) |
| Tax 7.1 |
138 | (92) |
| Items to be reclassified to the income statement in subsequent periods: | ||
| Foreign exchange adjustments of subsidiaries and non-controlling interests | 472 | (796) |
| Fair value adjustment of hedges, net 5.7 |
(20) | 4 |
| Fair value adjustment of hedges, net, transferred to Financial expenses 5.7 |
23 | 80 |
| Tax 7.1 |
(1) | (21) |
| Total other comprehensive income | 5 | (406) |
| Total comprehensive income for the year | 1,019 | (803) |
| Attributable to: | ||
| Owners of ISS A/S | 1,016 | (804) |
| Non-controlling interests | 3 | 1 |
| Total comprehensive income for the year | 1,019 | (803) |
1 January – 31 December
| DKK million Note |
2014 | 2013 |
|---|---|---|
| Operating profit before other items | 4,150 | 4,315 |
| Depreciation and amortisation 4.3, 8.2 |
732 | 787 |
| Share-based payments (non-cash) | 53 | - |
| Changes in working capital 3.1 |
(71) | 80 |
| Changes in provisions, pensions and similar obligations | (203) | (146) |
| Other expenses paid | (402) | (388) |
| Income taxes paid | (1,082) | (933) |
| Cash flow from operating activities | 3,177 | 3,715 |
| Acquisition of businesses | (19) | (14) |
| Divestment of businesses 4.1 |
1,335 | 2,183 |
| Acquisition of intangible assets and property, plant and equipment | (848) | (902) |
| Disposal of intangible assets and property, plant and equipment | 65 | 99 |
| (Acquisition)/disposal of financial assets | 19 | (35) |
| Cash flow from investing activities | 552 | 1,331 |
| Proceeds from borrowings | 23,483 | 4,425 |
| Repayment of borrowings | (33,862) | (7,983) |
| Interest received | 130 | 135 |
| Interest paid | (912) | (1,734) |
| Proceeds from issuance of share capital | 7,788 | - |
| Purchase of treasury shares | (160) | - |
| Non-controlling interests | (2) | (2) |
| Cash flow from financing activities | (3,535) | (5,159) |
| Total cash flow | 194 | (113) |
| Cash and cash equivalents at 1 January | 3,277 | 3,528 |
| Total cash flow | 194 | (113) |
| Foreign exchange adjustments | 86 | (138) |
| Cash and cash equivalents at 31 December | 3,557 | 3,277 |
| DKK million | Note | 2014 | 2013 |
|---|---|---|---|
| Assets | |||
| Intangible assets | 4.3, 4.4 | 27,465 | 28,346 |
| Property, plant and equipment | 8.2 | 1,638 | 1,715 |
| Deferred tax assets | 7.2 | 755 | 634 |
| Other financial assets | 8.3 | 431 | 307 |
| Non-current assets | 30,289 | 31,002 | |
| Inventories | 309 | 309 | |
| Trade receivables | 3.2 | 10,446 | 10,299 |
| Tax receivables | 212 | 209 | |
| Other receivables | 3.3 | 1,449 | 1,520 |
| Cash and cash equivalents | 3,557 | 3,277 | |
| Assets classified as held for sale | 4.2 | 472 | 1,950 |
| Current assets | 16,445 | 17,564 | |
| Total assets | 46,734 | 48,566 | |
| DKK million | Note | 2014 | 2013 |
| Equity and liabilities | |||
| Total equity attributable to owners of ISS A/S | 12,910 | 4,213 | |
| Non-controlling interests | 10 | 9 | |
| Total equity | 5.1 | 12,920 | 4,222 |
| Loans and borrowings | 5.2 | 14,887 | 20,416 |
| Pensions and similar obligations | 8.4 | 1,415 | 869 |
| Deferred tax liabilities | 7.2 | 1,415 | 1,590 |
| Provisions | 8.5 | 348 | 470 |
| Non-current liabilities | 18,065 | 23,345 | |
| Loans and borrowings | 5.2 | 1,338 | 5,648 |
| Trade payables | 3,562 | 3,436 | |
| Tax payables | 170 | 448 | |
| Other liabilities | 3.4 | 10,254 | 10,134 |
| Provisions | 8.5 | 249 | 317 |
| Liabilities classified as held for sale | 4.2 | 176 | 1,016 |
| Current liabilities | 15,749 | 20,999 | |
| Total liabilities | 33,814 | 44,344 | |
| Total equity and liabilities | 46,734 | 48,566 |
1 January – 31 December
| Attributable to owners of ISS A/S | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2014 | Share | Retained | Trans lation |
Hedging | Treasury | Proposed | Non-con trolling |
Total | |
| DKK million | capital | earnings | reserve | reserve | shares | dividends | Total | interests | equity |
| Equity at 1 January | 135 | 4,536 | (427) | (31) | - | - | 4,213 | 9 | 4,222 |
| Comprehensive income for the year | |||||||||
| Net profit for the year | - | 101 | - | - | - | 910 | 1,011 | 3 | 1,014 |
| Other comprehensive income | |||||||||
| Foreign exchange adjustments of sub- sidiaries and non-controlling interests |
- | - | 472 | - | - | - | 472 | (0) | 472 |
| Fair value adjustment of hedges, net | - | - | - | (20) | - | - | (20) | - | (20) |
| Fair value adjustment of hedges, net, transferred to Financial expenses |
- | - | - | 23 | - | - | 23 | - | 23 |
| Actuarial gains/(losses) | - | (621) | - | - | - | - | (621) | - | (621) |
| Impact from asset ceiling regarding pensions |
- | 14 | - | - | - | - | 14 | - | 14 |
| Tax | - | 138 | - | (1) | - | - | 137 | - | 137 |
| Total other comprehensive income | - | (469) | 472 | 2 | - | - | 5 | (0) | 5 |
| Total comprehensive income for the year |
- | (368) | 472 | 2 | - | 910 | 1,016 | 3 | 1,019 |
| Transactions with owners Share issue |
50 | 7,986 | - | - | - | - | 8,036 | - | 8,036 |
| Costs related to the share issue | - | (248) | - | - | - | - | (248) | - | (248) |
| Purchase of treasury shares | - | - | - | - | (160) | - | (160) | - | (160) |
| Share-based payments | - | 53 | - | - | - | - | 53 | - | 53 |
| Dividends paid | - | - | - | - | - | - | - | (2) | (2) |
| Total transactions with owners | 50 | 7,791 | - | - | (160) | - | 7,681 | (2) | 7,679 |
| Total changes in equity | 50 | 7,423 | 472 | 2 | (160) | 910 | 8,697 | 1 | 8,698 |
| Equity at 31 December | 185 | 11,959 | 45 | (29) | (160) | 910 | 12,910 | 10 | 12,920 |
1 January – 31 December
| Attributable to owners of ISS A/S | |||||||
|---|---|---|---|---|---|---|---|
| 2013 | Share | Retained | Trans lation |
Hedging | Non-con trolling |
Total | |
| DKK million | capital | earnings | reserve | reserve | Total | interests | equity |
| Equity at 1 January | 135 | 4,689 | 367 | (94) | 5,097 | 10 | 5,107 |
| Change in accounting policy due to implementation of amendments to IAS 19 (2011) |
- | (81) | 1 | - | (80) | - | (80) |
| Adjusted equity at 1 January | 135 | 4,608 | 368 | (94) | 5,017 | 10 | 5,027 |
| Comprehensive income for the year | |||||||
| Net profit 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) | - | 446 | - | - | 446 | - | 446 |
| Impact from asset ceiling regarding pensions | - | (27) | - | - | (27) | - | (27) |
| Tax | - | (92) | - | (21) | (113) | - | (113) |
| Total other comprehensive income/(loss) | - | 327 | (795) | 63 | (405) | (1) | (406) |
| Total comprehensive income/(loss) for the year |
- | (72) | (795) | 63 | (804) | 1 | (803) |
| Transactions with owners | |||||||
| Dividends paid | - | - | - | - | - | (2) | (2) |
| Total transactions with owners | - | - | - | - | - | (2) | (2) |
| Total changes in equity | - | (72) | (795) | 63 | (804) | (1) | (805) |
| Equity at 31 December | 135 | 4,536 | (427) | (31) | 4,213 | 9 | 4,222 |
In 2014, we continued our focus to ensure a more readable report with a logical structure taking the characteristics of ISS's business into account. The notes continue to be grouped into the following eight sections based on theme:
| Section 1 | Basis of preparation |
|---|---|
| Section 2 | Operating profit |
| Section 3 | Working capital |
| Section 4 | Strategic investments and divestments |
| Section 5 | Capital structure |
| Section 6 | Governance |
| Section 7 | Tax |
| Section 8 | Other required disclosures |
Due to the IPO, the consolidated financial statements for 2013 included two years of comparative figures. This is changed in 2014 to one year of comparison.
Included in this section are required disclosures and general accounting policies relevant for the understanding of the basis of preparation of the consolidated financial statements of ISS A/S.
The consolidated financial statements of ISS A/S as of and for the year ended 31 December 2014 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 8.10, Subsidiaries, associates and joint ventures.
The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and Danish disclosure requirements for listed companies. 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 2014 was discussed and approved by the Executive Group Management Board (the EGM) and the Board of Directors (the Board) on 12 March 2015 and issued for approval at the subsequent Annual General Meeting on 15 April 2015.
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.
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; interest rate swaps, currency swaps and financial assets classified as available for sale.
The income statement and the statement of financial position separately present items that are considered individually significant, or are required 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 disclosure of an item does not increase the value of information to users, the information is considered insignificant.
Explanatory disclosure notes related to the consolidated financial statements are presented for individually significant items. Where separate presentation 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.
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 information minor adjustments to comparative figures in primary statements and notes have been implemented.
Furthermore, in 2014 the presentation of the consolidated statement of changes in equity was changed to include share premium in retained earnings, as share premium is part of the Group's free reserves. The comparative presentation was restated accordingly. The changed presentation did not affect recognition and measurement for 2014 and 2013. At 1 January 2014, share premium amounted to DKK 11,430 million (at 1 January 2013: DKK 11,430 million).
With effect from 1 January 2014, the Group has implemented:
Except for IAS 19, the adoption of these standards and interpretations did not affect recognition and measurement for 2014.
With the implementation of the amendments to IAS 19 the exemption from risk sharing between the Group and the plan participants is adopted. 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 is immaterial.
The Board and the EGM have during the preparation of the consolidated financial statements of the Group assessed the going concern assumption. The Board and the EGM believe that no events or conditions give rise to doubt about the ability of the Group to continue in operation within the next reporting period. The conclusion is made based on knowledge of the Group, the estimated economic outlook and identified risks and uncertainties in relation thereto. Further, the conclusion is based on review of budgets, including expected development in liquidity and capital etc., current credit facilities available including contractual and expected maturities and covenants. Consequently, it has been concluded that it is reasonable to apply the going concern concept as underlying assumption for the consolidated financial statements of the Group.
The consolidated financial statements comprise ISS A/S and 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 included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
On consolidation all intra group transactions, balances, income and expenses 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.
The non-controlling interest's share of net profit for the year and of the equity of subsidiaries, which are not wholly owned, are included in the Group's net profit 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.
Changes in the Group's interest in a subsidiary that do not result in loss of control are accounted for as equity transactions.
Upon loss of control the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any 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 or as an available-for-sale financial asset depending on the level of influence retained.
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 accounted for in accordance with the anticipated acquisition method, i.e. as if the put option has been exercised already. Such options are recognised as Other liabilities initially at fair value. Fair value is measured at the present value of the exercise price of the option.
Subsequent fair value adjustments of put options held by non-controlling interests relating to business combinations effected on or after 1 January 2010 are recognised directly in equity. Subsequent fair value adjustments of put options held by non-controlling interests related to business combinations effected prior to 1 January 2010 are recognised in goodwill. The effect of unwind of discount is recognised under Financial expenses.
Transactions denominated in currencies other than the functional currency 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 foreign currencies are translated at the exchange rates at the reporting date. The difference between the exchange rates at the reporting date and at the date of transaction or the exchange rate in the latest financial statements is recognised in the income statement under Financial income or Financial expenses.
On recognition in the consolidated financial statements of Group companies with a functional currency other than DKK, the income statements and statements of cash flows are translated at the exchange rates at the transaction date and the statements of financial position are translated at the exchange rates at the reporting date. An average exchange rate for the month is used as the exchange rate at the transaction date to the extent that this does not significantly deviate from the exchange rate at the transaction date. Foreign exchange adjustments arising on transla-
tion of the opening balance of equity of foreign entities at the exchange rates at the reporting date and on translation of the income statements from the exchange rates at the transaction date to the exchange rates at the reporting date are recognised in other comprehensive income and presented in equity under a separate translation reserve. However, if the foreign entity is a non-wholly owned subsidiary, the relevant proportion of the translation difference is allocated to the non-controlling interest.
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 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/impairment of brands and customer contracts as well as the Income tax effect hereof are presented in separate line items after Operating profit1). This income statement presentation is considered most appropriately to reflect the Group's profitability.
Presentation of cash flow statement The consolidated statement of cash flows shows the Group's cash flows from operating, investing and financing activities for the year. Interest paid and received is included in cash flows from financing activities as this most appropriately reflects the distinction between operating and financing activities following the acquisition of ISS World Services A/S by ISS A/S.
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 consideration, but still ensuring that one-off effects which are not expected to exist in the long term do not affect estimation and determination of these key factors, including discount rates and expectations of the future.
Information about judgement, assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment is included in the following notes:
1) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts.
This section comprise notes which provide information supplementing the Management review related to the composition of the Group's operating profit, including disclosures on operating segments, revenue and currency risk. Segment information is presented in three ways: reportable segments, geographical information and revenue by service type.
In 2014, we delivered a strong operating margin of 5.6% (2013: 5.5%) driven by strong performance overall. The implementation of our strategic initiatives improved margins, especially in the Western Europe and the Nordic regions. However, this was offset by the impact of operational challenges in certain European countries and the divestment of the margin-accretive pest control activities in 2013.
In this section, the following notes are presented:
ISS is a global facility services company, that operates in 77 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 directly by the Global Corporate Clients organisation are excluded from the geographical segments and combined in a separate segment called "Other countries". An overview of the grouping of countries into regions is presented in note 8.10, Subsidiaries, associates and joint ventures.
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 8.7, Reconciliation of segment information.
Transactions between reportable segments are made on market terms.
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 consists 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/impairment of brands and customer contracts). Segment assets and segment liabilities have been identified as Total assets and Total liabilities, respectively.
When presenting geographical information segment revenue and non-current assets are based on the geographical location of the individual subsidiary from which the sales transaction originates.
| 2014 | Western | Latin | North | Eastern | Other | Total re portable |
|||
|---|---|---|---|---|---|---|---|---|---|
| DKK million | Europe | Nordic | Asia | Pacific | America | America | Europe | countries | segments |
| Revenue 1) | 37,318 | 15,449 | 8,221 | 4,444 | 3,597 | 3,477 | 1,597 | 87 | 74,190 |
| Depreciation and amortisation 2) | (354) | (148) | (70) | (60) | (41) | (14) | (16) | - | (703) |
| Operating profit before other items 3) | 2,310 | 1,153 | 603 | 220 | 173 | 125 | 109 | (1) | 4,692 |
| Operating margin 3) | 6.2% | 7.5% | 7.3% | 5.0% | 4.8% | 3.6% | 6.8% | (1.4)% | 6.3% |
| Other income and expenses, net | (111) | 51 | 9 | (2) | (8) | 24 | (5) | - | (42) |
| Operating profit 2) | 2,199 | 1,204 | 612 | 218 | 165 | 149 | 104 | (1) | 4,650 |
| Goodwill impairment | (434) | - | - | - | (5) | - | (9) | - | (448) |
| Amortisation/impairment of brands and customer contracts |
(374) | (108) | (38) | (21) | (8) | (23) | (16) | - | (588) |
| Total assets | 24,555 | 12,862 | 4,832 | 2,560 | 1,547 | 2,130 | 1,281 | 14 | 49,781 |
| Hereof assets classified as held for sale | 364 | 108 | - | - | - | - | - | - | 472 |
| Additions to non-current assets 4) | 470 | 200 | 87 | 62 | 37 | 23 | 19 | - | 898 |
| Total liabilities | 14,357 | 6,948 | 1,895 | 1,501 | 1,577 | 1,269 | 516 | 11 | 28,074 |
| Hereof liabilities classified as held for sale | 129 | 47 | - | - | - | - | - | - | 176 |
| 2013 | |||||||||
| Revenue 1) | 39,704 | 16,853 | 8,019 | 5,105 | 3,708 | 3,459 | 1,657 | 38 | 78,543 |
| Depreciation and amortisation 2) | (381) | (170) | (67) | (64) | (45) | (17) | (17) | - | (761) |
| Operating profit before other items 3) | 2,388 | 1,246 | 608 | 253 | 145 | 101 | 109 | (1) | 4,849 |
| Operating margin 3) | 6.0% | 7.4% | 7.6% | 5.0% | 3.9% | 2.9% | 6.6% | (3.2)% | 6.2% |
| Other income and expenses, net | (148) | 11 | (45) | 499 | (175) | (173) | (5) | - | (36) |
| Operating profit 2) | 2,240 | 1,257 | 563 | 752 | (30) | (72) | 104 | (1) | 4,813 |
| Goodwill impairment | (822) | - | - | (133) | - | (30) | - | - | (985) |
| Amortisation/impairment of brands and customer contracts |
(401) | (124) | (44) | (40) | (10) | (32) | (16) | - | (667) |
| Total assets | 28,353 | 14,829 | 4,207 | 2,640 | 1,484 | 1,792 | 1,297 | 17 | 54,619 |
| Hereof assets classified as held for sale | 1,373 | 303 | 122 | 152 | - | - | - | - | 1,950 |
| Additions to non-current assets 4) | 485 | 180 | 87 | 91 | 30 | 13 | 11 | - | 897 |
| Total liabilities | 19,008 | 8,766 | 1,780 | 1,637 | 1,796 | 1,085 | 527 | 12 | 34,611 |
| Hereof liabilities classified as held for sale | 800 | 131 | 16 | 69 | - | - | - | - | 1,016 |
1) Including internal revenue which due to the nature of the business is insignificant and is therefore not disclosed.
2) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts.
3) Excluding Other income and expenses, net, Goodwill impairment and Amortisation/impairment of brands and customer contracts.
4) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
Revenue and non-current assets (excluding deferred tax assets) for countries representing more than 5% of Group revenue:
| 2014 | 2013 | |||
|---|---|---|---|---|
| DKK million | Revenue | Non-current assets |
Revenue | Non-current assets |
| United Kingdom | 9,896 | 3,080 | 9,322 | 3,184 |
| France | 5,101 | 2,782 | 7,122 | 3,304 |
| Norway | 4,561 | 1,800 | 5,762 | 2,165 |
| Australia | 4,113 | 1,629 | 4,572 | 1,606 |
| Spain | 4,099 | 1,231 | 4,173 | 1,445 |
| Switzerland | 4,079 | 1,569 | 4,005 | 1,618 |
| Finland | 3,853 | 2,618 | 3,986 | 2,892 |
| Sweden | 3,737 | 1,804 | 3,948 | 2,031 |
| Denmark (country of domicile) | 3,086 | 1,971 | 2,965 | 2,118 |
| Other countries (including unallocated items and eliminations) | 31,580 | 11,050 | 32,604 | 10,005 |
| Total | 74,105 | 29,534 | 78,459 | 30,368 |
| DKK million | 2014 | 2013 | ||
|---|---|---|---|---|
| Cleaning services | 37,754 | 51% | 38,494 | 49% |
| Property services | 12,908 | 17% | 15,307 | 20% |
| Catering services | 8,760 | 12% | 8,535 | 11% |
| Support services | 5,984 | 8% | 6,514 | 8% |
| Security services | 5,316 | 7% | 6,316 | 8% |
| Facility management | 3,383 | 5% | 3,293 | 4% |
| Revenue | 74,105 | 100% | 78,459 | 100% |
Management makes estimates and judgements in relation to presentation of revenue as gross or net as well as in relation to treatment of significant 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 management 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.
Revenue is measured at fair value of the consideration received less VAT and duties as well as price and quantity discounts.
Revenue from rendering services is recognised in the income statement in proportion to the stage of completion of the transaction at the reporting date. Revenue is recognised when the 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.
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 generated in foreign entities.
In 2014, the currencies in which the Group's revenue was denominated decreased with an average of 1.9% (2013: decreased with 3.3%) relative to DKK, decreasing the Group's revenue by DKK 1,318 million (2013: a decrease of DKK 2,094 million). Currency movements decreased the Group's operating profit before other items by DKK 81 million (2013: a decrease of DKK 126 million). The effect of the translation of net assets in foreign subsidiaries increased other comprehensive income by DKK 472 million (2013: a decrease of DKK 796 million).
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 particular interest rates, remain constant and ignores any impact of forecasted sales and purchases. The analysis is prepared on the same basis for 2013.
| 2014 | 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| DKK million | Change in foreign exchange rates |
Revenue | Operating profit before other items |
Net assets in foreign subsidiaries |
Change in foreign exchange rates |
Revenue | Operating profit before other items |
Net assets in foreign subsidiaries |
| GBP | 10% | 990 | 71 | 346 | 10% | 932 | 66 | 308 |
| AUD | 10% | 411 | 21 | 99 | 10% | 457 | 23 | 94 |
| CHF | 10% | 408 | 34 | 112 | 5% | 200 | 17 | 74 |
| USD | 10% | 339 | 12 | 85 | 10% | 337 | 10 | 78 |
| NOK | 10% | 456 | 36 | 133 | 5% | 288 | 21 | 65 |
| EUR | 1% | 234 | 13 | 66 | 1% | 266 | 14 | 59 |
| TRY | 10% | 253 | 20 | 36 | 10% | 241 | 18 | 28 |
| SEK | 10% | 374 | 30 | 104 | 5% | 197 | 15 | 56 |
| Other | 10% | 1,527 | 92 | 407 | 10% | 1,548 | 94 | 332 |
| Total | - | 4,992 | 329 | 1,388 | - | 4,466 | 278 | 1,094 |
| DKK million | 2014 | 2013 |
|---|---|---|
| Wages and salaries | 38,928 | 40,687 |
| Defined benefit plans Defined contribution plans |
155 1,684 |
139 1,830 |
| Social security costs | 5,800 | 6,272 |
| Other employee benefits | 2,282 | 2,306 |
| Staff costs | 48,849 | 51,234 |
| Average number of employees | 522,258 | 533,792 |
The Group received government grants in the form of wage subventions, which have been recognised in the income statement as a reduction of staff costs. The grants compensate the Group for staff costs primarily
related to social security as well as hiring certain categories of employees such as trainees, disabled persons, long-term unemployed and employees in certain age groups.
| DKK million | 2014 | 2013 |
|---|---|---|
| Gain on divestments | 179 | 806 |
| Other | 6 | 5 |
| Other income | 185 | 811 |
| Restructuring projects | (166) | (379) |
| Costs related to the IPO | (100) | (15) |
| Loss on divestments | (79) | (72) |
| Onerous contracts | 37 | (228) |
| Labour-related claims | - | (100) |
| Build-up of IFS capabilities in North America | - | (50) |
| Other | (37) | (67) |
| Other expenses | (345) | (911) |
| Other income and expenses, net | (160) | (100) |
Gain on divestments mainly related to the sale of the Nordic temporary labour and staffing activities in Norway, Sweden and Finland, certain service activities related to asylum centres in Norway and the cash management activities in India. In 2013, the gain related to a number of divestments, most significantly the pest control activities in 12 countries and the Nordic damage control activities.
Restructuring projects related to structural adjustments in a number of countries following the implementation of GREAT, mainly in Norway, Denmark and the United Kingdom as well as on Group level following the review of the customer segmentation and organisational structure. The restructuring projects include cost reductions to make ISS more efficient going forward and primarily comprise redundancy payments, termination of leaseholds, relocation costs and consultancy fees. In 2013, costs related to structural adjustments in a number of countries, mainly the United Kingdom, Greece, France, Brazil, Denmark and the USA as well as severance payments relating to senior management changes.
Costs related to the IPO comprised costs for external advisors mainly fees to lawyers, auditors and other advisors, as well as certain transaction bonuses.
Loss on divestments mainly related to the remeasurement of net assets of the security activities in Greece, which was classified as held for sale in Q3 and subsequently sold, as well as the commercial security activities in Australia and the property service activities in Belgium. In 2013, the loss related to a number of divestments, mainly the occupational health and safety (Arbo) activities in the Netherlands and the 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 for sale as per 31 December 2013.
Onerous contracts in 2014 comprised revised estimate for the expected loss on a specific large contract following a renegotiation of the contract in 2014. In 2013, the amount related to expected losses on a few large specific contracts which were entered into in previous years.
Labour-related claims in 2013 consisted of claims related to previous years on certain specific contracts.
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.
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 essential that these constitute items that can not be attributed directly to the Group's ordinary operating activities.
Other income and expenses, net consists of both recurring and non-recurring income and expenses, 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 and restructurings.
Ensuring a strong cash flow performance, and in particular managing working capital, is a key priority at ISS. Our approach to managing working capital is structured and well proven through continued delivery of steady cash flows reflected in a cash conversion in the range of 93% to 103% in the period from 2010 to 2014.
As a result of the continued working capital focus across the Group the cash conversion for 2014 was 98%. The strong cash flow performance reflects our efforts to ensure payments for work performed.
The approach to improving capital efficiency consists primarily of the following tools:
This section comprises notes to understand the development in working capital:
| DKK million | 2014 | 2013 |
|---|---|---|
| Changes in inventories Changes in receivables Changes in payables |
(5) (92) 26 |
(39) (571) 690 |
| Changes in working capital | (71) | 80 |
The carrying amount of trade receivables of DKK 10,446 million (2013: DKK 10,299 million) represents the Group's maximum credit exposure. At 31 December 2014, impairment losses recognised on trade receivables was DKK 244 million corresponding to 0.3% of revenue (2013: DKK 310 million or 0.4%).
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, in recent years the general credit risk has increased for certain specific groups of customers, which led to an increase in the level of impairment losses recognised in
Exposure to credit risk on trade receivables is managed locally in the operating entities and credit limits are 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 maximum credit risk exposure at the reporting date by reportable segments was:
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Gross | Impairment | Carrying amount |
Gross | Impairment | Carrying amount |
| Western Europe | 5,978 | (135) | 5,843 | 6,117 | (195) | 5,922 |
| Nordic | 1,560 | (19) | 1,541 | 1,511 | (24) | 1,487 |
| Asia | 1,322 | (32) | 1,290 | 1,108 | (20) | 1,088 |
| Pacific | 509 | (9) | 500 | 575 | (7) | 568 |
| Latin America | 608 | (36) | 572 | 583 | (48) | 535 |
| North America | 390 | (6) | 384 | 390 | (7) | 383 |
| Eastern Europe | 318 | (6) | 312 | 318 | (8) | 310 |
| Other countries | 5 | (1) | 4 | 7 | (1) | 6 |
| Total | 10,690 | (244) | 10,446 | 10,609 | (310) | 10,299 |
The ageing of trade receivables at the reporting date was:
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Gross | Impairment | Carrying amount |
Gross | Impairment | Carrying amount |
| Not past due | 8,393 | - | 8,393 | 8,204 | - | 8,204 |
| Past due 1 to 60 days | 1,576 | (3) | 1,573 | 1,594 | (0) | 1,594 |
| Past due 61 to 180 days | 379 | (8) | 371 | 322 | (19) | 303 |
| Past due 181 to 360 days | 118 | (24) | 94 | 199 | (33) | 166 |
| More than 360 days | 224 | (209) | 15 | 290 | (258) | 32 |
| Total | 10,690 | (244) | 10,446 | 10,609 | (310) | 10,299 |
The movement in impairment losses during the year was:
| DKK million | 2014 | 2013 |
|---|---|---|
| Impairment losses at 1 January | (310) | (208) |
| Impairment losses recognised Impairment losses reversed |
(45) 19 |
(162) 8 |
| Amounts written off | 55 | 38 |
| Reclassification to Other receivables | 37 | - |
| Reclassification to Assets classified as held for sale | 0 | 14 |
| Impairment losses at 31 December | (244) | (310) |
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 certain specific groups of customers in certain countries in this region. Furthermore, in recent years 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 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 mathematically 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.
| DKK million | 2014 | 2013 |
|---|---|---|
| Prepayments | 750 | 631 |
| Loan to FS Invest S.à r.l | - | 98 |
| Currency swaps | - | 21 |
| Other | 699 | 770 |
| Other receivables | 1,449 | 1,520 |
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, receivable sales price from divestments, contract work in progress, outlay for customers, loans to customers, VAT, etc.
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.
| DKK million | 2014 | 2013 |
|---|---|---|
| Accrued wages, pensions and holiday allowances | 4,540 | 4,675 |
| Tax withholdings, VAT etc. | 2,781 | 2,849 |
| Prepayments from customers | 334 | 407 |
| Other | 2,599 | 2,203 |
| Other liabilities | 10,254 | 10,134 |
Other comprise accrued 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.
Other liabilities are recognised at cost.
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 intangibles 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 following annual impairment tests and divestments. In 2014, intangibles have been reduced by both categories of impairment losses.
ISS has not made any significant acquisitions since 2010, thus in 2014 the note disclosures regarding acquisitions have been excluded due to immateriality. However, 20 January 2015 we announced that we have acquired the UK based GS Hall Plc, a technical services company. The acquisition is further described in note 8.8, Subsequent events.
In 2014, 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 we divested 14 businesses in 2014 including the landscaping activities in France, the commercial security activities in Australia and New Zealand as well as the Nordic temporary labour and staffing activities as the most significant. The divestments support a strategic alignment in the affected countries. Further, as a result of this continuous review of our business platform, sales processes have been initiated for three businesses, and these have been classified as held for sale as per 31 December 2014.
In this section, the following notes are presented:
Businesses which are divested or wound up are recognised in the consolidated financial statements until the date of divestment or winding-up. Comparative figures are not restated. Assets classified as held for sale are presented separately, refer to note 4.2, Disposal groups.
Gains or losses on the divestment or winding-up of subsidiaries, associates or joint ventures are measured as the difference between the consideration received adjusted for related divestment or winding-up costs and the carrying amount of the net assets at the time of disposal or winding-up including any carrying amount of allocated goodwill.
The Group made 14 divestments during 2014 (2013: 14 divestments). The total sales price amounted to DKK 1,688 million (2013: DKK 2,459 million). The total annual revenue of the divested businesses (approximate figures extracted from unaudited financial information) is estimated at DKK 4,620 million (2013: DKK 2,934 million) based on expectations at the time of divestment.
| DKK million | 2014 | 2013 |
|---|---|---|
| Goodwill | 864 | 1,021 |
| Customer contracts | 70 | 210 |
| Other non-current assets | 266 | 193 |
| Trade receivables | 754 | 395 |
| Other current assets | 156 | 48 |
| Provisions | (17) | (57) |
| Pensions, deferred tax liabilities and non-controlling interests | (80) | (79) |
| Loans and borrowings | (8) | (21) |
| Other current liabilities | (741) | (325) |
| Total identifiable net assets | 1,264 | 1,385 |
| Gain/(loss) on divestment of businesses, net 1) | 163 | 758 |
| Divestment costs, net of tax | 261 | 316 |
| Consideration received | 1,688 | 2,459 |
| Cash and cash equivalents in divested businesses | (75) | 3 |
| Cash consideration received | 1,613 | 2,462 |
| Contingent and deferred consideration | (45) | (33) |
| Divestment costs paid, net of tax | (233) | (246) |
| Net proceeds regarding divestment of businesses | 1,335 | 2,183 |
1) In 2014, the gain excluded the loss of DKK 63 million recognised in Other income and expenses, net, on initial classification of the security business in Greece as held for sale. In 2013, the gain excluded the loss of DKK 24 million recognised in Other income and expenses, net, on initial classification of the security business in Israel as held for sale.
The 14 divestments completed by the Group before or at 31 December 2014 are listed below:
| Company/activity | Country | Service type | Excluded from the income statement |
Percentage interest |
Annual revenue 1) (DKK million) |
Number of employees 1) |
|---|---|---|---|---|---|---|
| HiCare | India | Property | January | 100% | 60 | 1,337 |
| HVAC | Belgium | Property | January | Activities | 29 | 18 |
| Security | Israel | Security | February | 100% | 232 | 1,800 |
| Landscaping | France | Property | March | 100% | 2,071 | 2,372 |
| Security | Pacific 2) | Security | April | 100%/Activities | 796 | 1,791 |
| Personnel and Hardware services | Germany | Support | May | 100% | 79 | 411 |
| Hero | Norway | Support | May | 50% 3) | - | 653 |
| Security | Germany | Security | July | Activities | 96 | 160 |
| Aviation | Finland | Support | July | Activities | 56 | 61 |
| Personnel services | Nordic 4) | Support | September | 100% | 792 | 3,052 |
| Security | Greece | Security | October | 100% | 180 | 1,361 |
| Croatia, Bosnia and Herzegovina | Croatia and Bosnia | Country exits | December | 100% | 20 | 304 |
| CVS Security | India | Security | December | Activities | 167 | 5,991 |
| Pest Control | Israel | Property | January 2015 | Activities | 42 | 67 |
| Total | 4,620 | 19,378 |
1) Approximate figures based on information available at the time of divestment extracted from unaudited financial information.
2) Commercial security activities in Australia and New Zealand.
4) Temporary labour and staffing activities in Norway, Sweden and Finland.
3) Equity-accounted investee with an estimated annual revenue (ISS's share) of DKK 206 million.
The Group made no divestments in the period from 1 January to 28 February 2015.
Assuming all divestments in the year were excluded as of 1 January the effect on revenue and operating profit before other items is estimated as follows:
| DKK million | 2014 | 2013 |
|---|---|---|
| Pro forma revenue | ||
| Revenue recognised in the income statement | 74,105 | 78,459 |
| Divestments | (1,315) | (1,515) |
| Pro forma revenue | 72,790 | 76,944 |
| Pro forma operating profit before other items | ||
| Operating profit before other items recognised in the income statement | 4,150 | 4,315 |
| Divestments | (43) | (102) |
| Pro forma operating profit before other items | 4,107 | 4,213 |
For the purpose of estimating pro forma revenue and operating profit before other items, adjustments relating to divestments are based on estimates made by local ISS management in the respective jurisdictions in which the divestments occurred at the time of divestment or actual results where available. The estimates are based on unaudited financial information.
These adjustments and the computation of total revenue and operating profit before other items on a pro forma basis are presented for informational purposes only. This information does not represent the results the Group would have achieved had the divestments during the year occurred on 1 January. In addition, the information should not be used as the basis for or prediction of any annualised calculation.
At 31 December 2014, assets classified as held for sale comprised three businesses in Western Europe and Nordic for which sales processes have been initiated during 2014. The reclassification did not result in recognition of any losses.
At 31 December 2013, assets classified as held for sale comprised six businesses in Western Europe, Nordic, Asia and Pacific. During 2014, all six businesses have been divested. The divestments comprised the landscaping activities in France, the commercial security activities in Australia and New Zealand, the security activities in Israel, the Pest Control activities in India, certain service activities related to asylum centres
in Norway and the temporary labour and staffing activities in Norway. The divestment of the entities classified as held for sale resulted in the recognition of a net gain of DKK 116 million in the income statement of which DKK 130 million was recognised in Other income and expenses, net and DKK 14 million recognised in Goodwill impairment.
In 2014 and 2013, no cumulative income or expenses were recognised in other comprehensive income related to assets classified as held for sale.
| DKK million | 2014 | 2013 |
|---|---|---|
| Goodwill | 198 | 845 |
| Other intangibles | 67 | 65 |
| Property, plant and equipment | 119 | 134 |
| Other financial assets | - | 61 |
| Deferred tax assets | 0 | 42 |
| Inventories | 0 | 15 |
| Trade and other receivables | 88 | 788 |
| Assets classified as held for sale | 472 | 1,950 |
| Loans and borrowings | 15 | 2 |
| Pensions and similar obligations | 6 | 54 |
| Deferred tax liabilities | 8 | 15 |
| Provisions | 1 | 17 |
| Tax payables | 1 | 15 |
| Trade payables and other liabilities | 145 | 913 |
| Liabilities classified as held for sale | 176 | 1,016 |
When classifying non-current assets and disposal groups as held for sale management makes estimates of their fair value (the final sales price and expected costs to sell). Depending on the nature of the non-current assets and disposal group's activity, assets and liabilities, the estimated fair value may be associated with uncertainty and possibly adjusted subsequently. Measurement of the fair value of disposal groups is categorised as Level 3 in the fair value hierarchy as measurement is not based on observable market data.
Management considers intangible assets relating to the disposal groups, taking into consideration how to separate the net assets (including intangible assets) relating to the disposal group from the Group's assets in the continuing business. Impairment of these intangibles both on initial classification as held for sale and subsequently is considered. The estimation uncertainty relating to impairment of intangibles in general is described in note 4.4, Impairment tests.
Assets classified as held for sale comprise non-current assets and disposal groups held for sale. Liabilities classified as held for sale are those directly associated with the assets that will be transferred in the transaction. Assets are classified as held for sale when the carrying amount of the assets is expected to primarily be recovered through a sale within 12 months of the reporting date in accordance with a formal plan rather than through continuing use.
Immediately before classification as held for sale, the assets or disposal groups are remeasured in accordance with the Group's accounting policies. Thereafter generally the assets or disposal groups are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is first allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit assets, which continue to be measured in accordance with the Group's accounting policies. Intangible assets and property, plant and equipment once classified as held for sale are not amortised or depreciated.
Impairment losses on initial classification as held for sale, and subsequent gains and losses on remeasurement are recognised in the income statement. Gains and losses are disclosed in the notes to the consolidated financial statements.
Non-current assets and disposal groups held for sale are presented in separate lines in the statement of financial position and the main elements are specified in the notes to the consolidated financial statements. Comparative figures are not adjusted.
| DKK million | Goodwill | Brands | Customer contracts |
Software and other intangible assets |
Total |
|---|---|---|---|---|---|
| 2014 | |||||
| Cost at 1 January | 26,074 | 1,616 | 9,906 | 1,218 | 38,814 |
| Foreign exchange adjustments | 289 | (1) | 135 | 5 | 428 |
| Additions | 1 | - | - | 238 | 239 |
| Disposals through divestment of businesses | (153) | - | (99) | (4) | (256) |
| Disposals | - | - | - | (22) | (22) |
| Reclassification to Assets classified as held for sale | (249) | - | (113) | (48) | (410) |
| Cost at 31 December | 25,962 | 1,615 | 9,829 | 1,387 | 38,793 |
| Amortisation and impairment losses at 1 January | (2,919) | (26) | (6,745) | (778) | (10,468) |
| Foreign exchange adjustments | 9 | (0) | (88) | 5 | (74) |
| Amortisation | - | - | (586) | (147) | (733) |
| Impairment losses 1) | (448) | - | (2) | - | (450) |
| Disposals through divestment of businesses | 141 | - | 92 | 2 | 235 |
| Disposals | - | - | - | 17 | 17 |
| Reclassification to Assets classified as held for sale | 51 | - | 74 | 20 | 145 |
| Amortisation and impairment losses at 31 December | (3,166) | (26) | (7,255) | (881) | (11,328) |
| Carrying amount at 31 December | 22,796 | 1,589 | 2,574 | 506 | 27,465 |
| 2013 | |||||
| Cost at 1 January | 28,225 | 1,657 | 10,608 | 1,238 | 41,728 |
| Foreign exchange adjustments | (992) | (41) | (403) | (57) | (1,493) |
| Additions | (2) | - | 2 | 175 | 175 |
| Disposals through divestment of businesses | (324) | - | (146) | (46) | (516) |
| Disposals Reclassification to Assets classified as held for sale |
- (833) |
- - |
- (155) |
(53) (39) |
(53) (1,027) |
| Cost at 31 December | 26,074 | 1,616 | 9,906 | 1,218 | 38,814 |
| Amortisation and impairment losses at 1 January | (2,384) | (26) | (6,579) | (770) | (9,759) |
| Foreign exchange adjustments | (8) | (0) | 239 | 35 | 266 |
| Amortisation | - | - | (492) | (151) | (643) |
| Impairment losses 1) | (985) | - | (175) | - | (1,160) |
| Disposals through divestment of businesses | 186 | - | 116 | 31 | 333 |
| Disposals | - | - | - | 42 | 42 |
| Reclassification to Assets classified as held for sale | 272 | - | 146 | 35 | 453 |
| Amortisation and impairment losses at 31 December | (2,919) | (26) | (6,745) | (778) | (10,468) |
| Carrying amount at 31 December | 23,155 | 1,590 | 3,161 | 440 | 28,346 |
1) For a breakdown of impairment losses on goodwill, see note 4.5, Goodwill impairment. Impairment losses on customer contracts in 2014 related to divestment of Croatia, Bosnia and Herzegovina. In 2013, impairment losses on customer contracts identified in impairment tests in France and the Netherlands led to losses of DKK 118 million and DKK 24 million, respectively. Furthermore in 2013, divestments and reclassification as held for sale of non-core activities in certain countries resulted in additional losses of DKK 33 million.
The carrying amount of brands is related to the ISS brand, which is considered to have an indefinite useful life since there is no foreseeable limit to the period over which the brand is expected to generate net cash inflows. Factors that played a significant role in determining that the ISS brand has an indefinite useful life are: i) the ISS brand has existed for decades, ii) the Group's strategy is based on the ISS brand, iii) all acquired brands are converted to or co-branded with the ISS brand and iv) the ISS brand is used in the business-to-business and public segments with low maintenance costs attached.
Goodwill is initially recognised at cost and subsequently at cost less accumulated impairment losses. Goodwill is not amortised.
Acquisition-related brands are recognised at fair value at the acquisition date. Subsequently, acquired brands with indefinite useful lives are measured at historical cost less any accumulated impairment losses. Brands are not amortised.
Acquisition-related customer contracts are recognised at fair value at the acquisition date and subsequently carried at cost less accumulated amortisation and any accumulated impairment losses. The value is amortised based on the churn rate of the acquired portfolio using the declining balance method. The churn rate is calculated on a contract by contract basis and has historically averaged approximately 13% to 14% annually. In exceptional cases the value of customer contracts is amortised on a straight line basis, e.g. based on the legal duration of the acquired contract or other relevant period, if deemed more appropriate.
Software and other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.
The cost of software developed for internal use includes external costs to consultants and software as well as internal direct and indirect costs related to the development. Other development costs for which it cannot be rendered probable that future economic benefits will flow to the Group are recognised in the income statement as and when incurred.
Amortisation is based on the cost of the asset and recognised in the income statement on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives for the current and comparative years are as follows:
| Software | 5-10 years |
|---|---|
| Other intangible assets | 5-10 years |
Amortisation methods and useful lives are reassessed at each reporting date and adjusted if appropriate. When changing the amortisation period due to a change in the useful life, the effect on the amortisation is recognised prospectively as a change in accounting estimates.
Please refer to note 4.4, Impairment tests, for a description of impairment testing of intangible assets.
Impairment tests are carried out per country as this represents the lowest level of cash-generating units (CGUs) to which the carrying amount of intangibles, i.e. goodwill and customer contracts, can be allocated and monitored with any reasonable certainty. This level of allocation and monitoring of intangibles should be seen in the light of the Group's strategy to integrate acquired companies as quickly as possible in order to benefit from synergies.
The recoverable amount of each CGU is determined on the basis of its value-in-use. The value-in-use is established using certain key assumptions as described below. The key assumptions are revenue growth, operating margin and discount rates.
Value-in-use cash flow projections are based on financial budgets approved by management covering the following financial year. The revenue growth and operating margin assumptions applied in the short to medium term are based on management's expectations regarding the growth and operational development considering all relevant factors including past experience and external sources of information where possible and relevant.
When estimating the CGUs' margin development in the short to medium term, past experience as well as the impact from expected efficiency improvements are taken into consideration. Since 2013, we have accelerated our strategy implementation through GREAT, which among other things include customer segmentation, organisational structure, IFS readiness and excellence projects, e.g. our procurement programme and business process outsourcing (BPO). The expected impact of these initiatives are taken into consideration for the relevant CGUs.
Revenue growth projections in the short to medium term for the individual CGUs' are estimated on the basis of expected market development including IFS readiness, impact from Global Corporate Clients' contracts and the macroeconomic environment in general. Past experience is taken into consideration as well as the expected impact from local and Group initiatives, such as GREAT, where especially initiatives on customer segmentation, organisational structure and IFS readiness are assumed to affect growth opportunities.
Terminal growth rates do not exceed the expected long-term average growth rate including inflation for the country in which the CGU operates.
The country specific discount rates, which are calculated net of tax, are generally based on 10-year government bonds of the individual countries. An interest premium is added to adjust for the inconsistency of applying government bonds with a short-term maturity when discounting the estimated future cash flows with infinite maturity.
In previous years, the government bond rates in PIIGS countries contained a material component of credit risk, and thus the country specific interest rates were estimated on the basis of a 20-year German government bond and a 10-year credit default swap. In 2014, the government bond rates seem to have adjusted to a more normalised level. Consequently, the estimation method for discount rates in PIIGS countries is no longer applied.
A target ratio of 30/70 (2013: 30/70) between the market value of debt and equity value has been applied in the calculation. As a company based in Europe, the Group assumes the long-term market equity risk premium to be 6.5% (2013: 5.5%).
Uncertainties reflecting past performance and possible variations in the amount or timing of the projected cash flows are generally reflected in the discount rates. Consequently, a country specific risk premium is added to the discount rates to reflect the specific risk associated with each CGU.
The impairment test as per 31 December 2014 resulted in the recognition of an impairment loss on goodwill in the Netherlands of DKK 420 million due to an update of business plan assumptions.
Intangible assets with an indefinite useful life, i.e. goodwill and the ISS brand, are subject to impairment testing at least annually or when circumstances indicate that the carrying amount may be impaired. The carrying amount of other non-current assets is tested annually for indications of impairment.
If an indication of impairment exists, the recoverable amount of the asset is determined. The recoverable amount is the higher of the fair value of the asset less anticipated costs of disposal and its value-in-use. The value-in-use is calculated as the present value of expected future cash flows from the asset or the cash-generating unit to which the asset belongs.
The carrying amount of goodwill is tested for impairment together with the other non-current assets in the CGU to which goodwill is allocated. Management believes that the value of the ISS brand supports the ISS Group in its entirety rather than any individual CGU. Accordingly, in 2014 the ISS brand was tested for impairment at Group level instead of at CGU level as in prior years. The impairment test is based on group-wide cash flows adjusted for the Group's total goodwill and other non-current assets.
An impairment loss is recognised in the income statement in a separate line if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses are only reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised.
The carrying amount of intangibles, i.e. goodwill and customer contracts, and the key assumptions1) used in the impairment testing as per 31 December are presented below for each CGU representing more than 5%
of the carrying amount of the Group's intangibles or where impairment losses have been incurred during the year.
| Carrying amount | Applied expected long-term rate |
Applied discount rate |
|||||
|---|---|---|---|---|---|---|---|
| DKK million | Goodwill | Customer contracts |
Total intangibles |
Growth | Margin 2) | Net of tax | Pre-tax |
| 2014 | |||||||
| United Kingdom | 2,426 | 382 | 2,808 | 2.5% | 7.2% | 8.3% | 9.9% |
| Finland | 2,197 | 338 | 2,535 | 2.0% | 7.2% | 7.8% | 9.4% |
| France | 2,486 | - | 2,486 | 2.5% | 7.0% | 7.9% | 12.9% |
| Denmark | 1,648 | 128 | 1,776 | 2.0% | 7.6% | 8.5% | 10.5% |
| Norway | 1,429 | 285 | 1,714 | 2.0% | 8.1% | 8.6% | 11.3% |
| Australia | 1,347 | 133 | 1,480 | 3.0% | 6.0% | 9.7% | 12.8% |
| Belgium | 1,309 | 116 | 1,425 | 2.5% | 6.5% | 8.4% | 11.7% |
| Switzerland | 1,258 | 158 | 1,416 | 2.0% | 7.2% | 6.7% | 8.1% |
| Netherlands 3) | 995 | - | 995 | 2.0% | 5.0% | 8.3% | 10.4% |
| Other countries | 7,701 | 1,034 | 8,735 | - | - | - | - |
| Total carrying amount | 22,796 | 2,574 | 25,370 | ||||
| 2013 | |||||||
| France | 2,491 | 179 | 2,670 | 2.5% | 7.0% | 8.7% | 14.3% |
| United Kingdom | 2,343 | 411 | 2,754 | 2.5% | 7.0% | 9.5% | 11.4% |
| Finland | 2,268 | 401 | 2,669 | 2.0% | 7.5% | 8.4% | 10.1% |
| Norway | 1,537 | 337 | 1,874 | 2.0% | 7.1% | 9.7% | 12.8% |
| Denmark | 1,648 | 149 | 1,797 | 2.0% | 7.4% | 8.8% | 10.9% |
| Netherlands 3) | 1,418 | 58 | 1,476 | 2.0% | 7.0% | 9.2% | 11.6% |
| Belgium | 1,312 | 133 | 1,445 | 2.5% | 6.5% | 9.2% | 13.0% |
| Switzerland | 1,237 | 168 | 1,405 | 2.0% | 7.0% | 6.8% | 8.2% |
| Australia | 1,294 | 147 | 1,441 | 3.0% | 6.0% | 10.8% | 14.2% |
| Sweden | 1,175 | 120 | 1,295 | 2.0% | 7.4% | 9.3% | 11.6% |
| Other countries | 6,432 | 1,058 | 7,490 | - | - | - | - |
| Total carrying amount | 23,155 | 3,161 | 26,316 |
1) The key assumptions applied in the impairment tests are used for accounting purposes and should not be considered a forward-looking statement within the meaning of the US Private Securities Litigation Act of 1995 and similar laws in other countries regarding expectations to the future development.
2) Excluding corporate costs.
3) The recoverable amount of the CGU is estimated at DKK 0.8 billion at 31 December 2014 (2013: DKK 1.3 billion), which equals the carrying amount of the CGU's net assets. Net assets comprise total intangible assets reduced by other net assets, which are negative at 31 December 2014.
In performing the impairment test management makes an assessment of whether the CGU to which the intangibles relate will be able to generate positive net cash flows sufficient to support the value of intangibles and other net assets of the entity.
This assessment is based on estimates of expected future cash flows (value-in-use) made on the basis of financial budgets for the following financial year and estimated discount rates, growth and margin development. The procedure is described in detail in "Estimates used to measure recoverable amount" above. During recent years volatility in risk free interest rates has increased which generally has increased the estimation uncertainty.
A sensitivity analysis on the key assumptions in the impairment testing is presented below. The allowed change represents the percentage points by which the value assigned to the key assumption as applied in the expected long-term rate can change, all other things being equal, before the CGU's recoverable amount equals its carrying amount.
| Growth | Margin | Discount rate, net of tax | |||||
|---|---|---|---|---|---|---|---|
| Applied expected long-term rate |
Allowed decrease |
Applied expected long-term rate |
Allowed decrease |
Applied expected long-term rate |
Allowed increase |
||
| 2014 | |||||||
| United Kingdom | 2.5% | >2.5% | 7.2% | >3.0% | 8.3% | >3.0% | |
| Finland | 2.0% | >2.0% | 7.2% | 2.1% | 7.8% | 2.3% | |
| France 1) | 2.5% | 1.2% | 7.0% | 1.4% | 7.9% | 1.0% | |
| Denmark | 2.0% | >2.0% | 7.6% | 2.2% | 8.5% | 2.6% | |
| Norway | 2.0% | >2.0% | 8.1% | >3.0% | 8.6% | >3.0% | |
| Australia | 3.0% | 2.5% | 6.0% | 1.7% | 9.7% | 2.2% | |
| Belgium | 2.5% | 0.9% | 6.5% | 0.9% | 8.4% | 0.9% | |
| Switzerland | 2.0% | >2.0% | 7.2% | >3.0% | 6.7% | >3.0% | |
| Netherlands | 2.0% | 0.0% | 5.0% | 0.0% | 8.3% | 0.0% | |
| 2013 | |||||||
| France | 2.5% | 0.0% | 7.0% | 0.0% | 8.7% | 0.0% | |
| United Kingdom | 2.5% | >2.5% | 7.0% | >3.0% | 9.5% | >3.0% | |
| Finland | 2.0% | >2.0% | 7.5% | 2.3% | 8.4% | 2.8% | |
| Norway | 2.0% | >2.0% | 7.1% | >3.0% | 9.7% | >3.0% | |
| Denmark | 2.0% | 1.6% | 7.4% | 1.5% | 8.8% | 1.7% | |
| Netherlands | 2.0% | 0.0% | 7.0% | 0.0% | 9.2% | 0.0% | |
| Belgium | 2.5% | 0.5% | 6.5% | 0.6% | 9.2% | 0.4% | |
| Switzerland | 2.0% | >2.0% | 7.0% | >3.0% | 6.8% | >3.0% | |
| Australia | 3.0% | 0.7% | 6.0% | 1.4% | 10.8% | 0.5% | |
| Sweden | 2.0% | >2.0% | 7.4% | >3.0% | 9.3% | >3.0% |
1) The French tax credit CICE is currently enacted until 31 December 2016. The estimated recoverable amount for France assumes prolongation of the CICE or replacement by a new arrangement with a similar financial impact. CICE has a significant positive impact on the forecasted operating margins. Consequently, if the CICE is not replaced or prolonged, it would result in a change in the estimated recoverable amount, all other things being equal.
| DKK million | 2014 | 2013 |
|---|---|---|
| Impairment losses identified in impairment tests Impairment losses derived from divestment of businesses |
420 28 |
500 485 |
| Goodwill impairment | 448 | 985 |
Impairment losses identified in impairment tests related to the Netherlands, as described in note 4.4, Impairment tests. In 2013, impairment losses of DKK 400 million related to France due to an update of business plan assumptions and DKK 100 million related to the Netherlands due to an update of business plan assumptions as well as an increase in the discount rate.
Impairment losses derived from divestment of businesses mainly related to the divestment of the landscaping activities in France of DKK 14 million and the combined businesses in Croatia and Bosnia of DKK 9 million. In 2013, impairment losses mainly related to the divestment of the security activities in the Netherlands of DKK 81 million, the industrial cleaning services in Italy of DKK 41 million and certain landscaping activities in the USA of DKK 30 million. Furthermore, remeasurement of businesses classified as held for sale resulted in impairment losses amounting to DKK 283 million stemming from the security activities in Australia and New Zealand, DKK 133 million, the landscaping activities in France, DKK 92 million, and the security activities in Israel, DKK 58 million. These have subsequently been sold in 2014.
The listing of the ISS shares in March 2014 allowed us to refinance and repay our pre-IPO debt leading to a significantly improved financial leverage and capital structure for the Group. At 31 December 2014, the net debt was reduced to DKK 12,647 million (2013: DKK 22,651 million) and the equity ratio was 27.6% compared to 8.7% in 2013, which also led to a reduction of the liquidity and interest rate risk of the Group.
The deleveraging resulted in ISS being upgraded to investment grade by both Standard and Poor's and Moody's. Our objective is to maintain an investment grade financial profile, and the target is to reduce our financial leverage from currently 2.6x to below 2.5x pro forma adjusted EBITDA.
In this section, the following notes are presented:
Standard & Poor's BBB- Stable Outlook Moody's Baa3 Stable Outlook
Borrower ISS Global A/S Standard & Poor's BBB- Stable Outlook Moody's Baa3 Stable Outlook
ISS Global A/S 1.125% Medium Term Notes 2020 Issuer ISS Global A/S
Standard & Poor's BBB- Stable Outlook Moody's Baa3 Stable Outlook
Standard & Poor's BBB- Stable Outlook Moody's Baa3 Stable Outlook
Following the IPO, the full exercise of the overallotment option and subsequent sell-down of shares, FS Invest II S.à r.l owns 19% of ISS's share capital while ISS A/S and Management hold 1%.
| 2014 | 2013 | ||||
|---|---|---|---|---|---|
| Nominal value | Number of shares | Nominal value | Number of shares | ||
| (DKK million) | (in thousands) | (DKK million) | (in thousands) | ||
| Share capital at 1 January | 135 | 135,443 | 135 | 135,443 | |
| Issued for cash | 50 | 50,225 | - | - | |
| Share capital at 31 December – fully paid | 185 | 185,668 | 135 | 135,443 |
Issue of shares The completion of the IPO in March 2014 resulted in 50,224,907 ordinary shares being issued by ISS A/S raising gross proceeds of DKK 8,036 million.
At 31 December 2014, a total of 185,668,226 shares with a nominal value of DKK 1 per share were issued and fully paid (2013: 135,443,319 shares). No shares carry special rights. At 31 December 2014, all shares were freely transferable.
| Treasury shares | Nominal value (DKK million) |
Number of shares (in thousands) |
Purchase price (DKK million) |
% of share capital |
|---|---|---|---|---|
| Acquisition of treasury shares | 1,000 | 1,000 | 160 | 0.5 |
| Treasury shares at 31 December 2014 | 1,000 | 1,000 | 160 | 0.5 |
The fair value of treasury shares was 178 million at 31 December 2014.
At the annual general meeting to be held on 15 April 2015, the Board of Directors will propose dividends for 2014 of DKK 4.90 per share of DKK 1, equivalent to DKK 910 million (2013: DKK 0 million) and a pay-out ratio of approximately 50% of Profit before goodwill impairment and amortisation/impairment of brands and customer contracts.
The Group monitors the capital structure and evaluates the need for adjustments on an ongoing basis. The Group's objectives for managing capital and what is managed as capital are described in note 5.4, Liquidity risk. The dividend policy and payment of dividends is made subject to the necessary consolidation of equity and the Group's continuing expansion and profitability.
The Group seeks to reduce the financial leverage on a multiple basis in terms of net debt to pro forma adjusted EBITDA. ISS is targeting a leverage below 2.5x. In 2014, we entered into a new senior facility agreement and thereby improved the capital structure significantly. As a result net debt was reduced to DKK 12,647 million (2013: DKK 22,651 million), see note 5.2, Loans and borrowings. Furthermore, financial leverage measured as net debt to pro forma adjusted EBITDA was reduced to 2.6x (2013: 4.5x). The development in financial leverage is illustrated in Financial review on page 17.
ISS A/S (the Group's parent) is a holding company, and its primary assets are shares in ISS World Services A/S. ISS A/S has no revenue generating operations of its own, and therefore ISS A/S's cash flow will primarily depend on the operating performance and financial condition of ISS World Services A/S and its operating subsidiaries, and the receipt by ISS A/S of funds from ISS World Services A/S and its subsidiaries.
Retained earnings is the Group's free reserves, which includes share premium. Share premium comprises amounts above the nominal share capital paid by shareholders when shares are issued by ISS A/S.
Translation reserve comprises all foreign exchange differences arising 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 statement under the same line item as the gain or loss.
Hedging reserve comprises the effective portion of the cumulative net change after tax in the fair value of cash flow hedging instruments which fulfil the criteria for hedging of future cash flows, when the hedged transactions have not yet occurred.
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.
Treasury shares Proceeds from purchase and sale of treasury shares are recognised in equity. Reserve for treasury shares therefore includes the cost of ISS A/S's stock of treasury shares reduced by received dividends, if any.
| DKK million | 2014 | 2013 |
|---|---|---|
| Issued bonds | 8,870 | 2,703 |
| Bank loans | 7,143 | 20,386 |
| Finance lease liabilities | 151 | 150 |
| Securitisation | - | 2,760 |
| Derivatives | 61 | 65 |
| Total | 16,225 | 26,064 |
| Non-current liabilities | 14,887 | 20,416 |
| Current liabilities | 1,338 | 5,648 |
| Loans and borrowings | 16,225 | 26,064 |
| Cash and cash equivalents and other financial items 1) | (3,578) | (3,413) |
| Net debt | 12,647 | 22,651 |
1) Includes securities of DKK 21 million (2013: DKK 17 million). In 2013, the positive fair value of currency swaps of DKK 21 million and the loan to FS Invest S.à r.l of DKK 98 million was also included.
Following the completion of the IPO in March 2014, ISS refinanced its pre-IPO debt. Proceeds from the IPO and a new unsecured senior facility agreement were used to repay the senior secured facilities, redeem the remaining outstanding Senior Subordinated Notes due 2016 and repay the securitisation programme. Finally, the 4.5% EMTNs due December 2014 were repaid at maturity.
In November 2014, a new EMTN programme of EUR 2 billion was established and proceeds of EUR 1.2 billion from the two bonds issued were used to repay the part of the new unsecured senior facilities with the shortest maturity (Term Loan A).
As a result, the new financing consists of the unsecured senior facilities and the two bonds issued under the new EMTN programme. The IPO and refinancings leave ISS with a net debt of DKK 12,647 million and no short-term maturities. The terms and maturities of the 2014 facilities and comparative figures are illustrated in note 5.6, Interest rate risk.
The impact on the income statement of the refinancings is shown in note 5.8, Financial income and financial expenses.
EMTNs ISS Global A/S has issued EUR 700 million of 1.125% senior unsecured Medium Term Notes maturing 2020 and EUR 500 million of 2.125% senior unsecured Medium Term Notes maturing 2024.
Senior facilities ISS A/S and its subsidiaries are borrowers under the senior unsecured facilities consisting of a term facility of EUR 800 million (Term Loan B) and a revolving credit facility of EUR 850 million. Term Loan B and the revolving credit facility were priced at a margin grid that reflects the Group's leverage. The initial margin on Term Loan B and the revolving credit facility was 150 basis points. The margin will decrease to 1.25% if leverage is below 3.0x and to 1.00% if leverage is below 2.5x. The facilities mature in 2019 and include customary loan covenant clauses. The senior lenders comprise ten relationship banks and KIRKBI. At 31 December 2014, ISS had Senior Facilities of DKK 12.3 billion under which DKK 7.1 billion was drawn and DKK 0.2 billion was allocated to support performance bonds issued by operating subsidiaries.
Other credit facilities ISS had DKK 0.7 billion of other credit facilities as of 31 December 2014. Such facilities comprise mainly other local credit facilities and finance leases, which are not part of the Senior Facilities.
The fair value of loans and borrowings amounted to DKK 16,463 million (2013: DKK 26,333 million). For issued bonds the fair value is based on the quoted market price on the Luxembourg Stock Exchange. Measurement of the fair value is categorised as Level 1 in the fair value hierarchy.
The fair value of derivatives is determined based on observable market data using generally accepted methods taking into account both ISS's and the counterparties' credit risk. The fair value of interest rate swaps is based on market rates for yield curves and categorised as Level 2 in the fair value hierarchy. The method is unchanged compared with 2013. For the remaining part of loans and borrowings fair value is equal to the nominal value as illustrated in note 5.6, Interest rate risk.
In 2014, financing fees amounting to DKK 275 million (2013: DKK 193 million) have been recognised in loans and borrowings while financing fees of DKK 299 million (2013: DKK 175 million) have been amortised and recognised in financial expenses. Accumulated financing fees recognised in loans and borrowings on 31 December 2014 amounted to DKK 164 million (2013: DKK 188 million).
Financial liabilities are recognised at the date of borrowing at fair value less related transaction costs paid. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. Any difference between the proceeds initially received and the nominal value is recognised in the income statement under Financial expenses over the term of the loan. Financial liabilities also include the capitalised residual obligation on finance leases, which are measured at amortised cost.
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 group financial policy and the treasury policy. The financial policy and the treasury policy are reviewed annually and approved by the Board.
It is not the Group's policy to take speculative positions in the financial markets. The Group's financial risk management is focused on managing risks arising from the Group's operating and financing activities, mainly by use of interest rate instruments and currency instruments 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:
The Group has not identified additional financial risk exposures in 2014 compared to 2013, and the approach to capital management and risk management activities is unchanged compared with 2013.
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 interest 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 note 2.2, Translation and operational currency risk.
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.
Liquidity risk results from the Group's potential inability or difficulty in meeting the contractual obligations associated with its financial liabilities due to insufficient liquidity. Raising capital is managed centrally by Group Treasury. The purpose is to ensure efficient liquidity management, which mainly comprise ensuring that adequate liquidity is available to the Group. Group Treasury mitigates liquidity risk by obtaining borrowing facilities with highly rated financial institutions, via issued bonds, bank loans and effective working capital management.
For day-to-day liquidity management cash pools have been established in several local entities. The key principle is that liquidity is transferred to and from ISS Global A/S, which operates as the internal bank of the Group.
The Group's liquidity reserves mainly consist of liquid funds (cash and cash equivalents less not readily available or restricted cash) and unused credit facilities. As at 31 December 2014, the Group's liquid reserves consisted of readily available liquid funds of DKK 3,529 million (2013: DKK 3,113 million) and unused revolving credit facilities of DKK 5,030 million (2013: DKK 2,970 million) where the majority is available for drawing until 19 February 2019. It is the Group's policy to maintain an appropriate level of liquid reserves. In 2014, DKK 28 million (2013: DKK 31 million) of the total cash position at 31 December 2014 was placed on blocked or restricted bank accounts due to legal circumstances.
The bank loans are subject to customary undertakings, covenants (including financial covenants) and other restrictions. Financial covenants comprise: i) Debt cover and ii) Interest cover. The financial covenants are calculated on a last-twelve-months basis and reported bi-annually. In the event of a default under those agreements, the debt incurred including accrued interest could be declared immediately due and payable. In 2014, all covenants have been complied with.
The contractual maturities of financial liabilities, based on undiscounted contractual cash flows, are shown below. The undiscounted contractual cash flows include expected interest payments, estimated based on market expectations at the reporting date.
The risk implied from the values in the maturity table below reflects the one-sided scenario of cash outflows only. Trade payables and other financial liabilities mainly originate from the financing of assets such as property, plant and equipment and investments in working capital, e.g. trade and other receivables.
| DKK million | Carrying amount |
Contractual cash flows |
< 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | > 5 years |
|---|---|---|---|---|---|---|---|---|
| 2014 | ||||||||
| Loans and borrowings | 16,225 | 17,830 | 1,661 | 248 | 239 | 232 | 6,122 | 9,328 |
| Trade payables and other financial liabilities | 3,825 | 3,840 | 3,752 | 85 | 1 | 2 | - | - |
| Total financial liabilities | 20,050 | 21,670 | 5,413 | 333 | 240 | 234 | 6,122 | 9,328 |
| Hereof estimated interest payments | - | 1,454 | 278 | 211 | 209 | 216 | 150 | 390 |
| Hereof derivative financial liabilities | 61 | 61 | 61 | - | - | - | - | - |
| 2013 | ||||||||
| Loans and borrowings | 26,064 | 30,490 | 6,797 | 2,612 | 3,373 | 1,473 | 16,232 | 3 |
| Trade payables and other financial liabilities | 3,791 | 3,814 | 3,700 | 24 | 87 | 3 | - | - |
| Total financial liabilities | 29,855 | 34,304 | 10,497 | 2,636 | 3,460 | 1,476 | 16,232 | 3 |
| Hereof estimated interest payments | - | 4,241 | 1,085 | 968 | 923 | 943 | 322 | 0 |
| Hereof derivative financial liabilities | 65 | 65 | 57 | 8 | - | - | - | - |
The maturity profile of the Group's current financing, i.e. issued bonds and bank loans, is illustrated below together with the profile of the pre-IPO financing.
1) Based on nominal values including any undrawn amounts and excluding interest payments.
Currency risk is the risk that arises from changes in exchange rates and affects the Group's result or value of financial instruments.
To a limited extent the Group is exposed to currency risk on loans and borrowings (external) that are denominated in currencies other than the functional currency of the reporting entities as well as intercompany loans from the parent company to foreign subsidiaries as these are typically denominated in the functional currency of the subsidiary.
The Group's overall policy is to fully hedge any foreign exchange exposure towards DKK or towards EUR to the extent that the net exposure exceeds DKK 5 million. However, some currencies cannot be hedged within a reasonable price range, e.g. IDR, ISK, BRL and TRY, and are therefore not hedged. Correlation between certain currencies, e.g. USD and Asian or Latin American currencies, are taken into account and USD proxy hedges are applied in cases where deemed appropriate. Based on a risk assessment Group Treasury may choose not to hedge the risk exposure towards EUR. It is the Group's policy not to hedge intercompany royalties until they become a monetary receivable.
The Group holds a number of investments in foreign subsidiaries where the translation of net assets to DKK is exposed to currency risk. It is not Group policy to hedge the currency exposure on foreign investments.
The Group uses currency swaps to hedge the exposure to currency risk related to loans and borrowings as well as intercompany loans from the parent company to foreign subsidiaries. All hedging is conducted at Group level. Group Treasury measures the Group's total currency exposure of all loans and borrowings, intercompany balances and cash and
cash equivalents in different currencies on a weekly basis in order to evaluate the need for hedging currency positions. As fair value adjustments of both the hedged item and the derivative financial instrument are recognised in the income statement, hedge accounting in accordance with IAS 39 is not applied. Consequently, currency swaps are not presented in this or other notes to the consolidated financial statements.
The Group's loans and borrowings (external) are denominated in the following currencies (excluding impact from currency swaps):
| 2014 | 2013 | |
|---|---|---|
| EUR | 91.3% | 78.2% |
| CHF | 5.4% | 0.1% |
| USD | 0.1% | 7.2% |
| GBP | 0.5% | 6.2% |
| Others | 2.7% | 8.3% |
| Total | 100.0% | 100.0% |
Fluctuations in foreign exchange rates will affect the value of loans and borrowings (external) as well as the income statement as funding is obtained in various currencies. In 2014, changes in foreign exchange rates related to loans and borrowings resulted in a loss of DKK 207 million (2013: gain of DKK 134 million), which was almost offset by the effect of currency swaps. The primary impact is derived from loans and borrowings in GBP and USD which appreciated through 2014.
Based on the Group's internal monitoring processes, it is estimated that a change in relevant foreign exchange rates would have increased/ (decreased) profit for the year 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 and that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases.
| Sensitivity | |||||||
|---|---|---|---|---|---|---|---|
| DKK million | Net debt exposure (nominal value) |
Cash flow hedges (carrying amount) |
Currency swaps (contractual value) |
Total exposure |
Increase in foreign ex change rates |
Profit for the year |
Other com prehensive income |
| 2014 | |||||||
| EUR/DKK | (10,182) | (12) | 3,483 | (6,711) | 1% | (67) | (67) |
| GBP/DKK | (614) | - | 609 | (5) | 10% | (1) | (1) |
| NOK/DKK | (105) | - | 111 | 6 | 10% | 1 | 1 |
| SEK/DKK | 153 | - | (151) | 2 | 10% | 0 | 0 |
| CHF/DKK | (1,063) | - | 1,061 | (2) | 10% | (0) | (0) |
| USD/DKK | 619 | - | (1,128) | (509) | 10% | (51) | (51) |
| AUD/DKK | 618 | - | (616) | 2 | 10% | 0 | 0 |
| EUR/TRY | (334) | - | - | (334) | 10% | (33) | (33) |
| Other/DKK | 1,019 | - | (608) | 411 | 10% | 41 | 41 |
| Total | (9,889) | (12) | 2,761 | (7,140) | |||
| 2013 | |||||||
| EUR/DKK | (13,042) | (52) | 1,459 | (11,635) | 1% | (116) | (116) |
| GBP/DKK | (2,079) | - | 2,069 | (10) | 10% | (1) | (1) |
| NOK/DKK | (113) | - | 131 | 18 | 5% | 1 | 1 |
| SEK/DKK | 112 | - | (109) | 3 | 5% | 0 | 0 |
| CHF/DKK | (254) | - | 259 | 5 | 5% | 0 | 0 |
| USD/DKK | (1,504) | - | 583 | (921) | 10% | (92) | (92) |
| AUD/DKK | 392 | - | (384) | 8 | 10% | 1 | 1 |
| EUR/TRY | (334) | - | - | (334) | 10% | (33) | (33) |
| Other/DKK | 1,612 | - | (850) | 762 | 10% | 76 | 76 |
| Total | (15,210) | (52) | 3,158 | (12,104) |
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments, primarily bank loans and issued bonds. The Group's exposure towards interest rates is illustrated below, where a breakdown of the Group's loans and borrowings in floating and fixed rates is provided. The interest rate exposure to floating interest rates is primarily in EUR.
It is Group policy to hedge the risk related to changes in interest rates via interest rate swaps, refer to note 5.7, Derivatives. Additionally, it is the
Group's policy to ensure a predefined amount of debt to fixed interest rates to avoid adverse movements in floating rates and interest expenses.
According to the Group's treasury policy at least 50% of the Group's total bank loans and issued bonds must carry fixed interest rates. At least on a monthly basis Group Treasury measures the balance between fixed and variable interest rates to ensure compliance with the policy. As per 31 December 2014, 55% of the Group's bank loans and bonds carried fixed interest rates.
| DKK million | Nominal interest rate |
Average effective interest rate |
Currency | Year of maturity |
Nominal value |
Amount hedged |
Carrying amount |
|---|---|---|---|---|---|---|---|
| 2014 | |||||||
| Issued bonds (fixed interest rate): | |||||||
| EMTNs | 1.125% | 1.13% | EUR | 2020 | 5,210 | - | 5,174 |
| EMTNs | 2.125% | 2.14% | EUR | 2024 | 3,722 | - | 3,696 |
| 8,932 | - | 8,870 | |||||
| Bank loans (floating interest rate): | |||||||
| Senior Facilities 1): | |||||||
| Term Facility B | Euribor + 1.50% | 1.70% | EUR | 2019 | 5,162 | 4,828 | 5,113 |
| Term Facility B | Libor + 1.50% | 1.51% | CHF | 2019 | 805 | - | 805 |
| Revolving Credit Facility | Libor + 1.50% | - Multi currency | 2019 | 1,115 | 382 | 1,062 | |
| Bank loans and overdrafts | - | - Multi currency | - | 163 | - | 163 | |
| 7,245 | 5,210 | 7,143 | |||||
| 2013 | |||||||
| Issued bonds (fixed interest rate): | |||||||
| Subordinated Notes | 8.875% | 8.96% | EUR | 2016 | 1,914 | - | 1,898 |
| EMTNs | 4.50% | 4.67% | EUR | 2014 | 824 | - | 805 |
| 2,738 | - | 2,703 | |||||
| Bank loans and securitisation (floating interest rate): | |||||||
| Pre-IPO Senior Facilities: | |||||||
| Term Facility A | Euribor + 3.50% | 3.72% | EUR | 2018 | 2,448 | 2,239 | 2,435 |
| Term Facility B | Libor + 3.50% | 3.74% | EUR, GBP | 2015 | 1,040 | - | 1,035 |
| Term Facility B | Libor + 4.00% | 4.33% | EUR, GBP | 2018 | 11,032 | 9,325 | 10,918 |
| Term Facility B | Libor + 2.75% | 3.81% | USD | 2018 | 1,885 | - | 1,866 |
| Acquisition Facility B | Euribor + 4.00% | 4.17% | EUR | 2018 | 1,839 | 1,492 | 1,830 |
| Revolving Credit Facility | Libor + 3.75% | - Multi currency | 2014 | 243 | - | 243 | |
| Revolving Credit Facility | Libor + 4.00% | - Multi currency | 2017 | 1,257 | - | 1,257 | |
| Letter of Credit Facility | Libor + 3.75% | - Multi currency | 2014/17 | 74 | - | 74 | |
| Bank loans and overdrafts | - | - Multi currency | - | 728 | - | 728 | |
| Securitisation | Libor + 2.50% | 2.77% | Multi currency | 2015 | 2,773 | - | 2,760 |
| 23,319 | 13,056 | 23,146 |
1) The senior facilities include a margin grid where the margin is dependent on the Group's leverage. The margin will decrease to 1.25% if leverage is below 3.0x and to 1.00% if leverage is below 2.5x.
The interest rate risk is measured by the duration of the net debt (fixedrate period). As at 31 December 2014, the duration of net debt was approximately 5.1 years (2013: 0.9 years).
comprehensive income by the amounts shown below. The estimate is based on net debt and is not adjusted for the effect of hedging instruments as per 31 December 2014 as these instruments mature in March 2015. At 31 December 2013, the estimate was based on net debt adjusted for the effect of hedging instruments. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
It is estimated that a general increase in relevant interest rates of 1%-point would have increased/(decreased) profit for the year and other
| 2013 | ||||
|---|---|---|---|---|
| DKK million | Profit for the year | Other comprehensive income |
Profit for the year | Other comprehensive income |
| Loans and borrowings Derivatives, interest rate swaps |
(24) - |
(24) - |
(71) - |
(71) 117 |
The Group uses interest rate swaps and currency swaps to hedge the exposure to interest and currency risks arising from the Group's operating and financing activities. As hedge accounting is not applied for currency swaps these are not presented separately in this or other notes. The exposure to and Group policy for managing currency risk is explained in note 5.5, Currency risk.
The Group uses interest rate swaps to hedge the exposure to variability in future cash flows due to changes in interest rates on the Group's bank loans with a variable interest rate. The swaps convert a major part of the floating rates within the bank loans to fixed interest rates.
Total cash flow hedges at the reporting date are presented below:
| DKK million | Contractual value | Negative fair value at 31 December |
Recognised in other comprehensive income for the year |
Expected recognition in the income statement |
|---|---|---|---|---|
| 31 December 2014 | 7,444 | (12) | 3 | Q1 2015 |
| 31 December 2013 | 13,056 | (52) | 84 | 2014-2015 |
The fair value of cash flow hedges, net, recognised in other comprehensive income for the year, amounted to DKK 3 million (2013: DKK 84 million) and included DKK (31) million (2013: DKK 24 million) related to interest rate adjustments following settlement of interest rate swaps.
In 2014, DKK 6 million were recognised in the income statement as the underlying loan was repaid. No ineffectiveness was recognised in the income statement (2013: no ineffectiveness).
Derivatives are recognised in the statement of financial position on the transaction date and measured at fair value. Positive and negative fair values are recognised in Other receivables or Loans and borrowings, respectively, and are only offset when the Group has the legal right and the intention to settle several financial instruments net.
Changes in fair value of derivatives designated as and qualifying for recognition as cash flow hedge, and which effectively hedges changes in the value of the hedged item, are recognised in other comprehensive income and presented in a separate hedging reserve in equity until the hedged transaction is realised. At this time, gains or losses concerning such hedging transactions are transferred from other comprehensive income to the income statement and recognised under the same line item as the hedged item.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The accumulated change in fair value recognised in other comprehensive income is transferred to the income statement in the same period that the hedged item affects the income statement. If the forecasted transaction is no longer expected to occur, then the accumulated change in fair value is transferred to the income statement.
For other derivative financial instruments that do not qualify for hedge accounting, changes in fair value are recognised in the income statement under Financial income or Financial expenses.
| DKK million | 2014 | 2013 |
|---|---|---|
| Interest income on cash and cash equivalents | 143 | 134 |
| Foreign exchange gains | 160 | 42 |
| Financial income | 303 | 176 |
| Interest expenses on loans and borrowings | (914) | (1,731) |
| Amortisation of financing fees | (57) | (64) |
| Refinancing | (242) | (141) |
| Other bank fees | (98) | (99) |
| Net change in fair value of cash flow hedges | (23) | (80) |
| Net interest on defined benefit obligations | (26) | (33) |
| Foreign exchange losses | (239) | (298) |
| Financial expenses | (1,599) | (2,446) |
Foreign exchange gains and losses mainly related to exchange rate movements on intercompany loans from the parent company to foreign subsidiaries as well as on external loans and borrowings denominated in currencies other than DKK. In addition, fair value adjustments of currency swaps were included.
Interest expenses on loans and borrowings The refinancing of the pre-IPO debt as well as the lower average net debt during 2014 reduced interest expenses compared to 2013.
Amortisation of financing fees At the date of borrowing financing fees are recognised as part of loans and borrowings. Subsequently, financing fees are amortised over the term of the loan and recognised in financial expenses. Amortisation of financing fees are non-cash expenses.
Refinancing The refinancings carried out during 2014 resulted in noncash unamortised financing fees being expensed related to the pre-IPO senior secured facilities, DKK 152 million, the Senior Subordinated Notes, DKK 12 million, the securitisation programme, DKK 9 million and Term Loan A of the new unsecured senior facilities, DKK 69 million. In 2013, costs of DKK 89 million related to the amendment and extension of the pre-IPO senior secured facilities and the refinancing of the Second Lien Facility and additional DKK 52 million, including a call premium of DKK 30 million, related to the partial redemption of the Senior Subordinated Notes.
In connection with the IPO, the incentive plans for the EGM, the GMB and certain other senior officers were redesigned. The incentive plans were designed to create alignment of the interests of the EGM and other employees in key positions with the interests of the shareholders as well as to strike a balance between the short-term and long-term focus of the incentive plans. Two long-term share-based incentive programmes were implemented; a Long-Term Incentive Programme and a Transition Share Programme.
In this section, the following notes are presented:
The Group Management Board (the GMB) comprise the Executive Group Management Board (the EGM) and Corporate Senior Officers of the Group. Members of the GMB have authority and responsibility for planning, implementing and controlling the Group's activities and are together with the Board of Directors (the Board) considered as the Group's key management personnel.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| The GMB | The GMB | |||||
| DKK thousand | The Board | The EGM | Corporate Senior Officers |
The Board | The EGM | Corporate Senior Officers |
| Base salary and non-monetary benefits | 5,713 | 27,762 | 41,749 | 2,930 | 19,678 | 35,898 |
| Annual bonus | - | 14,561 | 19,805 | - | 12,091 | 18,054 |
| Bonus related to the IPO 1) | - | 17,859 | 14,538 | - | - | - |
| Share-based payments | - | 10,868 | 12,574 | - | - | - |
| Total remuneration | 5,713 | 71,050 | 88,666 | 2,930 | 31,769 | 53,952 |
1) DKK 26 million was recognised in Other income and expenses, net and DKK 6 million was recognised in equity.
Members of the Board (except representatives of EQT, GSCP and OTPP) received remuneration for duties performed in ISS A/S and other companies within the ISS Group based on a fixed fee. Customary expenses are reimbursed by ISS.
The members of the EGM and the GMB received remuneration for duties performed in ISS A/S and other companies within the ISS Group based on a combination of fixed salary, non-monetary benefits in accordance with market standards and a performance-based annual bonus of up to 60% of their annual base salary, which in the event of overachievement can reach 90%. The bonus is subject to achieving performance targets for the Group's financial KPIs; organic growth, operating margin and cash conversion; and non-financial KPIs; employee engagement, customer experience and health and safety. Two thirds of the bonus is paid out in cash the following year, while one third is settled in restricted share
units. Of these, 50% are converted into shares after one year and 50% are converted into shares after two years.
The EGM and the GMB participate in two share-based incentive schemes; a Long-Term Incentive Programme (LTIP) and a Transition Share Programme (TSP) as described in note 6.2, Share-based payments. Members of the Board do not participate in any incentive schemes.
All employment contracts of the EGM and the GMB members are considered in line with market practice in comparable listed companies.
The remuneration policy is described in detail in the Remuneration report on pages 75-79.
The Group has implemented two share-based incentive programmes in March 2014 following the IPO; a transition share programme (TSP) (one-time grant) and a Long-Term Incentive Programme (LTIP). Both programmes are equity-settled.
Transition share programme (TSP) Following the IPO, members of the EGM, the GMB and certain other senior officers of the Group, were granted a number of PSUs. Upon vesting, each PSU entitles the holder to receive one share at no cost.
The programme will vest over a two-year period with a maximum of 50% on the date of the first and second anniversary of the grant, respectively. Full or partial vesting of the PSUs is subject to achievement of the non-individual criteria of the annual bonus plans for 2014 and 2015, respectively, as shown below.
| Measure | Weighting |
|---|---|
| Organic growth | 27.8% |
| EBITA margin | 27.8% |
| Cash conversion | 27.8% |
| Employee engagement | 6.7% |
| Customer experience | 6.7% |
| Health and safety | 3.2% |
Long-Term Incentive Programme (LTIP) Following the IPO, members of the EGM, the GMB and certain other senior officers of the Group, were granted a number of PSUs. Upon vesting, each PSU entitles the holder to receive one share at no cost.
The programme will vest on the date of the third anniversary of the grant. Full or partial vesting of the PSUs is subject to achievement of targets for earnings per share (EPS) and total shareholder return (TSR) benchmarked against a peer group of Danish listed companies and a peer group of international service companies as further described in the Remuneration report on page 75.
The value of services received in exchange for granted performance-based share units (PSUs) is measured at fair value at the grant date and recognised in the income statement under staff costs over the vesting period with a corresponding increase in equity.
The fair value of granted PSUs is measured using a generally accepted valuation model taking into consideration the terms and conditions upon which the PSUs were granted including market-based vesting conditions (TSR condition).
On initial recognition, an estimate is made of the number of PSUs expected to vest. The estimated number is subsequently revised for changes in the number of PSUs expected to vest due to non-market based vesting conditions.
| Vesting 1) | Criteria for EPS 2) | Criteria TSR 2) |
|---|---|---|
| No vesting | EPS grows below 12% annually | ISS performs below median of peer group |
| 25% vesting | EPS grows 12% annually | ISS performs at median of peer group |
| 100% vesting | EPS grows 18% annually or more | ISS performs at upper quartile of peer group or better |
1) Linear vesting between 25% and 100% vesting.
2) The EPS target weighs 50%, and the TSR target weighs 50% equally divided between the target against international peers and the target against OMX C20 companies.
| TSP | LTIP | |
|---|---|---|
| Total PSUs granted | 526,720 | 952,169 |
| Number of participants | 36 | 141 |
| Fair value of PSUs expected to vest at grant date | DKK 59 million | DKK 83 million |
| Fair value of PSUs expected to vest at 31 December 2014 | DKK 68 million | DKK 94 million |
| Recognised in the income statement in 2014 | DKK 28 million | DKK 25 million |
| Not yet recognised in respect of PSUs expected to vest | DKK 40 million | DKK 69 million |
| TSP | LTIP |
|---|---|
| 160 | 160 |
| - | 23% 1) |
| 1-2 years | 3 years |
| - | 1.7%-2.8% |
1) Based on observable market data for peer group.
| TSP (number of PSUs) | The EGM | The GMB | Other senior officers |
Total |
|---|---|---|---|---|
| Outstanding at 1 January 2014 | - | - | - | - |
| Granted during the year | 137,786 | 157,204 | 231,730 | 526,720 |
| Adjusted during the year 1) | (26,696) | (30,458) | (44,898) | (102,052) |
| Outstanding at 31 December 2014 | 111,090 | 126,746 | 186,832 | 424,668 |
| LTIP (number of PSUs) | The EGM | The GMB | Other senior officers |
Total |
| Outstanding at 1 January 2014 | - | - | - | - |
| Granted during the year | 131,914 | 157,204 | 663,051 | 952,169 |
| Adjusted during the year 1) | (50,574) | (60,270) | (254,203) | (365,047) |
| Outstanding at 31 December 2014 | 81,340 | 96,934 | 408,848 | 587,122 |
1) Adjusted during the year reflects the change in the number of PSUs expected to vest based on the expected achievement of vesting conditions.
At 31 December 2014, no PSUs had vested.
Following the IPO in March 2014, the full exercise of the overallotment option and subsequent sell-down of shares on 9 September and 3 December, FS Invest II S.à r.l (FS Invest II) owns 19% of ISS A/S's share capital while ISS A/S and Management hold 1%. FS Invest II has significant influence in the Group. In the period prior to 3 December, FS Invest II had controlling influence in the Group.
FS Invest II is a wholly-owned subsidiary of FS Invest S.à r.l (FS Invest), which is owned by funds advised by EQT Partners (EQT) and funds advised by Goldman Sachs Capital Partners (GSCP). At 31 December 2014, the indirect ownership share of ISS was 10% for EQT and 9% for GSCP.
There were no significant transactions with FS Invest II during the year. Transactions with FS Invest are described below under Other related party transactions. There were no significant changes to terms and conditions of agreements between the Group and EQT or GSCP following the sell-down on 3 December 2014.
The GMB and the Board are considered the Group's key management personnel as defined in note 6.1, Remuneration to the Board of Directors and the Group Management Board.
The members of the EGM and the GMB participated in certain incentive and bonus schemes which were triggered by the completion of the IPO. Payments related to these schemes amounted to DKK 32 million. Apart from these payments, ordinary remuneration and co-investment programmes as described below, there were no significant transactions during the year with members of the Board and the GMB.
Co-investment programmes Following the completion of the IPO in March 2014, the MPP and DPP as described in the consolidated financial statements for 2013, were settled in ISS shares. At the time of the termination the programmes had a total value of DKK 323 million.
In 2014, the Group had the following transactions with other related parties, which were all made on market terms:
• The Group and Goldman Sachs International, an affiliate of The Goldman Sachs Group, Inc., have agreed general terms and conditions
for the supply of facility services to be applied by local ISS operations and local Goldman Sachs affiliates when contracting with each other. ISS in Switzerland, Russia and the United Kingdom have entered into facility services agreements with local Goldman Sachs affiliates. The annual revenue from these agreements is estimated to DKK 98 million. Furthermore, the Group has local agreement terms with Goldman Sachs in France, Singapore, Brazil, Italy and China. Finally, ISS in Spain and Italy are subcontractors to local Goldman Sachs suppliers. In 2014, the annual revenue from the local and subcontractor agreements is estimated to DKK 6 million.
| DKK million | 2014 | 2013 |
|---|---|---|
| Statutory audit | 27 | 35 |
| Other assurance services | 2 | 6 |
| Work related to the IPO | 13 | - |
| Tax and VAT advisory services | 9 | 11 |
| Other services | 12 | 16 |
| Total | 63 | 68 |
During 2014, KPMG Denmark joined the global EY network. KPMG remained statutory auditors of foreign subsidiaries. In 2014, the total fees of DKK 63 million included DKK 23 million of audit fees, DKK 1 million of Other assurance services, DKK 8 million of Tax and VAT advisory services and DKK 11 million of Other services relating to non-EY auditors in the foreign subsidiaries.
Other assurance services comprised mainly work related to the interim financial statements.
Other services comprised among other things work related to acquisitions and divestments such as financial and tax due diligence.
The Group's effective tax rate for 2014 was 32.6%, down from 47.3% in 2013. The drop was the result of the significantly improved capital structure and refinancings following the IPO in March. As a consequence interest expenses in 2014 were considerably reduced. Hence, limitation on the deductibility of financial expenses was notably lower than previous years. Furthermore, 2013 was adversely impacted by valuation allowances on deferred tax assets.
Adjusted for the impact of non-deductible IPO costs and limitation of deductibility of financial expenses, the effective tax rate was approximately 30%.
In this section, the following notes are presented:
| DKK million | 2014 | 2013 |
|---|---|---|
| Current tax regarding profit before impairment/amortisation of intangibles 1) Deferred tax regarding profit before impairment/amortisation of intangibles 1) |
768 103 |
969 (75) |
| Tax on profit before impairment/amortisation of intangibles 1) Adjustments relating to prior years, net |
871 7 |
894 25 |
| Income taxes | 878 | 919 |
| Tax effect of impairment/amortisation of intangibles 1) | (234) | (229) |
| Total tax recognised in the income statement | 644 | 690 |
1) Intangibles comprise the value of goodwill, brands and customer contracts.
Income tax for the year consists of current tax and changes in deferred tax and is recognised in profit for the year, other comprehensive income or equity.
Income tax effect of Goodwill impairment and Amortisation/impairment of brands and customer contracts is presented in a separate line in connection with these two items.
Current tax receivable and payable is recognised in the statement of financial position as tax computed on the taxable income for the year, adjusted for tax on the taxable income for previous years and for tax paid on account.
| 2014 | 2013 | |
|---|---|---|
| Statutory income tax rate in Denmark | 24.5 % | 25.0 % |
| Foreign tax rate differential, net | (2.0)% | (2.7)% |
| Total | 22.5% | 22.3% |
| Non-tax deductible expenses less non-taxable income | 3.3 % | (1.0)% |
| Adjustments relating to prior years, net | 0.3 % | 1.3 % |
| Change in valuation of net tax assets | 1.0 % | 2.5 % |
| Valuation allowance of tax assets | 0.3 % | 8.7 % |
| Effect of changes in tax rates | 0.3 % | (0.8)% |
| Other taxes 1) | 3.1 % | 5.9 % |
| Limitation to interest deduction (Denmark) 2) | 1.8 % | 8.4 % |
| Effective tax rate (excluding effect from impairment/amortisation of intangibles) | 32.6% | 47.3% |
1) Other taxes mainly comprise withholding tax and the French Cortisation sur La Valeur Ajoutee des Entreprises (CVAE).
2) In 2014, the level was positively impacted by lower financial expenses as mentioned in the introduction to Section 7.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Before tax |
Tax | Net of tax |
Before tax |
Tax | Net of tax |
| Foreign exchange adjustment of subsidiaries and non-controlling interests |
472 | - | 472 | (796) | - | (796) |
| Fair value adjustment of hedges, net | (20) | 5 | (15) | 4 | (1) | 3 |
| Fair value adjustment of hedges, net, transferred to Financial expenses |
23 | (6) | 17 | 80 | (20) | 60 |
| Actuarial gains/(losses) | (621) | 138 | (483) | 446 | (92) | 354 |
| Impact from asset ceiling regarding pensions | 14 | - | 14 | (27) | - | (27) |
| Total recognised in other comprehensive income | (132) | 137 | 5 | (293) | (113) | (406) |
| DKK million | 2014 | 2013 |
|---|---|---|
| Deferred tax liabilities/(assets), net at 1 January | 956 | 1,205 |
| Adjustment to deferred tax liabilities/(assets), net at 1 January | - | (23) |
| Foreign exchange adjustments | (15) | (30) |
| Disposals through divestment of businesses | (4) | (10) |
| Tax on other comprehensive income | (138) | 92 |
| Reclassification to Assets/(Liabilities) classified as held for sale | (8) | 26 |
| Tax on profit before impairment/amortisation of intangibles 1) | 103 | (75) |
| Tax effect of amortisation/impairment of intangibles 1) | (234) | (229) |
| Deferred tax liabilities/(assets), net at 31 December | 660 | 956 |
| Recognised in the statement of financial position as follows: | ||
| Deferred tax liabilities | 1,415 | 1,590 |
| Deferred tax assets | (755) | (634) |
1) Intangibles comprise the value of goodwill, brands and customer contracts.
| Deferred tax specification | Deferred tax asset | Deferred tax liability | |||
|---|---|---|---|---|---|
| DKK million | 2014 | 2013 | 2014 | 2013 | |
| Tax losses carried forward | 375 | 357 | - | - | |
| Goodwill | 4 | 5 | 404 | 401 | |
| Brands | - | - | 350 | 419 | |
| Customer contracts | - | - | 581 | 674 | |
| Property, plant and equipment | 73 | 98 | 126 | 166 | |
| Provisions | 248 | 247 | - | - | |
| Other liabilities, including pensions | 124 | 20 | - | - | |
| Tax losses in foreign subsidiaries under Danish joint taxation | - | - | 23 | 23 | |
| Set-off within legal tax units and jurisdictions | (69) | (93) | (69) | (93) | |
| Deferred tax | 755 | 634 | 1,415 | 1,590 |
At 31 December 2014, the Group had unrecognised tax losses carried forward of DKK 935 million (2013: DKK 894 million) primarily relating to France, Germany, Brazil, the USA and Israel.
Unrecognised tax losses can be carried forward indefinitely in the individual countries, except for the USA (20 years). Deferred tax assets have not been recognised in respect of the above tax losses because it is not probable that future taxable profit will be available in the foreseeable future against which the Group can utilise these benefits.
The Group recognises deferred tax assets relating to tax losses carried forward, when management assesses that these tax assets can be offset against positive taxable income in the foreseeable future. The assessment is made at the reporting date and is based on relevant information, taking into account any impact from limitation in interest deductibility and restrictions in utilisation in local tax legislation. The assessment of future taxable income is based on financial budgets approved by management as well as management's expectations regarding the operational development, primarily in terms of organic growth and operating margin in the following 5 years. Furthermore, planned adjustments to capital structure in each country are taken into consideration.
Deferred tax is measured in accordance with the liability method and comprises all temporary differences between accounting and tax values of assets and liabilities. However, deferred tax is not recognised on temporary differences relating to goodwill which is not deductible for tax purposes and on office premises and other items where temporary differences, apart from in business combinations, arose at the time of acquisition without affecting either profit/loss for the year or taxable income. Where alternative taxation rules can be applied to determine the tax base, deferred tax is measured according to management's intended use of the asset or settlement of the liability, respectively.
Deferred tax assets, including the tax base of tax losses carried forward, are recognised under non-current assets at the expected value of their utilisation: either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction.
Deferred tax assets are assessed yearly and only recognised to the extent that it is more likely than not that they can be utilised in the foreseeable future.
Deferred tax assets and liabilities are offset if the Group has a legal right to offset current tax assets and tax liabilities or intends to settle current tax assets and tax liabilities on a net basis or to realise the assets and settle the liabilities simultaneously.
Deferred tax is adjusted for elimination of unrealised intra-group profits and losses.
Deferred tax is measured according to the taxation rules and tax rates in the respective countries applicable at the reporting date when the deferred tax is expected to be realised as current tax. The change in deferred tax as a result of changes in tax rates is recognised in the income statement.
The notes to the consolidated financial statements are grouped into sections according to themes. In this section we present other required disclosures relevant for the understanding of the Group's consolidated financial statements, but which are not relevant for the understanding of the individual themes in the previous sections.
In this section, the following notes are presented:
| DKK million | 2014 | 2013 |
|---|---|---|
| Profit attributable to ordinary shareholders | ||
| Profit before goodwill impairment and amortisation/impairment of brands and customer contracts | 1,816 | 1,026 |
| Goodwill impairment | (448) | (985) |
| Amortisation/impairment of brands and customer contracts | (588) | (667) |
| Income tax effect | 234 | 229 |
| Net profit for the year Non-controlling interests |
1,014 (3) |
(397) (2) |
| Net profit for the year attributable to owners of ISS A/S | 1,011 | (399) |
| Average number of shares (in thousands) | ||
| Average number of shares | 175,761 | 135,443 |
| Average number of treasury shares | (712) | - |
| Average number of shares (basic) | 175,049 | 135,443 |
| Average number of outstanding PSUs | 798 | - |
| 2014 | 2013 | |
|---|---|---|
| Basic EPS | 5.8 | (2.9) |
| Diluted EPS | 5.8 | (2.9) |
| Adjusted EPS | 10.3 | 7.6 |
The change in number of shares and treasury shares during 2014 is disclosed in note 5.1, Equity. The calculation of diluted EPS excludes 467,099 PSUs which are not expected to vest, see note 6.2, Sharebased payments.
See page 153 for definitions.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Land and buildings |
Plant and equipment |
Total | Land and buildings |
Plant and equipment |
Total |
| Cost at 1 January | 101 | 5,696 | 5,797 | 134 | 6,428 | 6,562 |
| Foreign exchange adjustments | 5 | 110 | 115 | (3) | (306) | (309) |
| Additions | 3 | 689 | 692 | 0 | 772 | 772 |
| Disposals | (0) | (713) | (713) | (10) | (646) | (656) |
| Reclassification to Assets classified as held for sale | (6) | (384) | (390) | (20) | (552) | (572) |
| Cost at 31 December | 103 | 5,398 | 5,501 | 101 | 5,696 | 5,797 |
| Depreciation and impairment losses at 1 January | (36) | (4,046) | (4,082) | (49) | (4,626) | (4,675) |
| Foreign exchange adjustments | (2) | (85) | (87) | 2 | 224 | 226 |
| Depreciation 1) | (1) | (587) | (588) | (3) | (642) | (645) |
| Disposals | 0 | 623 | 623 | 5 | 562 | 567 |
| Reclassification to Assets classified as held for sale | 0 | 271 | 271 | 9 | 436 | 445 |
| Depreciation and impairment at 31 December | (39) | (3,824) | (3,863) | (36) | (4,046) | (4,082) |
| Carrying amount at 31 December | 64 | 1,574 | 1,638 | 65 | 1,650 | 1,715 |
| Hereof carrying amount at 31 December of assets held under finance leases |
- | 154 | 154 | - | 163 | 163 |
1) Including impairment losses recognised in Other income and expenses, net in connection with remeasurement of activities being classified as held for sale of DKK 3 million (2013: DKK 9 million).
The Group leases cleaning and office equipment under a number of finance lease agreements. Some leases provide the Group with the option to purchase the equipment at a beneficial price at the end of the lease term. The leased equipment secures lease obligations.
In 2014, additions included assets held under finance leases of DKK 71 million (2013: DKK 88 million).
The Group leases a number of properties, vehicles (primarily cars) and other equipment under operating leases. The leases typically run for a period of 2-5 years, with an option to renew the lease after that date.
The disclosed non-cancellable operating lease rentals below assume no early termination of any agreement:
| DKK million | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | After 5 years |
Total lease payments |
|---|---|---|---|---|---|---|---|
| At 31 December 2014 | 1,204 | 811 | 519 | 301 | 185 | 356 | 3,376 |
| At 31 December 2013 | 1,341 | 884 | 610 | 344 | 216 | 346 | 3,741 |
During 2014, DKK 1,718 million (2013: DKK 1,964 million) was recognised as an expense in the income statement in respect of operating leases.
Leasing of cars is primarily entered under an international car fleet lease framework agreement which is valid until end 2018. The majority of the underlying agreements have a lifetime duration of 3-5 years.
Property, plant and equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Cost of assets comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is ready for use. The net present value of estimated liabilities related to dismantling and removing the asset and restoring the site on which the asset is located is added to the cost.
The cost of assets held under finance leases is stated at the lower of fair value of the asset and the net present value of future minimum lease payments. When calculating the net present value, the interest rate implicit in the lease or an approximated rate is applied as the discount rate.
A finance lease is a lease that transfers substantially all risks and rewards of ownership to the lessee. Other leases are classified as operating leases.
Subsequent costs, e.g. for replacing part of an item, are recognised in the carrying amount of the asset if it is probable that the future economic benefits embodied by the item will flow to the Group. The replaced item is derecognised in the statement of financial position and transferred to the income statement. All other costs for common repairs and maintenance are recognised in the income statement when incurred.
Depreciation is based on the cost of an asset less its residual value. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. The estimated useful life and residual value is determined at the acquisition date. If the residual value exceeds the carrying amount depreciation is discontinued.
Depreciation of property, plant and equipment is recognised in the income statement on a straight-line basis over the estimated useful lives of the assets. Assets under finance leases are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives for current and comparative years are as follows:
| Buildings | 20-40 years |
|---|---|
| Leasehold improvements | (the lease term) 5-12 years |
| Plant and equipment | 3-10 years |
Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. When changing the depreciation period or the residual value, the effect on the depreciation is recognised prospectively as a change in accounting estimates.
Gains and losses arising on the disposal or retirement of property, plant and equipment are measured as the difference between the selling price less direct sales costs and the carrying amount, and are recognised in the income statement under Other operating expenses in the year of sale, except gains and losses arising on disposals of property, which are recognised under Other income and expenses, net.
Assets held under operating leases are not recognised in the statement of financial position. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
| DKK million | 2014 | 2013 |
|---|---|---|
| Deposits Regulatory long-term loans Other |
193 127 111 |
150 98 59 |
| Other financial assets | 431 | 307 |
Deposits comprise deposits related to rent, security and juridical deposits mainly relating to legal and tax cases. Accounting policies
Other financial assets are initially measured at cost and subsequently measured at amortised cost with any resulting adjustment being recognised in the income statement.
The majority of the Group's pension schemes are defined contribution plans. In these plans, contributions are paid to publicly or privately administered pension plans on a statutory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid.
The Group has a number of defined benefit plans where the responsibility for the pension obligation towards the employees rests with the Group. The largest plans are in Switzerland and the United Kingdom accounting for 84% (2013: 81%) of the Group's obligation (gross) and 95% (2013: 95%) of its plan assets. In 2013, the plan in the Netherlands was settled and transferred to a fully insured multi-employer pension fund resulting in a gain of DKK 64 million recognised in the income statement in 2013.
The defined benefit plans are primarily based on years of service, and benefits are generally determined on the basis of salary and rank. For defined benefit plans the Group assumes the risk associated with future developments in salary, interest rates, inflation, mortality and disability etc. The pension plans include a risk-sharing element between ISS and the plan participants.
Pension plans in Switzerland Pension plans are governed by the Swiss Federal Law on Occupational retirement, Survivors' and Disability Pension Plans (LPP/BVG), which stipulates that pension plans must be managed by independent, legally autonomous units.
Plan participants are insured against the financial consequences of retirement, disability and death.
The pension plans are contribution-based plans guaranteeing a minimum interest credit and fixed conversion rates at retirement. Contributions are paid by both the employee and the employer. The plans must be fully funded under the LPP/BVG law on a static basis at all times. In case of underfunding, recovery measures must be taken, such as additional financing from the employer or from the employer and employees, reduction of benefits or a combination of both.
The main pension plan has the legal structure of a foundation responsible for the governance of the plan and for the investment of the assets. The foundation defines the investment strategy and has set up guidelines on allocation between assets.
Pension plans in the United Kingdom Plan participants are insured against the financial consequences of retirement. The schemes does not provide any insured disability benefits.
The pension plans are contribution-based plans guaranteeing defined benefit pension at retirement on a final salary basis. Contributions are paid by both the employee and the employer.
The schemes are legally structured as trust-based statutory sectionalised pension schemes. ISS has no control over the operation of the plans or their investments. An independent trustee or external administrator is responsible for the investment of the assets. The trustee or external administrator defines the investment strategy and have set up guidelines on asset allocation.
The majority of the pension plans does not include a risk-sharing element between ISS and the plan participants.
The present value of defined benefit obligations is determined on the basis of assumptions about the future development in variables such as salary levels, interest rates, inflation and mortality. All assumptions are assessed at the reporting date. Changes in these assumptions may significantly affect the liabilities and pension costs under defined benefit plans. The range and weighted average of these assumptions as well as sensitivities on key assumptions are disclosed in this note.
The discount rates used for calculating the present value of expected future cash flows are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit obligations.
ISS participates in multi-employer pension schemes that by nature are defined benefit plans. Some funds are however not able to provide the necessary information in order for the Group to account for the schemes as defined benefit plans and the schemes are therefore accounted for as defined contribution plans. There is a risk that the plans are not sufficiently funded. However, information on surplus or deficit in the schemes is not available.
Defined contribution plans Contributions to these plans are recognised as Staff costs as the related service is provided. Any contributions outstanding are recognised as Other liabilities.
Defined benefit plans The Group's net obligation is calculated annually by a qualified actuary using the projected unit credit method. This calculation is done separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. The present value less the fair value of any plan assets is recognised under Pensions and similar obligations.
When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Pension costs for the year are recognised in the income statement on the basis of actuarial estimates and financial expectations at the beginning of the year. Service costs are recognised under Staff costs and net interest is recognised under Financial expenses. Differences between the expected development in pension assets and liabilities and the realised amounts at the end of the year are designated actuarial gains or losses and are recognised in other comprehensive income.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefits that relates to past service or the gain or loss on curtailment is recognised immediately in the income statement under Staff costs. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Other long-term employee benefits are recognised based on an actuarial calculation. Actuarial gains and losses are recognised in the income statement under Staff costs. Interest on long-term employee benefits are recognised under Financial expenses. Other long-term employee benefits comprise jubilee benefits, long-service or sabbatical leave etc.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Present value of obligation |
Fair value of plan assets |
Obligation, net |
Present value of obligation |
Fair value of plan assets |
Obligation, net |
| Carrying amount at 1 January | 5,040 | 4,310 | 730 | 5,977 | 4,648 | 1,329 |
| Recognised in the income statement | ||||||
| Current service costs | 154 | - | 154 | 205 | - | 205 |
| Interest on obligation/plan assets | 146 | 120 | 26 | 158 | 125 | 33 |
| Recognised past service costs | 4 | - | 4 | 4 | - | 4 |
| Extinguished/distributed on settlements | (3) | - | (3) | (869) | (799) | (70) |
| Total | 301 | 120 | 181 | (502) | (674) | 172 |
| Recognised in the statement of comprehensive income | ||||||
| Actuarial (gains)/losses from demographic assumptions | (71) | - | (71) | (247) | - | (247) |
| Actuarial (gains)/losses from financial assumptions | 752 | - | 752 | 2 | - | 2 |
| Actuarial (gains)/losses due to experience adjustments | (12) | - | (12) | (1) | - | (1) |
| Return on plan assets excluding interest income | - | 48 | (48) | - | 200 | (200) |
| Impact from asset ceiling during the year | - | 14 | (14) | - | (27) | 27 |
| Total | 669 | 62 | 607 | (246) | 173 | (419) |
| Other changes | ||||||
| Foreign exchange adjustments | 110 | 115 | (5) | (105) | (73) | (32) |
| Reclassifications | (6) | (6) | - | 39 | 9 | 30 |
| Disposals through divestment of businesses | (50) | (3) | (47) | (65) | (37) | (28) |
| Additions from new contracts | 255 | 255 | - | 2 | 3 | (1) |
| Employee contributions | 113 | 113 | - | 121 | 121 | - |
| Employer contributions | - | 171 | (171) | - | 201 | (201) |
| Benefits paid | (173) | (100) | (73) | (181) | (88) | (93) |
| Impact from asset ceiling during the year | - | (14) | 14 | - | 27 | (27) |
| Total | 249 | 531 | (282) | (189) | 163 | (352) |
| Carrying amount at 31 December | 6,259 | 5,023 | 1,236 | 5,040 | 4,310 | 730 |
| Other long-term employee benefits Reclassification to Liabilities classified as held for sale |
160 (6) |
154 (54) |
||||
| Accumulated impact from asset ceiling | 25 | 39 | ||||
| Pensions and similar obligations at 31 December | 1,415 | 869 |
The majority of the obligations are funded, with assets placed in independent pension funds. In some countries, primarily in Sweden and France the obligation is unfunded. For these unfunded plans the retirement benefit obligations amounted to DKK 646 million or 10% of the present value of the gross obligation (2013: DKK 603 million or 12%).
The Group expects to contribute DKK 178 million to its funded defined benefit plans in 2015.
| 2014 | 2013 | |
|---|---|---|
| Corporate bonds | 46% | 47% |
| Listed shares | 28% | 25% |
| Property | 8% | 7% |
| Cash and cash equivalents | 5% | 6% |
| Government bonds | 1% | 6% |
| Other | 12% | 9% |
| Total | 100% | 100% |
Actuarial calculations and valuations are performed annually for all major defined benefit plans. The actuarial assumptions vary from country to
country due to local conditions. The range of actuarial assumptions used is as follows:
| 2014 | 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| CHF | GBP | EUR | Other currencies |
CHF | GBP | EUR | Other currencies |
|
| Discount rates at 31 December | 1.2% | 3.7% | 1.4-2.3% | 1.5-9.5% | 2.2% | 4.4% | 2.7-3.5% | 1.3-9.5% |
| Future salary increases Future pension increases |
1.0% 0.0% |
1.7% 2.9% |
0.0-3.0% 0.0-2.0% |
0.0-10.0% 0.0-1.5% |
1.0% 0.0% |
1.5% 3.3% |
0.0-2.5% 0.0-2.0% |
0.0-10.0% 0.0-2.0% |
Discount rates are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit obligations. Switzerland represents 69% of the
gross obligation (2013: 67%) and the United Kingdom represents 15% of the gross obligation (2013: 14%).
The table below illustrates the sensitivity related to significant actuarial assumptions used in the calculation of the defined benefit obligation recognised at the reporting date. The analysis is based on changes in assumptions that the Group considered to be reasonably possible at the reporting date. It is estimated that the relevant changes in assumptions would have increased/(decreased) the defined benefit obligation by the amounts shown below:
| 2014 | 2013 | |||
|---|---|---|---|---|
| DKK million | +0.5% | -0.5% | +0.5% | -0.5% |
| Discount rate | (408) | 460 | (284) | 320 |
| Future price inflation | 123 | (111) | 97 | (92) |
| Future salary increases | 72 | (73) | 40 | (50) |
| Future pension increases | 289 | (74) | 205 | (61) |
| +1 year | -1 year | +1 year | -1 year | |
| Life expectancy | 125 | (126) | 84 | (90) |
The estimated weighted average duration of the defined benefit obligation was 14 years (2013: 14 years) and is split into:
| Years | 2014 | 2013 |
|---|---|---|
| Active employees | 14 | 13 |
| Retired employees | 14 | 13 |
| Deferred vested | 22 | 22 |
| Total employees | 14 | 14 |
| DKK million | Legal cases | Self-insurance | Other | Total |
|---|---|---|---|---|
| 2014 | ||||
| Provisions at 1 January | 186 | 219 | 382 | 787 |
| Foreign exchange adjustments | (1) | 16 | 11 | 26 |
| Provisions made during the year | 70 | 144 | 54 | 268 |
| Provisions used during the year | (87) | (174) | (146) | (407) |
| Provisions reversed during the year | (35) | (2) | (89) | (126) |
| Unwind of discount and other financial expenses | 17 | 4 | 21 | 42 |
| Reclassification (to)/from Other liabilities | - | - | 7 | 7 |
| Provisions at 31 December | 150 | 207 | 240 | 597 |
| Current | 69 | 63 | 117 | 249 |
| Non-current | 81 | 144 | 123 | 348 |
| 2013 | ||||
| Provisions at 1 January | 152 | 256 | 169 | 577 |
| Foreign exchange adjustments | (10) | (21) | (8) | (39) |
| Provisions made during the year | 125 | 144 | 339 | 608 |
| Provisions used during the year | (50) | (167) | (103) | (320) |
| Provisions reversed during the year | (31) | (2) | (19) | (52) |
| Unwind of discount and other financial expenses | 3 | 5 | 9 | 17 |
| Reclassification to Liabilities classified as held for sale | (8) | - | (9) | (17) |
| Reclassification (to)/from Other liabilities | 5 | 4 | 4 | 13 |
| Provisions at 31 December | 186 | 219 | 382 | 787 |
| Current | 97 | 60 | 160 | 317 |
| Non-current | 89 | 159 | 222 | 470 |
Legal cases The provision comprises obligations in relation to a number of legal and labour-related cases in certain countries.
Self-insurance In Australia, Hong Kong, Ireland, the USA and the United Kingdom, the Group carries insurance provisions on employers' liability and/or workers compensation. Ireland and the United Kingdom are self-insured up to a yearly limit of DKK 27 million (2013: DKK 25 million). The USA is self-insured up to a limit of DKK 3.1 million per claim (2013: DKK 2.7 million). Australia is self-insured up to a limit of DKK 2.5 million per claim (2013: DKK 2.4 million). Hong Kong is self-insured up to a yearly limit of DKK 20 million (2013: DKK 14 million). Generally, the provisions for self-insurance are based on valuations from external actuaries.
Furthermore, the provision includes liability not insured under the global general liability insurance with a self-insured level of DKK 0.2 million per claim and DKK 0.1 million per claim in the USA and obligations and legal costs in relation to various insurance cases if not covered by the insurance.
Other comprises various other obligations incurred, e.g. restructuring costs, guarantee reserves, dismantling costs, operational issues, closure of contracts and costs of meeting obligations under onerous contracts. At 31 December 2014, provisions for onerous contracts were included with DKK 65 million (2013: DKK 168 million).
The amount recognised as a provision is management's best estimate of the amount required to settle the obligation. The outcome depends on future events that are uncertain by nature. In assessing the likely outcome of lawsuits and tax disputes etc., management bases its assessment on external legal assistance and established precedents.
Provisions are recognised if the Group, as a result of a past event has a present legal or constructive obligation, and it is probable that an outflow of economic benefits will be required to settle the obligation. The costs required to settle the obligation are discounted if this significantly impacts the measurement of the liability. The entity's average borrowing rate is used as discount rate.
Restructuring costs are recognised under Provisions when a detailed, formal restructuring plan is announced to the affected parties on or before the reporting date.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the obligations under the contract.
When the Group has a legal obligation to dismantle or remove an asset or restore a site or rented facilities when vacated, a provision is recognised corresponding to the present value of expected future costs. The present value of the obligation is included in the cost of the relevant tangible asset and depreciated accordingly.
Following the completion of the IPO, the borrowings under the pre-IPO senior secured facilities have been repaid and replaced by a new unsecured senior facilities agreement. As a consequense hereof the previous pledges and guarantees in favour of the pre-IPO senior secured facilities have been cancelled and replaced by guarantees provided by ISS A/S, ISS World Services A/S, ISS Global A/S and certain material subsidiaries of ISS Global A/S in Australia, Belgium, Denmark, Finland, France, Germany, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the USA.
Indemnity and guarantee commitments at 31 December 2014 amounted to DKK 424 million (2013: DKK 380 million).
The Group has issued performance guarantee bonds for service contracts with an annual revenue of DKK 1,706 million (2013: DKK 1,909 million) of which DKK 1,249 million (2013: DKK 1,236 million) were bank-guaranteed performance bonds. Such performance bonds are issued in the ordinary course of business in the service industry.
The Group makes provisions for claims from purchasers or other parties
in connection with divestments and representations and warranties given in relation to such divestments. Management believes that provisions made at 31 December 2014 are adequate. However, there can be no assurance that one or more major claims arising out of the Group's divestment of companies will not adversely affect the Group's activities, results of operations and financial position.
The Group is party to certain legal proceedings. Management believes that these proceedings (many of which are labour-related cases incidental to the business) will not have a material impact on the Group's financial position beyond the assets and liabilities already recognised in the statement of financial position at 31 December 2014.
Restructuring projects aiming at adjusting capacity to lower activity have been undertaken across different geographies and service areas. Labour laws especially in Europe include restrictions on dismissals and procedural rules to be followed. The procedures applied by ISS could be challenged in certain jurisdictions resulting in liabilities. Management believes that this would not have a material impact on the Group's financial position beyond the assets and liabilities already recognised in the statement of financial position at 31 December 2014.
| DKK million | 2014 | 2013 |
|---|---|---|
| Revenue | ||
| Revenue for reportable segments | 74,190 | 78,543 |
| Elimination of internal revenue | (85) | (84) |
| Revenue according to the income statement | 74,105 | 78,459 |
| Operating profit | ||
| Operating profit for reportable segments | 4,650 | 4,813 |
| Unallocated corporate costs | (542) | (534) |
| Unallocated other income and expenses, net | (118) | (64) |
| Operating profit according to the income statement | 3,990 | 4,215 |
| Unallocated: | ||
| Financial income | 303 | 176 |
| Financial expenses | (1,599) | (2,446) |
| Profit before tax, goodwill impairment and amortisation/impairment of brands and customer contracts according to the income statement |
2,694 | 1,945 |
| DKK million | 2014 | 2013 |
|---|---|---|
| Total assets | ||
| Total assets for reportable segments | 49,781 | 54,619 |
| Unallocated assets 1) | 29,681 | 32,794 |
| Elimination of internal assets 2) | (32,728) | (38,847) |
| Total assets according to the statement of financial position | 46,734 | 48,566 |
| Additions to non-current assets 3) | ||
| Additions to non-current assets for reportable segments | 898 | 897 |
| Unallocated additions to non-current assets | 32 | 50 |
| Total additions to non-current assets according to the statement of financial position | 930 | 947 |
| Total liabilities | ||
| Total liabilities for reportable segments | 28,074 | 34,611 |
| Unallocated liabilities 1) | 37,990 | 48,069 |
| Elimination of internal liabilities 2) | (32,250) | (38,336) |
| Total liabilities according to the statement of financial position | 33,814 | 44,344 |
1) Unallocated assets and liabilities mainly relate to the Group's holding companies as they are not included in the reportable segments. The assets and liabilities comprise internal and external loans and borrowings, cash and cash equivalents and intra-group balances.
2) Eliminations relate to intra-group balances.
3) Additions to non-current assets comprise additions to Intangible assets and Property, plant and equipment.
The Group made no divestments in the period from 1 January to 28 February 2015.
On 20 January 2015, ISS announced the acquisition of GS Hall plc, a leading technical services company with activities in the United Kingdom and continental Europe. Acquiring GS Hall will strengthen our ability to deliver technical services, including mechanical and technical engineering, energy management and compliance, as part of our integrated facility services offering. The total annual revenue is estimated at DKK 698 million (approximate figures extracted from unaudited financial information) based on expectations at the time of the acquisition. Total number of employees taken over is approximately 780. The enterprise value amounted to approximately DKK 514 million. In accordance with usual Group procedures, purchase price allocation is prepared during the first months following the acquisition. Hence, the opening balance is not yet available.
Other than as set out above or elsewhere in these consolidated financial statements, we are not aware of events subsequent to 31 December 2014, which are expected to have a material impact on the Group's financial position.
IASB has published the following new standards, amendments to existing standards and interpretations that are not yet mandatory for the preparation of the consolidated financial statements of the Group for the year ended 31 December 2014:
In addition IASB has published the following new standards, amendments to existing standards and interpretations, which are not yet adopted by the EU at 31 December 2014:
The Group expects to adopt the new standards and interpretations when they become mandatory. The standards and interpretations that are approved with different effective dates in the EU than the corresponding effective dates under IASB will be early adopted so that the implementation follows the effective dates under IASB.
Based on the current business setup and level of activities none of the standards and interpretations are expected to have a material impact on the recognition and measurement in the consolidated financial statements of the Group.
Below the significant subsidiaries, associates and joint ventures of the Group are presented per region together with a Group chart showing the ownership structure from ISS A/S and down. Together these are referred
to as "Companies within the ISS Group". Undertakings of immaterial interest are left out.
| Austria | |
|---|---|
| ISS Austria Holding GmbH | 100% |
| ISS Facility Services GmbH | 100% |
| ISS Ground Services GmbH | 51% |
| ISS Hotel, SPA & Gastro Services GmbH | 100% |
| Belgium & Luxembourg | |
| BD Food Invest S.A. | 100% |
| ISS Catering N.V. | 100% |
| ISS Integrated Facility Services N.V. | 100% |
| ISS Industrial Cleaning N.V. | 100% |
| ISS Landscaping N.V. | 100% |
| ISS N.V. | 100% |
| ISS Reception & Support Services N.V. | 100% |
| ISS Facility Services S.A. | 100% |
| ISS Luxintérim S.à r.l. | 100% |
| France | |
| Channel Passenger Services SAS | 100% |
| Extincteurs Haas SAS | 100% |
| GIE ISS Services | 100% |
| ISS Facility Management SAS | 100% |
| ISS Holding Paris SAS | 100% |
| ISS Hygiene & Prevention SAS | 100% |
| ISS Hygiene SAS | 100% |
| ISS Logistique et Production SAS | 100% |
| ISS Proprete SAS | 100% |
| Stop Flam SAS | 100% |
| Germany | |
| ISS Facility Services GmbH | 100% |
| Klaus Harren GmbH | 100% |
| Greece | |
| ISS Facility Services S.A. | 100% |
| ISS Human Resources S.A. | 100% |
| Ireland | |
| ISS Ireland Holding Ltd. | 100% |
| ISS Ireland Ltd. | 100% |
| A. Kfir Holding Ltd. | 100% |
|---|---|
| Catering Ltd. | 100% |
| Catering Tefen (1991) Ltd. | 100% |
| ISS Ashmoret Ltd. | 100% |
| ISS Integrated Facility Service Management Ltd. | 100% |
| ISS Israel Manpower Services Ltd. | 100% |
| ISS Israel Comprehensive Business Services Ltd. | 100% |
| M.A.S h Machatz Agencies (1997) Ltd. | 100% |
| Norcat Ltd. | 100% |
| Norfolk Enterprise Ltd. | 100% |
| Norfolk International Ltd. | 100% |
| Italy | |
| ISS Facility Services S.r.l. | 100% |
| Netherlands | |
| ISS Building Maintenance Services B.V. | 100% |
| ISS Catering Services B.V. | 100% |
| ISS Cure & Care B.V. | 100% |
| ISS Holding Nederland B.V. | 100% |
| ISS Integrated Facility Services B.V. | 100% |
| ISS Nederland B.V. | 100% |
| ISS Security & Services B.V. | 100% |
| TalentGroep Montaigne Facility Management B.V. | 100% |
| Portugal | |
| ISS Facility Services, Lda. | 100% |
| ISS FS Açores, Lda. | 100% |
| ISS Human Resources, Lda. | 100% |
| Spain | |
| Gelim Andalucia, S.A. | 100% |
| Gelim Asturias, S.A. | 100% |
| Gelim Baleares, S.A. | 100% |
| Gelim Madrid, S.A. | 100% |
| Gelim, S.A. | 100% |
| Gelim Valencia, S.A. | 100% |
| Integrated Service Solutions, S.L. | 100% |
| ISS Activa Educacional, S.L. | 100% |
ISS Facility Services, S.A. 100% ISS Salud y Servicios Sociosanitarios, S.A. 100%
| ISS Serv. de Información y Control de Accesos, S.A. | 100% |
|---|---|
| ISS Soluciones de Catering, S.L. | 100% |
| ISS Soluciones de Seguridad, S.L. | 100% |
| Lloyd Outsourcing, S.L. | 100% |
| Switzerland | |
| ISS Aviation AG | 100% |
| ISS Bernasconi SA | 100% |
| ISS Facility Services (Liechtenstein) AG | 100% |
| ISS Facility Services AG | 100% |
| ISS Kanal Services AG | 100% |
| ISS Schweiz AG | 100% |
| Turkey | |
| CMC Iletişim Bilg Reklam ve D. Hiz. San. Tic. A.Ş. | 90% 4) |
| ISS Haşere Kontrol Hizmetleri A.Ş. | 90% 4) |
| ISS Proser Koruma ve Güvenlik Hizmetleri A.Ş. | 90% 4) |
| ISS Tesis Yönetim Hizmetleri A.Ş. | 90% 4) |
| ISS Hazir Yemek Üretim ve Hizmet A.Ş. | 90% 4) |
| ISS Sigorta Acentelik Hizmetleri A.Ş. | 90% 4) |
| United Kingdom | |
| ISS Damage Control Ltd. | 100% |
|---|---|
| ISS Facility Services Ltd. | 100% |
| ISS Mediclean Ltd. | 100% |
| ISS UK Holding Ltd. | 100% |
| ISS UK Ltd. | 100% |
| Spectrum Franchising Ltd. | 100% |
| ISS Capital A/S (Group company) | 100% |
|---|---|
| ISS Facility Services A/S | 100% |
| ISS Finans A/S (Group company) | 100% |
| ISS Global Management A/S (Group company) | 100% |
| ISS Holding France A/S (Group company) | 100% |
| ISS Hotel & Event Services A/S | 100% |
| ISS Kloak- & Industriservice A/S | 100% |
| ISS Lending A/S (Group company) | 100% |
| ISS Security A/S | 100% |
| ISS Venture A/S (Group company) | 100% |
| Finland | |
| ISS Palvelut Holding Oy | 100% |
| ISS Palvelut Oy | 100% |
| ISS Proko Oy | 100% |
| Suomen Laatutakuu Palvelut Oy | 100% |
| Greenland | |
| ISS Grønland A/S | 100% |
| Iceland | |
| ISS Ísland ehf. | 100% |
| Norway | |
| ForvaltningsCompagniet AS | 100% |
ISS Facility Services AS 100%
| ISS Holding AS | 100% |
|---|---|
| ISS Management AS | 100% |
| ISS Serveringspartner AS | 100% |
| ISS Service Management AS | 100% |
| NSB Trafikkservice AS | 45% 2) |
| Raufoss Beredskap AS | 51% |
| Sweden | |
| ISS Facility Services AB | 100% |
| ISS Facility Services Holding AB | 100% |
| ISS Palvelut Holding AB | 100% |
| Brunei | |
|---|---|
| ISS Facility Services Sdn. Bhd. | 100% |
| China and Hong Kong | |
| Cornerstone Associates Ltd. | 100% |
| Hung Fat Cleaning Transportation Co., Ltd. | 100% |
| ISS Adams Secuforce Ltd. | 100% |
| ISS Allsecure Ltd. | 100% |
| ISS Building Consultancy Ltd. | 100% |
| ISS Business Solutions Ltd. | 100% |
| ISS China Holdings I Ltd. | 100% |
| ISS China Holdings Ltd. | 100% |
| ISS EastPoint Properties Ltd. | 100% |
| ISS EastPoint Property Consultants Ltd. | 100% |
| ISS EastPoint Property Management Ltd. | 100% |
| ISS Environmental Services (HK) Ltd. | 100% |
| ISS Facility Services (Beijing) Ltd. | 100% |
| ISS Facility Services (Shanghai) Ltd. | 100% |
| ISS Facility Services (Tianjin) Ltd. | 100% |
| ISS Facility Services China Ltd. | 100% |
| ISS Facility Services Ltd. | 100% |
| ISS Facility Services (Shenzhen) Ltd. | 100% |
| ISS Greater China Ltd. | 100% |
| ISS Hangyang (Beijing) Cleaning Services Co., Ltd. | 100% |
| ISS Hong Kong Services Ltd. | 100% |
| ISS Hongrun (Shanghai) Cleaning Services Ltd. | 100% |
| ISS Hygiene Services (HK) Ltd. | 100% |
| ISS Mediclean (HK) Ltd. | 100% |
| ISS Pan Asia Security Services Ltd. | 100% |
| ISS Roboclean (HK) Co., Ltd. | 100% |
| ISS Servisystem (China) Ltd. | 100% |
| ISS Thomas Cowan Co., Ltd. | 100% |
| JSL Ltd. | 100% |
| LAWN Environmental Protection Ltd. | 100% |
| Shanghai B&A Property Management Co., Ltd. | 100% |
| Shanghai B&A Security Service Co., Ltd. | 100% |
| Shanghai ISS Catering Management Co., Ltd. | 100% |
| Silvertech E&M Engineering Co., Ltd. | 100% |
| India | |
| Innovative and Payroll Advisory Services Pvt. Ltd. | 49% 3) |
| ISS Facility Services (India) Pvt. Ltd. | 100% |
ISS SDB Security Services Pvt. Ltd. 49% 3) ISS Support Services Pvt. Ltd. 100% Modern Protection & Investigations Ltd. 49% 3)
Prestige Protection Services Pty Ltd. 100%
| Indonesia | New Zealand | ||
|---|---|---|---|
| PT ISS Catering Services | 0% 3) | ISS Facilities Services Ltd. | 100% |
| PT ISS Facility Services | 0% 3) | ISS Holdings NZ Ltd. | 100% |
| PT ISS Indonesia | 100% | ||
| PT ISS Parking Management | 0% 3) | ||
| Latin America | |||
| Japan Nihon ISS KK |
100% | Argentina | |
| ISS Argentina S.A. | 100% | ||
| Malaysia | ISS Facility Services S.R.L. | 100% | |
| ISS Facility Services Sdn. Bhd. | 30% 3) | ISS Food S.A. | 100% |
| Kontrekleen Sdn. Bhd. | 30% 3) | ISS Litorial S.R.L | 100% |
| Reliance Suci Environmental Sdn. Bhd. | 30% 3) | ISS Office Services S.A. | 100% |
| ISS Personal Temporario S.R.L. | 100% | ||
| Philippines | ISS Retail S.A. | 100% | |
| ISS Facility Services Phils., Inc. | 100% | ||
| Brazil | |||
| Singapore | ISS Biosystem Saneamento Ambiental Ltda. | 100% | |
| ISS Asia Pacific Pte. Ltd. | 100% | ISS Catering Sistemas de Alimentação Ltda. | 100% |
| ISS Catering Pte. Ltd. | 100% | ISS Manutenção e Serviços Integrados Ltda. | 100% |
| ISS Catering Services Pte. Ltd. | 100% | ISS Serviços de Logistica Integrada Ltda. | 100% |
| ISS Facility Services Private Limited | 100% | ISS Servisystem do Brasil Ltda. | 100% |
| ISS Hydroculture Pte. Ltd. | 100% | ISS Sulamericana Brasil Ltda. | 100% |
| ISS Landscaping Pte. Ltd. | 100% | ||
| ISS M&E Pte. Ltd. | 100% | Chile | |
| ISS Pest Management Pte. Ltd. | 100% | ISS Chile S.A. | 100% |
| ISS Sanitation Services Pte Ltd | 100% | ISS Facility Services S.A. | 100% |
| ISS-CDCS Catering Pte. Ltd. | 100% | ISS Instituto de Formacion Ltda. | 100% |
| Serve1st Services Pte Ltd | 100% | ISS Servicios de Limpieza Industrial Ltda. | 100% |
| ISS Servicios de Limpieza Mecanizada S.A. | 100% | ||
| Taiwan | ISS Servicios de Soporte Est Ltda. | 100% | |
| ISS Facility Services Ltd. | 100% | ISS Servicios Generales Ltda. | 100% |
| ISS Security Ltd. | 100% | ISS Servicios Integrales Ltda. | 100% |
| Thailand | Mexico | ||
| ISS Facility Services Co., Ltd. | 100% | ISS Catering, SA de CV | 100% |
| ISS Security Services Co., Ltd. | 100% | ISS Centro América, S de RL de CV | 100% |
| ISS Support Services Co., Ltd. | 100% | ISS Facility Services, SA de CV | 100% |
| Notre-Bel Co., Ltd. | 100% | ISS Servicios Adm., SA de CV Sociedad Fin. de Obj. | 100% |
| ISS Servicios Integrales, S de RL de CV | 100% | ||
| Mantenimiento Técnico Tapnew, SA de CV | 100% | ||
| Pacific | Martex, SA de CV | 100% | |
| Australia | Uruguay | ||
| Blurlato Pty Ltd. | 100% | ISS Seguridad Ltda. | 100% |
| Fondi Investments Ltd. | 100% | ISS Catering S.A. | 100% |
| ISS Catering Services Pty Ltd. | 100% | ISS Uruguay S.A. | 100% |
| ISS Facility Services Australia Ltd. | 100% | Samilar S.A. | 100% |
| ISS Franchise Services Pty Ltd. | 100% | ||
| ISS Health Services Pty Ltd. | 100% | ||
| ISS Holdings Pty Ltd. | 100% | North America | |
| ISS Integrated Services Pty Ltd. | 100% | ||
| ISS Property Services Pty Ltd. | 100% | Canada | |
| ISS Security Pty Ltd. | 100% | ISS Facility Services Inc. | 100% |
| Pacific Invest December 2004 Pty Ltd. | 100% | ||
| Pacific Service Solutions Pty Ltd. | 100% | USA | |
| ISS C&S Building Maintenance Corporation | 100% |
|---|---|
| ISS Facility Services Holding, Inc. | 100% |
| ISS Facility Services California, Inc. | 100% |
| USA (continued) | |
|---|---|
| ISS Facility Services of Texas, L.P. | 100% |
| ISS Facility Services, Inc. | 100% |
| ISS GP, Inc. | 100% |
| ISS Grounds Control of Texas, L.P. | 100% |
| ISS Grounds Control, Inc. | 100% |
| ISS Holding Inc. | 100% |
| ISS Management and Finance Co., Inc. | 100% |
| ISS Specialty Services, LLC | 100% |
| ISS TMC Services, Inc. | 100% |
| ISS Uniguard Security, Inc. | 100% |
| TMC Ridge, LLC | 100% |
| Tri-Enterprise Construction, LLC | 100% |
| Eastern Europe | |
| Bulgaria | |
| ISS Facility Services EOOD | 100% |
| Czech Republic | |
| ISS Facility Services s.r.o | 100% |
| ISS Správa budov s.r.o. | 100% |
| Estonia | |
| ISS Eesti AS | 100% |
| ISS Haldus OÜ | 100% |
| Hungary | |
| ISS Facility Services Kft. | 100% |
| Profi-Komfort Kft. | 100% |
| Latvia | |
| ISS Namu Serviss SIA | 100% |
| Lithuania | |
| ISS Pastatu Valda UAB | 100% |
| Poland | |
| ISS Facility Services Sp. Z.o.o. | 100% |
| ISS IS Sp. Z.o.o. | 100% |
| ISS MS Sp. Z.o.o. | 100% |
| ISS RS Sp. Z.o.o. | 100% |
| Romania | |
| 3D Romania S.A. | 100% |
| ISS Facility Services S.R.L. | 100% |
| ISS Romania Group S.R.L. | 100% |
| ISS Security Services S.R.L. | 100% |
| Russia | |
| Facility Services RUS LLC | 100% |
| Slovakia ISS Facility Services spol. s.r.o. |
100% |
|---|---|
| Slovenia | |
| ISS Global Storitve d.o.o. | 100% |
| ISS Facility Services d.o.o. | 100% |
| Magnetik d.o.o. | 100% |
| Other countries | |
| Colombia | |
| ISS Facility Services SA S | 100% |
| Costa Rica | |
| ISS Facility Services Costa Rica Limitada | 100% |
| Ecuador | |
| EISSEcuador S.A | 100% |
| ISS Facility Servicios Ecuador S.A | 100% |
| Panama | |
| ISS Panama S.A. | 100% |
| Peru | |
| ISS Facility Services Peru S.A.C | 100% |
| ISS World Peru S.A.C. | 100% |
| Puerto Rico | |
| ISS Facility Services Puerto Rico, Inc. | 100% |
| South Africa | |
| ISS Facility Services (Pty) Limited | 100% |
| Sri Lanka | |
| ISS Abans Environmental Services (PT) Ltd. | 50% 1) |
| Venezuela | |
| ISS Facility Services Venezuela C.A. | 100% |
1) Joint venture
2) Associate
3) By virtue of the governance structure, the Group has the power to govern the financial and operating policies of the company. Consequently, the company is consolidated as a subsidiary.
4) The non-controlling shareholder holds a put option which is accounted for as if the put option has already been exercised. Accordingly, the subsidiary is consolidated with no non-controlling interest.
The Board of Directors and the Executive Group Management Board have today discussed and approved the annual report of ISS A/S for the financial year 2014.
The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
It is our opinion that the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the parent company's financial position at 31 December 2014 and of the results of the Group's and the parent company's operations and cash flows for the financial year 1 January – 31 December 2014.
In our opinion, the Management review includes a fair review of the development in the Group's and the parent company's operations and financial conditions, the results for the year, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that the Group and the parent company face.
We recommend that the annual report be approved at the annual general meeting.
Heine Dalsgaard Group Chief Financial Officer
Jennie Chua
Andrew E. Wolff
Henrik Andersen Group Chief Operating Officer EMEA
John Peri Group Chief Operating Officer Americas & APAC
Morten Hummelmose
Pernille Benborg 1)
Board of directors
Lord Allen of Kensington Kt CBE Chairman
Henrik Poulsen
Joseph Nazareth 1)
Thomas Berglund Deputy Chairman
Jo Taylor
Palle Fransen Queck 1)
1) Employee representive
We have audited the consolidated financial statements and the parent company financial statements of ISS A/S for the financial year 1 January – 31 December 2014, pages 89-149 and pages 165- 176. The consolidated financial statements and the parent company financial statements comprise Income statement, Statement of comprehensive income, Statement of cash flows, Statement of financial position, Statement of changes in equity and Notes for the Group as well as for the parent company. The consolidated financial statements and the parent company financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies and for such internal control that Management determines is necessary to enable the preparation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements and the parent company financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company's preparation of consolidated financial statements and parent company financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and the parent company financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit has not resulted in any qualification.
In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the parent company's financial position at 31 December 2014 and of the results of the Group's and the parent company's operations and cash flows for the financial year 1 January – 31 December 2014 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed companies.
Pursuant to the Danish Financial Statements Act, we have read the Management's review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information provided in the Management's review is consistent with the consolidated financial statements and the parent company financial statements.
Copenhagen, 12 March 2015 ERNST & YOUNG Godkendt Revisionspartnerselskab
Jesper Ridder Olsen State Authorised
Public Accountant
Michael Groth Hansen State Authorised Public Accountant
= Operating profit before other items + Depreciation and amortisation
= Number of issued shares excluding treasury shares as an average for the year.
= Average number of shares (basic) + number of outstanding Performance Share Units (PSUs) as an average for the year.
Average number of shares
Net profit/(loss) for the year attributable to owners of ISS A/S =
Net profit/(loss) for the year attributable to owners of ISS A/S = Average number of shares, diluted
= Operating profit + Depreciation and amortisation
Total equity attributable to owners of ISS A/S x 100 = Total assets
= Non-current and current loans and borrowings - Receivables from companies within the ISS Group – Securities – Cash and cash equivalents – Positive fair value of derivatives
Operating profit before other items x 100 = Total revenue
This Annual Report contains forward-looking statements, including, but not limited to, the guidance and expectations contained in the "Outlook" section on page 9. Statements herein, other than statements of historical fact, regarding future events or prospects, are forward-looking statements. The words "may", "will", "should", "expect", "anticipate", "believe", "estimate", "plan", "predict", "intend" or variations of these words, as well as other statements regarding matters that are not historical fact or regarding future events or prospects, constitute forward-looking statements. ISS has based these forward-looking statements on its current views with respect to future events and financial performance. These views involve a number of risks and uncertainties that could cause actual results to differ materially from those predicted in the forward-looking statements and from the past performance of ISS. Although ISS believes that the estimates and projections reflected in the forward-looking statements are reasonable, they may prove materially incorrect, and actual results may materially differ, e.g. as the result of risks related to the facility service industry in general or ISS in particular including those described in this report and other information made available by ISS. As a result, you should not rely on these forward-looking statements. ISS undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
Country revenue and employees 157 Group COOs and regional CEOs 158 Head of Group functions 159 Country managers 160 In Bratislava, Slovakia, Miroslav Svec plays a big part in making sure the premises at SLOVENSKÉ ELEKTRÁRNE look welcoming. He strongly identifies with the company's values of being safe, reliable and efficient. Together with the rest of the ISS team, Miroslav maintains the surroundings at the largest power generating company in Slovakia.
MIROSLAV SVEC Gardener, ISS Slovakia
| 2014 | 2013 | |||||||
|---|---|---|---|---|---|---|---|---|
| DKK million | Total Revenue |
% of Group revenue |
Total Employees |
% of Group employees |
Total Revenue |
% of Group revenue |
Total Employees |
% of Group employees |
| United Kingdom | 9,896 | 13% | 42,369 | 8% | 9,322 | 12% | 45,660 | 9% |
| France | 5,101 | 7% | 25,440 | 5% | 7,122 | 9% | 28,888 | 5% |
| Norway | 4,561 | 6% | 8,621 | 2% | 5,762 | 7% | 11,249 | 2% |
| Australia | 4,113 | 6% | 11,586 | 2% | 4,572 | 6% | 11,752 | 2% |
| Spain | 4,099 | 6% | 28,674 | 6% | 4,173 | 5% | 28,224 | 5% |
| Switzerland | 4,079 | 6% | 11,465 | 2% | 4,005 | 5% | 11,218 | 2% |
| Finland | 3,853 | 5% | 9,638 | 2% | 3,986 | 5% | 11,497 | 2% |
| Sweden | 3,737 | 5% | 8,865 | 2% | 3,948 | 5% | 9,742 | 2% |
| USA | 3,386 | 5% | 14,377 | 3% | 3,373 | 4% | 14,281 | 3% |
| Denmark | 3,086 | 4% | 7,208 | 1% | 2,965 | 4% | 6,848 | 1% |
| Belgium and Luxembourg | 2,548 | 3% | 9,311 | 2% | 2,856 | 4% | 9,788 | 2% |
| Turkey | 2,535 | 3% | 29,913 | 6% | 2,411 | 3% | 27,780 | 5% |
| Netherlands | 1,883 | 3% | 7,856 | 2% | 2,300 | 3% | 9,713 | 2% |
| Germany | 1,847 | 2% | 9,045 | 2% | 1,984 | 3% | 9,924 | 2% |
| Israel | 1,817 | 2% | 9,938 | 2% | 1,922 | 2% | 12,081 | 2% |
| Hong Kong | 1,808 | 2% | 14,008 | 3% | 1,793 | 2% | 15,297 | 3% |
| Brazil | 1,587 | 2% | 16,115 | 3% | 1,648 | 2% | 17,384 | 3% |
| Austria | 1,579 | 2% | 7,098 | 1% | 1,530 | 2% | 7,144 | 1% |
| Singapore | 1,379 | 2% | 7,234 | 1% | 1,278 | 2% | 7,996 | 1% |
| Indonesia | 1,256 | 2% | 54,391 | 11% | 1,282 | 2% | 55,366 | 10% |
| India | 1,155 | 2% | 53,878 | 11% | 1,129 | 1% | 60,160 | 11% |
| Thailand | 1,074 | 1% | 30,788 | 6% | 1,067 | 1% | 28,710 | 5% |
| Chile | 803 | 1% | 13,848 | 3% | 715 | 1% | 12,710 | 2% |
| China Mexico |
803 666 |
1% 1% |
15,498 13,894 |
3% 3% |
719 652 |
1% 1% |
14,693 13,516 |
3% 3% |
| Ireland | 578 | 1% | 3,226 | 1% | 561 | 1% | 3,351 | 1% |
| Portugal | 514 | 1% | 7,132 | 1% | 507 | 1% | 7,318 | 1% |
| Greece | 463 | 1% | 3,113 | 1% | 564 | 1% | 4,148 | 1% |
| Czech Republic | 387 | 1% | 5,225 | 1% | 405 | 1% | 4,774 | 1% |
| Argentina | 382 | 1% | 3,293 | 1% | 430 | 1% | 3,416 | 1% |
| Italy | 380 | 1% | 559 | 0% | 448 | 1% | 501 | 0% |
| New Zealand | 331 | 0% | 2,351 | 0% | 533 | 1% | 2,492 | 0% |
| Taiwan | 309 | 0% | 2,780 | 1% | 298 | 0% | 2,664 | 0% |
| Poland | 220 | 0% | 2,265 | 0% | 222 | 0% | 2,186 | 0% |
| Slovakia | 219 | 0% | 2,903 | 1% | 230 | 0% | 2,540 | 0% |
| Philippines | 184 | 0% | 5,371 | 1% | 183 | 0% | 5,574 | 1% |
| Slovenia | 175 | 0% | 1,044 | 0% | 201 | 0% | 1,327 | 0% |
| Romania | 147 | 0% | 1,724 | 0% | 149 | 0% | 1,902 | 0% |
| Hungary | 147 | 0% | 1,822 | 0% | 154 | 0% | 2,087 | 0% |
| Estonia | 146 | 0% | 1,588 | 0% | 138 | 0% | 1,647 | 0% |
| Russia | 144 | 0% | 1,237 | 0% | 141 | 0% | 982 | 0% |
| Iceland | 122 | 0% | 726 | 0% | 99 | 0% | 702 | 0% |
| Uruguay | 105 | 0% | 997 | 0% | 204 | 0% | 1,504 | 0% |
| Japan | 102 | 0% | 55 | 0% | 111 | 0% | 47 | 0% |
| Malaysia | 101 | 0% | 1,548 | 0% | 112 | 0% | 1,606 | 0% |
| Canada | 91 | 0% | 49 | 0% | 87 | 0% | 43 | 0% |
| Greenland | 91 | 0% | 271 | 0% | 94 | 0% | 305 | 0% |
| Brunei | 35 | 0% | 443 | 0% | 33 | 0% | 419 | 0% |
| Croatia (divested in 2014) | 13 | 0% | - | 0% | 18 | 0% | 217 | 0% |
| Other countries, Latin America | 53 | 0% | 13 | 0% | 59 | 0% | 6 | 0% |
| Other countries, Asia | 16 | 0% | 15 | 0% | 14 | 0% | 12 | 0% |
| Other countries | 87 | 0% | - | 0% | 38 | 0% | - | 0% |
| Regional costs / elimination | (3) | 0% | 0 | 0% | (4) | 0% | 0 | 0% |
| Corporate functions / eliminations | (85) | 0% | 160 | 0% | (84) | 0% | 153 | 0% |
| ISS Group | 74,105 | 100% | 510,968 | 100% | 78,459 | 100% | 533,544 | 100% |
Please refer to pages 160-162 for a list of countries where ISS operates.
Henrik Andersen Group COO EMEA
ISS World Services A/S Buddingevej 197 2860 Søborg Denmark Tel.: +45 38 17 00 00
Responsibility: Overall responsible for EMEA and specifically for Belgium, France and the Netherlands
Troels Bjerg Regional CEO Northern Europe
ISS World Services A/S Buddingevej 197 2860 Søborg Denmark Tel.: +45 38 17 00 00
Responsibility: Denmark, Finland, Greenland, Iceland, Ireland, Norway, Sweden and the United Kingdom
Jacob Götzsche Regional CEO Central Europe
ISS World Services A/S Buddingevej 197 2860 Søborg Denmark Tel.: +45 38 17 00 00
Responsibility: Austria, Germany, Israel, Italy, Luxembourg, Portugal, Spain and Switzerland
Flemming Bendt Regional CEO Eastern Europe
ISS World Services A/S Buddingevej 197 2860 Søborg Denmark Tel.: +45 38 17 00 00
Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia and Turkey
John Peri Group COO Americas & APAC
ISS World Services A/S Buddingevej 197 2860 Søborg Denmark Tel.: +45 38 17 00 00
Overall responsible for Americas, Asia Pacific and specifically for the USA
Regional CEO Asia Pacific
ISS Asia Pacific PTE LTD 1 Kim Seng Promenade – # 12 04 Great World City East Tower Singapore 237994 Tel.: +65 66 03 80 83
Australia, Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan and Thailand
Regional CEO Latin America
ISS Facility Services Inc. 5201 Blue Lagoon Drive, Suite 800, Miami – Florida 33126 USA Tel.: +1 (305) 629 3001
Responsibility: Argentina, Brazil, Chile, Mexico and Uruguay
Peter Ankerstjerne Head of Group Marketing
Carsten Højlund Head of Group Internal Audit
Barbara Plucnar Jensen Head of Group Treasury
Andrew Price Head of Global Corporate Clients
Bjørn Raasteen Group General Counsel
Peter Schack Head of Group Procurement
Mads Kristensen Head of Group Tax
Kenth Kærhøg
Peter Harder Thomsen Head of Group Controlling
Henrik Trepka Head of Group IT
Nicholas Ward Head of Group Investor Relations
Todd O'Neill Head of Group Strategy & Corporate Development
Head of Group Communication
www.au.issworld.com
Eduardo Rojas (Interim)
Tel.: +55 11 21 95 87 80 www.br.issworld.com
ISS Servisystem do Brasil Ltda, Rua Dom Aguirre 438, Vila Sofia 04671-903 São Paulo – SP Brazil
Chile Eduardo Rojas
Brazil
ISS Facility Services S.A., Avenida Las Torres 1385, El Rosal – Huechuraba, Santiago de Chile
Jan Bohácek ISS Facility Services s.r.o., Eastbuilding, Antala Staska 510/38, 140 00 Prague 4 – Krc, Czech Republic Tel.: +420 2 6139 2311 www.cz.issworld.com
Martin Gaarn Thomsen ISS Facility Services A/S, Gyngemose Parkvej 50 2860 Søborg, Denmark Tel.: +45 38 17 17 17 www.dk.issworld.com ISS won IFS contract with Vattenfall in Germany Page 18
Priit Paiste ISS Haldus Oü, Vilde tee 129, 12613 Tallinn, Estonia Tel.: +372 613 9107 www.ee.issworld.com
Kari Virta ISS Palvelut Oy, Rajatorpantie 8 A – Vantaa, 01055 ISS, Finland Tel.: +358 205 155 www.fi.issworld.com
Antoine Namand ISS Holding Paris SAS, 12, rue Fructidor, 75017 Paris, France Tel.: +33 01 44 04 44 04 www.fr.issworld.com ISS issued new EUR bonds for
Alexander Granderath ISS Facility Services GmbH, Wanheimer Straße 92, 40468 Düsseldorf, Germany Tel.: +49 211 30278-0 www.de.issworld.com
Lars Andersen ISS Grønland A/S, Postboks 519, 3900 Nuuk, Greenland Tel.: +299 34 20 50 www.gl.issworld.com
Calvin Chin ISS Facility Services Limited, 18/F Warwick House West, Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong Tel.: +852 2826 9166 www.hk.issworld.com
ISS Facility Services Kft., Peterdy u. 15, 1071 Budapest, Hungary Tel.: +36 (1) 413-3140 www.hu.issworld.com
Gudmundur Gudmundsson ISS Iceland ehf, Austurhraun 7, 210 Gardabaer, Iceland Tel.: +354 5800 600 www.is.issworld.com
Purvin Patel ISS Integrated Facility Services Pvt. Ltd., Registered & Corporate Offi ce – The Qube B 401/404 & A 402. CTS No 1498 A/2, Village Marol, Sahar Road, Andheri East Mumbai- 400059, India Tel.: +91 022 6104 1111 / 6104 1515 www.in.issworld.com
Houtman Simanjuntak P.T. ISS Indonesia, Graha ISS, Jl. Jend. Sudirman, Blok J No. 3, Bintaro Jaya 15229, Indonesia Tel.: +6221 748 64490 www.id.issworld.com
Citywest Business Campus, Dublin 24, Ireland
ISS Facility Services, 4-6 Riverwalk
Tel.: +972-3-538-2236 www.il.issworld.com
Tel.: +353 1 4682900 www.id.issworld.com
Israel
Ireland Richard Sykes
Antonio Winteler ISS Facility Services S.r.l., Via E Bugatti 12, 20142 Milano, Italy Tel.: +39 02 82681210 www.it.issworld.com
ISS Facility Services Phils., Inc., 1040 EDSA corner Magellanes Village, Makati City, 1232 Philippines Tel.: +632 754 7600 www.ph.issworld.com
ISS Facility Services Sp. Z o.o., Ul. M Flisa 2, 02-247 Warsaw, Poland Tel.: +48 22 577 4200 www.pl.issworld.com
Helio Kutomi Nihon ISS KK, Sunfl ower Bldg. 2F, 2-11-17, Kyobashi, Chuo-ku, Tokyo, Japan Tel.: +81 03 5159 6760
Japan
Kris Cloots ISS Facility Services S.A., Rue Christophe Plantin 5, L – 2339 Gasperich, Luxembourg Tel.: +352 42 46 20 1 www.lu.issworld.com
C.C. Woon ISS Facility Services Sdn Bhd, No. 18, Jalan 19/1, 46300 Petaling Jaya, Selangor, Malaysia Tel.: +603 7968 8288/7968 8388 www.my.issworld.com
Juan Paulo Mendoza ISS Facility Services, SA de CV, Aquiles Serdán 157, Col. Ángel Zimbrón, 02090 Mexico DF Tel.: +52 (55) 9114 1300 www.mx.issworld.com
Kees Stroomer ISS Nederland BV, Rijnzathe 8, 3454 PV De Meern, Netherlands Tel.: +31 30 242 43 44 www.nl.issworld.com
Dane Hudson ISS Facility Services Ltd., 2 Arthur Brown Place, Mt Wellington, Auckland, New Zealand Tel.: +64 95 73 45 00 www.nz.issworld.com
Hans John Øiestad ISS Facility Services AS, Smeltedigelen 1, 0195 Oslo, Norway Tel.: +47 815 55 155 www.no.issworld.com
Michalis Roussos (interim) ISS Ashmoret Ltd., Hacharoshet 30 ST., Or Yehuda 60256, Israel
José Martins ISS Facility Services Lda, Rua Moinho da Barrunchada, 4– 1º Dtº, 2790-109 Carnaxide, Portugal Tel.: +351 21 424 67 60 www.pt.issworld.com
Laurentiu Gheorghe ISS Facility Services SRL, Str. Popa Tatu, nr. 36, Sector 1, Bucuresti 010000, Romania Tel.: +40 21 2524785 www.ro.issworld.com
119019, Moscow, Russia Tel.: +7 (495) 933 44 73 www.ru.issworld.com
ISS Facility Services Private Limited, No.1 Jalan Kilang Timor, #10-00 Pacifi c Tech Centre, Singapore 159303 Tel.: +65 6 227 9711 www.sg.issworld.com
ISS Facility Services spol. s r.o., Mokráň Záhon 2, 821 04 Bratislava, Slovakia Tel.: +421 2 32 630 111 www.sk.issworld.com
Spain
Sweden Lars Nygaard
Joaquim Borrás Ferré
Tel.: +34 93 590 3060 www.es.issworld.com
Igor Rajkovic ISS Facility Services d.o.o., Trzaska cesta 53, 2000 Maribor, Slovenia Tel.: +386 2 450 33 00 www.si.issworld.com
ISS Facility Services S.A., C/ Jesús Serra Santamans, 7 – 08174 Sant Cugat del Vallès – Barcelona, Spain
André Nauer ISS Facility Services, Buckhauserstrasse 22, Postfach, 8010 Zürich, Switzerland Tel.: +41 58 787 80 00 www.ch.issworld.com
ISS Facility Services AB, Årstaängsvägen 11, Box 47635, 117 94 Stockholm, Sweden
Taiwan
ISS Facility Services LTD., 10F – 1, No. 20, Sec. 3, BaDe Road, Taipei, Tawain 105 Tel.: +886 2 2577 4888 www.tw.issworld.com
Abhijit Datta ISS Facility Services Co., Ltd., 365 Phaholyothin Rd., Anusawaree, Bangkhen, Bangkok 10220, Thailand Tel.: +66 2 552 5015 www.th.issworld.com
Cavit Habib ISS Tesis Yönetim Hizmetleri A.S. Yahya Kemal Mah., Okul Cad. No:8 Kağthane 34410, Istanbul, Turkey Tel.: +90 212 354 74 00 www.tr.issworld.com
Richard Sykes ISS UK Limited, ISS House, Genesis Business Park, Albert Drive, Woking, Surrey GU21 5RW, United Kingdom Tel.: +44 845 057 6500 www.uk.issworld.com
Mariano Miguel Papa ISS Uruguay S.A - Samilar S.A Falcri Ltda, Dr. Carlos María de Pena 4368,esquina Palomeque, 12.900 Montevideo, Uruguay Tel.: +598 2 3046012 www.uy.issworld.com
Buddingevej 197 DK-2860 Søborg Denmark Tel.: +45 38 17 00 00 Fax: +45 38 17 00 11 www.issworld.com CVR 28 50 47 99
Kenth Kærhøg Head of Group Communications Tel.: +45 38 17 00 00
INVESTOR RELATIONS
Nicholas Ward Head of Group Investor Relations Tel. +45 38 17 00 00
EDITED BY Group Controlling ISS A/S
DESIGN, PRODUCTION & PRINT KIRK & HOLM Rosendahls
ISS A/S www.issworld.com
| DKK million | Note | 2014 | 2013 |
|---|---|---|---|
| Other operating expenses | 3 | (6) | (2) |
| Operating profit/(loss) before other items | (6) | (2) | |
| Other income and expenses, net | 4 | (44) | 9 |
| Operating profit/(loss) | (50) | 7 | |
| Income from subsidiary | 7 | 1,250 | 5,591 |
| Financial income | 5 | 113 | 158 |
| Financial expenses | 5 | (141) | (572) |
| Profit before tax | 1,172 | 5,184 | |
| Income taxes | 6 | 9 | (18) |
| Net profit for the year | 1,181 | 5,166 | |
| Attributable to: | |||
| Owners of ISS A/S | 1,181 | 5,166 | |
| Net profit for the year | 1,181 | 5,166 |
| DKK million | Note | 2014 | 2013 |
|---|---|---|---|
| Net profit for the year | 1,181 | 5,166 | |
| Other comprehensive income | |||
| Items to be reclassified to the income statement in subsequent periods: | |||
| Fair value adjustment of hedges, net, transferred to Financial income | 11 | - | 4 |
| Tax | 6 | - | (2) |
| Total other comprehensive income | - | 2 | |
| Total comprehensive income for the year | 1,181 | 5,168 | |
| Attributable to: | |||
| Owners of ISS A/S | 1,181 | 5,168 | |
| Total comprehensive income for the year | 1,181 | 5,168 |
| DKK million Note |
2014 | 2013 |
|---|---|---|
| Operating profit/(loss) before other items | (6) | (2) |
| Changes in working capital | (0) | (0) |
| Other income and expenses received/(paid) | (44) | 9 |
| Income taxes paid | (231) | (116) |
| Joint taxation contribution received, net | 127 | 126 |
| Cash flow from operating activities | (154) | 17 |
| Dividends received from subsidiary 7 |
1,250 | 5,591 |
| Cash flow from investing activities | 1,250 | 5,591 |
| Repayment of borrowings | (1,914) | (6,921) |
| Payments (to)/from companies within the ISS Group, net | (6,770) | 1,705 |
| Interest received from companies within the ISS Group | 106 | 145 |
| Interest paid, external | (103) | (417) |
| Interest paid to companies within the ISS Group | (43) | (120) |
| Purchase of treasury shares | (160) | - |
| Proceeds from issuance of share capital | 7,788 | - |
| Cash flow from financing activities | (1,096) | (5,608) |
| Total cash flow | (0) | (0) |
| Cash and cash equivalents at 1 January | 0 | 0 |
| Total cash flow | (0) | (0) |
| Cash and cash equivalents at 31 December | 0 | 0 |
| DKK million Note |
2014 | 2013 |
|---|---|---|
| Assets | ||
| Investment in subsidiary 7 |
17,874 | 17,874 |
| Receivables from companies within the ISS Group | - | 1,331 |
| Non-current assets | 17,874 | 19,205 |
| Receivables from companies within the ISS Group | 4,997 | - |
| Tax receivables | 41 | - |
| Other receivables | - | 2 |
| Cash and cash equivalents | 0 | 0 |
| Current assets | 5,038 | 2 |
| Total assets | 22,912 | 19,207 |
| DKK million Note |
2014 | 2013 |
| Equity and liabilities | ||
| Total equity | 22,853 | 13,991 |
| Loans and borrowings | - | 1,907 |
| Debt to companies wihtin the ISS Group | - | 1,324 |
| Non-current liabilities | - | 3,231 |
| Loans and borrowings | 2 | - |
| Debt to companies wihtin the ISS Group | 55 | 1,852 |
| Trade payables | 0 | 2 |
| Tax payables | - | 108 |
| Other liabilities | 2 | 23 |
| Current liabilities | 59 | 1,985 |
| Total liabilities | 59 | 5,216 |
| Total equity and liabilities | 22,912 | 19,207 |
| 2014 | ||||||
|---|---|---|---|---|---|---|
| DKK million | Share capital |
Retained earnings |
Hedging reserve |
Treasury shares |
Proposed dividends |
Total |
| Equity at 1 January | 135 | 13,856 | - | - | - | 13,991 |
| Comprehensive income for the year | ||||||
| Net profit for the year | - | 271 | - | - | 910 | 1,181 |
| Total comprehensive income for the year | - | 271 | - | - | 910 | 1,181 |
| Transactions with owners | ||||||
| Share issue | 50 | 7,986 | - | - | - | 8,036 |
| Costs related to the share issue | - | (248) | - | - | - | (248) |
| Purchase of treasury shares | - | - | - | (160) | - | (160) |
| Share-based payments | - | 53 | - | - | - | 53 |
| Total transactions with owners | 50 | 7,791 | - | (160) | - | 7,681 |
| Total changes in equity | 50 | 8,062 | - | (160) | 910 | 8,862 |
| Equity at 31 December | 185 | 21,918 | - | (160) | 910 | 22,853 |
| DKK million | Share capital |
Retained earnings |
Hedging reserve |
Treasury shares |
Proposed dividends |
Total |
|---|---|---|---|---|---|---|
| Equity at 1 January | 135 | 8,705 | (17) | - | - | 8,823 |
| Comprehensive income for the year | ||||||
| Net profit for the year | - | 5,166 | - | - | - | 5,166 |
| Other comprehensive income | ||||||
| Adjustment of hedging reserve due to repayment of the underlying loan |
- | (15) | 15 | - | - | - |
| Fair value adjustment of hedges, net, transferred to Financial expenses |
- | - | 4 | - | - | 4 |
| Tax | - | - | (2) | - | - | (2) |
| Total other comprehensive income/(loss) | - | (15) | 17 | - | - | 2 |
| Total comprehensive income for the year | 5,151 | 17 | - | - | 5,168 | |
| Total changes in equity | - | 5,151 | 17 | - | - | 5,168 |
| Equity at 31 December | 135 | 13,856 | - | - | - | 13,991 |
| 171 | Note 1 | Significant accounting policies |
|---|---|---|
| 171 | Note 2 | Critical accounting estimates and judgements |
The financial statements for the parent company have been prepared in pursuance of the requirements of the Danish Financial Statements Act.
The financial statements of ISS A/S have been prepared in accordance with IFRS as adopted by the EU and Danish disclosure requirements for listed companies. In addition, the financial statements have been prepared in compliance with the IFRSs issued by the IASB.
Changes in accounting policies are described in note 1.1 to the Group's consolidated financial statements.
With the exception of the items described below, the accounting policies for ISS A/S are identical to the Group's accounting policies, which are described in the notes to the Group's consolidated financial statements.
Income from subsidiary comprises dividends and gains and losses from divestment of subsidiaries. Dividends are recognised in the income statement in the financial year in which the dividend is declared. If dividends declared exceed the total comprehensive income for the year, an impairment test is performed.
Investment in subsidiary is measured at cost, which comprises consideration transferred measured at fair value and any directly attributable transaction costs. If there is indication of impairment, an impairment test is performed as described in the accounting policies in note 4.4 to the consolidated financial statements. Where the recoverable amount is lower than the cost, the investment is written down to this lower value.
Tax As required by Danish legislation ISS A/S is jointly taxed with all Danish resident subsidiaries. ISS A/S acts as administration company for the joint taxation and consequently settles all payments of corporation tax with the tax authorities. Joint taxation contributions to/from subsidiaries are recognised in the income statement under Income taxes and in the statement of financial position under receivables from or debt to companies within the ISS Group.
Companies which utilise tax losses in other companies pay joint taxation contribution to the parent company equivalent to the tax base of the tax losses utilised. Companies whose tax losses are utilised by other companies receive joint taxation contributions from the parent company equivalent to the tax base of the tax losses utilised (full absorption).
Determining the carrying amount of certain assets and liabilities requires estimates of how future events will affect the value of these assets and liabilities at the reporting date. Estimates that are significant to the preparation of the parent company's financial statements are, among other things, the assessment of indications of impairment on investment in the subsidiary.
The estimates, judgements and assumptions are made based on historical experience and various other factors which management assesses to be reliable, but which by their nature are associated with uncertainty and unpredictability. These assumptions may prove incomplete or incorrect, and unexpected events or circumstances may arise.
Critical accounting estimates and judgements relating to the applied accounting policies for ISS A/S are the same as for the Group to the extent of similar accounting items, see note 1.1 to the Group's consolidated financial statements for a description. The specific risks for ISS A/S are described in the notes to the financial statements of the parent company.
Investment in subsidiary is tested for impairment when there is an indication that the investment may be impaired. The assessment of whether there is an indication of impairment is based on both external and internal sources of information such as performance of the subsidiary, significant decline in market values etc.
| DKK million | 2014 | 2013 |
|---|---|---|
| EY (formerly KPMG) | ||
| Statutory audit | 1 | 1 |
| Other assurance services | 9 | 2 |
| Total EY | 10 | 3 |
Statutory audit comprised audit of the financial statements.
Other assurance services mainly comprised work related to the IPO.
| DKK million | 2014 | 2013 |
|---|---|---|
| IPO costs Reimbursed costs related to exit processes (income) |
(44) - |
- 9 |
| Other income and expenses, net | (44) | 9 |
| DKK million | 2014 | 2013 |
|---|---|---|
| Interest income from companies within the ISS Group | 106 | 145 |
| Net change in fair value of interest rate swaps | 7 | - |
| Foreign exchange gains | - | 13 |
| Financial income | 113 | 158 |
| Interest expenses on loans and borrowings | (81) | (355) |
| Interest expenses to companies within the ISS Group | (43) | (120) |
| Refinancing | (12) | (61) |
| Amortisation of financing fees | (2) | (13) |
| Other bank fees | (1) | (2) |
| Net change in fair value of interest rate swaps | - | (17) |
| Net change in fair value of cash flow hedges | - | (4) |
| Foreign exchange losses | (2) | - |
| Financial expenses | (141) | (572) |
Interest expenses on loans and borrowings The refinancing of the pre-IPO debt reduced interest expenses compared to 2013.
Refinancing The full redemption of the Senior Subordinated Notes due 2016 in May 2014 resulted in non-cash unamortised financing fees being expensed of DKK 12 million. In 2013, costs of DKK 52 million
related to the partial redemption of the Senior Subordinated Notes of which DKK 30 million related to call premiums and DKK 22 million related to unamortised financing fees. Furthermore, the refinancing of the Second Lien Facility resulted in non-cash unamortised financing fees of DKK 9 million being expensed.
| DKK million | 2014 | 2013 |
|---|---|---|
| Current tax regarding Profit before tax | 12 | 40 |
| Tax on Profit before tax Adjustments relating to prior years, net |
12 (3) |
40 (58) |
| Income taxes | 9 | (18) |
| 2014 | 2013 | |
|---|---|---|
| Statutory income tax rate in Denmark | 24.5 % | 25.0 % |
| Non-tax deductible expenses less non-taxable income | (26.0)% | (27.3)% |
| Adjustments relating to prior years, net | 0.2 % | 1.1 % |
| Limitation to interest decuction (Denmark) | 0.5 % | 1.5 % |
| Effective tax rate | (0.8)% | 0.3 % |
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| DKK million | Before tax |
Tax | Net of tax |
Before tax |
Tax | Net of tax |
| Fair value adjustment of hedges, net, transferred to Financial income |
- | - | - | 4 | (2) | 2 |
| Total recognised in other comprehensive income | - | - | - | 4 | (2) | 2 |
| DKK million | 2014 | 2013 |
|---|---|---|
| Cost at 1 January | 25,771 | 25,771 |
| Cost at 31 December | 25,771 | 25,771 |
| Revaluation at 1 January | (7,897) | (7,897) |
| Revaluation at 31 December | (7,897) | (7,897) |
| Carrying amount at 31 December | 17,874 | 17,874 |
| Income from subsidiary Received dividends |
1,250 | 5,591 |
| Income from subsidiary | 1,250 | 5,591 |
| Subsidiary | Share % | Share % |
| ISS World Services A/S, Søborg, Denmark | 100 | 100 |
At 31 December 2014, ISS A/S had no recognised deferred tax assets or liabilities (31 December 2013: none).
Deferred tax assets relating to tax losses carried forward are only recognised to the extent that it is more likely than not that future taxable profit will be available against which the unused tax losses can be utilised in the foreseeable future. ISS A/S has unrecognised deferred tax assets regarding tax losses carried forward of DKK 0 million (2013: DKK 0 million). The unrecognised tax losses can be carried forward indefinitely.
| 2014 | 2013 | |||
|---|---|---|---|---|
| DKK thousand | The Board | The EGM | The Board | The EGM |
| Base salary and non-monetary benefits | 5,713 | 27,762 | 2,930 | 19,678 |
| Annual bonus | - | 14,561 | - | 12,091 |
| Bonus related to the IPO 1) | - | 17,859 | - | - |
| Share-based payments | - | 10,868 | - | - |
| Total remuneration | 5,713 | 71,050 | 2,930 | 31,769 |
1) DKK 14 million is recognised in Other income and expenses, net, of which DKK 10 million is included in ISS A/S and DKK 4 million in ISS World Services A/S. DKK 4 million is recognised in equity.
Remuneration to the Board of Directors (the Board) and the Executive Group Management Board (the EGM) is paid by ISS World Services A/S and is described in note 6.1 to the Group's consolidated financial statements.
The EGM participates in two share-based incentive schemes; a Long-Term Incentive Programme (LTIP) and a Transition Share Programme (TSP) as described in note 6.2 to the Group's consolidated financial statements. The costs related to share-based payments are expensed in ISS World Services A/S. Members of the Board did not participate in any incentive schemes.
Following the completion of the IPO, the borrowings under the pre-IPO senior secured facilities have been repaid and replaced by a new unsecured senior facilities agreement. As a consequense hereof the previous pledges and guarantees in favour of the pre-IPO senior secured facilities have been cancelled and replaced by guarantees provided by ISS A/S, ISS World Services A/S, ISS Global A/S and certain material subsidiaries of ISS Global A/S in Australia, Belgium, Denmark, Finland, France, Germany, the Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom and the USA.
At 31 December 2014, there were no indemnity and guarantee commitments (2013: DKK 298 million).
ISS A/S is jointly taxed with all Danish resident subsidiaries. As administration company ISS A/S and companies within the joint taxation have a joint and unlimited liability of Danish corporate and withholding taxes related to dividends, interests and royalties. As per 31 December 2014 Danish corporate tax and Danish withholding taxes amounted to DKK 0 million (2013: DKK 0 million). Any subsequent adjustments to Danish withholding taxes may change this joint and unlimited liability.
ISS A/S and certain Danish Group companies are jointly registered for VAT and are jointly liable for the payment hereof.
ISS A/S's financial risks are managed centrally by Group Treasury based on the treasury policy approved by the Board of Directors. The objectives, policies and processes for measuring and managing the exposure to financial risks is described in note 5.3, 5.4, 5.5 and 5.6 in the consolidated financial statements.
In 2014, proceeds from the IPO were used to fully repay ISS A/S's loans and borrowings, including the remaining Subordinated Notes due 2016 and intercompany debt. Consequently, at 31 December 2014 the exposure to financial risks specific to ISS A/S has been significantly reduced and is limited to the specific risks described below.
Currency risk is the risk that arises from changes in exchange rates and affects ISS A/S's result or value of financial instruments. At 31 December 2014, ISS A/S is not exposed to currency risk as no assets or liabilities are denominated in currencies other than DKK.
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments. As ISS A/S's loans and borrowings were repaid in 2014, ISS A/S's exposure towards changes in interest rates is limited to the fair value of the interest rate swap, which expires in Q1 2015 and will not be renewed. In 2014, the fair value adjustment of DKK 7 million was recognised in the income statement as the underlying loan was repaid.
| DKK million | Contractual value | Negative fair value at 31 December |
Recognised in the income statement for the year |
|---|---|---|---|
| 31 December 2014 | 1,492 | (2) | 7 |
| 31 December 2013 | 1,492 | (9) | 10 |
Liquidity risk results from ISS A/S's potential inability or difficulty in meeting its contractual obligations due to insufficient liquidity. ISS A/S is a holding company and its primary assets consist of shares in ISS World Services A/S and receivables from companies within the ISS Group. ISS A/S has no revenue generating activities of its own, and therefore ISS A/S's cash flow and ability to service its indebtedness and other obligations, will depend primarily on the operating performance and financial condition of ISS World Services A/S and its operating subsidiaries, and the receipt by ISS A/S of funds from ISS World Services A/S and its subsidiaries in the form of dividends or otherwise.
At 31 December 2014, ISS A/S carries no significant financial liablities. Thus the liquidity risk is primarily limited to ISS A/S's obligations under the Danish joint taxation where ISS A/S acts as the administration company.
In addition to the description in note 6.3 to the consolidated financial statements of related parties and transactions with these, related parties of ISS A/S comprise ISS World Services A/S and its subsidiaries, associates and joint ventures, see note 8.10 to the consolidated financial statements.
In 2014, ISS A/S had the following transactions with other related parties, which were all made on market terms:
Credit risk
Credit risk is the risk of financial loss inflicted on ISS A/S if a counterparty to a financial instrument fails to meet its contractual obligations. As ISS A/S has no revenue generating activities of its own and therefore no trade receivables, the credit risk is limited to an insignificant amount of cash and cash equivalents and an intercompany receivable with its indirectly owned subsidiary ISS Global A/S.
New standards and interpretations not yet implemented are described in note 8.9 to the Group's consolidated financial statements.
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