ISS

Untitled Annual Report 2023 PEOPLE MAKE PLACES Making the world work better starts with our belief in creating a fair and inclusive society. We have a strong drive to act as social incubators and make a true difference for our placemakers, our customers and the surrounding communities and societies, we operate in. Our purpose is what drives us Connecting people and places to make the world work better ANNUAL REPORTING 2023 reports The 2023 Annual Report is our primary report comprising annual disclosures related to performance. Also, it provides highlights related to environmental, social and governmental sustainability, executive remuneration and corporate governance. Detailed information on these topics can be found in our separate reports and cross-references are made where relevant. In our 2023 Sustainability Report you will find information on our social, envi- ronmental and governance performance. Disclosures required under section 99a of the Danish Financial Statements Act, Task force on Climate-Related Financial Disclosures (TCFD) and disclosures related to the EU Taxonomy are included in this report. In our 2023 Remuneration Report you will find a description of the work of our Remuneration Committee and our remuneration policy as well as a specification of remuneration to the members of the Executive Group Management Board and the Board of Directors. The Report is prepared in accordance with section 139b of the Danish Companies Act. In our 2023 Corporate Governance Report you will find a description of our governance structure, the main elements of our internal controls related to financial reporting as well as our position on the Danish Corporate Governance Recommendations (the Recommendations). The report is prepared in accordance with the Recommendations. Annual Report 2023 PEOPLE MAKE PLACES Remuneration Report 2023 PEOPLE MAKE PLACES Corporate Governance Report 2023 PEOPLE MAKE PLACES Sustainability Report 2023 PEOPLE MAKE PLACES Annual Report Sustainability Report Remuneration Report Governance Report ANNUAL REPORT 2023 ISS at a glance Letter 5 Financial highlights 7 Sustainability highlights 8 How we create value 9 Our strategic choices 10 OneISS priorities 11 The ISS investment case 12 Outlook 13 Key figures & ratios 14 Our performance Group results 17 Commercial development 20 Cash generation and free cash flow 21 Capital structure 22 Northern Europe 24 Central & Southern Europe 25 Asia & Pacific 26 Americas 27 Our business OneISS strategy 30 The Company of Belonging 32 Diversity 35 Our journey to net zero 36 Our business risks 37 Our governance Corporate governance 42 Our governance structure 44 Board of Directors 45 Executive Group Management 47 Parent company 48 Consolidated financial statements 51 Parent company financial statements 106 Statements Management statement 112 Independent auditor’s report 113 Content Management review Financial statements 15 SOCIAL SUSTAINABILITY Pledge to hire 2,000 refugees reflects our commitment 28 COMPANY OF BELONGING How ISS is helping to transform placemaker integration 116 TECHNOLOGY & INNOVATION Forging an industry-leading partnership for advanced FM 40 ENVIRONMENTAL SUSTAINABILITY ISS reaches important milestone on net zero journey 49 SUSTAINABLE SERVICE PRODUCTS Our commitment to deliver sustainable cleaning solutions ISS case stories Other Forward-looking statements and ESEF 117 Country revenue 118 5ISS AT A GLANCE Letter Since the peak of the Covid-19 pandemic, office occupancy rates have increased. This reflects a gradual return-to-office trend as well as an increased desire by companies to strike the right balance in providing flexibility for their employees while maintaining the physical workplace as a cultural amplifier. The hybrid working model means that office occupancy rates are still lower than before the pandemic. However, this has not resulted in a reduced demand for ISS’s services and offerings. Customers are in fact reallocating their resources towards employees to create the workplace of the future, with high-quality, productive work environments that support innovation, collabo- ration, and cultural belonging. These trends align well with our purpose of connecting people and places to make the world work better. Furthermore, they confirm that our OneISS strategy is the right way to cater for the current and future needs of our customers, as they increasingly focus on consolidating their supply chains and converging towards integrated facility management solutions. ISS is thus well poised to support key account customers, who seek an integrated facility management partner to drive user experience, efficiency and consistency with solutions that are sustainable and compliant across their portfolio of workplaces. Solid foundation for continued growth In 2023, this underlying demand for our services manifested itself through a continued good commercial development and with customer retention rates at historic high levels. Due to our relentless focus on creating value for our customers, ISS delivered a solid financial performance in line with our guidance for the year. Organic growth for 2023 was 9.7% compared to 8.4% the year before. The increase was driven by price adjustments implemented across the Group and underlying volume growth due to increased activity levels at customer sites as well as higher office occupancy rates. Building on recent years’ operational and financial progress, ISS took several steps in unfolding the full potential of the OneISS strategy during 2023. Following the appointment of Kasper Fangel as Group CEO, a new and streamlined Executive Group Management (EGM) has reviewed and prioritised the strategic initiatives to bolster our operational and financial performance further. We also made good progress on our ambition to become the Company of Belonging and reduce our environmental impact. With the new global management team in place and thanks to the combined efforts of our more than 350,000 dedicated and passionate place- makers, we are well underway in releasing the full potential of ISS. Kasper Fangel Group CEO Niels Smedegaard Chair PREPARING FOR FUTURE GROWTH 6ISS AT A GLANCE Throughout the year, ISS benefitted from increased customer activity levels and engage- ment. We were awarded several new contracts and extended and expanded a number of other contracts. The customer retention rate was 95%, a historic high level. This is the result of our investments in the commercial model, with increased segment expertise and a strict strategic focus on driving value through building and expanding long-lasting partnerships. The operating margin before other items was 4.3% excluding the effect from hyperinflation in Türkiye compared to 4.0% in 2022. The margin continued to improve throughout the year driven by OneISS efficiencies and cost initiatives as well as improvements across a number of markets and large contracts. Excluding one-off costs related to the review of the OneISS strategic initiatives, margin was 4.6%. In 2023, ISS continued to manage cost inflation tightly through price increases and operational efficiencies. As a result, the operating margin was generally unaffected by inflation. Sharing excess capital with shareholders Our solid financial results for 2023, means that we are in a favourable position to share our excess capital with our shareholders. According to our capital allocation policy, the Board of Directors will at the annual general meeting propose a dividend for 2023 of 20% of adjusted net profit, corresponding to a dividend per share of DKK 2.3. Additionally, we have decided to initiate a share buyback programme of DKK 1.0 billion to be executed until 20 February 2025. New CEO and sharpened strategic focus The OneISS strategy defines our way of organ- ising and aligning behind a set of principles and business processes that provide us with the ideal position to leverage our strategic differentiators and address key market demands. Following the resignation of Jacob Aarup-Andersen, the Board announced Kasper Fangel as new Group CEO effective from 1 September. The appointment of a new CEO had no impact on the strategic direc - tion of ISS. In September, we announced a new and streamlined Executive Group Management (EGM). The EGM was reduced from 13 to 9 members, enhancing agility and execution power to build a stronger, more robust ISS and drive operational and financial performance going forward. During the autumn, the EGM reviewed the OneISS initiatives, launched in 2020. The review focused on ensuring that our initiatives generate the expected value to further improve execution, accelerate strategic development and continue to build a stronger and value-creating ISS. In 2024, we will continue to embed the OneISS strategy across the organisation, but as a result of the review we will prioritise fewer initiatives to make each remaining initiative more impactful. Acquisition in Spain and divestment of ISS France During 2023, we made several decisions to further strengthen our ability to deliver the best service offerings to our customers and to align our geographical footprint to continued future growth. In Spain, we acquired Grupo Fissa, a reputable cleaning provider operating mainly in southern Spain. With this acquisition, we have strength- ened ISS operations in the region and improved the service delivery for local key accounts. The acquired company operates cleaning contracts within healthcare and local prioritised segments. The acquisition has a strong strategic fit with the OneISS strategy and our stated ambition to remain #1 globally in cleaning. In August, we announced the decision to divest ISS France. Due to inherent strategic challenges, difficult market conditions, and muted commer- cial development, the French business had not generated the expected financial improvements. On 22 December 2023, ISS signed an agreement to divest ISS France to Onet SA, a French facility services company. We are comfortable that we have identified the best possible buyer who can drive the business forward to the benefit of the customers and not least our more than 15,000 dedicated placemakers in France. At the same time, we have established a strong partnership with the buyer that will allow us to continue to provide quality service solutions to existing and future global key account customers in France. Championing sustainable workplaces Contributing to a fair and more inclusive society as well as a healthy planet is ever more import- ant for businesses in the world of today. At ISS, we focus our overall ambition of championing sustainable workplaces mainly through two important lenses: social and environmental sustainability. In the past couple of years, we have made bold commitments and seen good progress in both focus areas. On environmental sustainability, we were proud to reach an important milestone when our near-term science-based emissions target was validated by the Science Based Targets initiative (SBTi) in 2023. Additionally, through our own operations, we saw clear results from our efforts in reducing our climate impact. Among other things, we have electrified around 2,500 of our entire global fleet of approximately 20,000 vehicles. And in our food business, where we serve around one million meals per day, we have managed to reduce the amount of food waste by 30% from a 2019-baseline. These are good steps towards reaching our overall target of delivering full scope net zero carbon emissions by 2040. On social sustainability, we have a clear ambition to be the Company of Belonging, honouring our heri - tage as a people company for more than 120 years. Through our ambition, we want to ensure that every placemaker can be who they are, become what they want and be part of something bigger. A safe working environment is a key part of our people promise and central to the OneISS strategy. Tragically, we experienced five fatalities in 2023. This devastating loss has deeply impacted our organisation, prompting us to intensify our mitigating measures. We have strengthened our root cause analysis processes to make sure we always fully understand why incidents happen and that we know how to remedy the immediate causes. We have also dived deeper into accident causes, made fundamental changes to how we op- erate and shared lessons across the whole Group. In 2023, we focused on sharpening the road map towards reaching our bold signature objectives on introducing living wages across our industry, providing certified qualifications and increasing the respect and recognition of our placemakers. Releasing the full potential of ISS 2023 was a year in which we confirmed our overall strategic direction, aligning how we respond to the global megatrends that we and our customers are facing. Changing customer needs, AI and new technologies as well as a global economy running at a slower pace are all factors that call for a much more agile and robust ISS. With the new global management team in place and thanks to the combined efforts of more than 350,000 dedicated and passionate place- makers, we are well on our way to releasing the full potential of ISS. 7ISS AT A GLANCE Financial highlights PERFORMANCE, TARGETS AND GUIDANCE Organic growth 1) Operating margin 1), 2) Free cash flow Annual Report 2022 4 - 6% 4.25 - 4.75% ~ DKK 2.0bn Q1 2023 6 - 8% Unchanged Unchanged H1 2023 7 - 9% Unchanged Unchanged Q3 2023 ~ 9% ~ 4.3% ~ DKK 1.8bn Actual 2023 9.7% 4.3% DKK 1.8bn 1) Excluding discontinued operations 2) Based on Operating profit before other items, excluding IAS 29 1) Excluding the impact of IAS 29 1) Excluding the impact of IAS 29 2) Free cash flow/Operating profit before other items in % 1) Excluding the impact of IAS 29 1) Excluding restructurings and one-off costs For definitions, see 8.5, Definitions 8 10 12 14 16 20232022202120202019 2.6x Financial leverage 3.0 7.1 2.2 3.8 DKKbn % Net debt (DKKbn) Net debt/Pro forma adjusted EBITDA 2.6 -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) Free cash ﬂow (DKKbn) DKKbn % -2 -1 0 1 2 20232022202120202019 0.4 1.7 1.8 (1.8) 110 35 60 85 10 60.9% Cash conversion (2) (1) Cash conversion (%) 1.7 -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) Free cash flow (DKKbn) Cash conversion (%) -6 -3 0 3 6 20232022202120202019 3.8% Operating margin (4.5) 2.5 (3) (6) 4.3 4.0 4.2 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) -6 -3 0 3 6 20232022202120202019 3.8% Operating margin (4.5) 2.5 (3) (6) 4.3 4.0 4.2 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) 40 50 60 70 80 20232022202120202019 7.8 % Organic growth 7.1 (6.6) 9.7 8.4 2.0 DKKbn % Revenue (DKKbn) Organic growth (%) 40 50 60 70 80 202320222021 Revenue & organic growth 2.0 7.87.8 DKKbn % Revenue (DKKbn) Organic growth (%) 80 85 90 95 100 20232022202120202019 Mid-term ambition 91% 92% 93% 95% 95% 91% Customer retention Customer retention 95% Performance vs. guidance Organic growth 9.7% Free cash flow 1.8 DKKbn Operating margin 4.3% Financial leverage 2.2x 1)1) 1) 2) 1) 8ISS AT A GLANCE 22% Women 78% Men EGM Gender balance Corporate leadership EGM Target: 40% Our net zero commitments Committed to reach net zero for scope 1 & 2 by 2030 and scope 3 by 2040: 1. Electrify our fleet 2. Reduce emissions from food and waste Our signature objectives Focus on: 1. Living wages 2. Recognised qualifications 3. Recognition and respect Baseline definitions provided for each objective 19,000+ qualifications provided in 2023 2,500+ vehicles electrified Target: ~20,000 vehicles by 2030 5% CO 2 reduced per 1,000 kcal food served Target: 25% by 2030 30% food waste reduction from a 2019-baseline Target: 50% by 2027 SBTi validation near term targets validated by the SBTi Environmental Our journey to net zero Target 10 20 30 40 50 20232022202120202019 33% 30% 33%33% 30% 35% Target 0 1 2 3 4 20232022202120202019 2.5 2.7 2.9 3.1 2.5 32% 2.8 Target 0 2 4 6 8 20232022202120202019 5 1 5 0 3 3 Social Becoming the Company of Belonging Lost Time Injury Frequency Fatalities Employee turnover Read more on p. 32 Sustainability highlights CHAMPIONING SUSTAINABLE WORKPLACES Women 65% Men 35% Target: 40% Read more on p. 36 9ISS AT A GLANCE How we create value A SUSTAINABLE BUSINESS MODEL We create, manage and maintain environments that make life easier, more productive and enjoyable We self-deliver integrated solutions both locally and on a global scale Cleaning Technical Food Workplace Connecting people and places to make the world work better We depend on Our placemakers Our more than 350,000 trained, motivated and empowered placemakers. Given our self-delivery model they are the core enablers of our strategy Technology and data Providing insights and knowledge to develop outstanding customer solutions Operational assets An asset-light and cash generative business model with operational assets such as vehicles and cleaning machines, the majority of which are leased, as well as software Our relationships Our business is built on strong partnerships with customers and suppliers as well as unions and governments across the globe Capital A strong and efficient balance sheet and liquidity position to support operational needs The ISS brand Building on more than 120 years legacy as a people company working with a strong belief that people can and do make a difference We create value for Our customers and users As a strategic partner we provide insights to drive user experience, efficiency and consistency with sustainable and compliant solutions at our customers' sites Our placemakers We aim to create places where every single individual is welcomed, embraced, and valued for being exactly who they are Our shareholders We deliver strong growth at attractive and sustainable margins combined with disciplined capital allocation Society and the planet We act as social incubators making a difference for peoples lives. We minimise the impact on the planet by reducing energy, carbon, water and waste Our suppliers Across a diverse supplier base we engage, develop and enhance mutually beneficial relationships ranging from global strategic partnerships to local micro niche suppliers 10ISS AT A GLANCE Our strategic choices ONEISS Focus on three customer segments … … for which we focus on four core services ... provided across the globe Office-based 39% • Financial services • Technology • Professional services Cleaning 42% • ISS’s heritage • Global leader Northern Europe 37% Central & Southern Europe 32% Asia & Pacific 18% Americas 12% Production-based 24% • Industry & Manufacturing • Life sciences • Food & Beverage Technical 23% • Critical for key accounts • Growth opportunities Food 15% • Drives user experience • Opportunity for new offerings Workplace 20% • Increased demand • Core customer needs Healthcare 14% • Hospitals Our platform Our ambition 50,000+ Sites 30+ Self-delivery countries 350,000+ Placemakers globally 40,000+ Customers Social Improve the sense of belonging Environmental Reduce carbon emissions Championing sustainable workplaces #1#1 Global leader in IFS Globally in cleaning % of Group revenue excluding partnership countries 11ISS AT A GLANCE OneISS priorities STRATEGIC HIGHLIGHTS Commercial momentum and segment leadership Segment expertise in our three prioritised segments to deliver the best outcomes to our customers Commercial development remained solid and customer retention was maintained at 95% Service products built on leading technology platforms Embed technology and data in our solutions to optimise financial and sustainability performance Pure Space Office cleaning service product scaled to more than 14,400 sites Brilliant operating basics Demonstrate operational excellence and compliance whilst exhibiting cost leadership in everything we do Inflation management and demonstrated cyber security above benchmark Environmental sustainability Support our customers and our own journey to minimise the environmental impact on the planet Food waste reduced by 30% from a 2019-baseline Safe, diverse and inclusive workplaces Improve the sense of belonging for our more than 350,000 placemakers around the world 19,000+ qualifications provided In 2023, the OneISS strategy execution continued to drive value. We launched the strategy three years ago and in the second half of 2023, we reviewed and prioritised OneISS initiatives. The review focused on ensuring that all initiatives generate the expected value and strengthen the strategic execution. In 2024, we will continue to embed the OneISS strategy, but we will prioritise and focus on fewer initiatives. The review and prioritisation of OneISS initiatives led to one-off costs of DKK 233 million, which were recognised in 2023 with a negative impact on our operating margin of around 0.3%. The enhanced focus on initiatives is expected to generate operational benefits and estimated cost savings of around DKK 250 million annually, with approximately DKK 200 million expected to have effect in 2024. We also made the strategic decision to divest ISS France and reposition ISS in the French market to only focus on servicing global key account customers as the French business had not generated the expected financial improvements. On 22 December 2023, an agreement was signed to divest the business to Onet SA with expected completion in the first half of 2024. Our five strategic priorities 2023 achievement highlights Read more on p. 31 12ISS AT A GLANCE The ISS investment case Our ambition is to become the global leader in IFS for key account customers and the global leader in cleaning. With our sharpened focus on commercial segments, strengthened operating model and accelerated journey towards technology and sustainability leadership in the industry, we are poised to deliver strong organic growth at attractive and sustainable margins. Attractive market dynamics The global FM market has an estimated value of USD 800 billion, of which Integrated Facility Services (IFS) account for ~11%. ISS is a leader in the outsourced IFS market with a share of ~5%. The market is highly fragmented, holds con- solidation potential, and growing outsourcing trends with the focus on workplace experience, operational efficiency, and sustainability to drive continued growth. There is a convergence towards IFS solutions as customers are consolidating their supply chains and need a strategic partner to manage their workplaces across service lines and geogra- phies. Our legacy in facility management and our ability to self-deliver both locally and on a global scale give us a keen advantage over most competitors in the market. While office occupancy rates have risen since the pandemic, they are still lower than pre- Covid levels. This has made some customers reassess their office footprint and we have also seen reductions in office space due to the continued emergence of hybrid working models. Despite reducing office space, customers are reallocating their resources applying more to employees and towards higher quality offerings. This reflects the need to create a workplace of the future, with high-quality, productive working environments that support innovation, collaboration, and cultural belonging in a hybrid working model. We expect this trend to continue over the coming years, but we believe that our service offering can compensate for the anticipated development and capture additional business opportunities. Resilient business model Our business model has shown a high degree of resilience and stability and the investments made with the OneISS strategy have further enhanced and improved our model. This creates a strong and focused foundation for our future development, where scale advantages and our self-delivery model lead to both commercial and operational benefits. Strengthened competitiveness Our strategy is focused on three segments – Office-based, Production-based and Healthcare – in each we have strong capabilities with in-depth knowledge of specific needs and demands. This enables us to act as a strategic partner to our customers and gives us distinct competitive strength. As our customers work to establish the workplace of the future, we see growing demand for our competencies and support in the design of workplaces. We continue, as part of executing on the OneISS strategy, to invest in three key commercial areas: operational efficiency, technology and sustain- ability. These are key differentiating factors in the marketplace and important growth enablers for ISS to become the industry leader in terms of both technology and sustainability. Significant growth opportunities and high cash generation The general FM market is expected to grow steadily over the coming years. IFS is expected to outgrow the general market and ISS expects over the coming years to deliver structurally higher growth rates than seen historically. From 2024 and beyond, ISS aims to deliver strong growth at attractive and sustainable margins with strong cash conversion and a stringent capital allocation policy: • Organic growth: • Operating margin: • Cash conversion: Capital allocation Our policy Our capital allocation policy as launched in 2022 remains unchanged. We will stringently allocate capital by fulfilling four clear ambitions in prioritised order: 1 Maintaining an investment grade rating Our first priority which we will adhere to with a financial leverage of 2.0x-2.5x net debt / pro forma adjusted EBITDA 2 Dividends We will commit to an annual dividend pay-out ratio of 20-40% of adjusted net profit for the financial year 3 Investments We will continue to invest in our business to drive long-term sustainable growth. We are committed to value-creating M&A, and will consider and evaluate opportunities to build an M&A pipeline, or enhancements of the existing business 4 Share buybacks We will distribute excess cash to our shareholders by means of share buybacks 2023 capital allocation highlights, see p. 22 Major shareholders Latest reported by investors to ISS Contract Maturity (expiry) Major share- holders 17% 83% KIRKBI Invest A/S Other 4-6% above 5% above 60% ATTRACTIVE GROWTH, MARGIN AND CASH CONVERSION 13ISS AT A GLANCE Outlook In 2023, ISS took further steps in unfolding the full potential of the OneISS strategy, and the financial performance improved. With recent years’ operational and financial progress as well as the prioritisation of the OneISS strategic initiatives, a solid foundation for continued progress in 2024 is provided. The 2024 outlook for organic growth, operating margin and free cash flow assumes that macroeconomic and geopolitical uncertainties remain high. ISS has robust operating processes and is well positioned to operate in this environment. The execution of the OneISS strategy will continue and enhance the operating model, strengthen competitiveness, and increase focus on growth initiatives. The outlook is excluding any effects of hyperinflation (IAS 29). 2024 Organic growth is expected to be 4-6% for 2024. Growth will be driven by price increases implemented across the Group as the tight management of cost inflation will be maintained. In addition, positive volume growth from increasing activity levels at customer sites and contract expansions is expected, as well as a positive contribution from net contract wins. The impact from projects and above-base work is expected to be neutral to slightly negative. Operating margin is expected to be above 5%. Compared to the 2023 underlying margin of 4.6%, the main drivers of the increase are continuing operational improvements and efficiencies across the Group as well as operational benefits and cost savings generated from the review of the OneISS initiatives. The expectation for free cash flow is based on an underlying free cash flow of above DKK 2.4 billion, equalling a cash conversion of above 60%. However, in 2024 free cash flow is expected to be above DKK 1.8 billion, adversely impacted by timing effects including certain payments being withheld by Deutsche Telekom as described on p. 18 of this report. Acquisitions and divestments, net ~ 0.5%-point (positive) Based on acquisitions and divestments completed by 15 February 2024 (including in 2023). Foreign exchange rates ~ 2%-points (negative) Based on current exchange rates, excluding any effects of hyperinflation (IAS 29). Organic growth 4 – 6% Free cash flow > DKK 1.8 billion (2023: DKK 1.8 billion)(2023: 9.7%) (2023: 4.3%) Operating margin > 5% Other revenue impacts 1) 1) Based on operating profit before other items 1) The forecasted average FX rates for 2024 are calculated using the realised average FX rates for the first month of 2024 and the average forward FX rates (as of 19 February 2024) for the remaining eleven months of 2024 1) The outlook should be read in conjunction with Forward-looking statements, p. 117 and Our business risks, pp. 37-39. For Definitions, see 8.5, Definitions on p. 105. 14ISS AT A GLANCE Key figures & ratios Financials 2023 2022 2021 2020 2019 Results ( DKKm ) Revenue 78,681 73,838 71,363 70,752 77,698 Operating profit before other items 3,300 2,918 1,776 ( 3,203 ) 3,252 Operating profit before other items, excl. IAS 29 3,348 2,947 1,776 ( 3,203 ) 3,252 Operating profit 3,138 2,904 1,701 ( 4,707 ) 2,522 EBITDA before other items 4,717 4,333 3,536 ( 1,363 ) 4,853 EBITDA 4,624 4,388 3,525 ( 2,778 ) 4,458 Pro forma adjusted EBITDA 4,789 4,375 3,568 ( 1,349 ) 4,838 Financial expenses, net ( 607 ) ( 384 ) ( 656 ) ( 549 ) ( 703 ) Net profit from continuing operations 1,977 2,115 536 ( 5,220 ) 1,153 Net profit from discontinued operations 1) ( 1,652 ) 21 101 25 218 Net profit 325 2,136 637 ( 5,195 ) 1,371 Net profit (adjusted) 2,120 1,940 611 (3,716) 1,883 Cash flow ( DKKm ) Cash flow from operating activities 3,392 3,333 3,221 ( 361 ) 2,064 Acquisition of intangible assets and property, plant and equipment, net ( 703 ) ( 779 ) ( 586 ) ( 681 ) ( 1,095 ) Free cash flow 1,775 1,734 1,735 ( 1,794 ) 366 Free cash flow, excl. IAS 29 1,791 1,726 1,735 ( 1,794 ) 366 Financial position ( DKKm ) Total assets 47,693 47,005 43,655 43,605 50,061 Goodwill 19,696 20,450 19,753 19,662 21,257 Additions to property, plant and equipment and right-of-use assets 1,302 1,110 1,194 1,173 1,331 Equity 10,522 10,815 7,789 6,545 12,547 Net debt 10,548 11,540 13,451 15,802 14,730 Shares ( ‘000 ) Number of shares issued 185,668 185,668 185,668 185,668 185,668 Number of treasury shares 332 938 970 970 970 Average number of shares ( basic ) 185,334 184,730 184,698 184,698 184,692 Average number of shares ( diluted ) 187,954 187,243 186,003 185,136 186,000 Ratios 2023 2022 2021 2020 2019 Financial ratios ( %, unless otherwise stated ) Organic growth 9.7 8.4 2.0 ( 6.6 ) 7.1 Acquisitions and divestments, net 0.5 ( 5.8 ) ( 0.5 ) ( 0.2 ) ( 2.2 ) Currency adjustments ( 3.6 ) 0.9 ( 0.6 ) ( 2.1 ) 0.7 Total revenue growth 6.6 3.5 0.9 ( 8.9 ) 5.6 Operating margin 4.2 4.0 2.5 ( 4.5 ) 4.2 Operating margin, excl. IAS 29 4.3 4.0 2.5 ( 4.5 ) 4.2 Cash conversion 53.8 59.4 97.7 56.0 11.3 Equity ratio 22.1 23.0 17.8 15.0 25.1 Net debt/Pro forma adjusted EBITDA 2.2x 2.6x 3.8x ( 11.7 ) x 3.0x Share ratios ( DKK ) Basic earnings per share ( EPS ) 1.5 11.1 3.3 ( 28.2 ) 7.3 Diluted EPS 1.5 11.0 3.3 ( 28.2 ) 7.3 Basic EPS ( continuing operations ) 10.4 11.0 2.8 ( 28.3 ) 6.1 Diluted EPS ( continuing operations ) 10.3 10.9 2.8 ( 28.3 ) 6.1 Proposed dividend per share 2.3 2.1 - - - ESG 2023 2022 2021 2020 2019 Environmental (tonnes CO 2 eq.) 2) Scope 1 emissions 66,153 69,581 71,726 70,084 88,722 Scope 2 emissions ( market-based ) 7,594 7,084 - - 10,556 Scope 3 emissions 1,550,214 1,520,341 - - 1,631,811 Social (%, unless otherwise stated) Full-time employees 77 77 76 75 77 Employees (end of period), number 352,749 351,053 354,636 378,946 471,056 Employee turnover 33 33 30 33 35 Customer retention 95 93 92 91 91 Lost Time Injury Frequency ( LTIF ) , number 3.1 2.9 2.7 2.5 2.8 Fatalities, number 5 1 5 3 3 Training and development, '000 hours 3,578 4,337 4,124 3,750 6,516 Governance ( % ) Gender diversity, Board 33 33 43 43 33 Board meeting attendance 94 90 95 96 94 Speak Up, number 424 366 337 285 299 For definitions, see 8.5, Definitions 1) In 2023, France was presented as discontinued operations. Comparatives for 2022 are restated. 2) As part of its science-based target submission in 2022 ISS has collected spend and activity data for Scopes 1, 2 and 3 emissions related to its business activities and established a new 2019 baseline. Our 2022 emissions for Scope 1, 2 and 3 have been calculated in accordance with the 2019 baseline methodology. Comparative numbers for 2020 and 2021 for Scope 2 and 3 have not been recalculated and are not presented in this report. For further information, please refer to the 2023 Sustainability Report. FIVE-YEAR SUMMARY 15CASE For ISS, it has always been important to actively demonstrate our commitment to social responsibility in the societies in which we operate. This commitment transcends merely creating a safe, diverse and inclusive workplace for our placemakers. We also strive to act as a catalysator for social mo- bility, aiming to provide an opportunity for a decent life and income for those in need. As part of this ongoing commitment, ISS is dedicated to hiring, training and upskilling immigrants and refugees across all our markets. In 2023, we announced a pledge to hire 1,000 refugees across our European operations, including Ukrainian women. This adds to an existing commitment to hire 1,000 refugees across our US operations. To achieve these commitments, we are partnering with the Tent Partnership for Refugees, working together to offer a new beginning for the 2,000 refugees over the next three years. The commitment to hire 1,000 refugees in Europe was made during the Tent Partner- ship for Refugee’s European Business Summit in Paris in June 2023. ISS not only commits to hiring refugees but is also pro- viding training, upskilling and development opportunities to empower them to become valued members of the societies in which they reside. In our commitment, ISS stands alongside several major employers across Europe, including Amazon, Marriott International and Microsoft, in collectively pledging to provide employment and training to more than 250,000 Ukrainian refugee women and other refugees across Europe. This commitment announced at the business summit marks a historic step in advancing the economic integration of refugees through the business community. Additionally, we have made a commitment to support the professional development of Hispanic refugees in the US, as they seek to restart or advance their careers. This support includes mentoring 50 or more Hispanic refugees and builds on ISS’s existing experience in mentoring Afghan and women refugees. Pledge to hire 2,000 refugees reflects our commitment SOCIAL SUSTAINABILITY “Every individual, every company, and every organisation has the power to make a difference. However, with the severe humanitarian crises we have been facing in recent years, we must collectively accelerate our social efforts to create lasting change for the benefit of people and society. It is within ISS’s DNA to do so, and these commitments only reaffirm that we take our responsibility seriously” Liz Benison Group Chief People & Transformation Officer, ISS Our performance 17 Group results 2023 was a year of significant macroeconomic and geopolitical uncertainty, but ISS’s operating model showed resilience and financial results improved. Successful implementation of price increases combined with underlying volume growth from increased activity levels at customer sites secured high organic growth. Profitability improvements were broad- based driven by OneISS efficiencies and cost initiatives as well as and improvements in the UK and on the Deutsche Telekom contract. Revenue Group revenue in 2023 was DKK 78.7 billion, an increase of 6.6% compared with 2022. Organic growth was 9.7% and the impact from acquisitions and divestments, net was 0.5%. Currency and other effects were a negative 3.6%, including the impact of hyperinflation in Türkiye of (0.2)%. Organic growth remained high throughout 2023, but growth rates reduced as expected during the year from 12% in Q1 to 7% in Q4, as the comparative figures for 2022 reflected the return-to- office trend which picked up in the second half of 2022. Portfolio revenue grew by 12% organically. Price increases contributed around 6.5% to or- ganic growth, of which around half was related to price increases implemented in Türkiye. Across the Group, cost inflation was high, predominantly driven by wage adjustments to minimum and collective agreements. This effect was to a large extent mitigated through implementation of price increases to customers in accordance with contractual terms. In addition, underlying volume growth from higher activity levels at customer sites and office occupancy rates contributed just above 3% to the organic growth for the Group. Food services, in particular, was positively affected by this development and revenue increased by around 18%, mainly driven by more than 20% organic growth in the US from predominantly office-based food services. In 2023, food services accounted for 15% of Group revenue (2022: 14%). Revenue from projects and above-base work ac- counted for 16% (2022: 18%) of Group revenue, a slight organic decline and thereby contributed marginally negative to organic growth for the Group. Demand for traditional projects and above-base work remained solid, but this was offset by reduced demand for Covid-19-related services mainly in the Asia-Pacific region as the last restrictions were lifted in January 2023. The organic growth contribution from net contract wins was slightly positive as contracts won during 2022 and 2023 and the full-year effect of the contract win with a global retailer in the US that mobilised in H2 2022 more than offset the effects from the exit of the Danish Defence contract in May 2022 and contracts lost during 2023. Revenue from key account customers accounted for 71% of Group revenue in 2023 (2022: 73%) and grew organically by 7.9%. Growth was driven by increased activity levels, investments in workplaces and price increases. All regions contributed to the positive organic growth in 2023. The highest growth rates were reported in the Central & Southern Europe region mainly driven by Türkiye, where price increases mitigated high cost inflation and underlying volume growth and contract wins provided positive contributions. Revenue 1) ( DKKm ) 2023 2022 Organic growth Acq./ div. Currency & other adj. Revenue Growth Northern Europe 29,324 28,694 6% ( 0 ) % ( 4 ) % 2% Central & Southern Europe 24,805 21,800 16% 2% ( 4 ) % 14% Central & Southern Europe, excl. IAS 29 24,807 21,646 16% 2% (3)% 15% Asia & Pacific 14,229 14,012 7% ( 0 ) % ( 5 ) % 2% Americas 9,605 8,585 13% - ( 1 ) % 12% Other countries 783 795 0% - ( 2 ) % ( 2 ) % Corporate / eliminations ( 65 ) ( 48 ) - - - - Group 78,681 73,838 9.7% 0.5% ( 3.6 ) % 6.6% OUR PERFORMANCE QTR Revenue & growth 4 6 8 10 12 %DKKbn Revenue (DKKbn) Organic growth (%) Q4Q3Q2Q1 17 18 19 20 21 Portfolio and above-base ( 20 ) ( 10 ) 0 10 20 % Portfolio revenue, growth Projects and above-base work, growth Q4Q3Q2Q1 (5) 0 5 10 15 Portfolio and above-base ( 20 ) ( 10 ) 0 10 20 % Portfolio revenue, growth Projects and above-base work, growth Q4Q3Q2Q1 (5) 0 5 10 15 Portfolio and above-base ( 20 ) ( 10 ) 0 10 20 % Portfolio revenue, growth Projects and above-base work, growth Q4Q3Q2Q1 (5) 0 5 10 15 Portfolio and above-base ( 20 ) ( 10 ) 0 10 20 % Portfolio revenue, growth Projects and above-base work, growth Q4Q3Q2Q1 (5) 0 5 10 15 Central & Southern Europe Northern Europe Asia & Pacific Americas Q4Q3Q2Q1 % 0 6 12 18 24 Central & Southern Europe Northern Europe Asia & Pacific Americas Q4Q3Q2Q1 % 0 6 12 18 24 Revenue and growth Portfolio and above-base Organic growth per region Quarters 2023 1) Excluding ISS France (presented as discontinued operations). 18 Operating profit before other items Operating profit before other items amounted to DKK 3,300 million corresponding to an operating margin of 4.2% (2022: 4.0%). Excluding the effect from hyperinflation in Türkiye, operating profit before other items was DKK 3,348 million leading to an operating margin of 4.3% (2022: 4.0%). In the second half of the year, a review and priori- tisation of OneISS initiatives, which were launched in 2020, was conducted. As a result of the review, one-off costs of DKK 233 million were recognised, impacting operating margin negatively by around 0.3%-point. The majority of recognised one-off costs have cash flow impact in 2024. One-off costs related mainly to severance payments and general cost adjustments at Group and regional levels, where functions have been slimmed to enhance strategic and operational execution and certain projects have been refocused or terminated. Adjusted for one-off costs, operating margin was approximately 4.6%. In 2023, the cost base was impacted by rising infla- tion rates, mainly because of increasing minimum wages and collective wage agreements. ISS has strong and well-embedded processes in place, and price increases were implemented in line with contractual agreements. Combined with operational efficiencies, the effect from inflation was mitigated, and the operating margin was generally unaffected. The improvement to operating margin in 2023 was driven by benefits from OneISS efficiencies and cost initiatives across the Group. Furthermore, operating leverage from the higher revenue impacted the margin positively. In addition continued improvements on the Deutsche Telekom contract and in the UK contributed to the improved operating margin. However, both the UK and Deutsche Telekom contracts remained dilutive to the Group operating margin, and management continues to plan and implement further initiatives to strengthen operational and financial performance. Profitability on the Deutsche Telekom contract improved further from the breakeven level at the end of 2022 driven by a continued strict focus on achieving operational efficiencies in all areas of the contract. The arbitration process initiated by ISS regarding certain contractual disagreements is still ongoing as further described in the right-hand column. From a regional perspective, margin improvements were broad-based and were achieved through the realisation of OneISS efficiencies and operating leverage from the higher revenue. OUR PERFORMANCE Operating profit before other items 1) ( DKKm ) 2023 2022 Northern Europe 1,572 5.4% 1,519 5.3% Central & Southern Europe 1,439 5.8% 1,117 5.1% Central & Southern Europe, excl. IAS 29 1,487 6.0% 1,146 5.3% Asia & Pacific 875 6.1% 882 6.3% Americas 489 5.1% 445 5.2% Other countries 48 6.1% 60 7.6% Corporate / eliminations ( 1,123 ) - ( 1,105 ) - Total 3,300 4.2 % 2,918 4.0% Total, excl. hyperinflation (IAS 29) 3,348 4.3 % 2,947 4.0% In July 2019, ISS and Deutsche Telekom AG (DTAG) commenced the 10.5-years FM contract under which ISS renders integrated facility services to more than 8,000 DTAG sites across Germany. In the early stages of the contract, financial perfor- mance was negatively impacted by a complicated IT migration and operational challenges which led to a material cost overrun. Subsequently, ISS Germany has worked intensely on improvements and has strengthened the operational and financial performance of the contract. The im- provements continued in 2023, and management plans to implement additional initiatives to further strengthen operational and financial performance. However, the contract remains structurally chal- lenging, and performance is dilutive to the Group operating margin. As previously informed, ISS and DTAG have certain contractual disagreements. In December 2022, ISS has initiated the establishment of an Arbitration Tribunal under the German Institute of Arbitration (DIS) to decide on these disagree- ments. The arbitration proceedings are expected to complete with a final and binding ruling by mid-2025. In the proceedings ISS and DTAG have ex- changed claims against each other. ISS has claimed remuneration for services performed. DTAG has disputed the claims and is currently withholding certain payments to ISS related to the services delivered. Deutsche Telekom AG Arbitration process 1) Excluding ISS France (presented as discontinued operations). 19 Central & Southern Europe contributed the most to the improvement, mainly driven by generally solid developments and continued progress on the Deutsche Telekom contract. Northern Europe benefitted from margin improvements and generally solid developments across the region and in the UK. In the Americas, the underlying margin increased driven by OneISS efficiencies and operational improvements achieved across the region, mitigating negative effects from the tight labour market in the US. In Asia & Pacific, a slight decline was seen, mainly driven by reduced demand for margin-enhancing Covid-19-related services and additional costs related to labour shortages in selected markets. Corporate costs amounted to DKK 1,123 million (2022: DKK 1,105 million), which included one-off costs of DKK 78 million resulting from the review of OneISS initiatives. Adjusted for one-off costs, corporate costs amounted to DKK 1,045 million, which was a slight decline compared to 2022. Other income and expenses, net Other income and expenses, net was an expense of DKK 93 million (2022: income of DKK 55 mil- lion), mainly due to a fair value adjustment of the contingent consideration related to the disposal of the 40% minority stake in ISS Türkiye in 2021 and a loss on the divestment of the security and technical services businesses in Spain. This was partly offset by a gain from the divestment of the Landscaping and Sanitation Services businesses in Singapore. Operating profit Operating profit was DKK 3,138 million (2022: DKK 2,904 million). Financial income and expenses, net In 2023, financial expenses, net amounted to DKK 607 million (2022: DKK 384 million) including a non-mon- etary gain of DKK 87 million relating to hyperinflation restatement (IAS 29) in Türkiye (2022: DKK 138 million). Excluding the impact from IAS 29, financial expenses, net were DKK 694 million (2022: DKK 522 million). The increase was primarily due to interest expenses being adversely impacted by an increase in interest rates. Further, foreign exchange losses of DKK 100 million (2022: DKK 49 million), primarily on intercompany loans denominated in TRY and EUR, had a negative effect. Income tax Income tax was DKK 554 million (2022: DKK 405 million) for an effective tax rate of 21.9% (2022: 16.1%). The effective tax rate was positively impacted by the release of valuation allowances on deferred tax assets in Germany, whereas the impact from hyperinflation adjustments in Türkiye and non-tax-deductible expenses impacted negatively. Net profit from discontinued operations Net profit from discontinued operations related mainly to France and was a loss of DKK 1,652 million (2022: profit of DKK 21 million). The loss in 2023 included the impairment loss of DKK 1,257 million recognised at 30 June 2023 and subsequent impairment losses and fair value adjustments of DKK 201 million. In addition, the operational performance of the business was slightly loss-making and one-off costs related to the divestment process have been incurred. Net profit Net profit was DKK 325 million (2022: DKK 2,136 million). Historically, financial results in ISS France have not been satisfactory and have been dilutive to Group operating margins and growth. During the past several years, ISS has worked towards restructuring the business and establishing a solid foundation in the French market. However, the efforts have not generated the expected financial improvements, among others due to inherent strategic challenges, difficult market conditions, and continued muted commercial development. In 2023, ISS concluded that building a long-term, sustainable business with a strengthened market position in France would require further restruc- turings and significant investments. This led to recognition of an impairment loss of DKK 1,257 million at 30 June 2023 and a decision to divest ISS France and reposition ISS in the French market to only focus on servicing global key account custom- ers. Consequently, ISS France was classified as held for sale and discontinued operations. On 22 December, Onet SA, a well-established and respected company in the French facility service market, committed to acquire the French business. As part of the transaction, ISS and Onet will enter into a partnership in which Onet will ensure the continued service delivery to global key accounts on behalf of the ISS Group. ISS will have oversight of the service delivery and quality assurance through a dedicated support team. The discontinued activities generated revenues of around DKK 2.7 billion in 2023 and employed around 15,000 dedicated employees. Completion of the transaction is expected in first half of 2024 and is subject to customary antitrust approval. Divestment of our French business Discontinued operations OUR PERFORMANCE 20 Commercial development OUR PERFORMANCE 2023 development 1) Countries Segment Term Effective Wins Healthcare Customer Türkiye Healthcare 5 years Q1 2023 Pharmaceutical Customer US & Netherlands Pharmaceuticals 5 years Q2 2023 Dept for Envr. Food & Rural Affairs (Defra) UK Public Administration 7 years Q2 2024 Healthcare Customer Türkiye Healthcare 1 year Q4 2023 Danish Building & Property Agency Denmark Public Administration 7 years Q2 2024 Extensions/expansions Healthcare Customer Global Healthcare 5 years Q1 2023 Banking Customer UK Business Services & IT 3 years Q1 2023 Pharmaceutical Customer Switzerland & Austria Pharmaceuticals 5 years Q1 2023 Mining Service Customer Australia Energy & Resources 4 years Q1 2023 Public Administration Customer Belgium Public Administration 8 years Q2 2023 Information & Comm. Customer UK Information & Comm. 4 years Q3 2023 Hospital Authority Hong Kong Healthcare 3 years Q3 2023 Healthcare Customer UK Healthcare 2 years Q3 2023 Banking Customer Nordics Business Services & IT 1 year Q4 2023 Capgemini Global Business Services & IT 3 years Q4 2023 Public Administration Customer UK Public Administration 5 years Q4 2023 Healthcare Customer UK Healthcare 3 years Q4 2023 Deutsche Bank Italy Business Services & IT 3 years Q1 2024 Food & Beverage Customer Netherlands Food & Beverage 2 years Q1 2024 Public Administration Customer Australia Public Administration 1 year Q1 2024 Professional Services Customer UK Business Services & IT 1 year Q1 2024 Retail & Wholesale Customer Norway Retail & Wholesale customer 2 years Q1 2024 Nestlé Switzerland Food & Beverage 5 years Q1 2024 Exits/losses Healthcare Customer UK Healthcare Q2 2023 Manufacturing Customer US Industry & Manufacturing Q3 2023 Industry & Manufacturing Customer Germany Industry & Manufacturing Q4 2023 Industry & Manufacturing Customer Global Industry & Manufacturing Q1 2024 Transportation & Infra. Customer Hong Kong Transportation & Infra. Q1 2024 The commercial development remained solid in 2023, and we benefitted from increased activity levels and engagement. Customers continued to reallocate their resources applying more to employees. This reflects the need to create workplaces of the future, with high-quality, productive work environments that will support innovation, collaboration, and cultural belonging in a hybrid working model. During the year, we successfully extended and expanded several local and regional key account contracts, as well as the global contract with Capgemini. Despite the loss of a few customers, mainly within the industry and manufacturing segment, the customer reten- tion rate in 2023 increased to 95% (2022: 93%) and thus we reached our mid-term target. At the beginning of 2024, we extended the global IFS partnerships with Nordea and an Industry & Manufacturing customer as well as several key account contracts. The pipeline of commercial opportunities for IFS solutions remains solid within our strategic focus segments, driven by local and regional deals. The key account contracts awarded in the year were mainly with local customers, including the Department for Environment, Food and Rural Affairs (Defra) in the UK and the Danish Building and Property Agency in Denmark. The commercial decision processes, especially for global tenders, continued to take longer and are more complex than during pre-Covid times, as the importance of the workplace has increased, and additional stakeholders are involved in the processes. In our commercial processes, we are maintaining strong pricing discipline and are not taking on uncapped inflation risk. Contract maturity The majority of our key account contracts have initial terms of three to five years. A significant share of revenue is consequently up for renewal every year. In 2023, revenue from large key accounts was DKK 26.0 billion, or 33% of Group revenue. Going into 2024, contract revenue of DKK 2.9 billion (4% of Group revenue) is up for renewal (adjusted for renewals up until 22 February 2024). 11% Expiry 2024 30% Expiry 2025 12% Expiry 2026 21% Expiry 2027 26% Expiry 2028+ Maturity 26.0 DKKbn Maturity – large key accounts (>200 DKKm) 1) Annual revenue above DKK 100 million. 21 Cash generation and free cash flow Cash flow from operating activities Cash flow from operating activities was DKK 3,392 million (2022: DKK 3,333 million), same level as in 2022. Operating profit before other items improved in 2023 and outflow from changes in provisions was lower than last year. The positive impact was, however, offset by lower inflow from changes in working capital and higher interest paid, net. Changes in working capital was an inflow of DKK 196 million (2022: DKK 444 million). An increase in trade receivables from high revenue growth, particularly in Türkiye where payment cycles are longer than the Group average, and adverse timing effects of certain payments relating to contractual disputes was mitigated by strong collections and further offset by an increase in trade payables. The increase in trade payables was mainly a result of general optimisation of supplier payment terms and a positive contribution from growth in food services where suppliers typically have longer payment terms. Utilisation of factoring increased slightly to DKK 1.4 billion (2022: DKK 1.3 billion) as a result of increasing revenue from key account customers, where invoices, in accordance with Group policy, are eligible for factoring. Changes in provisions, pensions and similar obligations were an outflow of DKK 468 million (2022: DKK 665 million), primarily due to payments related to restructuring projects initiated in prior years as well as defined benefit obligations and other provisions. Interest paid, net was an outflow of DKK 458 million DKK (2022: DKK 399 million), mainly due to increased interest rate levels and utilisation of factoring. Income tax paid was an outflow of DKK 428 million (2022: DKK 422 million) equal to a cash tax rate of 16.9% (2022: 16.7%). Cash flow from investing activities Cash flow from investing activities was an outflow of DKK 1,042 million (2022: outflow of DKK 546 million). The increase was the result of a reduced inflow from divestments as the divestment programme was completed in 2022. Acquisition of businesses was an outflow of DKK 373 million (2022: DKK 325 million), primarily related to the acquisition of Grupo Fissa in Spain. The acquisition strengthened the service delivery for local key accounts in the southern region of the country and improved ISS Spain’s market position within Healthcare and local prioritised segments. Divestment of businesses was an inflow of DKK 25 million (2022: DKK 587 million) driven by a few minor divestments during the year. Investments in intangible assets and property, plant and equipment, net, of DKK 703 million (2022: DKK 779 million) was equal to 0.9% (2022: 1.0%) of total revenue (including discontinued operations). Cash flow from financing activities Cash flow from financing activities was an outflow of DKK 1,334 million (2022: outflow of DKK 930 million). Repayment of lease liabilities was DKK 791 million (2022: DKK 865 million). Dividend payments were reinitiated in 2023 and amounted to DKK 390 million (2022: DKK 0 million). Free cash flow Free cash flow amounted to DKK 1,775 million (2022: DKK 1,734 million). The increase was mainly driven by the positive operating profit performance stemming from the general margin improvement. The tight management of working capital was maintained and despite the high revenue growth, changes in working capital were an inflow, although still slightly less than in 2022. Furthermore, reduced investments in intangible assets and property, plant and equipment were largely offset by an increase in additions of right- of-use assets compared to 2022. 0 1 2 3 4 DKKbn 20232022 Operat- ing profit 1) Working capital Provi- sions Other 1.7 Cash ﬂow bridge (GP) 0.4 (0.2) (0.3) 1.8 0.2 0 3 6 9 12 DKKbn 20232022 Dividend Acq. /Div. Free cash flow Net debt waterfall 0.4 11.5 10.5 0.4 ( 1.8 ) Free cash flow Net debt OUR PERFORMANCE 1) From continuing operations 22 Capital structure OUR PERFORMANCE STRONG AND EFFICIENT The primary objective of our capital structure is to ensure a strong and efficient balance sheet and liquidity position to support operational needs and financial flexibility for our strategy execution, while maintaining our investment grade rating. In 2023, the Group’s liquidity position remained strong, driven by the solid free cash flow generation. Despite reinstatement of dividend payments, which amounted to DKK 390 million, the Group’s liquidity reserves at 31 December 2023 increased to DKK 12.1 billion (2022: DKK 11.4 billion), see note 4.5 to the consolidated financial statements. During the year, the Group entered into a new senior unsecured Revolving Credit Facility of EUR 900 billion with a syndicate of 12 banks. The facility matures in June 2028, with a two year extension option, and replaced the EUR 1 billion Revolving Credit Facility maturing in 2024. EUR 300 million of EMTN bonds will mature in December 2024 and EUR 500 million will mature in July 2025. In the first half of 2024, the Group will evaluate different financing options. Except for this, ISS has no material short-term debt maturities. At 31 December 2023, net debt amounted to DKK 10.5 billion (2022: DKK 11.5 billion), a de- crease of DKK 1.0 billion mainly due to free cash flow generation. Financial leverage at the end of 2023 was 2.2x (2022: 2.6x) and was within the targeted range of 2.0x – 2.5x. As a result, and in accordance with the capital allocation policy, the Board of Directors will at the annual general meeting propose a dividend for 2023 of 20% of adjusted net profit, correspond- ing to a total dividend of DKK 427 million (DKK 2.3 per share). Furthermore, we are today launching a share buyback programme to redistribute additional excess cash to our shareholders. Share buyback programme initiated The Board of Directors has decided to initiate a share buyback programme under which ISS will buy back own shares for a maximum consider- ation of DKK 1.0 billion over a 12-month period from 22 February 2024 to 19 February 2025 at the latest, both days inclusive. Through the programme, ISS wishes to redistribute excess cash to shareholders. The purpose of the share buyback programme is to 1) reduce the share capital; and 2) to meet obligations arising from ISS's share-based incentive programme (LTIP). The programme is expected to be completed in two separate tranches. The first tranche of up to DKK 500 million will commence 22 February 2024 and complete no later than 9 August 2024. The second tranche of up to DKK 500 million is expected to commence upon conclusion of the first tranche and complete 19 February 2025 at the latest. The share buyback programme is based on an authorisation to acquire treasury shares granted to the Board by the annual general meeting allow- ing for acquisition of treasury shares with a total nominal value of up to 10% of ISS’s share capital. Capital allocation 2023 highlights 1 Maintaining an investment grade rating At the end of 2023, our financial leverage was 2.2x (2022: 2.6x), well within the target range. ISS currently holds the following corporate credit ratings assigned by: • S&P: BBB- / Positive outlook • Moody’s: Baa3 / Stable outlook 2 Dividends At the annual general meeting on 11 April 2024, the Board of Directors will propose a dividend payout for 2023 of 20% of adjusted net profit, corresponding to a total dividend of DKK 427 million (DKK 2.3 per share). 3 Investments In September 2023, we acquired Grupo Fissa, strengthening our market position in Spain. This bolt-on acquisition will enable us to expand and develop our cleaning service offering to Healthcare and local prioritised customers segments. 4 Share buybacks To distribute excess cash to our shareholders, we are today launching a share buyback programme of up to DKK 1.0 billion. 23OUR PERFORMANCE 202320222021 % 5 10 15 20 25 17.8 22.1 23.0 Equity ratio 202320222021 1 2 3 4 5 3.8 2.2 2.6 202320222021 1 2 3 4 5 3.8 2.2 2.6 Financial leverage Target range of 2.0x-2.5x (net debt/Pro forma adjusted EBITDA The share buyback programme is implemented in accordance with Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 (the “Market Abuse Regulation”) and the Commission Delegated Regulation (EU) 2016/1052 of 8 March 2016, also referred to as the Safe Harbour Regulation. ISS has appointed Nordea as lead manager of the first tranche to execute the share buyback programme independently and without influence from ISS. Equity At 31 December 2023, equity was DKK 10,522 million (2022: DKK 10,815 million), equivalent to an equity ratio of 22.1% (2022: 23.0%). The positive contribution from net profit of DKK 325 million and hyperinflation restatement of equity in Türkiye at 1 January 2023 of DKK 467 million was more than offset by foreign exchange adjustments of foreign entities of DKK 478 million, remeasurement losses on defined benefit obligations (net of impact from asset ceiling) of DKK 163 million and dividends paid to shareholders of DKK 390 million. For a detailed overview of the development, see 4.1.7, Other comprehensive income. For a complete overview of the development in other comprehensive income in 2023, see 4.1.7, Other comprehensive income. ISS Türkiye Partnership with Actera As part of the acquisition of Rönesans in September 2021, ISS agreed to partner with Actera, a leading Türkiyish private equity company, to support and partly fund the acquisition. Actera brought in-depth expertise in the Türkiyish market, a strong operational track record and became minority shareholder owning 39.9% of the shares in ISS Türkiye. Furthermore, management of ISS Türkiye acquired 10% of the shares in ISS Türkiye, while ISS continued to be the controlling shareholder. The shareholders’ agreement between ISS, Actera and management establishes the rights and obligations of the parties, including rights and restrictions on transferring shares, such as right of first refusal, drag along rights from Q4 2024 and right to explore a potential Initial Public Offering (IPO). Under the structure, which has now entered into its third year, ISS Türkiye has seen strong growth and improved market position, impacted by hyperinflation and commercial momentum. 202320222021 % 5 10 15 20 25 17.8 22.1 23.0 Equity ratio 24 The market ISS holds a market-leading position across this region of generally mature and competitive markets with a relatively high outsourcing rate. The largest country in the region is the UK, contributing around 34% of revenue. Key segments include Office-based customers in Financial Services, Professional Services and Public Administration; Production-based customers in Industry & Manufacturing; and Healthcare. Financial update Revenue increased to DKK 29,324 million in 2023 (2022: DKK 28,694 million). Organic growth was 5.5%, while currency effects impacted growth negatively by 3.7%. In 2023, the region was positively impacted by underlying volume growth from customers’ in- creased activity levels. In addition, cost inflation was mitigated through price increases imple- mented across the portfolio. Portfolio revenue, in particular, benefitted from this development and grew 6.5% organically. The Northern Europe region has a relatively larger exposure to food Affairs (Defra) in the UK and the Danish Building and Property Agency in Denmark, which will both start up during H1 2024. The commercial pipeline remained solid across the region. Operating profit before other items was DKK 1,572 million (2022: DKK 1,519 million), corre- sponding to an operating margin of 5.4% (2022: 5.3%). Adjusted for one-off costs related to the OneISS review, operating margin was 5.5%. The operating margin improved due to improve- ments across the region, most significantly in Norway, Sweden and Belgium, continued positive operational developments in the UK, OneISS efficiencies, cost initiatives and operating leverage from higher revenue. Despite the improvement, the UK remained dilutive to the Group operating margin, and management continues to plan and implement further initiatives to strengthen operational and financial performance. These improvements were partly offset by a lower contribution from margin-accretive projects and above-base work and reduced overhead costs ab- sorption from lower revenue in Denmark, where a higher cost level was strategically maintained to support growth opportunities. services, and it benefitted from increased activity levels and higher office occupancy rates. Rev- enue from projects and above-base work was maintained at a high level with positive organic growth of 1.6% for the year, and it accounted for 19% (2022: 20%) of revenue for the region in 2023. The majority of countries in the region generated positive growth, with Sweden and the Benelux reporting double-digit organic growth. Sweden contributed strong organic growth due to net contract wins, price increases and increasing activity levels in most customer segments. In Benelux, developments were primarily driven by increased activity levels with key account customers, implementation of price increases and contract wins in Belgium. Organic growth in Denmark was negative due to the exit of the contract with the Danish Defence in May 2022. Commercially, our strategic focus on IFS and key account customers secured both new contract wins and extensions. All large key account contracts with expiry dates in 2023 were successfully extended. In addition, ISS was awarded new key account IFS contracts with the Department for Environment, Food & Rural 43%18% 23% 37% of Group revenue 70% Key accounts 16% Northern Europe Cores services Northern Europe Cleaning Technical Food Workplace, incl. other Core services Organic growth Organic growth by quarter Operating margin Nothern Europe Revenue & organic growth 22 24 26 28 30 202320222021 Revenue (DKKbn) Organic growth (%) DKKbn % 0 2 4 6 8 Q4Q3Q2Q1 % % 0 2 4 6 8 Nothern Europe Operating profit & margin Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 0 0.5 1 1.5 2 202320222021 0 2 4 6 8 OUR PERFORMANCE 25 The market Central and Southern Europe comprises a number of key markets, where we hold leading market positions, including Switzerland, Spain, Austria and Türkiye. With the decision to divest ISS France, France is no longer part of the re- gion, but is instead presented as a discontinued operation. Most of the markets are developed, but with significant differences in IFS market maturity and macroeconomic environment. Key customer segments include Office-based customers in Information & Communication and Financial Services; and Production-based customers in Industry & Manufacturing and Pharmaceuticals; and Healthcare. Financial update Revenue increased to DKK 24,805 million in 2023 (2022: DKK 21,800 million). Organic growth was 16.1%, of which 11.8% related to Türkiye, while acquisitions and divestments, net increased revenue by 2.3% related to Livit FM in Switzerland and Grupo Fissa in Spain. Currency effects impacted revenue negatively by 3.5%, while the net impact from hyperinflation was negative at 0.4%. Excluding the impact of hyperinflation, revenue amounted to DKK 24,807 million. Central & Southern Europe Cleaning Technical Food Workplace, incl. other Core services 44% 16% 8% 32% 32% of Group revenue 69% Key accounts Continental Europe Cores services Organic growth Organic growth by quarter Operating margin (excl. IAS 29) Continental Europe Revenue & organic growth 18 20 22 24 26 202320222021 Revenue (DKKbn) Organic growth (%) DKKbn % 0 5 10 15 20 Continental Europe Operating profit & margin 202320222021 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 0 0.5 1 1.5 2 0 2 4 6 8 ( 3.0 ) ( 1.5 ) Continental Europe Organic growth quarterly Q4Q3Q2Q1 % % 5 10 15 20 25 OUR PERFORMANCE In 2023, organic growth in the region was primarily driven by strong growth in Türkiye as a result of high cost inflation mitigated through the implementation of price increases, underlying volume growth as well as net contract wins in the healthcare segment. Price increases were implemented in all countries to offset the effects of cost inflation, thereby positively impacting organic growth. Furthermore, growth was driven by underlying volume growth and net contract wins. Portfolio revenue grew organically by 18.3%. Throughout the year, Central & Southern Europe maintained double-digit organic growth. The trend was in line with expectations, however, declining due to a tougher comparison base from 2022 when price increases were implemented, and activity levels increased during the year. In addition, the region benefitted from increased demand for traditional projects and above-base work from key account customers. Organic growth for projects and above-base work was 6.1% and accounted for 18% (2022: 19%) of revenue in the region and thus remained above pre-Covid levels. The commercial developments were solid and the pipeline of new business opportunities remained attractive. In addition, with the bolt-on acquisition of Grupo Fissa, ISS Spain strengthened its market position and improved its service delivery for local key accounts in the southern part of the country. As part of the transaction, ISS Spain welcomed over 6,000 placemakers and took on cleaning contracts within healthcare and local prioritised segments, representing around 1% of Group revenue. Operating profit before other items excluding the impact of hyperinflation was DKK 1,487 million (2022: DKK 1,146 million) corresponding to an operating margin before other items of 6.0% (2022: 5.3%). Adjusted for one-off costs related to the OneISS review, operating margin was 6.4%. The positive development was a result of OneISS efficiencies and cost initiatives, most significantly in Spain and Switzerland, and operating leverage from higher revenue. In addition, the continued profitability improvement on the Deutsche Telekom contract impacted positively, but still remained dilutive to the Group operating margin, and management continues to plan and implement further initiatives to strengthen operational and financial performance. See p. 18 for an update on the ongoing arbitration process. Including the effect of hyperinflation (IAS 29), operating profit before other items amounted to DKK 1,439 million, corresponding to a margin of 5.8%. 26 Asia & Pacific Cleaning Technical Food Workplace, incl. other The market The region comprises a mix of developed markets including Australia & New Zealand, Hong Kong and Singapore, as well as developing markets such as Indonesia, India and China. ISS has a strong presence in the region and holds a market-leading position in several countries. Key customer segments include Office-based customers in Financial Services and Public Administration; Production-based customers in Industry & Manufacturing; and Healthcare. Financial update Revenue increased to DKK 14,229 million in 2023 (2022: DKK 14,012 million). Organic growth was 7.1% (2022: 6.3%) and the effect from acquisitions and divestments, net was negative at 0.4% due to the divestment of non-core businesses in Singapore, while currency effects impacted revenue negatively by 5.1%. Overall, organic growth was driven by underly- ing volume growth due to increasing customer activity and price increases implemented across the region. Portfolio revenue benefitted from of contracts with existing customers. All large contracts up for renewal, including with a Healthcare customer in Hong Kong and a Public Administration customer in Australia, have been retained and as a result the customer retention rate improved. The commercial pipeline remains solid across the region. Operating profit before other items decreased to DKK 875 million (2022: DKK 882 million), corresponding to an operating margin of 6.1% (2022: 6.3%). Adjusted for one-off costs related to the OneISS review, operating margin was 6.2%. The decline was mainly driven by the reduced demand for high margin Covid-19 deep cleaning and disinfection services in Hong Kong and China, additional costs related to labor shortages in Australia and Hong Kong and a reduction in government grants received. This was only partly offset by operational improve- ments, most significantly in India and operating leverage. this development and grew organically by 12.7%. Organic growth from projects and above-base was negative with 22.4%, due to reduced demand for Covid-19-related deep cleaning and disinfection services and accounted for 12% (2022: 16%) of the region’s revenue for the year. The organic growth rate improved during the first nine months of the year, but it slowed slightly in Q4 due to a higher comparison base, ending at 5.6% for the quarter. In 2023, India, Indonesia and Australia all reported double-digit organic growth rates due to volume growth from increased activity levels at customer sites, implementation of price increases and start-up of new contracts, including the contract with a regional bank in Australia. As a result of the lifting of Covid-19 restrictions in Hong Kong and China in January 2023, demand for deep cleaning and disinfec- tion services declined, and Hong Kong reported slightly negative organic growth while China remained positive. During the year, the strategic focus on IFS and key accounts secured both wins of local key account contracts and retention and expansion Core services 8% 9% 18% of Group revenue 72% Key accounts 32% Asia & Pacific Core services 51% Organic growth Organic growth by quarter Operating margin APAC Operating profit & margin 0.2 0.4 0.6 0.8 1.0 202320222021 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 0 2 4 6 8 APAC Organic growth quarterly Q4Q3Q2Q1 0 3 6 9 12 % % APAC Revenue & organic growth 8 10 12 14 16 202320222021 Revenue (DKKbn) Organic growth (%) DKKbn % 0 2 4 6 8 OUR PERFORMANCE 27 Americas 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 out- sourced FM market. Food services account for a significantly larger share of revenue compared to other regions. Key customer segments in- clude Office-based customers in Technology and Financial Services, as well as Production-based customers in Industry & Manufacturing, Phar- maceuticals and Food & Beverage. Financial update Revenue increased to DKK 9,605 million in 2023 (2022: DKK 8,585 million). Organic growth was 12.7%, the effect from acquisitions and divest- ments, net was neutral, while currency effects impacted growth negatively by 1.1%. In 2023, organic growth was mainly driven by underlying volume growth, price increases and net contract wins. Higher customer activity levels and in particular office occupancy rates benefitted revenue from food services which The strategic focus on IFS and key account customers progressed and demand from key accounts was more robust and resilient compared to the rest of the customer base. Furthermore, across the entire region, there was a solid commercial development with smaller key account wins along with retention and expansion of contracts with current customers, including a global Healthcare customer. Operating profit before other items was DKK 489 million (2022: DKK 445 million), correspond- ing to an operating margin of 5.1% (2022: 5.2%). Adjusted for one-off costs related to the OneISS review, the operating margin was 5.3%. The increase in the underlying margin was mainly driven by OneISS efficiencies and operational improvements achieved across the region miti- gating negative effects related to the tight labour market in the US, as well as operating leverage from increased revenue. Last years’ margin was positively impacted by non-recurring employee tax credits received under the US Employee Retention Credit scheme. The revenue increase in food services delivered broadly the same margin as last year as most contracts were renegotiated to cost plus commercial models during Covid-19. increased by around 16%. As a result, portfolio revenue grew by 12.9% organically. Across the region, demand for projects and above-base services, particularly from key accounts, re - mained at a high level and grew organically by 11.3%. Revenue from projects and above-base services accounted for 12% (2022: 12%) of the revenue in the region. Organic growth for the region was particularly strong in the beginning of the year but reduced as expected in the second half and landed at 3% in Q4. This was a result of a higher comparison base, as H2 2022 benefitted from accelerated return-to-of - fice activity. Developments were strong across the region with all countries reporting double-digit organic growth and the highest growth rates seen in the US and Mexico. The US, in par - ticular, benefitted from the full-year revenue effect from the contract with a global retailer, which mobilised during H2 2022, increased activity levels and higher office occupancy rates. Across the region, price increases were implemented to offset the effects of cost infla - tion, and thereby had a positive contribution to organic growth. Core services Cleaning Technical Food Workplace, incl. other 37% 24% 24% 15% 12% of Group revenue 80% Key accounts Americas Core services Organic growth Organic growth by quarter Operating margin America Revenue & organic growth Revenue (DKKbn) Organic growth (%) 2 4 6 8 10 202320222021 DKKbn % (10) 0 10 20 30 America Organic growth quarterly Q4Q3Q2Q1 % % 0 18 24 12 6 America Operating profit & margin 0.1 0.2 0.3 0.4 0.5 202320222021 Operating profit before other items (DKKbn) Operating margin (%) DKKbn % 0 2 4 6 8 OUR PERFORMANCE CASE 28 How ISS is helping to transform placemaker integration COMPANY OF BELONGING CASE As a major employer, ISS not only under- stands how important it is to have a job but also how important it is to be able to contribute skills and language proficiency for societal inclusion. ISS has implemented certified language training in several markets, including Sweden and the US. This initiative aligns with our ambitions to be- come the Company of Belonging, where one of the commitments is to provide 100,000+ placemakers or their family members a recognised qualification by the end of 2025. In 2023, the inaugural group of employees enrolled in ISS US’s English language training programme and successfully graduated. The programme was developed in collaboration with the National Immigration Forum and its “English at Work” initiative, designated to assist organisations develop and facilitate industry-contextualised English language training for their employees. The pilot programme, offered on a volunteer basis, delivered more than 30 hours of live instruction during work hours for a period of 15 weeks, at no costs to the participants. Additionally, participants were granted 7-month access to an online learning platform with digital modules to reinforce classroom learning. In Sweden, ISS has partnered with Lingio, which offers language courses tailored to different professional roles. “In Sweden, we employ over 100 different nationalities. Our most important asset is our placemakers. Recognising that diverse backgrounds and life experiences foster optimal conditions for running, renewing and developing ISS, we systematically support our placemakers' development. Our agreement with Lingio has proven to be highly successful so far” says Paolo Pelacchi Björkman, HR Director at ISS Sweden. The ISS placemakers Zeynep Kale and Zekiye Arslan initially faced challenges passing the language proficiency test. After using Lingio for a few weeks, Zeynep and Zekiye successfully passed the test, bringing relief and joy not only to them but also to their colleagues. ‘’The biggest challenge and frustration is that you understand when you are reading or listening, but when you have to answer, you have difficulty finding the right words. ISS and the Lingio language tool have helped me develop my Swedish and made it easier to find the right words. Now we speak a lot of Swedish both with each other and in larger groups, which is great fun.” Zeynep Kale Placemaker, ISS Our business 30OUR BUSINESS OneISS strategy The OneISS strategic direction remains unchanged. We aim to deliver strong business growth at attractive and sustainable margins by focusing on creating value for our customers, and ultimately our shareholders. Our focus is on becoming the global leader in In- tegrated Facility Services (IFS) and on driving our bespoke value propositions towards key accounts in three customer segments (Office-based, Production-based and Healthcare) from our strong position as the global leader in cleaning. We continue to see strong demand for IFS. Key account customers are consolidating their supply chains to focus on their core business, and they need a strategic partner to drive user experience, efficiency and consistency with solutions that are sustainable and compliant across their workplaces. OneISS defines our way of organising and aligning behind a set of principles and business processes that provide us with the ideal position to leverage our strategic differentiators and address key market demands. Technology is a key enabler of OneISS. We continue to apply an increasing level of technology in our solutions, while creating scalable platforms and products to improve our service across workplaces. We take pride in being a sustainable company. Our value proposition covers not only our customers’ places, but also their impact on the environment and the engagement of placemakers. PROGRESS ON EXECUTION Sharpened focus For several year, ISS has worked towards estab- lishing a solid foundation in the French market. However, the efforts have not generated the expected financial improvements and conse- quently in 2023, we decided to divest ISS France and reposition ISS to only focus on servicing global key account customers. On 22 December 2023, ISS signed a binding agreement to divest ISS France to Onet SA, a French facility services company, see p. 19 for further details. The EGM has reviewed and prioritised OneISS initiatives, which were launched in 2020. The review focused on ensuring that all initiatives generate the expected value and strengthen the strategic execution. In 2024, we will continue to embed the OneISS strategy, but we will prioritise and focus on fewer initiatives. Our operating model enables a portfolio of scalable service products to drive a step-change in productivity. Our products are designed to address key customer needs in our prioritised segments, e.g. our innovative cleaning product “Pure Space Office” (see “Our Commitment to deliver sustainable cleaning solutions, p. 49), our food waste reduction service product “Winnow” and our Energy Management service to carry out onsite optimisation to reduce electricity and gas consumption across a customer facility. We continue to invest in technology. High-quality scalable platforms and digital solutions for both our placemakers and customers are still key to improving our services across workplaces, globally. We have launched several key applications for customers and placemakers to improve the service we provide across workplaces globally, such as the ISS Workplace app, ISS Takeaway app and ISS Smart Tech Ecosystem. During the last three years, we have invested significantly in capabilities and competencies at Group and regional level. At the same time, we have established common organisational blue- prints across countries. These structures have now been implemented allowing us to reallocate certain resources applied at Group and regional level to other purposes, as our countries are capable of driving these processes without the previous support. This provides for more flexible, agile and cost-effective day-to-day operations. The review and prioritisation of OneISS initiatives led to one-off costs of DKK 233 million, which were recognised in 2023 with a negative impact on our operating margin of around 0.3%. The majority of recognised one-off costs have cash flow impact in 2024. The enhanced focus on initiatives is expected to generate operational benefits and estimated cost savings of around DKK 250 million annually, with approximately DKK 200 million expected to have effect in 2024. Driving outcomes We evaluate the success of our strategy and cre- ation of shareholder value by using the financial and sustainability KPIs illustrated on pp. 7-8. These KPIs enable us to systematically measure our progress in achieving strong growth at attractive and sustainable margins. Commercial momentum and segment leadership Brilliant operating basics Environmental sustainability Safe, diverse and inclusive workplaces Service products built on leading technology platforms Our five strategic priorities are essentially our strategic execution model focused on our customers, organisation, technology as well as environmental and social sustainability. An overview of how we fared on these priorities in 2023 is provided on the next page. Our strategic priorities 31OUR BUSINESS Strategic priority #2 Brilliant operating basics Customers expect us to deliver operational excellence and compliance, whilst continually exhibiting cost leadership. Thus, we focus on strengthening our business fundamentals, while also investing to build strong and scalable processes and controls that will help our placemakers manage these fundamentals. What we will achieve • Focus on the processes that deliver high productivity, quality and compliance • Leverage technology-enabled and scalable processes to drive efficiencies 2023 outcome • Successfully mitigated impact of inflation • Cyber security above-industry bench- mark • Strengthened operational risk framework • ISS Smart Tech Ecosystem – a scalable platform connecting all our service products Strategic priority #3 Service products built on leading technology platforms Our customers expect their workplace partner to embed the technology and data to optimise financial and sustainability performance. Thus, we apply an increasing level of technology and data-driven initiatives in our solutions driving compliance, transparency, consistency and efficiency. We standardise the way we deliver, enabling us to leverage our size to unlock synergies and scale investments in service products. What we will achieve • Innovate our service lines, sharing and scaling best practices across places • Embed technology in service products, i.e. develop once and deploy widely 2023 outcome • Pure space office cleaning service prod- uct scaled to more than 14,400 sites across 25 countries to drive productivity • Commercial food waste solution, using AI to drive food waste reduction, rolled- out to additional sites Strategic priority #4 Environmental sustainability Caring for the environment is a key priority. We do so by making progress on our own commitments while supporting our customers' journey to reduce emissions, waste, energy and consumption of materials. What we will achieve and 2023 outcome See Our journey to net zero on p. 36 Strategic priority #5 Safe, diverse and inclusive workplaces We have more than 120-year legacy as a people com pany and social sustainability has always been part of our DNA – with safety for our place makers being the priority first and foremost. What we will achieve and 2023 outcome See The Company of Belonging p. 32 Strategic priority #1 Commercial momentum and segment leadership Our customers increasingly expect more, and more complex services from us. They expect us to understand the industry they operate in, and that we can deliver solutions customised to support their core business needs. Thus segment expertise is critical. Due to the varying nature of complexity, our global focus is limited to leadership in three segments. That way, we can continue to develop segment capabilities to deliver the best outcomes for our customers. What we will achieve • Commercial capabilities to develop, maintain and benefit from long-term strategic relationships • A model to leverage segment expertise, globally 2023 outcome • Leveraged the global enterprise to win a large leading bank showing our segment expertise in the banking segment. Within this prioritised segment, we serve 20 of the world's 30 largest banks • Customer retention of 95% 32 The Company of Belonging We have more than 120-year legacy as a people company and social sustainability has always been part of our DNA. As society begins to realise the importance of social sustainability, we believe we gain a competitive advantage to be recognised as a social leader – a company that fosters safe, diverse and inclusive workplaces. Our placemakers Our highly engaged placemakers are the heart of our business. Every day, our more than 350,000 placemakers go above and beyond at customer sites all over the world. They are true differentiators and the main driver of our competitive advantage. The ability to deliver on our value proposition lies in every interaction between our placemakers and our customers as well as in the support we provide to our placemakers through providing safe, diverse and inclusive workplaces. We want to ensure that every placemaker can be who they are, become what they want and be part of something bigger. Our bold signature objectives and leadership behaviours will lead our journey towards becoming the Company of Belonging, which in turn will lead to increased employee engagement, better outcomes for our customers and value creation for ISS and our shareholders. Financial value of belonging Belonging is a value driver. A strong sense of belonging improves engagement by forming closer emotional ties with and among our placemakers. We firmly believe that a culture of belonging also translates into improved financial performance and in 2023, we set out to measure this effect. Plenty of studies document the link between belonging and financial performance from a general or holistic perspective. However, we want to understand what it specifically means for us. If we are able to develop a methodical and documented approach, we may not only gain insight into our own performance, but may also provide customers and stakeholders with a lever to gain insights into their belonging performance. Our work is still in the early stages and it is focused on identifying the financial effects by studying the cost and value drivers affected. Complexities associated with belonging remain, including what exactly drives the sense of belonging, how it is measured and how the impact is isolated from other factors that may influence the outcome. Progress on our signature objectives In 2023, we focused on sharpening the road map towards reaching our signature objectives we launched in November 2022. As it is important for us to get off to the right start, we worked on ensuring that we had the right baseline definitions for each of our three signature objectives. We also worked with specific initiatives for 2023 and targets towards 2025, see the table on the next page. OUR JOURNEY TO BECOME 1 1 Living wage We believe that if our placemakers are remuner- ated fairly it not only fosters a sense of belong- ing where placemakers feel valued, the positive impact will also be realised across productivity, engagement and retention. We recognise that upholding a living wage may require increases to minimum wage levels, which is why we pledge to work with policymakers, customers and suppliers to implement living wages across our industry. 2 Recognised qualification Development and training are fundamental to achieving the full potential of our placemakers. We take responsibility to support both our place- makers and their family members and commit to giving 100,000+ placemakers and their family members a recognised qualification by 2025. 3 Recognition and respect Recognition has always been part of our culture. It is our commitment to recognise the behaviours and achievements of our placemakers and helping to inspire our teams to drive our culture change. It empowers inclusion and belonging. In 2023, we defined a new baseline definition and launched our new ISS Inspire Awards programme comprising various awards across service culture, health and safety, sustainability, and leadership. This is an example of how we celebrate the exceptional work of our placemak- ers and it completes our initial work on the third commitment. Our efforts on recognition and respect will continue as an integral part of our ambition to become the Company of Belonging, while we sharpen our focus on delivering on the remaining two general commitments. OUR BUSINESS We aim to create places where every single individual is welcomed, embraced and valued for being exactly who they are. We are on a journey to become the Company of Belonging ... which in turn leads to better outcomes for our customers and value creation for ISS and our shareholders Our cultural ambition Employee engagement Productivity Mental well-being Sense of belonging drives Seniority Financial value of belonging Employer brand value Employee retention 33 We made progress in digitalising our training of- fer and learning experience. The best example is our Pure Space Office cleaning training; a digital learning path, enabling easy access to cleaning knowledge, support tools, procedures and best practices for our global cleaning placemakers. In 2023, 15,208 cleaning placemakers completed the Pure Space Office training, hereof 4,274 (28%) via our global e-leaning platform, MyLearning. Digitalisation We believe that technology and data are key enablers for improving people experience and hence engagement. The availability of consistent people data is also paramount to driving our social sustainability strategy. To accelerate the journey, we established a global people data function in 2023, which will support the workstreams of our strategy. We continued to deploy and strengthen our tools and solutions. Our global e-learning platform MyLearning is available to all our placemakers and an average of 50,000 trainings are completed every month. In 2023, our placemakers received a total of 3,577,755 hours of training (2022: 4,336,538). We continued the roll-out of MyISS, our flagship platform and app for our placemakers to digitally connect across sites. The platform provides a unified access point for information, communication and self-service functionalities, giving our placemakers a sense of belonging. By the end of 2023, MyISS had been rolled out to 100,000+ placemakers. In 2024, we will continue the roll-out to all placemakers and continuously enhance functionality to further drive engagement. OUR BUSINESS Development opportunities Championing our placemakers’ aspirations and supporting their growth is at the heart of our learning and development strategy. It empowers our second objective of providing recognised qualifications and acts on our EVP promise of ensuring that we provide every placemaker with an opportunity to become what they want. We ensure a rigorous process of people management from recruitment to onboarding, development and training. Above all, leadership behaviour is the most essential ingredient for the successful implementation of our strategy. Our leaders are key to the development and engagement of our placemakers and the consis- tent delivery of our customer value proposition. We accelerated the roll-out of our core global Learning and Development Programmes, i.e. the Placemakers Workshop, Service Leadership, Site Manager Certification, Key Account Manager Certification and Leading OneISS. These programmes equip our placemakers with a solid foundation for being part of our OneISS journey and building organisational capabilities for performance, the right leadership culture and engagement. In 2023, we increased completed training coverage related to these programmes with almost 42% compared to 2022. We will continue training in 2024 as well as tracking of completions. We also launched the Leadership Masterclass programme aiming at continuously pushing the bar for our leaders’ effectiveness, role modelling, ability to drive engagement and provide clarity of direction. It enables us to accelerate the cultural journey and strengthen the succession pipeline. Objective 2023 outcome Targets 2025 Living wages • Baseline definition developed and implemented • Partnered with an independent living wage company to calculate living wage benchmarks for all our countries • Pilot initiated for two global key accounts (GKA) to analyse the impact on our social KPIs. Three further GKAs identified • Analysed 147 accounts where a living wage is being paid. Elected seven sites to develop case studies. Findings from two cases confirmed a positive correlation between social KPIs and salary increases • Progress our work, reviewing our locations and continue dialogue with customers to develop tailored implementation plans to pay living wage • Define our 2030 living wage ambition • Conclude two pilots and initiate scale up across one global account and five countries Recognised qualifications • Baseline definition developed and implemented • 19,000+ placemakers gained a recognised qualification, a 90%-increase from 2022. Thus, the 2023 target of 15,000 was exceeded • ISS UK&I offered placemakers who completed the ISS Pure Space Office cleaning training the opportunity to gain a recognised License to Practice (LTP), certified by British Institute of Cleaning Science (BICS). 745 placemakers achieved an LTP • ISS India agreed funding for 50 managers to study for a university diploma in FM and committed to providing 400 placemakers with access to literacy programmes • Extend recognised qualifications offer to include placemaker families Recognition and respect • Baseline definition developed and implemented • New ISS Inspire Awards recognition programme developed and launched • Continued work on award programme 2023: 19,000+ 2024: 26,000+ 2025: 45,000+ 100,000+ 34 Diversity, inclusion and belonging We aim for an inclusive culture where everyone feels valued, engaged and respected, and where everyone is treated fairly and equally. Therefore, when we talk about diversity, inclusion and belonging (DIB), we focus on empowering our placemakers to contribute their unique skills and perspectives. Our DIB strategy is driven through five dimen- sions of diversity: abilities, gender, generations & age, pride as well as cultures, race & ethnicity. In 2023, our Employee Resource Groups (ERG) – voluntary groups led by our placemakers – continued driving our inclusion and belonging agenda through concrete DIB activities. A status on diversity for the Executive Group Management, Corporate leadership and the Board of Directors is provided on p. 35. Health and safety In line with being a diverse and inclusive workplace and as a vital part of living up to our people promise, our entire health and safety agenda is pivotal for us to make our placemakers feel they belong in a company where respect and protection of their physical, mental wellbeing is a key essential for all. Tragically, we experienced five fatalities in 2023. This devastating loss has deeply impacted our organisation, prompting us to intensify our mitigating measures: We have strengthened our root cause analysis processes to make sure we Employee turnover We operate in a marketplace where levels of em- ployee churn are inherently high. This is unlikely to change materially short term. In the mid to long term, however, we are targeting a structur- al improvement of our retention rate and see the benefits for our customers as twofold. First, increased employee retention underpins a more consistent, higher quality of service. Second, increased employee retention reduces the costs associated with recruiting and onboarding. Employee turnover was 33% in 2023 (2022: 33%). In some of our markets, we are experiencing an upward trend towards pre-Covid levels, e.g. with China and Hong Kong returning to a pre-Covid setting in early 2023. Parallel, we also see markets with strong improvements through consistent year-on-year retention efforts. ISS Netherlands has reduced their turnover from 33% to 20% since 2019 and similarly ISS New Zealand has gone from 35% to 19%. The effort behind these successes are multi-faceted, with leadership, personal development through our own learning academies and structured recogni- tion programmes being among the key drivers. In 2024, we will continue our work with policy- makers, customers and suppliers to implement living wages across our industry alongside our continuous efforts to provide qualifications to our placemakers and ensuring strengthened leadership quality. At the same time, in selected countries, we will dedicate efforts for recruitment and retention in order to drive improvements in employee turnover and retention. We firmly be- lieve that these initiatives as well as our ambitions to become the Company of Belonging will lead to improved engagement and retention. OUR BUSINESS always fully understand why incidents happen and know how to remedy the immediate causes. We have also dived deeper into accident causes, made fundamental changes to how we operate and shared lessons across the whole Group. Our Lost Time Injury Frequency (LTIF) differs and reflects diverse maturity levels towards safety across the various cultures and geographies in which we operate. At 31 December 2023, LTIF increased to 3.1 (2022: 2.9), mainly driven by an increase in the number of incidents recorded. The most frequent cause of Loss Time Incidents relates to slips, trips and falls. We are launching updated campaigns and training for placemakers in 2024 to drive further awareness of these types of incidents. We remain committed to reinforcing safety behaviour across all sites and to drive LTIF below 2.5. Measuring our success Our aim is to measure the success of our initia- tives by employee engagement and retention. Employee engagement To measure the effectiveness of our people agenda, and support our ambition to strengthen employee engagement, the launch of MyVoice strengthens our approach to listening and providing feedback to placemakers. The pro- gramme allows every placemaker to be heard and provide their feedback, more frequently, based on their individual needs. We piloted MyVoice in 2023 in Australia & New Zealand, Belgium, Italy, Switzerland and the UK & Ireland. We aim to roll-out MyVoice to all our placemak- ers in 2024. Culture, Race & Ethnicity Our partnership with TENT promotes economic inclusion for refugees. We committed to hiring 2,000 refugees over three years across Europe and the US by 2025 and mentoring 50 refugee women across Europe and the US, respectively. Generation & Age Through our partnership with Nestlé Youth Foundation, we are committed to hiring young Ukrainian refugees in Poland and Germany. Pride Our partnership with Workplace Pride promotes diversity and inclusion. We are committed to create a more inclusive workplace for LGBTQ+ by implementing policies that are respectful of all our placemakers. ERG initiatives 2023 Employee turnover 10 20 30 40 50 20232022202120202019 ( 2,500 ) ( 7,500 ) ( 5,000 ) 2,500 0 33%33%33% 30% 35% 35OUR BUSINESS 33% Women (2) 67% 34% Men (4) Danish 22% Women 35% Women 78% Men 65% Men 17% British 17% Indian 11% Canadian 17% US 11% German 17% Swedish 32% Danish Gender Gender Age EGM Corporate leadership Board Gender NationalitiesNationalities 11% Norwegian 20% 30-39 40% 40-49 40% 50-59 33% British Diversity FOCUS ON The Board and the EGM recognise the importance of promoting diversity at management levels and have implemented policies regarding competencies and diversity in respect of Board, EGM and Corporate leadership nominations ac- cording to which we are committed to selecting the best candidate. Emphasis is placed on: • experience and expertise; • diversity of gender, age and nationalities as well as in broader terms; and • personal characteristics matching ISS’s values and leadership principles Gender Gender balance is and has always been a vital part of our Diversity, Inclusion and Belonging (DIB) agenda. As part of our DIB strategy, we have defined a target of achieving at least 40% gender balance at corporate leadership levels by 2025. To promote, facilitate and increase the number of women in corporate leadership, we continue leveraging our Diversity, Inclusion & Belonging policy, which defines a number of initiatives, e.g.: • our recruitment policy, requiring that we short list at least one female candidate in all internal and external searches for vacant positions • develop succession planning with the aim of identifying gender balanced successors by building and developing balanced pipeline • engage with comparative companies and exter- nal bodies promoting women in leadership as well as engaging with our Gender Balance ERG Executive Group Management In our EGM, the female representation decreased to 22% in 2023 (2022: 31%) following changes to the management team which reduced from 13 to 9 members. We are still committed to a target of 40% gender balance. Corporate leadership As of 2023, the representation of women in corporate leadership roles decreased slightly to 35% (2022: 36%). Progress in reaching our target of 40% in 2025 for both the EGM and Corporate leadership is driven by several key levers and supported by our talent strategy to develop and retain a strong pipeline of current and future female leaders. To do so, in 2023 we set out a playbook for the enterprise to have must-do actions to continue progressing towards our target, some of those actions include strong succession plans and talent retention and attraction practices. Board The current gender representation among Board members (elected by the general meeting) is 33.3% women and 66.7% men, which is considered equal according to the Danish Business Authority’s applicable guidelines 1) . 1) According to the Danish Business Authority’s guidelines on target figures, policies and reporting on the gender composition of management, a gender distribution of 40/60% or the closest number under 40% is considered equal. Target 40% Target 40% Target 40% Special competencies 100% Strategy and value creation 83% Leadership of large international multicultural companies 67% Transformational change and operational alignment 50% Corporate responsibility and sustainability 50% Finance, accounting and tax 50% IT, technology and digitalisation 50% Investors and capital markets 50% Risk management 50% People development, succes sion planning, diversity and remuneration 50% International service industry 17% Sales and marketing, incl. complex, large-scale sales processes The Group’s Diversity, Inclusion & Belonging policy is available here Nationalities EGM 36OUR BUSINESS Our journey to net zero ENVIRONMENTAL SUSTAINABILITY In Q4 2023, our near-term science- based emission targets were validated by the Science Based Targets initiative. Commitments Our net zero targets remain unchanged. We aim to reach net zero for scope 1 and 2 by 2030 and scope 3 by 2040. In 2023, we have continued execution on the key initiatives that support our net zero commitments: 1. Electrify ~20,000 vehicles by 2030 2. Reduce emissions from food with 25% by 2030 and food waste with 50% by 2027 Our fleet electrification continues as planned and by the end of 2023 we reached an electrification ratio of 13.6% – up from 8.9% in 2022. Not surprisingly, we see higher electrification ratios in the countries that offer access to convenient and widespread charging infrastructure. Reducing food emissions is done through reduc- ing consumption volume e.g. by optimising meal sizes or by changing the recipe mix towards less carbon emission intensive sources while at the same time ensuring that end-users remain satis- fied. Our talented chefs and food teams design innovative menus that support the well-being and nutritious needs of our end-users and move us closer to our 2030 food emission reduction target. Progress is visible and in 2023 we have seen CO 2 emissions per 1,000 kcal reduce by approximately 5%. Our food waste initiative is supported by our partnership with Winnow and we have con- tinued our roll-out of our Winnow food waste reduction service product, which during 2023 helped us pass the 30% reduction milestone against our 2019 baseline – well on track to meeting our 2027 reduction target of 50%. Having our near-term emission targets validated in 2023 by the Science-Based Targets initiative was a major achievement and tangible proof that we are moving in the right direction on our net zero journey. There is still a long way to go and we will during 2024 need to develop stronger and more encompassing climate transition plans to address more of our emission sources. We will do so in parallel with continued execution on the decarbonisation initiatives already identified. Our global partnership with Watershed entered into in 2023 provides us with access to world class technology that combined with our data compilation will deliver insights on carbon performance across group, countries, customers and supply chain. The platform will become fully operational in 2024 and will be an important enabler of our continued net zero journey. It will also enable us to provide better customer insights into the carbon footprint of our services including our Pure Space Office product that aligns cleaning processes and leverages best practice to ensure consistent delivery. During 2023, Pure Space Office was rolled-out to 10,214 sites across 25 countries and we target to implement it across all office sites in 2024, which on top of positive carbon footprint effects also reduces consumption of water and chemicals. Commitments 2023 outcome Targets 2025 Fleet Electrify ~20,000 vehicles by 2030 • Partnership with LeasePlan to reduce CO 2 • 2,500+ vehicles electrified • Continued progress on fleet electrification Food Emission 25% by 2030 • CO 2 emissions per 1,000 kcal associated with the food served globally reduced by ~5% • Supply chain carbon analysis initiated across our portfolio • Power Plant Programme – plant-based menu offerings through innovative recipe development, menu concepts and culinary training • Future 50 Foods – new plant-based recipes across our kitchens, globally Waste 50% by 2027 • Food waste reduced by 30% since 2019-baseline • Tracking food waste at 73% of our sites and 85% our transactions, globally • Winnows food waste reduction system rolled- out to additional sites • Continued scaling of Winnows system across sites and countries CO 2 Business activity 2023 2022 Scope 1 ~4% Sources under our direct control, e.g., company vehicles, gas emissions and refrigerants 66,153 t. CO 2 eq. 69,581 t. CO 2 eq. Scope 2 (market-based) ~1% Consumption of purchased electricity, heating, cooling and steam 7,594 t. CO 2 eq. 7,084 t. CO 2 eq. Scope 3 ~95% Supply chain, incl. purchased goods and services, and employee commuting (44)% 1,550,214 t. CO 2 eq. 1,520,341 t. CO 2 eq. Read more in our 2023 Sustainability report here Group key risks • Strategic transformation • Emerging technology • Sustainability • Health and safety • Contract management • Data collection and analysis • People management • Regulatory compliance • IT Security • Macroeconomic and political environment Our Group key risks, drivers and mitigation actions are described on the following pages. Our exposure to financial risks is disclosed in note 4.3 to the consolidated financial statements. Double materiality In 2023, we provided a double materiality assessment to identify sustainability risk and opportunities most material to ISS and our stakeholders. For the outcome of the assessment, see our 2023 Sustainability Report 37 Our business risks We perceive risk management as an enabler for value creation – for all our stakeholders – while at the same time being important for value protection. Our business model is based on taking over facility services that are non-core to our customers. As our services are integrated into our customers’ value streams, there is a risk of disrupting their operations if operational risk management or contract requirements are not complied with. Thus, as a key business partner to the majority of our customers, we play a significant role in their overall risk management framework. Through our services, we can proactively support our custom- ers in enhancing their risk management agenda and capabilities. 2023 risk agenda Technology As technology increasingly becomes an integral part of the workplace, cyber security is equally important. ISS has built industry-leading cyber security capabilities in recent years. In 2023, we continued to strengthen and develop internal technology capabilities (e.g. AI and a new Tech Centre in Porto) to capture opportunities related to productivity gains and deployment of new services. We also continued the collaboration with well-established global technology partners. Environmental sustainability Environmental sustainability is one of our five strategic priorities. Our ability to deliver on our net zero and science-based targets is key to maintaining our license to operate and our competitive advantage. In 2023, we rolled out of a group-wide carbon management and reporting tool to support carbon disclosures at Group, Country, Account, and Site level. The tool will simplify, standardise and automate the collection, validation, calculation and reporting of carbon metrics in countries and across products and service lines. Market developments Office working In 2023, we saw the steady emergence of a new post-Covid office working trend, with an increasing number of customers solidifying their return-to-office strategies – entailing both risk and opportunities for ISS. The pandemic has likely accelerated the working -from-home trends and large office- based customers have in recent years downsized their office space. At the same time, however, ISS is benefitting from customers reallocating more resources to employees and quality offerings, including by increasing cleaning frequencies, ordering additional deep-cleaning and improv- ing the quality of food solutions. We believe that through our service offering we can compensate for the effects of these developments by captur- ing business opportunities to maintain and grow our business. Inflation Geopolitical events continued to exert pressure on supply chains and consequently drove up inflation. As such, inflation management remained a priority in 2023. We continued to utilise the contractual agreements in our customer contract portfolio to implement price increases and thereby mitigate the increasing operating costs of our supply chain. In addition, the rise in inflation continued to squeeze real wages and drove up legislative minimum wages. To offset increased operating costs from higher wages, we discussed price increases or scope adjustments with customers on a timely basis. Continuously rising inflation poses a risk of evolv- ing into a cost-of-living crisis during a mid-term period, leading to further instability in labour markets. This puts sustainability in the spotlight, as the potential effects of an unstable financial environment may lead to social challenges. Annual group risk review As part of our annual process, we reviewed and refined the Group’s key risks to reflect the main exposure that may potentially impact the achievement of our OneISS strategic priorities. This led to three new risks being classified as Group key risks: “Strategic transformation”, “Emerging technology” and “Data collection and analysis” and three risks taken out of the group key risk map i.e. “Subcontractors”, “IT transformation” and “Finance and reporting”. Each key risk has been assigned mitigation measures and EGM ownership. See the following pages for details. OUR BUSINESS MANAGING Sustainability Report 2023 PEOPLE MAKE PLACES 38OUR BUSINESS Strategic transformation Emerging technology Data collection and analysis Health and Safety Contract management Failure to execute the ongoing OneISS strategic transformation, aimed at enhancing the operating model and strengthening competitiveness, within desired timeframes could negatively impact future financial results. Risk that ISS will not be able to suf- ficiently leverage rapidly emerging, new technologies (e.g. AI), leading to missed opportunities related to potential productivity gains and/or deployment of new services. Risk that ISS will not be able to leverage quality data, related both to internal processes and delivered services, to obtain meaningful insights enabling new or improve existing ser- vice offerings may not meet future market demands and requirements. Failure to design and implement, within our internal processes and service delivery, sufficient health and safety mechanisms increase risk of health and safety incidents affecting our placemakers and customers. Failure to fully identify, assess and manage key risks and opportunities in customer contracts thus adversely impacting profitability, leading to operational or regulatory non- compliance or suffering financial loss or reputational damage. Risk drivers The OneISS strategic transformation plan spans across the global organi- sation with significant scale, including multiple cross-functional projects, impacting wide range of processes, IT systems, frameworks and operating models Risk drivers Complex and unknown nature of technology could result in insufficient speed of adoption Risk drivers The volume, complexity and variety of customer demand of data related to rendering of services and supporting processes. Inconsistent demand for data across industries and customers Risk drivers Our placemakers provide a range of services in customer workplaces across the globe, including high risk environments and services Risk drivers Diversity of ISS services portfolio translates to variety of contractual arrangements with the customers. As the complexity of delivered services grows, so does the complexity of con- tractual requirements and ultimately – inherent risk of failure in contract management Mitigation actions • Set-up of dedicated Transformation Office in the EGM structure • Refocus and reprioritisation of key project initiatives • Continued execution of priority projects, incl. clear road maps for implementation • Continuous monitoring and manage- ment of risks within the transforma- tion projects Mitigation actions • Strengthened organisational and governance structures and collaboration framework between IT and Commercial functions • Strengthening of internal technology development capabilities (incl. Tech Centre in Porto) • Collaboration with well-established global technology partners Mitigation actions • Strengthened governance struc- tures and collaboration framework between functions • Embed data insights in the service and product development process Mitigation actions • Our Health and Safety framework, independently certified against ISO 45001, 14001 and 9001, promotes strong processes and procedures. It is supported by a robust training program for our placemakers and we actively promote a strong, positive safety culture across our organisation Mitigation actions • Standardised commercial bid process, incl. gover nance structure and procedures that involve variety of subject matter experts across the organisation • Standardised contract transition model, incl. internal certification programme • Standardised service delivery policies, incl. contractual obligations management • Governance and cross country cooperation for global key accounts (new) (new) (new) 39OUR BUSINESS People management Regulatory compliance IT Security Sustainability Macroeconomic and political environment Risk that ISS will not be able to attract and retain the right people in order to maintain operations and meet our customer obligations. Failure to comply with applicable laws and regulations, incl. labour law, data protection and cyber security regulations and required licenses and permits which may lead to regulatory, operational, and reputational losses. ISS being target of cyber attacks leading to business disruption and/or disclosure of ISS and/or our business data. Risk that ISS will not be able to deliver on own sustainability goals and targets and will not be able to support cus- tomers’ net zero journey. Unstable and/or unfavourable economic, financial and/or currency conditions, as well as political environ- ment and instability that might have adverse impact on achieving ISS business goals. Risk drivers Rising wage inflation in certain geogra- phies. Increased expectations towards employers, beyond simple remuneration and encompass wider social responsibil- ity requirements. Demographic changes, fuelled by aging society and mass migra- tion, will further limit availability of key talent in certain regions in the mid-term perspective Risk drivers Wide variety of provided services and industries that ISS operates in. Multitude of geographies in which ISS is present, as well as growing complex- ity and volatility of various regulatory regimes globally Risk drivers • State sponsored attacks due to geopolitical tensions • Double extortion attacks, where criminals not only compromise the infrastructure with ransomware, but also demand payment for not selling or publishing acquired data Risk drivers • Environmental impact is driven primarily by carbon emissions, 95% of which sits within Scope 3 • Social impact is inherent to the ISS business model, that relies on over 350,000 placemakers to deliver the services • Governance dimension is driven by the complexity of international, multi-cultural markets ISS operates in Risk drivers ISS delivers services in dozens of countries across the globe. This requires us to consider political and macroeconomic environment both on global international market, as well as local ones. Persistent geopolitical tensions, supply chain disruptions, inflationary pressures and economic slowdown are primary external drivers that might directly or indirectly impact service delivery and its profitability Mitigation actions • Development of Target Operating Model for people processes to enhance employee experience (incl. onboarding), supported by dedicated tools and internal platforms • Company of Belonging signature objectives • Development of tailor-made recruit- ment plans for specific countries and/ or regions Mitigation actions • Strengthening of functional expertise to build compliance focused culture and further develop regulatory compliance maturity • Implementation of robust compliance framework and standardised, global approach towards monitoring and ensuring compliance with laws and regulations • Compliance-related projects targeting specific future regulatory requirements impacting ISS business Mitigation actions • Building of maturity of security operations and proactive vulnerabil- ity & threat discovery capabilities • Significant investments in continuous improvements • 24/7 SOC team with detect and response capabilities • Cyber risk function driving owner- ship on identified cyber risks • Cyber awareness campaigns • Involvement of IT security in business processes, incl. commercial and op- erations, to support driving security agendas of our customers Mitigation actions • Clear governance and ownership structure for sustainability agenda • Science-based targets with near term carbon goals • Sustainability reporting framework • Carbon management tool allowing for tracking, monitoring and reporting • Living wage pledge • Code of conduct and speak-up policy • Integrating carbon management into our service products, including reduction of GHG emissions from- food and reduction of food waste Mitigation actions • Enhancing macroeconomic and political risk analysis in the commer- cial bid process when considering involvement in new markets • Monitoring of macroeconomic indicators and political environment in existing markets • Standards governing inflation approach in our contracts • Crisis management structures both on group and local levels 40CASE ISS is fully committed to playing an active role in the global effort to reduce carbon emissions and contribute to limiting the global temperature rise to 1.5 ºC. This commitment is reflected in our conscious actions, strategies and initiatives to actively limit and reduce the carbon footprint of our customers, of ISS and the planet. In January 2022, we launched our new and overarching net zero targets to fulfil our ambitions within environmental sustain- ability. Through several specific initiatives within ISS’s own business and by partner- ing with customers and suppliers, we have set ambitious goals of reaching net zero for scopes 1 and 2 in 2030, and full scope by 2040. In 2023, ISS reached an important milestone on our sustainability journey as ISS’s near-term science-based emissions reduction target was validated by the Science Based Targets initiative (SBTi). The validation focuses on specific decarbonisa- tion objectives relating to ISS’s supply chain and service delivery. The near-term science-based emissions reduction target outlines the percentage of emissions of each of the individual categories identified within ISS’s scope 3 targets. The categories include purchased goods and services, capital goods, business travel, employee commuting and use of sold products and services. Since the announcement of ISS’s overall sustainability targets in 2022, we have launched several initiatives to reduce car- bon emissions in the coming years. Among other things through an electrification of our fleet of approximately 20,000 vehicles by 2030. Furthermore, we have committed to reduce food waste significantly from the more than 1 million meals, we serve globally every day. Further, the commitments related to ISS’s food business also reached an important milestone during 2023. Through optimised food procurement, strategically planned menus, and an increased focus on changing consumer behaviour patterns, ISS has delivered a collective 30% food waste reduction from our 2019 baseline. This achievement puts ISS well on track to reach our target of 50% food waste reduction by 2027. ISS reaches important milestone on net zero journey ENVIRONMENTAL SUSTAINABILITY “The validation of our near-term science-based emissions reduction target by the SBTi affirms that our decarbonisation goals submitted are based on the latest science and is in line with the Paris agreement. It is also a declaration that we proudly support the SBTi in its global mission to drive ambitious corporate decarbonisation.” Jason van Zuydam Head of Climate Impact, ISS Our governance TRANSPARENT 42 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) continuously reviews and develops the Group’s corporate governance framework and policies in response to the Group’s strategic development, activities, business environment, corporate governance recommendations and statutory requirements. 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 shareholders 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 annual general meeting, which is the supreme governing body of ISS. Management Management powers are distributed between our Board and our Executive Group Management Board (the EGMB). No person serves as a member of both 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 management 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 Busi- ness Authority. The Group has a wider Executive Group Management (the EGM), whose members are seven 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 responsibilities of the Board and the EGM as well as 2023 activity by Board committees. New Group CEO and EGM On 1 September 2023, Kasper Fangel was appoint- ed Group CEO, replacing Jacob Aarup-Andersen, who resigned in March. On 7 September 2023, ISS announced changes to the EGM, see p. 47. Board composition The Board currently consists of nine members, six elected by the general meeting and three elected by and among the employees. Board members elected by the general meeting stand for election each year. Changes to the Board following the annual general meeting on 13 April 2023 and Board bios are described on pp. 45-46. 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 in April 2023. Board evaluation In 2023, the Board evaluation was conducted as a self-assessment. The assessment included input of nine board members and the Group CEO based on a questionnaire, evaluating the strategy development and implementation; risk awareness, monitoring and reporting; cooperation with and evaluation process of CEO and EGM; board compo - sition and dynamics; on- and off- boarding; meeting structure and operation; meeting effectiveness; stakeholder relations; committee and Deputy Chair value contribution; and evaluation of the Chair. The result was reviewed by the Nomination Committee and discussed at a Board meeting in December 2023. The individual member’s contribution was subsequently reviewed as part of individual meetings held between the Chair and each member. Governance report The report includes a description of our gover nance structure, the main elements of our internal controls related to financial reporting and our position on the Danish Corporate Governance Recommendations. Recommendations not fulfilled • 1.1.3 Publication of quarterly reports We publish full- and half-year financial results and Q1 and Q3 trading updates 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 quar- terly via live webcast/telephone conference. OUR GOVERNANCE The rules on the governance of ISS A/S, including share capital, general meet- ings, shareholder decisions, election of members to the Board, etc., is described in the Articles of Association which are available here Corporate Governance Report 2023 PEOPLE MAKE PLACES 43 The outcome of the 2023 Board evaluation was a continued high level of performance and improve- ment was seen across almost all areas covered by the questionnaire. Especially, board composition and dynamics as well as on- and off boarding had improved compared to last year’s evaluation. Over- all, the Board was found to achieve its mandate, fulfil its responsibilities, and provide value. The evaluation identified a few focus areas to improve the Board’s impact and value-add during 2024: i) increased focus on strategy execution and implementation, ii) continued high focus on risk management and iii) further work on talent develop - ment and succession planning. For further details, see response to recommendation 3.5.1 of the 2023 Statutory report on Corporate Governance. Assurance The Group’s external financial reporting is audited by the independent auditors. Group Internal Au- dit (GIA) is responsible for providing an objective and independent assessment of the effectiveness and quality of the internal controls through delivery of the internal audit plan approved by the Audit and Risk Committee (ARC). GIA operates under a charter approved by the Board. The internal audit plan for 2023 was prepared based on the outcome of the Group risk review and incorporated audits covering the areas of financial reporting controls, internal controls on ISS’s largest strategic key accounts, the control environment in ISS country organisations, information technology and compliance (internal and external regulations). GIA monitors the actions of management to address observation made on the internal control environment to ensure control gaps are resolved adequately. Regular reports on the status of open observations are made to both EGM and the ARC. Speak Up (whistleblower) The Speak Up Policy is supported by a report- ing system operated on a platform from EQS and available in 21 languages via ISS’s website and local ISS country websites. The Speak Up system also incorporates a manned phone hotline providing local land line and toll-free numbers across 35 countries giving reporters the opportunity to report to an independent third-party in their native language. The system enables employees of ISS, business partners and other stakeholders to report concerns, including anonymously to Group Internal Audit. All business integrity and ethics issues identified through Speak Up or other sources are handled by the Business Integrity Com- mittee (BIC) that is composed of the Group CFO, the Group General Counsel, the Group Chief People & Transformation Officer and the Head of Group Internal Audit. The ISS Management Protocol for Speak Up describes how BIC investigations are to be handled and is regularly updated to accommodate changes in local legislation. The BIC reports to the Audit and Risk Committee on all matters that have been subject to investigation. During 2023, reports into the Speak Up system have led to disciplinary sanctions, including dismissals. In addition, the Management Pro- tocol for Speak Up was updated to strengthen the governance around reports out of scope of the Speak Up policy resulting in a shortening in resolution time for reporters. More information regarding the Speak Up sys- tem, including detailed run-through of selected reports, can be found in the ISS Sustainability Report. OUR GOVERNANCE Purpose The Board has a strong focus on the ISS’s pur- pose and worked continuously on promoting a good culture and sound values in 2023. To support an even stronger focus, the Board included ESG targets as separate objectives in the Short-Term-Incentive Programme, see the 2023 Remuneration Report. 2023 specific matters • Appointment of new Group CEO • OneISS strategy execution • Environmental and social sustainability, in- cluding ESG double materiality assessment • Activating our cultural ambition • Technology development • Embedding brilliant operating basics • Development of segments strategies • Regional business review • Deutsche Telekom – performance and contractual disagreements • Strategic positioning in France • M&A opportunities • Inflation management Recurring matters The Board transacted various recurring, financial matters such as: Overall strategy plan Financial projections, Financial and Divi- dend Policy, Remuneration and Sustainability reports, Group key risks, Internal controls, IT and information security, Corporate governance, Diversity, Sustainability, Speak Up Policy, Remuneration policy, Recommen- dation of auditors for election. Key Board matters Data ethics The Group's Data Ethics Policy describes ISS’s approach to data ethics and aims to encourage our placemakers and partners, to have an active involvement in data ethical questions and to raise concerns ensuring continuous develop- ment of the guiding principles. ISS process data for the purpose of providing our services, managing our workforce and properly documenting compliance and delivery to customers and public authorities. To protect the data, processes, and the persons affected by these activities, the policy is based on the Charter of Fundamental Rights of the European Union. In 2023, ISS continued to work towards integrating the principles of the policy in existing and new processes. The focus has been within data analytics and data science ensuring our use cases are prepared and utilises our Data Ethics frameworks. This ensures that use cases within analytics, data science etc. are prepared in an ethical, responsible manner reducing the risk of bias and minimising potential negative impact. Data ethics are considered in relevant initiatives and included in applicable approval processes. Training efforts are conducted to generate awareness. The policy also establishes gov- erning ethical principles when developing and deploying data processing AI technologies. These principles are implemented in order to ensure safe, accountable, transparent and non-discriminative use of AI technology. The Data Ethics policy as per section 99d in the Danish Financial Statements Act, adopted by the EGM and the Board and subject to annual review, is available here 44 Our governance structure OUR GOVERNANCE Board of Directors Executive Group Management Country leadership Responsible for the overall management and strategic direction of the Group, including: • strategy plan and financial projections • appointing EGMB members • supervising the activities of the Group • reviewing the financial position and capital resources to ensure that these are adequate The Board receives monthly financial reporting and is briefed on important matters in between board meetings. The Board held 15 meetings in 2023. Board bios , 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 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 committees, including Sustainability, Remuneration, IT & Digitalisation, Busi - ness Integrity, D&I, Disclosure, Product & Platform and Transaction Committees. EGM bios, 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 2023 committee activity Audit and Risk Committee Held 7 meetings in 2023 and continued its focus on: • Evaluating the external financial and ESG reporting, material accounting policies and significant accounting estimates and judge - ments related to e.g. impairment tests, divestments, deferred tax and 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 Dividend Policy and the Group Tax Policy • Monitoring and considering the relation - ship with the external auditor and the independent external assurance partner in respect of ESG reporting, reviewing the audit process and the long-form audit report, and recommending on appointment of external auditor and assurance partner on ESG Remuneration Committee Held 6 meetings in 2023 and continued its focus on: • Reviewing the remuneration policy and guidelines on incentive pay • Recommending the remuneration of Board and EGMB members and approving remuneration of EGM Nomination Committee Held 4 meetings in 2023 and continued its focus on: • Assisting in ensuring that appropriate plans and processes 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 Held 6 meetings in 2023 and continued its focus on: • Reviewing new M&A strategy • Reviewing and making recommendations on certain large acquisitions, divestments and customer contracts • Following and considering large transactions, including reviewing pipeline and ISS’s procedures • Reviewing material new financing, refinancing or material variation of existing financing 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) 45 Niels Smedegaard (1962) Chair Gender: Male First elected (until): April 2021 (2024) ISS committees • Nomination committee (C) • Remuneration committee • Transaction committee Board and management positions • Nordic Ferry Infrastructure Holding AS (C, C of 1 subsidiary, BM of 1 affiliated company) • Bikubenfonden (C) • Abacus Medicine A/S (C, RCM) • Falck A/S (C, NRCC) • DSV A/S (BM, ACM) • Through Transport Mutual Insur- ance Associated Ltd. (BM, BM of 1 subsidiary) • UK P&I Club (BM) • Frederiksbergfonden (BM) Special competencies • International service industry • Strategy and value creation • Leadership of large international, multicultural companies • Transformational change and operational alignment • IT, technology and digitisation • Finance, accounting and tax • Investors and capital markets Lars Petersson (1969) Deputy Chair Gender: Male First elected (until): April 2022 (2024) ISS committees • Transaction committee Board and management positions • CEO of VELUX Group Special competencies • Strategy and value creation • Leadership of large international, multicultural companies • Transformational change and operational alignment • Risk management • Corporate responsibility and Sustainability Kelly Kuhn (1965) Board member Gender: Female First elected (until): April 2021 (2024) ISS committees • Nomination committee • Remuneration committee (C) Board and management positions • CWT (Special advisor) • McChrystal Group LCC (Strategic advisor) • WNS Global Services (Senior Advisor) • SSP Group plc (BM, ACM, NCM) Special competencies • International service industry • Strategy and value creation • Leadership of large international, multicultural companies • Transformational change and operational alignment • People development, succession planning, diversity and remuneration • Sales and marketing, including complex large-scale sales processes • Corporate responsibility and Sustainability Søren Thorup Sørensen (1965) Board member Gender: Male First elected (until): April 2020 (2024) ISS committees • Audit and risk committee Board and management positions • KIRKBI A/S, (CEO, BM and/or manage- ment in 6 subsidiaries) • LEGO A/S (DC, ACC) • Koldingvej 2, Billund A/S (BM) • Merlin Entertainments Limited (BM, ACC, RCM (and BM of 4 affiliated companies)) • Ole Kirk´s Foundation (BM) • ATTA Fonden (BM) • K2 Fonden af 2023 (BM) Special competencies • Strategy and value creation • People development, succession planning, diversity and remuneration • Finance, accounting and tax • Investors and capital markets • Risk management • Corporate responsibility and Sustainability Board of Directors Denmark Sweden Denmark USA Uruguay C: Chair, Board of Directors DC: Deputy Chair, Board of Directors BM: Member, Board of Directors ACC: Audit Committee Chair ACM: Audit Committee Member NCM: Nomination Committee Member RCM: Remuneration Committee Member SCM: Sustainability Committee Member NRCC: Nomination and Remuneration Committee Chair Full bios are available here Board changes At the annual general meeting on 13 April 2023: • Cynthia Mary Trudell stepped down • Reshma Ramachandran appointed as new board member • Gloria Diana Glang appointed as new board member. End of August, Gloria Diana Glang stepped down due to a new executive position requiring her to step down from board positions in listed companies GOVERNANCE MEET THE 46 Ben Stevens (1959) Board member Gender: Male First elected (until): April 2016 (2024) ISS committees • Audit and risk committee (C) • Transaction committee (C) Board and management positions • PageGroup plc. (ACC, NCM, RCM) Special competencies • Strategy and value creation • Leadership of large international, multicultural companies • IT, technology and digitisation • Finance, accounting and tax • Investors and capital markets • Risk management Reshma Ramachandran (1978) Board member Gender: Female First elected (until): April 2023 (2024) ISS committees • Remuneration committee • Nomination committee Board and management positions • Oxford Instruments Plc (BM, ACM, NCM, RCM, SCM) • Boston Consulting Group LLC (senior advisor) Special competencies • Strategy and value creation • Leadership of large international, multicultural companies • Transformational change and operational alignment • IT, technology and digitisation • People development, succession planning, diversity and remuneration • International service industry Signe Adamsen (1967) Employee representative Gender: Female First joined (until): July 2022 (2027) ISS position Group Workplace Development Director Special competencies • International service industry • Sales & marketing, including com- plex, large-scale sales processes Nada Elboayadi (1982) Employee representative Gender: Female First joined (until): April 2019 (2027) ISS position Head of Global Big Data & Services Special competencies • International service industry • IT, technology and digitisation Rune Christensen (1972) Employee representative Gender: Male First joined (until): November 2023 ISS position Head of Legal Affairs and M&A Support Special competencies • International service industry • Strategy and value creation • Risk management UK USA India Indonesia Denmark Denmark Denmark OUR GOVERNANCE 1) Joined/Left the Board of Directors/Committee on 13 April 2023 2) Joined the Board of Directors on 20 November 2023 3) Joined the Board of Directors/Committees on 13 April 2023 and left on 31 August 2023 4) Joined the Board of Directors on 13 April 2023 and left the Board on 20 November 2023 5) In addition, an extended Nomination Committee held numerous meetings related to the search process for the appointment of a new Group CEO (2027) Meeting attendance Board Audit and risk Remune- ration Trans- action Nomina- tion 5) Niels Smedegaard, Chair 15/15 6/6 6/6 4/4 Lars Petersson, Deputy Chair 15/15 6/6 Kelly Kuhn 15/15 6/6 4/4 Søren Thorup Sørensen 15/15 6/7 Ben Stevens 12/15 6/7 6/6 Reshma Ramachandran 1) 10/11 4/4 2/2 Signe Adamsen ( E ) 15/15 Nada Elboayadi ( E ) 12/15 Rune Christensen (E) 2) 1/1 Left the Board in 2023: Cynthia Mary Trudell 1) 4/4 2/2 2/2 Elsie Yiu 1) 4/4 Gloria Diana Glang 3) 6/7 3/3 1/1 Kadir Ünver (E) 4) 10/10 All board members are independent, except for the employee representatives 47 Executive Group Management MEET THE Full bios are available here Kasper Fangel Group CEO – since September 2023 Joined ISS: 2009 Member of the Executive Group Man- agement Board of ISS A/S registered with the Danish Business Authority. Carsten Højlund Group CFO (interim) – since September 2023 Joined ISS: 2001 Agostino Renna Group CCO – since January 2023 Joined ISS: January 2023 Markus Sontheimer Group Chief Information & Digital Officer – since June 2021 Joined ISS: 2021 Troels Bjerg CEO Rest of World – since September 2023 Joined ISS: 2009 Carl-Fredrik Langard-Bjor CEO Northern Europe – since January 2022 Joined ISS: 2011 Liz Benison Group Chief People & Transformation Officer – since September 2023 Joined ISS: 2021 Celia Liu CEO Central & Southern Europe – since January 2022 Joined ISS: 2019 Sam Hockman Group COO – since September 2023 Joined ISS: 2022 OUR GOVERNANCE Denmark UK USA Denmark Denmark UK USA Germany Hong Kong Hungary Norway New Zealand UK USA Canada China Management changes As of 1 September 2023, Kasper Fangel was appointed Group CEO. The EGM was reduced from 13 to 9 members enhancing agility and execution power to build a stronger, more robust ISS and drive financial performance going forward. Carsten Højlund was appointed interim Group CFO. On 9 January 2024, ISS announced that Mads Holm is appointed new Group CFO, joining ISS no later than 1 August 2024. 48PARENT COMPANY ISS A/S PARENT COMPANY ISS A/S is the ultimate parent in the ISS Group. The members of the EGMB of the ISS Group comprise the Group CEO and the Group CFO, both employed in ISS A/S. On 1 September 2023, Jacob Aarup-Andersen stepped down as Group CEO and was succeeded by former Group CFO Kasper Fangel. In the period until 31 December 2023, the EGMB comprised only one member, the Group CEO. On 9 January 2024, ISS announced that Mads Holm is appointed new Group CFO, joining ISS no later than 1 August 2024. Financial review Net profit for 2023 was DKK (251) million (2022: DKK (152) million). The decrease was mainly due to increased financial expenses related to companies within the ISS Group. Cash flow from operating activities was DKK (171) million (2022: DKK (242) million). The improvement was mainly due to higher joint taxation contribution received partly offset by increased interest paid to companies within the ISS Group. Cash flow from financing activities was DKK 123 million (2022: DKK 290 million). The decrease related mainly to dividends paid to shareholders of DKK 390 million (2022: DKK 0 million) partly offset by increased payments received from companies within the ISS Group. Equity was DKK 23,599 million (2022: DKK 24,168 million) mainly driven by net profit and settle- ment of vested PSUs and RSUs related to the Group's share-based payment programmes. Outlook 2024 Management expects net profit for 2024 to be in line with the level realised in 2023. Diversity reporting This section covers ISS A/S's reporting in accordance with the Danish Financial Statements Act sections 99b and 107d. The Board of Directors (the Board) is responsible for annually determining the appropriate qualifications, experience and competencies required of the Board and the Executive Group Management Board (the EGMB) of ISS A/S in order for the Board and the EGMB to best perform their tasks, taking into account ISS A/S’s needs and the existing composition of these boards. The Board and the EGMB recognise the importance of promoting diversity 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. When considering qualifications, experience and competencies of Board or EGMB candi- dates, emphasis is placed on: • experience and expertise • diversity of gender, age and nationalities as well as in broader terms; and • personal characteristics matching ISS’s values and leadership principles Gender representation Board The current gender representation among Board members (elected by the general meeting) is 33.3% women and 66.7% men, which is considered equal according to the Danish Business Authority’s applicable guidelines 1) . The Board aims to maintain an equal gender representation of 40/60% among elected board members in accordance with the Danish Business Authority’s guidelines. With the inclusion of employee representatives, 44.4% of our Board is women. Other management levels Other management levels of ISS A/S comprise the EGMB. As ISS A/S has less than 50 employ- ees and the EGMB consists of less than three people, ISS A/S has not adopted a company specific gender target or policy promoting gender diversity at other management levels. 1) According to the Danish Business Authority’s guidelines on target figures, policies and reporting on the gender composition of management, a gender distribution of 40/60% or the closest number under 40% is considered equal. 2) Equal representations according to the Danish Business Authority’s guidelines on target figures, policies and reporting on the gender composition of management. 2023 Board Other management levels 2025 Target 40%/60% n/a Total members 6 1 Female/male: Number 2/4 2) 0/1 % 33/67 2) 0/100 ISS A/S's “Competencies and diversity policy for the Board of Directors and Other management levels of ISS A/S” is available here 17% British 17% Indian 17% US 17% Swedish 32% Danish Nationalities Board Special competencies Board 100% Strategy and value creation 83% Leadership of large international multicultural companies 67% Transformational change and operational alignment 50% Corporate responsibility and sustainability 50% Finance, accounting and tax 50% IT, technology and digitalisation 50% Investors and capital markets 50% Risk management 50% People development, succes sion planning, diversity and remuneration 50% International service industry 17% Sales and marketing, incl. complex, large-scale sales processes 1) Board members elected at the annual general meeting. Underrepresented gender §99b-reporting 1) 1) 49 From a stronghold as a global leader in cleaning, we consistently optimise our cleaning methods and solutions to enhance sustainability and impact on the environment. In 2023, ISS collaborated with one of our global banking customers to significantly reduce water and chemi- cals usage by introducing the innovative cleaning product, Pure Space Office. Moving from traditional to advanced cleaning methods and introducing super concentrates rather than ready-to-use standard concentrates not only provides tangible cost savings but also has a signif- icant positive impact on the environment. These are key takeaways from the ongoing rollout of ISS’s Pure Space Office product with a large global banking customer. “Pure Space Cleaning products are designed to optimise cleaning services by using methods that minimise chemicals and water to an absolute minimum. The adoption of super concentrates, cou- pled with the right dosing and dilution platforms, reduces the need for plastic containers and logistics intensity, creating a positive sustainable impact,” says Anders Dedenroth Høj, Director of Cleaning Methods and Technologies at ISS. Through the case study, ISS has observed a 55% reduction of water usage. Addi- tionally, when comparing Pure Space with traditional cleaning methods, there has been a 95% or more reduction in chemical usage, plastic waste, cardboard waste, and carbon emissions. With more than 100 years of experience in delivering unrivalled consistency and compliance in our cleaning services, made possible by people who care, ISS works diligently to make cleaning more sustain- able. Through advanced cleaning methods and plant-based cleaning products, we help reduce chemical consumption. There is a clear sustainability ambition embedded in our cleaning strategy, which includes the following commitments: • increase use of sustainable products and materials • reduce use of water consumption • reduce use of chemical consumption • recycle products using microfiber; and • waste measurement and reduction programmes Our commitment to deliver sustainable cleaning solutions SUSTAINABLE SERVICE PRODUCTS CASE “This is a game-changer within our sustainability ambitions in cleaning. These numbers speak for themselves. Considering that we have only just started the rollout and introduced Pure Space Office to a small proportion of our global customers, the scale and impact of this has tremendous potential.” Trine Lops Product Director, Cleaning, ISS Financial statements 51CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements Primary financial statements Statement of profit or loss 52 Statement of comprehensive income 52 Statement of cash flows 53 Statement of financial position 53 Statement of changes in equity 54 Significant changes and events 55 Estimates and judgements 56 1 Operating profit 57 1.1 Segments 58 1.2 Revenue 60 1.3 Employee costs 62 1.4 Other income and expenses, net 62 2 Operating assets, liabilities and free cash flow 63 2.1 Trade receivables and credit risk 64 2.2 Other receivables 65 2.3 Other liabilities 65 2.4 Changes in working capital 65 2.5 Provisions, contingencies, guarantees and commitments 66 2.6 Right-of-use assets and property, plant and equipment 70 2.7 Free cash flow 71 3 Strategic investments and divestments 72 3.1 Intangible assets 73 3.2 Impairment tests 75 3.3 Acquisitions 78 3.4 Discontinued operations, assets held for sale and divestments 79 4 Capital structure 81 4.1 Equity 82 4.2 Borrowings and interests 84 4.3 Financial risk management 86 4.4 Interest rate risk 87 4.5 Liquidity risk 88 4.6 Currency risk 89 5 Tax 90 5.1 Income tax 91 5.2 Deferred tax 92 6 Remuneration 93 6.1 Management remuneration 94 6.2 Share-based payments 94 7 Other required disclosures 97 7.1 Pensions and similar obligations 97 7.2 Hyperinflation in Türkiye 100 7.3 Related parties 101 7.4 Fees to auditors 101 7.5 Subsequent events 101 8 Basis of preparation 102 8.1 Other material accounting policies 102 8.2 Change in accounting policies and disclosures 103 8.3 New regulations 103 8.4 Group companies 104 8.5 Definitions 105 52CONSOLIDATED FINANCIAL STATEMENTS Statement of profit or loss Statement of comprehensive income 1 January – 31 December ( DKKm ) Note 2023 2022 Revenue 1.1, 1.2 78,681 73,838 Employee costs 1.3 ( 49,607 ) ( 46,276 ) Consumables ( 7,481 ) ( 6,485 ) Other operating expenses ( 16,876 ) ( 16,744 ) Depreciation and amortisation 2.6, 3.1 ( 1,417 ) ( 1,415 ) Operating profit before other items 3,300 2,918 Other income and expenses, net 1.4 ( 93 ) 55 Amortisation/impairment of customer contracts 3.1 ( 69 ) ( 69 ) Operating profit 1.1 3,138 2,904 Financial income 4.2 185 205 Financial expenses 4.2 ( 792 ) ( 589 ) Profit before tax 2,531 2,520 Income tax 5.1 ( 554 ) ( 405 ) Net profit from continuing operations 1,977 2,115 Net profit from discontinued operations 3.4 ( 1,652 ) 21 Net profit 325 2,136 Attributable to: Owners of ISS A/S 279 2,058 Non-controlling interests 46 78 Net profit 325 2,136 Earnings per share, DKK Basic earnings per share ( EPS ) 4.1 1.5 11.1 Diluted earnings per share 4.1 1.5 11.0 Earnings per share for continuing operations, DKK Basic earnings per share ( EPS ) 4.1 10.4 11.0 Diluted earnings per share 4.1 10.3 10.9 1 January – 31 December ( DKKm ) Note 2023 2022 Net profit 325 2,136 Items that will not be reclassified to profit or loss: Remeasurement gain/ ( loss ) , defined benefit plans 7.1 ( 462 ) 208 Asset ceiling, defined benefit plans 7.1 299 ( 43 ) Tax 5.2 33 ( 53 ) Items that may be reclassified to profit or loss: Foreign exchange adjustments of foreign entities 4.1 ( 478 ) ( 102 ) Recycling of accumulated foreign exchange adjustments on country exits 4.1 ( 18 ) ( 33 ) Hyperinflation restatement of equity at 1 January 7.2 467 814 Fair value adjustments of net investment hedges 4.1 ( 84 ) ( 43 ) Tax 4.1 - 10 Other comprehensive income ( 243 ) 758 Comprehensive income 82 2,894 Attributable to: Owners of ISS A/S 55 2,498 Non-controlling interests 27 396 Comprehensive income 82 2,894 53 Statement of cash flows Statement of financial position At 31 December ( DKKm ) Note 2023 2022 Operating profit before other items 3,300 2,918 Operating profit before other items from discontinued operations 3.4 ( 154 ) ( 58 ) Depreciation and amortisation 2.6, 3.1 1,464 1,517 Non-cash items related to hyperinflation 7.2 ( 90 ) ( 51 ) Share-based payments 72 80 Changes in working capital 2.4 196 444 Changes in provisions, pensions and similar obligations ( 468 ) ( 665 ) Other expenses paid ( 42 ) ( 31 ) Interest received 120 87 Interest paid ( 578 ) ( 486 ) Income tax paid ( 428 ) ( 422 ) Cash flow from operating activities 3,392 3,333 Acquisitions 3.3 ( 373 ) ( 325 ) Divestments 3.4 25 587 Acquisition of intangible assets and property, plant and equipment ( 719 ) ( 809 ) Disposal of intangible assets and property, plant and equipment 16 30 Change in financial assets 9 ( 29 ) Cash flow from investing activities ( 1,042 ) ( 546 ) Repayment of lease liabilities 4.2 ( 791 ) ( 865 ) Other financial payments, net 4.2 ( 147 ) ( 58 ) Transactions with non-controlling interests ( 6 ) ( 7 ) Dividends paid to shareholders 4.1 ( 390 ) - Cash flow from financing activities ( 1,334 ) ( 930 ) Total cash flow 1,016 1,857 Cash and cash equivalents at 1 January 5,214 3,428 Total cash flow 1,016 1,857 Foreign exchange adjustments ( 137 ) ( 71 ) Cash and cash equivalents at 31 December 4.2, 4.5 6,093 5,214 Free cash flow 2.7 1,775 1,734 At 31 December ( DKKm ) Note 2023 2022 Assets Intangible assets 3.1, 3.2 23,272 23,920 Right-of-use assets 2.6 2,200 2,403 Property, plant and equipment 2.6 926 917 Deferred tax assets 5.2 962 912 Other financial assets 195 512 Non-current assets 27,555 28,664 Inventories 239 231 Trade receivables 2.1 11,354 10,996 Tax receivables 126 173 Other receivables 2.2 1,628 1,695 Cash and cash equivalents 4.2, 4.5 6,093 5,214 Assets held for sale 3.4 698 32 Current assets 20,138 18,341 Total assets 47,693 47,005 Equity and liability Equity attributable to owners of ISS A/S 4.1 9,893 10,156 Non-controlling interests 4.1 629 659 Total equity 10,522 10,815 Loans and borrowings 4.2 13,427 15,945 Pensions and similar obligations 7.1 1,135 1,185 Deferred tax liabilities 5.2 1,320 1,178 Provisions 2.5 387 465 Non-current liabilities 16,269 18,773 Loans and borrowings 4.2 3,292 855 Trade and other payables 4.5 7,259 6,952 Tax payables 155 172 Other liabilities 2.3 8,482 8,822 Provisions 2.5 365 606 Liabilities held for sale 3.4 1,349 10 Current liabilities 20,902 17,417 Total liabilities 37,171 36,190 Total equity and liabilities 47,693 47,005 CONSOLIDATED FINANCIAL STATEMENTS 54 Statement of changes in equity 1 January – 31 December Attributable to owners of ISS A/S ( DKKm ) Note Share capital Treasury shares Retained earnings Proposed dividends Translation reserve Total Non- controlling interests Total equity 2023 Equity at 1 January 185 ( 185 ) 10,920 390 ( 1,154 ) 10,156 659 10,815 Net profit - - ( 148 ) 427 - 279 46 325 Other comprehensive income 4.1 - - ( 101 ) - ( 123 ) ( 224 ) ( 19 ) ( 243 ) Comprehensive income - - (249) 427 (123) 55 27 82 Dividends paid to shareholders 4.1 - - - ( 390 ) - ( 390 ) - ( 390 ) Share-based payments 6.2 - - 72 - - 72 - 72 Settlement of vested PSUs/RSUs 4.1 - 119 ( 119 ) - - - - - Non-controlling interests 4.1 - - - - - - ( 57 ) ( 57 ) Transactions with owners - 119 (47) ( 390 ) - (318) (57) (375) Changes in equity - 119 (296) 37 (123) (263) (30) (293) Equity at 31 December 185 ( 66 ) 10,624 427 ( 1,277 ) 9,893 629 10,522 2022 Equity at 1 January 185 ( 191 ) 9,035 - ( 1,446 ) 7,583 206 7,789 Net profit - - 1,668 390 - 2,058 78 2,136 Other comprehensive income 4.1 - - 148 - 292 440 318 758 Comprehensive income - - 1,816 390 292 2,498 396 2,894 Share-based payments 6.2 - - 80 - - 80 - 80 Settlement of vested PSUs 4.1 - 6 ( 6 ) - - - - - Non-controlling interests 4.1 - - ( 5 ) - - ( 5 ) 57 52 Transactions with owners - 6 69 - - 75 57 132 Changes in equity - 6 1,885 390 292 2,573 453 3,026 Equity at 31 December 185 ( 185 ) 10,920 390 ( 1,154 ) 10,156 659 10,815 CONSOLIDATED FINANCIAL STATEMENTS 55 Significant changes and events In 2023, the Group's performance and financial position was affected by the significant changes and events highlighted below. A detailed review of the Group's performance is provided in the Management's Review on pp. 17-27. Macroeconomic and geopolitical environment Continued uncertainty The macroeconomic environment and geopolitical events continued to create uncertainty in 2023. Rising inflation and interest rates touched certain aspects of our business, such as increasing our cost base, mainly because of increasing minimum wages and collective wage agreements. To mitigate the effect, we continued to utilise the price adjustment mechanisms in our customer contracts. Türkiye also continued to be considered a hyperinflationary economy and eligible for accounting in accordance with IAS 29. In preparing these consolidated financial statements, we considered the impact of this development when making accounting estimates, most significantly in relation to: • Impairment tests, 3.2 • Pensions and similar obligations, 7.1 • Hyperinflation in Türkiye, 7.2 France Discontinued operations In 2023, it was decided to divest ISS France and reposition ISS to only focus on servicing global key account customers. As a result, the business was classified as held for sale and discontinued operations. On 22 December 2023, we signed a binding agreement (put option) to divest the business to Onet SA with expected completion in the first half of 2024. Net profit of the French business for 2023 amounted to DKK (1,685) million, and was presented separately in “Net profit from discontinued operations”. The result included the impairment loss of DKK 1,257 million recognised at 30 June 2023 and subsequent impairment losses and fair value adjustments of DKK 201 million. See 3.2, Impairment tests and 3.4, Discontinued operations, asset held for sale and divestments for further details. Deutsche Telekom contract Arbitration process As previously informed, ISS and Deutsche Telekom (DTAG) have certain contractual disagreements and ISS has in 2022 initiated the establishment of an Arbitration Tribunal under the German Institute of Arbitration (DIS) to decide on these disagreements. The arbitration proceedings are expected to complete with a final and binding ruling by mid-2025. ISS and DTAG have exchanged claims against each other, but the outcome of the proceedings remains uncertain. Management has carefully considered the various aspects of the dispute in making their estimates and judgements, mainly in relation to provisions and contingent liabilities. See 2.5, Provisions, contingencies, guarantees and commitments for further details. CONSOLIDATED FINANCIAL STATEMENTS 56 The preparation of the Group’s consolidated financial statements required management to make judgements, estimates and assumptions that affected the reported amounts of assets, liabilities, income and expenses, the accom- panying 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. Estimates and assumptions are reviewed on an ongoing basis and have been prepared taking macroeconomic and geopolitic developments into consideration as well as climate-related matters, but still ensuring that one-off effects which are not expected to exist in the long term do not affect estimation and determina- tion of these key factors, including discount rates and expectations for the future. The Group's significant accounting estimates and judgements in applying the Group's material accounting policies are provided in the overviews to the left. Climate-related matters In preparing these consolidated financial statements, management assessed the impact of climate matters and related risks in relation to 1) the going concern assessment; and 2) in applying significant estimates and assumptions. The assessment included both transitional risks in the form of increased costs incurred as part of transitioning toward a more sustainable econ- omy, and physical risks due to specific weather events, such as storms or flooding. Estimates and judgements Note Significant accounting estimates 1.2 Revenue • Impact from contract modifications and variable consideration 2.5 Provisions • Onerous contracts – assessment of future profitability • Assumptions for onerous contracts, claims, disputes and legal proceedings 3.2 Impairment tests • Key assumptions in impairment test of goodwill and other intangible assets 3.4 Assets held for sale • Estimate of fair value less costs to sell 5.2 Deferred tax • Assessment of future taxable profit • Uncertain tax positions – estimate of the amount required to settle the obligation 7.1 Pensions and similar obligations • Impact from increased inflation and discount rates on future salary and pension increases Note Significant judgement 1.2 Revenue • Gross or net presentation – assessment of whether ISS acts as the principal or the agent 2.2 Other receivables • Transition and mobilisation costs – assessment of the criteria for capitalisation 2.5 Provisions • Lawsuits and disputes - assessment of the likely outcome • Large contracts - assessment of risks and disputes 2.6 Right-of-use assets • Lease term – determining whether extension options are reasonably certain to be exercised 3.1 Intangible assets • Cloud-based arrangements – assessment of control and whether configuration/customisation costs result in an intangible assets • Software – capitalisation of configuration/customisation costs 7.2 Hyperinflation in Türkiye • Price index – assessment of which approach to apply in calculating the conversion factor when restating for hyperinflation, i.e. average year-to- date or average month-to-date Generally, we do not believe that our profit- ability, cash flow generation or asset base is significantly exposed to climate risk, which is based on our general ability to pass on cost increases to customers as evidenced by our relative historic margin stability and on the fact that we are an asset-light operation with low operational investment needs. This conclusion is supported by our TCFD assessment. As a result, it is management's assessment, that climate-related matters 1) will not have a significant impact on the Group’s going concern assessment, or in the long term (next five years); and 2) did not have a material impact on the Group’s significant accounting estimates and assumptions applied in these consolidated financial statements. In relation to the latter, management specifi- cally considered the impact of climate-related matters in performing impairment tests; in estimating cash flow projections for the individual CGUs management considered both transitional risks, i.e. increased costs resulting from imposed carbon tax and other regulatory requirements, as well as physical risks, such as critical weather events. As our business model entails performing services at our customers sites, this mainly included an assessment of our customers' ability to continue their business in the short to medium term. CONSOLIDATED FINANCIAL STATEMENTS 57 In this section: 1.1 Segments 1.2 Revenue 1.3 Employee costs 1.4 Other income and expenses, net 1 Operating profit 71% 29% Our cost base Our revenue base Employee costs Portfolio Projects and above-base 84% 66% 71 DKKbn 16% Key Account share Key accounts Other 78.7 DKKbn 78.7 DKKbn Self-delivery model 75.4 DKKbn Our strategic focus – IFS for key accounts – high level of recurring revenue – self-delivery by our placemakers ISS is a leading, global provider of integrated facility services to key account customers and the absolute leader in cleaning. With operations in 60+ countries of which 30+ are core self-delivery countries, we have a strong global footprint. Our prioritised segments are Office-based, Production-based and Healthcare and our core service offering consists of cleaning, food, technical and workplace services. As our business model is based on self-delivery of our core services, our placemakers are our most important resource. As a result, we incur a significant amount of employee costs to generate revenue. In 2023, employee costs comprised 66% of total operating costs, and remained at the level of 2022. In 2023, revenue was DKK 78,681 million with an organic growth of 9.7%. Revenue from key account customers comprised 71% (2022: 73%) of Group revenue and grew organically by 7.9% driven by price increases, increased activity levels at customers’ sites and office occupancy rates. The majority of revenue comprises portfolio revenue which is contractually committed at the inception of the contract and recurring. The remaining revenue is demanded on a non- recurring basis and agreed as separate transactions. Portfolio revenue benefitted from the positive development and grew organically by 12%. Operating profit before other items was DKK 3,300 million for an operating margin of 4.2%. Excluding impact from hyperinflation in Türkiye, operating margin was 4.3% (2022: 4.0%). In the second half of the year, a review and prioritisation of OneISS initiatives, which were launched in 2020, was conducted. As a result, one-off costs of DKK 233 million were recognised, impacting operating margin negatively by around 0.3%-point. One-off costs related mainly to severance payments and general cost adjustments at Group and regional levels, where functions have been slimmed to enhance strategic and operational execution and certain projects have been refocused or terminated. % of total operating costs % of Group revenue % of Group revenue FINANCIAL STATEMENTS 58 1.1.1 Operating segments 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 identified based on a key principle of grouping countries that share market conditions and cultures. Countries where we do not have a full country-based support structure (partnership countries) are combined in a separate segment “Other countries”. An overview of the grouping of countries into regions is presented in 8.4, Group companies. France classified as held for sale and discontinued operations On 9 August 2023, ISS announced its inten- tion to divest the French business, while still retaining global key account customers in the country. As a result, ISS France (excluding global key accounts) was classified as held for sale and discontinued operations and excluded from the segment overview to the right (previously included in Central & Southern Europe). Revenue and operating profit related to the retained global key accounts was presented in Other countries. Comparative figures have been restated accordingly. Northern Central & Southern Asia & Pacific Americas Other Northern Central & Southern Asia & Pacific Americas Other 37% 32% 18% 12% 1% 36% 31% 21% 11% 1% 1.1 Segments Regional Revenue Operating profit 78.7 DKKbn 4.3 DKKbn Revenue 1) Based on total segments Unallo-Central &OtherTotal cated/Northern Southern Asia & Ameri-coun-seg-elimi-Total (DKKm)EuropeEuropePacificcastriesmentsnationGroup2023 Revenue, excl. IAS 29 29,324 24,807 14,229 9,605 783 78,748 (65) 78,683 Hyperinflation restatement - (2) - - - (2) - (2)Revenue 29,324 24,805 14,229 9,605 783 78,746 (65) 78,681 Depreciation and amortisation (543) (493) (132) (121) (4)(1,293) (124) (1,417)Operating prof it before other items, excl. IAS 29 1,572 1,487 875 489 48 4,471 (1,123) 3,348 Hyperinflation restatement - (48) - - - (48) - (48)Operating profit before other items 1,572 1,439 875 489 48 4,423 (1,123) 3,300 Operating margin 5.4% 5.8% 6.1% 5.1% 6.1% 5.6% - 4.2%Operating margin, excl. IAS 29 5.4% 6.0% 6.1% 5.1% 6.1% 5.7% - 4.3%Other income and expenses, net - (43) 13 (4) - (34) (59)(93)Amortisation/impairment of customer contracts (13) (37) (2) (17) - (69) - (69)Operating profit 1,559 1,359 886 468 48 4,320 (1,182) 3,138 2022Revenue, excl. IAS 29 28,694 21,646 14,012 8,585 795 73,732 (48) 73,684 Hyperinflation restatement - 154 - - - 154 - 154 Revenue 28,694 21,800 14,012 8,585 795 73,886 (48) 73,838 Depreciation and amortisation (557) (473) (147) (97) (4) (1,278) (137) (1,415)Operating prof it before other items, excl. IAS 29 1,519 1,146 882 445 60 4,052 (1,105) 2,947 Hyperinflation restatement - (29) - - - (29) - (29)Operating profit before other items 1,519 1,117 882 445 60 4,023 (1,105) 2,918 Operating margin 5.3% 5.1% 6.3% 5.2% 7.6% 5.4% - 4.0%Operating margin, excl. IAS 29 5.3% 5.3% 6.3% 5.2% 7.6% 5.5% - 4.0%Other income and expenses, net 45 (15) 156 (124) - 62 (7) 55 Amortisation/impairment of customer contracts (16) (27) (4) (22) - (69) - (69)Operating profit 1,548 1,075 1,034 299 60 4,016 (1,112) 2,904 – by region – by region CONSOLIDATED FINANCIAL STATEMENTS Operating profit 1) 59 1.1.2 Geographical distribution 1.1 Segments (continued) Accounting policy Our segments are managed primarily based on business performance measured by Operating profit. Segment revenue and costs comprise items that are directly attributable to the individual segments. Unallocated items mainly consist of revenue and cost relating to the Group’s corporate functions. Decisions on financing (financial income and expenses) as well as tax planning (income tax) are managed at Group level and are therefore not managed and allocated to segments. Segment revenue is presented including internal revenue which due to the nature of the business is insignificant and therefore not disclosed. The geographical distribution of segment revenue and non-current assets is based on the geographical location of the individual subsidiary from which the sales transaction originates. Significant countries are defined as countries representing more than 5% of Group revenue as well as the domicile country, Denmark. No customer com prises more than 10% of Group revenue. Group revenue per country is disclosed on p. 118. Non-current assets 13% 9% 8% 8% 6% 6% 6% 4% 40% 12% 9% 8% 4% 5% 6% 6% 7% 43% UK & Ireland US & Canada Switzerland Germany Australia & NZ Türkiye Spain Denmark Other countries UK & Ireland US & Canada Switzerland Germany Australia & NZ Türkiye Spain Denmark Other countries Revenue Non-current assets 78.7 DKKbn 26.6 DKKbn 1) Excluding deferred tax assets. 2) Including unallocated items and eliminations. 1)Revenue Non-current assets (DKKm) 2023 2022 2023 2022 UK & Ireland 10,611 10,396 3,117 3,052 US & Canada 7,004 6,387 2,368 2,492 Switzerland 6,383 5,729 2,206 2,134 Germany 5,864 5,556 974 997 Australia & New Zealand 5,102 4,868 1,343 1,396 Türkiye 4,833 3,341 1,525 1,517 Spain 4,460 4,130 1,576 1,196 Denmark (country of domicile) 2,994 3,169 1,730 1,737 2)Other countries 31,430 30,262 11,754 13,231 Total 78,681 73,838 26,593 27,752 Revenue – by country – by country CONSOLIDATED FINANCIAL STATEMENTS 60 1.2.1 Performance obligations Revenue is generated from rendering of workplace and facility service solutions. Our services are provided at the customer's site on a daily basis continuously over the term of the contract. The customer simultaneously receives and consumes the benefits provided by the Group. Thus, performance obligations are satisfied over time. Revenue is split between portfolio and projects and above-base work, with the vast majority stemming from portfolio revenue, 84% (2022: 82%). 1.2.3 Costs to fulfil a contract The size and complexity of key account contracts often requires ISS to incur significant transition and mobilisation costs before service delivery commences in order to be able to fulfil the performance obligations under the contracts. Transition and mobilisation costs comprise costs, directly related to launching certain large long-term contracts such as transfer of employ- ees from previous suppliers, site due diligence, planning and developing service plans. The cost includes internal direct costs and external costs, e.g. to consultants. At 31 December 2023, capitalised transition and mobilisation costs amounted to DKK 42 million (2022: DKK 36 million). The increase in 2023 was due to ongoing mobilisation activities for a new contract in the UK, partly offset by ordinary amortisation, mainly in Denmark, Sweden and the UK. Capitalised transition and mobilisation costs are presented in 2.2, Other receivables. 1.2 Revenue 1.2.2 Disaggregation of revenue Aligned with our strategy to focus on key accounts in three prioritised segments, where we deliver our core services, we disaggregate revenue based on: • customer category; • customer segment; • core services; and • geographical region We believe that these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Portfolio revenue comprises revenue from contracts with customers that is contractually agreed (committed) at inception and relates to services that we are obligated to render on a recurring basis over the term of the contract. Revenue from projects and above-base work (e.g. capital projects, events, etc.) is demanded on a non-recurring basis and agreed separately with the customer. Disaggregation of revenue based on geographical region is disclosed in 1.1, Segments. Key accounts Large and medium Small and route-based Office-based Production-based Healthcare Other Cleaning Technical Food Workplace and other 71% 24% 5% 39% 24% 14% 23% 42% 23% 15% 20% (DKKm)2023 2022Customer categoryKey accounts 56,253 53,807 Large and medium 18,645 16,406 Small and route-based 3,783 3,625 Total 78,681 73,838 Customer segmentsOffice-based 30,669 29,849 Production-based 18,906 16,985 Healthcare 10,951 9,994 Other 18,155 17,010 Total 78,681 73,838 Core servicesCleaning 33,165 32,801 Technical 18,285 16,574 Food 11,991 10,161 Workplace and other 15,240 14,302 Total 78,681 73,838 Customer segments Customer category Core services Core segments Customers Core services 78.7 DKKbn 78.7 DKKbn 78.7 DKKbn (DKKm)2023 2022Portfolio revenue 65,710 60,532 Projects and above-base work 12,971 13,306 Total 78,681 73,838 CONSOLIDATED FINANCIAL STATEMENTS 61 1.2 Revenue (continued) 1.2.4 Revenue backlog Our revenue base consists of a mix of yearly con- tracts, which are renewed tacitly, and thousands of multi-year contracts, the majority of which have an initial term of three to five 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 maintain a high retention rate of 95%, both for key accounts and overall, supporting that these options are rarely exercised. The vast majority of our revenue is portfolio revenue, see 1.2.1, Performance obligations. The remaining part is non-recurring in the form of projects and above-base work, which is not committed as part of the main customer contract and thus, excluded from the revenue backlog. In addition, the Group has excluded contracts with a term of less than 12 months and contracts where the Group invoices a fixed amount for each hour of service provided. As a result, the amounts disclosed in the maturity table is significantly lower than reported revenue and will likely not reflect the degree of certainty in future revenue (and cash inflows) to the Group. As a supplement, in the management review, p. 20, a maturity overview for our largest key accounts (> DKK 200 million of annual revenue) is presented. Accounting policy Revenue from contracts with customers is recog- nised when control of the services is transferred to the customer. Control is transferred over time as the customer simultaneously receives and consumes the benefits provided by the Group. Services are invoiced on a monthly basis at an amount corresponding to the value of the com- pleted performance obligation. 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. Our customer contracts are based on three different commercial models requiring varying levels of man- agement estimates and judgement in determining the transaction price: 1) Fixed price contracts; 2) Cost-plus contracts; and 3) Cost-plus variations (typically capped) For fixed price contracts, revenue is recognised based on the transaction price stated in the contract, and thus require limited judgement from management. For cost-plus contracts, including variations e.g. with a cap, ISS’s transaction price is determined based on costs incurred with the addition of an agreed markup/ management fee. Determining the transaction price requires management to assess, which costs may be included in the calculation basis and if relevant, whether within the capped maximum. For key accounts and other large contracts, the transaction price may also include a variable consideration based on achievement of certain key performance indicators and gain share. Management 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 de- tailed 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 significant reversal. Significant accounting estimates and judgements Price adjustment mechanisms in our customer con- tracts vary in terms of content and extent. Judgement is required by management to determine the amount of revenue expected to be received as a result of inflationary pressure on costs of delivery. Contract modifications regularly occur, particularly for key account customers, in order to ensure that service solutions reflect their current needs. Such modifications are generally agreed with the customer in advance as per the contract in accordance with a specified change management procedure and accounted for going forward with no impact on recognised revenue up to the date of modification. Management assess how quickly ISS would be able to implement the scope changes of the service. Gross or net presentation of revenue Management uses judgement to determine whether the nature of ISS’s promise is to provide the specified services (ISS is the principal), or to arrange for another party to provide the services (ISS is acting as an agent). This assessment is based on an evaluation of whether ISS controls the specified services before transfer to the customer. The Group has concluded that as a main rule ISS 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. ( DKKm ) 2023 2022 < 1 year 33% 20,793 33% 20,230 1-5 years 56% 35,356 55% 33,237 > 5 years 11% 7,463 12% 7,352 Total 100% 63,612 100% 60,819 CONSOLIDATED FINANCIAL STATEMENTS 62 1.3 Employee costs Number of employees At 31 December 2023, total number of employees was 352,749 (2022: 351,053). The number of employees includes both the continuing and dis- continued operations. Once the divestment of France is completed, the number of employees will be reduced with around 15,000 employees. Average number of employees was 334,962 (2022: 337,924). Including France, average num- ber of employees was 349,086 (2022: 352,795). Government grants In 2023, the Group recognised government grants of DKK 184 million (2022: DKK 159 million) in the form of wage subventions, which have been recognised as a reduction of em- ployee costs. The grants compensate the Group primarily for social security, wage increases as well as employing certain categories of employees such as trainees, disabled persons, long-term unemployed and employees in certain age groups. In addition, the Group received Covid-19 grants during the pandemic to compensate costs re lated to e.g. employees on furlough, social security contribution and sick pay compen- sation. With the cessation of the pandemic, the grants have gradually lapsed. In 2023, the Group recognised Covid-19-related grants of DKK 18 million, mainly in Austria and Hong Kong (2022: DKK 122 million mainly in US, Hong Kong and Sweden). 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 operating activities, i.e. gains and losses on divestments, remeasurement of disposal groups classified as held for sale, the winding-up of operations, disposal of property and acquisition and integration costs. Other income and expenses, net are presented separately from the Group's ordinary operating activities as management believes that this best reflects the Group's financial performance. 1.4 Other income and expenses, net Gain on divestments mainly related to the land- scaping and the sanitation services businesses in Singapore. In 2022, the gain mainly related to the waste management business in Hong Kong and the damage control business in the UK. Loss on divestments mainly related to the security and the technical services businesses in Spain. In 2022, the loss comprised a withdrawal liability on a multiemployer plan in the US related to the divestment of Specialized Services in December 2021. Integration costs related to the acquisition of Grupo Fissa in Spain and Livit FM Services AG in Switzerland (2022: Livit FM Services AG). Acquisition costs mainly related to the acqui- sition of Grupo Fissa in Spain (2022: Livit FM Services AG). Other comprised a fair value adjustment of a contingent consideration associated with the transaction in Türkiye in 2021. In 2022, the loss comprised costs related to winding-up of a minor business in Germany. Our strategy is based on self-delivery of our core services by our placemakers. Our business model is asset-light and therefore employee costs is our single largest cost category. In 2023, employee costs comprised 66% of the total operating costs (2022: 65%). (DKKm)Note 2023 2022Wages and salaries 39,992 36,756Social security costs 8,141 7,995Pensions 7.1 1,402 1,445Share-based payments 6.2 72 80 Total 49,607 46,276Average number of employees 334,962 337,924 (DKKm)2023 2022Gain on divestments 14 204 Other income 14 204 Loss on divestments (32) (124)Integration costs(8) (7)Acquisition costs(8)(4)Other(59) (14)Other expenses(107) (149)Other income and expenses, net(93) 55 CONSOLIDATED FINANCIAL STATEMENTS In this section: 2.1 Trade receivables and credit risk 2.2 Other receivables 2.3 Other liabilities 2.4 Changes in working capital 2.5 Provisions, contingencies, guarantees and commitments 2.6 Right-of-use assets and property, plant and equipment 2.7 Free cash flow 2 Operating assets, liabilities and free cash flow Our ability to manage our working capital and secure the liquidity required to operate, grow and improve our business is paramount, and driving strong cash flow remained a key priority for ISS in 2023. In 2023, we generated nominal free cash flow (non-IFRS) of DKK 1.8 billion (2022: DKK 1.7 billion) driven by solid operating profit. Changes in working capital was positive despite an increase in trade receivables from high revenue growth particularly in Türkiye where payment cycles are longer than Group average, and adverse timing effects of certain payments related to contractual disputes. This was mitigated by strong collections and further offset by an increase in payables. Trade receivables Free cash flow Trade receivables DKKbn % 4 6 8 10 12 20232022202120202019 DKKbn 75 80 85 90 95 Trade receivables (DKKbn) Not past due, % Free cash ﬂow Free cash ﬂow (DKKbn) DKKbn -2 -1 0 1 2 3 20222021202020192018 DKKbn Free cash ﬂow (non-IFRS) 2.4 0.4 (1.8) 1.7 1.7 We continued to focus on the development in trade receivables, especially overdue receivables and unbilled receivables. As a result, the ageing profile of our trade receivables remained strong with 89% of receivables in the not past due category (2022: 89%). Investments in property, plant and equipment (including right-of-use assets) remained low and comprised 1.7% of Group revenue (2022: 1.5%) reflecting our asset-light business model. 0 1 2 3 4 DKKbn 20232022 Operat- ing profit 1) Working capital Provi- sions Other exp. 1.7 Free cash ﬂow 0.4 (0.2) (0.3) 1.8 0.2 63 1) 7% Asset light business model 47.7 DKKbn Asset-light business model Fixed assets, incl. right-of-use 1) Before other items % of total assets FINANCIAL STATEMENTS 64 2.1 Trade receivables and credit risk Development in 2023 In 2023, trade receivables increased to DKK 11,354 million (2022: DKK 10,996 million) generally as a result of high organic growth driven by implemented price increases and high activity levels at customer sites across the Group. Furthermore, the increase was driven by Türkiye, where payment cycles are longer than Group average, and by adverse timing effects of certain payments relating to contractual disputes. Commercial use of factoring with certain large key account customers and participation in certain customers' supply chain finance arrange- ments was DKK 1.4 billion (2022: DKK 1.3 billion) at 31 December 2023. Expected credit losses comprised 1.1% (2022: 1.1%) of trade receivables (gross) and trade receivables not past due was 89% of trade receivables, net (2022: 89%). Accounting policy Trade receivables comprise invoiced and unbilled revenue. Unbilled revenue represents service deliveries where the performance obligation has been fulfilled, but not yet invoiced. Trade receiv- ables are recognised at the invoiced amount less expected credit losses, which equals amortised costs due to their short term nature. Expected credit losses are calculated using a provision matrix. The provision rates are based on days past due for grouping of customers with similar loss patterns, e.g. by geographical region, customer type and rating. The calculation reflects reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. Trade receivables are generally written off if they are past due more than 180 days or when there is no reasonable expectation of recovery. Write- offs are presented in Other operating expenses. Subsequent recovery of write-offs or reversal of expected credit losses are credited against the same line item. Factoring and participation in customers’ supply chain finance arrangements (factoring) are mainly used to optimise cash collection and to finance working capital impacts related to growth with certain key account customers, including from general pressure for longer payment terms and necessary investments in transition and mobilisa- tion of such contracts. Trade receivables subject to factoring agreements are derecognised once the derecognition criteria have been met and all substantial risks and rewards have been trans- ferred to the factor. Once the trade receivables have been derecognised, the Group does not carry any risk and has no continuing involvement in these trade receivables. 2023 2022ExpectedCarrying ExpectedCarrying (DKKm)Grosscredit lossesamount Grosscredit lossesamountCentral & Southern Europe 4,481 (30) 4,451 4,553 (50) 4,503 Northern Europe 3,632 (59) 3,573 3,218 (24) 3,194 Asia & Pacific 2,072 (30) 2,042 2,072 (38) 2,034 Americas 1,194 (8) 1,186 1,171 (12) 1,159 Other countries 102 - 102 106 - 106 Total 11,481 (127) 11,354 11,120 (124) 10,996 Not past due 10,148 (1) 10,147 9,762 (6) 9,756 Past due 1 to 60 days 878 (2) 876 1,073 (4) 1,069 Past due 61 to 180 days 220 (40) 180 179 (14) 165 Past due 181 to 360 days 113 (28) 85 22 (20) 2 More than 360 days 122 (56) 66 84 (80) 4 Total 11,481 (127) 11,354 11,120 (124) 10,996 Expected credit losses (DKKm)2023 2022At 1 January(124) (162)Foreign exchange adjustments 4 6 (Acquisitions)/Divestments(5) 2 Additions(86) (59)Unused amounts reversed 52 74 Unrecoverable amounts written off 18 15 Reclass to Assets held for sale 14 - At 31 December(127) (124) Exposure to credit risk – low exposure The Group’s exposure to credit risk is inherently low due to its business model and strategic choices leading to a diver- sified customer portfolio, both in terms of geography, industry sector, customer size and services. Risk management Exposure to credit risk and expected credit losses are managed locally in the operating entities. We have a strong ongoing assessment and monitoring of customers' creditworthiness and the credit limits are set as deemed appropriate taking into account the cus- tomer’s financial position and the current market conditions. In 2023, we continued to manage inflation rates tightly through price increases. The vast majority of cost increases were passed on to customers as per the agreed contrac- tual terms with no increase in credit losses. Generally, the Group does not hold collate- ral as security for trade receivables. CONSOLIDATED FINANCIAL STATEMENTS 65 2.2 Other receivables Supplier rebates and bonuses comprised volume related discounts obtained from suppliers and reflects the Group’s efforts to consolidate the number of suppliers and drive synergies and cost savings. Prepayments to suppliers comprised various payments mainly related to IT licences, utilities and insurance. Securities related to a savings plan in the US administered by ISS on behalf of certain senior employees. Receivable divestment proceeds mainly related to the divestment of Specialized Services in the US, where part of the consideration is deferred. Sign-on fees comprised upfront discounts to certain large customers incurred in the normal course of business, most significantly in the UK and on certain global key accounts. Accounting policy Other receivables comprise various items of different nature and thus different measurement methods are applied. As these items are consid- ered individually immaterial, they are presented together as Other receivables. Except for the items described below, other receivables are recognised initially at cost and subsequently at amortised cost. Due to the short- term nature of other receivables, amortised cost will equal the cost. Sign-on fees and 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. Securities and derivatives are measured at fair value with fair value adjustments being recognised in profit or loss. The fair value of deriv- atives is presented in Other receivables when the fair value is positive and in Other liabilities when the fair value is negative. (DKKm)2023 2022Supplier rebates and bonuses 434 424 Prepayments to suppliers 379 392 Securities 117 104 Receivable divestment proceeds 114 114 Sign-on fees 98 110 Transition and mobilisation costs 42 36 Government grants 23 103 Derivatives 24 50 Other 397 362 Total 1,628 1,695 Transition and mobilisation costs (costs to fulfil a contract) comprise costs directly related to start- up of operations of certain large contracts, e.g. transfer of employees from previous suppliers, site due diligence, planning and developing ser- vice plans. The costs include internal direct costs and external costs e.g. to consultants. Capitalisation of transition and mobilisation costs involves management’s judgement to assess if the criteria for capitalisation are fulfilled, including determining if the costs relate directly to the con- tract and are incurred in order for ISS to be able to fulfil the contract. In addition, management de- termines if the costs generate resources that will be used in satisfying the performance obligations and are expected to be recovered, i.e. reflected in the pricing of the contracts. Bid-related costs, including costs relating to sales work and securing contracts, are expensed as incurred. Significant accounting judgements 2.3 Other liabilities In 2023, other liabilities decreased mainly due to reclassification of France as being held for sale. The decrease was partly offset by tax withhold- ings, VAT etc. and prepayments from customers, mainly driven by the revenue growth in 2023. Savings plan related to a plan in the US under which ISS has invested in securities, see 2.2, Other receivables. The plan is administered by ISS on behalf of certain senior employees. ISS invests in securities. Other comprised customer discounts, accrued interests, etc. (DKKm)2023 2022Accrued wages, pensions and holiday allowances 5,181 5,589 Tax withholdings, VAT etc. 1,778 1,671 Prepayments from customers 989 805 Savings plan 117 104 Derivatives 63 108 Contingent consideration and deferred payments 29 12 Other 325 533 Total 8,482 8,822 2.4 Changes in working capital (DKKm)2023 2022Changes in inventories (24)(61)Changes in receivables(800)(882)Changes in payables 1,020 1,387 Total 196 444 Transition and mobilisation costs comprised costs to fulfil the performance obligation under certain large contracts, see 1.2.3, Costs to fulfil a contract. The increase in 2023 was due to ongoing mobilisation activities for a new contract in the UK, partly offset by ordinary amortisation, mainly in Denmark, Sweden and the UK. Government grants related to various receiv- ables, mainly wage subventions in Spain. Other comprised refunds from customers, accrued interest, VAT, employee-related taxes and other recoverable amounts. CONSOLIDATED FINANCIAL STATEMENTS 66 2.5 Provisions, contingencies, guarantees and commitments Legal claims and Self- Restruc-Onerous (DKKm)disputesinsuranceturingscontracts Other Total2023At 1 January 268 245 71 77 410 1,071 Foreign exchange adjustments - (8) - (1) (2) (11)Additions 70 198 160 14 10 452 Used during the year(140) (203) (150) (28) (41) (562)Unused amounts reversed(76) (32) - (19) (138) (265)Acquisitions - 3 - 4 - 7 Reclass to Liabilities held for sale(48) - - - - (48)Reclass (to)/from other liabilities 88 60 (5) (21) (14) 108 At 31 December 162 263 76 26 225 752 Non-current 78 154 1 5 149 387 Current 84 109 75 21 76 365 2022At 1 January 235 262 374 330 515 1,716 Foreign exchange adjustments(9) 6 - 3 4 4 Additions 109 142 6 15 99 371 Used during the year(41) (149) (263) (191) (90) (734)Unused amounts reversed(28) (15) (46) (80) (8) (177)Reclass (to)/from other liabilities 2 (1) - - (110) (109)At 31 December 268 245 71 77 410 1,071 Non-current 47 129 - 23 266 465 Current 221 116 71 54 144 606 ISS is exposed to various risks and uncertainties, and party to certain disputes, claims, investiga- tions and legal proceedings arising out of the normal conduct of its business. These are mainly within: • Commercial/contractual matters • Labour-related • Divestments and M&A • Tax/social regulations Provisions are recognised in relation to such obligations for probable losses, that manage- ment deems reasonable and appropriate at 31 December 2023 as reflected in the table to the right. In addition, ISS is exposed to pos- sible obligations in relation hereto, see 2.5.2, Contingencies. 2.5.1 Provisions Legal claims and disputes The provision primarily relates to labour-related claims and disputes regarding wages, overtime, holiday, pensions, severance etc., claims and disputes in relation to contractual disagree- ments with customers and suppliers as well as sales and service tax disputes. In addition, the provision includes claims and disputes associ- ated with our divestment activities. Such claims and disputes arise out of the normal conduct of business. In 2023, the decrease was primarily due to settlement of a labour-related dispute in the UK. At 31 December 2023, the remaining provision concerned predominantly Hong Kong, the US, and Norway. Self-insurance The provision mainly relates to employers’ liability and/or workers compensation in certain countries and covers claims by employees for medical benefits and lost wages associated with injuries/illness incurred in the course of their employment. The relevant countries, including self-insurance limits are listed below: • Hong Kong: DKKm 25.9 (2022: DKKm 26.8) yearly • UK: DKKm 25.7 (2022: DKKm 25.2) yearly aggregat- ed limit and DKKm 4.3 (2022: DKKm 4.2) per claim • Australia: DKKm 4.6 (2022: DKKm 4.7) per claim • US: DKKm 3.4 (2022: DKKm 3.5) per claim The provision also includes obligations not covered by the global general business liability insurance in relation to damage caused in the ordinary course of service delivery, e.g. property damage and bodily injury. The Group is self-in- sured for claims below DKK 7.5 million (EUR 1 million per claim). Restructurings The provision mainly relates to restructuring projects in several countries. Such projects are conducted in the ordinary course of our business to ensure continuous optimisation and adjustment of our cost base involving mainly overhead reductions, including termination of employees. In 2023, projects were initiated and executed in several countries and at Group level mainly as part of the OneISS strategic review, which resulted in additions of DKK 160 million and payments of DKK 150 million. The latter was mainly in relation to severance payments in Germany. CONSOLIDATED FINANCIAL STATEMENTS 67 2.5 Provisions, contingencies, guarantees and commitments (continued) Onerous contracts The provision covers unavoidable costs for certain loss-making contracts. The continued high inflation and resulting cost increases in 2023, was generally managed through price increases and cost reductions, and did not lead to identification of any significant new onerous contracts or increased provision for contracts already recognised as onerous. In 2023, the decrease of DKK 51 million was pri- marily due to utilisation of the provision for a key account contract in Hong Kong. Furthermore, in the UK and Austria improvement initiatives on a few minor loss-making contracts led to reversal of amounts provided in prior years. Other The provision comprises various other risks and obligations incidental to our business, most significantly related to customer and contract- related risks and disputes, acquisitions, divestments and decommissioning liabilities. In 2023, the provision decreased to DKK 225 million (2022: DKK 410 million) mainly due to utilisations and reassessments related to customer disputes and contract-related risks. At 31 December 2023, the provision mainly related to customer disputes and contract risks in the US and Germany. 2.5.2 Contingencies ISS is party to pending disputes, claims, investi- gations and litigations arising out of the normal conduct of its business and is therefore exposed to possible obligations. Management believes that these will not have a material impact on the Group’s financial position beyond the assets and liabilities recognised in the statement of financial position at 31 December 2023. However, the existence of such possible obligations will only be confirmed by the occurrence of future events, not entirely within ISS’s control. Due to the inherent uncertainty, future events may lead to material adverse effects on the Group’s profit or loss, financial position and cash flows from one or more of these possible obligations. Contractual disagreements Contractual disagreements with customers arise on a recurring basis in the ordinary course of ISS’s business. While most are resolved as part of the daily contract management procedures, in some cases the contractual disagreements will lead to legal proceedings. The Group is currently party to certain disputes and legal proceedings, including in relation to the contract with Deutsche Telekom (DTAG). As previously informed, ISS has initiated the establish - ment of an Arbitration Tribunal under the German Institute of Arbitration (DIS) to decide on the con - tractual disagreements between ISS and DTAG. The arbitration proceedings are expected to complete with a final and binding ruling by mid-2025. In the proceedings ISS and DTAG have exchanged claims against each other. ISS has claimed remuneration for services rendered. DTAG has disputed the claims and is currently withholding certain pay - ments to ISS related to the services rendered. The outcome of the proceedings remains uncertain. Labour-related risks Being a people company operating across different geographies and service areas exposes us to varying and changing labour laws, including regulations on pension schemes, especially across Europe. Although we have policies and procedures in place to ensure that we comply with current reg- ulations, interpretations and procedures applied by ISS could be challenged in certain jurisdictions and result in disputes and possibly liabilities. The Group is currently party to certain labour- related claims, disputes and legal proceedings, e.g. around wages, overtime, holiday and severance. Additionally, the Group is aware of certain legal rulings implying that practices applied by ISS could potentially be challenged and possibly lead to liabilities in the future. Management believes that these would not have a material impact on the Group’s financial position beyond the assets and liabilities already recognised at 31 December 2023. Divestments The Group makes provisions for claims from purchasers or other parties in connection with divestments and the representations and warranties given in relation to such divestments. In addition, the Group’s divestment activities can give rise to possible obligations, mainly labour-related, including pension plans, and related to disputes in relation to sales price. Restructurings Restructuring projects are being undertaken on an ongoing basis across different 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 disputes and possibly liabilities. Management believes that this would not have a material impact on the Group’s fi- nancial position beyond the assets and liabilities already recognised at 31 December 2023. Sales and consumption tax disputes Being a global company operating in various regulatory jurisdictions exposes us to varying and changing laws and regulations, including interpretations from authorities on sales and consumption taxes. Although we have policies and procedures in place to ensure that we com- ply with current regulations, interpretations and procedures applied by ISS could be challenged in certain jurisdictions and result in disputes and possibly liabilities and future cash outflows. The Group is currently party to certain disputes, mainly in relation to VAT on canteen services in Norway. CONSOLIDATED FINANCIAL STATEMENTS 68 2.5 Provisions, contingencies, guarantees and commitments (continued) (DKKm)2023 2022Bank-guaranteed performance bonds 1,627 1,755 Other performance bonds 4,824 3,131Performance guarantees (service contracts)6,451 4,886Indemnity and guarantee commitments 575 472 (DKKm)2023License agreements 792Leases 60Purchase obligations, suppliers and subcontractors 44Total not recognised 896Non-current 673Current 223 2.5.3 Guarantees ISS has issued certain guarantees in the normal course of business. 2.5.4 Commitments The Group has entered into various contractual agreements under which the Group is obligated to pay a continued fee in the short to long term. Performance guarantees ISS regularly issues performance guarantees to customers to guarantee satisfactory completion of work in accordance with the service contract. Such guarantees are issued in the ordinary course of business, either in the form of bank guarantees, parent guarantees or insurances. The increase in Other performance bonds related mainly to a new contract in the UK. Indemnity and guarantee commitments Other guarantees are mainly issued to insurance companies towards self-insurance liabilities as well as to owners of rental property occupied by ISS in certain countries. Furthermore, in a few instances guarantees have been issued to public authorities towards tax withholding liabilities. Due to our strategic focus on key accounts, our cus- tomer base contains a large number of larger complex contracts in terms of performance obligations towards our customers. Additionally, the size and complexity of such contracts often requires ISS to incur significant transition and mobilisation costs before service delivery commences to enable fulfilment of the performance obligations. Furthermore, complex restructuring projects may need to be initiated and recognised as a provision. Onerous contracts Management assesses whether contracts may be onerous by estimating the expected future profitability. This involves estimating total con- tract revenue and the unavoidable costs of meeting the performance obligations under the contract, including any transition and mobilisation costs incurred. In esti- mating the expected future profitability, management makes judgements, including in relation to termination and extension options. Certain contracts are large, complex and longer-term facility service partnerships. In estimating unavoidable costs in relation to such contracts, management makes Significant accounting estimates and judgements assumptions around future realisation of costs taking estimated optimisations and efficiency gains from im- provement initiatives into consideration. While ISS has inherent risk in this respect, ISS is by nature also de- pendent on aligning interest with the customer within the framework of the agreement for the benefit of both parties. The outcome may vary significantly should the assumptions and judgements applied not be realised as expected by management and applied as basis for their assessment of whether a contract is onerous. Restructurings and other provisions Management makes judgements related to various other matters and obligations, primarily relating to planned/initiated restructurings, and complex customer and contract- related risks and disputes, including ongoing lawsuits. Management’s assessment of the likely outcome of lawsuits, etc., is based on external legal assistance and established precedents. For large, complex contracts, the outcome may vary significantly should the judgements and assumptions applied by management in their assessment of the risks and disputes not be realised as expected. The Group entered into multi-year software license agreements with non-cancellable obliga- tions to pay future license fees. The majority relates to an enterprise agreement of a suite of office-related productivity and security software. Leases relates to various contracts not yet commenced at 31 December 2023, but entailing obligations for future lease payments. Furthermore, the Group entered into con- tracts with a limited number of suppliers and subcontractors that contain future purchase obligations. CONSOLIDATED FINANCIAL STATEMENTS 69 2.5 Provisions, contingencies, guarantees and commitments (continued) Accounting policy Provisions Provisions are recognised at the estimated costs when the Group, as a result of a past event, has a legal or constructive obligation and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount is discounted using the Group’s average borrowing rate, if this significant- ly impacts the measurement of the liability. Provisions are recognised for: Legal claims and disputes, e.g. lawsuits and other disputes, based on external legal assistance and established precedents. Self-insurance on employers’ liability and/or workers compensation based on valuations from external actuaries. Restructurings when a detailed, formal restructuring plan is announced to the affected parties on or before the reporting date. The plan must identify the business concerned, the location and number of employees af- fected, and a detailed estimate of the associated costs, as well as the timeline must be in place. Onerous contracts, when the unavoidable costs, including directly allocated overhead costs, of meeting the obligations under the contract exceed the economic benefits expected to be received under it, corresponding to the lower of the costs to fulfil the obligations under the contract and the costs of exiting the contract. Customer and contract-related disputes (presented in "Other" provisions) based on an assessment of available facts and circumstances in respect of the specific risks or disputes, when it is deemed that a contractual, non-contractual or constructive obliga- tion exists, and it is probable that this will lead to an outflow of economic resources from the Group. Decommissioning liability (presented in "Other" provisions) if the Group has a legal obligation to dis- mantle or remove an asset or restore a site or leased facilities when vacated. The present value of the obli- gation is included in the cost of the relevant tangible or right-of-use asset and depreciated 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. Contingencies and commitments Contingent liabilities are possible of nature as the existence of the obligation will be confirmed by the occurrence or non-occurrence of future events. An obligation may also be contingent if the amount cannot be estimated reliable or settlement is not probable. Commitments is the Group’s promise resulting from a contractual agreement to assume a future obligation for a future delivery. Contingent liabilities and commitments do not repre- sent a legal or constructive obligation. Thus, they are not recognised, but disclosed in the notes. CONSOLIDATED FINANCIAL STATEMENTS 70 2.6 Right-of-use assets and property, plant and equipment 20232022Right-of-use assets Property,Right-of-use assets Property,plant andplant and(DKKm)Properties Vehicles Other Total equipment equipment Properties Vehicles Other Total Cost at 1 January 2,657 1,412 707 4,776 3,275 2,582 1,307 577 4,466 3,455 Foreign exchange adjustments 19 (2)(78)(61)(84) 4 (9)(35)(40)(39)Hyperinflation restatement 2 20 70 92 104 - 20 57 77 183 Additions 258 440 210 908 394 264 312 189 765 345 Acquisitions (5) - - (5)4 5 34 - 39 7 Divestments - (6) - (6)(6) - - - - (16)Disposals (236)(326)(88)(650)(395)(198)(252)(81)(531)(654)Reclass to Assets held for sale (180)(87)(71)(338)(159) - - - - -Reclass - - (15)(15)15 - - - - (6)Cost at 31 December 2,515 1,451 735 4,701 3,148 2,657 1,412 707 4,776 3,275 Depreciation at 1 January (1,272)(773)(328)(2,373)(2,358)(1,071)(669)(281)(2,021)(2,524)Foreign exchange adjustments (10) 1 32 23 51 (1) 7 19 25 30 Hyperinflation restatement - (7)(17)(24)(57) - (7)(13)(20)(107)Impairment (141)(36)(33)(210)(38) - - - - (22)Depreciation (392)(355)(159)(906)(347)(398)(356)(134)(888)(376)Divestments - 2 - 2 4 - - - - 15 Disposals 236 326 88 650 379 198 252 81 531 626 Reclass to Assets held for sale 180 82 60 322 159 - - - - - Reclass - - 15 15 (15) - - - - - Depreciation at 31 December (1,399)(760)(342)(2,501)(2,222)(1,272)(773)(328)(2,373)(2,358)Carrying amount at 31 December 1,116 691 393 2,200 926 1,385 639 379 2,403 917 ISS is a people business operating based on an asset-light business model. Operating assets (leased and owned) comprised only 7% of the Group’s total assets at 31 December 2023 (2022: 7%). Our model is mainly based on leasing, rather than owning, property, vehicles and equipment. 2.6.1 Right-of-use assets At 31 December 2023, ISS was party to around 17,500 (2022: 18,500) lease agreements of which the majority related to vehicles. In terms of asset value, the main part related to property. Additions was DKK 908 million in 2023 (2022: DKK 765 million). The increase was mainly driven by new production equipment and vehicle leases in Belgium related to a new contract whereas other countries were broadly in line with 2022. Lease-related costs(DKKm)2023 2022Depreciation of right-of-use assets 879 830 Interest expenses on lease liabilities 121 78 Leases of low-value assets 138 182 Short-term leases 49 67 Variable lease payments 7 11 Recognised in profit or loss 1,194 1,168Hereof cash outflow 315 338 2.6.2 Property, plant and equipment Consists mainly of production equipment and leasehold improvements. In 2023, additions of DKK 394 million (2022: DKK 345 million) primar- ily related to equipment for new and existing contracts, and leasehold improvements. Lease liabilities For carrying amount, see 4.2.1, Loans and borrowings. For maturity, see 4.5.1, Financial liabilities. CONSOLIDATED FINANCIAL STATEMENTS 71 2.6 Right-of-use assets and property, plant and equipment (continued) 2.7 Free cash flow Free cash flow as defined by management, see 8.5, Definitions, is summarised below. Free cash flow is not a financial performance measure defined by IFRS. Accordingly, the measure and its calculation is presented as it is used by management as an alternative performance measure in managing the business. The free cash flow 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 flows of the consolidated financial statements. (DKKm)2023 2022Cash flow from operating activities 3,392 3,333 Acquisition of intangible assets and property, plant and equipment (719)(809)Disposal of intangible assets and property, plant and equipment 16 30 1)Change in financial assets(6)(51)Addition of right-of-use assets, net(908)(769)Free cash flow 1,775 1,734 1) Excluding changes in equity-accounted investees which in 2023 was DKK (15) million (2022: DKK (22) million). Right-of-use assets are recognised at the com- mencement date of the lease and measured at cost less accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities, including extension options. Certain leases comprise a liability to dismantle or remove the asset or restore the facility. Cost related to such liability is recognised as part of the cost of the right-of-use asset. 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. Estimated useful lifeProperties 5-10 yearsVehicles3-5 yearsOther equipment 2-5 years Depreciation methods, useful lives and residual values are reassessed at the reporting date. Certain leases have a term of 12 months or less or are leases of low-value assets, such as minor cleaning and IT equipment and office furniture. The recognition exemptions are applied for these leases and lease payments are recognised in Other operating expen- ses on a straight-line basis over the lease term. Property, plant and equipment is measured at cost, less accumulated depreciation and impair- ment losses. Certain assets comprise a liability to dismantle or remove the asset or restore the site. Cost related to such liability is recognised as part of the cost of the asset. Property, plant and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets. Depreciation methods, useful lives and residual values are reassessed at the reporting date. Gains and losses arising on the disposal or retirement of property, plant and equipment 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 lifePlant and equipment 3-10 yearsLeasehold improvements (lease term)3-10 yearsBuildings 20-40 yearsLandNot depreciated Accounting policy Lease term Several of ISS’s lease contracts (office buildings) have no contractual fixed 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 normally set to ten years for head office and accessory buildings, whereas all other leases with no definite end date are set to five years. Significant accounting judgements CONSOLIDATED FINANCIAL STATEMENTS 72 In this section: 3.1 Intangible assets 3.2 Impairment tests 3.3 Acquisitions 3.4 Discontinued operations, assets held for sale and divestments 3 Strategic investments and divestments Acquisition agenda Our asset base is the result of our expansion strategy in the 00s, where acquisitions were used to scale and rapidly expand the business across services and geographies. Learning from history – and a decade of divestments of non-strategic businesses – we will evaluate opportunities to build an M&A pipeline and continue over the next years to initiate selective acquisitions to scale our OneISS platform in a disciplined and controlled manner. Adhering to that, we acquired Grupo Fissa in Spain in September 2023. The acquisition supports the OneISS strategy by expanding and developing our cleaning service offering to public sector customers and within healthcare. Divestment of ISS France In 2023, we decided to divest ISS France and reposition ISS to only focus on servicing global key account customers. As a result, the business was classified as held for sale and discontinued operations. On 22 December 2023, we signed a binding agreement (put option) to divest the business to Onet SA with expected completion in the first half of 2024. Total impairment losses and fair value adjustments recognised in the profit or loss in 2023 as a result of the decision to divest ISS France was DKK 1,458 million. Investing in technology We have a strategic ambition of becoming technology leader in our industry by focusing on three strategic pillars: 1) the right digital applications for our customers and placemakers; 2) scalable and cybersecure “cloud-first” infrastructure; and 3) managed by inhouse global technology teams In recent years, we have therefore invested more in IT, and will continue to make focused investments in the coming years while still ensuring satisfactory value and outcomes. Our software development centre in Portugal, established in 2022, will play an important role in supporting our strategy by developing and operating apps, platforms and data analytics among others. In 2023, we continued to develop own software and added DKK 315 million to the balance of capitalised software. Investing in technology – software additions – discontinued operation Software additions DKKbn % 100 200 300 400 500 20232022202120202019 DKKm Software additions Intangible assets Intangibles France 1,458 DKKm Impairment losses and fair value adjustments 49% – our largest asset category 1) Intangible assets 47.7 DKKbn % of total assets FINANCIAL STATEMENTS 73 20232022Customer Customer (DKKm)Goodwill Brands contracts Software TotalGoodwill Brands contracts Software TotalCost at 1 January 23,867 1,671 9,293 2,925 37,756 23,178 1,666 9,098 2,589 36,531 Foreign exchange adjustments (357)(2)(182)(4)(545)(112) 5 (107)(9)(223)Hyperinflation restatement 337 - 183 4 524 644 - 235 5 884 Additions - - - 315 315 - - - 454 454 Acquisitions 221 - 136 - 357 203 - 161 - 364 Divestments (6) - (12) - (18)(46) - (1)(2)(49)Disposals - - - (105)(105) - - (93)(118)(211)Reclass to Assets held for sale (3,119) - (690)(192)(4,001) - - - - - Reclass - - - - - - - - 6 6 Cost at 31 December 20,943 1,669 8,728 2,943 34,283 23,867 1,671 9,293 2,925 37,756 Amortisation/impairment at 1 January (3,417)(82)(8,436)(1,901)(13,836)(3,425)(74)(8,501)(1,792)(13,792)Foreign exchange adjustments (12) 2 19 0 9 8 (4) 38 8 50 Hyperinflation restatement - - (10)(2)(12) - - (2)(3)(5)Amortisation - - (69)(211)(280) - (4)(65)(207)(276)Impairment (937) - - (72)(1,009) - - - (24)(24)Divestments - - 12 - 12 - - 1 2 3 Disposals - - - 104 104 - - 93 115 208 Reclass to Assets held for sale 3,119 - 690 192 4,001 - - - - - Amortisation/impairment at 31 December (1,247)(80)(7,794)(1,890)(11,011)(3,417)(82)(8,436)(1,901)(13,836)Carrying amount at 31 December 19,696 1,589 934 1,053 23,272 20,450 1,589 857 1,024 23,920 3.1 Intangible assets Goodwill and customer contracts In 2023, the Group acquired Grupo Fissa adding DKK 217 million to goodwill and DKK 136 million to customer contracts. Further details are provided in 3.3, Acquisitions. Goodwill relates mainly to assembled workforce, technical expertise and know how. In 2023, the goodwill impairment of DKK 937 million (2022: DKK 0 million) related to France, and recognised in Net profit from discontinued operations, see 3.2, Impairment tests. Brands The carrying amount of brands relates to the ISS brand, which is considered to have an indefinite useful life. Thus, the ISS brand is not amortised but tested for impairment annually, see 3.2, Impairment tests. Software In line with the Group’s strategic ambition of becoming the technology leader in the industry, we continued investing in software, e.g. digital applications for our customers and employees as well as cybersecure infrastructure. In 2023, additions amounted to DKK 315 million (2022: DKK 454 million), the majority related to Group- wide systems and applications. In 2023, software included DKK 175 million related to assets under development at Group level (2022: DKK 133 million). CONSOLIDATED FINANCIAL STATEMENTS 74 3.1 Intangible assets (continued) Goodwill and brands with indefinite useful lives (i.e. the ISS brand) are not amortised but recognised at cost less accumulated impairment losses. Acquisition-related customer contracts are rec- ognised at fair value at the acquisition date and subsequently, at cost less accumulated amortisation and impairment losses. Software is measured at cost less accumulated am- ortisation and impairment losses. The cost of soft- ware developed for internal use includes external costs to consultants and software as well as internal direct costs related to the development. Other devel- opment costs for which it cannot be demonstrated that future economic benefits will flow to the Group are recognised in profit or loss. Amortisation is calculated on a straight-line basis over the estimated useful lives except for certain customer contracts where the unit of production method better reflects the expected pattern of consumption. Estimated useful lifeCustomer contracts 10-24 yearsSoftware 3-10 years Amortisation methods and useful lives are reas- sessed at the reporting date. Cloud-based arrangements Software within a cloud-based arrangement is recognised as either an intangible asset, a leased asset or as a service received (Software as a Service) based on the con- tract and facts and circumstances of the software. Software as a Service (SaaS) arrangements are service contracts providing the Group with the right to access a cloud provider's application software over the contract term. Costs incurred to configure or customise, and the ongoing fees to obtain access to the cloud provider’s application software, are recognised as Other oper- ating expenses when the services are received. Also, internal costs such as costs related to selection of cloud provider, data conversion, training and testing are expensed in Other operating expenses. Configuration and customisation activities under- taken in implementing SaaS arrangements may give rise to a separate asset, i.e. the development of a software code that enhances, modifies or creates additional capability to the Group’s existing on-prem - ise systems. Costs incurred for these activities are recognised as intangible assets if they meet the recognition criteria and amortised over the useful life of the software. Accounting policy Cloud-based arrangement At the commencement date, management assesses whether the Group ac - quires an intangible asset, a leased asset or receives a service over the term of the contract. If the Group receives a right to access the cloud provider's appli - cation without further rights or control it is neither a lease nor an intangible asset. However, the Group may acquire an intangible asset if the Group has the contractual right to take possession of the software during the contract period without significant penal - ty and it is feasible for the Group to run the software on its own hardware or with another cloud provider. In SaaS (Software as a Service) arrangements, where the provider controls the software applica- tion, the assessment of whether configuration or customisation of the software results in an intan- gible asset for the Group depends on the output of the configuration or customisation activities performed. Part of the activities undertaken may entail the de- velopment of software code that enhances or mod- ifies, or creates additional capability to the existing on-premise software to enable it to connect with the cloud-based software applications. If activities are performed on the Group’s infrastructure and applications, they likely represent assets that the Group controls because they enhance, improve or customise existing software assets. Significant accounting judgements CONSOLIDATED FINANCIAL STATEMENTS 75 3.2 Impairment tests 3.2.1 Impairment test results The impairment tests of goodwill, customer con- tracts and brands performed at 31 December 2023 did not result in recognition of impairment losses (2022: no impairment losses). It is management’s view that excess values in the Group’s CGUs are fairly resilient to any likely and reasonable deteriora - tions in the key assumptions applied, see sensitivity analyses in 3.2.2, Goodwill and customer contracts. France In the first six months of 2023, ISS worked dili- gently on implementing the business improve- ment plan from December 2022. However, in evaluating the H1 2023 operational performance and the status of the business, it was concluded that significant profitability improvements could not be achieved on a stand-alone basis without further restructurings and additional investments. Accordingly, management lowered its expectations in the forecasting and terminal period as explained in note 7, Impairment tests in the Interim Report for H1 2023. This resulted in recognition of an impairment loss at 30 June 2023 amounting to DKK 1,257 million of which DKK 937 million related to goodwill and DKK 320 million related to other non-monetary assets. Subsequently, on 9 August 2023 ISS announced its intention to divest ISS France resulting in reclassification as held for sale and discontinued operations as of this date. Consequently, results of ISS France, including the impairment loss recognised at 30 June 2023, was reclassified to “Net profit from discontinued operations” in the profit or loss statement, see 3.4, Discontinued operations, assets held for sale and divestments for additional information. Türkiye In 2023, ISS Türkiye continued to perform well in terms of revenue growth, operating margin and improved free cash flow despite the difficult macroeconomic environment with continued high inflation and significantly increasing interest rates. However, due to the IAS 29 hyperinflation adjustments goodwill and customer contracts also continued to increase significantly. At 31 December 2023, intangibles amounted to DKK 1.3 billion of which DKK 1.0 billion was attributable to hyperinflation. As a result of the highly unusual macroeconomic situation, the normal Group methodology of applying a constant WACC rate in both the fore- casting and terminal period, would lead to an understatement of the value in use (especially in the terminal period) due to the disproportionate negative gap between the risk-free interest rate and the consistently applied terminal growth rate. Instead, the Group has applied a nor- malised WACC rate in the terminal period, while the WACC applied in the forecasting period con- tinues to be determined based on the normal Group methodology. Given the circumstances, it is management’s view that this is more appropri- ate and leads to a more reasonable estimate of the value in use in Türkiye. In performing the impairment test, management assesses whether the CGU to which the goodwill relates will be able to generate positive net cash flows sufficient to support the value of intangibles and other non-current assets. The assessment is based on estimates of expected future cash flows (value in use) for the individual GCU, which by nature are uncertain. Estimates are based on financial forecasts for the following year as approved by management, and estimated discount rates, growth and market developments. Assumptions applied in the short to medium term (forecasting period of five years) as well as terminal growth rates and margins applied are described in 3.2.4, Determining value in use. The outcome of the impairment test may vary significantly should the assumptions, estimates and judgements not be realised as expected and applied as basis for management’s conclusion of whether impairment of a CGU has occurred. Significant accounting estimates Accounting policy The Group performs impairment test of goodwill and the ISS brand at the reporting date or when indications of impairment exist. Other non-cur- rent assets are tested annually for indications of impairment. When performing the impairment test, the recoverable amount of the asset is determined, i.e. the higher of the fair value of the asset less anticipated costs of disposal and its value in use. The value in use is calculated as the present value of expected future cash flows from the asset or the CGU to which the asset belongs. Impairment of goodwill is recognised in the statement of profit or loss in a separate line if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. The carrying amount of goodwill is tested for impairment together with the other non-current assets in the CGU to which goodwill is allocated. Impairment of goodwill is not reversed. Impair- ment of other assets is reversed if estimates used to calculate the recoverable amount have been changed. An impairment loss is reversed 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. 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 flows adjusted for the Group’s total goodwill and other non-current assets. CONSOLIDATED FINANCIAL STATEMENTS 76 1) Excluding allocated corporate costs. 2) Discount rate applied in the terminal period was 20.5%. 3) In June 2023, goodwill in France was fully impaired and the entity was subsequently reclassified as held for sale and discontinued operations. 3.2.2 Goodwill and customer contracts The carrying amounts of intangibles for CGUs representing more than 5% of intangibles are disclosed in the table to the right together with a sensitivity analysis on the key assumptions in the impairment testing. Sensitivity analysis The allowed change represents the percentage points by which the specific key assumption can change, all other things being equal, before the CGU’s recoverable amount equals its carrying amount. 3.2.3 Cash-generating units (CGUs) Consistent with the Group's management and reporting structure, the lowest level of CGUs is the individual countries, as cash inflows are generated largely independent of cash inflows in other ISS countries (the majority of our contract portfolio is locally based with no cross-border activities). Accordingly, impairment tests are carried out per country, and intangibles (i.e. goodwill and customer contracts) are allocated to these. Management of certain countries has been combined to take advantage of similarities in terms of markets, shared customers and cost synergies. In such exceptional cases, the coun- tries are regarded as one CGU when performing the impairment test. 3.2 Impairment tests (continued) CONSOLIDATED FINANCIAL STATEMENTS Forecasting period Terminal period 1) 2)Carrying amount Growth MarginGrowthMarginDiscount rateGood-Customer Allowed Allowed Allowed Allowed Net of Allowed Pre-(DKKm)willcontractsTotal Avg.decrease Avg.decrease Ratedecrease Ratedecreasetaxincreasetax2023UK & Ireland 2,617 88 2,705 3.0% >3.0% 5.4% >5.4% 2.5% >2.5% 6.0% 3.5% 10.4% 6.5% 13.7% US & Canada 2,125 134 2,259 4.3% >4.3% 6.0% >6.0% 3.0% >3.0% 6.0% 3.4% 10.9% 7.1% 14.1% Finland 2,102 - 2,102 2.6% >2.6% 6.2% >6.2% 2.5% 2.5% 6.2% 1.8% 8.6% 1.9% 10.4% Switzerland 1,708 156 1,864 1.9% >1.9% 7.8% >7.8% 2.0% >2.0% 7.8% 7.4% 6.9% >6.9% 8.1% Denmark 1,620 - 1,620 2.1% >2.1% 5.3% >5.3% 2.0% >2.0% 6.0% 2.0% 9.3% 2.6% 11.6% Belgium & Lux. 1,322 - 1,322 2.9% >2.9% 6.5% >6.5% 2.5% >2.5% 6.5% 4.0% 9.2% 6.5% 11.8% Spain 1,157 132 1,289 4.5% >4.5% 6.4% >6.4% 2.5% >2.5% 6.5% 4.6% 9.0% 8.7% 11.5% Australia & NZ 1,283 - 1,283 2.0% >2.0% 7.5% >7.5% 3.0% >3.0% 7.5% 7.5% 9.7% >9.7% 13.3% 2)Türkiye 857 417 1,274 31.7% 11.5% 7.8% 6.9% 10.0% 8.4% 8.0% 3.6% 36.2% 5.3% 43.7% Norway 1,151 - 1,151 3.1% >3.1% 7.9% >7.9% 3.0% >3.0% 7.9% >7.9% 9.2% >9.2% 11.2% Other 3,754 7 3,761 - - - - - - - - - - -Total 19,696 934 20,630 2022UK & Ireland 2,562 99 2,661 4.8% >4.8% 5.1% >5.1% 3.0% >3.0% 6.0% 4.1% 10.2% 8.7% 12.9%US & Canada 2,197 155 2,352 6.1% >6.1% 5.8% >5.8% 3.0% >3.0% 6.0% 2.7% 10.7% 4.8% 13.9%Finland 2,098 - 2,098 1.9% >1.9% 6.2% 5.3% 2.5% 2.5% 6.2% 1.8% 8.6% 1.9% 10.5%Switzerland 1,598 157 1,755 2.3% >2.3% 7.5% >7.5% 2.0% >2.0% 7.5% 6.9% 7.0% >7.0% 8.3%Denmark 1,620 - 1,620 1.6% >1.6% 6.0% >6.0% 2.5% >2.5% 6.5% 2.3% 8.7% 2.6% 10.8%Australia & NZ 1,327 2 1,329 2.8% >2.8% 5.6% >5.6% 2.5% >2.5% 5.6% 3.7% 9.9% 9.6% 14.1%Belgium & Lux. 1,319 - 1,319 2.5% >2.5% 6.2% >6.2% 2.5% >2.5% 6.2% 2.5% 9.0% 3.3% 11.6%Türkiye 848 434 1,282 36.0% 17.6% 8.4% >8.4% 10.0% >10.0% 8.0% 5.4% 21.9% 10.7% 27.3%Norway 1,228 - 1,228 2.8% >2.8% 7.8% >7.8% 3.0% >3.0% 7.8% >7.8% 9.6% >9.6% 11.8%Spain 938 1 939 4.4% >4.4% 6.3% >6.3% 2.5% >2.5% 6.5% 4.4% 9.0% 8.0% 11.5%3)France 936 - 936 1.8% 1.8% 0.2% 1.2% 2.5% 0.7% 5.0% 0.4% 9.4% 0.6% 11.4%Other 3,779 9 3,788 - - - - - - - - - - -Total 20,450 857 21,307 77 3.2 Impairment tests (continued) price increases in the supply chain, including activating indexation mechanisms in the contract portfolio to pass on price increases to our customers. Terminal period Assumptions applied in the terminal period generally reflect management’s long-term expectations for the individual country. Revenue growth reflects inflation and GDP growth and is determined based on input from external sources like IMF’s “World Economic Outlook”. Operating margin reflects the expected nor- malised earnings level in the long term. Corporate costs Corporate costs for the services performed by the Group’s head office functions for the benefit of the CGUs are allocated to the individual CGUs and taken into account in the calculation of the recoverable amount. 3.2.5 The ISS brand The carrying amount of brands relates to the ISS brand and was DKK 1,589 million at 31 December 2023 (2022: DKK 1,589 million). In 2023, no impairment of the ISS brand was identified. No sensitivity is shown for the ISS brand, as the group-wide cash flows adjusted for the Group’s total goodwill and other non-current assets significantly exceed the carrying amount. This is additionally supported by ISS's market capital- isation at 31 December 2023 of approximately DKK 24 billion exceeding the carrying amount of equity, which amounted to DKK 11 billion. 3.2.4 Determining value in use The recoverable amount of each CGU is calculat- ed on the basis of its value in use using certain key assumptions per CGU, i.e. revenue growth, operating margin and discount rate. Forecasting period Cash flow projections for the individual CGUs are based on financial forecasts for the following year as approved by management. Assumptions applied in the short to medi- um term (forecasting period of five years) generally reflect 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. This also includes expected development in local markets in terms of competition, inflation and growth. More specifically, management has considered the expected impacts from the OneISS strategic priorities, especially around continued key account focus, investments in technology and the global operating model. Where relevant, initiated restructurings and other improvement initiatives, have also been taken into consid- eration when estimating the expected future performance and cash flows. This includes the impacts of the strategic review announced in November 2023. Management also assessed the impact from macroeconomic developments, which in 2023 primarily related to increased inflation rates. During the year, the Group demonstrated its continued ability to manage and mitigate 1) The key assumptions applied 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) For Türkiye a country specific risk premium of 9.0% is added (2022: 6.0%). KeyDescription1)assumptions Revenue Year 1• Financial forecasts as approved by managementgrowthForecasting period (year 2-5)• Based on expected market development, including maturity and inflation• Impact from local and Group initiatives are considered, including key account focusTerminal period• Long-term expectations based on external sources such as IMF “World Economic Outlook”, OECD, etc.• Not exceeding expected long-term average for the country, including inflationOperating Year 1• Financial forecasts as approved by managementmarginForecasting period (year 2-5)• Impact from local and Group initiatives are considered, including key account focus and investments in technology and the global operating model• Restructurings, including the strategic review in Q4 2023, and local improve-ment initiatives are consideredTerminal period• Reflects the expected normalised earnings level in the long termDiscount rates• Risk-free interest rate based on 10-year government bonds (country- specific), except that for Türkiye a normalised interest rate is applied in (net of tax)the terminal period• Premium added to adjust for the inconsistency of applying government bonds with a short-term maturity when discounting cash flows with infinite maturity• Country specific estimation risk premium added (to reflect possible variations in amounts/timing of the projected cash flows)2)• Equity risk premium: 6.0% (2022: 6.0%)• Debt/equity target ratio (market values): 25/75 (2022: 25/75) CONSOLIDATED FINANCIAL STATEMENTS 78 3.3 Acquisitions Grupo Prior (DKKm)Fissayear adj. 2023 2022Customer contracts 136 - 136 161 Other non-current assets 90 (7) 83 48 Trade receivables 200 - 200 (3)Other current assets 205 - 205 50 Non-current liabilities(90) 4 (86)(68)Current liabilities(354) (1) (355)(48)Fair value of net assets 187 (4) 183 140 Goodwill 217 4 221 203 Consideration transferred 404 - 404 343 Cash in acquired business(9) - (9)(33)Consideration transferred, net 395 - 395 310 Contingent and deferred consideration(22) - (22) 15 Acquisition (cash flow) 373 - 373 325 Prior years adjustments Prior year adjustments related to the acquisition of Livit FM Services AG in Switzerland in 2022. 3.3.2 Subsequent acquisitions The Group completed no acquisitions from 1 January to 15 February 2024. 3.3.3 Pro forma revenue and operating profit Assuming acquisitions/divestments in the year were included/excluded in profit or loss from 1 January 2023, revenue on a pro forma basis would have been DKK 79,073 million compared to reported revenue of DKK 78,681 million. Likewise, operating profit before other items on a pro forma basis would have been DKK 3,318 million compared to reported operating profit before other items of DKK 3,300 million. Pro forma revenue and operating profit before other items include adjustments relating to acquisitions/divestments estimated by local ISS management at the time of acquisition/ divestment or actual results where available. The estimates are based on unaudited financial information. Accounting policy 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 interests in the acquiree. For each business com- bination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and presented in Other income and expenses, net. Contingent consideration to be transferred by the ac- quirer is recognised at fair value at the acquisition date. If uncertainties exist at the acquisition date re- garding identification 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. Comparatives are restated accordingly. Changes in fair values after 12 months are recognised in Other income and expenses, net. Goodwill is initially measured at cost being the excess of the consideration transferred over the net identifiable 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 expected to benefit from the combination. 3.3.1 Acquisition impact Grupo Fissa On 14 September 2023, ISS acquired 100% of the shares in Grupo Fissa in Spain. The acquisition strengthens our market position in Spain and enables us to expand and develop our cleaning service offering to public sector customers, predominantly in Southern Spain. The acquisition adds annual revenue of approximately DKK 745 million and more than 6,000 employees (estimated based on unaudited financial information). Since completion of the acquisition, Grupo Fissa contributed revenue of DKK 254 million to the ISS Group. The purchase consideration amounted to DKK 404 million of which DKK 22 million are contingent upon certain conditions being fulfilled, mainly related to the recoverability of certain receivables. Due to the short time between completion of the acquisition and finalisation of these consolidated financial statements, the Group has not yet com- pleted the acquisition accounting. Consequently, the fair value of certain assets and liabilities such as deferred revenue and provisions has been determined provisionally based on manage- ment’s best estimates as the necessary analyses and calculations could not be completed. Goodwill amounted to DKK 217 million and is attributable mainly to: 1) platform for growth primarily in Southern Spain, 2) synergies and scale, 3) expertise and know-how in the Healthcare, Education and Public administration segment, and 4) assembled workforce. Goodwill is deductible for tax purposes. Net assets and cash flow impact CONSOLIDATED FINANCIAL STATEMENTS 79 ISS continuously reviews the strategic fit and rationale of its business activities. In 2023, this led to four minor non-core businesses being divested in Spain and Singapore. Also, the exit from Brunei, where we signed an agreement to divest our activities in 2022, was completed in February 2023. On 9 August 2023, ISS announced the intention to divest the French business, excluding global key account customers. As a result, ISS France was classified as held for sale and discontinued operations as of that date. Historically, financial results in France have not been satisfactory and have been dilutive to Group operating margins and growth. During the past several years, ISS has worked towards restructuring the business and establishing a solid foundation in the French market. However, the efforts have not generated the expected financial improvements, among others due to inherent strategic challenges, difficult market conditions, and continued muted commercial development. At 30 June 2023, ISS concluded that building a long-term, sustainable business with a strengthened market position in France would require further restructurings and significant investments, which led to recognition of an impairment loss of DKK 1,257 million (see 3.2, Impairment tests) and the subsequent decision to divest ISS France and reposition ISS in the French market to only focus on servicing global key account customers. 3.4.1 Discontinued operations Profit or loss Major classes (DKKm)2023 2022 Goodwill - 11 Other non-current assets 143 12 Current assets 555 9 Assets held for sale 698 32 Non-current liabilities 305 - Current liabilities 1,044 10 Liabilities held for sale 1,349 10 (DKKm)Note 2023 2022Revenue 2,662 3,0851)Expenses (2,816) (3,143)Operating profit before other items(154) (58)Other income and expenses, net(489) 121 Goodwill impairment 3.2(937) - Operating profit (1,580) 63 Financial income/ (expenses), net (55) (5)Net profit before tax (1,635) 58 Income tax (17) (37)Net profit from 2) discontinued operations (1,652) 21 Cash flows (DKKm)2023 2022Operating activities(44) (140)Investing activities(2) (115)Financing activities(41) (45) 3.4 Discontinued operations, assets held for sale and divestments In the second half of 2023, the sales process has been ongoing, and on 22 December 2023 ISS signed a binding agreement (put option) to divest the business to Onet SA, a French facility services company. A mandatory information and consultation process with the employee repre- sentative has been launched. Completion of the transaction is expected in first half of 2024 and is subject to customary antitrust approval. Discontinued operations – presented in separate profit or loss line 2023 2022BruneiBrunei Brunei BruneiFrancePortugalBrazilBrazil France PortugalRussiaFinland RussiaTaiwan TaiwanThailand Impact on profit or loss The initial classification of ISS France as held for sale and discontinued operations, did not result in impairment losses beyond the impairment loss recognised at 30 June 2023 of DKK 1,257 million. Subsequently, additional investment in non-monetary assets of DKK 64 million were immediately written off. Finally, at 31 December 2023 fair value less costs to sell was reassessed on the basis of the agree- ment with Onet SA, which resulted in recognition of an additional loss of DKK 137 million. The total impairment losses and fair value adjustments in 2023 amounted to DKK 1,458 million as presented to the left in: • Goodwill impairment (DKK 937 million); and • Other income and expenses, net (DKK 521 million) Earnings per share, DKK (DKKm)2023 2022Basic earnings per share(8.9) 0.1 Diluted earnings per share(8.8) 0.1 1) Including depreciation and amortisation of DKK 47 million (2022: DKK 102 million). 2) Including Net profit of DKK 33 million related to Brunei. CONSOLIDATED FINANCIAL STATEMENTS 3.4.2 Assets held for sale 80 Net assets and cash flow impact(DKKm)2023 2022Goodwill 17 190 Other non-current assets 18 165 Current assets 59 325 Non-current liabilities - (24)Loans and borrowings (5)(24)Current liabilities (27)(251)Net assets disposed 62 381 1)Gain/(loss) on divestment, net (5) 168 Divestment costs 42 128 Consideration received 99 677 Cash in divested businesses (23)(87)Consideration received, net 76 590 Contingent and deferred consideration(4) 49 Divestment costs paid (47)(52)Divestments (cash flow) 25 587 1) In addition, DKK 18 million (2022: DKK 33 million) was recognised in Other income and expenses, net related to recycling of accumulated foreign exchange adjustments on country exits. 1) Unaudited. 1) 3.4.4 Subsequent divestments No divestments were completed from 1 January to 15 February 2024. 3.4 Discontinued operations, assets held for sale and divestments (continued) Accounting policy Assets held for sale comprise assets and liabilities related to disposal groups held for sale, and are measured at the lower of their carrying amount and fair value less costs to sell. Once classified as held for sale, assets are not amortised or depreciated. Impairment losses on initial classification as held for sale, and subsequent gains and losses on remeasurement are recognised in profit or loss and disclosed in the notes. Assets held for sale are presented in separate lines of the statement of financial position and specified 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), that either has been disposed of, or is classified as held for sale. Discontinued operations are presented separately as Net profit from discontinued operations and specified in the notes. Comparatives are restated. Cash flows from discontinued operations are in- cluded in cash flow from operating, investing and financing activities together with cash flows from continuing operations, but separately specified in 3.4.1, Discontinued operations. Divestments Gain or loss on disposal of an opera- tion 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. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interests and other com- ponents of equity, while any resultant gain or loss is recognised in Other income and expenses, net. 3.4.3 Divestment impact Divestments completed in 2023Annual Service ExcludedrevenueEmployees1)(number)Company/activity Countrytypefrom P/L Interest(DKKm)ISS Brunei Brunei Country Exit February 100% 44 539 Security Business Spain Technical April 100% 51 181 Landscaping Singapore Technical July 100% 67 260 Sanitation Services Singapore Technical July 100% 23 26 Technical Services Spain Technical July 100% 51 82 Total 236 1,088 The Group classifies non-current assets and dispos- al groups as held for sale when management as- sesses that their carrying amounts will be recovered through a sale rather than continuing use within one year from the classification. Management’s assessment is based on an evaluation of whether the sale is highly probable, and the asset or disposal group is available for immediate sale in its current condition, including whether actions required to complete the sale indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management is committed to the plan to sell the asset. If a sale has not been concluded within one year, the period is extended if management assesses that the above criteria continue to be fulfilled. On classification, management estimates the fair value (the sales price less 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 associated with uncertainty and possibly adjusted subsequently. Measurement of the fair value of disposal groups is categorised as Level 3 in the fair value hierarchy as measurement is not based on observable market data. Management considers intangible assets relating to the disposal groups, taking into consideration how to separate the net assets (including intan- gible assets) relating to the disposal group from the Group’s assets in the continuing business. Impairment of these intangibles, both on initial classification as held for sale and subsequently, is considered. The estimation uncertainty relating to impairment of intangibles is described in 3.2, Impairment tests. Significant accounting estimates CONSOLIDATED FINANCIAL STATEMENTS In this section: 4.1 Equity 4.2 Borrowings and interests 4.3 Financial risk management 4.4 Interest rate risk 4.5 Liquidity risk 4.6 Currency risk 4 Capital structure Debt maturity profile Proposed dividends 2023 Financial risk exposure 20% of adjusted net profit Low 1) See 8.5, Definitions p. 105 Net debt and financial leverage 1) 1) 0 2 4 6 8 20282027202620252024 Revolving Credit Facility (undrawn) EMTNs/Bank loans 3.8 4.5 6.7 3.8 2.5 3 6 9 12 15 20232022202120202019 DKKbn (12) (6) 0 12 6 3.8 2.2 2.6 3.0 (11.7) Net debt Financial leverage Net debt and financial leverage 1) Excluding restructurings and one-off costs 8 10 12 14 16 20232022202120202019 2.6x Financial leverage 3.0 7.1 2.2 3.8 DKKbn % Net debt (DKKbn) Net debt/Pro forma adjusted EBITDA 2.6 -6 -3 0 3 6 202320222021 Operating profit & margin (4.5) 2.5 (3) (6) 3.8 DKKbn % Operating profit before other items (DKKbn) Operating margin (%) 1) 81 The primary objective for our capital structure is to ensure a strong and efficient balance sheet and liquidity position to support operational needs and financial flexibility for our strategy execution, while maintaining investment grade rating. In 2023, the Group’s liquidity position remained strong as a result of the solid free cash flow generation. At 31 December 2023, the Group’s liquidity reserves amounted to DKK 12.1 billion (2022: DKK 11.4 billion). At 31 December 2023, net debt amounted to DKK 10.5 billion (2022: DKK 11.5 billion) and financial leverage at the end of 2023 was 2.2x (2022: 2.6x). Sharing excess capital with shareholders As a result of the strong liquidity position and achieving our financial leverage target, the Board of Directors will – in accordance with the capital allocation policy – at the annual general meeting propose a dividend for 2023 of 20% of adjusted net profit, corresponding to a total dividend of DKK 427 million (DKK 2.3 per share). Furthermore, we are today launching a share buyback programme to redistribute additional excess cash to our shareholders. Debt maturities and refinancing In June 2023, ISS entered into a new senior unsecured Revolving Credit Facility of EUR 900 million with a syndicate of 12 banks. The facility matures in June 2028 with a two-year extension option and replaces the EUR 1 billion Revolving Credit Facility maturing in 2024. EUR 300 million of EMTN bonds will mature in December 2024 and EUR 500 million will mature in July 2025. In the first half of 2024, the Group will evaluate different financing options. Except for this, ISS has no material short-term debt maturities. Financial risk exposure We are exposed to financial risks, mainly liquidity and currency risk. Risk is a natural part of our business activities and a condition for being able to create value. However, through effective risk management, risks are monitored and mitigated to an acceptable level with a remaining low impact on the consolidated financial statements. In 2023, we continued to develop own software and added DKK 315 million to the balance of capitalised software. FINANCIAL STATEMENTS 82 4.1 Equity 4.1.1 Share capital At 31 December 2023, ISS’s share capital com- prised a total of DKK 185,668,226 shares (2022: 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. 4.1.2 Treasury shares 4.1.6 Non-controlling interests The Group’s non-controlling interests predom- inantly relates to ISS Türkiye, where Actera, a leading Türkiyish private equity company, owns 39.9%. Actera became minority shareholder of ISS Türkiye as part of the acquisition of Rönesans Facility Management Company in September 2021. Further, certain members of management of ISS Türkiye together hold a minority sharehold- ing of 10% in ISS Türkiye. The shareholders’ agreement between ISS, Actera and management establishes the rights and obligations of the parties, including rights and restrictions on transferring shares, such as right of first refusal, drag along rights from Q4 2024 and right to explore a potential Initial Public Offering (IPO). 4.1.3 Translation reserve (DKKm)Hedging Subsidiaries Total2023At 1 January(185) (969)(1,154)Foreign exchange adjustments of subsidiaries (ISS's share) - (330)(330)Recycling of accumulated foreign exchange adj. on country exits - (18)(18)Hyperinflation, Türkiye - 309 309 Fair value adjustment of net investment hedges, net of tax(84) - (84)At 31 December(269) (1,008)(1,277)2022At 1 January(152) (1,294)(1,446)Foreign exchange adjustments of subsidiaries (ISS's share) - (45)(45)Recycling of accumulated foreign exchange adj. on country exits - (33)(33)Hyperinflation, Türkiye - 403 403 Fair value adjustment of net investment hedges, net of tax(33) - (33)At 31 December(185) (969)(1,154) Number Purchase(DKKm) price 2023At 1 January 185 938,343Settlement of vested PSUs/RSUs(122) (623,773)Purchased 3 17,337At 31 December 66 331,9072022At 1 January 191 970,082 Settlement of vested RSUs (6)(31,739)At 31 December 185 938,343 (in '000)2023 2022Average number of shares 185,668 185,668 Average number of treasury shares(334)(938)Average number of shares (basic) 185,334 184,730 Average number of PSUs and RSUs expected to vest 2,620 2,513 Average number of shares (diluted)187,954 187,243 4.1.4 Earnings per share 4.1.5 Proposed dividends At the annual general meeting to be held on 11 April 2024, the Board of Directors will propose a dividend for 2023 of DKK 2.3 per share of DKK 1 (2022: DKK 2.1 per share), equivalent to DKK 427 million and a pay-out ratio of 20% (2022: DKK 390 million/pay-out ratio: 20%). There are no tax conse- quences of proposed dividends for the Group. In 2023, dividends paid to shareholders amount- ed to DKK 390 million (2022: DKK 0 million). The table reflects the share data used in the basic and diluted EPS calculations, see 8.5, Definitions. Hedging reserve In 2023, the Group ceased the use of currency swaps to hedge its currency exposure on net investments in subsidiaries. At 31 December 2023, accumulated fair value adjustments, net of tax amounted to DKK (269) million of which DKK (140) Share buyback programme initiated The Board of Directors has decided to initiate a share buyback programme under which ISS will buy back own shares for a maximum consideration of DKK 1.0 billion over a 12-month period from 22 February 2024 to 19 February 2025 at the latest, both days inclusive. The purpose of the share buyback programme is to reduce the share capital and to meet obligations arising from the share-based incentive programme (LTIP). The calculation of average number of diluted shares excluded a total of 847,574 PSUs and RSUs (2022: 1,244,928) which are not expected to vest. million related to GBP, DKK (75) million related to CHF and DKK (54) million related to USD. The total tax effect was DKK 12 million. The amounts will remain in the translation reserve until full realisation of the foreign entity. CONSOLIDATED FINANCIAL STATEMENTS 83 4.1 Equity (continued) Development in 2023 In 2023, other comprehensive income was DKK (243) million, a decrease of DKK 1,001 million compared to 2022. The decrease mainly related to an increased negative impact from translation of foreign entities primarily Türkiye, Switzerland and the UK as well as remeasurement gain/losses on defined benefit plans partly offset by a positive impact from changes in asset ceiling. In addition, the positive impact from hyperinflation restate- ment in Türkiye decreased by DKK 347 million compared to 2022. 4.1.7 Other comprehensive income 20232022Attributable to owners of ISS A/SAttributable to owners of ISS A/SNon-Non-Retained Translation controllingTotal Retained Translation controllingTotal (DKKm)Noteearningsreserve Totalinterestequityearningsreserve TotalinterestequityDefined benefit plansRemeasurement gain/(loss)7.1(423) - (423)(39) (462) 253 - 253 (45) 208 Asset ceiling 7.1 299 - 299 - 299(43) - (43) - (43)Foreign exchange adjustmentsForeign exchange adjustments of foreign entities - (330)(330) (148) (478) - (45)(45) (57) (102)Recycling of accumulated foreign exchange adj. on country exits - (18)(18) - (18) - (33)(33) - (33)Hyperinflation restatement of equity at 1 January - 309 309 158 467 - 403 403 411 814 Hedging Fair value adjustments of net investment hedges - (84)(84) - (84) - (43)(43) - (43)TaxTax related to the items above 23 - 23 10 33 (62) 10 (52) 9 (43)Total (101)(123)(224)(19)(243) 148 292 440 318 758 Accounting policy Retained earnings is the Group’s free reserves, which includes share premium. Share premium com - prises amounts above the nominal share capital paid by shareholders when shares are issued by ISS A/S. 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. Proposed dividends are recognised as a liability at the date when they are adopted at the annual general meeting. Translation reserve comprises foreign exchange differences arising from the translation of financial statements of foreign entities with a functional currency other than DKK as well as from the translation of non-current balances which are considered part of the investment in foreign entities. Furthermore, the reserve includes fair value adjustments of net investment hedges and hyperinflation restatement. On full realisation of a foreign entity the accumulated foreign exchange adjustments are transferred to profit or loss in the same line item as the gain or loss. CONSOLIDATED FINANCIAL STATEMENTS 84 4.2 Borrowings and interests 4.2.1 Loans and borrowings (DKKm)Note 2023 2022Issued bonds 14,073 13,973 Lease liabilities 2,335 2,464 Bank loans 311 363 Loans and borrowings 16,719 16,800 Non-current liabilities 13,427 15,945 Current liabilities 3,292 855 Loans and borrowings 16,719 16,800 Cash and cash equivalents (6,093)(5,214)Derivatives, net 2.2, 2.3 39 58 Securities 2.2 (117)(104)Net debt 10,548 11,540 4.2.2 Financial income and expenses (DKKm)2023 2022Interest income on cash and cash equivalents 98 67 Monetary gain on hyperinflation restatement 87 138 Financial income 185 205 1)Interest expenses on loans and borrowings (356) (299)1)Interest expenses on lease liabilities (121) (78)1)Interest expenses on factoring (71) (22)Bank fees(62)(49)1)Amortisation of financing fees (non-cash)(29) (22)Net interest on defined benefit obligations(24)(17)Commitment fees(16)(43)Other (13)(10)Foreign exchange losses (100)(49)Financial expenses (792)(589) 1) Measurement basis amortised cost. Monetary gain on hyperinflation restatement related to the adjustment for hyperinflation (IAS 29) in Türkiye. Interest expenses on loans and borrowings comprised mainly interest on issued bonds. The increase compared to 2022 was driven by increased interest rates throughout 2023 of which DKK 43 million related to the interest rate swap on part of the bonds. Refinancing On 26 June 2023, ISS entered into a new senior unsecured Revolving Credit Facility of EUR 900 million with a syndicate of 12 banks. The facility matures in June 2028 with a two-year extension option and replaces the EUR 1 billion Revolving Credit Facility maturing in 2024. The new Revolving Credit Facility is not subject to financial covenants and the margin is determined semi-annually based on a margin grid. Furthermore, EUR 300 million of EMTN bonds will mature in December 2024 and EUR 500 million will mature in July 2025. In the first half of 2024, the Group will evaluate different refinan - cing options. Except for this, ISS has no material short-term debt maturities. Financing fees At 31 December 2023, accumulated financing fees recognised in loans and borrowings amounted to DKK 54 million (2022: DKK 57 million). The decrease compared to last year was due to ordinary amortisation of DKK 29 million (2022: DKK 22 million) recognised in financial expenses, partly offset by financing fees of DKK 26 million being capitalised in relation to the new Revolving Credit Facility. Fair value At 31 December 2023, the fair value of bonds was DKK 13,474 million (2022: DKK 15,751 mil- lion). The fair value of bonds was based on the quoted market price on the Luxembourg Stock Exchange and measurement is categorised as Level 1 in the fair value hierarchy. For the remaining loans and borrowings, the fair values are not materially different from their carrying amounts due to their short-term nature. Interest expenses on factoring increased due to higher facility utilisation and increased interest rates throughout 2023. Foreign exchange losses were mainly driven by the unhedged TRY and EUR positions. The highest contributor is TRY, which remains unhedged due to high cost. TRY depreciated 39% against DKK in 2023. CONSOLIDATED FINANCIAL STATEMENTS 85 4.2 Borrowings and interests (continued) 4.2.3 Cash flow impact from changes in loans and borrowings Issued Lease Bank (DKKm)Notebondsliabilitiesloans Total 2023At 1 January 13,973 2,464 363 16,800 Foreign exchange adjustments 31 (16)(118) (103)Cash flows - (791)(147)(938)Acquisitions/divestments, net - (9) 207 198 Lease additions 2.6 - 908 - 908Fair value adjustments 4.4 51 - - 51 Reclass to Liabilities held for sale - (243)(11)(254)Other 18 22 17 57 At 31 December 14,073 2,335 311 16,7192022At 1 January 14,064 2,539 340 16,943 Foreign exchange adjustments - (14)(86)(100)Cash flows - (865)(58)(923)Acquisitions - 40 - 40 Lease additions 2.6 - 765 - 765 Fair value adjustments 4.4 (108) - 43 (65)Other 17 (1) 124 140 At 31 December 13,973 2,464 363 16,800 Accounting policy Issued bonds and bank loans are recognised initially at fair value net of transaction costs (financing fees) and subsequently at amortised cost. Any difference between the proceeds and the nominal value is recognised in Financial expenses over the term of the loan using the effective interest method. 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. 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 and remeasured due to modifications such as changes in; 1) lease term, 2) the assessment to purchase the underlying asset, 3) future lease payments (e.g. a change in an index or rate), or 4) the Group’s estimate of the amount expected to be payable under a residual guarantee. CONSOLIDATED FINANCIAL STATEMENTS 86 4.3 Financial risk management The Group is exposed to a number of financial risks arising from its operating and financing activi- ties, mainly interest rate risk, liquidity risk, currency risk and credit risk. It is management’s assessment that the Group’s exposure to these risks is low. The Group has not identified additional financial risk exposures in 2023 compared to 2022. Financial risks are managed centrally by Group Treasury based on the Financial Policy, which is reviewed and approved annually by the Board of Directors. Exposure to credit risk on trade receivables and expected credit losses is however managed locally in the operating entities, see 2.1, Trade receivables and credit risk. Through our risk management procedures, financial risks are monitored and reduced to an acceptable level. 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 financial markets. Financial risks Risk Basis for assessment at 31 December NoteCredit risk Low • Not past due on trade receivables is around 90%2.1(aging analysis)• Expected credit losses on trade receivables areless than 2% of gross receivables (credit ratings)• The Group transacts only with financial institutionswith a credit rating of at least A- (cash and cashequivalents)Interest rate risk Low • 82% of the Group's bank loans and bonds carried4.4 fixed rates (2022: 82%)• Duration of gross debt (fixed-rate period) 2.1years (2022: 2.9)Liquidity risk Low • Diversified funding portfolio of debt (bonds and4.5bank loans)• No financial covenants in our main Group facilities(certain covenants apply to the local loan facility inTürkiye)• New revolving credit facility of EUR 900 million(established in 2023) maturing in 2028• Uncommitted facilities in place to ensure flexibleand efficient liquidity managementCurrency risk Low • The Group benefits from a natural hedge in4.6having income, costs and investments in the samefunctional currency, country-by-country• 97.7% of the Group's loans and borrowings(external) denominated in EUR (2022: 97.6%) On an ongoing basis the Group considers whether the financial risk management approach appropriately addresses the risk exposures. In 2023, the Group decided to cease the use of currency swaps to hedge its currency exposure on net investments in subsidiaries in the UK (GBP), the US (USD) and Switzerland (CHF) as this was no longer considered beneficial, see 4.1.3, Translation reserve. An overview of financial risks and impact assessment at 31 December 2023 is provided to the right. The Group’s objectives and policies for measuring and managing risk exposure are explained in the respective notes. CONSOLIDATED FINANCIAL STATEMENTS 87 Interest rate risk – low exposure Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of finan- cial instruments. Exposure relates to bank loans, bonds or interest rate swaps with floating interest rates. Risk management policy • At least 50% of the Group’s bank loans and issued bonds must carry fixed inter- est rates directly or through derivatives • Duration of gross debt (fixed-rate period) shall be 2-6 years Mitigation • The fixed/floating ratio and gross debt duration (fixed-rate period) are measured on a monthly basis • Interest rate swaps (fair value hedge) are used to manage the fixed/floating ratio on gross debt 4.4 Interest rate risk 4.4.1 Interest-bearing loans and borrowings2023 2022Nominal Nominal Carrying Carrying (DKKm)Maturityinterest ratevalueamountamountIssued bonds (fixed interest rate)EMTNs (EUR 300 million)2024 2.13% 2,237 2,237 2,229 1)EMTNs (EUR 500 million)2025 1.25% 3,727 3,660 3,594 EMTNs (EUR 500 million)2026 0.88% 3,727 3,713 3,700 EMTNs (EUR 600 million)2027 1.50% 4,471 4,463 4,450 14,162 14,073 13,973 Bank loans (floating interest rate)Loan facility Türkiye (TRY)2026 TLREF 98 97 192 Bank loans and overdrafts (Multi)- - 235 214 171 333 311 363 Interest rate sensitivity An increase in relevant interest rates of 1%-point, with all other variables held constant, would have decreased net profit by DKK 26 million (2022: DKK 26 million). The estimate was based on the Group’s floating 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 thus not representative for the purpose of this analysis. 4.4.2 Fair value hedge NominalCarrying Accumulated Change(DKKm)amountamountfair value adj.in FVInterest rate swap EUR 300 million (57) (57)51Bond (fixed-rate borrowing), maturing 2025 EUR 500 million 3,660 57(51) Loan portfolio – fixed vs. floating interest rates 2023 Fixed Floating 82% 18% Accounting policy The Group’s interest rate swap qualifies as fair val- ue hedge as the risk being hedged is the possible change in the fair value of a recognised liability. Thus, hedge accounting is applied. The change in the fair value of the interest rate swap (the hedging instrument) is recognised in profit or loss under Financial income or Financial expenses. The change in the fair value of the hedged item (the bond) attributable to the risk being hedged is recognised as part of the carry- ing amount of the hedged item and is also rec- ognised in profit or loss under Financial income or Financial expenses. As the hedge is effective there is no net impact on profit or loss. The unamortised fair value is recognised in profit or loss if the hedged item is derecognised. Fair value measurement takes current market data into account. The Group uses valuation tech- niques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. Measurement is categorised as Level 2 in the fair value hierarchy as it is based on directly observable market data. At 31 December 2023, the Group had an interest rate swap agreement with a nominal amount of EUR 300 million whereby the Group receives a fixed rate interest and pays a variable interest rate on the nominal amount. The swap hedges the exposure to changes in the fair value of the Group's fixed rate bond maturing in 2025. In 2023, no ineffectiveness was recognised in profit or loss (2022: no ineffectiveness). The contractual maturity of the interest rate swap is illustrated in 4.5.1, Financial liabilities. 1) The carrying amount included the accumulated fair value adjustments at 31 December 2023 of the hedged item, see 4.4.2 below. CONSOLIDATED FINANCIAL STATEMENTS 88 Liquidity risk – low exposure Liquidity risk results from the Group’s potential inability or difficulty in meeting the contractual obligations associated with its financial liabilities due to insufficient liquidity. Risk management policy • Maintain an appropriate level of short- and long-term liquidity reserves (liquid funds and committed credit facilities) • Maintain a smooth maturity profile in terms of different maturities • Maintain access to diversified funding sources Mitigation • Raising capital is managed centrally by Group Treasury to ensure efficient liquidity management • Group Treasury monitors the risk of insufficient liquidity 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 4.5 Liquidity risk Contractual maturities Carrying Contractual< 1 1–2 2–3 3–4 4–5 > 5 (DKKm)amountcash flowsyearyearsyearsyearsyearsyears2023Bonds and bank loans 14,384 14,998 2,725 3,905 3,852 4,516 - - Lease liabilities 2,335 2,572 1,028 564 382 235 126 237Trade payables and other 4,979 4,979 4,979 - - - - - Derivatives 63 63 63 - - - - - Total financial liabilities 21,761 22,612 8,795 4,469 4,234 4,751 126 237 2022Bonds and bank loans 14,336 15,224 431 2,512 3,914 3,861 4,506 - Lease liabilities 2,464 2,600 765 578 436 271 180 370 Trade payables and other 3,746 3,746 3,746 - - - - -Derivatives 108 108 108 - - - - -Total financial liabilities 20,654 21,678 5,050 3,090 4,350 4,132 4,686 370 4.5.1 Financial liabilities 4.5.2 Liquidity reserves Cash and cash equivalent reflects 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 46 million of the total cash and cash equivalents at 31 December 2023 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 900 million revolving credit facility maturing in June 2028 with a two years exten- sion option. In addition, uncommitted credit facilities are available in countries and at Group level, which are not considered part of the readily available liquidity. At 31 December 2023, these amounted to DKK 3.9 billion of which DKK 0.1 billion was drawn (2022: DKK 0.9 billion of which DKK 0.2 billion was drawn). Not readily available Cash is considered readily available when upstreaming to the parent company (ISS A/S) is possible within five days. In a number of countries, transfer to ISS A/S is assessed to take more than five days due to local administrative processes, and thus such cash is not deemed readily available. The contractual maturities of financial liabilities above are based on the undiscounted contrac- tual cash flows, i.e. including interest payments estimated based on market expectations at 31 December. 0 2 4 6 8 20282027202620252024 Revolving Credit Facility (undrawn) EMTNs/Bank loans 3.8 4.5 6.7 3.8 2.5 (DKKbn) The risk implied from the values reflects the one-sided scenario of cash outflows only. Trade payables and other financial liabilities are mainly used to finance operating assets such as trade receivables and property, plant and equipment. Maturity profile – nominal values The maturity profile of the Group’s current financing, i.e. issued bonds, bank loans and committed bank facil- ities (excluding interest payments) is illustrated in the chart to the right. (DKKm)2023 2022Cash and cash equivalents 6,093 5,214 Restricted cash (46) (35)Unused revolving credit facilities 6,708 7,276 Liquidity reserves 12,755 12,455 Not readily available(686) (1,078)Readily available liquidity 12,069 11,377 CONSOLIDATED FINANCIAL STATEMENTS 89 Currency risk – low exposure 4.6 Currency risk 4.6.2 Translation risk Impact on profit or loss In 2023, changes in average FX rates resulted in a decrease in Group revenue of DKK 2,476 million or 3.4% (2022: increase of DKK 843 million or 1.2%) and a decrease of the Group’s operating profit before other items of DKK 175 million or 5.9% (2022: decrease of DKK 45 million or 2.5%), including the impact of hyperinflation in Türkiye. Excluding hyperinflation impact in Türkiye, changes in average exchange rates resulted in a decrease in Group revenue of DKK 2,320 million or 3.1% (2022: increase of DKK 688 million or 1.0%) and a decrease of the Group’s operating profit before other items of DKK 157 million or 5.3% (2022: decrease of DKK 16 million or 0.9%). Foreign currency sensitivity A 10% change (TRY: 30% and EUR: 1% change) in relevant currencies, with all other variables held constant, would have impacted profit or loss with 4.6.1 Loans and borrowings SensitivityCurrency Currency exposure swapsExposure, Increase Profit Comprehensive (DKKm)(nominal)(contractual)netin FX or lossincome2023EUR/DKK (17,593) 8,104 (9,489)1% (95)(95)1)TRY/DKK 322 - 322 30% 71 97 USD/DKK 1,043 (1,200)(157)10% (16)(16)Other/DKK (957) 1.352 395 10% 40 40 Total (17,185) 8,256 (8,929)2022EUR/DKK (17,212) 7,333 (9,879)1% (99)(99)USD/DKK 1,431 (1,575)(144)10% (14)(14)Other/DKK (1,176) 1,774 598 10% 60 60 Total (16,957) 7,532 (9,425) Currency risk arises from changes in ex- change rates, and affects the Group’s result, investments or value of financial instruments. The Group's exposure to currency risk on transaction level is low since income, costs and investments are in the same functional currency country-by-country. Currency risk therefore predominantly arises from fund- ing and investments in subsidiaries. Risk management policy • It is Group policy to pool funding activities centrally and fund investments in subsidiaries through a combination of intercompany loans and equity • Currency risk on intercompany loans is generally hedged against DKK or EUR when exposure exceeds DKK 5 million. Some currencies cannot be hedged within a reasonable price range why correlation to a proxy currency is considered and, if deemed appropriate, proxy hedging is applied • Exposure to EUR is monitored but not hedged due to the fixed rate exchange policy between DKK/EUR • Currency risk on net investments are as a main policy not hedged Mitigation • Currency swaps are used to hedge currency risk on loans and borrowings (external), intercompany balances and long-term receivables (external) • Currency exposure on loans and borrow- ings, intercompany balances and cash and cash equivalents is measured at least on a weekly basis the amounts below. Operating profit (DKKm)Revenuebefore other itemsTRY 1,450 88 GBP 1,004 38 USD 672 27 CHF 638 51 AUD 485 36 NOK 381 32 SEK 304 18 HKD 250 15 EUR 229 12 Other 1,065 36 Total 6,478 353 Change in avg. FX rates 2022-2023 2021-2022TRY (30.7)% (40.8)%GBP (1.8)% 0.8 % USD (2.7)% 12.6 % CHF 3.4 % 7.7 % AUD (6.7)% 3.9 % NOK (11.4)% 0.7 % SEK (7.2)% (4.5)%HKD (2.7)% 11.7 % EUR 0.2 % 0.0 % ( ) = Weakened against DKK. Foreign currency sensitivity A change in relevant currencies, with all other variables held constant, would have impacted profit or loss and other comprehensive income with the amounts above. 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). The impact on profit or loss related to a change in TRY is adjusted for the translation effect related to receivables considered part of the net investment in Türkiye. 1) TRY is not hedged due to high costs of hedging. CONSOLIDATED FINANCIAL STATEMENTS In this section: 5.1 Income tax 5.2 Deferred tax 5 Tax Our commitment ISS is committed to comply with applicable rules and regulations in the countries where we operate and to paying applicable taxes accurately and in a timely manner. We take a compliant and transparent approach to tax and tax planning, and we do not tolerate evasion of income taxes, payroll taxes, social charges etc. For the benefit of society, our placemakers and customers, we support governmental and industry specific initiatives that introduce tighter controls and sanctions to ensure that companies in our industry play by the rules. The right balance We acknowledge that we have an obligation to protect the interests of our shareholders. By managing and planning tax payments effec- tively, we ensure a consolidated competitive effective tax rate and strive to limit double taxation to the extent possible. Our approach to tax risks ISS has a low tolerance for tax risks. We con- tinuously monitor and mitigate tax risks to the extent possible. No aggressive tax models are, or will be, used to optimise our tax position. Transfer pricing Transactions between Group companies are conducted on market terms (arms’ length principles) and in accordance with current OECD guidelines for setting internal transfer prices. Cross-border transactions mainly comprise roy- alty payments, management fees and financing. In general, transfer pricing is assessed to be the tax area with highest exposure to the ISS Group and transfer pricing may be subject to very complex tax audits. Tax payments in 2023 In 2023, income tax paid amounted to DKK 428 million (2022: DKK 422 million) equal to a cash tax rate of 16.9% (2022: 16.7%). Tax payments included corporate income tax payments due in 2023 including state taxes and withholding taxes. Withholding taxes are report- ed as paid tax in the country bearing the cost. In addition to payment of corporate income tax- es, ISS contributes with payroll taxes (including social charges) and VAT in the countries where we operate. Tax payments Tax payments 428 DKKm 16% 13% 10% 10% 8% 8% 5% 5% 25% Australia Denmark Switzerland Norway Belgium Finland Spain Austria Other 90FINANCIAL STATEMENTS 91 5.1 Income tax (DKKm)2023 2022Current tax 487 525 Deferred tax 66 (110)Prior year adjustments, net 1 (10)Income tax 554 405 2023 2022Statutory income tax rate, Denmark 22.0% 22.0 % Foreign tax rate differential, net 0.0% (0.2)% Total 22.0% 21.8 % Non-tax-deductible expenses less non-taxable income 1.0 % (1.9)% Prior year adjustments, net 0.0 % (0.4)%Changes in valuation of tax assets, net (3.9)% (3.8)% Changes in tax rates0.4 % 0.4 % Hyperinflation 1.1 % (1.6)% Other taxes 1.3 % 1.6 % Effective tax rate21.9% 16.1 % Non-tax-deductible expenses less non-taxable income comprised various income and expens- es. In 2023, the net non-deductible expenses comprised mainly recurring negative impacts of interest limitation in Denmark. In 2022, non-taxable divestment gains in Hong Kong and the UK impacted positively, partly offset by the recurring negative impacts from interest limitation in Denmark. Changes in valuation of tax assets, net related mainly to release of valuation allowance on tax losses in Germany and the Netherlands due to expected improvements in future profitability (2022: Spain, the Netherlands and Germany). Changes in tax rates was mainly driven by the US due to difference in federal tax rate (21%) and the tax rate applied for deferred taxes, including state taxes (24%). In 2022, the change was mainly driven by changed income tax rates in Türkiye from 20% to 25% (effective from 2023) and in the UK from 19% to 25% (effective from April 2023). Hyperinflation related to the hyperinflation ad- justment in Türkiye, including the positive impact from change in local tax rules leading to step-up in tax bases of assets due to hyperinflation. Other taxes mainly comprised withholding tax, e.g. in Denmark. Development in 2023 In 2023, the Group’s effective tax rate increased to 21.9% (2022: 16.1%), mainly driven by non-recurring non-taxable gains on divestments in 2022 and the impact from hyperinflation restatement in Türkiye. Compared to the statutory income tax in Den- mark of 22%, the effective tax rate was mainly positively impacted by release of valuation allowance on deferred tax assets in Germany and the Netherlands, whereas hyperinflation restatement in Türkiye negatively impacted negatively. 5.1.1 Tax in profit or loss Country effective tax rate The effective tax rate (ETR) for our largest countries is disclosed below. The country ETR may deviate from the statutory income tax rate due to e.g. effects from change in valuation of deferred tax assets, non-tax- able gains on divestments, withholding taxes without credit exemption or from prior year adjustments. Statutory income Countriestax 2023 2022Australia 30.0% 29.9% 30.3 % Denmark (incl. HQ) 22.0% 66.7% 27.0 % Finland 20.0% 28.2% 24.5 % Germany 30.3% 102.3 % 40.4 %Norway 22.0% 22.0% 20.2 %Spain 25.0% 26.8% (18.9)% Switzerland 18.0% 17.9% 18.1 %Türkiye 25.0% 37.4% (6.1)%UK 23.5% 7.5% 17.1 % US 21.0% 36.2% (104.2)% In 2023, income tax was DKK 554 million (2022: DKK 405 million). The increase was mainly driven by changes in deferred tax which due to a lower amount of temporary differences as well as utilisation of deferred tax losses resulted in a tax expense of DKK 66 million (2022: tax income of DKK 110 million from recognition of additional deferred tax assets on tax losses). CONSOLIDATED FINANCIAL STATEMENTS 5.1.2 Effective tax rate 92 5.2 Deferred tax Accounting policy Deferred tax is provided using the liability method on temporary differences between tax bases of assets and liabilities and their carrying amounts, except for goodwill which is not deductible for tax purposes. Where alternative taxation rules can be applied to determine the tax base, deferred tax is measured according to management’s intended use of the asset or settlement of the liability. 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-off against tax on future income, or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction. The Group has applied the mandatory excep- tion for recognition and disclosure of deferred tax assets and liabilities arising from Pillar Two Income taxes. 5.2.1 Recognised deferred tax Assets Liabilities(DKKm)2023 2022 2023 2022Tax losses carried forward 561 482 - - Goodwill 4 4 423 387 Brands - - 350 350 Customer contracts 7 7 187 150 Property, plant and equipment 176 220 487 425 Provisions and other liabilities 981 977 692 685 Pensions 157 126 82 62 Tax losses in foreign subsidiaries under Danish joint taxation - - 23 23 Set-off within legal tax units and jurisdictions (924) (904) (924) (904)Total 962 912 1,320 1,178 Development in deferred tax (DKKm)2023 2022Deferred tax liabilities, 266 186 net at 1 JanuaryPrior year adjustments, net 18 32 Foreign exchange adjustments 26 (22)Hyperinflation restatement (4) 62 Acquisitions and divestments, net (2) 20 Other comprehensive income (33) 53 Reclass to Assets/ (Liabilities) held for sale 21 24 Tax on profit before tax 66 (89)Deferred tax liabilities, net at 31 December 358 266 Prior year adjustments, net mainly related to ad- justment of tax deductions (temporary differences) in the final tax returns. Acquisitions and divestments, net in 2023 related to the acquisition of Grupo Fissa in Spain (2022: Livit FM Services AG in Switzerland). Other comprehensive income comprised tax on actuarial (gains)/losses on pensions. 5.2.2 Unrecognised deferred tax assets At 31 December 2023, the Group had unrecognised deferred tax assets which comprised tax losses carried forward and other deductible temporary differences of DKK 1,032 million (2022: DKK 1,814 million) mainly related to Germany. The decrease was mainly due to France being classified as held for sale and discontinued op- erations in 2023. Unrecognised tax losses can be carried forward indefinitely in the individual countries, except for China, where tax losses can be carried forward for 5 years. Deferred tax assets relating to tax losses carried forward are recognised, when management assesses that these can be offset 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. Future taxable income is based on financial forecasts approved by man- agement and expectations for operational devel- opment, mainly in terms of organic growth and operating margin, i.e. the cash flow projections made for the purpose of the Group’s impairment tests, see 3.2, Impairment tests. These represent management’s best estimates, but are by nature associated with significant 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 where appli- cable 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 is 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. Significant accounting estimates and judgements 5.2.3 Uncertain tax positions Uncertain tax positions include ongoing disputes with tax authorities in certain jurisdictions 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 settlements with the relevant tax authorities. The final outcome of some of the ongoing disputes is expected to be determined in 2024-2025. CONSOLIDATED FINANCIAL STATEMENTS 93 6 Remuneration Executive remuneration objective At ISS, remuneration is based on responsibilities, competencies and performance and is designed to be competitive, affordable and in line with market practice of comparable listed companies. Remuneration elements Remuneration of the members of the EGM 1) consists of an annual base salary (fixed) and certain variable elements. The annual base salary primarily serves the purpose of being able to attract and retain high-performing leaders. In addition to the annual base salary, the members of the EGM may receive variable remuneration, which shall be based on performance and accountability in relation to established objectives, both short and long-term, as well as the overall performance of ISS in alignment with the shareholders. The Group’s short-term incentive programme (STIP) allowing members the opportunity to earn a cash bonus subject to achieving certain financial and non-financial KPIs, measured annually and is designed to drive performance and the OneISS strategy, including progression on the ESG agenda. The Group’s long-term incentive programme (LTIP) is described to the right. Members of the EGM are also granted customary non-monetary benefits such as a company car, insurances, communication and IT equipment, etc., and certain members participate in pension plans. Long-term incentive programme To drive delivery of long-term financial results, retention of leaders and alignment to shareholder value creation, the Group has implemented two share-based incentive programmes: • long-term incentive programme (LTIP) • special incentive programme (SIP) Under the annual LTIP , performance share units (PSUs) are granted to members of the EGM and other senior officers of the Group. Each PSU entitles the holder to receive one share at no cost after three years, subject to achievement of certain performance criteria and service-based objectives. Performance criteria for LTIP 2020, were achieved and vested 32% in March 2023. Based on annual EPS and TSR performances for 2021, 2022 and 2023, 64% of the PSUs under the LTIP 2021 will vest on 1 March 2024. Under the SIP, restricted share units (RSUs) are granted to certain Corporate Senior Officers and other senior officers. Each RSU entitles the holder to receive one share at no cost, subject to achievement of individual service criteria upon vesting. In March 2023, the SIP 2020- 2023 vested 100%. Based on individual service criteria, 100% of the RSUs under the SIP 2023 will vest on 1 March 2025. Incentive programmes Remuneration report Vesting of SIPVesting of LTIP 0 25 50 75 100 20212020201920182017 % EPS TSR Industry TSR Danish 64% 0%0% 0% 32% EPS TSR Industry TSR Danish 0 25 50 75 100 20232020-20232020-2022 83% 100% 100% % Our 2023 Remuneration Report includes a description of the work of our Remuneration committee and our remuneration policy. In addition, a specification of remuneration to the members of the Executive Group Management Board and the Board of Directors is included. In this section: 6.1 Management remuneration 6.2 Share-based payments 1) Will vest in March 2025 1) 1) Remuneration Report 2023 PEOPLE MAKE PLACES 1) Comprise the Executive Group Management Board (EGMB) and Corporate Senior Officers of the Group. CONSOLIDATED FINANCIAL STATEMENTS 94 6.1 Management remuneration 6.2 Share-based payments The Executive Group Management (EGM) comprises the Executive Group Management Board (EGMB) and Corporate Senior Officers of the Group. Members of the EGM have authority and 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. EGMCorporate Senior (DKK thousand)Board EGMBOfficers2023Base salary and non-monetary benefits 9,176 13,484 50,671Pensions - 386 3,916Annual bonus (STIP)- 7,176 15,709Sign-on bonus - - 11,658 1)Share-based payments- (4,603) 18,664Severance payments - - 16,161Total remuneration 9,176 16,443 116,7792022Base salary and non-monetary benefits 8,587 15,123 49,935Pensions - 146 1,916Annual bonus (STIP) - 11,572 30,101Sign-on bonus - - 2,066 1)Share-based payments - 7,310 14,741 Total remuneration 8,587 34,151 98,759 1) In 2023, share-based payments to the EGMB included a cost reversal of DKK 7 million (2022: DKK 0 million) due to forfeited PSUs as the Group CEO Jacob Aarup-Andersen left ISS. 6.2.1 Long-term incentive programme Members of the EGM and other senior officers of the Group are granted a number of perfor- mance share units (PSUs) under the annual LTIP. Participants are compensated for any dividend distributed between time of grant and time of vesting. Upon vesting, each PSU entitles the holder to receive one share at no cost. 1)Fair value and profit or loss impact LTIP 2020 LTIP 2021 LTIP 2022 LTIP 2023Fair value (DKKm)At grant date 102 116 129 116 At 31 December 2023 - 83 98 102 Profit or loss impact (DKKm)Recognised in 2023 3 17 27 23 Not yet recognised - 4 34 65 PSUs and participants (number)Participants 109 122 142 151 PSUs granted 1,461,173 1,362,540 1,428,980 994,916 PSUs expected to vest, % 32% 64% 68% 62% On 1 September 2023, Jacob Aarup-Andersen stepped down as Group CEO and was suc- ceeded by former Group CFO Kasper Fangel. A search process for a new Group CFO was initiated. In the period until 31 December 2023, the EGMB comprised only one member, the Group CEO. As a result, total remuneration to the EGMB decreased compared to 2022. Remuneration policy is described in the Remu- neration report which is available here Subject to certain criteria, the PSUs will vest after three years. In 2023, the Group recognised a cost of DKK 72 million (2022: DKK 80 million) related to share- based payment programmes (see overview below for PSUs and overview in 6.2.2, Special incentive programmes (SIP) for RSUs) with a corresponding increase in equity. Fair value assumptions LTIP 2020 LTIP 2021 LTIP 2022 LTIP 2023At the time of grant 1)Share price, DKK98 111-153 117-153 122-153 2)Expected volatility29.1% 47.2% 47.5% 44.2%Expected life of grant, years 3 3 3 3 2)Risk-free interest rate(0.4)%-1.9% (0.6)%-0.9% (0.1%)-1.5% 1.0%-3.1% 1) Based on five-day average. 2) Based on observable market data for peer groups. 1) Vested in March 2023. CONSOLIDATED FINANCIAL STATEMENTS 95 6.2 Share-based payments (continued) EGMOutstanding PSUsOtherCorporateSenior LTIP 2020 (vested in 2023)EGMBSenior OfficersOfficers TotalOutstanding at 1 January 2022 59,769 177,999 1,025,210 1,262,978 Forfeited - - (31,586) (31,586)Transferred - (10,382) 10,382 - Outstanding at 31 December 2022 59,769 167,617 1,004,006 1,231,392 Transferred - (25,773) 25,773 - Exercised (19,397) (46,033) (334,169) (399,599)Expired (40,372) (95,811) (695,610) (831,793)Outstanding at 31 December 2023 - - - -LTIP 2021 (vesting in 2024)Outstanding at 1 January 2022 148,297 176,746 772,721 1,097,764 Granted - 11,015 64,856 75,871 Forfeited - (8,583) (71,403) (79,986)Transferred - 6,578 (6,578) - Outstanding at 31 December 2022 148,297 185,756 759,596 1,093,649 Granted 451 18,857 26,414 45,722 Forfeited (118,308) - (50,695) (169,003)Transferred - (57,053) 57,053 - Outstanding at 31 December 2023 30,440 147,560 792,368 970,368 LTIP 2022 (vesting in 2025)Granted 139,713 265,208 948,934 1,353,855 Forfeited - (18,233) (115,516) (133,749)Transferred - (9,116) 9,116 - Outstanding at 31 December 2022 139,713 237,859 842,534 1,220,106 Granted 516 17,149 57,460 75,125 Forfeited (105,396) (6,085) (102,561) (214,042)Transferred - (58,320) 58,320 - Outstanding at 31 December 2023 34,833 190,603 855,753 1,081,189 LTIP 2023 (vesting in 2026)Granted 47,698 191,237 755,981 994,916 Forfeited - (17,357) (100,948) (118,305)Transferred - (30,068) 30,068 - Outstanding at 31 December 2023 47,698 143,812 685,101 876,611 TSR performance criteriaThreshold Vesting TSRBelow 0 % Below median thresholdof peersThreshold 25 % At median of peersMaximum 100 % At upper quartile of peers or betterTSR peers are the Nasdaq Copenhagen OMX C25 and a peer group of comparable international service companies. Vesting criteria The vesting criteria are total shareholder return (TSR), measured relative to peer group performance, and earnings per share (EPS). For LTIP 2021, LTIP 2022 and LTIP 2023 the weight of the individual criteria are: • TSR: 40% • EPS: 40% • Service-based objective: 20% For LTIP 2020, TSR and EPS were equally weighted (no service-based objective). Vested programmes In March 2023, the LTIP 2020 programme vested. Based on the annual EPS and TSR performances for 2020, 2021 and 2022, 32% of the granted PSUs vested at a weighted average price of DKK 152 at the date of exercise. After this vesting, no further PSUs are outstanding under the LTIP 2020 and the programme has lapsed. Furthermore, in March 2024, the PSUs granted under LTIP 2021 will vest with 64% based on the annual EPS and TSR performances for 2021, 2022 and 2023. CONSOLIDATED FINANCIAL STATEMENTS Accounting policy 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 employee costs over the vesting period with a corresponding increase in equity, as both schemes are equity-settled. The fair value of granted PSUs under the long-term incentive programme is measured using a generally accepted valuation model taking into consideration the terms and conditions upon which the PSUs were granted including market-based vesting conditions (Total Shareholder Return (TSR)). 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. 96 6.2 Share-based payments (continued) 6.2.2 Special incentive programmes (SIP) The Group has a Special Incentive Programme (SIP) under which Restricted Share Units (RSUs) are granted to certain Corporate Senior Officers (EGM members) and other senior officers of the Group. Subject to individual service criteria, the RSUs will vest after two or three years. Upon vesting, each RSU entitles the holder to receive one share at no cost. In September 2023, a total of 10,178 RSUs were granted to certain Other Senior Officers under the SIP 2023 programme. 1)Fair value and profit or loss impact SIP 2020-2023SIP 2023Fair value (DKKm)At grant date 24 1 At 31 December 2023 - 1 Profit or loss impact (DKKm)Recognised in 2023 2 0 Not yet recognised - 1 RSUs and participants (number)Participants 37 4 RSUs granted 232,730 10,178 Expected to vest, % 100% 100% Fair value assumptionsSIP 2020-2023 SIP 2023At the time of grantShare price, DKK 101 122 Expected life of grant, years 3 1.5 EGMOutstanding RSUsCorporateOtherSenior SeniorSIP 2020-2023 (vested in 2023)OfficersOfficers TotalOutstanding at 1 January 2022 26,619 193,258 219,877 Granted - 5,759 5,759 Forfeited - (1,462) (1,462)Transferred 10,432 (10,432) - Outstanding at 31 December 2022 37,051 187,123 224,174 Exercised (37,051) (187,123) (224,174)Outstanding at 31 December 2023 - - -SIP 2023 (vesting in 2025)Granted - 10,178 10,178 Outstanding at 31 December 2023 - 10,178 10,178 Vested programmes In March 2023, the SIP 2020-2023 programme vested. Based on individual service criteria, 100% of the granted RSUs vested at a weighted average price of DKK 152 at the date of exercise. After this vesting, no further RSUs are outstand- ing under the SIP 2020-2023 and the programme has lapsed. In March 2025, the RSUs granted under the SIP 2023 programme will vest 100% subject to achievement of individual service criteria. 1) Vested in March 2023. CONSOLIDATED FINANCIAL STATEMENTS 97CONSOLIDATED FINANCIAL STATEMENTS 7.1 Pensions and similar obligations 7.1.1 Pension schemes The Group has a significant number of pension schemes with different characteristics. The ma- jority of the schemes are defined contribution plans, but in a number of countries, the Group is also party to defined benefit plans. Defined contribution plans These are pension schemes where contributions are paid to publicly or privately administered pension plans. The Group has no further payment obligations once the contributions have been paid. In 2023, contributions amounted to DKK 1,161 million (2022: DKK 1,223 million), or 83% of the Group’s pension costs (2022: 84%). Defined benefit plans Under these schemes the obligation towards the employees as well as the risk associated with future developments in salary, interest rate, inflation, mortality, etc. rests with the Group. The plans are primarily based on years of service, and benefits are determined on the basis of salary and position. The largest plans are in Switzerland and the UK accounting for 87% (2022: 86%) of the Group’s obligation (gross) and 98% (2022: 97%) of its plan assets. The majority of the obligations are funded with assets placed in independent pension funds. In some countries, primarily Sweden, France, Türkiye, Hong Kong and Mexico, the obligation is unfunded. For unfunded plans, the obligation amounted to DKK 665 million or 8% of the present value of the total gross obligation (2022: DKK 633 million or 8%). Multiemployer pension plans In a few countries, the Group participates in mul- tiemployer pension schemes that by nature are defined benefit plans. Some funds are not able to provide the necessary information in order for the Group to account for the schemes as defined benefit plans and these schemes are therefore accounted for as defined contribution plans. 7.1.2 Major defined benefit plans Switzerland Participants are insured against the financial consequences of: • retirement; • disability; and • death The pension plans guarantee a minimum interest credit and fixed conversion rates at retirement and include a risk-sharing element between ISS and the plan participants. Contributions are paid by both ISS and the employees and the plans must be fully funded. In case of underfunding, recovery measures must be taken, such as additional financing from ISS or from ISS and the employees, reduction of benefits or a combination of both. The UK Participants are insured against the financial consequences of: • retirement; and • death The pension plans guarantee a defined benefit pension at retirement on a final salary basis, but do not provide any insured disability benefits. The majority of the plans does not include a risk-shar - ing element between ISS and the plan participants. In this section: 7.1 Pensions and similar obligations 7.2 Hyperinflation in Türkiye 7.3 Related parties 7.4 Fees to auditors 7.5 Subsequent events 7 Other required disclosures Pension costs 83% 17% Defined contribution Defined benefit Pension costs 1.4 DKKbn Pension obligation, gross – funded vs. unfunded Pension obligation, gross – by country 92% 8% 77% 10% 13% Funded Unfunded Switzerland UK Other Pension obligation, ross 8.8 DKKbn 8.8 DKKbn 98 7.1 Pensions and similar obligations (continued) 2023 2022Present Fair value Present Fair value value of of plan Carrying value of of plan Carrying (DKKm)obligationassetsamountobligationassetsamountAt 1 January 7,953 8,663 (710) 8,625 8,997 (372)Current service costs199 - 199 197 - 197 Interest on obligation/plan assets 257 233 24 72 55 17 Past service costs 18 - 18 11 - 11 Recognised in profit or loss 474 233 241 280 55 225 Remeasurement (gain)/loss: Demographic assumptions (7) - (7) 7 - 7 Financial assumptions 399 - 399 (1,702) - (1,702) Experience adjustments 90 - 90 490 - 490 Return on plan assets - 20 (20) - (997) 997 Asset ceiling - 299 (299) - (43) 43 Recognised in other comprehensive income 482 319 163 (1,205) (1,040) (165)Foreign exchange adjustments 328 501 (173) 214 295 (81)Acquisitions and divestments, net - - - 227 219 8 Employee contributions 173 173 - 154 154 - Employer contributions - 260 (260) - 207 (207)Benefits paid (605) (512) (93) (342) (267) (75)Asset ceiling - (299) 299 - 43 (43)Reclass to Liabilities held for sale (50) - (50) - - - Other changes (154) 123 (277) 253 651 (398)At 31 December 8,755 9,338 (583) 7,953 8,663 (710) 1) Including a foreign exchange adjustment on the opening balance of DKK 119 million (2022: DKK 56 million). 2) Including an asset of DKK 326 million (2022: DKK 247 million) related to defined benefit plans in the UK. Plan assets – major categories 31% 25% 19% 3% 3% 19% Listed shares Corporate bonds Property Government bonds Cash and cash equivalents Other % of total plan assets Major categories of plan assets 9.3 DKKbn 7.1.3 Defined benefit plans (carrying amounts) Recognised in the statement of financial position (DKKm) 2023 2022Carrying amount of defined benefit plans (583) (710)1)Accumulated impact from asset ceiling 1,172 1,352 2)Defined benefit obligation, net 589 642 Other long-term employee benefits 546 543 Pensions and similar obligations 1,135 1,185 Development in 2023 In 2023, actuarial calculations led to recognition of actuarial losses due to decreased discount rates (financial assumptions) of DKK 399 million, mainly in Switzerland. This was partly offset by a positive return on plan assets of DKK 20 million and a decrease in the asset ceiling of DKK 299 million, primarily related to Switzerland and the UK. The net impact on the pension obligation from actuarial calculations was a loss of DKK 163 million recognised in other comprehensive income. In recent years, we have experienced strong asset returns and actuarial gains, which led to a significant surplus on the major plans in Swit- zerland and the UK. Due to surplus restrictions (ISS does not have access to the overfunding), a significant asset ceiling has been recognised in prior years. In 2023, market conditions for our plan assets including listed shares, bonds, and real estate improved compared to 2022, resulting in a gain on plan assets in Switzerland and the UK. Due to a larger increase in the pension obligation (gross) the asset ceiling decreased by DKK 299 million. As such, by the end of 2023, the accumulated impact from the asset ceiling was DKK 1,172 million (2022: DKK 1,352 million). Contributions in 2023 In 2023, the Group contributed DKK 353 million to defined benefit plans (2022: DKK 283 million). The Group expects to contribute DKK 352 million in 2024. CONSOLIDATED FINANCIAL STATEMENTS 99 7.1 Pensions and similar obligations (continued) 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. Accounting policy Contributions to defined contribution plans are recognised in Employee costs when the related service is provided. Defined benefit plans The Group’s net obligation is calculated by a qualified actuary using the projected unit credit method, separately for each plan by estimating the amount of future benefits that em- ployees have earned in return for their service in the current and prior periods. The present value less the fair value of 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 benefits available in the form of future refunds from or reductions in future contributions to the plan. To calculate the present value, consideration is given to applicable minimum funding requirements. Pension costs are calculated based on actuarial esti- mates and financial expectations at the beginning of the year. Service costs are recognised in Employee costs and net interest is recognised in Financial expenses. Remeasurements (actuarial gains/losses), compris- ing the differences between the expected devel- opment in pension assets and liabilities and the realised amounts at the reporting date as well as the effect of asset ceiling are recognised in other comprehensive income. When the benefits are changed or a plan is curtailed, the resulting change in benefits that relates to past service or the gain or loss on curtailment is recognised in Employee costs. Gains and losses on settlement are recognised when incurred. The aggregated value of unfunded plans is pre- sented as a net liability and the aggregated value of funded plans are presented as a net asset. Other long-term employee benefits are calculated as defined pension plans, except that actuarial gains and losses are recognised in Employee costs. Other long-term employee benefits comprise jubilee bene- fits, long-service or sabbatical leave, etc. 2023 2022Other Other CHF GBP EURcurrencies CHF GBP EURcurrenciesDiscount rates 1.5% 4.5% 3.3-4.3% 5.7-26.6% 2.3% 4.8 % 3.7-3.8% 1.0-10.7% Salary increase 1.1% 0.0-3.1% 0.0-3.6% 3.0-24.3% 1.3% 0.0-2.7% 2.6-3.2% 0.0-12.0% Pension increase 0.0% 2.6-3.0% 0.0-2.8% 0.0-1.8% 0.0% 2.7-3.2% 0.0-2.2% 0.0-2.2% 2023 2022(DKKm)+0.5%(0.5)% +0.5%(0.5)%Discount rate(376) 409 (334) 363 Price inflation 64 (55) 74 (65)Salary increase 76 (76) 93 (74)Pension increase 241 (236) 248 (248)+1 year -1 year +1 year -1 yearLife expectancy 147 (144) 136 (133) (Years)2023 2022Active employees 8 6 Retired employees 12 11 1)Deferred vested 15 7 Total employees 9 9 7.1.4 Actuarial assumptions Duration The estimated weighted average duration of the defined benefit obligation was 9 years (2022: 9 years) and is split into: Sensitivity analysis The sensitivities related to significant actuarial assumptions used in the calculation of the defined benefit obligation in terms of estimat- ed increase/(decrease) in the obligation are illustrated below. The analysis is based on changes in assump- tions, with all other variables held constant, that the Group considered to be reasonably possible at the reporting date. CONSOLIDATED FINANCIAL STATEMENTS Actuarial calculations and valuations are performed annually for all major plans. The present value of defined benefit obligations is determined based on assumptions about the future development in vari- ables such as salary levels, interest rates, inflation and mortality. Applied assumptions vary from country to country due to local conditions. All assumptions are assessed at the reporting date. The discount rates used for calculating the present value of expected future cash flows are based on the market yield of high-quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit obligations. When the Group participates in multi-employer pen- sion plans being accounted for as defined contribu- tion plans due to unavailability of information, there is a risk that the plans are not sufficiently funded. However, information on surplus or deficit in the schemes is not available. Significant accounting estimates 100 7.2 Hyperinflation in Türkiye Development in 2023 In 2023, the impact of hyperinflation restate- ment on our three key KPIs, i.e. organic growth (non-IFRS), operating margin (non-IFRS) and free cash flow (non-IFRS) continued to be immaterial. However, the Group’s statement of financial position was significantly impacted, mainly by increasing the carrying amount of goodwill, customer contracts and equity. Financial position Accumulated goodwill increased by DKK 732 million (2022: DKK 644 million) and Other intangible assets (customer contracts) by DKK 295 million (2022: DKK 224 million), mainly due to restatement of fair values carried from the acquisition of Rönesans in 2021 and the original acquisition of ISS Türkiye in 2005. Thus, by the end of 2023, intangible assets included accumulated hyperinflation adjust- ments of DKK 1,027 million. Likewise, total accumulated equity increased DKK 1,035 million (2022: DKK 891 million) mainly due to opening restatement of non-monetary items of DKK 467 million (2022: DKK 814 million) and restatement effect from changes in the price index during the year. Profit or loss Net impact on revenue was DKK (2) million (2022: DKK 154 million) of which DKK 1,130 million (2022: DKK 580 million) related to increase in price index of 31% during the year (2022: 21%). This was offset by the impact from retranslation to exchange rates at 31 December of DKK 1,132 million (2022: DKK 426 million) as the TRY/DKK exchange rate decreased from 37.25 in the beginning of 2023 to 22.82 at 31 December 2023. Impact on the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS 1) In year impact of restatement amounted to DKK 467 million (2022: DKK 814 million). Inflation restatement, Inflation restatement, in yearin year2023 Non-Profit Retrans- Total 20232022 Non-Profit Retrans- Total 2022(excl. monetary or loss lation adjust-(re-(excl. monetary or loss lation adjust-(re-(DKKm)IAS 29)itemsitems(YE FX)mentsported)IAS 29)itemsitems(YE FX)mentsported)Profit or lossRevenue 78,683 - 1,130 (1,132) (2) 78,681 73,684 - 580 (426) 154 73,838 Operating profit before other items 3,348 (58) 90 (80) (48) 3,300 2,947 (48) 51 (32) (29) 2,918 Operating profit 3,199 (73) 90 (78) (61) 3,138 2,944 (60) 50 (30) (40) 2,904 Net profit 319 22 - (16) 6 325 2,070 77 - (11) 66 2,136 Financial ratiosOrganic growth (non-IFRS)9.7% - - - - 9.7%8.4% - - - - 8.4%Operating margin (non-IFRS)4.3% (0.1)% 0.1% (0.1)% (0.1)% 4.2%4.0% (0.1)% 0.1% (0.0)% (0.0)% 4.0%Cash flowsCash flow from operating activities 3,433 - - (41) (41) 3,392 3,340 - - (7) (7) 3,333 Cash flow from investing activities(1,051) - - 9 9 (1,042) (553) - - 7 7 (546)Cash flow from financing activities (1,317) - - (17) (17) (1,334) (928) - - (2) (2) (930)Free cash flow (non-IFRS)1,791 - - (16) (16) 1,775 1,726 - - 8 8 1,734 2023 Inflation 20232022 Inflation 2022(excl. restatement,(re-(excl. restatement,(re-(DKKm)IAS 29)accumulatedported)IAS 29)accumulatedported)Financial positionGoodwill 18,964 732 19,696 19,806 644 20,450 Other intangible assets 3,281 295 3,576 3,246 224 3,470 Right-of-use assets and property, plant and equipment 3,017 109 3,126 3,235 85 3,320 Total assets 46,557 1,136 47,693 46,052 953 47,005 1)Other comprehensive income (1,179)936 (243)(56) 814 758 Other equity elements 10,666 99 10,765 9,980 77 10,057 Total equity 9,487 1,035 10,522 9,924 891 10,815 Deferred tax liabilities 1,219 101 1,320 1,116 62 1,178 Total equity and liabilities 46,557 1,136 47,693 46,052 953 47,005 101 7.3 Related parties 7.4 Fees to auditors 7.5 Subsequent events 7.3.1 Parent and ultimate controlling party The Group’s parent, ISS A/S, is the ultimate controlling party. At 31 December 2023, ISS had no related parties with either control of the Group or significant influence in the Group. 7.3.2 Key management personnel The Board of Directors (Board) and the Executive Group Management (EGM) are considered the Group’s key management personnel as defined in 6.1, Management remuneration. Apart from remuneration, including share-based incentive programmes, there were no significant transactions with members of the Board and the EGM in 2023. (DKKm)2023 2022Statutory audit 70 73Other assurance services 2 2Tax and VAT advisory services 6 7Other services 8 4Total 86 86 Other assurance services comprised work related to the interim financial 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 financial and tax due diligence. No events have occurred subsequent to 31 December 2023, which could have a significant impact on the consolidated financial statements. Accounting policy Inflation restatement The financial statements of ISS Türkiye are restated for inflation to reflect the purchasing power at the reporting date using the consumer price index. Non-monetary items, which are carried at historical cost, such as goodwill, customer contracts, right- of-use assets, property, plant and equipment and deferred tax, have been restated for the effect of inflation based on changes in the price index for the period from initial recognition to 31 December 2023 or to the date of disposal, where relevant. The restatement was made effective from the time, the items were initially recognised, which was no earlier than 2005, when ISS first entered Türkiye through an acquisition. Management assesses whether the restatement of non-monetary items represents an indication of impairment to ensure that the restated amounts do not exceed the recoverable amounts of the assets, see 3.2, Impairment tests. Monetary items such as receivables, payables, loans and borrowings are not subject to restatement for the effects of inflation as these items already reflect the purchasing power at the reporting date. Equity includes the opening effect of restating non-monetary items. Further, the restatement effects of inflation based on changes in the price index for the reporting period is recognised in other comprehensive income with set-off within financial income or expenses in profit or loss. Profit or loss transactions in the period are restated to reflect changes in the price index from the time of transaction to the end of the reporting period with the exception of depreciation and amortisation, which are recalculated based on the inflation-adjusted carry- ing value of the relevant non-monetary assets. The restating gain or loss is recognised in financial income or expenses, except for the tax effect, which is recognised under income tax. Cash flow statement Operating profit before other items includes a non-cash effect from the inflation restatement, which has been eliminated in the line Non-cash items related to hyperinflation. Price index Restatement for hyperinflation of the financial state- ments of ISS Türkiye is based on the development in the consumer price index provided by the Türkiyish Statistical Institute calculated as an average year to date conversion factor. For 2023, the inflation rate in Türkiye was 64.77% (2022: 64%). Retranslation from TRY to DKK The financial statements of ISS Türkiye, including effects of inflation restatement, are translated into DKK apply - ing the TRY/DKK exchange rate at the reporting date as opposed to the Group’s normal practice of translating the profit or loss using the exchange rate at the trans - action date or an average exchange rate for the month. The TRY/DKK exchange rate decreased from 37.25 at the beginning of 2023 to 22.82 at 31 December 2023. The average rate was 29.80 (2022: 43.00). 7.2 Hyperinflation in Türkiye (continued) CONSOLIDATED FINANCIAL STATEMENTS 102 8.1 Other material accounting policies In this section: 8.1 Other material accounting policies 8.2 Change in accounting policies and disclosures 8.3 New regulations 8.4 Group companies 8.5 Definitions 8 Basis of preparation ISS A/S is listed on Nasdaq Copenhagen. The consolidated financial statements of ISS A/S for the year ended 31 December 2023 comprise ISS A/S and its subsidiaries (collectively, the Group). Signifi - cant subsidiaries are listed in 8.4, Group companies. The 2023 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 22 February 2024 and issued for approval at the subsequent annual general meeting on 11 April 2024. Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with IFRS Accounting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act (class D). In addition, the consolidated financial statements have been prepared in compliance with the IFRS Accounting Standards issued by the IASB. The consolidated financial statements have been prepared on the basis that the Group will continue to operate as a going concern. The consolidated financial statements are presented in Danish kroner (DKK), which is ISS A/S’s functional currency. All amounts have been rounded to nearest DKK million (DKKm), unless otherwise stated. Fair value measurement and disclosure Items are measured at historical cost, except for assets and liabilities held for sale and derivatives that are measured at fair value. Fair value measurements 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 financial assets and liabilities approximates their carrying amount largely due to the short-term nature of these items. The fair value of loans and borrow- ings, including methods and assumptions used to estimate the fair value, are disclosed in 4.2, Borrowings and interests. Basis of consolidation The consolidated financial statements comprise ISS A/S and entities controlled by ISS A/S. Consolidation of entities is performed after elimination of intra-group balances, income and expenses. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. By virtue of agreement certain non-controlling shareholders are only eligible of receiving bene- fits from their non-controlling interest when ISS as controlling shareholder has received their initial investment and compound interest on such. In such instances the subsidiaries’ result and equity are fully allocated to ISS until the point in time where ISS has recognised amounts exceeding their investment including compound interest on such. Materiality The consolidated financial statements separately present items or groups of items that are considered material. In addition, information that is considered material, either individually or in combination with other information, is disclosed. Materiality is judged by reference to the size and nature of the item. The deciding factor is whether the omission or misstatement could, individually or collectively, influence the economic decisions made by the primary users on the basis of the consolidated financial statements. In particular circum - stances, either the nature or the amount of an item or an aggregate of items could be the determining factor. This section includes general accounting policies relevant for the preparation of the Group's consolidated financial statements. The Group's material accounting policies are described in the relevant notes to the consolidated financial statements. A list of the notes is presented on p. 51. Changes in accounting policies No changes with material effect on recognition and measurement were implemented in 2023. The amendments to IAS 1 impacted the Group’s disclosures of accounting policies. From 2023, only the Group's material accounting policies in accordance with our definition are disclosed, see the box to the right. Foreign currency Transactions in currencies other than the func- tional currency of the respective Group compa- nies are considered transactions denominated in foreign currencies. On initial recognition, except for companies operating in hyperinflationary environments, for- eign currency transactions are translated to the functional currencies of the Group companies at the exchange rates at the transaction date. Translation differences between the exchange rates at the transaction date and the date of payment are recognised in Financial income or Financial expenses. CONSOLIDATED FINANCIAL STATEMENTS 103 Foreign currency (continued) Monetary items denominated in foreign currencies are translated at the exchange rates at the reporting date. The difference between the exchange rates at the reporting date and at the transaction date or the exchange rate used in the latest financial statements is recognised in Financial income or Financial expenses. On recognition in the consolidated financial statements of Group companies with a func- tional currency other than DKK, the statements of profit or loss and statement of cash flows are translated at the average exchange rates for the period and the statements of financial position are translated at the exchange rates at the reporting date. Foreign exchange adjustments arising on translation of the opening balance of equity of foreign entities and on translation of receivables considered part of the net invest- ment in the entity and on translation of the prof- it 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. However, if the foreign entity is a non-wholly owned subsidiary, the relevant proportion of the translation difference is allocated to the non-controlling interest. 8.2 Change in accounting policies and disclosures 8.3 New regulations IASB issued amended standards and interpre- tations, which are not yet mandatory for the consolidated financial statements of the Group at 31 December 2023. The Group expects to adopt the new standards and interpretations when they become mandatory. 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 financial statements. Sustainability reporting As of first January 2024, the reporting require- ments set out in the Corporate Sustainability Reporting Directive (CSRD) will become applica- ble for the annual report published in 2025. The Group has initiated a project to assess the impact of the related European Sustainability Reporting Standards (ESRS) and how to imple- ment the new requirements in a single Annual Report. In addition, the Group considers the process of production, collection and consoli- dation of sustainability-related data to ensure an effective, consistent and sound reporting process from 2024. IAS 12: International Tax Reform — Pillar Two Model Rules The Group is within the scope of the Pillar Two rules (Pillar II) applying from 1 January 2024. However, since Pillar II was not effective at the reporting date, the Group has no related current tax exposure. The Group applies the mandatory exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar II income taxes, as provided in the 2023 amend - ments to IAS 12. The Group has prepared a preliminary assess- ment of the its exposure to Pillar II income taxes using 2023 data. Based on the preliminary assessment, the Group anticipates to be able to apply the transitional Safe Harbour rules for all countries in 2024, which will switch off the normal Pillar II calculation rules and thus no top-up taxes will be payable for 2024. The transitional Safe Harbour rules are more simple than the normal Pillar II calculation rules, and can be applied during the transitional period for 2024-2026 if specific tests can be fulfilled demonstrating that the risk of Pillar II top-up taxes is low. From 1 January 2023, the Group has adopted the following amendments to standards with no sig- nificant impact on recognition and measurement: • Amendments to IAS 8: Definition of Account- ing Estimates • Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies • Amendments to IAS 12: International Tax Reform — Pillar Two Model Rules • Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction The amendments below impacted the disclosures of accounting policies: IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies The amendments to IAS 1 and IFRS Practice Statement 2 requires us to disclose the material accounting policies instead of significant ac- counting policies thereby making the accounting policies more specific and thus more relevant to users. The amendments impacted the Group’s disclosures of accounting policies, but not the measurement, recognition or presentation of any items in the Group’s financial statements. From 2023, only the Group's material accounting policies are disclosed. CONSOLIDATED FINANCIAL STATEMENTS 104 8.4 Group companies Northern Europe Denmark (ISS A/S's country of domicile) 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% Belgium & Luxembourg ISS Catering N.V. 100% ISS Facility Services N.V. 100% ISS Reception & Support Services N.V. 100% ISS Facility Services S.A. 100% ISS Luxinterim SARL 100% Finland ISS Palvelut Holding Oy 100% ISS Palvelut Oy 100% Suomen Laatutakuu Palvelut Oy 100% Netherlands ISS Building Maintenance Services B.V. 100% ISS Catering Services B.V. 100% ISS Holding Nederland B.V. 100% ISS Integrated Facility Services B.V. 100% ISS Nederland B.V. 100% Talentgroep Montaigne Facility Management B.V. 100% Norway ISS Holding AS 100% ISS Management AS 100% ISS Facility Services AS 100% ISS Serveringspartner AS 100% ISS Service Management AS 100% Poland ISS Facility Services Sp. Z o.o. 100% ISS World Services Poland Sp. Z o.o. 100% Sweden ISS Facility Services Holding AB 100% ISS Facility Services AB 100% ISS Palvelut Holding AB 100% UK & Ireland ISS UK Holding Limited 100% ISS UK Limited 100% ISS Facility Services Ltd. 100% ISS Mediclean Limited 100% Pegasus Security Holdings Limited 100% ISS Ireland Ltd. 100% 1) Joint venture. 2) By virtue of the governance structure, the Group has the power to govern the financial and operating policies of the company. Consequently, the company is consolidated as a subsidiary. 3) Under certain circumstances or events, ISS may be obliged to choose to purchase other shareholders’ shareholdings or dispose of its own shareholdings. 2) 2) 2) 2) Americas Chile Apunto Servicios de Alimentacion S.A. 100% ISS Chile S.A. 100% ISS Facility Services S.A. 100% ISS Servicios de Limpieza Mecanizada S.A. 100% ISS Servicios Generales Ltda. 100% ISS Servicios Integrales Ltda. 100% Mexico ISS Centro América, S. de R.L. de C.V. 100% ISS Facility Services, S.A. de C.V. 100% US & Canada ISS Facility Services Holding, Inc 100% ISS Management and Finance Co, Inc 100% ISS Facility Services, Inc (US) 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 Facility Services Inc. (CA) 100% Asia & Pacific Australia & New Zealand ISS Facility Management Pty Limited 100% ISS Facility Services Australia Limited 100% ISS Facility Services Pty Ltd. 100% ISS Health Services Pty Ltd. 100% ISS Holdings Pty Ltd. 100% ISS Integrated Services Pty Ltd 100% ISS Property Services Pty Ltd 100% ISS Security Pty Ltd 100% Pacific Invest December 2004 Pty Ltd. 100% Pacific Service Solutions Pty Ltd. 100% ISS Facility Services Ltd. 100% ISS Holdings NZ Ltd. 100% Discontinued operations France GIE ISS Services 100% ISS Facility Services 100% ISS Holding Paris SAS 100% ISS Logistique et Production SAS 100% China 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 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 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 Innovative Salary Services and Payroll Advisory Pvt. Ltd. 46% ISS Facility Services India Pvt. Ltd. 100% ISS SDB Security Services Pvt. Ltd. 46% Modern Protection India Pvt. Ltd. 46% ISS Support Services Pvt. Ltd. 100% Indonesia PT ISS Facility Services 99% PT ISS Indonesia 100% PT ISS Jasa Fasilitas 0% Singapore ISS Asia Pacific Pte. Ltd. 100% ISS Catering Services Pte. Ltd. 100% ISS Facility Services Pte. Ltd. 100% ISS M&E Pte. Ltd. 100% On this page, the Group's significant subsidiaries and joint ventures are presented per region. Together these are referred to as "Companies within the ISS Group". Central & Southern Europe Austria ISS Austria Holding GmbH 100% ISS Facility Services GmbH 100% ISS Ground Services GmbH 100% Germany ISS Automotive Services GmbH 100% ISS Facility Services Holding GmbH 100% ISS Integrated Facility Services GmbH 100% ISS Energy Services GmbH 100% ISS Communication Services GmbH 100% ISS Engineering Services GmbH 100% Italy ISS Facility Services S.r.l. 100% Portugal ISS Tech Portugal, Unipessoal Lda. 100% Spain Integrated Service Solutions, S.L. 100% ISS Facility Services, S.A. 100% UTE-HOSPITALES S.A.S 65% Switzerland ISS Facility Services AG 100% ISS Schweiz AG 100% Livit FM Services AG 100% Türkiye 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% ISS Bitki Bakim ve Hasere Kontrol Hizmetleeri A.Ş. 50.1% 1) 3) 3) 3) 3) 3) CONSOLIDATED FINANCIAL STATEMENTS 105 8.5 Definitions 1) Comparable revenue prior year excludes impacts from changes in exchange rates and acquisitions/divestments, net as well as impact from hyperinflation restatement. To arrive at comparable revenue, prior year’s revenue is retranslated by applying current year’s exchange rates, divestments and impacts from hyperinflation restatements are excluded and estimated impacts from acquisitions are added. 2) Expectations at the acquisition date. 3) Incl. the effect from exclusion of currency effects from the calculation of organic growth and acq./div., net. 4) Estimated or actual revenue where available at the divestment date. 5) AGM = Annual General Meeting. ESG ratios CO 2 emissions Scope 1, 2 and 3 emissions calculated in accordance with the Greenhouse Gas Protocol. For further infor- mation see the 2023 Sustainability Report p. 55. Employee turnover, % Number of employees who left in the year × 100 Average number of employees for the year Customer retention, % Portfolio revenue (annual value) retained at 31 December of the portfolio at 1 January Portfolio revenue (annual value) at 1 January Lost Time Injury Frequency (LTIF) LTI is a work-related injury preventing a person from working, i.e. being unfit for at least a full working day or shift. LTIF is based on 1 million exposure hours including contractors under ISS’s operational control Fatalities Measures the number of work-related fatalities Training and development, hours Hours spent by participants while preparing and partic- ipating. All training sponsored by ISS, paid or unpaid as a result of employment within ISS. Gender diversity, Board, % Female board members (AGM 5) elected) × 100 Board members (AGM 5) elected) Board meeting attendance, % Accumulated number of attended board meetings for all board members x 100 Number of board meetings possible to attend for all board members Speak Up, number Number of reports received through Speak Up system or alternative channels Alternative performance measures EBITDA Operating profit + Depreciation and amortisation + Amortisation/impairment of customer contracts EBITDA before other items Operating profit before other items + Depreciation and amortisation Pro forma adjusted EBITDA EBITDA before other items, including EBITDA before other items in discontinued operations, and adjusted as if all acquisitions and divestments had occurred on 1 January of the respective year Net profit (adjusted) Net profit excluding Other income and expenses, net, Goodwill impairment, Amortisation/impairment of cus- tomer contracts, impact from hyperinflation (IAS 29) and Net profit from discontinued operations (comparatives are not restated) Free cash flow Cash flow from operating activities – Acq. of intangible assets and property, plant and equipment, net – Change in financial assets (excl. equity-accounted investees) – Addition of right-of-use assets, net Organic growth, % (Revenue current year excl. hyperinflation – Comparable revenue 1) prior year) x 100 Comparable revenue 1) prior year Acquisitions are treated as having been integrated with ISS at the acquisition date. Consequently, organic growth includes changes in revenue of such acquisitions compared with expectations at the acquisition date. Operating margin, % Operating profit before other items x 100 Revenue Total revenue growth, % (Revenue current year – Revenue prior year) x 100 Revenue prior year ISS uses various key figures, financial ratios and non-financial ratios, all of which provide our stakeholders with useful and necessary information about the Group’s financial position, performance, cash flows 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. In addition, the Group uses alternative perfor- mance measures (APMs) to provide stakeholders with additional measures to evaluate and analyse the Group's performance. The APMs are non-IFRS financial measures defined by the Group and thus may not be comparable with measures provided by peers or other compa- nies' measures. Financial ratios Acquisitions, % Revenue from acquisitions 2) x 100 Revenue prior year Cash conversion, % Free cash flow x 100 Operating profit before other items Currency adjustments 3) Total revenue growth – Organic growth – Acquisition/divestment growth, net Divestments, % Revenue from divestments 4) × 100 Revenue prior year Equity ratio, % Total equity × 100 Total assets Net debt Loans and borrowings – Securities – Cash and cash equivalents +/– Fair value of derivatives Share ratios Basic earnings per share (EPS) Net profit attributable to owners of ISS A/S Average number of shares (basic) Diluted earnings per share (EPS) Net profit 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 CONSOLIDATED FINANCIAL STATEMENTS 106PARENT COMPANY FINANCIAL STATEMENTS Parent company financial statements Primary financial statements Statement of profit or loss 107 Statement of comprehensive income 107 Statement of cash flows 107 Statement of financial position 108 Statement of changes in equity 108 Accounting policies 1 Accounting policies 109 2 Significant accounting estimates and judgements 109 Statement of profit or loss 3 Fees to auditors 109 4 Financial expenses 109 5 Income tax 110 Statement of financial position 6 Investment in subsidiary 110 7 Deferred tax 110 Other 8 Management remuneration 110 9 Contingent liabilities 110 10 Financial risk management 110 11 Currency risk 110 12 Liquidity risk 111 13 Credit risk 111 14 Related parties 111 15 New accounting regulations 111 107PARENT COMPANY FINANCIAL STATEMENTS Statement of profit or loss Statement of comprehensive income 1 January – 31 December ( DKKm ) Note 2023 2022 Employee costs ( 21 ) ( 35 ) Other operating expenses ( 70 ) ( 76 ) Operating profit ( 91 ) ( 111 ) Financial expenses 4 ( 197 ) ( 82 ) Profit before tax ( 288 ) ( 193 ) Income tax 5 37 41 Net profit ( 251 ) ( 152 ) 1 January – 31 December ( DKKm ) 2023 2022 Net profit ( 251 ) ( 152 ) Comprehensive income ( 251 ) ( 152 ) Statement of cash flows 1 January – 31 December ( DKKm ) 2023 2022 Operating profit ( 91 ) ( 111 ) Share-based payments ( 5 ) 9 Changes in working capital ( 4 ) ( 1 ) Interest ( paid ) /received to/from companies within the ISS Group ( 197 ) ( 82 ) Income tax ( paid ) /received 1 27 Joint taxation contribution ( paid ) /received, net 125 ( 84 ) Cash flow from operating activities ( 171 ) ( 242 ) Cash flow from investing activities - - Other financial payments, net ( 1 ) ( 1 ) Payments ( to ) /from companies within the ISS Group, net 514 291 Dividends paid to shareholders ( 390 ) - Cash flow from financing activities 123 290 Total cash flow ( 48 ) 48 Cash and cash equivalents at 1 January 48 0 Total cash flow ( 48 ) 48 Cash and cash equivalents at 31 December 0 48 108PARENT COMPANY FINANCIAL STATEMENTS 1 January – 31 December ( DKKm ) Share capital Treasury shares Retained earnings Proposed dividends Total 2023 Equity at 1 January 185 ( 185 ) 23,778 390 24,168 Net profit - - ( 678 ) 427 ( 251 ) Comprehensive income - - ( 678 ) 427 ( 251 ) Dividends paid to shareholders - - - ( 390 ) ( 390 ) Share-based payments - - 72 - 72 Settlement of vested PSUs/RSUs - 119 ( 119 ) - - Transactions with owners - 119 ( 47 ) ( 390 ) ( 318 ) Changes in equity - 119 ( 725 ) ( 390 ) ( 569 ) Equity at 31 December 185 ( 66 ) 23,053 427 23,599 2022 Equity at 1 January 185 ( 191 ) 24,246 - 24,240 Net profit - - ( 542 ) 390 ( 152 ) Comprehensive income - - ( 542 ) 390 ( 152 ) Share-based payments - - 80 - 80 Settlement of vested PSUs - 6 ( 6 ) - - Transactions with owners - 6 74 - 80 Changes in equity - 6 ( 468 ) 390 ( 72 ) Equity at 31 December 185 ( 185 ) 23,778 390 24,168 Statement of financial position At 31 December ( DKKm ) Note 2023 2022 Assets Investment in subsidiary 6 27,674 27,674 Non-current assets 27,674 27,674 Receivables from companies within the ISS Group 149 114 Tax receivables 8 28 Cash and cash equivalents 0 48 Current assets 157 190 Total assets 27,831 27,864 Equity and liability Total equity 23,599 24,168 Debt to companies within the ISS Group 3,821 3,386 Deferred tax liabilities 7 366 291 Non-current liabilities 4,187 3,677 Debt to companies within the ISS Group 31 3 Trade payables and other liabilities 14 16 Current liabilities 45 19 Total liabilities 4,232 3,696 Total equity and liabilities 27,831 27,864 Statement of changes in equity 109 1 Accounting policies Basis of preparation The financial statements of ISS A/S have been prepared in accordance with IFRS Accounting Standards as adopted by the EU and additional requirements of the Danish Financial State- ments Act (class D). In addition, the financial statements have been prepared in compliance with the IFRS Accounting Standards issued by the IASB. Changes in accounting policies Changes in accounting policies are described in 8.2 to the consolidated financial 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 financial statements. Statement of financial position Investment in subsidiary is measured at cost, which comprises consideration transferred measured at fair value and directly attributable transaction costs. If 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 author- ities. Joint taxation contributions to/from jointly taxed companies are recognised in profit or loss and in Income tax and in the statement of financial position in Receivables from or Debt to companies within the ISS Group. Companies which utilise tax losses in other com- panies 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). 2 Significant accounting estimates and judgements Significant 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. Estimates and judgements on p. 56 for a description. The specific risks for ISS A/S are described in the notes to the financial statements of the parent company. Investment in subsidiary If there is identifi- cation of impairment, an impairment test is performed as described in the accounting policies in 3.2 to the consolidated financial statements. The assessment of whether there is an indication of impairment is based on both external and internal sources of information such as performance of the subsidiary, signifi- cant decline in market values etc. 3 Fees to auditors 4 Financial expenses ( DKKm ) 2023 2022 Statutory audit 1 1 Other assurance services 0 0 Total 1 1 ( DKKm ) 2023 2022 Interest expenses to companies within the ISS Group ( 196 ) ( 81 ) Bank fees ( 1 ) ( 1 ) Financial expenses ( 197 ) ( 82 ) PARENT COMPANY FINANCIAL STATEMENTS 110 5 Income tax Effective tax rate (ETR) ( DKKm ) 2023 2022 Current tax 114 96 Deferred tax ( 75 ) ( 54 ) Prior year adjustments, net ( 2 ) ( 1 ) Income tax 37 41 2023 2022 Statutory income tax rate, Denmark 22.0 % 22.0 % Non-tax-deductible expenses less non-taxable income ( 8.5 ) % ( 0.2 ) % Prior year adjustments, net ( 0.7 ) % ( 0.5 ) % Effective tax rate 12.8 % 21.3 % 6 Investment in subsidiary Subsidiary ISS World Services A/S, Søborg, Denmark, 100%. 7 Deferred tax Deferred tax liability at 31 December 2023 and at 31 December 2022 related to deferred re-taxation of foreign exchange gains/losses. ISS A/S has no unrecognised deferred tax assets regarding tax losses carried forward (2022: None). ( DKKm ) 2023 2022 Cost at 1 January 27,674 27,674 Cost at 31 December 27,674 27,674 Carrying amount at 31 December 27,674 27,674 ( DKKm ) 2023 2022 Deferred tax liability at 1 January 291 237 Prior year adjustments, net 0 ( 1 ) Tax on profit before tax 75 55 Deferred tax liability at 31 December 366 291 8 Management remuneration Key management personnel of the Group as defined in 6.1 to the consolidated financial statements are also considered key manage- ment personnel of the parent. Remuneration to the Board of Directors and the Executive Group Management is specified in 6.1 to the consoli- dated financial statements. 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 2023, Danish corporate tax and Danish withholding taxes amounted to DKK 0 million (2022: 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 financial 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 financial risks is described in 4.3 to the consolidated financial statements. The risks specific to ISS A/S are described below. 11 Currency risk At 31 December 2023 and at 31 December 2022, ISS A/S was not exposed to currency risk as no assets or liabilities were denominated in currencies other than DKK. PARENT COMPANY FINANCIAL STATEMENTS 111 12 Liquidity risk Liquidity risk results from ISS A/S's potential inability or difficulty in meeting the contractual obligations associated with its financial liabilities due to insufficient liquidity. ISS A/S is a holding company and its primary assets consist of shares in ISS World Services A/S and receivables from companies within the ISS Group. ISS A/S has no revenue generating activities of its own, and therefore ISS A/S's cash flows and ability to service its indebtedness and other obligations, will depend primarily on the operating per- formance and financial condition of ISS World Services A/S and its operating subsidiaries, and the receipt by ISS A/S of funds from ISS World Services A/S and its subsidiaries in the form of dividends or otherwise. At 31 December 2023, ISS A/S carried no significant financial liabilities outside of the Group. 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 adminis- tration company. 13 Credit risk ISS A/S has no revenue generating activities and therefore no trade receivables. Consequently, credit risk is limited to an insignificant amount of cash and cash equivalents and an insignificant intercompany receivable with various indirectly owned subsidiaries in relation to joint taxation. 14 Related parties In addition to the description in 7.3 to the con- solidated financial statements of related parties and transactions with these, related parties of ISS A/S comprise ISS World Services A/S and its subsidiaries, associates and joint ventures, see 8.4 to the consolidated financial statements. In 2023, ISS A/S had the following transactions with other related parties, which were all made on market terms: • ISS A/S had a debt against ISS Global A/S of DKK 3,821 million (2022: DKK 3,386 million) • ISS A/S paid interests to ISS Global A/S, see 4, Financial 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 accounting regulations New accounting regulations are described in 8.3 to the consolidated financial statements. PARENT COMPANY FINANCIAL STATEMENTS Management statement Copenhagen, 22 February 2024 The Board of Directors and the Executive Group Management Board have today discussed and approved the annual report of ISS A/S for the financial year 2023. The annual report has been prepared in accordance with IFRS Accounting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. It is our opinion that the consolidated financial statements and the parent company financial statements give a true and fair view of the Group’s and the Parent company’s financial po- sition at 31 December 2023 and of the results of the Group’s and the Parent company’s operations and cash flows for the financial year 1 January – 31 December 2023. In our opinion, the Management review includes a fair review of the development in the Group’s and the Parent company’s operations and finan- cial conditions, the results for the year, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that the Group and the Parent company face. In our opinion, the annual report of ISS A/S for the financial year 2023 identified as ISS-2023- 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) Rune Christensen (E) Ben Stevens Reshma Ramachandran Signe Adamsen (E) Kelly KuhnLars Petersson Deputy Chair Søren Thorup Sørensen Niels Smedegaard Chair Kasper Fangel Group CEO 112STATEMENTS 113STATEMENTS Independent auditor’s report To the shareholders of ISS A/S Opinion We have audited the consolidated financial statements and the parent company financial statements of ISS A/S for the financial year 1 January – 31 December 2023, pp. 51-111, which comprise statement of profit or loss, statement of comprehensive income, statement of cash flows, statement of financial position, statement of changes in equity and notes, including accounting policies for the Group and the Parent company. The consolidated financial statements and the parent company financial statements are prepared in accordance with IFRS Accounting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the financial position of the Group and the Parent company at 31 December 2023 and of the results of the Group’s and the Parent company’s operations and cash flows for the financial year 1 January – 31 December 2023 in accordance with IFRS Accounting Standards as adopted by the EU and additional requirements 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 financial statements and the parent company financial statements” (here- inafter collectively referred to as “the financial statements”) section of our report. We believe that the audit evidence we have obtained is sufficient 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' International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge, we have not provided any prohibited non-audit services as described in article 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor We were initially appointed as auditor of ISS A/S on 15 April 2015 for the financial year 2015. We have been reappointed annually by resolution of the general meeting for a total consecutive period of nine years up until the financial year 2023. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signifi- cance in our audit of the financial statements for the financial year 2023. These matters were addressed during our audit of the financial 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 fulfilled our responsibilities described in the “Auditor’s responsibilities for the audit of the financial statements” section, including in relation to the key audit matters below. Accordingly, our audit included the design and performance of procedures to respond to our assessment of the risks of material misstate- ment of the financial 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 financial statements. Revenue from contracts with customers, including cut-off 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 significant transition and mobilisation costs at contract inception which are capitalised and amortised over a multi-annual contract term. Accordingly, appropriate cut-off and accrual of revenue and capitalisation and amortisation of transition and mobilisation costs is critical and involve management 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 management judgement in making accounting estimates about future contract profitability, including the determination of the total contract revenue, contract period and the unavoidable costs of meeting the obligations under the contract. Due to the inherent uncertainty involved in the cut off and accrual of revenue, the assessment of whether transition and mobilisation costs meet the criteria to be capitalised and the determination of the contract period and the future contract profitability, we considered the accounting for revenue from contracts with cus- tomers, including cut-off 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, 2.1, 2.2 and 2.5 in the consolidated financial statements. In response to the identified risks, our audit procedures included, among others: • Test on a sample basis of accrued revenue (unbilled receivables) to supporting docu- mentation, 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 114STATEMENTS identification 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 revenue contract term including termi- nation and extension options and unavoidable cost, comparison of the revenue assumptions used to the services and fees specified 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 custom- er contracts related to prior years’ business combinations comprise a significant part of the consolidated statement of financial 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 profitability, long-term growth and discount rate. Due to the in- herent uncertainty involved in determining the net present value of future cash flows, 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 3.1 and 3.2 in the consolidated financial statements. In response to the identified risks, our audit procedures included, among others, testing the mathematical accuracy of the discounted cash flow model and comparing forecasted profit- ability to board approved financial forecasts. We evaluated the assumptions and methodologies used in the discounted cash flow model, in particular those relating to the forecasted revenue growth and operating margin, including comparing with historical growth rates. 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 pro- cedures 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 man- agement in the financial 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 different tax legislation. Management makes judgements 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 balances, including tax exposures and write- down of deferred tax assets, we considered these balances as a key audit matter. For details on the income tax and deferred tax balances reference is made to notes 5.1 and 5.2 in the consolidated financial statements and notes 5 and 7 in the parent company financial statements. In response to the identified 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 financial 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’s review Management is responsible for the Manage- ment’s review , pp. 1-48. Our opinion on the financial statements does not cover the Management’s review, and we do not express any assurance conclusion thereon. In connection with our audit of the financial 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 financial 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 our procedures, we conclude that the Management’s review is in accordance with the financial statements and has been prepared in accordance with the requirements of relevant law and regulation. We did not identify any material misstatement of the Management’s review. Management's responsibilities for the financial statements Management is responsible for the prepara- tion of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with IFRS Accounting 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 financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial 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 financial 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. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assur- ance as to whether the financial 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 influence the economic decisions of users taken on the basis of the financial statements. 115STATEMENTS Torben Bender State Authorised Public Accountant mne21332 Claus Kronbak State Authorised Public Accountant mne28675 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 mis- statement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient 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, intentional 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 effectiveness 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 financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant 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 financial 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 financial statements, in- cluding the note disclosures, and whether the financial statements represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial 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 gover- nance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies 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, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent company financial 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. Report on compliance with the ESEF Regulation As part of our audit of the consolidated financial statements and parent company financial statements of ISS A/S, we performed proce- dures to express an opinion on whether the annual report of ISS A/S for the financial year 1 January – 31 December 2023 with the file name ISS-2023-12-31-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 Regu- lation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the consolidated financial statements including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format; • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where necessary; • Ensuring consistency between iXBRL tagged data and the consolidated financial state- ments presented in human readable format; and • For such internal control as management determines necessary to enable the prepara- tion of an annual report that is compliant with the ESEF Regulation. 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 nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the require- ments set out in the ESEF Regulation, whether due to fraud or error. The procedures include: • Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; • Evaluating the completeness of the iXBRL tag- ging of the consolidated financial statements, including notes; • Evaluating the appropriateness of the compa- ny’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified; • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited consolidated financial statements. In our opinion, the annual report of ISS A/S for the financial year 1 January – 31 December 2023 with the file name ISS-2023-12-31-en.zip is prepared, in all material respects, in compli- ance with the ESEF Regulation. Copenhagen, 22 February 2024 EY Godkendt Revisionspartnerselskab CVR no. 30 70 02 28 116CASECASE In 2023, ISS took another significant step towards becoming a technology leader in the Facilities Management industry. Through a new global strategic partnership with the tech startup ToolSense, ISS aims to enhance its operational efficiency by harnessing cutting-edge Internet of Things (IoT) solutions that can be integrated into ISS's management of the company's assets of movable machines across the globe. Every day, more than 300,000 ISS on-site placemakers diligently take care of more than 500,000 movable machines, such as vacuum cleaners, kitchenware and healthcare equipment, across more than 30 countries worldwide. Tracking, maintaining and utilising these assets have often involved manual and time-consuming processes. Through the strategic partnership with Toolsense, these processes can now be optimised using ToolSense's innovative Asset Operations platform, IoT solutions and QR codes. Markus Sontheimer, ISS Group Chief Information and Digital Officer, embraces the new global partnership and emphasises its pivotal role. Marcus underscores that the digitisation of ISS’s global asset manage- ment will enhance the entire life cycle management of its movable assets and boost operational efficiency. “We will gain a comprehensive overview of all our on-site tools and machines, includ - ing their utilisation, maintenance needs and potential upgrades. These data-driven insights will ensure that we always have the right equipment on hand at our customers’ sites, enabling a consistent workflow” says Markus. ISS and ToolSense initiated a local collabo- ration in Austria two years ago, successfully piloting the integration of ToolSense’s solu- tions into ISS Austria’s asset management processes. This collaborative effort has now culminated in the global strategic partner- ship, enabling the scaling of these solutions and approaches to a global level. An essential aspect of integrating Tool- Sense’s solutions is the digitisation of work processes that would typically be carried out manually by ISS’s on-site placemakers. Rather than maintaining an overview of local machines through laborious processes involving pen and paper or Excel spread- sheets, our placemakers will have access to all relevant information and will manage assets through a single digital platform. This optimised life cycle management of ISS’s tools, and the better utilisation of existing resources, will also contribute positively to reducing CO 2 emissions. Forging an industry-leading partnership for advanced FM TECHNOLOGY & INNOVATION “As a cornerstone of our ambition to become the technology leader in our industry, we are firmly dedicated to establishing an ‘ecosystem’ of strategic partnerships and collaborations with innovative startups and suppliers that are pioneers in their respective fields.” Markus Sontheimer Group Chief Information and Digital Officer, ISS 117OTHER Forward-looking statements and ESEF Forward-looking statements This Annual Report contains forward-looking statements, including, but not limited to, the guidance and expectations provided in Outlook on p. 13. Statements herein, other than statements of historical fact, regarding future events or prospects, are forward-look- ing statements. The words may, will, should, expect, antici- pate, believe, estimate, plan, predict, intend or variations 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 financial performance. These views involve risks and uncertainties that may cause actual results to differ materially from those predicted in the forward-looking statements and from the past performance of ISS. Although ISS believes that the estimates and projections reflected in the for- ward-looking statements are reasonable, they may prove materially incorrect. Actual results may differ materially. For example as a result of risks related to the facility service industry in general or to 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. The Group is required to prepare and file the Annual Report in the European Single Electronic Format (ESEF) using a combination of the XHTML format and to tag the primary statements and the notes to the consolidated financial statements using iXBRL (Inline eXtensible Business Language). The Group’s iXBRL tags comply with the ESEF taxonomy, which has been developed on the basis of IFRS taxonomy published by the IFRS Foundation. The line items in the consolidated financial statements are tagged to elements in the ESEF taxonomy. For financial line items that are not directly defined in the ESEF taxonomy, an extension to the taxonomy has been created. The Annual Report submitted to the Danish Financial Supervisory Authority (the Officially Appointed Mechanism) consists of the XHTML document together with the technical files, all of which are included in the zip file ISS-2023-12-31-en.zip. Name of reporting entity: Domicile of entity: Legal form of entity: Country of incorporation: Address: Principal place of business: Principal activities: Name of the parent entity: Name of ultimate parent and Group: ISS A/S Denmark A/S Denmark Buddingevej 197, DK-2860 Søborg Global Workplace and facility service solutions ISS A/S ISS A/S Reporting under the ESEF Regulation ESEF data Discontinued operations 118OTHER Country revenue Partnership countries Central & Southern Europe Northern Europe Americas Asia & Pacific Revenue in countries where we render services to global key accounts but do not have a full country support structure comprises 1% of Group revenue or DKK 783 million (2022: DKK 795 million). Partnership countries comprise: Argentina, Brazil, Bulgaria, Czech Republic, Cyprus, France, Greece, Hungary, Israel, Japan, Jordan, Kazakhstan, Malaysia, Pakistan, Philippines, Portugal, Romania, Serbia, Senegal, Slovakia, South Africa, South Korea, Taiwan, Thailand, United Arab Emirates and Vietnam. (DKKm) 2023 2022 France 2,658 2,700 Brunei 4 44 Portugal - 201 Russia - 22 Taiwan - 118 Total 2,662 3,085 (DKKm) of Group 2023 2022 Switzerland 8% 6,383 5,729 Germany 8% 5,864 5,556 Türkiye 6% 4,833 3,341 Spain 6% 4,460 4,130 Austria 3% 2,517 2,285 Italy 1% 748 759 Total 32% 24,805 21,800 (DKKm) of Group 2023 2022 UK & Ireland 13% 10,611 10,396 Norway 5% 3,810 4,016 Finland 4% 3,313 3,292 Denmark 4% 2,994 3,169 Belgium & Lux. 4% 3,438 3,044 Sweden 4% 3,044 2,984 Netherlands 2% 1,611 1,400 Poland 1% 410 315 Lithuania 0% 93 78 Total 37% 29,324 28,694 (DKKm) of Group 2023 2022 US & Canada 9% 7,004 6,387 Mexico 2% 1,316 990 Chile 1% 1,245 1,177 Other 0% 40 31 Total 12% 9,605 8,585 (DKKm) of Group 2023 2022 Australia & New Zealand 6% 5,102 4,868 Hong Kong 3% 2,500 2,652 Singapore 3% 2,214 2,240 Indonesia 3% 1,986 1,830 India 2% 1,489 1,422 China 1% 938 1,000 Total 18% 14,229 14,012 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 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2023-01-012023-12-312022-01-012022-12-31213800LEZA58SZNCBN19Regnskabsklasse DOpinionBasis for 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