Annual Report (ESEF) • Feb 24, 2022
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Download Source FileUntitled 2021 ANNUAL REPORT PEOPLE MAKE PLACES Contents Remuneration report Corporate responsibility report Corporate governance report Other statutory reports ISS case stories 12 Cleaning: Meeting new standards for hygiene 24 Sustainability: Nestlé eliminates waste to landll with ISS 39 People: Fostering an inclusive learning culture at ISS Austria 48 Technical: New service concept reduces costs and emissions for PwC 107 Responding to natural disasters: Supporting businesses through natural disasters ISS at a glance Letter to our stakeholders 3 Performance highlights 5 Our story 6 Strategic update 7 Our global footprint 8 The ISS investment case 9 Outlook 2022 10 Five-year summary 11 Our performance Group results 14 Cash generation and free cash ow 16 Capital structure 17 Key account development 18 Strategic divestment programme 19 Continental Europe 20 Northern Europe 21 Asia & Pacic 22 Americas 23 Our business Our strategy 26 Our people 30 Our business risks 32 Corporate responsibility 35 Our journey to net zero 36 Climate-related risks 37 Diversity, inclusion & belonging 38 Our governance Corporate governance 41 Our governance structure 44 Meet the Board of Directors 45 Meet the Executive Group Management 47 Financial statements Consolidated nancial statements 50 Parent company nancial statements 98 Management statement 103 Independent auditor’s report 104 Denitions 108 Country revenue 109 2021 PEOPLE MAKE PLACES STATUTORY REPORT ON CORPORATE GOVERNANCE 2021 REMUNERATION REPORT PEOPLE MAKE PLACES 2021 CORPORATE RESPONSIBILITY REPORT PEOPLE MAKE PLACES Letter to our stakeholders Led by our purpose of connecting people and places to make the world work better, we have focused on providing a clean and safe working environment for our customers’ employees as well as our own employees – who we call placemakers. This remained a top priority to keep vital infra- structure and key production facilities open and operational in a year where the pandemic was yet again a dominating factor. At the same time, we supported a rapidly-changing global workplace with hybrid work becoming the new normal at many of our oce-based customers. We want to thank all our employees for working tirelessly in ensuring this vital support to our customers. 2021 was another dicult year for the world as the Covid-19 pandemic continued to challenge societies and businesses. As a leading provider of services to the global workplace, this also aected ISS. The adverse impact on our revenue from Covid-19 restrictions and lockdowns continued to vary across our services, customer segments and geographies. However, we also saw a positive contribution from continued strong demand for deep-cleaning and disinfection solutions, which supported our revenue related to project work. Solid nancial developments Despite the challenges posed by the pandemic and a volatile business environment with wage ination and labour shortages in many regions, ISS remained resilient and delivered signicant nancial and operational progress in 2021. This was not least due to the impact from our turnaround programme and restructuring initia- tives across our business and a strong focus on servicing our key customer segments. Organic growth was 2.0% in 2021, compared with (6.6)% in 2020, mainly due to improvements in the portfolio revenue despite continued subdued activity across many segments and regions. Growth remains a key focus area for us, and with the OneISS strategy we are investing further to develop our commercial processes and in delivering world-class customer solutions to attract and retain customers. Our execution of the turnaround programme and restructuring initiatives and the implemen- tation of the OneISS strategy led to a signicant improvement of our operating margin as well as strong cash ow generation. As a result, we raised our nancial guidance in the second half of 2021 and ended the full year with an operating margin of 2.5% and a free cash ow of DKK 1.7 billion, in line with our revised guidance. Delivering on our strategic ambitions The nancial progress was a testament to our persistent focus on implementing the OneISS strategy, which sets out our dual priority of Niels Smedegaard Chair Jacob Aarup-Andersen Group CEO Looking back, 2021 was a year of fundamental change for ISS. We made we have only just embarked on this multi- we will provide further progress in 2022 and the years to come. ISS delivered signicant strategic, nancial, and operational progress in 2021. Thanks to our more than 350,000 placemakers, and despite substantial headwinds, not least from the Covid-19 pandemic, ISS supported the needs of our customers as the global workplace was undergoing rapid change. Furthermore, we strengthened our eorts substantially towards a full-scope net zero business by 2040. ISS AT A GLANCE delivering a short-term turnaround while at the same time ensuring long-term improvements to the global operating model. We launched our strategy refresh in December 2020 with the clear aim of sharpening our focus on key segments, accelerating technology investments, and introducing a new globally aligned operating model. With the refreshed strategy, we are taking advantage of our global scale to drive superior value for all stakeholders, to become the most respected global leader in integrated facility services and to strengthen our position as the global number one in cleaning. During 2021, we made a number of organi- sational changes, introduced a new country blueprint and launched changes to the top management teams of ISS. All to ensure that ISS is t for the future and that we can full our strategic ambitions by delivering strong outcomes for all stakeholders. As a result, 40% of our top 400 leaders are new to their roles. Furthermore, we have signicantly strengthened the Executive Group Management team with a good combination of executives recruited within ISS’s own talent pool and external proles with the right international expertise and experience. Turnaround initiatives on track We continued to execute on our turnaround programme for 2021-2022 focusing on protability and cash generation. The turn- around plan entails a substantial improvement of underperforming contracts and countries, a recovery from the Covid-19 situation and a sharpened strategic focus through our divest- ment programme. During the year, we achieved important milestones on these priorities. In June, we reached an agreement to gradually exit the underperforming partnership contract with Danish Defence. Furthermore, the perfor- mance of the Deutsche Telekom contract, our largest contract globally, developed according to the recovery plan and we saw improvements in the performance of our operations in France and the UK. On our divestment programme, we signed or completed a total of 14 divestments during the year (including in January 2022), taking us well ahead of our plan and securing net proceeds of DKK 1.8 billion out of the targeted DKK 2 billion by year-end 2022. In addition, we saw the early signs of recovery from the pandemic as cus- tomers gradually returned to oces in certain countries and despite the recent rise in infection rates. Overall, we delivered according to plan on the turnaround programme, and in some areas even ahead of our expectations. High retention rate for key accounts In line with our strategic focus on global key accounts, we maintained a high retention rate for key accounts of 94%. During the year, we further strengthened our position both within existing and new key accounts across several markets. In March, we agreed to extend the stra- tegic partnership with Barclays until 2025. For the past nine years, ISS has delivered integrated facility and workplace services in more than 30 countries across the Barclays portfolio. In June, we announced an agreement with en- ergy company Equinor to deliver services to its oce sites. The contract will run for ve years, with a possible extension of ve additional years. This is the largest contract of its kind on the Nor- wegian market. In Turkey, we strengthened our position in the strategically important healthcare sector with the acquisition of Rönesans Facility Management Company in September. The expansion in the Turkish healthcare sector will advance our eorts to accelerate our leadership position within this key segment. At the end of the year, we agreed to extend the long-standing partnership with Hewlett Packard Enterprise for another ve years and generally, we managed to renew a number of other large key accounts with multi-year contracts through- out the year. Continued focus on operational performance To further strengthen the execution of our strategy and improve our global operating model, we have taken signicant steps towards building a much more aligned organisation and implementing unied processes. OneISS is all about truly leveraging the power of being a large global enterprise and with that constantly providing the best of ISS to our customers. By doing so, we raise the eciency, quality, and consistency of our operational performance. One example was the introduction of sophisticat- ed benchmarking tools for enhanced productivity of daily oce cleaning in selected countries and contracts. The tool allows operators and specialists to identify improvement potential at customer sites as well as the required actions to achieve it. We also introduced a new strategy and structure for Global IT, Digitalisation & Services focusing on insourcing and centralisation of IT resources, delivering the right digital applications for our customers and employees, and building on scalable and cybersecure tech platforms. In December, we ocially opened our new head- quarter hub in the Polish capital of Warsaw. The hub will – as a supplement to our main head oce in Denmark – play an important role in fullling our strategic ambitions and ensuring that we have access to the best talent pool going forward. Ensuring a safe, diverse, inclusive and sustainable workplace As the world continues to recover from the pandemic, our focus remains on supporting our customers in their current and future needs. Not least when it comes to ensuring a safe and sus- tainable global workplace to the benet of our planet and the people who live and work on it. At ISS, we recognise the full scope of the ongoing climate and environmental crisis. And we are strongly committed to carrying out our opera- tions and delivering our services in a sustainable way. For this reason, we have recently appointed a new Head of Sustainability and in January 2022, we launched our new sustainability targets, in- cluding an ambitious target of reaching full-scope net zero greenhouse gas emissions by 2040. Social sustainability, which has always been in our DNA, was also further strengthened in 2021. ISS is built on a foundation of equity, inclusion, fairness and respect for all individuals. With the appoint- ment of a new Head of Diversity & Inclusion and the launch of a new D&I strategy, we are commit- ted to taking a proactive responsibility towards our surrounding communities, our customers, and society by reecting diversity and reinforcing an inclusive culture where everyone can be their authentic self and feel that they belong. Looking back, 2021 was a year of fundamental change for ISS. We made signicant progress strategically, nancially and operationally. However, we have only just embarked on this multi-year journey that will create a stronger, simpler and closer ISS. With a solid foundation, a clear strategy and not least the support of our dedicated placemakers who every day connect people and places to make the world work bet- ter, we are condent that we will provide further progress in 2022 and the years to come. ISS AT A GLANCE Performance highlights Organic growth Operating margin DKKbn Operating before other items DKKbn DKKbn Revenue DKKbn % Operating profit before other items (DKKbn) Operating margin (%) (6) (3) 0 3 6 202120202019 (5.5) (2.5) 0.0 2.5 5.0 Free cash flow (DKKbn) DKKbn (2) (1) 0 1 2 202120202019 % (%) 0 10 20 30 40 202120202019 30% 35% 33% 2.7 Initial recovery from Covid-19 of portfolio revenue, par- ticularly in H2, when customers started to return to their oces, led to positive organic growth in 2021. We continued to see a positive trend in employee turnover driven by our key account focus, including discontinuation of high-churn non-key account contracts, divestments and persistent push for retention initiatives in countries. Progress on underperforming contracts and countries, impact from ongoing restructuring initiatives and initial recovery from Covid-19 were the main drivers of the signicant improvement in 2021. Our strong focus on customer satisfaction and proactive work with customers to seek renewals ahead of expiry led to improvement in 2021. The solid free cash ow in 2021 was driven by signicant im- provement in our operational performance, continued strong working capital performance and strict investment discipline. We continued to focus on HSE risks across the organisa- tion, e.g. through campaigns to reinforce safety behaviour at sites. In the past decade we have reduced our LTIF by more than 80% from the baseline of 13. DKKbn % Revenue (DKKbn) Organic growth (%) 40 50 60 70 80 (8) (4) 0 4 8 202120202019 Employee turnover Customer retention Lost Time Injury Frequency % (%) 60 70 80 90 100 202120202019 91%91% 92% Frequency Target 2021: ≤ 2.8 0 1 2 3 4 202120202019 2.8 2.5 2.7 ISS AT A GLANCE Our story We are placemakers From strategy through to operations, we partner with customers to deliver places that work, think and give. They choose us because we create, manage and maintain environments that make life easier, more productive and enjoyable. Our people care about the people they support, always adding a human touch to create places that deliver and delight. Every ISS person in every customer facility is one of us – trained, equipped, motivated and working to high standards. Working with customers day by day, side by side, we come to understand every aspect of the user experience. We deploy data, insights and knowledge to develop innovative strategies and intelligent solutions to meet the intricate realities of service delivery. This helps us man- age risk, reduce cost and ensure consistency. As a global company with a heritage of fairness, equality and inclusion, we empower all of our people to deal with problems and opportunities when they arise. We see it as our job to help our customers achieve their purpose. Whether it is hospitals healing patients, businesses boosting productivity, airports transferring passengers or manufacturing sites producing goods, we are there to help. People make places and places make people. We know that when we get things right, it enhances lives and makes the world work better – and that is what drives us. Caring for people, places and the planet Making the world work better starts with our belief in creating a fair and inclusive society. We take care of, and provide opportunity for people, helping them to develop themselves. We do this because we know our people can and do make a dierence. We believe that people make places and places make people. ISS helps to protect and maintain places – buildings and the assets inside them. We help our customers minimise their impact on the planet by reducing their consumption of energy, carbon and water and cutting their production of waste, including food. We bring all of this to life through a unique combination of data, insight and service excellence. Our purpose Connecting people and places to make the world work better Our promise A sustainable business model that supports the world we live in ISS AT A GLANCE Core services Our strategic choices IFS revenue share Key account share Cleaning Technical Food Other, incl. workplace Strategic update Progress 2021 Turnaround 2021-2022 • Agreement reached to exit Danish Defence gradually until May 2022 • Good progress on remaining underperforming contracts and countries • Initial recovery from Covid-19 with customers slowly returning to oce in some countries Divestment programme • Secured net proceeds of DKK 1.8bn (target of DKK 2bn in 2021-2022) • Chile reclassied to continuing operations • Rescoped in January 2022 to only include the remaining three countries and two business units Global operating model • New country blueprint organisation with distinct focus on key accounts and single-service customers • New Operations Performance function established, including roll-out of benchmarking tool for enhanced productivity of daily oce cleaning in selected countries and contracts • New global product management team and governance, tightly linked with technology • New global commercial team and strengthened bid process • New technology strategy led by new EGM member responsible for Technology and Digital • New Head of Sustainability hired and commitment to net zero emissions by 2040 announced in January 2022 OneISS In December 2020, we launched our refreshed strategy, OneISS, conrming our key account strategy and our Integrated Facility Services (IFS) delivery model. We continue to focus on self-delivery of our core services by experienced placemakers, who care. Acknowledging that historic execution was unsatisfactory, OneISS focuses on delivering a short-term turnaround of our underperforming contracts and countries, recovery from Covid-19 and a sharpened focus through our divestment programme. At the same time, we are investing in a long-term improvement of the global oper- ating model to enable us to deliver consistent high-quality outcomes to our customers. Execution on track During 2021, we made signicant progress. Our turnaround programme is on track, and we have laid the foundation for a strengthened global operating model. We also saw a positive impact from the restructuring initiatives initiated in 2021 across the business in response to Covid-19 as well as initial signs of recovery appearing towards the end of 2021. We will continue this journey in the coming years to create OneISS – Stronger, Simpler, Closer. Given the signicant progress we have made in 2021, we have updated our strategic priorities going into 2022, see Our strategy, p. 29. This will enable us to achieve our 2025 ambition and deliver strong outcomes for all our stakeholders – Customers, Society, Colleagues, and Shareholders. Customer segments Business services & IT Industry & Manufacturing Healthcare Public administration Other Customer segments IFS Delivery Model Key Account share Core services ISS AT A GLANCE Our global footprint We operate in 30+ countries with 40,500+ customers. Our geographic footprint reects markets with an attractive local key account opportunity or are important in supporting our global customers. Partnership countries 1) Americas 31,967 Employees Asia & 130,347 Employees Northern Europe 58,165 Employees Continental Europe 124,739 Employees Continental Europe 39% of group revenue Continental Europe Northern Europe 33% of group revenue Asia & Pacific 17% of group revenue Americas Partnership countries 1% of group revenue Americas 10% of group revenue 1) See p. 109. Discontinued operations 8,074 Employees ISS AT A GLANCE The ISS investment case Major shareholders Our market KIRKBI Invest A/S Longview Partners Limited Vulcan Value Partners Incentive A/S Other Attractive key account market with signicant room to grow Latest major shareholdings reported by investors to ISS ISS is a leading, global provider of workplace and facility service solutions and the absolute leader within cleaning services. Following a year of signicant progress on our OneISS journey, we are well positioned to gain market share in a growing market underpinned by increased outsourcing and continuing demand for higher quality services. Industry leadership We serve our customers across the globe in locations that account for the vast majority of the world’s GDP. Our leadership position has been established over more than a century – a position that has allowed us to win some of the largest workplace and facility management contracts in the market. Both private and public sector organ- isations outsource these services to us because we bring insights, consistency and excellence – driving intelligent solutions, greater eciency and allowing them to focus on their own purpose. Attractive market dynamics The global facility services market has an estimated value of USD 1 trillion of which key accounts comprise around 40%. This highly fragmented market holds consolidation poten- tial and continues to grow driven by increased outsourcing, convergence towards Integrated Facility Services (IFS) and a continuing shift in demand towards higher quality services. Large customers are shifting from input-based relationships to outcome-focused strategic partnerships, where cleaning and workplace management services are seen as pivotal drivers of corporate culture and employee health and engagement. Post-Covid trends With the impact of Covid-19 on workplaces, this trend is further reinforced. Customers are not just looking for world-class service delivery, but for a partner to serve as key strategic adviser in how to bring their real estate strategies and workplace cultures to life. Large corporates are re-assessing their workspace environment and the management of facilities has become a key strategic decision in ensuring a productive and healthy working environment in the long-term. Working-from-home trends will allow some companies to rationalise their real estate footprint, while increasing demand is expected for higher quality and more frequent oerings, including deep-cleaning and disinfection. The continuing globalisation allows large global FM players to grow faster than local players as global companies increasingly require consis- tent and seamless service delivery across sites, countries, and regions. ISS is among the few global companies with this service oering and with our modest market share of around 2%, we see plenty of room to grow. Turnaround and enhanced long-term performance Historically, ISS has delivered stable margins and attractive cash conversion, which was temporarily disrupted in 2020 by Covid-19, a malware attack and a few but signicant operational challenges. In response, the new management team launched OneISS, which is outlining a clear plan to return to healthy margins (above 4%) and leverage (net debt below 3x EBITDA) by the end of 2022. Simultaneously, a new operating model is being established to enhance execution for strengthened long-term performance. The turnaround targets will be achieved through the recovery of our underperforming contracts (Danish Defence and Deutsche Telekom) and coun- tries (France and the UK) while recovering from Covid-19 through restructuring initiatives as well as the trimming and renegotiation of contracts. The new operating model is founded in a cultural transformation, including a new leadership team, amended incentive structures and a stronger global function to support local execution. The enhancements will enforce a standardised approach across ISS and enable consistent delivery of high-quality outcomes to our key account customers. In 2021, we made signicant progress on the turnaround as well as the long-term enhance- ments of the operating model. This is further described in Our strategy, p. 26, along with our priorities for 2022. ISS’s share Contract Maturity (expiry) Major share- holders 400 USDbn ISS AT A GLANCE Outlook 2022 2 ) Organic growth Above 2% Operating margin 1 ) Above 3.5% Above DKK 1.3bn Turnaround targets by 2022 Operating margin 1 ) Above 4% as run- rate entering 2023 Financial leverage Below 3x in 2022 1) Based on Operating prot before other items. 2) Excluding any impact from acquisitions and divestments completed subsequent to 14 February 2022 as well as currency translation eects. Delivery on 2021 outlook Annual report 2020 Interim 2021 Trading update Q3 2021 Actual 2021 Organic growth Positive Positive Positive 2.0% Operating margin 1) Above 2% Above 2% Around 2.5% 2.5% Slighly positive Above DKK 1bn Around DKK 1.5bn DKK 1.7bn In 2022, the execution of the OneISS strategy and the ongoing turnaround will continue. The operational and nancial improvements achieved in 2021 provide a solid foundation for continued progress in 2022, and the turnaround targets are conrmed. The outlook for 2022 assumes a continued re- turn to the workplace and Covid-19 recovery. The revenue recovery is expected to be gradual over the year as large global companies have delayed large-scale mandatory return-to-oce due to the spreading of Covid-19 (the omicron variant). Organic growth Organic growth is expected to be above 2% for 2022 (2021: 2.0%). Growth is driven by the continued gradual recovery from Covid-19, positive eects from management of ination and impact from contract wins and expansions achieved during 2021. However, we are also mindful of the sustained global uncertainties from Covid-19, where the spreading of the omicron variant has led to some reinforcement of restrictions, particularly in Asia & Pacic. A negative impact is expected from a lower level of projects and above-base work as well as the planned exit of the Danish Defence contract. Operating margin Operating margin is expected to be above 3.5% (2021: 2.5%). The main drivers of the increase are continued improvement of the underperforming contracts and countries, predominantly Deutsche Telekom, a positive impact from Covid-19 revenue recovery and continued improvement across the business from ongoing restructuring initiatives. Free cash ow Free cash ow is expected to be above DKK 1.3 billion (2021: DKK 1.7 billion). The expected high- er operating prot before other items compared to 2021 will have a positive eect on free cash ow. Inow from changes in working capital is expected to be neutral to slightly positive following the positive impact in 2021. Payments related to restructuring projects initiated in 2020, including the exit fee to Danish Defence, are expected to reduce free cash ow by around DKK 0.5 billion. Expected revenue impact from divestments, acquisitions and foreign exchange rates in 2022 Divestments and acquisitions completed by 14 February 2022 (including in 2021) are expected to have a negative impact on revenue growth in 2022 of 1.5-2.5%-points. Countries to be divested continue to be reported as discon- tinued operations and will not impact revenue growth upon divestment. Based on the current exchange rates, a negative impact on revenue growth of 0-1%-point is expected in 2022 from the development of foreign exchange rates. Turnaround targets As part of the launch of the OneISS strategy in December 2020, ISS announced turnaround targets to focus on the short-term recovery of the business. Today, the turnaround targets – which are outlining a healthy recovery with a focus on protability and cash generation – are conrmed. The target related to free cash ow is replaced by the 2022 outlook for free cash ow of above DKK 1.3 billion. • Operating margin above 4% as run-rate when entering 2023 • Net Debt / Pro Forma Adjusted EBITDA to be reduced to below 3x by the end of 2022 The outlook should be read in conjunction with “Forward- looking statements”, p. 108 and Our business risks, pp. 32–34. Delivery on 2021 outlook As a result of the signicant nancial progress in 2021, we raised our outlook twice and ended the full year in line with our revised guidance, as shown in the table above. ISS AT A GLANCE ISS AT A GLANCE Five-year summary , p. 108 1) In 2021, Chile was reclassied as held for use and continuing operations. Comparative gures were restated accordingly. 2) As of 1 January 2019, the Group implemented IFRS 16 using the retrospective approach. Comparative gures were not restated. 3) In 2021, Brunei, the Czech Republic, Hungary, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia and Taiwan were treated as discontinued operations. In 2020, Brazil, Brunei, the Czech Republic, Hungary, Malaysia, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia, Taiwan and Thailand were treated as discontinued operations. In 2019, 2018 and 2017, Argentina, Brazil, Brunei, Chile, the Czech Republic, Estonia, Hungary, Israel, Malaysia, the Philippines, Romania, Slovenia, Slovakia, Thailand and Uruguay were treated as discontinued operations. 4) Based on Operating prot before other items. 5) Selected Environmental, Social and Governance data (ESG). For all ESG data, see the 2021 Corporate Responsibility report. 6) Members elected at the annual general meeting. 7) Required from 2019. Financials 2021 2020 2019 2018 2017 Results ( DKKm ) Revenue 71,363 70,752 77,698 73,592 73,577 Operating prot before other items 1,776 ( 3,203 ) 3,252 3,698 3,995 Operating prot 1,701 ( 4,707 ) 2,522 2,386 3,247 Pro forma adjusted EBITDA 3,568 ( 1,349 ) 4,838 4,539 4,964 Financial expenses, net ( 656 ) ( 549 ) ( 703 ) ( 590 ) ( 498 ) Net prot from continuing operations 536 ( 5,220 ) 1,153 1,223 2,130 Net prot from discontinued operations 3) 101 25 218 ( 932 ) ( 123 ) Net prot 637 ( 5,195 ) 1,371 291 2,007 ( DKKm ) Cash ow from operating activities 3,221 ( 361 ) 2,064 3,347 3,613 Acquisition of intangible assets and property, plant and equipment, net ( 586 ) ( 681 ) ( 1,095 ) ( 968 ) ( 907 ) Free cash ow 1,735 ( 1,794 ) 366 2,359 2,699 Financial position ( DKKm ) Total assets 43,655 43,605 50,061 49,811 50,835 Goodwill 19,753 19,662 21,257 20,911 22,894 Additions to property, plant and equipment 335 389 673 882 742 Equity 7,789 6,545 12,547 12,472 13,814 Net debt 13,451 15,802 14,730 10,757 11,325 Shares ( ‘000 ) Number of shares issued 185,668 185,668 185,668 185,668 185,668 Number of treasury shares 970 970 970 1,001 1,509 Average number of shares ( basic ) 184,698 184,698 184,692 184,558 184,027 Average number of shares ( diluted ) 186,003 185,136 186,000 185,420 185,299 1) 2) Ratios 2021 2020 2019 2018 2017 Financial ratios ( %, unless otherwise stated ) Organic growth 2.0 ( 6.6 ) 7.1 3.9 2.9 Acquisitions and divestments, net ( 0.5 ) ( 0.2 ) ( 2.2 ) ( 0.5 ) ( 6.9 ) Currency adjustments ( 0.6 ) ( 2.1 ) 0.7 ( 3.4 ) ( 2.5 ) Total revenue growth 0.9 ( 8.9 ) 5.6 0.0 ( 6.5 ) Operating margin 4 ) 2.5 ( 4.5 ) 4.2 5.0 5.4 Equity ratio 17.8 15.0 25.1 25.0 27.2 Net debt/Pro forma adjusted EBITDA 3.8x ( 11.7 ) x 3.0x 2.4x 2.3x Share ratios ( DKK ) Basic earnings per share ( EPS ) 3.3 ( 28.2 ) 7.3 1.5 10.9 Diluted EPS 3.3 ( 28.2 ) 7.3 1.5 10.8 Basic EPS ( continuing operations ) 2.8 ( 28.3 ) 6.1 6.6 11.6 Diluted EPS ( continuing operations ) 2.8 ( 28.3 ) 6.1 6.5 11.5 Proposed dividend per share - - - 7.70 7.70 5) 2021 2020 2019 2018 2017 Environmental (tonnes CO 2 eq.) Vehicle emissions ( Scope 1 ) 71,159 78,704 89,334 91,199 96,664 Electricity emissions ( Scope 2 ) 5,180 7,390 12,009 14,804 16,498 Business Travel emissions ( Scope 3 ) 6,128 5,814 21,263 22,285 18,217 Social (%, unless otherwise stated) Full-time employees 76 75 77 76 76 Employees (end of period), number 354,636 378,946 471,056 485,908 488,946 Employees (average), number 362,789 434,896 483,539 485,902 491,126 Employee turnover 30 33 35 42 44 Customer retention 92 91 91 90 90 Lost Time Injury Frequency ( LTIF ) , number 2.7 2.5 2.8 2.9 3.5 Fatalities, number 5 3 3 1 6 Governance ( % ) Gender diversity, Board 6) 50 43 33 33 33 Board meeting attendance 7) 95 96 94 n/a n/a ISS AT A GLANCE Throughout the Covid-19 pandemic, one of our Global Banking Customers has kept critical oces and operations running smoothly with the help of PURE SPACE, an advanced hygiene management solution from ISS. Now, as part of its drive to be the leading employer in the banking industry, the bank is expanding the solution to en- sure its employees feel safe as they return to shared workspaces across the globe. As one of the world’s leading banks, the services are essential to millions of people, businesses and institutions across the globe. The key to success is its employees, the people around the world who deliver its services every day. It is mission critical At the start of the Covid-19 pandemic, when governments and local authorities began introducing lockdowns to slow the spread of the virus, our customer had to act fast. The company has over a dozen mission-critical sites across the world. If any of these closed, the disruption to customers could be signicant – so it was essential that they stayed open. As part of the solution, our customer decided to increase focus on hygiene and cleaning by implementing PURE SPACE. Developed by ISS to ensure higher levels of hygiene in light of the Covid-19 pandemic, PURE SPACE targets high-touch areas, such as elevator buttons, door handles and taps, using hospital-grade cleaning. This has re- duced the risk of infection at our customers mission-critical sites, protecting employees and lowering the risk of disruption to customers. Following this success, our Global Banking Customer is rolling out the solution to 44 more sites in over 19 countries. Meeting new standards for hygiene CLEANING “ISS has shown tremendous resilience throughout the pandemic. By oering additional innovative solutions such as PURE SPACE, we provide a hygienic environment that ensures well-being, maintains hygiene and delivers condence to our people and customers”, says the Customer. CASE Our performance Group results Despite continued challenges from Covid-19 and a volatile business environment, ISS delivered signicant nancial and operational progress in 2021. This was not least due to improvements in our underperforming contracts and countries, the impact from restructuring initiatives across our business and a strong focus on serving our key customer segments. Group revenue Group revenue was DKK 71.4 billion, an increase of 0.9% compared with 2020. Organic growth was 2.0%, while currency eects as well as divestments and acquisitions, net reduced revenue by 0.6% and 0.5%, respectively. In 2021, ISS continued to be adversely impacted by Covid-19 lockdowns and revenue reductions. Organic growth was negative in Q1 but turned positive from Q2 due to the annualisation eects of Covid-19, and the initial signs of recovery. The positive developments continued in Q3, as cus- tomers in some geographies started to return to their oces, especially from September, and the year ended with positive organic growth of 5.8% in Q4. As a result, organic growth for the year was positive 2.0%. Revenue from key accounts continued to show resilience in 2021 with organic growth of 3.0% compared to organic growth of (0.2)% for non-key accounts. Projects and above-base work grew organically by around 9%, especially due to continued solid demand for deep cleaning and disinfection, albeit slowing down in some countries in the later part of the year. Portfolio revenue on the other hand showed signs of recovery towards the end of the year to oset the signicant negative growth in Q1, ending at for the full year of 2021 compared to 2020. The adverse impact on revenue from Covid-19 continued to vary across service types, customer segments and geographies. The services suer- ing the most were generally those depending on our customers’ employees being on site, such as food services. In the rst six months of 2021, revenue from food services declined 26% com- pared to the same period last year. However, the initial signs of recovery in Q3 and Q4 in some countries contributed to reducing the majority of the decline in H1 2021, causing food services revenue for the full year of 2021 to decline 6%. As a result, revenue from food services account- ed for 11% of the Group’s 2021 revenue (2020: 11%). ISS’s largest service line, cleaning services, has been stable throughout the pandemic and comprised around half of the Group’s revenue in 2021, which was in line with 2020. All regions, except for the Americas, reported positive organic growth in 2021, supported by Covid-19-related projects and above-base work as well as initial portfolio recovery, as tight Covid-19 restrictions were eased across Europe towards the end of the year. In Continental Europe, growth was driven by strong key account performance especially in Turkey, Spain, Switzerland, Italy and Austria as well as high cost ination in Turkey being suc- cessfully passed on to customers. In Northern Europe, projects and above-base work in Finland, Denmark and Norway contributed the most to growth. Asia & Pacic was mainly supported by strong performance in Australia and Hong Kong, whereas growth was negative or at in the re- maining countries. In the Americas, growth was supported by initial recovery in food services in the USA in the late part of 2021 and the gradual start-up of the ve-year contract with a large international manufacturing customer. However, growth was slightly negative for the full year due to the signicant Covid-19- related revenue reduction in food services and the Aviation segment in the rst half of the year. QTR Revenue & growth ( 10 ) ( 5 ) 0 5 10 %DKKbn Revenue (DKKbn) Organic growth (%) Q4Q3Q2Q1 16 17 18 19 20 Portfolio and above-base ( 20 ) ( 10 ) ( 20 ) ( 10 ) 0 10 20 % Portfolio revenue, growth Projects and above-base work, growth Q4Q3Q2Q1 Organic growth per region Continental Europe Northern Europe Asia & Pacific Americas Q4Q3Q2Q1 ( 15.0 ) ( 7.5 ) 0 7.5 15.0 % Revenue and growth Portfolio and above-base Organic growth per region Quarters 2021 Revenue ( DKKm ) 2021 2020 Organic Acq./div. FX Growth 2021 Continental Europe 27,846 27,634 4 % ( 1 ) % ( 2 ) % 1 % Northern Europe 23,424 22,642 1 % ( 0 ) % 2 % 3 % Asia & Pacic 12,381 12,385 0 % ( 0 ) % 0 % ( 0 ) % Americas 7,141 7,565 ( 2 ) % ( 1 ) % ( 3 ) % ( 6 ) % Other countries 612 561 12 % - ( 3 ) % 9 % Corporate/eliminations ( 41 ) ( 35 ) - - - - Total 71,363 70,752 ( 0.5 ) ( 0.6 ) OUR PERFORMANCE before other items Operating prot before other items amounted to DKK 1,776 million for an operating margin of 2.5% (2020: (4.5)% or around 0.5% excluding restructur- ing costs and one-os). The operating margin increased signicantly in 2021, mainly due to improvements in underper- forming contracts and countries as well as the impact from the ongoing restructuring initiatives across the business, including contract exits and cost reductions. Also, the continuing demand for higher margin projects and above-base work and the initial recovery of portfolio revenue had a positive impact on margins. All regions reported positive margins in 2021 with Northern and Continental Europe contrib- uting the most to the improvement compared to 2020. Improvements were seen in all countries of the two regions in 2021, but most signicantly in Denmark, the UK and Germany. In Denmark, ISS reached an agreement with Danish Defence to exit the partnership gradually from November 2021 to the end of May 2022. Danish Defence will take over all services currently being handled by ISS. The transition was initiated in No- vember 2021 and is progressing according to plan. The turnaround initiatives in the UK led to good progress in 2021. The Country Manager, who joined in 2021, has through a number of man- agement changes been driving the restructuring initiatives, including making cost reductions, portfolio trimming and improving the contract performance of key accounts. In Germany, the execution programme for the Deutsche Telekom contract developed in line with the plan to improve contract performance in one of the largest and most rened contracts in the Facility Management industry. This included signicant milestones being reached in relation to certain tailormade IT developments. The large restructuring plan in France pro- gressed with cost savings starting to materialise, independently of Covid-19 recovery. The French business has been heavily impacted by Covid-19 restrictions, and the pace of revenue recovery in the most severely impacted customer segments remains slow. In the Americas, the margin increase was mainly driven by the USA due to restructuring initiatives initiated in 2020, renegotiation of food services contracts and continued cost control. Furthermore, the initial recovery of food services towards the end of the year also supported the margin progression. For Asia & Pacic, Australia and Hong Kong were the main drivers of the improved margin due to a focus on operational eciencies and the impact of margin-accretive projects and above-base work. Corporate costs amounted to DKK 1,241 million (2020: DKK 901 million). In line with the OneISS strategy, we are investing in our operating model, including in technology, where certain investments have been accelerated in 2021, commercial resourc- es and centralisation of functions. Other income and expenses, net Other income and expenses, net was an income of DKK 439 million (2020: expense of DKK 983 million), mainly due to a gain on the divestment of Kanal Ser- vices in Switzerland and Specialized Service in the USA, partly oset by depreciation and amortisation in Chile for the years 2019 and 2020 triggered by the decision to cease the country’s classication as discontinued operations. In 2020, the net expense was mainly the result of costs related to the IT security incident in February 2020. Goodwill impairment Goodwill impairment was DKK 450 million (2020: DKK 432 million) which related to France. Turn- around initiatives in France progressed slowly. However, rising interest rates and growing un- certainty as to the pace of market recovery from Covid-19 within the most impacted customer segments, led to an increase in the applied WACC and thus recognition of a goodwill impairment of DKK 450 million in June 2021. Operating prot was DKK 1,701 million (2020: DKK (4,707) million). Financial income and expenses, net Financial income and expenses, net was an expense of DKK 656 million (2020: DKK 549 mil- lion). The increase was mainly due to a premium of DKK 90 million related to the repurchase of EUR 200 million of the total of EUR 500 million outstanding EMTN bonds maturing in 2024. Income tax The eective tax rate was 48.7% (2020: 0.7%) calculated as Income tax of DKK 509 million divided by Prot before tax of DKK 1,045 million. The eective tax rate was adversely impacted by non-tax-deductible impairment in France and valuation allowances on deferred tax assets, mainly in France and Germany. Furthermore, non-tax-deductible costs, including interest limitation, impacted negatively. discontinued operations Net prot from discontinued operations was DKK 101 million (2020: DKK 25 million), including a net gain of DKK 80 million mainly relating to the six countries divested in 2021, most signi- cantly Slovakia and the Czech Republic. In December 2021, management decided to cease the held for sale classication of Chile. As a result, Chile was reported as part of the continu- ing operations for the full year of 2021. Compar- ative gures have been restated accordingly. Net prot was DKK 637 million (2020: DKK (5,195) million). ( DKKm ) 2021 2020 Continental Europe 773 2.8 % ( 2,030 ) ( 7.3 ) % Northern Europe 1,097 4.7 % ( 1,200 ) ( 5.3 ) % Asia & Pacic 735 5.9 % 646 5.2 % Americas 393 5.5 % 262 3.5 % Other countries 19 3.1 % 20 3.6 % Corporate/eliminations ( 1,241 ) - ( 901 ) - Total 1,776 ( 3,203 ) ( 4.5 ) OUR PERFORMANCE operating activities Cash ow from operating activities was DKK 3,221 million (2020: DKK (361) million), an increase of DKK 3,582 million, predominantly stemming from increased operating prot before other items. This was mainly the result of improvements in underperforming contracts and countries, the impact of ongoing restructuring initiatives and initial Covid-19 recovery in certain countries. Changes in working capital were an inow of DKK 1,056 million (2020: DKK 951 million) mainly due to a strong focus on working capital management. Additionally, employee-related accruals increased following the pick-up in activity as a result of the initial Covid-19 recovery. Further, working capital was supported by improved payment terms for ISS and increased customer prepayments following the extension of a global key account contract. Utilisation of factoring increased slightly to DKK 1.1 billion (2020: DKK 1.0 billion). Changes in provisions was an outow of DKK 435 million, mainly due to payments related to restructuring projects initiated in 2020. Income tax paid was DKK 528 million (2020: DKK 666 million) mainly resulting from payment on account for 2021 and nal payments related to 2020. Payments were positively impacted by utilisation of tax losses carried forward from prior years, including 2020. investing activities Cash ow from investing activities was a net inow of DKK 73 million (2020: net outow of DKK 326 million). The successful execution of our divestment programme in 2021, led to an inow of DKK 1,191 million from divestment of businesses, most signicantly related to the divestment of Kanal Services in Switzerland and Specialized Services in US. Acquisition of businesses was an outow of DKK 526 million for the acquisition of Rönesans Facility Management Company in the healthcare segment in Turkey, where we will be providing services to four newly built hospitals. Investments in intangible assets and property, plant and equipment, net, of DKK 586 million (2020: DKK 681 million), represented 0.8% (2020: 1.0%) of total revenue (including discontinued operations), and mainly reected continued strict investment discipline during Covid-19 and fewer new contracts being transitioned. Cash ow from nancing activities was a net outow of DKK 2,832 million (2020: inow of DKK 1,103 million). Repayment of bonds led to a cash outow of DKK 1,577 million due to the repurchase of EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing in 2024. The early redemption was enabled by the strong liquidity position in 2021 resulting from the solid opera- tional improvement and successful execution of the strategic divestment programme. Repayment of lease liabilities of DKK 947 million was broadly in line with last year (2020: DKK 1,019 million). Other nancial payments, net was an outow of DKK 472 million stemming from working capital facilities, though reduced by loan proceeds of approximately DKK 450 million from a local facil- ity established for the purpose of the acquisition in Turkey. Transactions with non-controlling interests was an inow of DKK 164 million stemming from the sale of a minority share in ISS Turkey to Actera and the Turkish management team as an integrated part of the acquisition of Rönesans in Turkey. Free cash ow amounted to DKK 1,735 million (2020: DKK (1,794) million), an increase of DKK 3,529 million compared to 2020. The signicant improvement was driven by operating prot before other items and strong working capital Cash generation and free cash ow performance. Lease additions amounted to DKK 870 million, which was broadly in line with 2020. ( 2.0 ) 0 2.0 4.0 DKKbn 20212020 Operat- ing prot 2) Working capital Provi- sions Other exp. ( 1.8 ) Cash flow bridge (GP) 5.0 0.1 0.3 1.7 ( 1.9 ) 0 5.0 10.0 15.0 DKKbn 20212020 FCF Acq. Div. NCI 1) FX & Other Net debt waterfall ( 1.7 ) 15.8 0.5 0.2 13.5 ( 1.2 ) ( 0.1 ) Net debt 1) Before other items 1) NCI: Non-controlling interests OUR PERFORMANCE It is our primary capital allocation priority to ensure that we maintain a strong and ecient balance sheet and that our liquidity position supports our operational needs and our contin- ued strategy execution. In 2021, ISS delivered solid improvements in op- erational performance and strong execution of the divestment programme. Based on the strong liquidity position, ISS cancelled the EUR 700 million backup credit facility in May 2021. The facility was established in Q2 2020 in response to Covid-19 related uncertainties. Further, in December 2021, we repurchased EUR 200 mil- lion of the total of EUR 500 million outstanding EMTN bonds maturing 2024, thereby reducing gross debt levels. The Group’s liquidity reserves at 31 December 2021 are described in note 4.6 to the consolidated nancial statements. ISS has no unaddressed material debt maturities until 2024 onwards. We are committed to our Financial Policy of maintaining an investment grade prole and ISS currently holds corpo- rate credit ratings of BBB-/ Negative outlook assigned by S&P and Baa3/ Stable outlook assigned by Moody’s. At 31 December 2021, net debt had decreased to DKK 13.5 billion (2020: DKK 15.8 billion) due to the strong free cash ow performance and the divestment programme generating signicant proceeds. Financial leverage was 3.8x (2020: 7.1x excluding restructuring and one-o costs). Leverage is expected to reduce further in 2022 as operating performance and free cash ow continue to improve. As such, we are on track to meeting our target of deleveraging below 3.0x to be achieved by 31 December 2022. As previously announced, dividend payments will not be reinstated, and no share buybacks will be made, before the leverage target has been achieved. As a result, the Board of Directors will not propose dividends for 2021 at the annual general meeting to be held on 7 April 2022. Target end 2022: below 3.0x 20212020 1) 2019 0 2 4 6 8 X 3.0 7.1 3.8 202120202019 10 15 20 25 30 % 15.0 25.1 17.8 Financial leverage Equity ratio Capital structure Equity At 31 December 2021, equity was DKK 7,789 million (2020: DKK 6,545 million), equivalent to an equity ratio of 17.8% (2020: 15.0%). The increase was mainly a result of net prot of DKK 637 million and currency adjustments of foreign entities (net of hedges) of DKK 106 million. Transactions with non-controlling interests added DKK 350 million due to the sale of a minority share of ISS Turkey to Actera and the Turkish management team. Furthermore, actuarial gains amounted to DKK 1,145 million due to strong asset returns on plan assets, generally increasing interest rates and updated mortality assumptions, mainly in Switzerland. This was oset by the change in asset ceiling of DKK 1,080 million related to surplus restrictions in Switzerland. For further details, see note 5.4 to the consolidated nancial statements. 1) Excluding restructuring and one-o costs OUR PERFORMANCE Key account revenue accounted for 69% of Group revenue (2020: 67%) and generated organic growth of 3.0%, which was slightly better than the Group’s organic growth. As such, demand from key accounts showed resilience, despite Covid-19 lockdowns and restrictions, with continued high demand for projects and above-base work, mainly deep cleaning and disinfection. In the second half of 2021, growth was also supported by some recovery of our portfolio revenue, as several countries expe- rienced gradual, albeit slow, signs of recovery linked to gradual normalisation of occupancy rates at our customers’ oce sites. The launch of a few large contracts also contributed to the organic growth in 2021, most signicantly the commencement of Iberdrola in Spain, the launch of a Hospital Authority contract in Hong Kong and the gradual start-up of the IFS contract with a large international manufacturing customer in the Americas. Fur- ther, in Norway the below-mentioned contract with Equinor commenced in Q4. Covid-19 continued to impact the number of contracts won in 2021, though with activity picking up towards the end of the year. ISS secured a few signicant contract wins and continued to proactively work with customers to ensure renewals. This led to several extensions and expansions in 2021. In Norway, ISS won a ve-year contract with Equinor, with a possible ve-year extension option. ISS also extended the global contract with Barclays by ve years and the Rolls Royce Developments in 2021 1) Country Segment Term From Wins Equinor Norway Energy & Resources 5 years Q4 2021 Extensions/expansions Rolls Royce 8 countries Industry & Manufact. 2 years Q1 2021 Barclays Global Business Services & IT 5 years Q2 2021 Victorian Department of Education and Training Australia Public Administration 1 year Q2 2021 Retail & Wholesale customer UK Retail & Wholesale 3 years Q3 2021 DSB Denmark Transport. & Infrastruct 5 years Q4 2021 Airport customer Australia Transport. & Infrastruct. 4 years Q4 2021 Industry & Manufacturing customer Global Industry & Manufact. 2 years Q4 2021 Transportation customer UK Transport. & Infrastruct. 1.5 year Q4 2021 International technology customer Americas Business Services & IT 1 year Q1 2022 Philip Morris Global Industry & Manufact. 5 years Q1 2022 Pharmaceutical customer Austria Pharmaceutical 3 years Q2 2022 HPE Global Business Services & IT 5 years Q3 2022 Exits/losses Transportation customer Australia Transport. & Infrastruct. - Q4 2021 Danish Defence Denmark Public Administration - Q2 2022 1) Annual revenue above DKK 100 million. Key account development contract by two years. Additionally, we expand- ed the global contract with Philip Morris to include workplace services in 31 countries from Q1 2022. In the UK, contract extensions were signed with a retail and wholesale customer and a customer in the transportation and infrastructure segment. We also extended the long-standing partnership with HPE, our rst-ever global key account, for another ve years. ISS will continue to deliver a wide range of IFS to HPE’s oces and production sites until August 2027. Finally, in February 2022 we renewed the existing contract with a global pharmaceutical customer for ve years. The annual revenue of the contract is above 1% of Group revenue. In terms of contract exits in 2021, ISS entered into an agreement with Danish Defence to exit the partnership agreement gradually from November 2021 to the end of May 2022. Contract maturity The majority of our key account contracts have initial terms of three to ve years. A signicant share of revenue is therefore up for renewal every year. To mitigate this risk, we have a strong focus on customer satisfaction and proactively work with our customers to seek renewals. In 2021, despite Covid-19-related revenue re- ductions, our key account retention rate increased slightly to 94% (2020: 93%). Retention rate Overall: (2020: 91%) (2020: 93%) Maturity – large key accounts In 2021, revenue from large key accounts (> DKK 200 million) was DKK 20.9 billion, or 29% of Group revenue. Going into 2022, no large key accounts have been lost, but customer contracts representing revenue of DKK 3.4 billion (5% of Group) are up for renewal in 2022 (excluding signed renewals up until February 2022). Expiry 2022 Expiry 2023 Expiry 2024 Expiry 2025 Expiry 2026+ Contract Maturity (expiry) 20.9 DKKbn OUR PERFORMANCE Our strategic divestment programme enjoyed strong momentum in 2021 with six countries and six business units being divested. Countries divested in 2021 were Slovakia, the Czech Republic, Romania, Hungary, the Philippines and Slovenia. In terms of business units, the most signicant divestments in 2021 were Specialized Services in the USA and Kanal Services in Switzerland. Subsequently, the Waste Management business in Hong Kong was also divested in January 2022. By the end of 2021, 13 out of 18 countries in scope for the programme had been divested. Additionally, in January 2022 we signed an agreement to divest our activities in Taiwan with expected completion in Q1 2022. In 2021, Chile (being one of the 18 countries in scope) developed positively, both nancially and strategically, as demonstrated by the wins of a few large key account contracts. Based on the positive developments and improved strategic t, management decided to take Chile o the divest- ment programme and cease the classication as a discontinued operation in December 2021. Strategic divestment programme Rescoping of the programme With the signicant progress made in 2021, the divestments signed or completed in January 2022, and Chile being reclassied to continuing operations, the divestment programme is nearing completion. As a result, ISS announced in January 2022 that the programme scope had been updated to comprise the remaining three countries, i.e. Bru- nei, Portugal and Russia, and only two additional business units for which sales processes have not yet been initiated. Divestment proceeds In 2021, total net proceeds secured from the divestment programme amounted to approx- imately DKK 1.8 billion (including divestments signed or completed in January 2022). Despite the rescoping of the programme, ISS continues to target around DKK 2 billion in total net proceeds for 2021 and 2022. Status on countries 1) Financial impact in 2021 At 31 December 2021, ve businesses (2020: 14 businesses) were classied as held for sale, which comprised the discontinued operations in Brunei, Portugal, Russia and Taiwan as well as the Waste Management business in Hong Kong (divested in January 2022). Assets and liabilities held for sale amounted to DKK 515 million (2020: DKK 1,861 million) and DKK 280 million (2020: DKK 838 million), respectively. In 2021, completed divestments and fair value remeasurements resulted in a net gain before tax of DKK 591 million (2020: loss of DKK 89 million) of which DKK 80 million was recognised in Net prot from discontinued operations, see note 3.2 to the consolidated nancial statements. As a result of the reclassication of Chile to continuing operations, depreciation and am- ortisation amounting to DKK 59 million for the years 2019 and 2020 were recognised in Other income and expenses, net in 2021. Ongoing • Taiwan signed in January 2022 • Brunei • Portugal • Russia 1.8 DKKbn realised Divestment proceeds 2.0 DKKbn Status on business units • 6 business units divested in 2021 • 2 business units remain in scope for the programme 1) Discontinued operations. 13 out of 18 countries divested Argentina Brazil Czech republic Estonia Hungary Israel Malaysia Philippines Romania Slovakia Slovenia Thailand Uruguay Chile reclassied to continuing operations OUR PERFORMANCE Core services The market Continental Europe is our largest region, com- prising a number of key markets, where we hold leading market positions, including Switzerland, Germany and Spain. Most of the markets are developed, but with signicant dierences in IFS market maturity and macroeconomic environ- ment. Key customer segments are Business Services & IT, Industry & Manufacturing, Public Administration, Healthcare and Pharmaceuticals. Financial update Revenue increased to DKK 27,846 million in 2021 (2020: DKK 27,634 million). Organic growth was 4.4%, while divestments and acquisitions, net and currency eects reduced revenue by 0.8% and 2.9%, respectively. In 2021, the region remained impacted by Covid-19 lockdowns and revenue reductions, resulting in negative organic growth in Q1, especially in Belgium and the Netherlands due to broad exposure to food services. With the an- nualisation of the year-over-year impact, growth turned positive from Q2, further supported by slowly improving business fundamentals over the rest of 2021. Continental Europe was DKK 773 million (2020: (2,030) million) for an op- erating margin of 2.8% (2020: (7.3)% or around 0.5% adjusted for restructuring and one-o costs). Most countries contributed to the im- provement, led by Spain and Switzerland. Across the region, restructuring initiatives, portfolio trimming, focus on Covid-19 recovery, together with strong demand for projects and above-base work, impacted the margins positively. In Germany, the execution programme for the Deutsche Telekom contract developed in line with the plan to improve contract performance in one of the largest and most rened contracts in the Facility Management industry. The restructuring plan in France progressed with cost savings slowly materialising. However, the French business was heavily impacted by Covid-19 restrictions and the pace of revenue recovery within the most aected customer segments remains slow. The related uncertainties led to a goodwill impairment of DKK 450 million in H1 2021. Despite improvements compared to 2021, operating margin for the region was below Group margin due to operational challenges in France and on the Deutsche Telekom contract. Cleaning Food Technical Other, incl. workplace For the full year, the positive growth was driven by strong performance in Turkey, Spain, Switzerland, Italy and Austria, albeit from a low comparison base in 2020. In Turkey, growth was supported by price increases from signicant cost ination successfully passed on to customers, and continued growth from new hospital contracts launched in H2 2020. In Spain and Italy, growth was mainly driven by contract launches and expansions with key accounts along with high demand for projects and above-base work, especially deep cleaning and disinfection, which also lifted growth in Switzerland and Austria. Projects and above-base work grew organically by 12.9% to account for 18% of revenue for 2021 (2020: 17%). Despite selective contract exits in Germany and the Netherlands, and a negative year-over-year impact from lockdowns in Q1 2021, portfolio revenue grew organically by 2.7% in 2021. During Q2-Q4 2021, most countries experienced signs of recovery, albeit slow, linked to gradual normalisation of occupancy rates at our customers’ oce sites. Commercially, our key account focus secured new wins and several extensions resulting in a strong retention rate of 96% (2020: 93%). Organic growth Organic growth by QTR Operating margin Continental Europe Revenue & organic growth 26 27 28 29 30 202120202019 Revenue (DKKbn) Organic growth (%) DKKbn % ( 4 ) 0 4 8 12 Continental Europe Operating profit & margin 202120202019 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % ( 3.0 ) ( 1.5 ) ( 3.0 ) ( 1.5 ) 0.0 1.5 3.0 ( 8 ) ( 4 ) 0 4 8 Continental Europe Organic growth quarterly Q4Q3Q2Q1 % % ( 5 ) 0 5 10 15 of Group revenue Key accounts Continental Europe Cores services OUR PERFORMANCE The market ISS holds a market-leading position across the region where markets are generally mature, competitive and with a relatively high outsourc- ing rate. The region holds the Group’s highest key account share of 75%. The largest country in the region is the UK, contributing around 45% of revenue. Key segments are Business Services & IT, Healthcare and Public Administration. Financial update Revenue increased to DKK 23,424 million in 2021 (2020: DKK 22,642 million). Organic growth was 1.3% and currency eects increased revenue by 2.4%. In 2021, the region remained impacted by Covid-19 lockdowns and revenue reductions, among others due to a relatively large exposure to food services. In Q1, organic growth was negative with Norway and the UK the most signicantly impacted. Organic growth turned positive from Q2, when signs of recovery began to appear and as a result of the annualisation of the year-over-year impact. This was supported by improved performance in most countries, due to Covid-19 recovery and contract start-ups in Q4. Northern Europe was DKK 1,097 million (2020: DKK (1,200) million), for an operating margin of 4.7% (2020: (5.3)% or around (0.5)% adjusted for restructuring and one-o costs). All countries contributed to the margin improve - ment through a continued focus on cost control and initial recovery from Covid-19. The turnaround initiatives in the UK have been very eective, and good progress was seen in 2021. The Country Manager, who joined in 2021, has been driving a restructuring of the organisa- tion in accordance with the OneISS blueprint, eliminating overhead costs, portfolio trimming and improving the contract performance of key accounts. In Denmark, ISS entered into an agreement with Danish Defence to exit the partnership gradually from November 2021 to the end of May 2022. The transition is progressing according to plan. Cleaning Food Technical Other, incl. workplace For the full year, the positive organic growth across the region was driven by a partial Covid-19 recovery, despite some delays in the commercial pipeline, and high demand for proj- ects and above-base work, mainly deep-cleaning and disinfection. All countries contributed to the positive organic growth. In Denmark and Norway, growth was mainly driven by projects and above-base work, though Norway was also supported by the start-up of Equinor in Q4. In the UK, food recovery and projects and above- base work, mainly in the healthcare segment, were the main drivers. Portfolio revenue declined by 0.5%, negatively impacted by Covid-19 restrictions, partly due to the relatively large exposure to food services. Revenue from projects and above-base work increased organically by by 7.6% (2020: 22%), reaching 24% of revenue for the region in 2021. Commercially, our key account focus secured both new sales and extensions resulting in a key account retention rate of 93% (2020: 94%). In Norway, ISS won a ve-year contract with Equinor with a ve-year extension option. Core services of Group revenue Key accounts Organic growth Organic growth by QTR Operating margin Nothern Europe Revenue & organic growth 21 22 23 24 25 26 202120202019 Revenue (DKKbn) Organic growth (%) DKKbn % ( 9 ) ( 6 ) ( 3 ) 0 3 6 Northern Europe Organic growth quarterly Q4Q3Q2Q1 % ( 4 ) ( 2 ) 0 2 4 % Nothern Europe Operating profit & margin 202120202019 Operating profit before other items (DKKbn) Operating margin (%) ( 2 ) ( 1 ) 0 1 2 DKKbn % ( 6 ) ( 3 ) 0 3 6 Northern Europe Cores services OUR PERFORMANCE Asia & Pacic Cleaning Food Technical Other, incl. workplace Core services The market The region comprises a mix of developed mar- kets such as Australia, Hong Kong and Singapore and developing markets, such as China, India and Indonesia. ISS has a strong presence in the region and holds a market-leading position in several countries. Key customer segments are Business Services & IT, Industry & Manufactur- ing, Healthcare and Public Administration. Financial update Revenue amounted to DKK 12,381 million in 2021 (2020: DKK 12,385 million). Organic growth was at, while divestments and acquisitions, net and currency eects reduced revenue by 0% and 0%, respectively. In 2021, Covid-19 continued to impact the region both positively and negatively given its diverse eects across the portfolio. Generally, a sequential improvement was seen throughout the year, as organic growth started out in nega- tive territory, improved each quarter, and ended the year in positive territory at 1.6% in Q4. Commercially, Covid-19 continued to inuence the number of contracts won in 2021. Although contracts won declined compared to previous years, we still managed to secure a number of important new contracts and extend one large key account contract with an airport customer in Australia. As such, our key account retention rate was 93% (2020: 94%). increased to DKK 735 million (2020: DKK 646 million), for an operating margin of 5.9% (2020: 5.2%). The region thereby continued to show resilient and stable margin levels above group margins, reecting the strong operational platform in the region. Australia and Hong Kong increased their operating margins in 2021 due to improved operational eciency and strong demand for margin-accretive projects and above- base work. In India, the improvement compared to last year was mainly due to global key account project work. On the other hand, Singapore was adversely aected by a few large contract losses and reduced government support schemes. In Indonesia, the operating margin was negatively impacted by one-o labour-related costs. Return to work has been volatile and highly de- pendent on many of the countries in the region enforcing tougher restrictions (compared to Europe) around oce work throughout the year. Many countries remain at reduced oce work ca- pacity and most countries only began reopening their borders in November and December. India, Indonesia and Singapore were most signicantly aected by lockdowns resulting in negative organic growth in both portfolio and non-portfolio revenue. On the other hand, de- spite challenging Covid-19 lockdowns, Australia and Hong Kong were favourably impacted by strong demand for projects and above-base work, including deep cleaning and disinfection. In Australia, growth was further supported by several smaller key account contract launches osetting the negative impact from Covid-19 in the Aviation segment. Across the region, projects and above-base work grew 9% organically, largely due to demand for deep cleaning and disinfection, to account for 18% of revenue. This mitigated the impact of negative portfolio growth. of Group revenue Key accounts Organic growth Organic growth by QTR Operating margin APAC Operating profit & margin 0.4 0.5 0.6 0.7 0.8 0.9 202120202019 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 4.5 5.0 5.5 6.0 6.5 7.0 APAC Organic growth quarterly Q4Q3Q2Q1 ( 2 ) ( 1 ) 0 1 2 % % APAC Revenue & organic growth 10 11 12 13 14 15 202120202019 Revenue (DKKbn) Organic growth (%) DKKbn % ( 5.0 ) ( 2.5 ) 0.0 2.5 5.0 7.5 Asia & Pacific Core services OUR PERFORMANCE Americas Cleaning Food Technical Other, incl. workplace Core services The market The Americas consists of the mature North American market as well as Mexico and Chile. North America is the world’s largest FM market, accounting for around 30% of the global outsourced FM market. Food services account for a signicantly larger share of revenue than in other regions. Key customer segments are Busi- ness Services & IT, Industry & Manufacturing, Pharmaceuticals, Transportation & Infrastructure and Food & Beverage. Financial update Revenue decreased to DKK 7,141 million in 2021 (2020: DKK 7,565 million). Organic growth was (1.6)% and currency eects as well as divest- ments and acquisitions, net, reduced revenue by 2.6% and 1.4%, respectively. In 2021, organic growth continued to be highly impacted by Covid-19 due to large exposure to food services and the Aviation segment. Reve- nue from food services declined 17% to account for 23% of the region’s revenue (2020: 26%) compared to 11% for the Group (2020: 11%). customers. As such, organic growth from key accounts was positive at 6.2% in 2021 (2020: (8.1)%) and the retention rate was 91% (2020: 94%). Commercially, Covid-19 aected contract wins mainly due to delayed commercial processes. However, several smaller contracts were won. Additionally, we extended the long-standing partnership with our rst ever global key account HPE. As part of the strategic divestment programme, the USA divested its Single Service Cleaning business. The divestment will secure a sharper focus on key accounts in our strategic customer segments and IFS opportunities. was DKK 393 million (2020: 262 DKK million) for an operating margin of 5.5% (2020: 3.5%). The increase was mainly driven by restructuring initiatives in the USA initiated in 2020, renego- tiation of food services contracts to “cost-plus” contracts to stabilise margins at reduced volumes, continued cost control and initial revenue recovery. Mexico and Chile delivered solid operating margins supported by new sales to key account customers. Organic growth was negative in Q1, but with the annualisation of the Covid-19 impact and signs of recovery, growth improved during the year and turned positive in Q3 and ended as high as 19.4% for Q4. For the full year, the negative organic growth was driven entirely by the USA due to Covid-19 related revenue reductions in food services and the Aviation segment at the beginning of the year. The negative impact was, signicantly reduced by the partial recovery and growth in Q3 and Q4, where revenue from food services increased as customers gradually returned to oce. The gradual transition of the ve-year IFS contract with a large international manu- facturing customer also helped to mitigate the negative impact from Covid-19. Mexico recorded strong growth in 2021, primarily due to new sales to key accounts. In December 2021, Chile was reclassied to continuing operations and thus returned to being reported as part of the Americas. Chile generated revenue of DKK 1,003 million in 2021 (2020: DKK 930 million). Across the region, demand from key accounts was more robust and resilient than from other of Group revenue Key accounts Organic growth Organic growth by QTR Operating margin America Revenue & organic growth Revenue (DKKbn) Organic growth (%) 4 5 6 7 8 9 202120202019 DKKbn % ( 20 ) ( 15 ) ( 10 ) ( 5 ) 0 5 America Organic growth quarterly Q4Q3Q2Q1 % ( 30 ) 15 30 0 ( 15 ) % America Operating profit & margin 0.0 0.1 0.2 0.3 0.4 0.5 202120202019 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 2 3 4 5 6 7 Americas Core services OUR PERFORMANCE When Nestlé committed to zero environ- mental impact in its operations by 2030, eliminating waste to landll was a key goal. This has been achieved at its Gympie coee factory in Australia through a ve-year project that shows the value of teamwork and cross-departmental collaboration. Today, every last bit of waste from the Nestlé Gympie coee factory is carefully sepa- rated at source and sent for disposal in a managed and environmentally friendly way. Much is turned into compost or renewable fuel, and more still is recycled for reuse in other products. Plastic milk bottle tops, for example, are sent to a manufacturer of prosthetic limbs, while spent coee grounds go to the site’s boiler for use as a renewable energy source. Not one single gram of waste goes to landll. Small changes It was not always this way. In 2015, the fac- tory produced 56 tons of landll waste. But over the next ve years, this was gradually reduced to zero. As Gary Thompson, ISS Facility Manager at Nestlé Gympie explains, this was achieved through a collaborative project that involved everyone at the site – from ISS service sta to Nestlé Gympie’s line operators and engineers. At the start of the project, Nestlé Gympie and ISS formed a project team made up of sta from both companies. The team began by analysing exactly how much waste was produced at the Gympie site. This was then broken down into waste types. Armed with this knowledge, the ISS team scoured the local area to nd other factories and compa- nies that could put the waste to good use. At the same time, sta at Nestlé Gympie began analysing the production process to see how much waste could be eliminated at source. The answer was: A surprisingly large amount. sustainability journey The waste project has been a huge success. Since the rst quarter of 2021, the Nestlé Gympie coee factory has been a zero waste to landll site. This shows the power of team- work and collaboration and is a signicant step on Nestlé’s sustainability journey. Nestlé’s ambition remains to have zero envi- ronmental impact in its operations by 2030. ISS manages over 80 sites for Nestlé around the world and hence, have a signicant role to play in helping Nestlé achieve these goals, not just at Gympie, but beyond. Nestlé eliminates waste to landll with ISS SUSTAINABILITY “When it comes to waste management, Nestlé ensures that waste is sorted into formats we can handle; ISS’s job is to collect it and send it on for safe disposal or recycling. This works very smoothly today, but getting to this stage required a dedicated eort and a huge amount of collaboration between everyone at the site.” Gary Thompson ISS Regional Facility Manager at Nestlé CASE Our business Our strategy Our value proposition In December 2020, we launched our refreshed strategy, OneISS. The strategy conrms the long-term attraction of key accounts and our IFS business model. Acknowledging that our execution in recent years had proven unsatisfactory, OneISS outlines the strategic direction with dual priorities of delivering short-term turnaround, while at the same time ensuring long-term improvement of the global operating model. The turnaround includes recovery of our four underperforming contracts (Deutsche Telekom and Danish Defence) and countries (the UK and France) and sharpening our strategic focus through our divestment programme. Our new global operating model will further strengthen our ability to be a strategic work- place partner to our customers and consistently deliver high quality outcomes. With OneISS, we are building the right foundation to become global leader in IFS and #1 globally in cleaning. We have made signicant steps in 2021 and will build on that foundation as we continue the execution in 2022 and towards achievement of our 2025 ambition. Divestment programme Our divestment programme had strong momentum in 2021 with seven countries and seven business units being divested (including the divestments signed or completed in January 2022). Since programme inception we have divested operations in 14 out of the 18 countries in the programme scope (up until January 2022) – in addition to divesting several non-core business units. Furthermore, Chile was descoped from the divestment programme in December 2021 following encouraging strategic and nancial development. With the signicant progress made in 2021, and Chile being descoped, the divestment programme is nearing its completion, which is expected in 2022. For further details, see Strategic divestment programme, p. 19. Our ambition Global leader in IFS #1#1 Globally in cleaning People who go the extra mile and care about the people and places they support Our commitment to high standards in all aspects of delivery Intelligent solutions based on our knowledge of every aspect of the workplace experience High standards Insight Insight Our 2025 ambition Customers To achieve industry leading customer engagement Colleagues To achieve industry- leading employee engagement Shareholders To deliver a top quartile TSR relative to peers Society To be a sustainability leader on the DJSI Europe Index OUR BUSINESS Progress 2021 Deutsche Telekom • Delayed IT migration and operational challenges • Signicant transition and mobilisation costs leading to write-downs and one-o costs in 2020 • Execution programme developed in line with plan to improve contract performance in one of the largest and most rened contracts in the Facility Management industry • Signicant milestones reached in relation to certain tailormade IT developments Danish Defence • Contract loss-making due to baseline and scope being materially dierent than assumed in the tender • Onerous contract provision recognised in 2020 • Agreement reached to gradually exit the partnership from November 2021 to May 2022 • Provision recognised in 2020 will be sucient to cover exit-related costs and operation until full exit • Turnaround target for 2022 reached by the end of 2021 UK USA UK • Organisational structure too decentralised to ensure satisfactory control environment • Signicant revenue and operating margin reduction due to Covid-19 • New country leadership team in place focusing on streamlining the organisation • Commercial team in place to support growth • Improved nancial performance and positive run-rate margin by the end of 2021 Finland France France • Complex and fragmented organisational and governance structure • Signicant revenue and operating margin reduction due to Covid-19 • The large restructuring plan progressed with planned FTE reductions and cost savings starting to materialise • Country Management focusing on operational eciencies and commercial momentum • The French market continued to be heavily impacted by Covid-19 with slow recovery pace within the most impacted customer segments Turnaround 2021-2022 Our turnaround programme 2021-2022 is outlining a healthy recovery of our business with focus on protability and cash generation. Initiatives in the short-term focus on the recov- ery of our four underperforming contracts and countries, recovery from Covid-19 in addition to the divestment programme. Although there is still signicant work to be done in 2022, we made good progress in 2021 with nancial run-rate improvements compared to 2020, see status to the right. As such, we reached our turnaround target for 2022 already by the end of 2021 for Danish Defence, where we will exit the contract gradually. In terms of recovery from Covid-19, we saw initial signs of recovery in our portfolio revenue as customers started to return to oce in some geographies, especially from Q3 2021. This also led to an encouraging pick-up in food services revenue in the second half of 2021, especially in the USA and the UK. We also saw a positive impact from the restructuring initiatives initiated in 2020 across the business in response to Covid-19, see Group results, p. 15. Underperforming contracts and countries OUR BUSINESS Priorities Objectives Progress 2021 Leveraging global scale • Fit for delivering IFS to key accounts • Eective Group-country collaboration • Required Group resources put in place • Countries, business units and functions aligned to global blueprint, including Operations Performance function focusing on operational excellence in each country and at Group level • Second HQ location established in Warsaw (increased talent pool) Commercial discipline • Strategic workplace partner to key accounts • Disciplined bid-to-operations process to mitigate risk of signicant underperforming contracts and countries • Global customer segment leads hired • New bid and transition process implemented, including stronger governance • Segment strategies and win plans developed in collaboration between Group and countries Operations Performance & Products • Strong time management and cost control • Innovative service oering for prioritised customer segments • Sustainability and D&I at the core • Global product management and performance teams established • Roll-out of benchmarking tool for enhanced productivity of daily oce cleaning initiated in selected countries and contracts – so far piloted in 60+ accounts in 6 countries • Re-design of Food service products and contract models to reposition risk prole post-pandemic • New Head of Sustainability hired and commitment to net zero emissions by 2040 announced in January 2022 Technology • Technology backbone required to improve commercial discipline (#2) and operational excellence (#3) (cloud, cybersec, enterprise systems) • In-house code development capabilities • Modernisation of legacy IT • Approved global IT&D strategy • Global tech team build-up, including full-line reporting for country IT teams • Cybersecurity capabilities strengthened • Cloud migration accelerated Culture • Build on ISS’s long heritage of fairness, equality, and inclusion to develop the next generation company of belonging • Improved eectiveness and unity • Diverse and inclusive leadership • New culture blueprint dened, including adding the new value ”Unity” • New Diversity & Inclusion (D&I) strategy developed • Commitment to 40% females in corporate leadership by 2025 • Top 400 leadership assessment completed Strengthened global operating model OneISS will deliver a new, globally aligned oper- ating model with shared structured processes that will prove more eective at supporting countries and unleashing the full potential of ISS’s global scale. Our new operating model will further strengthen our ability to be a strategic workplace partner to our customers and consis- tently deliver high quality outcomes. Being the global leader in IFS for key accounts is a challenging ambition – hence we need to build the best customer oering and internal oper- ating model as ONE enterprise – OneISS. With our new operating model, we will develop our services and underlying tech-enabled platform required to operate thousands of customer sites across the world in a consistent manner. Also, we will strengthen our commercial capabilities and build the right culture to support the execution of our strategy. In 2021, we initiated the journey towards a sig- nicantly improved global operating model and made good progress, particularly by establishing the core foundation of the future model. OUR BUSINESS Strategic priorities for 2022 Given the signicant progress we made in 2021 in relation to our global operating model, going into 2022 we have updated our strategic priorities to support and strengthen the next stage in our OneISS journey. We will focus on ve key areas, where we believe, that we will achieve a lasting impact on the business and which will bring us closer to our 2025 ambition and realising our vision. The ve updated strategic priorities will provide our key accounts with a market-leading service oering and delivery globally: 1 Commercial momentum and segment leadership We will plan in advance the customer relation- ships we want to build, developing the right customer knowledge and segment focus to maintain long-term strategic relationships. We are continually improving and strengthening our bid-process, leveraging cross-country communi- ty support to bring the very best reference cases and expertise to new bids and renewals. 2 Brilliant operating basics Process eciency and controls is at the very core of our success. With Brilliant Operating Basics, we will drive the next wave of process eciency enabled by technology and with a focus on the core, high-volume processes. 3 Service products built on leading technology platforms We will oer standard service products under- pinned by best practices to ensure high quality, consistent delivery, coupled with the latest innovations in technology. This will unlock not only greater eciencies, but also improve the customer experience and enhance sustainability practices. 4 Environmental sustainability Our ambition is to have a positive impact on the planet, people and communities we operate in. Further, we have an ambition of making a signicant positive impact on our customers’ sustainability eorts, which represents a signicant business opportunity. To show our commitments, in January 2022, we announced our target of Net Zero emissions by 2040 in all 3 scopes, and will set and approve our Sci- ence-Based Targets in 2022. 5 Safe, diverse and inclusive workplaces (social sustainability) We have a 120-year legacy as a people company – social sustainability has always been in our DNA – with safety for our people being the rst priority. ISS is built on a foundation of equity, inclusion, fairness, and respect for all individ- uals. We have a strong drive to act as social incubators and make a true dierence for our employees, our customers and the communities in which we operate. Also we will continue to strengthen learning opportunities to promote social mobility for all placemakers. OUR BUSINESS Our people Investing in our people will be essen- tial to our 2025 ambition of achieving industry-leading customer and em- ployee engagement. Our people will play a key role by demonstrating the right behaviours, the right values and by embracing the unied mindset required to deliver on our strategy and achieve our purpose. Our leadership is essential to shaping a culture that will allow us to deliver on our strategy. We deploy our leadership model, develop and align global training processes and implement common standards to drive the capabilities needed to consistently deliver on our customer value proposition. Our ve ISS values, which are the cultural drivers behind OneISS, guide our people to be great service professionals and responsible citizens. Alongside the values of Honesty, Responsibility, Entrepreneurship and Quality, we launched Unity in 2021. Unity is closely linked to our stra- tegic focus on promoting diversity, inclusion and belonging and highlights the sense of trust and empowerment that diverse teams feel within ISS. As a result we also strengthened our diversity agenda further in 2021, see Diversity, inclusion & belonging, p. 38. Developing strong leaders We launched our new Leadership Model to develop our leaders in 2021. We have updated our learning oering to ensure that we equip our leaders with capabilities to deliver on the leadership behaviours supporting our culture. By the end of Q1 2022, all our Country Lead- ership Teams will have completed leadership workshops in our new leadership model and will have clear plans for the way they will embed our new leadership behaviours. At the same time, we will launch our renewed agship leadership development programme which will facilitate clear and structured feedback allowing leaders to gain insights into their person- al leadership style, strengths, and development areas – in line with the core behaviours central to delivering OneISS. We will deliver this to our senior leaders and mid-management across countries. Our ambition is that all direct reports to Country Leadership Team members will have graduated from the programme by the end of 2022. Key accounts continue to be key to our strategy. The Key Account Manager Certication (KAMC) programme is therefore crucial to ensuring that we develop leaders able to retain and grow our key account customers. The programme contains detailed training sessions in account operation, retention, and growth. Our Key Account Managers are certied when they have demonstrated the necessary understanding of customer needs and priorities to engage with them in a way that will lead to higher customer satisfaction and protable growth. In 2021, we updated the KAMC programme in line with OneISS. Deployment will begin in Q1 2022 and our aim is to deploy the programme across all of our global key accounts and more than 550 local key accounts by the end of 2022. Similarly, our site managers play an important role in the day-to-day operation of our key accounts. We run a Site Manager Programme, which equips our site-managing leaders with business acumen and leadership skills that help them manage eective customer relationships and build engaged teams. We are also focused on standardising our onboarding approach and on engaging with our new joiners in the most eective way. Our onboarding framework supports every new colleague through a holistic journey covering a three-month period. The purpose is to provide support and learning, aligned with our values, which delivers excellence in customer experience, increases compliance and boosts employee engagement and retention. Our service culture Service with a human touch (SWAHT) is the programme which for years has translated our culture into concrete service behaviours bringing our value proposition to life. This year, we launched the Placemaker’s Path, our updated service culture programme replacing SWAHT. For our customer-facing employees – who we call our placemakers – the Placemaker’s Path is a ca- reer-long learning and development programme. Deployment of the programme began in 2021 Our values Unity Responsibility Quality Entrepreneurship OUR BUSINESS and our target is to deploy the Placemaker’s Path in all global key accounts and more than 450 local key accounts by the end of 2022. Our gratitude to our placemakers for their ded- ication throughout the turbulence of Covid-19 cannot be overstated. Every year, at our annual Global Leadership Conference, we give the “Em- ployee of the year” award also called the Apple Award of the Year, to one of our colleagues who has gone above and beyond to serve our customers. However, in 2021, we did not hand out any individual awards simply because it would have been impossible to do in a fair and respectful way. Instead, we decided to recognise every placemaker by organising a concert by a legendary British musician in tribute to all our placemakers. Digitalisation We acknowledge that technology is a key enabler for delivering on our strategy – also in our people processes. In 2021, we continued the implementation of People@ISS – our global people system. Thanks to this initiative, we are enabling a data-driven approach to our people and compliance agenda. We have also identied the potential to use IT to automate our recruitment process. For example, through IRIS – a virtual hiring assistant able to answer common candidate questions in over 100 languages, 24 hours a day. We are piloting IRIS in the USA to explore opportunities to improve eciency for new hires and hiring managers. This year, we have taken the decision to invest in a global employee platform to amplify our ability to listen to and engage with our placemakers, as part of a digital place providing access to ‘quality of life’ functionalities (expected to include integrations with local rostering, payroll and leave request systems where possible). Integrated listening capabilities will provide our employees with the opportunity to make their voices heard, while accessing business and self-service tools, to make their working lives easier. This will give ISS stronger insights into employee engagement and the ability to recognise improvement opportuni - ties in an agile and proactive way. We continued to develop our global learning man - agement system, MyLearning. It is a multi-func- tion platform, which supports the deployment and tracking of over 2,000 global and country-specic e-learning modules along with over 800 training videos available in 27 languages and is accessible to all ISS employees. Since its formal launch in 2015, the use of MyLearning across the organisa - tion has continued to grow. In 2017, approximate- ly 100,000 e-learning modules were completed; this gure now stands at over 5.3 million to date, with over 800,000 completions in 2021. Employee turnover Employee retention We operate in a marketplace where levels of employee churn are inherently high. To reach our 2025 ambition of achieving industry-leading employee engagement, we are targeting a struc- tural improvement in our employee retention. Higher employee retention underpins a more consistent, higher quality of service and reduces the costs associated with attracting, recruiting and onboarding new colleagues. During 2021, Covid-19 continued to impact our employee turnover, especially in Asia. However, our persistent push for retention initiatives in countries, e.g. improved labour conditions relative to the market in certain countries resulted in a global employee turnover of 30% in 2021, continuing the positive trend from previous years. The trend is also driven by our key account focus, including the discontinuation of high-churn, non-key account contracts and not least divestment of businesses in countries with relatively high employee turnover. 2022 people priorities Looking ahead to 2022, we will work towards our 2025 ambitions through focusing on the deployment of our updated leadership development and service culture programmes, supporting OneISS. 20212020201920182017 42% 35% 33% 44% 30% ( 2,500 ) ( 7,500 ) ( 5,000 ) 2,500 0 We will continue to roll out People@ISS to support compliance in our people processes and begin the pilot deployment of the global employee platform to amplify our ability to engage with our employees in a number of additional countries in 2022. As per our core values, we will also explore opportunities to continuously integrate Diversity, Inclusion and Belonging into our learning and development programmes. OUR BUSINESS Our business risks Risk management is an integral part of our service performance and value creation. We do, however, experience incidents. Therefore, our main focus is to build a business resilience to both existing operational risks and external events, including market changes. Risk management in 2021 In 2020, we saw two signicant risk events, Covid-19 and the IT security incident. These events and the launch of the OneISS strategy in December 2020, set the tone for our risk man- agement activities in 2021 through three areas. 1 Stronger governance Our risk governance centres around bi-annual risk assessment procedures that provide bot- tom-up risk assessments country-by-country to support our top-down risk assessment anchored with the Executive Group Management (the EGM) and the Board of Directors (the Board). Functional risk committees (chaired by EGM members) serve as the integration point where bottom-up and top-down perspectives meet. 2 Simpler processes The two major risk events in 2020 clearly indicated a too optimistic view on the probability of such events occurring. As a result, we have simplied our approach by moving away from a probability-based risk assessment towards a more holistic vulnerability measure. This, we be- lieve, is more operational and action orientated, and thus simpler to work with on a daily basis. 3 Closer community We also estabished a new and strengthened risk management function in our second Group HQ location in Warsaw. Our risk management activities are now operated by this team in close cooperation with local country risk management resources. Further, we have strengthened our nance blueprint organisation by dening Risk Manage- ment as a mandatory function and built a stronger cooperation between risk management and our operational functions. With these initiatives, we are enabling a strong collaboration with risk owners across customer accounts and functions. Group risk review As part of our bi-annual process, we reviewed the Group’s key risks to reect the main exposures in achieving our strategic objectives. The key risks and mitigation measures identied in 2021 are de- scribed on the following pages. We do not consider macro-economic risks as company specic risks that can impact our competitive advantage or mar- ket relevance. Nevertheless, we monitor market developments on an ongoing basis, and mitigate any adverse impacts to the extent possible. Market developments 2021 In 2020, the facility management industry experi- enced an unprecedented disruption as Covid-19 impacted ways of working and workplace envi- ronments globally. The impact on our business was material. While cleaning services have been stable since the outbreak of the pandemic, other services have been materially impacted, espe- cially food services. The impact of the pandemic has continued to be signicant in 2021, and our food service revenue is still subdued with a large recovery potential from a broader return to oce, particularly in the USA. The long-term implications are uncertain – with both risks and opportunities. Covid-19 has likely accelerated working-from-home trends, and some oce-based customers may therefore pursue a reduction of their real estate footprint. This could have a negative impact on our oerings to oce-based customers. At the same time, ISS is benetting from customers requesting higher quality oerings, including increased frequency of cleaning, additional deep cleaning and higher quality food service solutions. Other macro-economic risks have also played a large role in 2021 and the beginning of 2022. In our key markets, ination has been rising putting pressure on wages and cost of goods. We have a structured approach to ination risk, as even low ination scenarios can impact margin signicantly, if not appropriately managed. On the customer side, we generally include pass-on clauses in our contracts. Also, our scale and broad service scope often allows us to drive eciencies through scope changes that can limit ination impact for the customer. In terms of cost of goods, our eorts to centralise spend with fewer suppliers allows the same benet of leveraging supplier scale to manage cost increases. Wage ination is to a large extent a result of collective bargaining agreements or legislation and as such dicult to impact directly. Demand for labour is high and in several countries we have in 2021 experienced hiring challenges. In some cases, we incentivise new joiners through Group key risks 2021 • Operational and transformation execution • People risks • IT and digital roadmap execution • Information security and cyber risk • Contract management • Finance and reporting • Compliance • Subcontractors • Corporate responsibility Our exposure to nancial risks is disclosed in note 4.4 to the consolidated nancial statements. cash benets, but generally we rely on our large network and solid employer reputation. 2022 risk priorities A key priority for 2022, is to make sure that we have technology in place which will further enhance risk management and compliance. In 2022, we will nalise the implementation of a new IT platform across risk management, information security and data privacy (GDPR) that will drive better transparency and insight into risk and compliance areas. Corporate responsibility, including Environ- mental, Social and Governance (ESG), will also continue to be a priority – both as a risk and a strong opportunity for making a real impact directly through our business performance and indirectly through engagement with our stakeholders. We acknowledge that this agenda is only continuing to grow in importance which is also why two of our ve strategic priorities for 2022 are within ESG. OUR BUSINESS Operational and transformation execution People risks IT and digital roadmap execution Information security and cyber risk Contract management Failure to properly meet our opera- tional and transformation execution goals, including, most importantly, the implementation of OneISS. Risk that ISS will not be able to attract and retain the right people in order to maintain operations and meet our customer obligations. Especially important in a pandemic environment with overheated labour market. Failure to execute our IT strategy envisioning a global IT approach with more streamlined software and glob- ally managed infrastructure, better data quality and products that will address our customers’ expectations and needs. ISS being target of cyberattacks leading to business disruption and/ or disclosure of ISS’s and/or our customer’s data. Failure to fully identify, assess and manage key risks and opportunities in customer contracts thus adversely impacting protability, leading to operational or regulatory non-com- pliance or suering nancial loss or reputational damage. Risk drivers • Scale of transformation (complexity and number of initiatives) Risk drivers • Scarcity of labour, e.g. due to Covid-19 driving unavailability of sta • Wage ination • “War for talent” • Increasing employee expecta- tions towards employers Risk drivers • Scale of IT transformation (com- plexity and number of initiatives) • Complex IT landscape with fragmented applications and data structures • Cultural change Risk drivers • Lack of awareness of full cyber risk/threat landscape • Insucient employee and third party cyber security awareness Risk drivers • Commercial discipline • Complexity in contracts, services, choice of commercial models • Large portfolio of complex contracts with increasing level of oversight within the contract Mitigation measures • Clear roadmap for implementation with adequate oversight and assigned responsibilities • Prioritisation of initiatives and roll-out • Well-dened success measures • Robust change management process, including communication strategy and information ow Mitigation measures • Standardisation of people processes, including integration of our purpose and values • Tailored learning and develop- ment programmes at all levels of the organisation • Internal development opportu- nities • Ongoing realisation of our global Diversity & Inclusion strategy Mitigation measures • Strategic alignment of business and IT goals • Ongoing implementation of new IT operating model • Clear roadmap for implementa- tion with adequate oversight and assigned responsibilities • Prioritisation of initiatives and roll-out • Well-dened success measures • Robust change management pro- cess, including communication strategy and information ow Mitigation measures • Standardisation of policies and procedures • Enhancement of cyber security skillset • Establishment of fully operational Security Operations Centre as part of cyber security programme • Closer cooperation between cyber risk experts and business • Awareness campaigns Mitigation measures • Standardised policies for delivery of services, people management, HSE requirements and contractual obligations • Updated standard for commercial bid processes, including involvement of subject matter experts and operational solution directors • New contract transition model, including certication of transition experts being mandatory for leading transition of new contracts • Segmentation of customers and focus on key segments • Strengthening of partnership country organisation • Closer cooperation between coun- tries on global key account delivery OUR BUSINESS Finance and reporting Compliance Subcontractors Corporate responsibility Failure to execute the ongoing nance transformation aiming for stronger, more consistent nance processes, improved data quality and controls. Failure to comply with applicable laws and regulations, including required licenses and permits which may lead to regulatory, operational, and reputational losses. Risk that ISS will not be able to properly service its customers as a result of failure of its subcontractors, including subcontractor vetting and performance monitoring. Risk and untapped opportunity result- ing from ISS not being able to meet expectations as a “responsible corpo- rate citizen” through environmental, social, and corporate governance processes, including realisation and communication of our ESG strategy and our climate-related initiatives. Risk drivers • Scale of transformation (complexity and number of initiatives) • Decentralised nancial IT systems and inconsistent control structures Risk drivers • Complexity and volatility of regulatory framework, including diversity of regulatory regimes • Complexity of ISS services and choice of customer segments • Multitude of geographies with varying regulatory frameworks Risk drivers • Increasing complexity and scope of services required by customers, including non-standard services • Insucient country capabilities to self-deliver full scope of services required by customers Risk drivers • Complexity of regulatory require- ments related to ESG • Increasing focus on climate-related risks • Customers’ requirements regard- ing support in driving their ESG agendas Mitigation measures • Clear road map for implementation of global processes with adequate oversight and assigned responsi- bilities • Prioritisation of initiatives and rollout • Well-dened success measures • Robust change management process, including communication strategy and information ow Mitigation measures • Closer cooperation between countries and HQ to foster a stronger culture that ensures compliance with applicable laws and regulations • Standardised global approach towards monitoring and ensuring compliance with global laws and regulations, including potential support of dedicated tools • Standardised global approach towards maintaining required licenses and permits, including potential support of dedicated tools Mitigation measures • Standardised risk-based vendor management process supported by procurement tool delivering vendor vetting data • Implementation of Supplier Code of Conduct • List of subcontractors cooperat- ing with ISS with focus on bigger, more reliant business partners • Performance of supplier audits and strict performance supervi- sion processes • Strengthening of partnership country organisation with more stringent governance model Mitigation measures • Ongoing implementation of ESG strategy • ESG initiatives built into operations and service delivery • Robust communication and training programme for ESG-related initiatives across ISS • Ongoing implementation of our global Diversity & Inclusion strategy OUR BUSINESS Corporate responsibility Caring for people, places and the planet From the company’s origins in 1901, ISS has been a people organisation. Social sustainability has always been in our DNA – with safety for our people being the priority rst and foremost. ISS is built on a foundation of equity, inclusion and fairness and respect for all individuals. As one of the global leaders in integrated facility services and workplace management with more than 350,000 employees and over 40,000 customers in more than 30 countries worldwide, ISS has a signicant impact on societies and the environment, and we have an important role to play in solving some of the world’s most pressing sustainability challenges. This is why we are strongly committed to making a positive dierence for people and the planet through ambitious sustainability eorts within our Environment, Social and Governance (ESG) scope – both in our own enterprise and in close cooperation with our customers. The world is rapidly changing Climate change, resource scarcity and waste overload are rapidly aecting our planet and the environment. It aects all of us, in terms of our weather, health, safety, economy and general quality of life. The need for decisive change is clear and urgent. At the same time, the Covid-19 pan- demic has accelerated the social awakening and the already ongoing shift of priorities of people and organisations around the world, prompting them to rethink how to protect the environment, structure our societies and govern operations. People are demanding extensive change from companies on ESG. At ISS, we believe it is our responsibility to champion this change. Our approach to sustainability Sustainability is a key component in the OneISS strategy for the entire ESG scope, in fact two out of ve strategic priorities for 2022 focus on sustainability. Our key competitive advantage lies within Social (S) and our placemakers and self-delivery model oer a unique basis for Governance (G) and compliance. It has always been incumbent on ISS, and a central part of our beliefs and identity, to ensure health & safety, diversity & inclusion and social mobility in our workforce. Going forward, social sustainability will still be our primary source of dierentiation. However, Environment (E) has quickly become a license to operate; employees, customers and investors expect and demand greater transpar- ency, engagement and evidence of environmen- tal action and initiatives. At ISS, we recognise the full scope of the ongo- ing climate and environmental crisis, and we are fully committed to carrying out our operations and delivering our services in a sustainable way. We believe that it is our societal responsibility, our license to operate and ultimately the key driver for future growth and success. Accelerating our In 2021, we accelerated our eorts across the entire ESG scope, not least in relation to the environment. First of all, we worked on setting ambitious targets for reaching full-scope net zero CO 2 emissions by 2040, as announced in January 2022. The roadmap to getting there will be led by our new Head of Sustainability, who joined ISS on 1 January 2022. On Task Force on Climate-related Financial Disclosures (TCFD), which ISS committed to in late 2020, we carried out a comprehensive as- sessment and developed a three-year roadmap for implementation. Finally, we implemented the EU Taxonomy Regulation, which came into force for the nancial year 2021. The Taxonomy seeks to provide clarity for companies, capital markets and policy makers, on which economic activities are sustainable and thereby support investment ows into these activities. In 2021, we also enhanced our activities within Diversity & Inclusion when we hired a new Head of Diversity & Inclusion and launched a new strategy addressing ve dimensions of diversity. Read more about our 2021 initiatives on the following pages. 2025 ambition Society To be a sustainability leader on the DJSI Europe Index Corporate responsibility report Read more in our CR report as per section 99a and 99b of the Danish Financial Statements Act here Deeply committed to SDGs 2021 CORPORATE RESPONSIBILITY REPORT PEOPLE MAKE PLACES OUR BUSINESS Our journey to net zero In 2021, we initiated our journey towards reaching full-scope net zero CO 2 emissions. Our targets are ambitious as we are determined to be recognised as being among the best environmental leaders in our industry and a catalyst of real change. At ISS, we recognise the full scope of the ongo- ing climate and environmental crisis, and we are strongly committed to carrying out our opera- tions and delivering our services in a sustainable fashion. ISS has been engaged in sustainability eorts within climate and environment for many years. With the announcement in January 2022 of our commitment to reaching full-scope net zero CO 2 emissions by 2040, we are accelerating our climate and environmental eorts even fur- ther. Our commitment encompasses all activity across the business, including the full scope of our supply chain. For 2022, environment is also dened as one of our ve strategic priorities. Our overall targets Our commitment encompasses all activity across the business, including the full scope of our supply chain. As such, we have set the target to: • Reach net zero CO 2 emissions within scope 1 and 2 by 2030 • Reach net zero CO 2 emissions within scope 3 by 2040 Furthermore, we are committed to oering full- scope reporting of our environmental footprint. Reduction of food footprint As a key element of our roadmap to net zero, we will enhance our food sustainability programme and reduce CO 2 emissions associated with the food we serve globally by 25% by 2030 and halve the amount of food waste by 2027. Reducing water and electricity consumption Our roadmap to net zero also includes initiatives in several other areas like electrication of our global eet of approximately 20,000 vehicles, increasing the renewable energy share in our own buildings, and reducing water in cleaning services. Scope 1 + 2 emissions Scope 3 emissions Food served (emissions) Food waste Other initiatives Net zero by 2030 Net zero by 2040 Emissions Waste Examples: • • Water reduction • Renewable energy The journey ahead In the coming months and years, numerous global activities within food sustainability, water and waste reductions and energy management will be initiated – both within ISS’s organisation and not least, in close cooperation with custom- ers and suppliers. We are currently in the process of establishing our specic science-based targets based on our full-scope baseline of 2019 in alignment with our commitment to the Science Based Targets initiative (SBTi). This will enable us to develop reduction strategies, working in partnerships with our more than 40,000 customers and 80,000 suppliers worldwide. OUR BUSINESS Climate-related risks We recognise the importance of assessing the impact of climate change on our business and late 2020, ISS committed to follow the TCFD recommendations. In 2021, we carried out a comprehensive assess- ment to identify and understand the climate-re- lated risks and opportunities ISS is exposed to and how we can mitigate the impact. We have developed a three-year roadmap for implementing the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations in 2021. These include disclosures about climate-related risks and opportunities on our governance, business strategy, risk manage- ment and metrics. As part of our role in addressing climate change, ISS has committed to a number of climate-re- lated targets, which aim to develop sustainable business strategies, promote best practices in emissions reductions, and mitigate the risks of climate change. For details on the recommendations in our context, see the overview to the right. Recommendations Our response Read more Governance Disclose the organisation’s governance around climate-related risks and opportu- nities • The Board of Directors is responsible for risk, including climate-related risks • The Executive Group Management is responsible for sustainability and has established a Sustainability Committee addressing ESG-related matters, including climate-related risks Annual report: • Corporate governance, p. 43 CR report: • Our framework for Corporate Responsibility, p. 11 Strategy Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and nancial planning where such information is material • Our strategic ambition is to be recognised as an environmental leader, advocating for more sustainable actions, measures and goals • Our focus on reducing the impact on the environment and climate contributes to solving the global challenge of climate change and creating a sustainable world for future generations CR report: • Strategy, p. 29 Risk management Disclose how the organisation identies, assesses and manages climate-related risks • Our initiatives and activities are carried out through a systematic approach, whereby we identify potential for more ecient use of resources, lower emissions and cost optimisation. We proactively mitigate environmental risk and anticipate our customers’ needs CR report: • Mitigating risks and challenges, p. 12 Annual report: • Our business risks, p. 32 Metrics and targets Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such infor- mation is material • Targets (%) for electricity and water consumptions as well as car emissions • Science-based targets initiative (scope 1-3) emissions • Net zero 2040 target • Commitment to SDG 13 – we take urgent action to combat climate change and its impact • UN Global Compact commitment CR report: • Targets, p. 32 • Climate-related disclosures, p. 32 • SDGs, p. 10 Annual report: • Our journey to net zero, p. 36 OUR BUSINESS of diversity Gender balance 2021 Generation & Age Cultures, Race & Ethnicity Pride Abilities Gender balance Diversity, inclusion & belonging ISS is built on a foundation of equity, inclusion, fairness, and respect for all individuals. With our 120-year legacy as a people company, diversity has always been in our DNA. We have taken signicant steps in 2021 to strengthen this agenda even further. We recognise our diverse workforce as a key competitive advantage and a vital asset in our long-term sustainable business success. Our inclusive culture empowers our people, and helps to make us more creative, productive, and attractive as a workplace. Diversity is about the unique characteristics, life experience and perspectives that makes us who we are. Inclusion means valuing and respecting dierences and seeing those as essential for success. Belonging is when employees feel they can bring their authentic selves to work, when dierences are embraced and valued. To come to a stage of true belonging is our ultimate goal. In 2021, we strengthened our Diversity & Inclusion (D&I) focus with the appointment of a new Head of Diversity & Inclusion to implement our new strategic approach. We know that to reap the real benets of our dierences we need plans and concrete actions, which is also why D&I is one of our ve strategic priorities for 2022. Our strategic approach Our strategy is driven through ve dimensions of diversity, shown in the overview to the right, rep- resenting the current needs of our business. We are aware that there are many more dimensions of diversity and we will broaden our focus in the longer term. We have dened a global target to increase underrepresented minorities, with the rst one being to achieve 40% gender balance in corporate leadership by 2025. Gender balance is just one of our dimensions of diversity, but we believe that improving representations of underrepresented minorities will truly be the change we want to see. In 2022, we will continue to work on targets for our additional dimensions. In 2021, we also signed the UN Women’s Empow- erment principles, which are designed to help advance and empower women in the workplace, marketplace and community. By signing up to these principles, we are actively demonstrating our commitment to our global gender balance target. Status on gender balance We believe that the advancement of women will lead to greater innovation, improved organisa- tional performance and better service to our customers, enabling us to connect people and places to make to world work better. The representation of women at management lev- el at the global head oce reached approximately 35% in 2021, up from 28% in 2020. To improve the gender balance, we continue to leverage our Diversity policy, requiring us to identify at least one female candidate in searches for vacant positions. We actively identify female candidates for our leadership programmes. We also continuously develop our succession planning aiming at iden- tifying female successors, and table the matter of women in leadership at ISS for discussion, both at our talent board, and at least once a year at Executive Group Management (EGM) level. At our EGM, the female representation in- creased to 25% in 2021 (2020: 20%) following the changes to the management team in 2021 to support and strengthen the next stage in our OneISS journey. At the Board of Directors (Board), the target of having at least 40% women elected at the general meeting was met with 43% of these Board members being women as also described in Corporate Governance on p. 42. EGM Corporate leadershipBoard Women Women Women Men Men Men Gender Balance (head office(Board)) EGM EGM Corporate leadership Corporate leadership OUR BUSINESS Fostering an inclusive learning culture at ISS Austria With a workforce as diverse as ours, we know the value of adapting learning and development to the needs of our people. At ISS, everyone has the right to learn – and gain the skills they need to succeed and stay safe. During the past year, ISS Austria has become a testament to this commitment by rolling out inclusive learning initiatives for frontline workers, with particular focus on non-native workers, the digitally illiterate and an ageing workforce. Committed to a strong learning culture “We wanted to help our frontline sta develop the necessary skills in a safe and simple way,” says Petra Bisanovic, Team Leader of Learn- ing & Development at ISS Austria. “There is a huge need for dierent channels of learning. Each and every employee deserves to know about ISS’s high standards – not only to do their job, but also to protect their health.” Petra and her team collaborated with the Austrian Chamber of Commerce to launch three solutions: • An ergonomics course helping reduce body strain on the ageing workforce and ensuring correct posture while cleaning. Participants wore body sensors while cleaning, while a team of ergonomics specialists studied the ndings, leading to instructional videos demonstrating optimal cleaning techniques. • A series of interactive e-learning courses teaching sta key work skills, leveraging videos, quizzes and live streaming and providing easy access to education during Covid-19 restrictions. To cater for non-native speakers and the digitally illiterate, text was replaced with images and colours to simplify the learning process. • An audio learning tool providing an alter na tive to digital learning for the digitally illiterate. The tool, called the tiptoi ® in German, was designed with the game producer Ravensburger and uses images and audio on the user’s native language to teach key work skills, such as new cleaning techniques. Building the workplaces of tomorrow The initiatives were rolled out in ve lan- guages – English, Serbo-Croatian, Turkish, Romanian and Hungarian – to over 500 ISS placemakers, with the audio learning tool being a particular success. In 2022, ISS Austria plans to expand the initiatives to its entire 6,500 frontline workforce. PEOPLE “Creating the workplaces of tomorrow depends on smart digitalisation. This attention to our people’s needs and skills is what makes us an attractive employer and what makes us particularly strong in delivering high-quality services to customers.” Erich Steinreiber Country Manager, ISS Austria CASE Our Governance Corporate governance Transparency, constructive stakeholder dialogue, sound decision-making processes and controls are key aspects of our corporate governance for the benefit of ISS and our stakeholders. Framework 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. The rules on the governance of ISS A/S, includ- ing share capital, general meetings, shareholder decisions, election of members to the Board, etc., is described in the Articles of Association which are available here. The Board reviews the Group’s share and capital structure on an ongoing basis. The Board believes the present share and capital structure serves the best interests of both the sharehold- ers and ISS as it gives ISS the flexibility to pursue strategic goals, thus supporting long-term shareholder value combined with short-term shareholder value by way of ISS’s dividend policy. Governance structure Shareholders The shareholders of ISS A/S exercise their rights at the general meeting, which is the supreme governing body of ISS. Management Management powers are distributed between our Board and our Executive Group Manage- ment Board (the EGMB). No person serves as a member of both of these corporate bodies. Our EGMB carries out the day-to-day management, while our Board supervises the work of our EGMB and is responsible for the overall manage- ment and strategic direction. The members of the EGMB are the Group CEO and the Group CFO. Together, they form the management registered with the Danish Business Authority. The Group has a wider Executive Group Management (the EGM), whose members are ten Corporate Senior Officers in addition to the EGMB. The EGM has a number of committees including a Sustainability Committee addressing ESG-related matters which are reported and reviewed by the EGM and the Board as required. In the review of our governance structure on p. 44, we have outlined the primary responsibil- ities of the Board and the EGM as well as 2021 activity by Board committees. Strengthening the EGM In 2021, we strengthened our EGM and made necessary organisational changes to support our execution of the OneISS strategy even more. On 1 May 2021, Liz Benizon took up the position as Country Manager of ISS UK & Ireland and joined the Executive Group Management. On 1 June 2021, Markus Sontheimer took up the position as Chief Information and Digital Officer and joined the Executive Group Management. On 1 January 2022, Carl-Fredrik Langard-Bjor took up the position as CEO Northern Europe and Celia Liu the position as CEO Central & Southern Europe. On 31 December 2021, Pierre-François Riolacci stepped down as Group CEO Europe. Full bios for the EGM are available here Composition of the Board The Board consists of ten members, seven elect- ed by the general meeting and three elected by and among the employees. Board members elected by the general meeting stand for elec- tion each year. Niels Smedegaard and Kelly Kuhn were appointed as new members of the Board at the annual general meeting on 13 April 2021 Governance report The report includes a description of our governance structure and the main elements of our internal controls related to nancial reporting as well as an overview of our po- sition on the Danish Corporate Governance Recommendations. Recommendations • 1.1.3 Publication of quarterly reports We publish full-year and half-year nancial results and trading updates in Q1 and Q3 in line with international industry practice. This reporting format is selected to balance focus between short-term performance and long- term value creation. Investor presentations are held quarterly via live webcast/telephone conference. Remuneration report The report includes a description of our remuneration policy and remuneration of the Board and the EGMB, see also note 5.1 to the consolidated nancial statements. 2021 REMUNERATION REPORT PEOPLE MAKE PLACES 2021 PEOPLE MAKE PLACES STATUTORY REPORT ON CORPORATE GOVERNANCE OUR GOVERNANCE where the previous Chair of the Board Lord Allen of Kensington and board member Claire Chiang stepped down. The Board constituted itself by electing Niels Smedegaard as Chair and Henrik Poulsen as Deputy Chair. Employee representatives 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 representa- tives serve for terms of four years. The current employee representatives joined the Board after the annual general meeting held in April 2019. Board evaluation In 2021, the Board performed its annual evalua- tion of the Board’s performance with assistance by an external advisor. The evaluation included Board composition, individual performance at meetings and preparation, cooperation between the Board and the EGMB, the leadership of the Board Chair, committee structure and work as well as the organisation of work and quality of Board material. All members of the Board, CEO, CFO and the General Counsel answered bespoke online questionnaires and participated in in-depth personal interviews. The result of the Board evaluation was subsequently presented and discussed at a Board meeting. Overall, the Board was evaluated by the external advisor to be well-functioning and with a diverse composition. Under challenging circumstances, with new members and few opportunities to meet in person, the board had worked well together. The evaluation identified a few focus areas to improve the Board’s performance and value-add during 2022: i) ensuring the right balance between reviewing progress on turnaround plans and ensuring long-term, profitable growth, ii) reviewing integration of and follow-up on environmental and social goals in general and leveraging the opportunity to become a societal role model in particular and iii) strengthening the Board as a team. For further details, please see response to recommendation 3.5.1 of the 2021 Statutory report on Corporate Governance. Competencies and diversity The Board and the EGM recognise the impor- tance of promoting diversity at management levels and have implemented policies regarding competencies and diversity in respect of Board and EGMB nominations according to which we are committed to selecting the best candidate. Emphasis is placed on: • experience and expertise; • diversity of gender and in broader terms; and • personal characteristics matching ISS’s values and leadership principles. In 2021, we launched our global Diversity & Inclusion (D&I) strategy. As part of the strategy, we have defined a target of achieving at least 40% gender balance at all corporate leadership levels by 2025. The strategy and our initiatives to improve gender balance is further described on p. 38. Gender balance at all leadership levels remains a focus area in 2022. Board gender balance The Board’s gender target of having at least 40% women elected by the general meeting on the Board by 2020 was met with 43%. Including em - ployee representatives, 50% of our Board is women . Nationalities 43% Danish 29% US 14% British 14% French Gender balance – for women, target: 40% Board diversity – members elected at the annual general meeting Nationalities Special competencies Independence Men French British Women Danish US Strategy and value creation Leadership of large international companies Corporate responsibility Transformational change Finance accounting and tax IT, technology and digitalisation Investors and capital markets Risk management Sales and marketing People and remuneration International service industry Gender Balance (head office(Board)) EGM Gender Balance (head office(Board)) OUR GOVERNANCE Assurance The Group’s external financial reporting is audited by the independent auditors. Group Internal Audit (GIA) is responsible for providing an objective and independent assessment of the effectiveness and quality of the internal controls in accordance with the internal audit plan approved by the Audit and Risk Committee (ARC). GIA operates under a charter approved by the Board. Although the travel ability of GIA continued to be impacted by Covid-19, audit programmes have been adjusted to accommodate remote testing allowing for GIA to continue to provide assurance over the operating effectiveness of internal controls. In 2021, focus has been on: • establishment of regional based GIA in Asia & Pacific and the strengthening of the GIA team through recruitment of new members in the newly established corporate hub in Warsaw; • development of new audit working programme to provide assurance around effectiveness of internal controls in our Partnership countries; • continued implementation of a structured and formalised Internal Control Framework for Financial Reporting (ICOFR). The status of selected controls and on the implementation of key processes and systems is reported separately for each country as part of a Group initiative on Top 10 Controls; and • reducing the number of open audit recom- mendations and ensuring timely closure of audit recommendations. Speak Up (whistleblower) The Group’s Speak Up Policy is implemented through a reporting tool operated by GotEthics, which is available in 21 languages via ISS’s website and local ISS country websites enabling employees of ISS, business partners and other stakeholders to report serious and sensitive concerns anonymously. All business integrity and ethics issues identified through Speak Up or other sources are handled by the Business Integrity Committee (BIC) that is composed of the Group CFO, the Group General Counsel, the Group People and Culture Officer and the Head of Group Internal Audit. The BIC reports to the ARC on all matters that have been subject to investigation. Over 2021, the accessibility and awareness of Speak Up has been strengthened through the on- going implementation of a manned phone hotline to supplement the reporting tool and updates of the ISS website with a new section on Responsible Business Conduct & Speak Up. Data ethics ISS’s focus on safe and ethical processing of data has been strengthened by the adoption of the ISS Data Ethics Policy. The purpose of the policy is to ensure transparency and account- ability in ISS’s management and processing of data. The policy is based on the principles of the Charter of Fundamental Rights of the European Union and emphasises ISS’s commitment to responsible, fair and progressive data handling as well as ISS’s dedication to diversity and inclusion. The Data Ethics Policy as per section 99d in the Danish Financial Statements Act has been adopted by the EGM and the Board and is subject to annual review in line with ISS’s policy standards. The policy is available here Key matters transacted by the Board • OneISS strategy execution • Turnaround of underperforming contracts (Deutsche Telekom and Danish Defence) and countries (the UK and France) • Divestment programme execution • Financial performance turnaround targets • Covid-19 impact on the business and performance • Embedding new Bid to Operation processes • IT and Digitalisation strategy • Sustainability targets, including full net zero CO 2 emissions • New D&I strategy • Data Ethics Policy Recurring matters • Overall strategy, business and action plan • Annual budget • Capital and share structure, and nancing • Financial Policy and Dividend Policy • External nancial reporting, Remuneration and CR reports • Key risks and risk management reporting • Internal controls and risks related to nancial reporting • IT and information security • Corporate governance • Competencies, composition and indepen- dence of the Board • Succession planning • Evaluation of performance of the Board, individual board members, performance of the EGMB and cooperation between the Board and the EGMB • Diversity • Sustainability • Speak Up Policy and system • Remuneration policy and guidelines on incentive pay • Recommendation of auditors for election at the annual general meeting OUR GOVERNANCE Our governance structure Board of Directors Executive Group Management Country leadership Responsible for the overall management and strategic direction of the Group, including: • strategy plan and annual budget • appointing EGMB members • supervising the activities of the Group • reviewing the nancial position and capital resources to ensure that these are adequate The Board receives a monthly nancial reporting package and is briefed on important matters in between board meetings. Board biographies, pp. 45-46 Responsible for the day-to-day management of the Group, including: • developing and implementing strategic initiatives and Group policies • designing and developing the organisa- tional structure • monitoring Group performance • evaluating and executing investments, acquisitions, divestments and large customer contracts • assessing on an ongoing basis whether the Group has adequate capital resources and liquidity to meet its existing and future liabilities • establishing procedures for accounting, IT organisation, risk management and internal controls EGM has established a number of commit- tees, including Sustainability, Remuneration, IT & Digitalisation, Business Integrity and Transaction Committees. EGM biographies, p. 47 Responsible for the implementa- tion of the OneISS strategy and business model on country level and managing the business in accordance with Group policies and procedures as well as local legislation and practice of each country, including managing operations in their market. Country leadership teams are set out under each relevant country at www.issworld.com 2021 Committee activity Audit and Risk Committee The Audit and Risk Committee held seven meetings in 2021 and continued its focus on: • Evaluating the external nancial reporting, signicant accounting policies as well as signicant accounting estimates and judgements related to items such as im- pairment tests, divestments, deferred tax as well as revenue and related customer receivables • Reviewing and monitoring the Group’s risk management, internal controls, Speak Up (whistleblower) system and business integrity matters • Monitoring the Group internal audit function • Evaluating the Financial Policy, the Divi- dend Policy and the Group Tax Policy • Monitoring and considering the relationship with the independent auditors, reviewing the audit process and the auditors’ long form audit report, and recommending on appointment of auditors Remuneration Committee The Remuneration Committee held nine meetings in 2021 and continued its focus on: • Assisting in reviewing the remuneration policy and guidelines on incentive pay • Recommending the remuneration of Board and EGMB members and approving remuneration of EGM Nomination Committee The Nomination Committee held ten meetings in 2021 and continued its focus on: • Assisting in ensuring that appropriate plans and pro- cesses are in place for the nomination of candidates to the Board and the EGMB • Evaluating the composition of the Board and the EGMB • Recommending nomination or appointment of Board, EGMB and board committee members Transaction Committee The Transaction Committee held four meetings in 2021 and continued its focus on: • Reviewing and making recommendations on certain large acquisitions, divestments and customer contracts • Following and considering large transactions, includ- ing reviewing pipeline and ISS’s procedures • Reviewing material new nancing, renancing or material variation of existing nancing and proposals for equity or debt issuance Board of Directors Executive Group Management (EGM) Country leadership Audit and Risk Committee Remuneration Committee Nomination Committee Transaction Committee Executive Group Management Board (EGMB) OUR GOVERNANCE Niels Smedegaard (1962) Chair Gender: Male First elected (until): April 2021 (2022) ISS committees • Nomination committee (C) • Remuneration committee • Transaction committee Board and management positions • Molslinjen A/S (C) • Bikubenfonden (C) • Abacus Medicine A/S (C, RCM, NCM) • Falck A/S (C, ACM) • DSV Panalpina A/S (BM, ACM) • TT Club Mutual Insurance Ltd. (BM) • UK P&I Club (BM) • Frederiksbergfonden (BM) • EQT (Industrial advisor) Special competencies • International service industry • Strategy and value creation • Leadership of large international companies • Transformational change • IT, technology and digitisation • Finance, accounting and tax • Investors and capital markets (1967) Deputy Chair Gender: Male First elected (until): August 2013 (2022) ISS committees • Transaction committee Board and management positions • Faerch A/S (C, NRCC) • Faerch Group Holding A/S (C) • Carlsberg A/S (DC (and DC in one subsidiary), NCM, RCM, ACM) • Ørsted A/S (BM) • Novo Nordisk A/S (BM, ACM) • Novo Holdings A/S (BM) • Bertelsmann SE & CO. KGaA (SBM) • A.P. Møller Holding A/S (Senior advisor) Special competencies • Strategy and value creation • Leadership of large international companies • Transformational change • Finance, accounting and tax • Investors and capital markets • Risk management • Corporate responsibility Valerie Beaulieu (1967) Board member Gender: Female First elected (until): April 2020 (2022) ISS committees • Audit and risk committee • Transaction committee Board and management positions • Adecco Group, Chief Sales & Marketing Ocer Special competencies • International service industry • Strategy and value creation • Leadership of large international companies • Transformational change • Sales and marketing • IT, technology and digitisation • Corporate responsibility Kelly Kuhn (1965) Board member Gender: Female First elected (until): April 2021 (2022) ISS committees • Nomination committee • Remuneration committee Board and management positions • CWT (Special advisor) • McChrystal Group (Strategic advisor) • SSP Group plc (BM, ACM, NCM) Special competencies • International service industry • Strategy and value creation • Leadership of large international companies • Transformational change • People and remuneration • Sales and marketing • Corporate responsibility Søren Thorup Sørensen (1965) Board member Gender: Male First elected (until): April 2020 (2022) ISS committees • Audit and risk committee Board and management positions • KIRKBI A/S, (CEO, BM and/or management in 9 subsidiaries) • Boston Holding A/S (C) • LEGO A/S (DC, ACC) • Landis+Gyr AG (BM) • Koldingvej 2, Billund A/S (BM) • Merlin Entertainments Limited (BM, ACC, RCM (and BM of 4 aliated companies)) • Ole Kirk´s Foundation (BM) • ATTA Foundation (BM) Special competencies • Strategy and value creation • People and remuneration • Finance, accounting and tax • Investors and capital markets • Risk management • Corporate responsibility Board of Directors Denmark Denmark Denmark Finland France USA Uruguay OUR GOVERNANCE Ben Stevens (1959) Board member Gender: Male First elected (until): April 2016 (2022) ISS committees • Audit and risk committee (C) • Transaction committee (C) Board and management positions • PageGroup plc. (BM, ACC) Special competencies • Strategy and value creation • Leadership of large international companies • IT, technology and digitisation • Finance, accounting and tax • Investors and capital markets • Risk management Cynthia Mary Trudell (1953) Board member Gender: Female First elected (until): April 2015 (2022) ISS committees • Nomination committee • Remuneration committee (C) Board and management positions • Canadian Tire Corporation Limited (BM and chair of the management resources, CCC, GCM) • RenaissanceRe Holdings Ltd. (BM and member of the compensa- tion and corporate governance Committee) Special competencies • Strategy and value creation • Leadership of large international companies • Transformational change • People and remuneration • Sales and marketing • IT, technology and digitisation • Corporate responsibility Nada Elboayadi (1982) Employee representative Gender: Female First joined the Board (until): April 2019 (2023) ISS position Head of Global Big Data, Global Support Solutions since 2018. Joined the ISS Group in 2006. Special competencies • International service industry • IT, technology and digitisation Joseph Nazareth (1960) Employee representative Gender: Male First joined the Board (until): March 2011 (2023) ISS position Group Vice President and Head of Group Health, Safety, Environment and Quality and Corporate Responsi- bility since 2010. Joined the ISS Group in 2010. Special competencies • International service industry • Risk management • Corporate responsibility Elsie Yiu (1975) Employee representative Gender: Female First joined the Board (until): April 2019 (2023) ISS position Group Vice President and APAC Head of Legal since 2018. Joined the ISS Group in 2015. Special competencies • International service industry • Risk management UK USA USA Uruguay Hong Kong Hungary Canada China Denmark C: Chair, Board of Directors DC: Deputy Chair, Board of Directors BM: Member, Board of Directors SBM: Supervisory Board Member ACC: Audit Committee Chair ACM: Audit Committee Member NCM: Nomination Committee Member RCM: Remuneration Committee Member NRCC: Nomination and Remuneration Committee Chair CCC: Compensation Committee Chair GCM: Governance Committee Member Full bios of Board members are available here Meeting attendance Board Audit and Risk Remune- ration Trans- action Nomina- tion Niels Smedegaard, Chair 1) 8/8 4/5 3/3 7/7 Henrik Poulsen, Deputy Chair 2) 8/10 1/1 4/4 Valerie Beaulieu 9/10 6/7 4/4 Kelly Kuhn 1) 8/8 5/5 7/7 Søren Thorup Sørensen 2) 9/10 5/6 Ben Stevens 10/10 7/7 4/4 Cynthia Mary Trudell 10/10 9/9 10/10 Nada Elboayadi ( E ) 10/10 Joseph Nazareth ( E ) 10/10 Elsie Yiu ( E ) 10/10 All board members are independent, except for the employee representatives 1) Joined the Board of Directors/Committee on 13 April 2021 2) Stepped down from/joined the Audit and Risk Committee on 13 April 2021 OUR GOVERNANCE Carl-Fredrik Langard-Bjor CEO Northern Europe – since January 2022 Joined ISS: 2011 Scott Davies – since January 2021 Joined ISS: 2012 Daniel Ryan Group Chief Commercial – since December 2020 Joined ISS: 2016 as CEO Americas Andrew Price CEO Strategic Growth – since December 2020 Joined ISS: 1995 Markus Sontheimer Chief Information and – since June 2021 Joined ISS: June 2021 Bjørn Raasteen Group General Counsel – since January 2005 Joined ISS: 1999 Jacob Aarup-Andersen Group CEO – since September 2020 Joined ISS: September 2020 Member of the Executive Group Management Board of ISS A/S registered with the Danish Business Authority. Kasper Fangel Group CFO – since December 2020 Joined ISS: 2009 Member of the Executive Group Management Board of ISS A/S registered with the Danish Business Authority. Corinna Refsgaard Group Chief People & – since December 2018 Joined ISS: 2017 Troels Bjerg Group COO – since March 2018 Joined ISS: 2009 Celia Liu CEO Central & Southern Europe – since January 2022 Joined ISS: December 2019 Liz Benison CEO UK&I – since May 2021 Joined ISS: May 2021 Executive Group Management Full bios of Executive Group Management members are available here Denmark UK USA UK USA UK USA Australia Denmark Denmark Denmark USA Uruguay Norway New Zealand Germany Hong Kong Hungary Germany Hong Kong Hungary OUR GOVERNANCE A new service model in the Netherlands is saving PwC at least 15% in service costs, while also driving down carbon emissions. In the Netherlands, PwC’s 14 locations have a combined footprint of 93,000 m 2 . At these sites, we take care of almost every aspect of facility management – from cleaning and food to reception, IT support and security – to ensure the buildings run smoothly 24/7. Rob Klinkert, Senior Portfolio Manager in Facility Management at PwC says ‘’It was very nice to join ISS in a tender for a new contractor. We have made a choice to upgrade the expertise on site. And we have been able to nance the extra costs involved by splitting the contractor into a partner and specialists suppliers, therefore eliminating margin stacks. By focusing on expertise, we also made progress on reducing energy usage. Amongst other things by enhanced energy monitoring and adjustments in the building control system.’’ Until recently, preventative and reactive maintenance at PwC’s sites in the Nether- lands were carried out by third-party service providers contracted by ISS. However, after reassessing our service model, we discov- ered that reorganising maintenance delivery would bring signicant advantages to PwC. The most obvious of these is a direct reduction in maintenance costs of 15-20%. of net zero emissions Sustainability is a key focus area for PwC and the company has set ambitious targets. These include reaching net zero greenhouse emissions by 2030 in line with the Science Based Targets initiative. As a facility manage- ment partner, ISS has a signicant role to play in helping PwC achieve these goals. ”We have plans in place to optimise PwC’s use of buildings and equipment, and together we are taking action to reduce PwC’s energy consumption and carbon emissions. Reuse and lifecycle management is also extremely important – so we always look to repair instead of replace when possible,” says Gijs. The results of this work have been impres- sive. For example, we recently changed all of PwC’s lighting to LED, resulting in an energy saving of around DKK 100 thousand per year. We are also installing solar panels on the roofs of many PwC buildings and shutting facilities at weekends if they are not in use. This last action alone will cut heating gas consumption by 10-15%, reducing both operating costs and emissions. New service concept reduces costs and emissions for PwC “We have plans in place to optimise PwC’s use of buildings and equipment, and together we are taking action to reduce PwC’s energy consumption and carbon emissions.” Gijs Emsbroek Head of Technical Services & Capital Projects, ISS Netherlands CASE Financial statements Consolidated nancial statements Estimates and judgements Subsequent events Items being subject to signicant estimates and/or judgements are described in the following notes: 1.2 Revenue 1.5 Deferred tax 2.1 Right-of-use assets 2.2 Trade receivables and credit risk 2.3 Other receivables 2.6 Provisions 3.1 Discontinued operations 3.2 Assets and liabilities held for sale 3.6 Intangible assets 3.8 Impairment tests 5.4 Pensions and similar obligations Other than set out elsewhere in these consoli- dated nancial statements, we are not aware of events subsequent to 31 December 2021, which are expected to have a material impact on the Group’s nancial position. Primary statements Consolidated statement of prot or loss 51 Consolidated statement of comprehensive income 51 Consolidated statement of cash ows 52 Consolidated statement of nancial position 52 Consolidated statement of changes in equity 53 1.1 Segment information 55 1.2 Revenue 56 1.3 Other income and expenses, net 58 1.4 Income tax 58 1.5 Deferred tax 59 Operating assets, 2.1 Property, plant and equipment and leases 62 2.2 Trade receivables and credit risk 64 2.3 Other receivables 65 2.4 Other liabilities 65 2.5 Changes in working capital 65 2.6 Provisions 66 2.7 Free cash ow 67 Strategic divestments and acquisitions 3.1 Discontinued operations 69 3.2 Assets and liabilities held for sale 70 3.3 Divestments 71 3.4 Acquisitions 72 3.5 Pro forma revenue and operating prot 73 3.6 Intangible assets 74 3.7 Goodwill impairment 75 3.8 Impairment tests 75 Capital structure 4.1 Equity 79 4.2 Loans and borrowings 80 4.3 Financial income and expenses 81 4.4 Financial risk management 81 4.5 Interest rate risk 82 4.6 Liquidity risk 83 4.7 Currency risk 84 Remuneration 5.1 Remuneration to the Board of Directors and the Executive Group Management 87 5.2 Sta costs and average number of employees 87 5.3 Share-based payments 87 5.4 Pensions and similar obligations 90 Other required disclosures 6.1 Contingent liabilities 92 6.2 Government grants 92 6.3 Related parties 92 6.4 Fees to auditors 92 Basis of preparation 7.1 Signicant accounting estimates and judgements 93 7.2 Change in accounting policies 93 7.3 General accounting policies 93 7.4 New standards and interpretations not yet implemented 95 7.5 Changes to segments 96 7.6 Group companies 96 Key events 2021 In 2021, the following events and transactions had a signicant impact or were signicant for the under- standing of the consolidated nancial statements: • Impairment loss of DKK 450 million in France, cf. 3.8, Impairment test • Divestment of six countries and six business units, cf. 3.3, Divestments • Acquisition of Rönesans Facility Management Company in Turkey, cf. 3.4, Acquisitions FINANCIAL STATEMENTS Consolidated statement of prot or loss Consolidated statement of comprehensive income 1) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. 1 January – 31 December ( DKKm ) Note 2021 2020 Revenue 1.1, 1.2 71,363 70,752 Sta costs 5.2, 5.3 ( 46,369 ) ( 46,579 ) Consumables ( 5,020 ) ( 5,751 ) Other operating expenses ( 16,438 ) ( 19,785 ) Depreciation and amortisation 1) 2.1, 3.6 ( 1,760 ) ( 1,840 ) 1,776 ( 3,203 ) Other income and expenses, net 1.3 439 ( 983 ) Goodwill impairment 3.7 ( 450 ) ( 432 ) Amortisation/impairment of brands and customer contracts 3.6 ( 64 ) ( 89 ) 1.1 1,701 ( 4,707 ) Financial income 4.3 41 59 Financial expenses 4.3 ( 697 ) ( 608 ) 1,045 ( 5,256 ) Income tax 1.4, 1.5 ( 509 ) 36 536 ( 5,220 ) 3.1 101 25 637 ( 5,195 ) Attributable to: Owners of ISS A/S 615 ( 5,205 ) Non-controlling interests 22 10 637 ( 5,195 ) Earnings per share, DKK Basic earnings per share ( EPS ) 4.1 3.3 ( 28.2 ) Diluted earnings per share 4.1 3.3 ( 28.2 ) Earnings per share for continuing operations, DKK Basic earnings per share ( EPS ) 2.8 ( 28.3 ) Diluted earnings per share 2.8 ( 28.3 ) 1 January – 31 December ( DKKm ) Note 2021 2020 637 ( 5,195 ) Other comprehensive income Actuarial gains/ ( losses ) 5.4 1,145 ( 127 ) Impact from asset ceiling regarding pensions 5.4 ( 1,080 ) ( 21 ) Tax 1.5 ( 11 ) 29 in subsequent periods 54 ( 119 ) Foreign exchange adjustments of foreign entities 4.1 297 ( 750 ) Fair value adjustments of net investment hedges 4.1 ( 191 ) 180 Recycling of accumulated foreign exchange adjustments on country exits 4.1 ( 7 ) ( 105 ) Tax 42 ( 40 ) in subsequent periods 141 ( 715 ) Other comprehensive income 195 ( 834 ) Comprehensive income 832 ( 6,029 ) Attributable to: Owners of ISS A/S 825 ( 6,034 ) Non-controlling interests 7 5 Comprehensive income 832 ( 6,029 ) FINANCIAL STATEMENTS Consolidated statement of cash ows Consolidated statement of nancial position 1 January – 31 December ( DKKm ) Note 2021 2020 Operating prot before other items 1,776 ( 3,203 ) Operating prot before other items from discontinued operations 3.1 37 47 Depreciation and amortisation 2.1, 3.6 1,760 1,855 Share-based payments 62 27 Changes in working capital 2.5 1,056 951 Changes in provisions, pensions and similar obligations ( 435 ) 1,512 Other expenses paid ( 74 ) ( 441 ) Interest received 40 71 Interest paid ( 473 ) ( 514 ) Income tax paid 1.4 ( 528 ) ( 666 ) 3,221 ( 361 ) Acquisition of businesses 3.4 ( 526 ) ( 102 ) Divestment of businesses 3.3 1,191 505 Acquisition of intangible assets and property, plant and equipment ( 628 ) ( 712 ) Disposal of intangible assets and property, plant and equipment 42 31 Acquisition of nancial assets, net ( 6 ) ( 48 ) 73 ( 326 ) Proceeds from bonds 4.2 - 3,694 Repayment of bonds 4.2 ( 1,577 ) ( 2,234 ) Repayment of lease liabilities 4.2 ( 947 ) ( 1,019 ) Other nancial payments, net 4.2 ( 472 ) 662 Transactions with non-controlling interests 3.4 164 - ( 2,832 ) 1,103 462 416 Cash and cash equivalents at 1 January 2,742 2,670 Total cash ow 462 416 Foreign exchange adjustments 224 ( 344 ) Cash and cash equivalents at 31 December 4.2 3,428 2,742 2.7 1,735 ( 1,794 ) At 31 December ( DKKm ) Note 2021 2020 Assets Intangible assets 3.6, 3.8 22,739 22,518 Property, plant and equipment and leases 2.1 3,376 3,546 Deferred tax assets 1.5 790 818 Other nancial assets 457 354 Non-current assets 27,362 27,236 Inventories 177 175 Trade receivables 2.2 10,406 9,861 Tax receivables 185 163 Other receivables 2.3 1,582 1,567 Cash and cash equivalents 4.6 3,428 2,742 Assets held for sale 3.2 515 1,861 Current assets 16,293 16,369 Total assets 43,655 43,605 Equity and liability Equity attributable to owners of ISS A/S 7,583 6,516 Non-controlling interests 3.4 206 29 Total equity 4.1 7,789 6,545 Loans and borrowings 4.2 16,094 17,345 Pensions and similar obligations 5.4 1,351 1,507 Deferred tax liabilities 1.5 976 1,022 Provisions 2.6 755 624 Non-current liabilities 19,176 20,498 Loans and borrowings 4.2 888 1,298 Trade and other payables 5,657 5,083 Tax payables 174 142 Other liabilities 2.4 8,730 7,899 Provisions 2.6 961 1,302 Liabilities held for sale 3.2 280 838 Current liabilities 16,690 16,562 Total liabilities 35,866 37,060 Total equity and liabilities 43,655 43,605 FINANCIAL STATEMENTS Consolidated statement of changes in equity 1) At 31 December 2021, DKK 52 million (2020: DKK 8 million) of accumulated foreign exchange gains related to discontinued operations. 1 January – 31 December Attributable to owners of ISS A/S ( DKKm ) Note Share capital Treasury shares Retained earnings Translation reserve Total Non-controlling interests Total equity 2021 Equity at 1 January 185 ( 191 ) 8,124 ( 1,602 ) 6,516 29 6,545 Net prot - - 615 - 615 22 637 Other comprehensive income - - 54 156 210 ( 15 ) 195 Comprehensive income - - 669 156 825 7 832 Share-based payments 5.3 - - 62 - 62 - 62 Transactions with non-controlling interests 3.4 180 - 180 170 350 Transactions with owners - - 242 - 242 170 412 Changes in equity - - 911 156 1,067 177 1,244 Equity at 31 December 185 ( 191 ) 9,035 ( 1,446 ) 7,583 206 7,789 2020 Equity at 1 January 185 ( 191 ) 13,421 ( 892 ) 12,523 24 12,547 Net prot - - ( 5,205 ) - ( 5,205 ) 10 ( 5,195 ) Other comprehensive income - - ( 119 ) ( 710 ) ( 829 ) ( 5 ) ( 834 ) Comprehensive income - - ( 5,324 ) ( 710 ) ( 6,034 ) 5 ( 6,029 ) Share-based payments 5.3 - - 27 - 27 - 27 Transactions with owners - - 27 - 27 - 27 Changes in equity - - ( 5,297 ) ( 710 ) ( 6,007 ) 5 ( 6,002 ) Equity at 31 December 185 ( 191 ) 8,124 ( 1,602 ) 6,516 29 6,545 1) FINANCIAL STATEMENTS Operating prot and tax Our strategy, OneISS, determines the choices we must take – the customers we choose to work with, the services we oer, our delivery model and our geographical footprint. We have chosen to be a key account focused organisation, believing it is with these customers that our purpose will be brought to life, allowing us to create value for our shareholders in the form of stronger growth and higher margins as well as greater free cash ow generation. The latter is described in section 2 on p. 61. We group our customers into key accounts, large and medium, and small and route-based customers, which reects the dierent needs and requirements of dierent customer sizes. Our core services are cleaning, food, technical and workplace services. We deliver these services as they balance key account customer needs. Key account customers are more likely to bundle service solutions, providing attractive long-term growth for ISS via increasing share of wallet, through our IFS oering. In 2021, revenue was DKK 71,363. Revenue from key accounts was 69% of Group revenue and generated higher organic growth than non-key accounts. As such, the demand from key accounts showed resilience, despite Covid-19 lockdowns and restrictions. was DKK 1,776 million for an operating margin of 2.5% (2020: (4.5)%) as a result of improvements in underperforming contracts and countries. Other income and expenses, net was positive of DKK 439 million (2020: DKK (983) million) following signicant progress on our strategic divestment programme in 2021 (see section 3). Income tax amounted to DKK 509 million (2020: DKK (36) million) corresponding to an eective tax rate of 48.7% (2020: 0.7%), adversely impacted by valuation allowances on deferred tax assets and non-tax-deductible costs, including interest limitation. In 2021, we strengthened our disclosures around income tax by adding country specic details on the eective tax rate. In this section: 1.1 Segment information 1.2 Revenue 1.3 Other income and expenses, net 1.4 Income tax 1.5 Deferred tax Revenue and total growth 1) and margin Other income and expenses, net 1,776 DKKm (2020: (3,203) DKKm) 71,363DKKm (2020: 70,752 DKKm) (2020: (8.9)%) (2020: (4.5)%) 439DKKm (2020: (983) DKKm) (2020: 0.7%) 1) Before other items. Continental Northern Asia & Pacic Americas Other Regional Revenue 71.4 DKKbn Regional revenueKey account share FINANCIAL STATEMENTS 1.1 Segment information ISS is a leading, global provider of workplace and facility service solutions operating in 30+ countries. Operations are generally managed based on a geographical structure in which countries are grouped into regions. The regions have been identied based on a key principle of grouping countries that share market conditions and cultures. Countries where we do not have a full country support structure, which are managed by Global Operations, are combined in a separate segment “Other countries”. An over- view of the grouping of countries into regions is presented in 7.6, Group companies. In December 2021, ISS announced a reorganisa- tion of the European business. Eective 1 January 2022, Europe will be segmented into Northern Europe and Central & Southern Europe consis- tent with the Group’s internal management and reporting structure going forward. As a result, the Netherlands, Belgium, Poland and Lithuania will move from currently Continental Europe to Northern Europe. Asia & Pacic and Americas remain unchanged. The new segmentation and the impact on segment information is disclosed in 7.5, Changes to segments. 1) Including internal revenue which due to the nature of the business is insignicant and therefore not disclosed. 2) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. 3) Comprise additions to Intangible assets and Property, plant and equipment and leases, including from Acquisitions. 4) In 2021, the classication of Chile as discontinued operations ceased, and Chile was presented as part of the Americas. Comparative gures were restated accordingly. 5) Unallocated relates to the Group’s holding companies and comprises corporate costs as well as internal and external loans and borrowings, cash and cash equivalents and intra-group balances. 6) Eliminations relate to intra-group balances. ( DKKm ) Continental Europe Northern Europe Asia & Americas Other countries Total segments Un- allocated Elimi- nations Total Group 2021 Revenue 1) 27,846 23,424 12,381 7,141 612 71,404 - ( 41 ) 71,363 Depreciation and amortisation 2) ( 676 ) ( 563 ) ( 214 ) ( 109 ) ( 2 ) ( 1,564 ) ( 196 ) - ( 1,760 ) 773 1,097 735 393 19 3,017 ( 1,241 ) - 1,776 Operating margin - - Other income and expenses, net 430 ( 1 ) ( 2 ) 78 - 505 ( 66 ) - 439 Goodwill impairment ( 450 ) - - - - ( 450 ) - - ( 450 ) Amortisation/impairment of brands and customer contracts ( 11 ) ( 21 ) ( 6 ) ( 26 ) - ( 64 ) - - ( 64 ) 742 1,075 727 445 19 3,008 ( 1,307 ) - 1,701 Total assets 16,558 17,419 7,961 4,809 770 47,517 24,476 ( 28,338 ) 43,655 Hereof assets held for sale - - 162 - 353 515 - - 515 Additions to non-current assets 3) 1,188 420 93 91 3 1,795 212 - 2,007 Total liabilities 9,597 10,047 3,341 3,341 457 26,783 37,422 ( 28,339 ) 35,866 Hereof liabilities held for sale - - 33 - 247 280 - - 280 4) 5) 6) ( DKKm ) Continental Europe Northern Europe Asia & Americas Other countries Total segments Un- allocated Elimi- nations Total Group 2020 Revenue 1) 27,634 22,642 12,385 7,565 561 70,787 - ( 35 ) 70,752 Depreciation and amortisation 2) ( 781 ) ( 618 ) ( 188 ) ( 101 ) ( 1 ) ( 1,689 ) ( 151 ) - ( 1,840 ) ( 2,030 ) ( 1,200 ) 646 262 20 ( 2,302 ) ( 901 ) - ( 3,203 ) Operating margin ( 7.3 ) ( 5.3 ) ( 3.3 ) - - ( 4.5 ) Other income and expenses, net ( 430 ) ( 120 ) ( 39 ) - ( 1 ) ( 590 ) ( 393 ) - ( 983 ) Goodwill impairment ( 418 ) - ( 14 ) - - ( 432 ) - - ( 432 ) Amortisation/impairment of brands and customer contracts ( 11 ) ( 27 ) ( 25 ) ( 26 ) - ( 89 ) - - ( 89 ) ( 2,889 ) ( 1,347 ) 568 236 19 ( 3,413 ) ( 1,294 ) - ( 4,707 ) Total assets 16,218 17,037 7,306 4,204 1,182 45,947 21,556 ( 23,898 ) 43,605 Hereof assets held for sale 345 - 116 744 656 1,861 - - 1,861 Additions to non-current assets 3) 641 536 138 40 13 1,368 175 - 1,543 Total liabilities 9,326 10,255 3,272 3,018 690 26,561 34,386 ( 23,887 ) 37,060 Hereof liabilities held for sale 150 - 32 239 417 838 - - 838 4) 5) 6) FINANCIAL STATEMENTS 1.2 Revenue Performance obligations Revenue is generated from rendering of work- place and facility service solutions. Our services are provided to the customer on a daily basis continuously over the term of the contract. The customer simultaneously receives and consumes the benets provided by the Group. Thus, the performance obligations are satised over time. Revenue is split into portfolio and projects and above-base work and the vast majority arises from portfolio. Portfolio comprises revenue from contracts with customers that is contractually agreed (commit- ted) at inception and relates to services that we are obligated to deliver on a recurring basis over the term of the contract. Projects and above-base work (e.g. capital projects) comprise revenue that is not necessarily contractually agreed at inception (not committed), but requested and agreed with the customer and thus provided on a non-recurring basis. In 2021, the Group’s revenue continued to be signi- cantly impacted by Covid-19 due to lockdowns and other restrictions, which caused customers across the globe to reduce building occupancy and reduce their request for services accordingly. During the pandemic, we have recalibrated service solutions to the needs and interests of customers as well as ISS, and to support our employees to the extent possible. This has resulted in increased uncertainty and in management making various judgements, estimates and assumptions in relation to recognition and measurement of the Group’s rev- enue, that could result in outcomes that require ad- justments to recognised revenue in future periods. Judgements, estimates and assumptions mainly re- lated to assessment of the impact on revenue from: 1. customers reducing their demand for services (contract modications); 2. utilisation of government support schemes; 3. variable consideration, e.g. revenue contingent on the achievement of certain contractual KPIs; and 4. continuing service delivery to customers despite collectibility concerns. Contract modications are generally agreed with the customer in accordance with a specied change management procedures and accounted for going forward. However, the current situation has necessitated exibility from both sides and required continuous assessments by management, among others in relation to how quickly ISS would be able to implement service changes. Likewise, when certain government support schemes have been utilised, management has assessed the extent to which such support should be passed on to customers and reduce revenue accordingly. Finally, for variable consideration, assessments have been made as to Covid-19 impacting achievement of contractual KPIs and thus reducing revenue. Gross or net presentation of revenue Management uses judgement to determine whether the nature of ISS’s promise is to provide the specied services (ISS is the principal), or to arrange for anoth- er party to provide the services (ISS is acting as an agent). This assessment is based on an evaluation of whether ISS controls the specied services before transfer to the customer. The Group has concluded that as a main rule it is the principal in its revenue arrangements, because it typically controls the services before transferring them to the customer, and consequently as a main rule recognises revenue on a gross basis. 1) Excluding deferred tax assets. 2) Including unallocated items and eliminations. 1) Including unallocated items and eliminations. Revenue by country ( DKKm ) 2021 2020 UK & Ireland 10,634 10,290 Germany 5,429 5,493 USA & Canada 5,298 5,882 Switzerland 5,212 5,286 Spain 4,420 4,221 Australia & New Zealand 4,349 3,968 Denmark ( country of domicile ) 3,673 3,593 Other countries 1) 32,348 32,019 Total 71,363 70,752 Non-current assets 1) by country ( DKKm ) 2021 2020 UK & Ireland 3,275 3,149 USA & Canada 2,362 2,203 Denmark ( country of domicile ) 1,840 1,880 Switzerland 1,723 1,748 Australia & New Zealand 1,411 1,451 Spain 1,178 1,152 Germany 989 1,083 Other countries 2) 13,794 13,752 Total 26,572 26,418 Group revenue per country is disclosed on p. 109. FINANCIAL STATEMENTS Disaggregation of revenue We disaggregate revenue based on customer type and geographical region as we believe that these best depict how the nature, amount, timing and uncertainty of our revenue and cash ows are aected by economic factors. Disag- gregation of revenue based on geographical region is disclosed in 1.1, Segment information. At 31 December, the revenue backlog (including contracts won but not yet started) was as follows: ( DKKm ) Key account customers Large and medium customers Total 2021 < 1 year 14,792 5,518 20,310 1-2 years 10,042 3,086 13,128 2-3 years 6,219 1,544 7,763 3-4 years 4,560 801 5,361 4-5 years 3,857 477 4,334 > 5 years 9,464 684 10,148 Total 48,934 12,110 61,044 2020 < 1 year 14,083 5,064 19,147 1-2 years 9,003 2,768 11,771 2-3 years 6,013 1,263 7,276 3-4 years 3,763 592 4,355 4-5 years 2,989 313 3,302 > 5 years 10,871 506 11,377 Total 46,722 10,506 57,228 In estimating the revenue backlog, the Group has applied the exemptions of IFRS 15 and does not disclose revenue backlog for contracts: • with an original duration of less than 12 months; and • invoiced based on time incurred, i.e. contracts where the Group invoices a xed amount for each hour of service provided. Committed savings glidepaths are taken into consideration whereas future ination is exclud- ed from the estimates. For our key accounts and large and medium customers, a signicant number of contracts in terms of value are descoped based on a term of less than 12 months (due to termination for convenience clauses) and some contracts are descoped on the basis that they are invoiced based on time incurred. In terms of our small and route-based customers, the vast majority is descoped based on either of the two exemptions. The remaining customers in scope comprise less than 1% of Group revenue and due to immateriality revenue backlog is therefore not disclosed. In conclusion, the amounts disclosed in the maturity prole above are signicantly lower than reported revenue and will likely not reect the degree of certainty in future revenue (and cash inows) to the Group – both due to the ex- emptions and due to non-portfolio revenue not being considered part of the revenue backlog. ( DKKm ) 2021 2020 Customers Key accounts 49,238 47,076 Large and medium 17,958 19,582 Small and route-based 4,167 4,094 Total 71,363 70,752 Revenue backlog Our revenue base consists of a mix of yearly contracts, which are renewed tacitly, and thou- sands of multi-year contracts, the majority of which have an initial term of three to ve years. Depending on the size and complexity of the contract, the transition and mobilisation period is normally between six and twelve months for our key accounts. Contracts regularly include options for the customer to terminate for convenience within three to nine months. However, we main- tain a high retention rate, both for key accounts and overall, supporting that these options are rarely exercised. As described in Performance obligations on p. 56, the vast majority of our revenue is portfolio revenue and the remaining part is non-recurring in the form of projects and above- base work. Since projects and above-base work is not committed as part of the main customer contract it is excluded from the transaction price to be allocated to the remaining performance obligation (revenue backlog). Accounting policy Revenue from contracts with customers is rec- ognised when control of the services is trans- ferred to the customer at an amount that reects the consideration to which the Group expects to be entitled in exchange for those services. Control is transferred over time as the customer simul- taneously receives and consumes the benets provided by the Group. Services are invoiced on a monthly basis. Revenue excludes amounts collected on behalf of third parties, e.g. VAT and duties. The input method is used to measure progress towards complete satisfaction of the service due to the direct relationship between labour hours and costs incurred, and the transfer of services to the customer. The Group recognises revenue on the basis of the labour hours and costs expensed relative to the total expected labour hours and costs to complete the service. Variable consideration For key accounts and other large contracts, the transaction price may include variable consideration based on achieve- ment of certain key performance indicators. Man- agement estimates variable consideration based on the most likely amount to which it expects to be entitled on a contract by contract basis. Management makes a detailed assessment of the amount of revenue expected to be received and the probability of success in each case. Variable consideration is included in revenue as services are performed to the extent that it is highly probable that the amount will not be subject to signicant reversal. Key account contracts are often modied in respect of service requirements. Gen- erally, modications are agreed with the customer in accordance with a specied change manage- ment procedure and accounted for going forward with no impact on recognised revenue up to the date of modications. FINANCIAL STATEMENTS 1.3 Other income and expenses, net Gain on divestments mainly related to the divestment of Kanal Services in Switzerland and Specialized Services in the USA. In 2020, the gain related mainly to the divestment of the Pest control business in Singapore. IT security incident in 2020 comprised un- avoidable incremental costs incurred as a con- sequence of the IT security incident, including writedown of impaired assets, non-chargeable costs due to lack of documentation and certain customer claims and penalties. Loss on divestments mainly related to adjustments to prior years’ divestments and the divestment of Fruit Baskets business in Sweden. In 2020, the loss mainly comprised adjustments to prior years’ divestments, most signicantly the Hygiene & Prevention business in France. ( DKKm ) 2021 2020 Gain on divestments 604 36 IT security incident 7 - Other income 611 36 Loss on divestments ( 34 ) ( 107 ) Carrying amount adjustment re. ceased held for sale classication ( 59 ) - Acquisition costs ( 77 ) ( 6 ) IT security incident - ( 887 ) Winding up of businesses - ( 18 ) Other ( 2 ) ( 1 ) Other expenses ( 172 ) ( 1,019 ) Other income and expenses, net 439 ( 983 ) Carrying amount adjustment re. ceased comprised depreciation and amortisation for the years 2019 to 2020 recognised following the decision to cease the held for sale classication of Chile in December 2021. Acquisition costs related to the acquisition of Rönesans Facility Management Company in Turkey. The majority of these costs comprised transaction incentives to management in ISS Turkey. In addition, fees to external advisors were included. Winding up of businesses in 2020 related to the Open Space business in Australia. Group 2021 2020 Statutory income tax rate, Denmark 22.0 % 22.0 % Foreign tax rate dierential, net ( 14.4 ) % 6.4 % Total Non-tax-deductible expenses less non-taxable income 8.5 % 0.2 % Non-tax-deductible impairment 12.1 % ( 3.2 ) % Prior year adjustments, net ( 2.2 ) % ( 0.7 ) % Change in valuation of tax assets, net 17.4 % ( 22.0 ) % Changes in tax rates ( 0.7 ) % ( 0.1 ) % Other taxes 6.0 % ( 1.9 ) % ( DKKm ) 2021 2020 Current tax 486 389 Deferred tax 46 ( 462 ) Prior year adjustments, net ( 23 ) 37 Income tax 509 ( 36 ) 1.4 Income tax The Group’s eective tax rate in 2021 was ad- versely impacted by a few major items, namely non-tax-deductible impairment, valuation allow- ances on deferred tax assets and non-tax-de- ductible costs, mainly interest limitation. In 2020, the eective tax rate was signicantly impacted by the negative prot before tax. Statutory income tax 2021 ETR By country 1) 2021 2020 Australia 30.0 % 30.2 % 30.0 % Denmark ( incl. HQ ) 2) 22.0 % ( 7.1 ) % 3.1 % Finland 20.0 % 25.9 % ( 988.7 ) % France 2) 27.5 % ( 10.9 ) % 0.6 % Germany 2) 30.3 % 0.0 % ( 5.9 ) % Norway 22.0 % 22.6 % 28.3 % Spain 25.0 % 21.9 % 4.6 % Switzerland 18.0 % 7.5 % 18.2 % UK 19.0 % 122.7 % 19.4 % USA 21.0 % 21.4 % 29.3 % Other - n/a n/a 3) was impacted by signicant tax losses in countries with a higher corporate income tax rate than 22%, primarily France and Germany. Non-tax-deductible expenses less non-tax- able income comprised various income and expenses across the Group. In Denmark, inter- est limitation tax rules, including impact from the renancing of bonds, as well as withholding taxes without credit relief, had a negative impact on the eective tax rate. France also contributed due to the tax credit CICE, whereas the non-tax- able divestment of Kanal Services in Switzerland and Covid-19 subsidies impacted positively. Non-tax-deductible impairment related to goodwill impairment in France. Prior year adjustments, net related to adjust- ments in the nal tax returns for 2020, mainly in the UK. In 2020, the adjustment mainly related to settlement of tax audit in Finland. Change in valuation of tax assets, net comprised valuation allowances on deferred tax assets, primarily in Germany and France in 2021. In 2020, the change mainly related to Germany, France, Spain and the Netherlands. Changes in tax rates in 2021 was mainly driv- en by the increase in the income tax rate in the UK from 19% to 25% eective from 2023 and a reduction of the corporate tax rate in France from 33% to 25% over the period 2018-2022. Other taxes mainly comprised withholding tax, e.g. in Denmark, and Cotisation sur la Valeur Ajoutée des Entreprises (CVAE) in France. 1) Calculated based on IFRS reporting standards. 2) Prot before tax was negative in 2021. 3) Prot before tax was negative in all countries, except Switzerland. Accounting policy Other income and expenses, net consists of recurring and non-recurring items that manage- ment does not consider to be part of the Group’s ordinary operations, i.e. gains and losses on divestments, remeasurement of disposal groups classied as held for sale, carrying amount adjust- ments regarding ceased held for sale classica- tion, the winding-up of operations, disposal of property and acquisition and integration costs. FINANCIAL STATEMENTS Denmark Australia Finland Switzerland Norway Spain France Germany Other 1.5 Deferred tax Unrecognised deferred tax assets At 31 December 2021, the Group had unrec- ognised deferred tax assets which comprised tax losses carried forward and other deductible temporary dierences of DKK 1,871 million (2020: DKK 1,688 million) for continuing opera- tions primarily relating to Germany, France, the Netherlands and Spain. At 31 December 2021, DKK 0 million (2020: DKK 15 million) of the total unrecognised deferred tax assets related to discontinued operations. Unrecognised tax losses can be carried forward indenitely in the individual countries, except for China, where tax losses can be carried forward for 5 years. Uncertain tax positions Uncertain tax positions include ongoing disputes with tax authorities in certain jurisdic- tions and have been provided for in accordance with the accounting policies. Management believes that the provisions made are adequate. However, the actual obligations may deviate as they depend on the result of litigations and set- tlements with the relevant tax authorities. The nal outcome of some of the ongoing disputes is expected to be determined in 2023. Germany France Other ( 16% ) ( 52% ) ( 32% ) Prior year adjustments, net in 2021 and 2020 were mainly related to adjustment of tax deductions (temporary dierences) in the nal tax returns. Acquisitions and divestments, net in 2021 related to the acquisition of Rönesans Facility Management Company in Turkey. Other comprehensive income comprised tax on actuarial gains on pensions. ( DKKm ) 2021 2020 Deferred tax liabilities, net at 1 January 204 682 Prior year adjustments, net ( 96 ) ( 17 ) Foreign exchange adjustments ( 24 ) 23 Acquisitions and divestments, net 72 - Other comprehensive income 11 ( 29 ) Reclassication to Assets/ ( Liabilities ) held for sale ( 27 ) 7 Tax on prot before tax 46 ( 462 ) Deferred tax liabilities, net at 31 December 186 204 Tax payments Accounting policy Income tax comprises current tax and changes in deferred tax, including changes due to a change in the tax rate, and is recognised in prot or loss or other comprehensive income. Tax receivables and payables are recognised in the statement of nancial position as tax comput- ed on the taxable income for the year, adjusted for tax on the taxable income prior years and tax paid on account. Our approach to tax and tax risks We are committed to comply with applicable tax rules and regulations in the countries where we operate. We also have an obligation to optimise the return for our shareholders by managing and plan- ning tax payments eectively. As a good corporate citizen, we will pay applicable taxes, and at the same time ensure a competitive eective tax rate and strive to limit double taxation to the extent possible. We have zero-tolerance towards evasion of taxes, social charges or payroll taxes. For the benet of society, our employees and customers, we support governmental and industry specic initiatives that introduce tighter controls and sanctions to ensure that companies in our industry play by the rules. Cross-border and intercompany transactions main- ly comprise royalty payments, management fees and nancing. Such transactions are conducted based on arm’s length principles and in accordance with current OECD principles in setting internal transfer prices. For further details: ISS Tax Policy here 2021 Corporate Responsibility Report here Tax payments 528 DKKm Deferred tax assets Deferred tax liabilities ( DKKm ) 2021 2020 2021 2020 Tax losses carried forward 336 466 - - Goodwill 4 4 413 371 Brands - - 350 353 Customer contracts 8 13 141 69 Property, plant and equipment 139 86 381 438 Provisions and other liabilities 1,062 861 563 557 Pensions 158 177 22 - Tax losses in foreign subsidiaries under Danish joint taxation - - 23 23 Set-o within legal tax units and jurisdictions ( 917 ) ( 789 ) ( 917 ) ( 789 ) Total 790 818 976 1,022 Unrecognised deferred tax assets Unrecognised defferred tax assets 1.9 DKKbn FINANCIAL STATEMENTS Deferred tax assets relating to tax losses carried forward are recognised, when management assesses that these can be oset against positive taxable income in the foreseeable future. The assessment is made at the reporting date taking into account the impact from limitation in interest deductibility and local tax restrictions in utilisation of tax losses. The assessment of future taxable income is based on nancial budgets approved by management and expectations on the operational development, mainly in terms of organic growth and operating margin in the following ve years as well as planned adjustments to capital structure in each country. Management made a reassessment of the prob- ability that future taxable prot will be available in the foreseeable future (5 years) against which the Group can utilise tax losses (i.e for current year and those carried forward from prior years (valuation allowances). The assessment is based on the cash ow projections made for the purpose of the Group’s impairment tests, see 3.8, Impairment tests, and rep- resents management’s best estimate, but is naturally associated with signicant uncertainty. Uncertain tax positions As part of operating a global business, disputes with tax authorities around the world may occur. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a tax authority will accept an uncertain tax treatment. The possible outcome of uncertain tax positions are measured based on management’s best estimate of the amount required to settle the obligation and recognised in deferred tax or income tax depending on the tax position. Accounting policy Deferred tax is provided using the liability method on temporary dierences between tax bases of assets and liabilities and their carrying amounts. Deferred tax is not recognised on temporary dier- ences relating to goodwill which is not deductible for tax purposes and other items where temporary dierences, apart from in business combinations, arose at the time of acquisition without aecting ei- ther Net prot or taxable income. Where alternative taxation rules can be applied to determine the tax base, deferred tax is measured according to man- agement’s intended use of the asset or settlement of the liability. 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 becomes current tax. Deferred tax assets, including the tax base of tax loss carryforwards, are recognised in non-current assets at the expected value of their utilisation: either as a set-o against tax on future income or as a set-o against deferred tax liabilities in the same legal tax entity and jurisdiction. Deferred tax assets and liabilities are oset if the Group has a legal right to oset these, intends to settle these on a net basis or to realise the assets and settle the liabilities, simultaneously. FINANCIAL STATEMENTS 1) Non-IFRS measure, see 2.7, Free cash ow 2) Before other items Operating assets, liabilities and free cash ow 1) Our ability to manage the capital intensity required to operate, grow and improve our business is paramount, and driving strong cash ow remained a key priority for ISS in 2021. In 2021, we generated nominal free cash ow 1) of DKK 1.7 billion (2020: DKK (1.8) billion). The signicant improvement was driven by operating prot and strong working capital performance. To improve capital eciency, we continued to focus on the development in trade receivables, especially overdue receivables and unbilled receiv- ables. As a result, the ageing prole of our trade receivables improved slightly compared to 2020. Trade receivables Trade and other payables Other receivables Other liabilities Provisions 10,406DKKm (2020: 9,861 DKKm) 5,657DKKm (2020: 5,083 DKKm) 1,582DKKm (2020: 1,567 DKKm) 8,730DKKm (2020: 7,899 DKKm) 1,716DKKm (2020: 1,926 DKKm) Trade receivables 9 10 11 12 13 202120202019 84 86 88 90 92 Trade receivables Not past due, % DKKbn % ( 2.0 ) 0 2.0 4.0 DKKbn 20212020 Operat- ing prot 2) Working capital Provi- sions Other exp. ( 1.8 ) Cash flow bridge (GP) 5.0 0.1 0.3 1.7 ( 1.9 ) Trade receivables In this section: 2.1 Property, plant and equipment and leases 2.2 Trade receivables and credit risk 2.3 Other receivables 2.4 Other liabilities 2.5 Changes in working capital 2.6 Provisions 2.7 Free cash ow FINANCIAL STATEMENTS 2.1 Property, plant and equipment and leases Leases ( right-of-use assets ) Property, plant and equipment ( DKKm ) Properties Vehicles Other Total 2021 Cost at 1 January 2,411 1,313 673 4,397 3,615 8,012 Prior year adjustments ( 117 ) ( 203 ) ( 94 ) ( 414 ) - ( 414 ) Foreign exchange adjustments 51 17 ( 46 ) 22 45 67 Additions 347 372 140 859 335 1,194 Acquisitions - - 6 6 27 33 Divestments - - - - ( 122 ) ( 122 ) Disposals ( 127 ) ( 199 ) ( 96 ) ( 422 ) ( 489 ) ( 911 ) Reclass - ( 8 ) - ( 8 ) 8 - Reclass ( to ) /from Assets held for sale 17 15 ( 6 ) 26 36 62 Cost at 31 December 2,582 1,307 577 4,466 3,455 7,921 Depreciation at 1 January ( 842 ) ( 689 ) ( 354 ) ( 1,885 ) ( 2,581 ) ( 4,466 ) Prior year adjustments 117 203 94 414 - 414 Foreign exchange adjustments ( 18 ) ( 12 ) 21 ( 9 ) ( 57 ) ( 66 ) Impairment ( 32 ) - - ( 32 ) ( 5 ) ( 37 ) Depreciation ( 412 ) ( 368 ) ( 142 ) ( 922 ) ( 422 ) ( 1,344 ) Divestments - - - - 109 109 Disposals 126 199 95 420 456 876 Reclass - 7 - 7 ( 7 ) - Reclass ( to ) /from Assets held for sale ( 10 ) ( 9 ) 5 ( 14 ) ( 17 ) ( 31 ) Depreciation at 31 December ( 1,071 ) ( 669 ) ( 281 ) ( 2,021 ) ( 2,524 ) ( 4,545 ) Carrying amount at 31 December 1,511 638 296 2,445 931 3,376 Leases ( right-of-use assets ) Property, plant and equipment Properties Vehicles Other Total 2020 2,294 1,167 641 4,102 4,403 8,505 - - - - - - ( 44 ) ( 32 ) ( 57 ) ( 133 ) ( 160 ) ( 293 ) 341 317 126 784 389 1,173 - - - - - - ( 0 ) ( 5 ) ( 0 ) ( 5 ) ( 11 ) ( 16 ) ( 73 ) ( 25 ) ( 19 ) ( 117 ) ( 551 ) ( 668 ) - ( 10 ) ( 6 ) ( 16 ) 4 ( 12 ) ( 107 ) ( 99 ) ( 12 ) ( 218 ) ( 459 ) ( 677 ) 2,411 1,313 673 4,397 3,615 8,012 ( 454 ) ( 377 ) ( 235 ) ( 1,066 ) ( 2,967 ) ( 4,033 ) - - - - - - 16 13 21 50 114 164 ( 2 ) ( 0 ) - ( 2 ) ( 77 ) ( 79 ) ( 445 ) ( 379 ) ( 154 ) ( 978 ) ( 493 ) ( 1,471 ) - 3 0 3 8 11 16 9 13 38 524 562 - 5 ( 2 ) 3 ( 1 ) 2 27 37 3 67 311 378 ( 842 ) ( 689 ) ( 354 ) ( 1,885 ) ( 2,581 ) ( 4,466 ) 1,569 624 319 2,512 1,034 3,546 FINANCIAL STATEMENTS Lease liability The carrying amount of lease liabilities and the movements in the year are disclosed in 4.2, Loans and borrowings. The maturity prole is disclosed in 4.6, Liquidity risk. Lease-related costs ( DKKm ) 2021 2020 Depreciation of right-of-use assets 922 978 Interest expenses on lease liabilities 69 79 Short-term leases 168 166 Leases of low value assets 88 91 Variable lease payments 13 11 1,260 1,325 338 347 Lease term Several of ISS’s lease contracts (oce buildings) have no contractual xed lease term or contains an extension option. Management exercises judgement in determining whether these extension options are reasonably certain to be exercised. Management considers all relevant facts and circumstances that create an economic incentive for the Group to exercise the extension option. The lease term for contracts without an end date is set to ten years for head oce and accessory buildings, whereas all other leases with no denite end date are set to ve years. judgements Right-of-use assets are recognised at the com- mencement date of the lease. Right-of-use assets are measured at cost less accumulated depreciation and impairment losses, and adjusted for any remeasure- ment of lease liabilities, including extension options. Cost comprises the amount of lease liabilities recognised, initial direct costs and dismantling and restoration costs incurred and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight- line basis over the shorter of the lease term and the estimated useful life of the asset. Certain leases have lease terms of 12 months or less or are leases of low-value assets, such as smaller cleaning equipment, IT equipment and oce furniture. The “short-term lease” and “lease of low-value assets” recognition exemptions are applied for these leases, i.e. lease payments are recognised in Other operating expenses on a straight-line basis over the lease term. Property, plant and equipment is measured at cost, less accumulated depreciation and impairment losses. Cost comprises the purchase price and 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. Estimated useful life Properties 5-10years Cars 3-5years Other equipment 2-5years Subsequent costs, e.g. for replacing part of an item, are recognised in the cost of the asset if it is prob- able that the future economic benets embodied by the item will ow to the Group. The carrying amount of the item is derecognised when replaced and transferred to prot or loss. All other costs for common repairs and maintenance are recognised in prot or loss 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 dierent useful lives, they are accounted for separately. The estimated useful life and residual value are determined at the acquisi- tion date. If the residual value exceeds the carrying amount depreciation is discontinued. Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted prospectively, if appropriate. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. Land is not depreciated. Gains and losses arising on the disposal or retirement of property, plant and equipment are measured as the dierence between the selling price less direct sales costs and the carrying amount, and are recognised in Other operating expenses in the year of sale, except gains and losses arising on disposal of property, which are recognised in Other income and expenses, net. Estimated useful life Plant and equipment 3-10years Leasehold improvements (the lease term) 3-10 years Buildings 20-40years Accounting policy FINANCIAL STATEMENTS In 2021, trade receivables increased slightly to DKK 10,406 million (2020: DKK 9,861 million). The initial recovery from Covid-19 and resulting positive growth in the later part of the year were the main drivers of the increase. At 31 Decem- ber 2021, utilisation of factoring was DKK 1.1 billion (31 December 2020: DKK 1.0 billion). Exposure to credit risk The Group’s exposure to credit risk is inherently low due to its business model and strategic choices leading to a diversied customer portfolio, both in terms of geography, industry sector, customer size and service types. Also, our strategic divestment programme has contributed to the low risk assessment as it has 2.2 Trade receivables and credit risk estimates led to higher-risk countries and business units being sold o. The Group has considered the impact of Covid-19 on credit risk in general and the resulting impact on expected credit losses on its trade receiv- ables, including an assessment of current and forward-looking reasonable and supportable information. It is management’s assessment that the general credit risk continues to be elevated, though somewhat less than in 2020 following the initial recovery from Covid-19 in some countries towards the end of 2021. As a result, realised losses (write-os) decreased slightly in 2021 to DKK 64 million (2020: DKK 77 million) in relation to insolvent customers and changed customer agreements. Additionally, we reversed DKK 120 million of expected credit losses provisioned in prior years, partly due to the improved credit environment but also due to our own collection eorts focused on aged receivables. Generally, the Group does not hold collateral as security for trade receivables. The maximum credit risk exposure at the reporting date by reportable segments is shown to the left. Trade receivables comprise invoiced and unbilled revenue. Trade receivables are recognised initially corresponding to the transaction price and sub- sequently measured at amortised cost. Generally, due to the short-term nature of trade receivables, amortised cost will equal the invoiced amount less loss allowance for expected credit losses. Exposure to credit risk on trade receivables and ex- pected credit losses are managed locally in the op- erating entities and credit limits are set as deemed appropriate taking into account the customer’s nancial position and the current market conditions. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns, i.e. by geographical region, and customer type and rating. The calculation reects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current condi- tions and forecasts of future economic conditions. The provision matrix is initially based on the Group’s historical observed default rates. At every reporting date, the historical observations are updated and changes in the forward-looking estimates are analysed. For instance, if forecast economic conditions are expected to deteriorate over the next year, this is taken into consideration. Generally, trade receivables are written o if they are past due for more than 180 days or when there is no reasonable expectation of recovery. Impairment losses on trade receivables are pre- sented as net impairment losses within operating prot before other items. Subsequent recovery of amounts previously written o are credited against the same line item. Reversal of expected credit losses is recognised in Other operating expenses. Allowance for expected credit losses ( DKKm ) 2021 2020 Loss allowance at 1 January ( 299 ) ( 182 ) Foreign exchange adjustments 3 17 Acquisitions ( 2 ) - Divestments 0 1 Provision for expected credit losses ( 45 ) ( 244 ) Expected credit losses reversed 120 0 Write-o 64 77 Reclassication to Assets held for sale ( 3 ) 32 Loss allowance at 31 December ( 162 ) ( 299 ) 2021 2020 ( DKKm ) Gross Loss allowance Carrying amount Gross Loss allowance Carrying amount Continental Europe 5,134 ( 67 ) 5,067 5,097 ( 141 ) 4,956 Northern Europe 2,527 ( 34 ) 2,493 2,816 ( 57 ) 2,759 Asia & Pacic 1,852 ( 49 ) 1,803 1,688 ( 83 ) 1,605 Americas 964 ( 12 ) 952 496 ( 18 ) 478 Other countries 91 - 91 63 - 63 Total 10,568 ( 162 ) 10,406 10,160 ( 299 ) 9,861 2021 2020 ( DKKm ) Gross Loss allowance Carrying amount Gross Loss allowance Carrying amount Not past due 9,418 ( 4 ) 9,414 8,827 ( 5 ) 8,822 Past due 1 to 60 days 866 ( 6 ) 860 889 ( 5 ) 884 Past due 61 to 180 days 138 ( 12 ) 126 176 ( 36 ) 140 Past due 181 to 360 days 37 ( 34 ) 3 118 ( 111 ) 7 More than 360 days 109 ( 106 ) 3 150 ( 142 ) 8 Total 10,568 ( 162 ) 10,406 10,160 ( 299 ) 9,861 Management has considered the impact of Covid-19 on credit risk in general and the resulting impact on expected credit losses on its trade receivables, including assessment of current and forward-looking reasonable and supportable infor- mation. See further under Exposure to credit risk. Accounting policy FINANCIAL STATEMENTS Receivable divestment proceeds mainly related to the divestment of Specialized Services in the USA, where part of the consideration is subject to customer consent being achieved. Sign-on fees comprised upfront discounts to certain large customers, most signicantly in the UK and on certain global key accounts. Transition and mobilisation costs comprised directly related costs incurred to full the performance obligations under certain large contracts. The decrease in 2021 was due to ordinary amortisation, mainly in Norway, the UK, Denmark and the USA. Other comprised refunds from customers, VAT, accrued interests and other recoverable amounts, including Covid-19-related govern- ment subsidies. Prepayments to suppliers comprised various payments related to ongoing projects and above-base work (where revenue has not yet been recognised) as well as utilities, insurance and licenses. Supplier rebates and bonuses comprised vol- ume-related discounts obtained from suppliers and reects the Group’s eorts to consolidate the number of suppliers and drive synergies and cost savings. The increase in 2021 related mainly to increased activity levels following the initial recovery from Covid-19 as well as timing of settlement of such rebates and bonuses. In 2021, other liabilities increased DKK 831 mil- lion mainly due to initial recovery from Covid-19, leading to an increase in activity and a resulting increase in tax withholdings, VAT, accrued wages and bonuses and related social costs. Further- more, prepayments from customers increased following the extension of a global key account contract, which also led to improved payment terms. Other comprised customer discounts, accrued interests, etc. capital ( DKKm ) 2021 2020 Changes in inventories 4 89 Changes in receivables ( 110 ) 2,775 Changes in payables 1,162 ( 1,913 ) Total 1,056 951 2.4 Other liabilities ( DKKm ) 2021 2020 Accrued wages, pensions and holiday allowances 4,804 4,157 Tax withholdings, VAT etc. 2,213 2,121 Prepayments from customers 868 560 Contingent consideration and deferred payments 31 133 Other 814 928 Total 8,730 7,899 Capitalisation of transition and mobilisation costs involves management’s judgement to assess if the criteria for capitalisation are fullled. Management uses judgement to determine if the costs relate directly to the contract and are incurred in order for ISS to be able to full the contract. In addition, management determines if the costs generate resources that will be used in satisfying the performance obligation and are expected to be recovered, i.e. reected in the pricing of the contract. Other receivables are recognised initially at cost and subsequently at amortised cost, except for se- curities and currency swaps, which are recognised at fair value. Due to the short-term nature of other receivables, amortised cost will equal the cost. Transition and mobilisation costs (costs to full a contract) comprise costs directly related to launching certain large contracts such as transfer of employees from previous suppliers, site due diligence, planning and developing service plans. The cost includes internal direct costs and external costs e.g. to consultants. Transition and mobilisation costs are capitalised and amortised over the initial secured contract term consistent with ISS’s transfer of the related services to the customer. Bid-related costs, including costs relating to sales work and securing contracts, are expensed as incurred. Sign-on fees comprise upfront discounts to certain large customers incurred in the ordinary course of business. Sign-on fees are capitalised and amortised over the initial secured contract term consistent with ISS’s transfer of the related services to the customer. ( DKKm ) 2021 2020 Prepayments to suppliers 359 326 Supplier rebates and bonuses 352 297 Receivable divestment proceeds 155 19 Sign-on fees 134 133 Securities 103 76 Pass-through costs 48 77 Transition and mobilisation costs 62 117 Currency swaps - 23 Other 369 499 Total 1,582 1,567 Accounting policy judgements 2.3 Other receivables FINANCIAL STATEMENTS 2.6 Provisions ( DKKm ) Legal and labour- related cases Self- insurance Restruc- turings Onerous contracts Other Total 2021 Provisions at 1 January 133 261 787 285 460 1,926 Foreign exchange adjustments ( 6 ) 15 4 6 7 26 Additions 141 225 7 73 45 491 Used during the year ( 62 ) ( 232 ) ( 373 ) ( 21 ) ( 11 ) ( 699 ) Unused amounts reversed ( 55 ) ( 2 ) ( 52 ) ( 16 ) ( 10 ) ( 135 ) Reclass ( to ) /from other liabilities 84 ( 5 ) 1 3 24 107 Provisions at 31 December 235 262 374 330 515 1,716 Non-current 121 127 142 78 287 755 Current 114 135 232 252 228 961 2020 Provisions at 1 January 71 239 1 31 224 566 Foreign exchange adjustments ( 6 ) ( 13 ) ( 0 ) ( 3 ) ( 6 ) ( 28 ) Additions 86 204 1,174 265 385 2,114 Used during the year ( 10 ) ( 147 ) ( 383 ) ( 6 ) ( 136 ) ( 682 ) Unused amounts reversed ( 9 ) ( 22 ) - ( 2 ) ( 3 ) ( 36 ) Reclass (to)/from other liabilities 1 0 ( 5 ) - ( 4 ) ( 8 ) Provisions at 31 December 133 261 787 285 460 1,926 Non-current 19 122 199 219 65 624 Current 114 139 588 66 395 1,302 Provision Nature and extent Legal and labour-related Comprised various cases, mainly redundancy-related disputes in France and Spain as well as employee-related risks in the UK. Self-insurance The Group carries insurance provisions on employers’ liability and/or workers com- pensation in the countries listed below. • Hong Kong: DKKm 25.2 (2020: DKKm 23.4) yearly • UK: DKKm 26.6 (2020: DKKm 24.7) yearly aggregated limit and DKKm 4.4 (20201: DKKm 4.1) per claim • Australia: DKKm 3.6 (2020: DKKm 5.8) per claim • USA: DKKm 3.3 (2020: DKKm 3.3) per claim Furthermore, the provision included liability not insured under the global general liability insurance with a self-insured level of DKK 7.4 million (2020: DKK 7.5 million) worldwide, except for the USA where the self-insurance level is DKK 6.6 million (2020: DKK 6.1 million) per claim. Obligations and legal costs in relation to various insurance cases, if not covered by the insurance, were also included in the provision. Restructurings We are continuously reviewing our business platform to ensure the right basis for execution of our strategy. In 2020, restructurings were initiated in several countries to adjust our cost structure to the lower activity level following Covid-19. The initiatives included termination of employees, contract exits and overhead reductions. Execution of the restructuring projects is ongoing, which led to payments of DKK 373 million in 2021, mainly in France, Germany and Spain. Onerous contracts The provision for onerous contracts related to Danish Defence in Denmark, a key account contract in Hong Kong and various smaller contracts in a number of countries. For Danish Defence, the provision was recognised in 2020 and covers exit-related costs and operation until full exit in May 2022, as per the agreement with the customer. Other Comprised various obligations, primarily related to complex customer and contract-relat- ed risks and disputes in the major markets in which we operate. Furthermore, guarantee reserves, dismantling costs and closure of contracts were included in this item. FINANCIAL STATEMENTS Free cash ow as dened by management, cf. p. 108, is summarised below. Free cash ow is not a nancial performance measure established by IFRS. Accordingly, the measure and its calcula- tion is presented as it is used by management as an alternative performance measure in managing the business. The free cash ow measure should not be considered a substitute for those measures required by IFRS and may not be calculated by other companies in the same manner. As such, reference is made to the IFRS measures included in the consolidated statement of cash ows of the consolidated nancial statements. ( DKKm ) 2021 2020 Cash ow from operating activities 3,221 ( 361 ) Acquisition of intangible assets and property, plant and equipment ( 628 ) ( 712 ) Disposal of intangible assets and property, plant and equipment 42 31 Acquisition of nancial assets, net 1) ( 30 ) ( 20 ) Addition of right-of-use assets, net 2) ( 870 ) ( 732 ) Total 1,735 ( 1,794 ) 1) Excluding investments in equity-accounted investees which in 2021 was DKK (24) million (2020: DKK 28 million). 2) Including DKK 13 million (2020: DKK 27 million) related to discontinued operations, cf. 2.1, Property, plant and equipment and leases. Onerous contracts Our strategy to focus on large key accounts will increasingly lead to a customer base comprising large, more complex contracts. The size and complexity of such contracts will often require us to incur signicant transition and mobilisation costs before service delivery commences in order to fulll the performance obligations under the contract and could also require us to do restructurings, that will be recognised as restructuring provisions, subject to fullment of requirements under IAS 37. Management assesses whether contracts may be onerous by estimating the expected future protabili- ty. This involves estimating total contract revenue and the unavoidable costs of meeting the performance obligations under the contract, including any transition and mobilisation costs incurred. In estimating the expected future protability management makes judgements. Certain contracts are complex facility management partnerships. In estimating unavoid- able costs in relation to such contracts, management applies assumptions as to future realisation of costs driven by eciencies and optimisations to be gained over the contract term as well as the eect of perfor- mance improvement initiatives. While ISS has inherent risk in this respect, ISS is by nature also dependent on aligning interest with the customer within the frame- work of the agreement for the benet of both parties. Further, management makes judgements related to the contract term, taking any termination and exten- sion options into consideration. For large and complex contracts, the outcome may vary signicantly should the assumptions and judgements applied not be realised as expected by management in their assessment of onerous contracts. Restructurings and other provisions Management makes judgements related to various other matters and obligations, which primarily relates to planned/ initiated restructurings, and complex customer and contract-related risks and disputes, including ongoing lawsuits. For large and complex contracts, the out- come may vary signicantly should the assumptions and judgements applied not be realised as expected by management in their assessment of the risks and/or disputes. In assessing the likely outcome of lawsuits, tax disputes, etc., management bases its assessment on external legal assistance and estab- lished precedents. Provisions are recognised when the Group, as a result of a past event, has a present legal or constructive obligation, it is probable that an outow of economic benets will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The costs required to settle the obligation are discounted using the entity’s average borrowing rate, if this signicantly impacts the measurement of the liability. Legal and labour-related cases The Group recog- nises a provision for e.g. lawsuits and redundancy-re- lated disputes based on external legal assistance and established precedents. Self-insurance The Group recognises a provision on employers’ liability and/or workers compensation based on valuations from external actuaries. Restructurings A provision is recognised when a detailed, formal restructuring plan is announced to the aected parties on or before the reporting date. The plan must identify the business concerned, the location and number of employees aected, and a detailed estimate of the associated costs, as well as the timeline must be in place. Onerous contracts An onerous contract is a con- tract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benets expected to be received under it. A provision is recognised in respect of the Group’s onerous contracts at the lower of the costs to full the obligations under the contract and the costs of exiting the contract. Customer and contract-related risks and disputes The Group recognises provisions related hereto when, based on an assessment of available facts and circumstances in respect of the specic risks or disputes, it is deemed that a contractual, non-con- tractual or constructive obligation exists, and it is probable that this will lead to an outow of economic resources from the Group. Decommissioning liability If the Group has a legal obligation to dismantle or remove an asset or restore a site or leased facilities when vacated, a provision is recognised corresponding to the present value of expected costs to settle the obligation. The present value of the obligation is included in the cost of the relevant tangible or right-of-use asset and depre- ciated accordingly. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs, or in the discount rate applied, are added to or deducted from the cost of the relevant asset. Accounting policy FINANCIAL STATEMENTS Strategic divestments and acquisitions In 2021, our divestment programme had strong momentum with six countries and six business units being divested. Management also decided to descope Chile from the divestment programme and cease the classication as asset held for sale and discontinued operation. As a result, ve entities were classied as held for sale at 31 December 2021. The programme is expected to be completed in 2022. The total impact in 2021 from the divestment programme on prot or loss was a gain of DKK 591 million (2020: loss of DKK 89 million) as specied in 3.2, Assets held for sale. In 2021, we also made our rst acquisition since 2018, i.e. Rönesans Facility Management Company in Turkey. As part of the transaction, we invited in minority shareholders to own 49.9% of ISS Turkey. With the acquisition we will provide services at four hospitals until 2045 and thereby strengthen our position in the strategi- cally important healthcare segment. Intangible assets increased due to the acqui- sition, but the increase was partly oset by an impairment loss in France of DKK 450 million recognised in June 2021. France continued to be signicantly aected by Covid-19 restric- tions and slow recovery in the most impacted customer segments, despite progress on the restructuring plan. Further details in relation hereto are provided throughout this section. • Brunei • Portugal • Russia • Taiwan signed in January 2022 • Hong Kong, Waste divested in January 2022 • Chile ceased held for sale classication Divestment programme in 2021 Assets held for sale Intangible assets Acquisitions in 2021 12 countries and business units divested 591DKKm net gain recognised 1 Rönesans in Turkey 22,739DKKm (2020: 22,518 DKKm) 450DKKm Goodwill impairment In this section: 3.1 Discontinued operations 3.2 Assets and liabilities held for sale 3.3 Divestments 3.4 Acquisitions 3.5 Pro forma revenue and operating prot 3.6 Intangible assets 3.7 Goodwill impairment 3.8 Impairment tests FINANCIAL STATEMENTS Discontinued operations The accounting policies and signicant accounting estimates and judgements for discontinued op- erations are described together with accounting policies for assets held for sale in 3.2, Assets and liabilities held for sale. – presented in separate prot or loss line 2021 Brunei, the Czech Republic, Hungary, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia and Taiwan 2020 Brazil, Brunei, the Czech Republic, Hungary, Ma- laysia, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia, Taiwan and Thailand 3.1 Discontinued operations Our strategic divestment programme had strong momentum in 2021 with six countries being divested, i.e. the Czech Republic, Hungary, the Philippines, Romania, Slovakia and Slovenia. Chile developed positively in 2021, both nancially and strategically, as demonstrated by the wins of a few large key account contracts. On that basis, management decided to cease the held for sale classication in December 2021. The carrying amounts were adjusted for depreciation and amortisation, that would have been rec- ognised had the business not been classied as held for sale. The adjustment of DKK 59 milllion was recognised in Other income and expenses, net in December 2021 and related to the years 2019-2020. As a result of the changed classi- cation, Chile was reported as part of continuing operations for the full year of 2021, including depreciation and amortisation for the year. Comparative gures were restated accordingly. With the signicant progress made in 2021, and Chile being reclassied to continuing opera- tions, the divestment programme is nearing its completion, which is expected in 2022. At 31 December 2021, four countries (2020: 11 countries), continued to be classied as discon- tinued operations and assets held for sale. Gains/losses related to the divestments and countries being held for sale at 31 December 2021 are specied in 3.2, Assets and liabilities held for sale. Net prot from discontinued operations is attributable to the shareholders of ISS A/S. ( DKKm ) 2021 2020 Revenue 1,231 3,289 Expenses 1) ( 1,194 ) ( 3,242 ) 37 47 Other income and expenses, net 2) 116 282 Goodwill impairment 2) ( 36 ) ( 269 ) 117 60 Financial income/ ( expenses ) , net 1 ( 11 ) 118 49 Income tax ( 17 ) ( 24 ) 101 25 ( DKKm ) 2021 2020 Cash ow from operating activities 86 158 Cash ow from investing activities ( 83 ) ( 150 ) Cash ow from nancing activities ( 16 ) ( 197 ) 1) Including depreciation and amortisation of DKK 0 million (2020: DKK 15 million). 2) Including the combined net gain of DKK 80 million from divestments and fair value remeasurements, including recycling of accumulated foreign exchange adjustments, see 3.2, Assets and liabilities held for sale. Accounting policy Earnings per share from discontinued operations ( DKKm ) 2021 2020 Basic earnings per share ( EPS ) 0.6 0.1 Diluted earnings per share 0.5 0.1 FINANCIAL STATEMENTS 3.2 Assets and liabilities held for sale At 31 December 2021, ve businesses (2020: 14 businesses) were classied as held for sale com- prising four countries (discontinued operations) and the Waste Management business in Hong Kong. The latter was subsequently divested in January 2022. In 2021, we divested six countries (discontinued operations) and two of the three business units classied as held for sale when entering the year, i.e. Kanal Services in Switzerland and Specialized Services in the USA. Furthermore, management decided to cease the held for sale classication of Chile. Recycling of accumulated foreign exchange adjustments recognised in equity had a positive impact on the total net gain of DKK 7 million. In 2021, our divestment programme resulted in recognition of a net gain of DKK 591 million in the prot or loss as a result of completed divestments, fair value remeasurements and carrying amount adjustments regarding ceased asset held for sale classication. The net gain is specied below and was recognised in: • Other income and expenses, net, DKK 511 million (gain) • Net prot from discontinued operations, DKK 80 million (gain) Non-current assets and disposal groups are clas- sied as held for sale when management assesses that their carrying amounts will be recovered through a sale within one year rather than con- tinuing use. Management assesses whether the sale is highly probable and the asset or disposal group is available for immediate sale in its current condition. Actions required to complete the sale should indicate that it is unlikely that signicant changes to the sale will be made or that the deci- sion to sell will be withdrawn. If a sale has not been concluded within one year, the period is extended if management assesses that the above criteria continue to be fullled. On classication management estimates the fair value (the nal sales price and expected costs to sell). Depending on the nature of the non-current assets and the disposal group’s activity, assets and liabilities, the estimated fair value may be associat- ed with uncertainty. Measurement of the fair value is categorised as Level 3 in the fair value hierarchy as it 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 as- sets) relating to the disposal group from the Group’s assets in the continuing business. Impairment of these intangibles, both on initial classication as held for sale and subsequently, is considered. The estimation uncertainty relating to impairment of intangibles is described in 3.8, Impairment tests. If the held for sale criteria is no longer met, the classication as held for sale ceases. At the date of cessation, the non-current asset or disposal group is measured at the lower of its carrying amount before classication as held for sale adjusted for depreci- ation and amortisation, that would have been rec- ognised had the non-current asset or disposal group not been classied as held for sale. Any adjustments are presented in Other income and expenses, net. Assets held for sale comprise non-current as- sets and disposal groups held for sale. Liabilities held for sale are those directly associated with the assets held for sale and disposal groups. Immediately before classication as held for sale, they are remeasured in accordance with the Group’s accounting policies. Thereafter, they are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is rst allocated to goodwill, and then pro rata to remaining assets, except that no loss is allo- cated to inventories, nancial assets, deferred tax assets or employee benet assets, which continue to be measured in accordance with the Group’s accounting policies. Once classied as held for sale, assets are not amortised or depreciated. Impairment losses on initial classication as held for sale, and subsequent gains and losses on remeasurement are recognised in prot or loss and disclosed in the notes. Assets held for sale are presented in separate lines of the statement of nancial position and specied in the notes. Comparatives are not restated. A disposal group is presented as discontinued operations if it is a geographical area, i.e. a CGU (country exits), that either has been disposed of, or is classied as held for sale. Discontinued operations are presented separately as Net prot from discontinued operations and specied in the notes. Comparatives are restated. Cash ows from discontinued operations are included in cash ow from operating, investing and nancing activities together with cash ows from continuing operations, but specied in 3.1, Discontinued operations. Assets and liabilities of discontinued operations are presented similar to other assets held for sale. Comparative gures are not restated. ( DKKm ) 2021 2020 Goodwill 148 592 Customer contracts - 14 Other non-current assets 165 574 Current assets 202 681 Assets held for sale 515 1,861 Non-current liabilities 36 164 Current liabilities 244 674 Liabilities held for sale 280 838 ( DKKm ) 2021 Kanal Services, Switzerland 452 Specialized Services, USA 138 Other minor business units, net ( 20 ) Chile ( ceased held for sale classication ) ( 59 ) Other income and expenses, net (gain) 511 Slovakia 86 Czech Republic 25 Romania 22 Slovenia ( 27 ) Brunei ( fair value adjustment ) ( 19 ) Other countries ( 7 ) Discontinued operations (gain) 80 Total net gain 591 Accounting policy estimates and judgements FINANCIAL STATEMENTS 3.3 Divestments The Group completed 12 divestments in 2021 (2020: eight). Divestments subsequent to 31 December 2021 On 31 January 2022, we completed the divest- ment of Waste Management in Hong Kong, a company providing waste management services with an annual revenue of approximately DKK 131 million and 232 employees. On 31 January 2022, we signed an agreement to divest our activities in Taiwan (presented as discontinued operations) with an annual revenue of approximately DKK 457 million and 3,046 employees. The Group signed or completed no further divestments from 1 January to 15 February 2022. Gain or loss on disposal of an operation that is part of a CGU, includes a portion of the related goodwill allocated to that CGU. Goodwill related to the disposed operation is measured based on the fair value of the disposed operation relative to the fair value of the entire CGU. Divestment impact ( DKKm ) 2021 2020 Goodwill 377 104 Customer contracts 5 11 Other non-current assets 337 79 Current assets 504 569 Non-current liabilities ( 43 ) ( 67 ) Loans and borrowings ( 134 ) ( 29 ) Current liabilities ( 239 ) ( 272 ) Net assets disposed 807 395 Gain/ ( loss ) on divestment, net 666 239 Divestment costs 175 144 Consideration received 1,648 778 Cash in divested businesses ( 130 ) ( 154 ) Consideration received, net 1,518 624 Contingent and deferred consideration ( 130 ) 54 Divestment costs paid ( 197 ) ( 173 ) Divestment of businesses ( ) 1,191 505 Company/activity Country Service type Excluded from P/L Interest Annual revenue ( DKKm ) Employees ( number ) Fruit Baskets Sweden Food February Activities 17 19 Indoor Plants Sweden Technical February Activities 23 35 ISS Slovakia Slovakia Country exit April 100% 102 831 ISS Czech Republic Czech Republic Country exit April 100% 262 1,698 ISS Romania Romania Country exit April 100% 88 934 ISS Hungary Hungary Country exit May 100% 55 439 Kanal Services Switzerland Technical May 100% 339 280 Restoration division UK Technical June 100% 23 36 ISS Philippines Philippines Country exit October 100% 173 5,391 ISS Slovenia Slovenia Country exit October 100% 86 593 Food Service business Spain Food November Activities 330 1,215 Specialized Services USA Cleaning December Activities 1,077 - Total 2,575 11,471 1) 1) 2) 2) 2) Accounting policy 1) Unaudited 2) Presented as discontinued operations 2) 2) 2) FINANCIAL STATEMENTS Trade receivables The fair value of trade receivables was DKK 184 million, equaling the gross amount. Management expects that the full contractual amount can be collected. Contingent and deferred consideration related to the settlement of a put option during 2021 in relation to ISS Turkey (original acquisition), and a deferred payment subject to nalisation of closing accounts for Rönesans. The latter was settled in January 2022. Acquisitions subsequent to 31 December 2021 The Group completed no acquisitions from 1 January to 15 February 2022. 3.4 Acquisitions Rönesans Facility Management Company in Turkey On 28 September 2021, ISS acquired 100% of the shares in Rönesans Facility Management Company (Rönesans İşletme Hizmetleri Danışmanlığı A.Ş.) in Turkey from Renaissance Healthcare (Rönesans Sâglik Yatirim), a Turkish contracting company owned by Rönesans Hold- ing. With the acquisition, ISS will provide facility management services in a Public-Private-Partner- ship at four hospitals until 2045. The agreement builds on an already successful partnership, as ISS Turkey is currently operating two (Adana and Elazig) of the four hospitals as subcontractor. The acquisition will strengthen our leadership position in the strategically important healthcare segment in Turkey and supports the OneISS strategy to focus on key accounts in our priori- tised segments. The acquisition will add annual revenue of approximately DKK 500 million and 1,500 employees (estimated based on unaudited nancial information). During the period 28 September to 31 December 2021, Rönesans contributed revenue of DKK 150 million. The purchase consideration amounted to DKK 566 million. Based on provisionally determined fair values of net assets, goodwill amounted to DKK 129 million. The acquisition impact is specied in the table to the right. Goodwill is attributable mainly to: 1) expertise and know-how in the healthcare segment, 2) synergies, 3) platform for growth, and 4) assembled work force, and is not deductible for tax purposes. Acquisition impact ( DKKm ) ISS Turkey ( original acq. ) Rönesans Total Customer contracts - 428 428 Other non-current assets - 26 26 Trade receivables - 184 184 Other current assets - 105 105 Non-current liabilities - ( 112 ) ( 112 ) Current liabilities - ( 194 ) ( 194 ) Fair value of net assets - 437 437 Goodwill ( 32 ) 129 97 Consideration transferred ( 32 ) 566 534 Cash in acquired business - ( 97 ) ( 97 ) Consideration transferred, net ( 32 ) 469 437 Contingent and deferred consideration 111 ( 22 ) 89 Acquisition of businesses ( ) 79 447 526 Minority shareholders in ISS Turkey As part of the acquisition of Rönesans, ISS agreed to partner with Actera, a large leading Turkish pri- vate equity company, to support and partly fund the acquisition. Actera has in-depth expertise in the Turkish market, a strong operational track record and became minority shareholder owning 39.9% of the shares in ISS Turkey. Furthermore, Management of ISS Turkey acquired 10% of the shares in ISS Turkey, while ISS continued to be the controlling shareholder. The impact of the transactions are specied below. Transactions with non-controlling interests ( DKKm ) 2021 Consideration received 324 Transaction costs ( 26 ) Capital injection 113 Contingent and deferred consideration ( 214 ) Transactions with other non-controlling interests ( 33 ) 164 ( DKKm ) 2021 Consideration received 324 Transaction costs ( 26 ) Capital injection 78 Transactions with other non-controlling interests ( 26 ) Equity impact 350 FINANCIAL STATEMENTS 3.5 Pro forma revenue and Assuming all acquisitions and divestments in the year were included/excluded as of 1 January, the eect on recognised revenue and operating prot before other items is estimated as follows: Pro forma revenue and operating prot before other items include adjustments relating to acquisitions and divestments estimated by local ISS management at the time of acquisition and divestment or actual results where available. The estimates are based on unaudited nancial information. Pro forma revenue and operating prot before other items are presented for informational purposes and does not represent the results the Group would have achieved had the acquisitions and divestments during the year occurred on 1 January. The information should therefore not be used as the basis for or prediction of any annualised calculation. ( DKKm ) 2021 2020 Revenue as reported 71,363 70,752 Pro forma revenue 70,276 70,723 Operating prot before other items as reported ( 3,203 ) 1,776 Pro forma operating prot before other items 1,820 (3,202) Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling inter- ests in the acquiree. For each business combination, the Group elects whether to measure the non-con- trolling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identiable net assets. Acquisition-related costs are expensed as incurred in Other income and expenses, net. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. If uncertainties exist at the acquisition date re- garding identication or measurement of assets, liabilities and contingent liabilities, initial recognition is based on provisionally determined fair values. Changes to fair values are adjusted against goodwill up until 12 months after the acquisition date and comparative gures are restated accordingly. Thereafter no adjustments are made to goodwill, and changes in fair values are recognised in Other income and expenses, net. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for Accounting policy non-controlling interests) and any previous interest held over the net identiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units (CGUs) that are ex- pected to benet from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Written put options held by non-controlling share- holders 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 eected 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 eected prior to 1 January 2010 are recognised in goodwill. The eect of unwind of discount is recognised in Financial expenses. FINANCIAL STATEMENTS 1) Of which DKK 93 million (2020: DKK 41 million) related to assets under development at Group level. Impairment of goodwill comprised losses identied in impairment tests related to France of DKK 450 million (2020: DKK 400 million), see 3.8, Impairment tests. Impairment of software in 2020 mainly related to a non-cash write-down of impaired assets following the IT security incident, see 1.3, Other income and expenses, net. The carrying amount of brands is mainly related to the ISS brand, which is considered to have an indenite useful life since there is no foreseeable limit to the period over which the brand is ex- pected to generate net cash inows. Factors that played a signicant role in determining that the ISS brand has an indenite 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 subse- quently at cost less accumulated impairment losses. Goodwill is not amortised. Goodwill relates mainly to assembled workforce, technical expertise and technological knowhow. Acquisition-related brands and customer con- tracts are recognised at fair value at the acqui- sition date. Subsequently, brands with indenite useful lives are measured at cost less accumulated impairment losses. Brands with nite useful lives and customer contracts are measured at cost less accumulated amortisation and impairment losses. Acquired software and other intangible assets are measured at cost less accumulated amortisa- tion and 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 develop- ment. Other development costs for which it can- not be rendered probable that future economic benets will ow to the Group are recognised in prot or loss as and when incurred. Amortisation methods and useful lives are reassessed at the reporting date and adjusted prospectively, if appropriate. Amortisation of intangible assets with nite useful lives is calculated on a straight-line basis over the estimated useful lives except for certain customer contracts where the unit of production method better reects the expected pattern of consump- tion. Estimated useful life Brands ( nite useful life ) 2-5 years Customer contracts 10-24 years Software and other intangible assets 5-10 years 3.6 Intangible assets ( DKKm ) Goodwill Brands Customer contracts Software and other 2021 Goodwill Brands Customer c ontracts Software and other 2020 Cost at 1 January 22,643 1,663 8,626 2,505 35,437 23,862 1,669 8,974 2,491 36,996 Foreign exchange adjustments 402 3 112 19 536 ( 679 ) ( 6 ) ( 271 ) ( 43 ) ( 999 ) Additions - - - 248 248 - - - 283 283 Acquisitions 97 - 428 7 532 87 - - - 87 Divestments ( 20 ) - ( 106 ) ( 1 ) ( 127 ) ( 23 ) - ( 14 ) 0 ( 37 ) Disposals - - ( 12 ) ( 174 ) ( 186 ) - - - ( 225 ) ( 225 ) Reclass ( to ) /from Property, plant and equipment - - - - - - - - 12 12 Reclass ( to ) /from Assets held for sale 56 - 50 ( 15 ) 91 ( 604 ) - ( 63 ) ( 13 ) ( 680 ) Cost at 31 December 23,178 1,666 9,098 2,589 36,531 22,643 1,663 8,626 2,505 35,437 Amortisation and impairment losses at 1 January ( 2,981 ) ( 61 ) ( 8,302 ) ( 1,575 ) ( 12,919 ) ( 2,605 ) ( 55 ) ( 8,558 ) ( 1,213 ) ( 12,431 ) Foreign exchange adjustments 6 ( 3 ) ( 218 ) ( 15 ) ( 230 ) 20 4 243 23 290 Amortisation - ( 10 ) ( 54 ) ( 289 ) ( 353 ) - ( 10 ) ( 79 ) ( 264 ) ( 353 ) Impairment ( 450 ) - - ( 92 ) ( 542 ) ( 666 ) - - ( 354 ) ( 1,020 ) Divestments - - 101 1 102 18 - 14 0 32 Disposals - - 12 169 181 - - - 222 222 Reclass ( to ) /from Property, plant and equipment - - - - - - - - ( 2 ) ( 2 ) Reclass ( to ) /from Assets held for sale - - ( 40 ) 9 ( 31 ) 252 - 78 13 343 Amortisation and impairment losses at 31 December ( 3,425 ) ( 74 ) ( 8,501 ) ( 1,792 ) ( 13,792 ) ( 2,981 ) ( 61 ) ( 8,302 ) ( 1,575 ) ( 12,919 ) Carrying amount at 31 December 19,753 1,592 597 797 22,739 19,662 1,602 324 930 22,518 1) 1) Accounting policy judgements FINANCIAL STATEMENTS Key assumptions (per CGU) Description Revenue growth (forecasting period) • Budgeted growth for year 1 • Subsequent years based on expected market development, including recovery from Covid-19, taking market maturity and general macroeconomic environment into consideration • Impacts from local and Group strategic initiatives are considered, including our key account focus and the strategic divestment programme Revenue growth (terminal period) • Does not exceed the expected long-term average growth rate for the country, including ination Operating margin • Budgeted margin for year 1 • Impacts from local and Group strategic initiatives are considered, including our key account focus, the strategic divestment programme and investments in technology and the global operating model • Initiated restructurings, actions in response to and recovery from Covid-19 and operational challenges are considered, where relevant Discount rates (net of tax) • Based on a country-specic 10-year government bond • Premium added to adjust for the inconsistency of applying government bonds with a short-term maturity when discounting cash ows with innite maturity • Premium added to reect the specic risk associated with each CGU, reecting uncertainties regarding past performance and possible variations in the amount or timing of the projected cash ows • Equity risk premium: 6.5% (2020: 6.5%) • Debt/equity target ratio (market values): 25/75 (2020: 25/75) in 2021 and 2020 related to goodwill impairment in France, see 3.8, Impairment tests. Derived from divestments In 2020, the loss related to Parking Management in Indonesia and the Healthcare Catering Business in Poland. 3.8 Impairment tests Cash-generating units (CGUs) Impairment tests are generally carried out per country as this represents the lowest level of CGUs to which the carrying amounts of intangibles, i.e. goodwill and customer con- tracts, can be allocated and monitored with any reasonable certainty. This level of allocation and monitoring of intangibles should be seen in light of the Group’s strategy to integrate acquired companies as quickly as possible in order to benet from synergies. Management of certain countries has been combined to take advantage of similarities in terms of markets, shared cus- tomers and cost synergies. In such exceptional cases, the countries are regarded as one CGU when performing the impairment tests. Measuring recoverable amounts (general assumptions) The recoverable amount of each CGU is determined on the basis of its value-in-use, calculated using certain key assumptions per CGU, i.e. revenue growth, operating margin and discount rate. Value-in-use cash ow projections for the individ- ual CGUs are based on nancial budgets for the following year as approved by management. As- sumptions applied in the short to medium term (forecasting period of ve years) generally reect management’s expectations considering all relevant factors, including the Group’s strategic initiatives, local initiatives, past experience and external sources of information, where possible and relevant. Management has ensured that nancial budgets, forecasts and underlying assumptions applied in the impairment tests reect the expected impact from Covid-19, including expected future revenue recovery. Despite continued uncertainty, visibility has generally improved during 2021 – though with a few exceptions. Expected impacts from OneISS and our strategic priorities have also been considered, especially around sharpened focus on key accounts, the strategic divestment programme and investments in technology and the global operating model. Our underperforming contracts (Deutsche Telekom and Danish Defence) and countries (the UK and France) have also been carefully considered to ensure, that expected turnaround is properly reected in determining the key assumptions for the specic CGUs. Where relevant, initiated restructurings and other actions, mainly in response to Covid-19, have been taken into consideration when estimating the expected future performance and cash ows. Covid-19 impact on risk assessment In 2020, Covid-19 had a signicant adverse impact on the Group’s performance and cash ows and led to increased uncertainty in relation to prospects for, and timing of, future recovery. To appropriately reect the increased estimation uncertainty, a separate risk premium related to Covid-19 was introduced and added to the WACC. While 2021 continued to be impacted by Covid-19, the visibility around recovery improved during the year, especially in the later part of 2021, when signs of recovery appeared in a number of countries. As a result, the specic Covid-19 risk premium has been removed in the impairment test for 2021. 3.7 Goodwill impairment ( DKKm ) 2021 2020 Identied in impairment tests 450 400 Loss on divestments - 32 Total 450 432 FINANCIAL STATEMENTS Carrying amount Forecasting period Terminal period Applied discount rate ( DKKm ) Goodwill Customer contracts Total Growth ( avg. ) Margin ( avg. ) Growth Margin Net of tax Pre-tax 2021 UK & Ireland 2,748 121 2,869 3.9 % 4.6 % 2.5 % 6.0 % 8.7 % 11.3 % USA & Canada 2,068 161 2,229 13.1 % 6.8 % 3.0 % 6.8 % 9.0 % 11.6 % Finland 2,098 - 2,098 1.7 % 6.4 % 2.0 % 6.5 % 7.3 % 9.1 % Denmark 1,652 - 1,652 ( 1.8 ) % 6.2 % 2.0 % 6.5 % 7.7 % 9.8 % Australia & NZ 1,336 4 1,340 2.2 % 6.1 % 2.5 % 6.1 % 8.7 % 12.3 % Switzerland 1,334 - 1,334 1.5 % 7.1 % 1.5 % 7.1 % 6.3 % 7.6 % Belgium & Lux. 1,319 - 1,319 3.6 % 5.7 % 2.0 % 6.0 % 7.3 % 9.8 % Norway 1,295 - 1,295 6.0 % 7.9 % 2.5 % 8.0 % 8.7 % 11.0 % Sweden 1,010 - 1,010 3.3 % 5.5 % 2.0 % 6.2 % 8.0 % 10.0 % France 936 - 936 1.4 % 3.3 % 2.0 % 5.0 % 8.9 % 13.7 % Other 3,957 311 4,268 - - - - - - Total 19,753 597 20,350 2) 2) 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 allocated corporate costs. Carrying amounts and key assumptions The carrying amounts of intangibles and key assumptions 1) for CGUs representing more than 5% of intangibles, or CGUs considered to be at high risk of impairment or having incurred recent impairment losses, are disclosed below. Result of the impairment tests 2021 30 June 2021 An impairment loss of DKK 450 million was recognised in France following an update of the business case and an increase in the applied WACC. During the rst six months of 2021, transparency around the recoverability from Covid-19 improved. It also became clearer, that the pace of recovery within the most impacted customer segments would remain slow. Accordingly, the risk reected in the applied WACC was increased. Combined with increasing interest rates, this led to a higher applied WACC at 30 June 2021. Additionally, compared to previous assess- ments, management lowered the growth and margin expectations in 2023-2025, while assumptions for the terminal period remained unchanged. 31 December 2021 Based on the impairment tests performed, no further impairment losses were recognised. Except for France, it is management’s opinion that excess values are fairly resilient to any likely and reasonable deteriorations in the key assumptions applied. In 2021, France continued to be heavily impacted by Covid-19 restrictions and slow recovery in the most impacted customer segments, despite progress on the restruc- turing plan. As a result, excess value in the impairment test for France was limited at 31 December 2021. The ISS brand No impairment has been identied as both the Group’s value-in-use and the Group’s market capitalisation signicantly exceed the reported equity. 2020 UK & Ireland 2,572 132 2,704 4.7 % 4.4 % 2.5 % 6.0 % 8.4 % 10.0 % Finland 2,098 - 2,098 2.4 % 5.7 % 2.0 % 6.5 % 7.0 % 8.5 % USA & Canada 1,865 163 2,028 13.4 % 5.9 % 3.0 % 6.0 % 9.4 % 11.9 % Denmark 1,652 - 1,652 0.7 % 5.3 % 2.0 % 6.5 % 7.7 % 9.7 % France 1,387 - 1,387 3.1 % 3.1 % 2.0 % 5.0 % 7.3 % 10.4 % Switzerland 1,320 - 1,320 2.3 % 7.0 % 1.5 % 7.2 % 6.0 % 7.3 % Belgium & Lux. 1,320 - 1,320 3.9 % 5.2 % 2.0 % 6.0 % 7.2 % 9.3 % Australia & NZ 1,301 8 1,309 0.9 % 4.6 % 2.5 % 4.6 % 8.3 % 11.7 % Norway 1,224 - 1,224 5.0 % 7.4 % 2.5 % 8.0 % 8.8 % 11.0 % Sweden 1,029 - 1,029 3.3 % 4.7 % 2.0 % 6.2 % 7.4 % 9.0 % Other 3,894 21 3,915 - - - - - - Total 19,662 324 19,986 In performing the impairment test, management assesses whether the CGU to which the intangibles relate will be able to generate positive net cash ows sucient to support the value of intangibles and other net assets. This assessment is based on esti- mates of expected future cash ows (value-in-use) as described in “Measuring recoverable amounts”. In 2021, Covid-19 continued to impact estimation uncertainty, particularly in relation to future expec- tations and prospects for recovery, though visibility improved especially in the later part of the year. FINANCIAL STATEMENTS Forecasting period Terminal period Growth Margin 1) Growth Margin 1) Discount rate, net of tax Avg. rate Allowed decrease Avg. rate Allowed decrease Long-term rate Allowed decrease Long-term rate Allowed decrease Rate Allowed increase 2021 UK & Ireland 3.9 % >3.9 % 4.6 % >4.6 % 2.5 % >2.5 % 6.0 % 3.8 % 8.7 % 7.9 % USA & Canada 13.1 % >13.1 % 6.8 % >6.8 % 3.0 % >3.0 % 6.8 % 4.6 % 9.0 % 8.7 % Finland 1.7 % >1.7 % 6.4 % 5.3 % 2.0 % 1.8 % 6.5 % 1.5 % 7.3 % 1.4 % Denmark ( 1.8 ) % 3.0 % 6.2 % 3.0 % 2.0 % 1.3 % 6.5 % 1.1 % 7.7 % 1.0 % Australia & NZ 2.2 % >2.2 % 6.1 % >6.1 % 2.5 % >2.5 % 6.1 % 4.1 % 8.7 % 8.7 % Switzerland 1.5 % >1.5 % 7.1 % >7.1 % 1.5 % >1.5 % 7.1 % 5.9 % 6.3 % >6.3 % Belgium & Lux. 3.6 % >3.6 % 5.7 % >5.7 % 2.0 % >2.0 % 6.0 % 1.7 % 7.3 % 1.9 % Norway 6.0 % >6.0 % 7.9 % >7.9 % 2.5 % >2.5 % 8.0 % 7.2 % 8.7 % >8.7 % Sweden 3.3 % >3.3 % 5.5 % >5.5 % 2.0 % >2.0 % 6.2 % 4.8 % 8.0 % >8.0 % France 1.4 % 0.2 % 3.3 % 0.2 % 2.0 % 0.1 % 5.0 % 0.1 % 8.9 % 0.1 % 2020 UK & Ireland 4.7 % >4.7 % 4.4 % >4.4 % 2.5 % >2.5 % 6.0 % 4.1 % 8.4 % 8.2 % Finland 2.4 % >2.4 % 5.7 % >5.7 % 2.0 % >2.0 % 6.5 % 2.5 % 7.0 % 2.5 % USA & Canada 13.4 % >13.4 % 5.9 % >5.9 % 3.0 % >3.0 % 6.0 % 4.2 % 9.4 % 8.4 % Denmark 0.7 % 3.6 % 5.3 % 2.9 % 2.0 % 1.4 % 6.5 % 1.2 % 7.7 % 1.1 % France 3.1 % 2.1 % 3.1 % 2.0 % 2.0 % 0.7 % 5.0 % 0.6 % 7.3 % 0.6 % Switzerland 2.3 % >2.3 % 7.0 % >7.0 % 1.5 % >1.5 % 7.2 % 6.4 % 6.0 % >6.0 % Belgium & Lux. 3.9 % >3.9 % 5.2 % >5.2 % 2.0 % >2.0 % 6.0 % 2.1 % 7.2 % 2.3 % Australia & NZ 0.9 % 5.8 % 4.6 % 4.0 % 2.5 % >2.5 % 4.6 % 1.4 % 8.3 % 2.0 % Norway 5.0 % >5.0 % 7.4 % >7.4 % 2.5 % >2.5 % 8.0 % 7.1 % 8.8 % 15.6 % Sweden 3.3 % >3.3 % 4.7 % >4.7 % 2.0 % >2.0 % 6.2 % 4.6 % 7.4 % >7.4 % 1) Excluding allocated corporate costs. Sensitivity analysis A sensitivity analysis on the key assumptions in the impairment testing is presented below. The allowed change represents the percentage points by which the value assigned to the key assumption can change, all other things being equal, before Accounting policy Intangible assets with an indenite useful life, i.e. goodwill and the ISS brand, are subject to impair- ment testing annually or when circumstances indi- cate 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 recover- able amount of the asset is determined, i.e. the higher of the fair value of the asset less antici- pated costs of disposal and its value-in-use. The value-in-use is calculated as the present value of expected future cash ows from the asset or the CGU 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, the ISS brand is tested for impairment at Group level. The impairment test is based on group-wide cash ows adjusted for the Group’s total goodwill and other non-current assets. An impairment loss is recognised in the statement of prot or loss in a separate line if the carrying amount of an asset or its CGU exceeds its estimat- ed 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 carrying amount does not exceed the carrying amount that would have been deter- mined, net of depreciation and amortisation, if no impairment loss had been recognised. the CGU’s recoverable amount equals its carrying amount. No sensitivity is shown for the ISS brand, as the group-wide cash ows adjusted for the Group’s total goodwill and other non-current assets signicantly exceed the carrying amount. FINANCIAL STATEMENTS In this section: 4.1 Equity 4.2 Loans and borrowings 4.3 Financial income and expenses 4.4 Financial risk management 4.5 Interest rate risk 4.6 Liquidity risk 4.7 Currency risk Capital structure It is our primary capital allocation priority to ensure that we maintain a strong and ecient balance sheet and that our liquidity position supports our operational needs and our contin- ued strategy execution. In 2021, ISS delivered solid improvements in operational performance and strong execution of the divestment programme. The strong cash ow development allowed us to cancel the EUR 700 million backup credit facility, which was established in 2020 in response to Covid-19-re- lated uncertainties, and repurchase EUR 200 million of the total EUR 500 million outstanding EMTN bonds maturing 2024. At 31 December 2021, the Group’s liquidity position was strong. Our liquidity reserves are described in 4.6, Liquidity risk. ISS has no unaddressed material debt maturities until 2024 onwards. We are committed to our Financial Policy of maintaining an investment grade prole. At 31 December 2021, net debt decreased to DKK 13.5 billion (2020: DKK 15.8 billion) due to the strong cash ow performance and execution of the divestment programme. Financial lever- age was 3.8x (2020: 7.1x excluding restructuring and one-o costs). Leverage is expected to re- duce further in 2022 as operating performance and free cash ow continue to improve. As such, we are on track to meeting our target of deleveraging below 3.0x to be achieved by 31 December 2022. Dividend payments will not be reinstated before the leverage target has been achieved. As a result, the Board of Directors will not propose dividends for 2021 at the annual general meeting to be held on 7 April 2022. No unaddressed debt until 2024 Net debt Financial leverage 13,451DKKm (2020: 15,802 DKKm) 3.8x (2020: 7.1x adjusted) Available liquidity 9,648DKKm (2020: 14,059 DKKm) Equity ratio (2020: 15.0%) DKKbn Revolving Credit Facility (undrawn) EMTNs 202720262025202420232022 3.73.7 4.4 9.7 FINANCIAL STATEMENTS 4.1 Equity Share capital At 31 December 2021, ISS’s share capital com- prised a total of DKK 185,668,226 shares (2020: 185,668,226) with a nominal value of DKK 1 each. All shares were fully paid and freely transferable. 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. Dividend As previously announced, dividend payments will not be reinstated, and no share buyback will be made, before the nancial leverage target of below 3x has been achieved. As a result, the Board of Directors will not propose dividends for 2021 at the annual general meeting on 7 April 2022. Average number of shares In thousands 2021 2020 Average number of shares 185,668 185,668 Average number of treasury shares ( 970 ) ( 970 ) Average number of shares ( basic ) 184,698 184,698 Average number of PSUs and RSUs expected to vest 1,305 438 Average number of shares ( diluted ) 186,003 185,136 Treasury shares At 31 December 2021, ISS held a total of 970,082 treasury shares (2020: 970,082) equal to 0.5% of the share capital with the purpose of covering obligations under existing share-based incentive programmes. The fair value of treasury shares was DKK 121 million at 31 December 2021 (2020: DKK 102 million). Average number of shares is calculated for the purpose of the calculation of EPSs. The calculation of average number of diluted shares excludes a total of 1,714,684 (2020: 2,023,595) PSUs and RSUs which are not expected to vest. Due to the negative earnings in 2020, diluted EPS equals basic EPS as the antidilutive eect has been excluded in accordance with IFRS. Denitions, see p. 108. Translation reserve ( DKKm ) Net investment hedges Subsidiaries Total Translation reserve at 1 January 2021 ( 3 ) ( 1,599 ) ( 1,602 ) Foreign exchange adjustments of subsidiaries ( ISS's share ) - 312 312 Recycling of accumulated foreign exchange adjustments on country exits - ( 7 ) ( 7 ) Fair value adjustments of net investment hedges, net of tax ( 149 ) - ( 149 ) Translation reserve at 31 December ( 152 ) ( 1,294 ) ( 1,446 ) 2021 2020 Purchase price Number of shares Number of shares ( DKKm ) ( in ‘000 ) ( in ‘000 ) Treasury shares at 1 January 191 970 970 Settlement of vested PSUs - - - Treasury shares at 31 December 191 970 970 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 foreign exchange dierences arising from the translation of nancial statements of foreign entities with a functional currency other than DKK as well as from the trans- lation of non-current balances which are consid- ered part of the investment in foreign entities and fair value adjustments of net investment hedges. On full realisation of a foreign entity where control is lost the accumulated foreign exchange adjust- ments are transferred to prot or loss in the same line item as the gain or loss. Treasury shares The cost of acquisition and pro- ceeds from sale of treasury shares are recognised in reserve for treasury shares. Dividends received in relation to treasury shares are recognised in retained earnings. Accounting policy FINANCIAL STATEMENTS 4.2 Loans and borrowings ( DKKm ) 2021 2020 Issued bonds 14,064 15,537 Lease liabilities 1) 2,539 2,565 Bank loans 340 474 Derivatives 39 6 Other - 61 Total 16,982 18,643 Non-current liabilities 16,094 17,345 Current liabilities 888 1,298 Loans and borrowings 16,982 18,643 Cash and cash equivalents and other nancial items 2) ( 3,531 ) ( 2,841 ) Net debt 13,451 15,802 1) Right-of-use assets are presented in 2.1, Property, plant and equipment and leases. 2) Includes securities of DKK 103 million (2020: DKK 76 million). In 2020, a positive value of currency swaps and net investment hedges was also included amounting to DKK 20 million and DKK 3 million, respectively. Changes in loans and borrowings ( DKKm ) 1 January FX Cash Divest- ments Lease addition FV adj. Other 31 December 2021 Issued bonds 15,537 ( 6 ) ( 1,577 ) - - - 110 14,064 Lease liabilities 2,565 27 ( 947 ) - 859 - 35 2,539 Bank loans 474 ( 131 ) ( 411 ) - - 169 239 340 Derivatives 6 - - - - 33 - 39 Other 61 - ( 61 ) - - - - - Total 18,643 ( 110 ) ( 2,996 ) - 859 202 384 16,982 2020 Issued bonds 14,123 ( 63 ) 1,460 - - - 17 15,537 Lease liabilities 3,034 ( 78 ) ( 1,019 ) ( 19 ) 784 - ( 137 ) 2,565 Bank loans 247 ( 50 ) 697 ( 10 ) - ( 200 ) ( 210 ) 474 Derivatives 6 - - - - 0 - 6 Other 95 - ( 35 ) - - - 1 61 Total 17,505 ( 191 ) 1,103 ( 29 ) 784 ( 200 ) ( 329 ) 18,643 1) 1) Includes lease liabilities and bank loans reclassied to liabilities held for sale of DKK (24) million/DKK 0 million (2020: DKK (125) million/DKK 0 million). In May 2021, as a result of the strong liquidity position and increased visibility on Covid-19, ISS cancelled the EUR 700 million backup facility, which was established in 2020. In addition, in December 2021, ISS repurchased EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing December 2024, thereby reducing gross debt levels. Acquisition of Rönesans, Turkey ISS established a local facility of DKK 303 million (TRY 617 million) maturing in December 2026 for the purpose of the acquisition of Rönesans in Turkey. The facility has semi-annual amortisation prole and is subject to certain covenants. Financing fees In 2021, nancing fees amounting to DKK 3 mil- lion (2020: DKK 33 million) have been recognised in loans and borrowings while nancing fees of DKK 28 million (2020: DKK 22 million) were amortised and recognised in nancial expenses. Accumulated nancing fees recognised in loans and borrowings at 31 December 2021 amount- ed to DKK 79 million (2020: DKK 104 million). Fair value The fair value of loans and borrowings was DKK 17,441 million (2020: DKK 19,027 million). The fair value of bonds is based on the quoted mar- ket price on the Luxembourg Stock Exchange and measurement is categorised as Level 1 in the fair value hierarchy. For the remaining loans and borrowings, fair value is equal to the nomi- nal value as illustrated in 4.5, Interest rate risk. Issued bonds and bank loans are recognised initially at fair value net of directly attributable transaction costs and subsequently at amortised cost using the eective interest method. Any dierence between the proceeds initially received and the nominal value is recognised in Financial expenses over the term of the loan. At the date of borrowing, nancing fees are recognised as part of loans and borrowings. Subsequently, nancing fees are amortised over the term of the loan and recognised in Financial expenses. Lease liabilities At the commencement date, the Group recognises lease liabilities at the present value of the lease payments to be made over the lease term. Lease payments include xed payments less any incentive payments, variable lease payments that depend on an index or rate, e.g. when a minimum indexation is applied, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payment of penalties for terminating a lease, if the lease term reects the Group exercising the option to terminate. The present value is calculated using the Group’s incremental borrowing rate if the interest rate implicit in the lease is not readily determinable. Subsequently, the lease liability is measured at amortised cost using the eective interest method. The liability is increased to reect the accretion of interest and reduced for the lease payments made. The liability is remeasured due to a modication, a change in lease term or a change in the assess- ment to purchase the underlying asset. Also, the liability is remeasured due to a change in future lease payments (e.g. a change in an index or rate) or due to a change in the Group’s estimate of the amount expected to be payable under a residual guarantee. Accounting policy FINANCIAL STATEMENTS Interest expenses on loans and borrowings comprised mainly interest on issued bonds. In addition, commitment fees and amortisation of nancing fees amounting to DKK 89 million (2020: DKK 75 million) were included. The decreased in 2021 was due to the reduction in net debt as a result of the strong cash ow development and liquidity position. Redemption premium, bonds related to the repurchase of EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing 2024. 4.3 Financial income and expenses Forward premiums on currency swaps ISS uses currency swaps to hedge the exposure to currency risk primarily arising from intercompa- ny loans. The cost of hedging in 2021 increased compared to 2020, primarily driven by the hedging of TRY exposure. 4.4 Financial risk management The Group is exposed to a number of nancial risks arising from its operating and nancing activities, mainly interest rate risk, liquidity risk, currency risk and credit risk. Financial risks are managed centrally by Group Treasury based on the Financial Policy, which is reviewed and approved annually by the Board of Directors. It is considered on an ongoing basis if the nancial risk management approach appropriately addresses the risk exposures. It is the Group’s policy to mitigate risk exposure derived from its business activities. Group policy does not allow taking speculative positions in the nancial markets. The Group’s objectives and policies for measuring and managing risk exposure are explained in: • 4.5, Interest rate risk; • 4.6, Liquidity risk; and • 4.7, Currency risk. Credit risk on trade receivables is described in: • 2.2, Trade receivables and credit risk. At 31 December 2021, the exposure to credit risk related to cash and cash equivalents and other nancial items was DKK 3,531 million (2020: DKK 2,841 million). It is the Group’s policy to transact only with nancial institutions with at least A-1/P-1 credit ratings. Group Treasury monitors credit ratings on an ongoing basis and approves exceptions to credit rating requirements. The Group has not identied additional nancial risk exposures in 2021 compared to 2020. ( DKKm ) 2021 2020 Interest income on cash and cash equivalents 41 31 Foreign exchange gains - 28 Financial income 41 59 Interest expenses on loans and borrowings ( 388 ) ( 432 ) Redemption premium, bonds ( 90 ) - Interest expenses on lease liabilities ( 69 ) ( 79 ) Bank fees ( 52 ) ( 53 ) Net interest on dened benet obligations ( 17 ) ( 17 ) Forward premiums, currency swaps ( 29 ) ( 15 ) Other ( 30 ) ( 12 ) Foreign exchange losses ( 22 ) - Financial expenses ( 697 ) ( 608 ) FINANCIAL STATEMENTS 4.5 Interest rate risk Interest rate sensitivity An increase in relevant interest rates of 1%-point would have decreased net prot by DKK 4 million (2020: decreased by DKK 5 million). The estimate was based on the Group’s oating rate loans and borrowings, i.e. disregarding cash and cash equivalents, as the level at 31 December is typically the highest in the year and not a representative level for the purpose of this analysis. The analysis assumes that all other variables remain constant. Exposure towards interest rates 2021 2020 ( DKKm ) Nominal interest rate Currency Maturity Nominal value Carrying amount Carrying amount Issued bonds ( xed interest rate ) EMTNs ( EUR 300 million ) 2.125% EUR 2024 2,231 2,226 3,709 EMTNs ( EUR 500 million ) 1.250% EUR 2025 3,718 3,695 3,690 EMTNs ( EUR 500 million ) 0.875% EUR 2026 3,718 3,695 3,690 EMTNs ( EUR 600 million ) 1.500% EUR 2027 4,462 4,448 4,448 14,129 14,064 15,537 Bank loans ( oating interest rate ) TLFREF Acquisition facility, Turkey +3.25% TRY - 303 300 - Bank loans and overdrafts - Multi - 51 40 474 354 340 474 Exposure to interest rate risk Interest rate risk arises from the possibility that changes in interest rates will aect fu- ture cash ows or the fair value of nancial instruments. Exposure relates to bank loans with oating interest rates. Low risk • 98% of the Group’s bank loans and bonds carried xed interest rates at 31 December 2021 (2020: 97%) • Duration of gross debt (xed-rate period) of 4.3 years was at 31 December 2021 (2020: 5.0 years) • Exposure was primarily related to EUR denominated bank loans with oating rates Risk management policy • At least 50% of the Group’s bank loans and issued bonds must carry xed inter- est rates directly or through derivatives • Duration of gross debt (xed-rate period) shall be 2-6 years • Currently, the Group does not use interest rate swaps Mitigation • The balance between xed and variable interest rates and gross debt duration (xed-rate period) is measured on a monthly basis ( 97% ) ( 3% ) Fixed vs. floating interest rates Fixed Floating 2021 FINANCIAL STATEMENTS 4.6 Liquidity risk Contractual maturities The contractual maturities of nancial liabilities, based on undiscounted contractual cash ows, are shown in the table. The undiscounted contractual cash ows include expected interest payments, estimated based on market expecta- tions at 31 December. Liquidity reserves Cash and cash equivalent at DKK 3,428 million reects the strong liquidity position of the Group. The level is typically highest at 31 December and not a representative level for the rest of the year. Restricted cash DKK 31 million of the total cash and cash equivalents at 31 December 2021 was placed on blocked or restricted bank accounts due to legal cases and tax-related circumstances. Unused revolving credit facilities The Group has a EUR 1 billion revolving credit facility maturing in November 2024. In May 2021, the additional backup credit facility of EUR 700 million was can- celled leading to the decrease compared to 2020. In addition to the unused revolving credit facilities at Group level, local credit facilities are available in countries, which are not considered part of the readily available liquidity. At 31 De- cember 2021, these amounted to DKK 1.1 billion of which all was unused (2020: DKK 0.9 billion of which DKK 0.4 billion was unused). Not readily available Cash is considered readily available for upstreaming to the parent company (ISS A/S) within ve days. In a number of countries, transfer to ISS A/S is assessed to take more than ve days due to local administrative processes, and thus is not deemed readily available. ( DKKm ) 2021 2020 Cash and cash equivalents 3,428 2,742 Restricted cash ( 31 ) ( 37 ) Unused revolving credit facilities 7,312 12,380 Liquidity reserves 10,709 15,085 Not readily available 1,061 1,026 Readily available liquidity 9,648 14,059 The risk implied from the values reects the one-sided scenario of cash outows only. Trade payables and other nancial liabilities are mainly used to nance assets such as trade receivables and property, plant and equipment. The maturity prole of the Group’s current nancing, i.e. issued bonds and bank loans, based on nominal values including any undrawn amounts and excluding interest payments, is illustrated in the chart on p. 78. ( DKKm ) Carrying amount Contractual < 1 year 1–2 years 2–3 years 3–4 years 4–5 years > 5 years 2021 Loans and borrowings, excl. lease 14,443 15,489 326 311 2,537 3,930 3,879 4,506 Lease liabilities 2,539 2,658 786 561 418 289 197 407 Trade payables and other 2,402 2,402 2,402 - - - - - 19,384 20,549 3,514 872 2,955 4,219 4,076 4,913 2020 Loans and borrowings, excl. lease 16,078 17,332 716 247 249 3,963 3,845 8,312 Lease liabilities 2,565 2,681 842 654 454 279 191 261 Trade payables and other 2,788 2,788 2,679 21 88 - - - 21,431 22,801 4,237 922 791 4,242 4,036 8,573 Exposure to liquidity risk Liquidity risk results from the Group’s potential inability or diculty in meeting the contractual obligations associated with its nancial liabilities due to insucient liquidity. Low risk • No short-term maturities • No nancial covenants in our main Group facilities (certain covenants apply to the Turkish facility) • Diversied funding; bonds and bank loans Risk management policy • Maintain an appropriate level of short- and long-term liquidity reserves (liquid funds and committed credit facilities) • Maintain a smooth maturity prole in terms of dierent maturities • Maintain access to diversied funding sources Mitigation • Raising capital is managed centrally in Group Treasury to ensure ecient liquidity management • Group Treasury monitors the risk of insucient liquidity position on a daily basis • Liquidity is transferred to/from ISS Global A/S, which operates as the Group’s internal bank • For day-to-day liquidity management cash pools have been established in the majority of the local entities FINANCIAL STATEMENTS Loans and borrowings – foreign currency sensitivity A change in relevant currencies, with all other variables held constant, would have impacted prot or loss with the amounts below. Sensitivity ( DKKm ) Currency exposure ( nominal ) Currency swaps ( contractual ) Exposure, net Increase in FX or loss 2021 EUR/DKK ( 17,375 ) 6,864 ( 10,511 ) 1% ( 105 ) USD/DKK 1,505 ( 1,639 ) ( 134 ) 10% 13 Other/DKK ( 1,173 ) 1,365 192 10% 19 Total ( 17,043 ) 6,590 ( 10,453 ) 2020 EUR/DKK ( 18,011 ) 6,854 ( 11,157 ) 1% ( 112 ) USD/DKK 1,625 ( 1,768 ) ( 143 ) 10% ( 14 ) Other/DKK 453 ( 115 ) 338 10% 34 Total ( 15,933 ) 4,971 ( 10,962 ) 4.7 Currency risk The analysis is based on the Group’s internal monitoring of currency exposure on loans and borrowings, intercompany loans, external long- term receivables, cash and cash equivalents as well as accrued royalties (Group internal). Exposure to currency risk Currency risk is the risk that arises from changes in exchange rates, and aects the Group’s result, investments or value of nancial instruments. Low risk The Group generally benets from a natural hedge in having costs, investments and income in the same functional currency country by coun- try. Currency risk therefore predominantly arises from funding and investments in subsidiaries. • 97.7% of the Group’s loans and borrowings (external) were denominated in EUR at 31 December 2021 (2020: 97.1%) • Including the impact of net investment hedg- es, 78.8% (2020: 81.0%) of the Group’s external borrowings were denominated in EUR Risk management policy • It is Group policy to pool funding activities centrally and fund investments in subsidiar- ies through a combination of intercompany loans and equity • Currency risk on intercompany loans is as a main policy hedged against DKK or EUR when exposure exceeds DKK 5 million. Some cur- rencies cannot be hedged within a reasonable price range in which case correlation to a proxy currency is considered and, if deemed appropriate, proxy hedging is applied • Currency risk on net investments are as a main policy hedged against DKK or EUR when annual EBITDA of the relevant func- tional currency corresponds to 5% or more of Group EBITDA up to an amount of 3-5x EBITDA in the relevant functional currency and adjusted as appropriate to relevant market entry and exit risk • Exposure to EUR is monitored but not hedged due to the xed rate exchange policy between DKK/EUR • Our currency hedging exposes us to interest spread risk, see sensitivity analysis in 4.5, Interest rate risk Mitigation • Currency swaps are used to hedge the exposure to currency risk on loans and bor- rowings (external), intercompany balances and long-term receivables (external) • Exposure on loans and borrowings, intercompany balances and cash and cash equivalents are measured at least on a weekly basis to evaluate the need for hedging currency positions • Currency swaps (net investment hedges) or debt is used to hedge the currency exposure to investments in subsidiaries (other than for EUR). FINANCIAL STATEMENTS Net investment hedges ( DKKm ) Net investment investment Exposure, net Average price Change in fair value Fair value Maturity 2021 GBP 1,492 1,285 207 9 ( 100 ) ( 18 ) March 2022 USD 1,093 722 371 7 ( 60 ) 3 March 2022 CHF 1,847 718 1,129 7 ( 31 ) ( 4 ) March 2022 Total 4,432 2,725 1,707 - ( 191 ) ( 19 ) 2020 GBP 1,302 1,236 66 8 119 ( 9 ) March 2021 USD 804 666 138 6 58 6 March 2021 CHF 1,265 685 580 7 3 6 March 2021 Total 3,371 2,587 784 - 180 3 Net investment hedges – foreign currency sensitivity A 10%-change in currencies, with all other variables held constant, would have changed the fair value recognised in Other comprehensive income of GBP with DKK 21 million, of USD with DKK 37 million and of CHF with DKK 113 million. Translation and operational currency risk The Group’s exposure to currency risk on transaction level is low since services are produced, delivered and invoiced in the same local currency as the functional currency of the entity delivering the services. The Group is, however, exposed to risk related to translation into DKK of prot or loss and net as- sets of foreign subsidiaries, including intercom- pany items such as loans, royalties, management fees and interest payments between entities with dierent functional currencies, since a signicant portion of the Group’s revenue and operating prot is generated in foreign entities. The exposure to translation of net assets of foreign subsidiaries is described to the left. Foreign currency sensitivity A 10%-change (EUR: 1%-change) in relevant currencies, with all other variables held constant, would have impacted revenue and operating prot before other items with the amounts below. Impact on prot or loss In 2021, changes in weighted average exchange rates resulted in a decrease in Group revenue of DKK 420 million or 0.6% (2020: decrease of 2.1%) and a decrease of the Group’s operating prot before other items of DKK 92 million or 1.2% (2020: increase of 3.5%). EUR GBP USD CHF AUD DKK NOK SEK TRY Other % of Group revenue Revenue by currency ( DKKm ) Revenue before other items GBP 1,010 29 CHF 521 39 USD 513 27 AUD 413 27 NOK 318 23 SEK 279 18 TRY 272 22 EUR 233 4 Other 1,116 58 Total 4,675 247 Change in avg. FX rates) 2020 to 2021 2019 to 2020 GBP 3.2% ( 1.5 ) % CHF ( 1.2 ) % 3.7% USD ( 3.8 ) % 2.0% AUD 4.8% ( 2.8 ) % NOK 5.1% ( 8.1 ) % SEK 3.1% 0.8% TRY ( 22.9 ) % ( 20.0 ) % EUR ( 0.2 ) % ( 0.2 ) % ( ) = Weakened against DKK Revenue by currency 71.4 DKKbn The eect of translation of net assets in foreign subsidiaries before the eect of net investment hedges increased equity by DKK 297 million (2020: a decrease of DKK 750 million) primarily related to Turkey, the USA and the UK. Derivative nancial intruments are initially recognised at fair value at the trade date and subsequently remeasured at fair value. Derivatives are included in Other receivables when the fair value is positive and ind Other liabilities when the fair value is negative. Fair value measurement take into account current market data. The Group uses valuation techniques that are appropriate in the circumstances and for which sucient data are available to measure fair value. Measurement is categorised as Level 2 in the fair value hierarchy as it is not based on observable market data. Currency swaps are used to hedge the exposure to currency risk on loans and borrowings (external) and intercompany balances. As changes in the fair value of both the hedged item and the currency swap are recognised in prot or loss, hedge accounting is not applied. Currency swaps (net investment hedges) or debt is used to hedge the currency exposure to investments in subsidiaries (other than for EUR). Net investment hedges Gains or losses on the hedging instrument relating to the eective portion of the hedge are recognised in other comprehensive income while gains or losses relating to the inef- fective portion are recognised in prot or loss and included in nancial income or nancial expenses. On disposal of the foreign operation, the cumula- tive value of any such gains or losses recognised in equity is transferred to prot or loss. Accounting policy FINANCIAL STATEMENTS In this section: 5.1 Remuneration to the Board of Directors and the Executive Group Management 5.2 Sta costs and average number of employees 5.3 Share-based payments 5.4 Pensions and similar obligations Remuneration Share-based payments At ISS, remuneration is based on responsibilities, competencies and performance and is designed to be competitive, aordable and in line with market practice of comparable listed companies. To drive delivery of short- and long-term nan- cial results, retention of leaders and alignment to shareholder value creation, the Group has implemented two types of share-based incentive programmes: • a long-term incentive programme (LTIP) • a special incentive programme (SIP) Under the LTIP, which has been in place since 2014, performance share units (PSUs) are granted annually to plan participants consisting of around 120-150 senior leaders. Each PSU entitles the holder to receive one share at no cost after three years, subject to achievement of certain EPS and TSR performance criteria as well as service objectives for the 2021 LTIP pro- gramme. Performance criteria of the latest two vested programmes, LTIP 2017 and LTIP 2018, were not achieved and they vested at 0%. Under the SIP, restricted share units (RSUs) are granted to the participants consisting of 43 senior leaders. Each RSU entitles the holder to receive one share at no cost, subject to achieve- ment of individual service or performance criteria upon vesting in either 2022 or 2023. Pension plans The Group has several pension plans of which the majority are dened contribution plans with no further payment obligation once the contributions are paid. The Group also has a number of dened benet plans where the responsibility for the pension obligation towards the employees, rests with the Group, most signicantly in Switzerland and the UK, which accounted for 86% of the Group’s obligation (gross). Market conditions in 2021 resulted in strong asset returns, especially in Switzerland. Further- more, changes to actuarial assumptions led to actuarial gains, mainly in Switzerland. The positive impacts were oset by changes in the asset ceiling due to surplus restrictions. The net impact on other comprehensive income was therefore limited. Read more in this section. Prepared pursuant to the Shareholder Rights Directive and includes a description of our remuneration policy and remuneration to the Board and the EGMB. 2021 REMUNERATION REPORT PEOPLE MAKE PLACES Pensions Remuneration report vested in March 2021 will vest in March 2022 LTIP 2018 LTIP 2019 62DKKm (2020: 27 DKKm) Recognised in prot or loss Share-based payments 881DKKm Dened benet obligation, net 236DKKm Recognised in prot or loss 65DKKm (gain) Recognised in other comprehensive income FINANCIAL STATEMENTS 5.3 Share-based payments To drive delivery of short- and long-term nan- cial results, retention of leaders and alignment to shareholder value creation, the Group has implemented two types of equity-settled sharebased incentive programmes: • a long-term incentive programme (LTIP); and • a special incentive programme (SIP). Long-term incentive programme Members of the EGM (EGMB and Corporate Senior Ocers of the Group), and other senior ocers of the Group, are granted a number of performance share units (PSUs). Upon vesting, each PSU entitles the holder to receive one share at no cost. Participants are compensated for any dividend distributed between time of grant and time of vesting. Subject to certain criteria, the PSUs will vest after three years. The vesting criteria are total sharehold- er return (TSR) and earnings per share (EPS). For LTIP 2021, TSR and EPS weighted 40%, respectively, and the remaining 20% related to service-based objectives. For LTIP 2020 and LTIP 2019, TSR and EPS were equally weighted. TSR peers are the Nasdaq Copenhagen OMX C25 and a peer group of comparable international service companies. The Executive Group Management (EGM) com- prises the Executive Group Management Board (EGMB) and Corporate Senior Ocers of the Group. Members of the EGM have authority and 5.1 Remuneration to the Board of Directors and the Executive Group Management responsibility for planning, implementing and controlling the Group’s activities and are together with the Board of Directors (Board) considered as the Group’s key management personnel. 2021 2020 EGM EGM ( DKK thousand ) Board EGMB Corporate Senior Board EGMB Corporate Senior Base salary and non-monetary benets 8,724 21,842 39,172 8,008 16,678 34,637 Bonus programmes - 12,007 18,739 - 7,461 12,163 Share-based payments 1) - ( 3,794 ) 11,695 - 8,349 2,649 Severance pay - 14,280 - - 17,799 14,629 Total remuneration 8,724 44,335 69,606 8,008 50,287 64,078 number of employees At 31 December 2021, sta costs amounted to DKK 46,369 million (2020: DKK 46,579 million) and comprised mainly wages and salaries. In 2021, sta costs was positively impacted by a refund of collective insurance premiums paid in prior years in Sweden (DKK 78 million). At 31 December 2021, total number of employ- ees was 354,636 (31 December 2020: 378,946) with an average number of employees in 2021 of 362,789362,789 (2020: 434,896434,896). Number of employ- ees included both the continuing and discontin- ued operations. The decrease in 2021 was mainly the result of divestments completed in 2021. Contract losses contributed further to the reduction. The total number of employees is expected to be around 345,000 once the strategic divest- ment programme is completed. TSR performance criteria Threshold Vesting TSR Below threshold 0 % Below median of peers Threshold 25 % At median of peers Maximum 100 % At upper quartile of peers or better 1) Share-based payments to the EGMB was an income of DKK 3,794 million and included an income of DKK 8,035 million due to forfeited PSUs and RSUs under the LTIP programmes and the Retention 2020 programme as the CEO Europe left ISS in December 2021. Remuneration policy is described in the Remuneration report which is available here The value of services received in exchange for granted performance-based share units (PSUs) and restricted share units (RSUs) are measured at fair value at the grant date and recognised in sta costs over the vest- ing period with a corresponding increase in equity. The fair value of granted PSUs under the long-term incentive programme is measured using a generally accepted valuation model taking into consideration Accounting policy 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 and RSUs expected to vest. The es- timated number is subsequently revised for changes in the number of PSUs and RSUs expected to vest due to non-market based vesting conditions. FINANCIAL STATEMENTS LTIP 2018 LTIP 2019 LTIP 2020 LTIP 2021 PSUs and participants ( number ) Maximum PSUs under the programme at grant date 869,112 928,367 1,785,896 1,349,521 Total PSUs granted 767,447 813,090 1,473,659 1,240,947 Participants 152 142 120 140 Fair value ( DKKm ) PSUs expected to vest at grant date 100 101 74 94 PSUs expected to vest at 31 December 2021 - 24 52 74 ( DKKm ) Recognised in 2021 2 8 20 22 Not yet recognised ( PSUs expected to vest ) - 1 22 57 Assumptions at the time of grant LTIP 2018 LTIP 2019 LTIP 2020 LTIP 2021 Share price, DKK 228 207 98 111 Expected volatility 1) 29.0% 26.6% 29.1% 47.2% Expected life of grant, years 3 3 3 3 Risk-free interest rate 1) 0.5%-2.4% ( 0.3 ) %-2.7% ( 0.4 ) %-1.9% (0.6)%-0.9% 1) Based on observable market data for peer groups. LTIP – vested programmes In March 2021, the LTIP 2018 programme vested. Based on the annual EPS and TSR performances for 2018, 2019 and 2020, 0% of the granted PSUs vested. After this vesting, no further PSUs are outstanding under the LTIP 2018 and the programme has lapsed. Furthermore, in March 2022, the PSUs granted under LTIP 2019 will vest with 0% based on the annual EPS and TSR performances for 2019, 2020 and 2021. LTIP 2019 Outstanding at 1 January 2020 109,369 115,075 540,174 764,618 Granted ( 66,786 ) ( 32,060 ) 98,846 - Cancelled - - ( 78,569 ) ( 78,569 ) Outstanding at 31 December 2020 42,583 83,015 560,451 686,049 Cancelled ( 35,686 ) ( 6,370 ) ( 23,034 ) ( 65,090 ) Outstanding at 31 December 2021 6,897 76,645 537,417 620,959 LTIP 2020 Granted 218,564 224,231 1,030,864 1,473,659 Transferred ( 85,931 ) ( 46,232 ) 132,163 - Cancelled - - ( 33,673 ) ( 33,673 ) Outstanding at 31 December 2020 132,633 177,999 1,129,354 1,439,986 Cancelled ( 72,864 ) - ( 104,144 ) ( 177,008 ) Outstanding at 31 December 2021 59,769 177,999 1,025,210 1,262,978 LTIP 2021 Granted 201,828 176,746 862,373 1,240,947 Transferred ( 53,531 ) - ( 89,652 ) ( 143,183 ) Outstanding at 31 December 2021 148,297 176,746 772,721 1,097,764 LTIP – outstanding PSUs EGM LTIP 2018 EGMB Corporate Other Total Outstanding at 1 January 2020 88,503 87,410 489,381 665,294 Transferred ( 50,033 ) ( 18,817 ) 68,850 - Cancelled - - ( 41,435 ) ( 41,435 ) Outstanding at 31 December 2020 38,470 68,593 516,796 623,859 Forfeited ( 38,470 ) ( 68,593 ) ( 516,796 ) ( 623,859 ) Outstanding at 31 December 2021 - - - - FINANCIAL STATEMENTS Retention 2020 Special Incentive 2020-2022 Special Incentive 2020-2023 RSU and participants ( number ) Maximum RSUs under the programme at grant date 145,729 64,159 246,767 Total RSUs granted 145,729 50,698 232,730 Participants 1 9 36 Fair value ( DKKm ) RSUs expected to vest at grant date 14 6 24 RSUs expected to vest at 31 December 2021 - 6 23 ( DKKm ) Recognised in 2021 ( 5 ) 5 10 Not yet recognised ( RSUs expected to vest ) - 1 10 Special incentive programmes There are currently two dierent incentive plans with duration between two and three years. Restricted share units (RSUs) granted under the programmes in 2020 and 2021 will vest in either 2022 or 2023, subject to achievement of individual service or performance criteria. Upon vesting, each RSU entitles the holder to receive one share at no cost. The RSUs granted under the Retention 2020 programme in 2020 was forfeited in 2021 as the participant left ISS and vesting of the programme was subject to continued employment. Thereafter the programme has lapsed. Assumptions at the time of grant Retention 2020 Special Incentive 2020-2022 Special Incentive 2020-2023 Share price, DKK 98 101 101 Expected life of grant, years 2 2 3 Special incentive 2020-2022 Granted - - 22,296 22,296 Outstanding at 31 December 2020 - - 22,296 22,296 Granted - 26,619 1,783 28,402 Cancelled - - ( 6,513 ) ( 6,513 ) Outstanding at 31 December 2021 - 26,619 17,566 44,185 Special incentive 2020-2023 Granted - - 204,223 204,223 Outstanding at 31 December 2020 - - 204,223 204,223 Granted - 26,619 1,888 28,507 Cancelled - - ( 12,853 ) ( 12,853 ) Outstanding at 31 December 2021 - 26,619 193,258 219,877 Special incentive programmes – outstanding RSUs EGM Retention 2020 EGMB Corporate Other Total Granted 145,729 - - 145,729 Cancelled - - - - Outstanding at 31 December 2020 145,729 - - 145,729 Cancelled ( 145,729 ) - - ( 145,729 ) Outstanding at 31 December 2021 - - - - FINANCIAL STATEMENTS 5.4 Pensions and similar obligations The majority of the Group’s pension schemes are dened contribution plans where con- tributions are paid to publicly or privately administered pension plans. The Group has no further payment obligations once the contri- butions have been paid. In 2021, contributions amounted to DKK 1,186 million (2020: DKK 1,220 million), corresponding to 86% of the Group’s pension costs (2020: 86%). The Group has a number of dened benet plans where the responsibility for the obligation towards the employees rests with the Group. The largest plans are in Switzerland and the UK accounting for 86% (2020: 86%) of the Group’s obligation (gross) and 97% (2020: 97%) of its plan assets. The plans are primarily based on years of service, and benets are determined on the basis of salary and rank. The Group assumes the risk associated with future developments in salary, interest rates, ination, mortality and disability etc. The majority of the obligations are funded with assets placed in independent pension funds. In some countries, primarily Sweden, France, Turkey and Hong Kong, the obligation is unfunded. For these unfunded plans, obligation amounted to DKK 788 million or 9% of the present value of the gross obligation (2020: DKK 843 million or 10%). Switzerland Participants are insured against the nancial consequences of retirement, disabil- ity and death. The pension plans guarantee a minimum interest credit and xed conversion rates at retirement and include a risk-sharing element between ISS and the plan participants. Contributions are paid by both the employee and the employer. The plans must be fully funded. In case of underfunding, recovery measures must be taken, such as additional nancing from the employer or from the employer and employees, reduction of benets or a combination of both. The UK Participants are insured against the nancial consequences of retirement and death, and do not provide any insured disability benets. The pension plans guarantee a dened benet pension at retirement on a nal salary basis. The majority of the plans does not include a risk-shar- ing element between ISS and the plan participants. Development in 2021 Actuarial (gain)/loss, including return on plan assets, was a gain of DKK 1,145 million (2020: loss of DKK 127 million). Impact from asset ceil- ing was a loss of DKK 1,080 million (2020: loss of DKK 21 million). Consequently, the net impact recognised in other comprehensive income in 2021 was a gain of DKK 65 million (2020: loss of DKK 148 million). In 2021, we saw strong asset returns, mainly in Switzerland (accounts for 80% of the Group’s plan assets). The assets are primarily placed in listed shares (40%), bonds (25%) and real estate (15%), and the market conditions, especially for shares and real estate, led to the signicant return on plan assets. Furthermore, changes to actuarial assumptions (increased discount rates and updated mortality rates) led to a reduction in the gross obligation and a resulting actuarial gain, predominantly in Switzerland. As a result of the strong asset returns and development in actuarial assumptions, a 2021 2020 (DKKm) 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 8,684 7,796 888 8,394 7,542 852 Current service costs 187 - 187 174 - 174 Interest on obligation/plan assets 45 28 17 61 44 17 Past service costs 32 - 32 59 - 59 264 28 236 294 44 250 Actuarial ( gain ) /loss, demographic assumptions ( 256 ) - ( 256 ) ( 10 ) - ( 10 ) Actuarial ( gain ) /loss, nancial assumptions ( 209 ) - ( 209 ) 290 - 290 Actuarial ( gain ) /loss, experience adjustments 67 - 67 27 - 27 Return on plan assets excl. interest income - 747 ( 747 ) - 180 ( 180 ) Impact from asset ceiling - ( 1,080 ) 1,080 - ( 21 ) 21 Recognised in other comprehensive income ( 398 ) ( 333 ) ( 65 ) 307 159 148 Foreign exchange adjustments 386 414 ( 28 ) ( 115 ) ( 93 ) ( 22 ) Acquisitions and divestments, net - 0 ( 0 ) ( 3 ) ( 0 ) ( 3 ) Additions from new contracts, net - - - - 35 ( 35 ) Employee contributions 141 141 - 135 135 - Employer contributions - 199 ( 199 ) - 195 ( 195 ) Benets paid ( 266 ) ( 174 ) ( 92 ) ( 313 ) ( 234 ) ( 79 ) Impact from asset ceiling - 1,080 ( 1,080 ) - 21 ( 21 ) Reclassication to Liabilities held for sale ( 186 ) ( 154 ) ( 32 ) ( 15 ) ( 8 ) ( 7 ) Other changes 75 1,506 ( 1,431 ) ( 311 ) 51 ( 362 ) Carrying amount at 31 December 8,625 8,997 ( 372 ) 8,684 7,796 888 Other long-term employee benets 470 456 Accumulated impact from asset ceiling 1,253 163 Pensions and similar obligations at 31 December 1,351 1,507 signicant increase in the surplus on the major plans in Switzerland was realised. However, due to surplus restrictions (ISS does not have access to the overfunding), a resulting increase in the asset ceiling was recognised. As such, by the end of 2021, the accumulated impact from the asset ceiling was DKK 1,253 million (2020: DKK 163 million). FINANCIAL STATEMENTS 1) The impact from deferred vested on total estimated weighted average duration is minor due to the fact that deferred vested make up less than 2% of the participants, and do not exist in many of the shorter duration plans. Actuarial assumptions Sensitivity analysis The table below illustrates the sensitivity related to signicant actuarial assumptions used in the calculation of the dened benet 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 dened benet obligation by the amounts shown below: The estimated weighted average duration of the dened benet obligation was 12 years (2020: 13 years) and is split into: Contributions in 2022 The Group expects to contribute DKK 261 million in 2022 (2021: DKK 250 million). Major categories of plan assets Contributions to are recognised in Sta costs when the related service is provided. Any contributions outstanding are recognised in Other liabilities. The Group’s net obligation is calculated by a qualied actuary using the pro- jected unit credit method, separately for each plan by estimating the amount of future benets 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 in Pensions and similar obligations. When the calculation results in a potential asset, recognition is limited to the present value of economic benets available in the form of future refunds from or reductions in future contributions to the plan. To calculate the present value, consid- eration is given to applicable minimum funding requirements. Pension costs are calculated based on actuarial es- timates and nancial expectations at the beginning of the year. Service costs are recognised in Sta costs and net interest is recognised in Financial expenses. Dierences between the expected development in pension assets and liabilities and the realised amounts at the reporting date are des- ignated actuarial gains or losses and recognised in other comprehensive income. When the benets are changed or a plan is cur- tailed, the resulting change in benets that relates to past service or the gain or loss on curtailment is recognised in Sta costs. Gains and losses on settlement is recognised when incurred. are recognised as dened pension plans, except that actuarial gains and losses are recognised in Sta costs. Other long-term employee benets comprise jubilee benets, long-service or sabbatical leave etc. Accounting policy Listed shares Corporate bonds Property Government bonds % of total plan assets ( 35% ) ( 15% ) ( 24% ) ( 3% ) ( 19% ) ( 4% ) Major categories of plan assets 2021 Actuarial calculations and valuations are per- formed annually for all major plans. The present value of dened benet obligations is determined on the basis of assumptions about the future development in variables such as salary levels, interest rates, ination and mortality. Applied actu- arial assumptions vary from country to country due to local conditions. All assumptions are assessed at the reporting date. Changes in these assumptions may signicantly aect the liabilities and pension costs under dened benet 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 ows are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the dened benet obligations. ISS participates in multi-employer pension schemes that by nature are dened benet plans. Some funds are not able to provide the necessary information in order for the Group to account for the schemes as dened benet plans and these schemes are therefore accounted for as dened contribution plans. There is a risk that the plans are not suciently funded. However, information on surplus or decit in the schemes is not available. estimates Cash and cash equivalents Other 2021 2020 GBP EUR Other currencies GBP EUR Other currencies Discount rates 0.3% 2.0% 0.35-1.0% 0.2-19.3% 0.1% 1.5% 0.35-0.75% 0.2-15.4% Salary increase 1.0% 0.0-2.65% 0-3.5% 0-15.0% 1.0% 0.0-2.19% 0.0-3.5% 0.0-10.0% Pension increase 0.0% 2.65-3.20% 0-0.64% 0-2.0% 0.0% 2.2-3.0% 0.0-2.0% 0.0-1.75% 2021 2020 ( DKKm ) Discount rate ( 490 ) 545 ( 535 ) 598 Price ination 165 51 121 ( 103 ) Salary increase 132 4 74 ( 69 ) Pension increase 302 ( 85 ) 314 ( 78 ) +1 year -1 year +1 year -1 year Life expectancy 212 ( 182 ) 203 ( 197 ) Years 2021 2020 Active employees 8 13 Retired employees 15 15 Deferred vested 1) 6 14 Total employees 12 13 FINANCIAL STATEMENTS Other required disclosures 6.1 Contingent liabilities 6.2 Government grants The Group received government grants in the form of wage subventions, which have been recognised as a reduction of sta costs. The grants compensate the Group for sta costs primarily related to social security and wage increases as well as hiring certain categories of employees such as trainees, disabled persons, long-term unemployed and employees in certain age groups. Covid-19 related grants The Group received Covid-19 related grants to compensate costs related to e.g. employees on furlough, social security contribution and sick pay compensation mainly in the UK, Hong Kong and Switzerland. As the grants compensate costs already incurred, they are recognised as a reduction of sta costs. Depending on the specic commercial model, customers were appropriately and accordingly compensated. ( DKKm ) 2021 2020 Wage subvention 415 1,321 Sick pay compensation 11 15 Social security contribution 6 12 432 1,348 Hereof included in Other receivables 10 118 6.3 Related parties Parent and ultimate controlling party The Group’s parent ISS A/S is the ultimate con- trolling party. At 31 December 2021, ISS had no related parties with either control of the Group or signicant inuence in the Group. Key management personnel The Board of Directors (Board) and the Executive Group Management (EGM) are considered the Group’s key management personnel as dened in 5.1, Remuneration to the Board of Directors and the Executive Group Management. Apart from remuneration, including share-based incentive programmes, there were no signicant transactions with members of the Board and the EGM in 2021. 6.4 Fees to auditors Other assurance services comprised work related to the interim nancial statements and other assurance services. Tax and VAT advisory services mainly related to tax compliance services. Other services comprised among other things work related to acquisitions and divestments, such as nancial and tax due diligence. ( DKKm ) 2021 2020 Statutory audit 71 75 Other assurance services 1 1 Tax and VAT advisory services 6 6 Other services 9 11 Total 87 93 Type Nature and extent Guarantee com- mitments Indemnity and guarantee commitments (mainly towards public authorities and insur- ance companies) at 31 December 2021 amounted to DKK 479 million (31 December 2020: DKK 426 million). Performance guarantees The Group has issued performance guarantee bonds for service contracts amount- ing to DKK 3,580 million (31 December 2020: DKK 3,305 million) of which DKK 1,761 million (31 December 2020: DKK 1,454 million) were bank-guaranteed performance bonds. Such performance bonds are issued in the ordinary course of business in the service industry to guarantee towards our customers satisfactory completion of work in accordance with service contracts. Divestments The Group makes provisions for claims from purchasers or other parties in connection with divestments and representations and warranties given in relation to such divest- ments. Management believes that provisions made at 31 December 2021 are adequate. However, there can be no assurance that major claims will not arise out of the Group’s divestments and adversely aect the Group’s prot or loss and nancial position. In addition, in some cases the Group’s divestment activities give rise to possible obligations, whose existence will only be conrmed by the occurrence or non-occur- rence of one or more future events, not wholly within ISS’s control, e.g. labour-related obligations, including relating to multi-employer plans. In such cases, the occurrence of future events may adversely aect the Group’s prot or loss and nancial position. Legal proceedings The Group is party to certain legal proceedings. Management believes that these proceedings (many of which are disputes with customers and labour-related cases incidental to the business) will not have a material impact on the Group’s nancial po- sition beyond the assets and liabilities already recognised in the statement of nancial position at 31 December 2021. Restructuring projects Restructuring projects are being undertaken on an ongoing basis across dierent geographies and service areas, currently mainly in Germany, France and Spain. 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 nancial position beyond the assets and liabilities already recognised in the statement of nancial position at 31 December 2021. FINANCIAL STATEMENTS Basis of preparation operating performance and cash ows in 2021 and our nancial position at 31 December 2021. Estimates and assumptions are reviewed on an ongoing basis and have been prepared taking macroeconomic developments into consider- ation, but still ensuring that one-o eects which are not expected to exist in the long term do not aect estimation and determination of these key factors, including discount rates and expecta- tions for the future. Items being subject to signicant estimates and judgements are described in the notes listed below. 7.2 Change in accounting policies From 1 January 2021, the Group has adopted the below standards and interpretations with no signicant impact on recognition and measure- ment: • Amendments to IFRS 7, IFRS 9 and IAS 39 and IFRS 16: Interest Rate Benchmark Reform – Phase 2. 7.3 General accounting policies The consolidated nancial statements of ISS A/S for the year ended 31 December 2021 comprise ISS A/S and its subsidiaries (collectively, the Group). Signicant subsidiaries are listed in 7.6, Group companies. The 2021 Annual Report for ISS A/S was discussed and approved by the Executive Group Management Board (the EGMB) and the Board of Directors (the Board) on 24 February 2022 and issued for approval at the subsequent annual general meeting on 7 April 2022. Basis of preparation The consolidated nancial statements of the Group have been prepared in accordance with IFRS as adopted by the EU and additional requirements of the Danish Financial Statements Act. In addition, the consolidated nancial statements have been prepared in compliance with the IFRSs issued by the IASB. Note Item Estimates Judgements 1.2 Revenue x x 1.5 Deferred tax x x 2.1 Right-of-use assets x 2.2 Trade receivables and credit risk x 2.3 Other receivables x 2.6 Provisions x x 3.1 Discontinued operations x x 3.2 Assets and liabilities held for sale x x 3.6 Intangible assets x x 3.8 Impairment tests x 5.4 Pensions and similar obligations x The preparation of the Group’s consolidated nancial statements required management to make judgements, estimates and assumptions that aected the reported amounts of assets, liabilities, income and expenses, the accompany- ing disclosures, including contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods. In 2021, Covid-19 continued to have an adverse impact on our business, although to a lesser extend than in 2020, including the Group’s The Group’s signicant accounting policies and accounting policies related to IAS 1 minimum presentation items are described in the relevant notes to the consolidated nancial statements or otherwise stated below. A list of the notes is shown on p. 50. All amounts have been rounded to nearest DKK million, unless otherwise stated. Fair value measurement and disclosure The consolidated nancial statements have been prepared on a historical cost basis, except for assets and liabilities held for sale, derivative nancial instruments and contingent consider- ation that have been measured at fair value. The assets and liabilities above for which the fair value is measured are categorised within the fair value hierarchy and disclosed in the relevant notes. For the purpose of fair value disclosures, management has assessed that the fair values of cash and cash equivalents, trade receivables, contingent consideration, trade payables and other current and non-current nancial assets and liabilities approximates their carrying amount largely due to the short-term matur- ities of these instruments. The fair value of loans and borrowings, including methods and assumptions used to estimate the fair value, are disclosed in 4.2, Loans and borrowings. FINANCIAL STATEMENTS Climate change In preparing these consolidated nancial state- ments management has considered the impact of climate change, which did not have a material impact on the estimates and judgements in these consolidated nancial statements. In addition, it is management assessment that climate change is not expected to have a signicant impact on the Group’s going concern assessment, or in the long-term (next ve years). Going concern The Board and the EGMB have during the prepa- ration of the consolidated nancial statements of the Group assessed the going concern assump- tion. The Board and the EGMB have concluded that it is reasonable to apply the going concern concept as underlying assumption for the consolidated nancial statements of the Group. In reaching this conclusion, the Board and the EGMB have considered all available information, including existing and anticipated impacts of Covid-19 and other relevant events and conditions, up until the date on which the consolidated nancial statements are issued. Further, the conclusion is based on knowledge of the Group, the estimated economic outlook and identied risks and uncertainties in relation hereto. This includes review of budgets, expect- ed development in available liquidity and capital, current credit facilities and their contractual and expected maturities. The consolidated nancial statements separately present items that are considered individually signicant, or are required under the minimum presentation requirements of IAS 1. In addi- tion, information that is considered material, either individually or in combination with other information, is disclosed. In determining whether an item is individually signicant, or information is material, ISS consid- ers both quantitative and qualitative factors. If the presentation or disclosure could reasonably be expected to inuence economic decisions made by primary users, the information is considered material. Explanatory disclosure notes related to the consolidated nancial statements are presented for individually signicant 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. Basis of consolidation The consolidated nancial statements com- prise ISS A/S and entities controlled by ISS A/S. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to aect those returns through its power over the investee. The nancial statements of subsidiaries are included in the consolidated nancial statements from the date on which control commences until the date on which control ceases. On consolidation all intra-group assets and liabilities, equity, income, expenses and cash ow relating to transactions between members of the Group are eliminated. Unrealised gains arising from transactions with equity-accounted invest- ees 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 prot and equity of subsidiaries, which are not wholly-owned, are included in the Group’s net prot and equity, respectively, but disclosed separately. By virtue of agreement certain non-controlling shareholders are only eligible of receiving benets from their non-controlling interest when ISS as controlling shareholder has received their initial investment and com- pound interest on such. In such instances the subsidiaries’ result and equity are fully allocated to ISS until the point in time where ISS has rec- ognised amounts exceeding their investment including compound interest on such. A change in ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in Other income and expenses, net. Any investment retained is recognised at fair value on initial recognition. Foreign currency The consolidated nancial statements are presented in Danish kroner (DKK), which is ISS A/S’s functional currency. Transactions in currencies other than the functional currency of the respective Group companies are con- sidered transactions denominated in foreign currencies. On initial recognition, these are translated to the respective functional currencies of the Group companies at the exchange rates at the transac- tion date. Foreign exchange adjustments arising between the exchange rates at the transaction date and at the date of payment are recognised in Financial income or Financial expenses. Receivables, payables and other monetary items denominated in foreign currencies are translat- ed at the exchange rates at the reporting date. The dierence between the exchange rates at the reporting date and at the date of transaction or the exchange rate in the latest nancial statements is recognised in Financial income or Financial expenses. On recognition in the consolidated nancial statements of Group companies with a functional currency other than DKK, the statements of prot or loss and statements of cash ows are translated at the exchange rates at the transaction date and the statements of nancial position are translated at the ex- change 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 signicantly deviate from the exchange rate at the transaction date. Foreign exchange adjustments arising on translation of the opening balance of equity of foreign entities at the exchange rates at the reporting date and on translation of the prot or loss 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 dierence is allocated to the non-controlling interest. Foreign exchange adjustments of balances with foreign entities which are considered part of the investment in the entity are recognised in other comprehensive income and presented in equity under a separate translation reserve. FINANCIAL STATEMENTS Segment reporting The accounting policies of the reportable segments are the same as the Group’s account- ing policies described throughout the notes. Segment revenue, costs, assets and liabilities comprise items that can be directly referred to the individual segments. Unallocated items mainly consist of revenue, costs, assets and liabilities relating to the Group’s Corporate functions (including internal and external loans and borrowings, cash and cash equivalents and intra-group balances) as well as Financial income, Financial expenses and Income tax. The segment reporting is prepared in a manner consistent with the Group’s internal manage- ment and reporting structure and excludes discontinued operations. For the purpose of segment reporting, seg- ment prot has been identied as Operating prot. Segment assets and segment liabilities have been identied 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 individ- ual subsidiary from which the sales transaction originates. Transactions between reportable segments are made on market terms. Reporting under the ESEF regulation As we are a Group with securities listed on a reg- ulated market within the EU, we are from 2021 required to prepare our Annual Report using a combination of the XHTML format and to tag the primary consolidated nancial statements using iXBRL (Inline eXtensible Business Reporting Language). The Group’s iXBRL tags have been prepared in accordance with the ESEF taxonomy, which is included in the ESEF regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. The line items in the consolidated nancial statements are tagged to elements in the ESEF taxonomy. For nancial line items that are not di- rectly dened in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions that are subtotals. The Annual Report submitted to the Danish Financial Supervisory Authority (the Ocially Appointed Mechanism) are included in the zip le ISS-2021-12-31-en.zip. 7.4 New standards and interpretations not yet implemented IASB has published certain new standards, amendments to existing standards and interpre- tations that are not yet mandatory for the prepa- ration of the consolidated nancial statements of the Group at 31 December 2021. • Amendments to IAS 1 Presentation of Finan- cial Statements: Classication of Liabilities as Current or Non-current; • Amendments to IAS 1 Presentation of Finan- cial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies; • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Denition of Accounting Estimates; • Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction; • Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts – Costs of Fullling a Contract. None of these new standards, amendments to existing standards and interpretations are adopted by the EU at 31 December 2021. The Group expects to adopt the new standards and interpretations when they become manda- tory. The standards and interpretations that are approved with dierent eective dates in the EU than the corresponding eective dates under IASB will be early adopted so that the implemen- tation follows the eective dates under IASB. Based on the current business setup and level of activities, none of these standards and interpre- tations are expected to have a material impact on the recognition and measurement in the consolidated nancial statements. FINANCIAL STATEMENTS (DKKm) Central & Southern Europe Northern Europe Asia & Americas Other countries Total segments Un- allocated Elimi- nations Total Group 2021 Revenue 1) 23,585 27,685 12,381 7,141 612 71,404 - ( 41 ) 71,363 Depreciation and amortisation 2) ( 581 ) ( 658 ) ( 214 ) ( 109 ) ( 2 ) ( 1,564 ) ( 196 ) - ( 1,760 ) before other items 583 1,287 735 393 19 3,017 ( 1,241 ) - 1,776 Operating margin - - Other income and expenses, net 431 ( 2 ) ( 2 ) 78 - 505 ( 66 ) - 439 Goodwill impairment ( 450 ) - - - - ( 450 ) - - ( 450 ) Amortisation/impairment of brands and customer contracts ( 11 ) ( 21 ) ( 6 ) ( 26 ) - ( 64 ) - - ( 64 ) 554 1,263 727 445 19 3,008 ( 1,307 ) 1,701 3) 4) 7.6 Group companies Below the Group’s signicant subsidiaries and joint ventures are presented per region. Together these are referred to as “Companies within the ISS Group”. Continental Europe Austria Austria Argentina ISS Austria Holding GmbH 100% ISS Facility Services GmbH 100% ISS Ground Services GmbH 51% Belgium & Luxembourg Belgium Brunei Luxemborg ISS Catering N.V. 100% ISS Facility Services N.V. 100% ISS Facility Services S.A. 100% France Finland France GIE ISS Services 100% ISS Facility Management SAS 100% ISS Holding Paris SAS 100% ISS Logistique et Production SAS 100% Germany Germany Hong Kong Hungary ISS Automotive Services GmbH 100% ISS Facility Services Holding GmbH 100% ISS Integrated Facility Services GmbH 100% ISS Pharma Services GmbH 100% ISS Energy Services GmbH 100% ISS Communication Services GmbH 100% Italy Italy IrelandHungary ISS Facility Services S.r.l. 100% Netherlands Netherlands Norway ISS Catering Services 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% 1) Including internal revenue which due to the nature of the business is insignicant and therefore not disclosed. 2) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. 3) Unallocated assets and liabilities relate to the Group’s holding companies and comprise internal and external loans and borrowings, cash and cash equivalents and intra-group balances. 4) Eliminations relate to intra-group balances. 7.5 Changes to segments Eective 1 January 2022, Europe will be seg- mented into Northern Europe and Central & Southern Europe consistent with the Group’s internal management and reporting structure going forward. The changed segmentation and the impact on segment information for 2021 is disclosed below. Segment assets, segment liabilities and related disclosures are not provided to management on a regular basis and will therefore not be disclosed going forward. FINANCIAL STATEMENTS Poland Poland ISS Facility Services Sp. Z o.o. 100% ISS World Services Poland Sp. Z.o.o 100% Spain Spain Switzerland Integrated Service Solutions, S.L. 100% ISS Facility Services, S.A. 100% ISS Soluciones De Seguridad, S.L. 100% UTE-HOSPITALES S.A.S 65% Switzerland Switzerland Singapore ISS Facility Services AG 100% ISS Schweiz AG 100% Turkey Turkey Taiwan ISS Hazir Yemek Üretim ve Hizmet A.Ş. 50.1% ISS Proser Koruma ve Güvenlik Hizmetleri A.Ş. 50.1% ISS Tesis Yönetim Hizmetleri A.Ş. 50.1% ISS İşletme Hizmetleri A.Ş (Rönesans) 50.1% Northern Europe Denmark ISS Facility Services A/S 100% ISS Finance B.V. 100% ISS World Services A/S 100% ISS Global A/S 100% ISS Global Management A/S 100% ISS Holding France A/S 100% ISS Lending A/S 100% Finland Finland ISS Palvelut Holding Oy 100% ISS Palvelut Oy 100% Norway Norway New Zealand ISS Holding AS 100% ISS Management AS 100% ISS Facility Services AS 100% ISS Serveringspartner AS 100% ISS Service Management AS 100% 1) 2) 2) 2) 2) Sweden Sweden ISS Facility Services Holding AB 100% ISS Facility Services AB 100% ISS Palvelut Holding AB 100% UK & Ireland UK USA Ireland India Hungary ISS UK Holding Limited 100% ISS UK Limited 100% ISS Facility Services Ltd. 100% ISS Mediclean Limited 100% ISS Damage Control (Scotland) Ltd. 100% ISS Ireland Ltd. 100% Americas Chile Chile Apunto Servicios de Alimentacion S.A. 100% ISS Chile S.A. 100% ISS Facility Services S.A. 100% ISS Servicios Generales Ltda. 100% ISS Servicios Integrales Ltda. 100% Mexico Mexico Malaysia ISS Centro América, S. de R.L. de C.V. 100% ISS Facility Services, S.A. de C.V. 100% ISS Servicios Integrales, S. de R.L. de C.V. 100% USA & Canada USA Uruguay Canada China ISS Facility Services Holding, Inc 100% ISS Management and Finance Co, Inc 100% ISS Facility Services, Inc 100% Guckenheimer Enterprises Inc 100% ISS C&S Building Maintenance Corporation 100% ISS Facility Services California, Inc 100% ISS Holding Inc 100% ISS TMC Services, Inc 100% ISS Uniguard Security Inc. 100% ISS Facility Services Inc. (CA) 100% 1) Joint venture 2) By virtue of the governance structure, the Group has the power to govern the nancial and operating policies of the company. Consequently, the company is consolidated as a subsidiary. Australia & New Zealand Australia New Zealand ISS Facility Management Pty Limited 100% ISS Facility Services Australia Ltd. 100% ISS Facility Services Pty Ltd. 100% ISS Health Services Pty Ltd. 100% ISS Hospitality Pty Limited 100% ISS Integrated Services Pty Ltd. 100% ISS Property Services Pty Ltd. 100% ISS Security Pty Ltd. 100% Pacic Invest December 2004 Pty Ltd. 100% Pacic Service Solutions Pty Ltd. 100% ISS Facilities Services Ltd. 100% ISS Holdings NZ Ltd. 100% China China Czech Republic ISS Facility Services (Shanghai) Ltd. 100% ISS Hongrun (Shanghai) Cleaning Services Limited 100% Shanghai B&A Property Management Co., Ltd. 100% Shanghai B&A Security Co., Ltd. 100% Shanghai ISS Catering Management Ltd. 100% Hong Kong Hungary Hung Fat Cleaning Transportation Co., Ltd. 100% ISS Adams Secuforce Ltd. 100% ISS China Holdings Ltd. 100% ISS China Holdings I Ltd. 100% ISS EastPoint Properties Ltd. 100% ISS EastPoint Property Management Ltd. 100% ISS Environmental Services (HK) Ltd. 100% ISS Facility Services Ltd. 100% ISS Greater China Ltd. 100% ISS Mediclean (HK) Ltd. 100% ISS Pan Asia Security Services Ltd. 100% JSL Ltd. 100% Silvertech E&M Engineering Co., Ltd. 100% India India Indonesia Innovative and Payroll Advisory Services Pvt. Ltd. 46% ISS Facility Services India Pvt. Ltd. 100% ISS SDB Security Services Pvt. Ltd. 46% Modern Protection & Investigations Pvt. Ltd. 46% ISS Support Services Pvt. Ltd. 100% Indonesia Indonesia Israel PT ISS Facility Services 49% PT ISS Indonesia 100% PT ISS Jasa Fasilitas 0% Singapore Singapore Slovakia ISS Catering Services Pte. Ltd. 100% ISS Facility Services Pte. Ltd. 100% ISS Hydroculture Pte. Ltd. 100% ISS M&E Pte. Ltd. 100% Discontinued operations Brunei Brunei Brazil ISS Facility Services Sdn. Bhd. 50% Portugal Portugal ISS Facility Services G. eM de E., Lda 100% Russia Russia Facility Services RUS LLC 100% Taiwan Taiwan Thailand ISS Facility Services Ltd. 100% ISS Security Ltd. 100% 2) 2) 2) 2) 2) 2) FINANCIAL STATEMENTS Parent company nancial statements Primary statements Statement of prot or loss 99 Statement of comprehensive income 99 Statement of cash ows 99 Statement of nancial position 100 Statement of changes in equity 100 Accounting policies 1 Accounting policies 101 2 Signicant accounting estimates and judgements 101 3 Fees to auditors 101 4 Financial income and expenses 101 5 Income tax 101 6 Investment in subsidiary 101 7 Deferred tax 102 Other required disclosures 8 Remuneration to the Board of Directors and the Executive Group Management 102 9 Contingent liabilities 102 10 Financial risk management 102 11 Currency risk 102 12 Liquidity risk 102 13 Credit risk 102 14 Related parties 102 15 New standards and interpretations not yet implemented 102 PARENT COMPANY FINANCIAL STATEMENTS Statement of prot or loss Statement of comprehensive income 1 January – 31 December ( DKKm ) Note 2021 2020 Sta costs ( 41 ) ( 48 ) Other operating expenses 3 ( 91 ) ( 12 ) ( 132 ) ( 60 ) Financial income 4 - 5 Financial expenses 4 ( 63 ) ( 1 ) ( 195 ) ( 56 ) Income tax 5 57 20 ( 138 ) ( 36 ) 1 January – 31 December ( DKKm ) Note 2021 2020 ( 138 ) ( 36 ) Comprehensive income ( 138 ) ( 36 ) Statement of cash ows 1 January – 31 December ( DKKm ) Note 2021 2020 Operating prot ( 132 ) ( 60 ) Share-based payments 2 8 Changes in working capital ( 5 ) 6 Interest received from companies within the ISS Group ( 62 ) 5 Income tax ( paid ) /received ( 70 ) ( 108 ) Joint taxation contribution ( paid ) /received, net 165 ( 36 ) ( 102 ) ( 185 ) Capital increase in subsidiary - ( 5,000 ) - ( 5,000 ) Other nancial payments, net ( 1 ) ( 1 ) Payments ( to ) /from companies within the ISS Group, net 103 5,186 102 5,185 0 0 Cash and cash equivalents at 1 January 0 0 Total cash ow 0 0 Cash and cash equivalents at 31 December 0 0 PARENT COMPANY FINANCIAL STATEMENTS Statement of nancial position At 31 December ( DKKm ) Note 2021 2020 Assets Investment in subsidiary 6 27,674 27,674 Non-current assets 27,674 27,674 Receivables from companies within the ISS Group 3 39 Tax receivables 31 - Cash and cash equivalents 0 0 Current assets 34 39 Total assets 27,708 27,713 Equity and liability Total equity 24,240 24,316 Debt to companies within the ISS Group 3,164 3,116 Deferred tax liabilities 7 237 203 Non-current liabilities 3,401 3,319 Debt to companies within the ISS Group 52 58 Trade payables and other liabilities 15 20 Current liabilities 67 78 Total liabilities 3,468 3,397 Total equity and liabilities 27,708 27,713 Statement of changes in equity 1 January – 31 December ( DKKm ) Share capital Retained earnings Treasury shares Total 2021 Equity at 1 January 185 24,322 ( 191 ) 24,316 Net prot - ( 138 ) - ( 138 ) Comprehensive income - ( 138 ) - ( 138 ) Share-based payments - 62 - 62 Transactions with owners - 62 - 62 Changes in equity - ( 76 ) - ( 76 ) Equity at 31 December 185 24,246 ( 191 ) 24,240 2020 Equity at 1 January 185 24,331 ( 191 ) 24,325 Net prot - ( 36 ) - ( 36 ) Comprehensive income - ( 36 ) - ( 36 ) Share-based payments - 27 - 27 Transactions with owners - 27 - 27 Changes in equity - ( 9 ) - ( 9 ) Equity at 31 December 185 24,322 ( 191 ) 24,316 FINANCIAL STATEMENTS 1 Accounting policies Basis of preparation The nancial statements of ISS A/S have been prepared in accordance with IFRS as adopted by the EU and additional requirements of the Danish Financial Statements Act. In addition, the nancial statements have been prepared in compliance with the IFRSs issued by the IASB. Changes in accounting policies Changes in accounting policies are described in 7.2 to the consolidated nancial statements. Accounting policies 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 consolidated nancial statements. Investment in subsidiary is measured at cost, which comprises consideration transferred mea- sured at fair value and directly attributable trans- action costs. If there is indication of impairment, an impairment test is performed as described in the accounting policies in 3.8 to the consolidated nancial statements. Where the recoverable amount is lower than the cost, the investment is written down to this lower value. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the recoverable amount does not exceed the original cost. 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 jointly taxed companies are recognised in prot or loss in Income tax and in the statement of nancial position in Receivables from or Debt to companies within the ISS Group. Companies which utilise tax losses in other companies pay joint taxation contribution to ISS A/S equivalent to the tax base of the tax losses utilised. Companies whose tax losses are utilised by other companies receive joint taxation contributions from ISS A/S equivalent to the tax base of the tax losses utilised (full absorption). estimates and judgements Signicant accounting estimates and judge- ments relating to the applied accounting policies for ISS A/S are the same as for the Group to the extent of similar accounting items, cf. 7.1 to the consolidated nancial statements for a descrip- tion. The specic risks for ISS A/S are described in the notes to the nancial 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 subsidi- ary, signicant decline in market values etc. 3 Fees to auditors 4 Financial income and expenses ( DKKm ) 2021 2020 Statutory audit 1 1 Other assurance services 0 0 Total 1 1 ( DKKm ) 2021 2020 Interest income from companies within the ISS Group - 5 Financial income - 5 Interest expenses to companies within the ISS Group ( 62 ) - Bank fees ( 1 ) ( 1 ) Financial expenses ( 63 ) ( 1 ) 5 Income tax 6 Investment in subsidiary Additions In 2020, ISS A/S increased the capital in ISS World Services A/S by DKK 5,000 million through a contribution-in-kind of a receivable with a company within the ISS Group. Subsidiary ISS World Services A/S, Søborg, Denmark. 100%. ( DKKm ) 2021 2020 Current tax 39 11 Deferred tax - 1 Prior year adjustments, net 18 8 Income tax 57 20 In % 2021 2020 Statutory income tax rate, Denmark 22.0 % 22.0 % Non-tax-deductible expenses less non-taxable income ( 1.8 ) % ( 1.1 ) % Prior year adjustments, net 9.1 % 15.2 % ( DKKm ) 2021 2020 Cost at 1 January 27,674 22,674 Additions - 5,000 Cost at 31 December 27,674 27,674 Carrying amount at 31 December 27,674 27,674 FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTS 7 Deferred tax Deferred tax liability at 31 December 2021 and at 31 December 2020 related to deferred re-taxation of foreign exchange gains/losses. ISS A/S has no unrecognised deferred tax assets regarding tax losses carried forward (2020: None). 8 Remuneration to the Board of Directors and the Executive Group Management Key management personnel of the Group as dened in 5.1 to the consolidated nancial statement are also considered key management personnel of the parent. Remuneration to the Board of Directors and the Executive Group Management is specied in 5.1 to the consolidated nancial statements. ( DKKm ) 2021 2020 Deferred tax liability at 1 January 203 263 Prior year adjustments, net 34 ( 59 ) Tax on prot before tax - ( 1 ) Deferred tax liability at 31 December 237 203 9 Contingent liabilities Withholding taxes 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, in- terests and royalties. As per 31 December 2021, Danish corporate tax and Danish withholding taxes amounted to DKK 0 million (2020: DKK 0 million). Any subsequent adjustments to Danish withholding taxes may change this joint and unlimited liability. VAT ISS A/S and certain Danish Group companies are jointly registered for VAT and are jointly liable for the payment hereof. 10 Financial risk management ISS A/S’s nancial risks are managed centrally by Group Treasury based on the Financial Policy ap- proved by the Board of Directors. The objectives, policies and processes for measuring and manag- ing the exposure to nancial risks is described in 4.4 to the consolidated nancial statements. The risks specic to ISS A/S are described below. 11 Currency risk At 31 December 2021 and at 31 December 2020, ISS A/S was not exposed to currency risk as no assets or liabilities were denominated in currencies other than DKK. 12 Liquidity risk Liquidity risk results from ISS A/S’s potential inability or diculty in meeting the contractual obligations associated with its nancial liabilities due to insucient 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 ow and ability to service its indebtedness and other obligations, will depend primarily on the operating performance and nancial 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 2021, ISS A/S carried no signi- cant nancial liablities. Thus the liquidity risk was primarily related to ISS A/S’s obligations under the Danish joint taxation where ISS A/S acts as the administration company. 13 Credit risk ISS A/S has no revenue generating activities and therefore no trade receivables. Consequently, credit risk is limited to an insignicant amount of cash and cash equivalents and an insignicant intercompany receivable with various indirectly owned subsidiaries in relation to joint taxation. 14 Related parties In addition to the description in 6.3 to the con- solidated nancial 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 7.6 to the consolidated nancial statements. In 2021, ISS A/S had the following transactions with other related parties, which were all made on market terms: • ISS A/S had a debt to ISS Global A/S of DKK 3,164 million (2020: DKK 3,116 million). • ISS A/S paid interest to ISS Global A/S, see note 4, Financial income and expenses. • ISS A/S received/paid joint taxation contribu- tion equal to 22% of taxable income from/to jointly taxed Danish resident subsidiaries. 15 New standards and interpretations not yet implemented New standards and interpretations not yet implemented are described in 7.4 to the consoli- dated nancial statements. FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTS Management statement Copenhagen, 24 February 2022 The Board of Directors and the Executive Group Management Board have today discussed and approved the annual report of ISS A/S for the nancial year 2021. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. It is our opinion that the consolidated nancial statements and the Parent company nancial statements give a true and fair view of the Group’s and the Parent company’s nancial po- sition at 31 December 2021 and of the results of the Group’s and the Parent company’s operations and cash ows for the nancial year 1 January – 31 December 2021. In our opinion, the Management review includes a fair review of the development in the Group’s and the Parent company’s operations and nan- cial conditions, the results for the year, cash ows and nancial position as well as a description of the most signicant risks and uncertainty factors that the Group and the Parent company face. In our opinion, the annual report of ISS A/S for the nancial year 2021 identied as ISS-2021- 12-31-en.zip has been prepared, in all material respects, in compliance with the ESEF-regulation. We recommend that the annual report be approved at the annual general meeting. E = Employee representative Executive Group Management Board Board of Directors Nada Elboayadi (E) Elsie Yiu (E)Joseph Nazareth (E) Søren Thorup Sørensen Ben Stevens Cynthia Mary Trudell Valerie Beaulieu Kasper Fangel Group CFO Deputy Chair Kelly KuhnNiels Smedegaard Chair Jacob Aarup-Andersen Group CEO MANAGEMENT STATEMENT Independent auditor’s report To the shareholders of ISS A/S Opinion We have audited the consolidated nancial statements and the parent company nancial statements of ISS A/S for the nancial year 1 January – 31 December 2021, pp. 49-102, which comprise statement of prot or loss, statement of comprehensive income, statement of cash ows, statement of nancial position, statement of changes in equity and notes, including ac- counting policies for the Group and the Parent Company. The consolidated nancial statements and the parent company nancial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated nancial statements and the parent company nancial statements give a true and fair view of the nancial position of the Group and the Parent Company at 31 December 2021 and of the results of the Group’s and the Parent Company’s operations and cash ows for the nancial year 1 January – 31 December 2021 in accordance with International Financial Reporting Standards as adopted by the EU and additional require- ments of the Danish Financial Statements Act. Our opinion is consistent with our long-form audit report to the Audit and Risk Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the “Auditor’s responsibilities for the audit of the consolidated nancial statements and the parent company nancial statements” (hereinafter col- lectively referred to as “the nancial statements”) section of our report. We believe that the audit evidence we have obtained is sucient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applicable in Denmark, and we have fullled our other ethical responsibilities in accordance with these rules and requirements. To the best of our knowledge, we have not provid- ed any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor Subsequent to ISS A/S being listed on Nasdaq Copenhagen, we were initially appointed as au- ditor of ISS A/S on 15 April 2015 for the nancial year 2015. We have been reappointed annually by resolution of the general meeting for a total consecutive period of seven years up until the nancial year 2021. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signi- cance in our audit of the nancial statements for the nancial year 2021. These matters were addressed during our audit of the nancial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter be- low, our description of how our audit addressed the matter is provided in that context. We have fullled our responsibilities described in the “Auditor’s responsibilities for the audit of the nancial statements” section of our report, including in relation to the key audit matters. Accordingly, our audit included the design and performance of procedures to respond to our assessment of the risks of material misstate- ment of the nancial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the nancial statements. Revenue from contracts with customers, including cut-o and accrual of revenue and onerous contracts Revenue from contracts is recognised as the services are rendered to the customers. Some contracts require the Group to incur signicant transition and mobilisation costs at contract inception which are capitalised and amortised over a multi-annual contract term. Accordingly, appropriate cut-o and accrual of revenue and capitalisation and amortisation of transition and mobilisation costs is critical and involve manage- ment judgement, especially in relation to the more integrated and complex facility service contracts. Further, the assessment of whether a contract may be considered onerous involves manage- ment judgement in making accounting estimates about future contract protability, including the determination of the total contract revenue, con- tract period and the unavoidable costs of meeting the obligations under the contract. Due to the inherent uncertainty involved in the cut o and accrual of revenue, the assessment of whether transition and mobilisation costs meet the criteria to be capitalised and the deter- mination of the contract period and the future contract protability, including the uncertainty relating to estimating the impact from Covid-19, we considered the accounting for revenue from contracts with customers, including cut-o and accrual of revenue and onerous contracts, to be a key audit matter. For details on revenue from contracts with customers, transition and mobilisation costs and provisions for onerous contracts, reference is made to notes 1.2, 2.2, 2.3 and 2.6 in the consolidated nancial statements. In response to the identied risks, our audit procedures included, among others: • Test on a sample basis of accrued revenue (un- billed receivables) to supporting documenta- tion, including procedures such as: Inspection of proof of work done, review of contracts with customers, comparison of amounts accrued to subsequent invoices and cash receipts. • Test on a sample basis of capitalised transition and mobilisation costs, including procedures such as: Inspection of proof of costs incurred, review of contracts with customers, evalua- tion of management’s assessment of costs meeting the criteria to be recognised. • Evaluation of management’s process to identify and quantify onerous contracts. Our evaluation included inquiries to local management responsible for carrying out the identication process at country level, review of documentation of management’s analysis as well as our own analytical procedures over contract margins. • Test on a sample of provisions for onerous con- tracts, including procedures such as: Review of the relevant contract and management’s estimate of the future contract revenue and unavoidable cost, assessment of the assump- tions applied by management to estimate the future contract revenue including the expected Covid-19 impact, contract term including termi- nation and extension options and unavoidable cost, comparison of the revenue assumptions used to the services and fees specied in the contract, comparison of unavoidable cost as- sumptions used to underlying cost projections and actual costs incurred historically as well as testing the completeness and accuracy of the underlying cost projections. Valuation of intangible assets The carrying amounts of goodwill and customer contracts related to prior years’ business combinations comprise a signicant part of the consolidated statement of nancial position. The cash-generating units in which goodwill and customer contracts are included are impairment tested by Management on an annual basis. The impairment tests are based on Management’s estimates of among others future protability, long-term growth and discount rate. Due to the inherent uncertainty involved in determining the net present value of future cash ows, including the uncertainty relating to estimating the impact from Covid-19, we considered these impairment tests to be a key audit matter. For details on the impairment tests performed by Management reference is made to notes 3.6, 3.7 and 3.8 in the consolidated nancial statements. In response to the identied risks, our audit procedures included, among others, testing the mathematical accuracy of the discounted cash ow model and comparing forecasted protabil- ity to board approved budgets. We evaluated the assumptions and methodologies used in the discounted cash ow model, in particular those relating to the forecasted revenue growth and operating margin, including comparing with historical growth rates and assessed impact of Covid-19. We compared the assumptions applied to externally derived data as well as our own assessments in relation to key inputs such as projected economic growth and discount rates. Further, we evaluated the sensitivity analysis on the key assumptions applied. Our audit proce- dures primarily focused on cash generating units where likely changes in key assumptions could result in impairment. We further evaluated the adequacy of disclosures provided by Manage- ment in the nancial statements compared to applicable accounting standards. Assets and liabilities held for sale and discontinued operations When classifying businesses as held for sale and as discontinued operations in the consolidated nancial statements, Management makes judgments and estimates, including assessment of impairment of the net assets. Due to the materiality of Management’s disposal plans and inherent uncertainty involved in classifying and assessing assets and liabilities held for sale and discontinued operations, we considered these judgments and estimates as a key audit matter. For details on the assets and liabilities held for sale and discontinued operations reference is made to note 3.1 and note 3.2 in the consolidat- ed nancial statements. In response to the identied risks, our audit procedures included, among others, agreeing the carrying amounts of the assets and liabilities held for sale to underlying accounting records, considered Management’s criteria for classica- tion of businesses as held for sale and discon- tinued operations and reading draft agreements where relevant, including reviewing minutes and other relevant documentation of the sales processes and board decisions. We considered the impairment assessment made by Manage- ment, including assessment of key assumptions applied and evaluation of the explanations pro- vided by comparing key assumptions to market data, where available. We further evaluated the adequacy of disclosures provided by Manage- ment in the nancial statements compared to applicable accounting standards. Income tax and deferred tax balances The Group’s operations are subject to income taxes in various jurisdictions having dierent tax legislation. Management makes judgments and estimates in determining the recognition of income taxes and deferred taxes. Given the inherent uncertainty involved in assessing and estimating the income tax and deferred tax bal- ances, including tax exposures and write-down of deferred tax assets and given the uncertainty estimating the impact from Covid-19 on future taxable income, we considered these balances as a key audit matter. For details on the income tax and deferred tax balances reference is made to notes 1.4 and 1.5 in the consolidated nancial statements and notes 5 and 7 in the Parent company nancial statements. In response to the identied risks, our audit procedures included review of tax computa- tions in order to assess the completeness and accuracy of the amounts recognised as income taxes and deferred taxes, as well as assessment of correspondence with tax authorities and evaluation of tax exposures as well as write- down of deferred tax assets. In respect of the deferred tax assets recognised in the statement of nancial position, we assessed Management’s assumptions as to the probability of recovering the assets through taxable income in future years and available tax planning strategies. We further evaluated the adequacy of disclosures provided by Management compared to applica- ble accounting standards. Statement on the Management is responsible for the Manage- ment’s review, pp. 1-48. Our opinion on the nancial statements does not cover the Management’s review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the nancial statements, our responsibility is to read the Management’s review and, in doing so, consider whether the Management’s review is materially inconsistent with the nancial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. Moreover, it is our responsibility to consider whether the Management’s review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management’s review is in accordance with the nancial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstate- ment of the Management’s review. Management is responsible for the preparation of consolidated nancial statements and parent company nancial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act and for such internal control as Management determines is necessary to enable the preparation of nancial state- ments that are free from material misstatement, whether due to fraud or error. In preparing the nancial statements, Manage- ment is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting in preparing the nancial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. for the Our objectives are to obtain reasonable assur- ance as to whether the nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Rea- sonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and additional re- quirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis of the nancial statements. As part of an audit conducted in accordance with ISAs and additional requirements appli- cable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sucient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, inten- tional omissions, misrepresentations or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the eectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Manage- ment’s use of the going concern basis of ac- counting in preparing the nancial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signicant doubt on the Group’s and the Parent Com- pany’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents of the nancial statements, in- cluding the note disclosures, and whether the nancial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sucient appropriate audit evidence regarding the nancial information of the entities or business activities within the Group to express an opinion on the consolidated nancial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signicant audit ndings, including any signicant deciencies in internal control that we identify during our audit. We also provide those charged with gover- nance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our indepen- dence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most signicance in the audit of the consolidated nancial statements and the parent company nancial statements of the current period and are therefore the key audit matters. We describe these matters in our audi- tor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our re- port because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benets of such communication. Report on compliance with the ESEF Regulation As part of our audit of the consolidated nancial statements and the parent company nancial statements of ISS A/S we performed procedures to express an opinion on whether the annual report ISS A/S for the nancial year 1 January – 31 December 2021 with the le name ISS-2021- 12-31-en.zip is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the prepara- tion of the annual report in XHTML format. Management is responsible for preparing an annual report that complies with the ESEF Regu- lation. This responsibility includes the preparing of the annual report in XHTML format. Our responsibility is to obtain reasonable assur- ance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The procedures consist of testing whether the annual report is prepared in XHTML format. In our opinion, the annual report of ISS A/S for the nancial year 1 January – 31 December 2021 with the le name ISS-2021-12-31.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Copenhagen, 24 february 2022 EY Godkendt Revisionspartnerselskab CVR no. 30 70 02 28 Torben Bender State Authorised Public Accountant mne21332 Claus Kronbak State Authorised Public Accountant mne28675 We live in a world where natural disasters are increasing in frequency and severity. While events like oods, droughts, earth- quakes and res cannot be fully predicted, a lot can be done to build resilience and safe- guard operations in the face of disasters, no matter the circumstances. At ISS, we work alongside our clients to ensure business continuity during – and after – emergencies. Together, we plan and implement resilience-building tools and processes for a multitude of scenarios – including these two examples of addressing natural disasters: Ensuring stormproof electricity and gas for a global American bank in Mexico In February 2021, a severe winter storm swept through Texas and Northern Mexico, disrupting the gas supply and causing shortages in water and electricity – putting our preparedness to the test. With eective management of emergency generators as well as swift response to critical issues – for example, in six customer branches, water pipelines broke due to freezing conditions but were repaired within 24 hours – our customer came through the storm with 100% business continuity. Securing operations during in New York Hurricane Ida was a deadly and destructive Category 4 Atlantic hurricane that struck the American Gulf Coast in August 2021. Flooding and storm surges resulted in cata- strophic damage to both personal property and buildings, leaving neighbourhoods underwater, streets full of debris and many homes and businesses without power. The challenge was keeping our client’s mis- sion-critical sites safe, open and operational. As rain began to fall, the potential for ooding became evident. ISS’s technical and cleaning services team members volun- teered to stay on and work overnight shifts to help mitigate and manage any potential damage to building infrastructures. All sites remained open with almost 100% of ISS teams arriving on site and on time. Supporting businesses through natural disasters RESPONDING TO NATURAL DISASTERS “Thank you ISS. You responded quickly and in a coordinated way, ensuring that this potentially devastating hurricane had no impact to our operations. With one ‘unprecedented’ event after another – you always go above and beyond to come through for us.” Global Banking Customer CASE Denitions 1) Management’s expectations at the acquisition date. 2) Incl. the eect stemming from exclusion of currency eects from the calculation of organic growth and acq./div. growth, net. 3) Estimated or actual revenue where available at the divestment date. 4) Excluding changes in revenue related to acq./div., net and the eect of changes in FX. To present comparable revenue and thereby organic growth excluding any eect from changes in FX, comparable revenue in prior year is calculated at current year’s FX. Acquisitions are treated as having been integrated into ISS upon acquisition, and ISS’s calculation of organic growth includes changes in revenue of these acquisitions compared with revenue expectations at the acquisition date. 5) AGM = Annual General Meeting. Key gures, p. 11 Alternative performance measures ISS uses various key gures, nancial ratios, including alternative performance measures (APMs) and non-nancial ratios, all of which pro- vide our stakeholders with useful and necessary information about the Group’s nancial position, performance, cash ows and development in a consistent way. In relation to managing the business, achieving our strategic goals and ultimately creating value for our shareholders, these measures are considered essential. Forward-looking statements This Annual Report contains forward-looking statements, including, but not limited to, the guidance and expectations in Outlook on p. 10. 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 varia- tions of such words, and other statements on matters that are not historical fact or regarding future events or prospects, are forward-looking statements. ISS has based these statements on its current views with respect to future events and nancial performance. These views involve risks and uncertainties that could cause actual results to dier materially from those predicted in the forward-looking statements and from the past performance of ISS. Although ISS believes that the estimates and projections reected in the forward-looking statements are reasonable, they may prove materially incorrect, and actual results may materially dier, 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. Financial ratios Revenue from acquisitions 1) × 100 Revenue prior year Currency adjustments Total revenue growth – Organic growth – Acquisition/divestment growth, net 2) Revenue from divestments 3) × 100 Revenue prior year EBITDA before other items Operating prot before other items + Depreciation and amortisation Total equity × 100 Total assets Cash ow from operating activities – Acq. of intangible assets and property, plant and equipment, net – Acq. of nancial assets, net (excl. equity-accounted investees) – Addition of right-of-use assets, net Net debt Loans and borrowings – Securities – Cash and cash equivalents – Positive fair value of derivatives Operating prot before other items × 100 Revenue (Revenue current year – Comparable revenue 4) prior year) × 100 Comparable revenue 4) prior year Pro forma adjusted EBITDA EBITDA before other items, including EBITDA before other items in discontinued operations, as if all acquisi- tions and divestments had occurred on 1 January of the respective year (Revenue current year – Revenue prior year) × 100 Revenue prior year Share ratios Basic earnings per share (EPS) Net prot attributable to owners of ISS A/S Average number of shares Diluted earnings per share Net prot attributable to owners of ISS A/S Average number of shares (diluted) Average number of shares (basic) Average number of issued shares, excluding treasury shares, for the year Average number of shares (diluted) Average number of shares (basic) + Average number of outstanding PSUs and RSUs expected to vest in the year ESG ratios CO 2 emissions Electricity emissions are calculated based on IEA’s Emis- sions factors, Vehicle emissions are calculated based on UK Government GHG Conversion Factors for Company Reporting and Business travel emissions are estimated based on Greenhouse Gas Protocols Evaluator Tool. Together these sum up the CO 2 emissions. Number of employees who left in the year × 100 Average number of employees for the year Portfolio revenue (annual) retained at year-end Portfolio revenue (annual) retained at the beginning of the year Lost Time Injury Frequency (LTIF) LTI is a work-related injury preventing a person from working, i.e. being unt for at least a full working day or shift. LTIF is based on 1 million exposure hours includ- ing contractors under ISS’s operational control. Fatalities Measures the number of work-related fatalities. Women board members (AGM 5) elected) × 100 Board members (AGM elected) Accumulated number of board meetings attended for all board member × 100 Number of board meetings × Number of board members FINANCIAL STATEMENTS Country revenue Continental Europe Northern Europe Americas Partnership countries Revenue in countries where we serve global key ac- counts but do not have a full country support structure comprises 1% of Group revenue or DKK 612 million (2020: DKK 562 million). Partnership countries comprise: Argentina, Bangladesh, Brazil, Bulgaria, Czech Republic, Colombia, Costa Rica, Cyprus, Greece, Hungary, Israel, Japan, Jordan, Kazakhstan, Malaysia, Pakistan, Philippines, Puerto Rico, Romania, Serbia, Slovakia, South Africa, South Korea, Sri Lanka, Thailand, United Arab Emirates, Ukraine and Vietnam. Discontinued operations (DKKm) of Group 2021 2020 Germany 8% 5,429 5,493 Switzerland 7% 5,212 5,286 Spain 6% 4,420 4,221 France 4% 3,075 3,152 Turkey 4% 2,719 2,691 Belgium & Luxembourg 4% 2,695 2,647 Austria 3% 2,031 1,920 Netherlands 2% 1,216 1,297 Italy 1% 699 575 Poland 0% 286 292 Lithuania 0% 62 55 Latvia 0% 2 5 Total 27,846 27,634 (DKKm) of Group 2021 2020 UK & Ireland 15% 10,634 10,290 Denmark 5% 3,673 3,593 Norway 5% 3,181 2,965 Finland 4% 3,149 3,070 Sweden 4% 2,787 2,724 Total 23,424 22,642 (DKKm) of Group 2021 2020 USA & Canada 8% 5,298 5,882 Chile 1% 1,003 930 Mexico 1% 810 726 Other 0% 30 27 Total 7,141 7,565 (DKKm) of Group 2021 2020 Australia & New Zealand 6% 4,349 3,968 Hong Kong 3% 2,403 2,409 Singapore 3% 2,035 2,137 Indonesia 2% 1,635 1,760 India 2% 1,076 1,247 China 1% 880 849 Other 0% 3 15 Total 12,381 12,385 (DKKm) 2021 2020 Taiwan 431 409 Portugal 350 369 Russia 87 92 Brunei 40 41 Brazil - 244 Completed/signed by end of 2021 323 2,133 Total 1,231 3,288 FINANCIAL STATEMENTS Contact information ISS A/S 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 Investor relations Jacob Johansen Head of Group Investor Relations Tel. +45 38 17 00 00 Edited by Group Controlling ISS A/S Design & production KIRK & HOLM Stibo Complete 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companyDenmarkBuddingevej 197, 2860 SøborgGloballyFacility servicesN/A12 monthsAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2021-01-012021-12-312020-01-012020-12-31213800LEZA58SZNCBN19Reporting class DSøborghttps://inv.issworld.com/governancereporthttps://brand.issworld.com/web/24f976f13bb57357/corporate-responsibility-reports/213800LEZA58SZNCBN1928504799ISS A/SBuddingevej 197DK-2860 SøborgOpinionBasis for Opinion
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