Annual Report • Feb 23, 2017
Annual Report
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494,233 ISS employees
6,454,887 hrs of training annually
1.2+ million meals served every day
510,000+ m2 of critical space managed by ISS
21,000+ vehicles on the road
50+ million m2 of space where ISS supply Integrated Facility Services (IFS)
400,000+ followers on social media
130+ different languages spoken
160,000+ people viewed one or more articles at servicefutures.com
Front page photo: LEA DUDZIK LA FONTAINE Chef, ISS Denmark
Our CR report is availabe at www.responsibility.issworld.com/report2016
CASE: ISS Germany – a transformation story
CASE: Key Account Manager Certification (KAMC)
See p. 40
See p. 26
Transition excellence – the foundation for great customer relationships
See p. 58
We measure Group performance using the KPIs set out below. We believe that in combination they give us the best picture of whether we are driving the business forward in the desired direction and creating value for our shareholders.
Definitions of KPIs, see p. 13.
| FINANCIAL KPIs | PERFORMANCE | |
|---|---|---|
| ORGANIC GROWTH AND REVENUE DKK billion % 5.0 80 4.0 75 3.0 70 65 2.0 60 1.0 55 0.0 2014 2015 2016 Revenue, DKK billion Organic growth, % |
3.4% Organic growth 79,137 DKKm Revenue |
• Organic growth supported by good performance in emerg ing markets and solid growth rates in all regions, driven by contract launches and strong demand for IFS, projects and non-portfolio work • All regions delivered positive organic growth, despite nota ble negative organic growth in Australia and Brazil • Revenue down 1% mainly due to impact from currency effects in Northern Europe, mainly GBP • IFS up 14% in local currencies, now representing 37% of Group revenue or DKK 29.3 billion Group performance, see p. 16 Regional performance, see pp. 20–23 |
| OPERATING MARGIN AND PROFIT DKK billion % 5.9 5.0 5.7 4.5 4.0 5.5 3.5 5.3 2014 2015 2016 Operating prot before other items, DKK billion Operating margin, % |
5.8% Operating margin 4,566 DKKm Operating profit before other items |
• Operating margin up by 0.1%-point, improving for the third consecutive year • Improvement supported by GREAT including procure ment savings, efficiency gains and good performances in Continental Europe and Asia & Pacific • Operating profit before other items up by 1% to the highest level in ISS history • Corporate costs amounted to 0.8% of revenue, in line with our expectations Group performance, see p. 16 Regional performance, see pp. 20–23 |
| CASH CONVERSION AND CASH FLOW DKK billion % 110 4.0 99% 98% 98% 100 3.5 90 3.0 2.5 80 2.0 70 2014 2015 2016 Cash ow from operating activities, DKK billion Cash conversion, % |
98% Cash conversion 3,690 DKKm Cash flow from operating activities |
• Strong cash conversion supported by continued focus on cash performance across the Group • Cash flow from operating activities in line with last year, driven by higher cash outflow from changes in working capital offset by lower interest paid, net • Investments in intangible assets and property, plant and equipment, net of DKK 805 million represented 1.0% of Group revenue Group performance, see p. 16 |
"In 2016, we continued our good performance. Our results come from providing great service to our customers today while implementing our strategy for tomorrow"
JEFF GRAVENHORST Group CEO
| NON–FINANCIAL KPIs | PERFORMANCE | |
|---|---|---|
| EMPLOYEE NET PROMOTER SCORE 59.2 56.4 60 50 46.4 40 30 20 2014 2015 2016 |
59.2 eNPS |
• Measures the loyalty of our employees • Up by 2.8 points – the fourth consecutive year of improvement • Supported by roll-out of our Key Account Manager Certification (KAMC) and Service with a Human Touch training programmes • We carried out our fifth global employee engagement survey with 241,487 employees responding across 45 countries. The response rate increased to approximately 73% (2015: 72%) Group performance, see p. 16 |
| CUSTOMER NET PROMOTER SCORE 50 43.2 40 36.7 31.2 30 20 10 2014 2015 2016 |
43.2 cNPS |
• Measures the loyalty of our customers • Up by 6.5 points – the fourth consecutive year of improve ment, reflecting our continued efforts under GREAT to drive customer focus, especially on our key accounts • Supported by our efforts to implement account development plans and improve employee engagement, through the roll out of our KAMC and Service with a Human Touch training programmes • We carried out our sixth customer experience survey with 6,941 customers invited, covering almost 80% of Group revenue and enjoyed a response rate of 82% Group performance, see p. 16 |
| LOST TIME INJURY FREQUENCY 7 5.8 6 5.4 5 4.7 4 3 2014 2015 2016 |
4.7 LTIF |
• Improved by almost 65% from the baseline figure of 13 in 2010 – the sixth straight year of improvement • Driven by our systematic approach to managing risks, includ ing the implementation of the Group HSE Management System and our global campaigns to stay focused on Health, Safety and Environment (HSE) Group performance, see p. 16 |
Our business model is based on creating value for our customers by allowing them to focus on their core business. We service and maintain their facilities, helping to create workplaces that are pleasant, safe and nurturing for their employees and visitors.
Focusing on our selected customer segments, we offer a leading value proposition based on our philosophy of providing services through our own engaged and capable employees (self-performance). Moreover, we are able to provide multiple services to customers through an Integrated Facility Services (IFS) solution. This allows us to drive convenience (one point of contact), productivity and cost efficiency.
Our business model and strategy, see p. 28
"We are going to be the world's greatest service organisation."
The ISS Way is all about optimising the customer experience while driving cost efficiencies through the alignment of our organisation behind a set of common business fundamentals and scale benefits.
GREAT is our primary vehicle for accelerating our strategy implementation, hence a principal driver moving us towards realising our vision. Through GREAT, we develop our leadership and talent. We also develop our ability to deliver IFS, not least by rolling out excellence in the form of concepts. Furthermore, GREAT focuses on driving out our volume benefits.
| THEMES | STATUS | OBJECTIVES | |
|---|---|---|---|
| VOLUME | • Procurement excellence programme phase I–III completed with cost savings of DKK 450-550 million to be achieved during 2013–2019. A substantial proportion of the savings achieved to date has been re-invested in the business to remain competitive, including in concepts and talent • Phase IV in progress in Europe, the Americas and Asia & Pacific targeting additional cost savings of DKK 200-300 million during 2016–2020 • Continued roll-out of Business Process Outsourcing (BPO) covering certain finance and accounting processes completed in Northern Europe and several large countries in Continental Europe and Asia & Pacific, in aggregate covering approximately 40% of Group revenue Our business model and strategy, see p. 31 |
… NCE |
OLDER VALUE |
| CONCEPTS | • Touchpoints@ISS developed to ensure that we focus on ensuring the optimal experience for our end-users • Commercial agreement signed with IBM for the use of technology for workforce optimisation purposes (Integration@ISS) and to transform the management of over 25,000 customer buildings around the world through use of sensors and devices. Solutions currently being piloted and implementation will be initiated in 2017 • Continued roll-out of best practices focused on commercial, operational and people & culture functions • Ongoing roll-out of FMS@ISS and Insight@ISS supporting further transparency and financial benefits Our business model and strategy, see p. 31 Transition excellence, see p. 58 |
XPERIE MER E O G THE CUST N VI |
H ARE G SH N ATI D CRE |
| TALENT | • Development of the ISS Leadership Competency Framework to guide all of our core people processes from 2017 • Acceleration of leadership training and continued roll-out of our training programmes; Key Account Manager Certification (KAMC) with 565 certifications to date and Service with a Human Touch now live in 47 countries and implemented on 512 key accounts • Continued focus on HSE through global safety campaigns run three times a year • eNPS of 59.2, up 2.8 points from 2015 Our business model and strategy, see p. 32 Our people, see p. 33 |
DRI | AN … |
We are a true global player with a leading market position. We leverage our global presence in order to meet the growing demand from multinational corporations for the delivery of Integrated Facility Services (IFS) across borders. Our IFS revenue share has grown significantly and our ability to deliver IFS is key to serving global customers and grasping new local market opportunities. We are well-positioned in emerging markets (see p. 115), where we generate 25% of Group revenue (2015: 25%).
Following the changed organisational structure in 2015, the regional management structure has been adjusted to include four regions; 1) Continental Europe, 2) Northern Europe, 3) Asia & Pacific and 4) Americas.
Country revenue and employees, see p. 115
| 2016 | CONTINENTAL EUROPE | NORTHERN EUROPE | ||
|---|---|---|---|---|
| KEY FIGURES |
Revenue: Organic growth: IFS share: |
30.1 DKKbn 3% (2015: 5%) 34% |
Revenue: Organic growth: IFS share: |
26.5 DKKbn 3% (2015: 2%) 44% |
| Operating margin: | 6.1% (2015: 5.8%) | Operating margin: | 7.5% (2015: 7.5%) | |
| Employees: | 155,911 | Employees: | 79,401 | |
| BUSINESS HIGHLIGHTS |
• Organic growth driven mainly by Turkey, Switzerland, Belgium and Austria |
• Organic growth supported by the UK, Denmark and Norway |
||
| • Growth supported by volume and price increases and Austria as well as the expansion of Global Corporate Clients contracts in the region, e.g. Novartis • Higher margin mainly supported by increases in • Good growth, focus on operational efficiencies • Significant contract wins, including Heineken and Sanifair |
in Turkey, project and other non-portfolio services in Switzerland and contract launches in Belgium Germany, the Netherlands and Spain combined with strong performances in Switzerland and Turkey and our strategic initiatives supported the margin |
• Growth supported by contract launches and strong demand for non-portfolio services • Contract downsizing in Sweden and Finland and reduced growth • High stable margins supported by good perfor account customers • Significant contract wins, including Royal Mail and ICA |
lower demand for non-portfolio services in Finland mance across the region, e.g. due to focus on key |
|
| Regional performance, see p. 20 | Regional performance, see p. 21 |
| 2016 | ASIA & PACIFIC | AMERICAS | ||
|---|---|---|---|---|
| KEY FIGURES |
Revenue: Organic growth: IFS share: Operating margin: Employees: |
14.6 DKKbn 2% (2015: 9%) 33% 7.5% (2015: 7.2%) 204,047 |
Revenue: Organic growth: IFS share: Operating margin: Employees: |
7.9 DKKbn 6% (2015: 2%) 36% 4.2% (2015: 4.2%) 54,667 |
| BUSINESS HIGHLIGHTS |
• Double-digit organic growth rates in Singapore, Indonesia, India, the Philippines and Malaysia • Growth supported by the expansion of Global the Philippines • Contract losses and reduced services within the organic growth was 8% • Margin increase supported by a one-off income efficiencies in Singapore • Significant contract wins, including Wesfarmers Curragh and BOC in Australia Regional performance, see p. 22 |
Corporate Clients contracts in Singapore, India and remote site resource sector led to notably negative organic growth in Australia. Excluding Australia, related to pensions in Indonesia and operational |
• All countries, except Brazil, delivered positive ing contract exits • Main contributors were North America with and Chile • Growth supported by project work in the IFS growth in Mexico, Argentina and Chile • Margin increase supported by contract start-ups services in the USA • Significant contract wins in the Mexican and US banking sectors as well as Bombardier Regional performance, see p. 23 |
organic growth. Brazil was impacted by the struc tural adjustment of our business platform, includ a growth of 12% as well as Mexico, Argentina division, contract start-ups in the USA and strong in 2016 and stronger demand for non-portfolio |
We are intent on creating value for our shareholders by maximising the cash flow growth from our business in a sustainable fashion over the short and longer term. We wish to maintain a strong and efficient balance sheet and to strike an optimal balance between reinvesting capital back into our business and returning surplus funds to our shareholders.
We have a stated intention of maintaining an investment grade financial profile with a financial leverage below 2.5x pro forma adjusted EBITDA, taking seasonality into account. Our dividend policy targets a pay-out ratio of approximately 50% of Net profit (adjusted) 1). Where we see clear opportunities to create value and drive improved organic growth and/or improved margins, we will commit capital to our business. This
1) Previously referred to as Profit before amortisation/impairment of acquisition-related intangibles.
may be in the form of regular investment in our people, our processes or our technology. It may be in the form of certain restructuring initiatives designed to enhance future performance, or in the form of highly selective acquisitions that meet strict strategic and financial criteria. Thereafter, we will return additional funds to shareholders, above and beyond our dividend policy target.
In 2016, Net profit (adjusted) 1) increased to DKK 2,873 million (2015: DKK 2,785 million) allowing the Board to propose a dividend for 2016 of DKK 7.70 per share (2015: DKK 7.40), equivalent to a pay-out ratio of approximately 50%. This was in addition to the extraordinary dividend of DKK 4.00 per share which was paid to shareholders in November 2016.
In 2017, we will continue to focus on the implementation of the ISS Way strategy, including the roll out of our strategic GREAT initiatives focusing on investment in leadership, optimisation of our customer base, fit-for-purpose organisational structure, IFS, and groupwide excellence. Moreover, we will maintain our focus on key accounts, ensuring that the benefits of volumes, concepts and talent materialise at our customers' sites.
Through these efforts we expect to realise tangible operational and financial improvements, in both the short and medium term. We remain focused on delivering:
For 2017 specifically:
Organic growth is expected to be 1.5%-3.5%. This reflects our expectation of continued strong growth in IFS, driven by both expansion of existing customer relationships and new customer wins. The negative impact from Australian contract losses during 2016 and Brazilian contract exits will continue in 2017, particularly in the first half of the year. In addition, we are mindful of the increased uncertainty posed by Brexit in the UK and levels of unrest in Turkey. Outside of Brazil, we anticipate good growth from emerging markets in both Latin America and Asia.
Operating margin is expected to be above the 2016 margin of 5.77%, as a result of our continued focus on sustainable margin improvement and selective growth criteria. The improvement will
| Organic growth | 1.5%-3.5% |
|---|---|
| Operating margin | > 5.77% |
| Cash conversion | > 90% |
| Annual report 2015 |
Q2 2016 | Q3 2016 | Realised 2016 |
|
|---|---|---|---|---|
| Organic growth | 2%-4% | 2.5%-4.0% | around 3% | 3.4% |
| Operating margin | > 5.7% | > 5.7% | > 5.7% | 5.8% |
| Cash conversion | > 90% | > 90% | > 90% | 98% |
be supported by ongoing strategic initiatives on procurement, customer segmentation, organisational structure and Business Process Outsourcing (BPO).
Cash conversion will continue to be a priority in 2017, as it has been historically, and we expect cash conversion to remain above 90%.
The outlook should be read in conjunction with "Forward-looking statements" on p. 13 and our exposure to risk, see Our business risks on pp. 37–39.
We expect the divestments and acquisitions completed by 15 February 2017 (including in 2016) to negatively impact 2017 revenue growth by approximately 0-1%-point. Based on the forecasted average exchange rates for the year 20171), we expect a neutral impact on revenue growth in 2017 from developments in foreign exchange rates.
For our three key financial objectives, organic growth, operating margin and cash conversion, ISS ended 2016 in line with the outlook announced in the interim report for Q3 2016.
1) The forecasted average exchange rates for the financial year 2017 are calculated using the realised average exchange rates for the first month of 2017 and the average forward exchange rates for the last eleven months of 2017.
We continued to deliver a resilient and steady performance. We saw organic revenue growth of 3.4%, we increased our operating margin to 5.8% and maintained a strong cash conversion of 98%. We grew net profit (adjusted) to DKK 2.87 billion and maintained our strong cash flow which allowed us to distribute an extraordinary dividend of DKK 4.00 per share to our shareholders in November 2016. This was in addition to the ordinary dividend of DKK 7.40 per share paid out in April 2016.
We operate in a market where customers demand that the costs associated with operating their facilities continually decrease. At the same time, they expect us to improve the experience of their employees, their customers and their users when using the facilities and its services. To address this market backdrop, we have a differentiated value proposition. Not simply delivering services but providing outcomes to customers that meet their needs and focus on supporting their purpose, whether it is a hospital helping patients get well or a bank focused on providing a pleasant and safe working environment while maintaining compliance with regulatory obligations, and all in a cost effective manner.
To achieve this value proposition, we focus on service performance through clear, inspiring leadership of our own engaged and capable employees. Our employees are supported by the right training and tools that allow them to
provide a positive and efficient service experience. We offer an integrated set of services, which allows us to provide an even more cost effective solution delivered by one point of contact. The strength of this value proposition is evident in the strong demand for Integrated Facility services (IFS), which continued to bolster our results in 2016. Our revenue generated from IFS now represents 37% of Group revenue. Global Corporate Clients revenue increased 19% in 2016 in local currencies and now accounts for 11% of Group revenue.
Our strategy, The ISS Way, is built on customer focus and the premise that investing in the engagement and capabilities of our employees will drive a positive customer experience.
Our employees perform the services at customer sites, so the service quality delivered, including the conduct and behaviour of every single employee, is critical to how we support our customers. We have 494,233 colleagues providing an outstanding experience to our customers around the world and they are at the core of our success. Our strength lies in the diversity that number embodies, and we will continue to celebrate that in all the countries in which we operate. We are strong believers in The Power of the Human Touch.
To support this strategy, we continued sharpening our focus on talent in the year. We introduced the ISS Leadership Competency Framework to guide all of our core people processes. We accelerated our leadership training and continued to roll out training programmes, including Key Account Manager Certification (KAMC) with 565 certifications to date and Service with a Human Touch, which is now live in 47 countries and implemented on 512 key accounts.
Our customer Net Promoter Score (cNPS) has increased to 43 from 37 in 2015 – the fourth consecutive year of improvement. This is testimony to the on-going success of our strategy implementation, not least customer segmentation, which has better aligned our organisation with the needs of our customers. It is also a consequence of our people and talent initiatives, which have improved our employee Net Promoter Score (eNPS) to 59 – the fourth consecutive year of improvement. We strongly believe in the benefits of being an attractive employer and we were recognised as best employers in Switzerland and Austria. Our reputation as a responsible employer is vital to the long-term success of our company.
We signed multiple new contracts during the year. This included Bombardier and John Crane in North America, Royal Mail and Hitachi Rail in the UK, Heineken in the Netherlands and Northern Health in Australia. We also won contracts with Mitsui Fudosan Group in Taiwan and the Jakarta Airport in Indonesia.
In 2016, we continued implementing our strategy to focus on meeting the developing needs of our target customers by strengthening our service capabilities and refining our business platform.
We further built on the new organisational structure announced in 2015 and strengthened our Executive Group Management in 2016. It has created a greater collaboration across our functions, regions and countries, thereby getting us closer to our customers. We also welcomed Pierre-François Riolacci as our new Group CFO and Richard Sykes as new Regional CEO of Western Europe.
Towards the end of 2016, we made some strategic acquisitions and divestments. We acquired Apunto, the fourth largest catering company in Chile and Evantec, a technical services company in Germany, focused on the energy sector – one of our core customer sectors. We divested our business in Iceland, our security business in Finland, our sewage business in Denmark and our landscaping activities in the USA. Early in 2017, we also announced the acquisition of SIGNAL, a specialist provider of workplace management advisory services, which is an increasingly important capability in serving our key accounts.
We have made significant progress in the area of technical services, and in particular within critical environments, where we support our customers' most critical operations and help optimise the energy efficiency of the systems within their premises. The objective is to ensure that our technical service delivery is consistently world class and supporting our customers' needs.
We take great pride in being a socially responsible company. In 2016, ISS Israel was rated in the country's top CSR community, ISS Indonesia won a Corporate Image Award and ISS Denmark won the 2016 CSR People Prize for social responsibility. These are excellent proof
points of not just our role in the societies where we operate, but also being a responsible and reliable partner to our customers. A safe working environment is also a key part of our value proposition to our people and our customers. We are committed to ensuring that each of our colleagues return well to their families and friends after a safe working day at ISS.
Innovation continues to be high on our agenda and will be one of our focus areas going forward. Innovation is a key component of improved customer experience and central to our ability to fully leverage our skill and scale benefits within volume, concepts and talent. We are continuously applying a greater level of technology in our solutions for customers. Our partnership with IBM announced in June 2016 aims to transform the management of thousands of
customer sites around the world. We also launched an internal initiative called the "ISS Corporate Garage". It will be housed as an independent start-up lab, located close to our headquarters in Copenhagen, where staff and visitors will work on developing new ideas. The aim of the ISS Corporate Garage is to test fresh ideas, develop successful prototypes, and bring new service innovations out of the Garage and into the market to the benefit of our customers.
While macroeconomic conditions look challenging for 2017, we enter this year on a strong footing. We will focus on accelerating the implementation of our strategic initiatives and extract the benefits of our skills and scale. We are confident that our strategy, driven by our engaged and capable employees, will enable us to continue to deliver strong results and continued improvements across our business.
Lord Allen of Kensington Kt CBE Chairman
Jeff Gravenhorst Group CEO
| DKK million (unless otherwise stated) | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| INCOME STATEMENT | |||||
| Revenue | 79,137 | 79,579 | 74,105 | 78,459 | 79,454 |
| Operating profit before other items | 4,566 | 4,533 | 4,150 | 4,315 | 4,411 |
| Operating margin 1) | 5.8% | 5.7% | 5.6% | 5.5% | 5.6% |
| EBITDA | 5,119 | 5,313 | 4,722 | 5,002 | 4,956 |
| Adjusted EBITDA 1) | 5,258 | 5,269 | 4,882 | 5,102 | 5,264 |
| Operating profit (adjusted) 2) | 4,427 | 4,577 | 3,990 | 4,215 | 4,103 |
| Operating profit | 3,583 | 3,828 | 2,954 | 2,563 | 3,039 |
| Financial income | 58 | 41 | 68 | 134 | 149 |
| Financial expenses | (544) | (750) | (1,364) | (2,403) | (2,869) |
| Net profit (adjusted) 3) | 2,873 | 2,785 | 1,816 | 1,026 | 421 |
| Net profit | 2,220 | 2,218 | 1,014 | (397) | (450) |
| CASH FLOW | |||||
| Cash flow from operating activities | 3,690 | 3,706 | 2,395 | 2,116 | 1,619 |
| Acquisition of intangible assets and property, plant and equipment, net |
(805) | (841) | (783) | (803) | (762) |
| Cash conversion | 98% | 99% | 98% | 102% | 103% |
| FINANCIAL POSITION | |||||
| Total assets | 48,782 | 49,285 | 46,734 | 48,566 | 53,888 |
| Goodwill | 22,354 | 22,868 | 22,796 | 23,155 | 25,841 |
| Additions to property, plant and equipment | 649 | 746 | 692 | 772 | 789 |
| Total equity (attributable to owners of ISS A/S) | 13,910 | 14,494 | 12,910 | 4,213 | 5,097 |
| Equity ratio | 28.5% | 29.4% | 27.6% | 8.7% | 9.5% |
| EMPLOYEES | |||||
| Number of employees end of period | 494,233 | 504,816 | 510,968 | 533,544 | 534,273 |
| Full-time employees | 74% | 74% | 73% | 74% | 73% |
| GROWTH | |||||
| Organic growth | 3.4% | 4.4% | 2.5% | 4.3% | 1.7% |
| Acquisitions and divestments, net | (1)% | (1)% | (6)% | (2)% | (2)% |
| Currency adjustments 4) | (3)% | 4 % | (2)% | (3)% | 2 % |
| Total revenue growth | (1)% | 7 % | (6)% | (1)% | 2 % |
| FINANCIAL LEVERAGE | |||||
| Pro forma adjusted EBITDA | 5,205 | 5,213 | 4,792 | 4,979 | 5,253 |
| Net debt | 10,977 | 11,115 | 12,647 | 22,651 | 25,955 |
| Net debt / Pro forma adjusted EBITDA | 2.1x | 2.1x | 2.6x | 4.5x | 4.9x |
| STOCK MARKET RATIOS | |||||
| Basic earnings per share (EPS), DKK | 12.1 | 12.0 | 5.8 | (2.9) | (4.0) |
| Diluted earnings per share, DKK | 12.0 | 11.9 | 5.8 | (2.9) | (4.0) |
| Adjusted earnings per share, DKK | 15.5 | 15.0 | 10.3 | 7.6 | 3.8 |
| Proposed dividend per share, DKK | 7.70 | 7.40 | 4.90 | - | - |
| Extraordinary dividend paid out per share, DKK | 4.00 | - | - | - | - |
| Number of shares issued (in thousands) | 185,668 | 185,668 | 185,668 | 135,443 | 135,443 |
| Number of treasury shares (in thousands) | 2,120 | 1,777 | 1,000 | - | - |
| Average number of shares (basic) (in thousands) | 183,613 | 184,050 | 175,049 | 135,443 | 112,008 |
| Average number of shares (diluted) (in thousands) | 185,054 | 185,208 | 175,847 | 135,443 | 112,008 |
1) The Group uses Operating profit before other items for the calculations instead of Operating profit. Consequently, the Group excludes Other income and expenses, net, in which items that do not form part of the Group's normal ordinary operations, such as gains and losses arising from divestments, the winding up of operations, disposals of property and restructurings and acquisition-related items. Furthermore, Goodwill impairment and Amortisation/impairment of customer contracts are excluded from the calculation.
2) Excluding Goodwill impairment and Amortisation/impairment of customer contracts. Previously referred to as Operating profit.
3) Previously referred to as Profit before amortisation/impairment of acquisition-related intangibles.
4) Calculated as total revenue growth less organic growth and less net acquisition/divestment growth. Currency adjustments thereby includes the effect stemming from exclusion of currency effects from the calculation of organic growth and net acquisition/divestment growth.
ISS uses various key figures, financial ratios (including alternative performance measures (APMs)) and non-financial ratios, all of which provide our stakeholders with useful and necessary information about the Group's financial position, performance 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.
= Operating profit before other items + Depreciation and amortisation
= Operating profit + Depreciation and amortisation + Goodwill impairment + Amortisation/impairment of customer contracts
Total equity attributable to owners of ISS A/S x 100 = Total assets
= Non-current and current loans and borrowings – Securities – Cash and cash equivalents – Positive fair value of derivatives
Operating profit before other items x 100 = Total revenue
1) Comparable revenue implies the exclusion of changes in revenue attributable to businesses acquired or divested and the effect of changes in foreign exchange rates. In order to present comparable revenue and thereby organic growth excluding any effect from changes in foreign currency exchange rates, comparable revenue in the prior year is calculated at the subsequent year's foreign currency exchange rates. Acquisitions of businesses are treated as having been integrated into ISS upon acquisition, and ISS's calculation of organic growth includes changes in revenue of these acquired businesses compared with revenue expectations at the date of acquisition.
Pro forma adjusted EBITDA is calculated as Adjusted EBITDA adjusted as if all acquisitions and divestments had occurred on 1 January of the respective year.
(Revenue current year – revenue prior year) x 100 =
Net profit attributable to owners of ISS A/S = Average number of shares
Net profit attributable to owners of ISS A/S = Average number of shares, diluted
= Number of issued shares excluding treasury shares as an average for the year.
= Average number of shares (basic) + number of outstanding Performance Share Units (PSUs) and Restricted Share Units (RSUs) as an average for the year.
Measures the loyalty of our customers through a direct question of how likely the customer is to recommend ISS to others as a business partner.
Measures the loyalty of our employees through a direct question of how likely the employee is to recommend ISS to others as a place to work.
Measures the number of incidents classified as lost time injuries per millions of hours worked.
This Annual Report contains forward-looking statements, including, but not limited to, the guidance and expectations contained in the "Outlook" section on p. 9. Statements herein, other than statements of historical fact, regarding future events or prospects, are forward-looking statements. The words "may", "will", "should", "expect", "anticipate", "believe", "estimate", "plan", "predict", "intend" or variations of these words, as well as other statements regarding matters that are not historical fact or regarding
future events or prospects, constitute forward-looking statements. ISS has based these forward-looking statements on its current views with respect to future events and financial performance. These views involve a number of risks and uncertainties that could cause actual results to differ materially from those predicted in the forward-looking statements and from the past performance of ISS. Although ISS believes that the estimates and projections reflected in the forward-looking statements are reasonable, they may prove materially
incorrect, and actual results may materially differ, e.g. as the result of risks related to the facility service industry in general or ISS in particular including those described in this report and other information made available by ISS. As a result, you should not rely on these forward-looking statements. ISS undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.
"At GoDaddy, the culture is very unique. It is not traditional manufacturing, and it is not even traditional for tech. When people come to work every day, they need to feel comfortable, free and have fun." Keith Tice, Vice President and Chief Procurement Officer at GoDaddy
GoDaddy is more than an organisation, it is a culture. GoDaddy wanted a workplace partner to take care of the needs of their people, freeing them from routine concerns and allowing them to be creative. Hence, at ISS we strive to create memorable experiences in the workplace, helping GoDaddy to attract, engage and retain the best talent possible.
"During our research we found that factors such as trust, maintaining an inspiring and friendly working environment, cool space and a focus on sustainability were the most important factors for the millennials working at GoDaddy. So we acted on it." Wade Lewis, ISS Key Account Manager for GoDaddy.
We have developed a highly personalised service concept consistent with the culture, brand value and expectations of GoDaddy's workforce. It's a hospitality level of service, led by an ISS "Experience Manager" (ExM). Through ongoing dialogue with GoDaddy, our ExMs understand what is needed and then make sure something special is delivered.
ISS people must be energetic and enthusiastic, assessing and reacting to GoDaddy's needs on a daily basis. We don't wait to be asked. Our multi-skilled people show flexibility, care and commitment. We make this happen through motivation and empowerment of our employees, training and recognition.
GoDaddy has now won a place on the Fortune I00 "Best Companies to Work For" list, a long-standing ambition. In surveys, 86% of their employees say the GoDaddy facilities contribute to a good working environment, and 92% feel that the workplace atmosphere is "often or always" great.
GoDaddy is part of a growing group of companies focused on the workplace experiences and welfare of employees and customers. The rapidly evolving ISS Service Management approach is well positioned to provide the right solutions for these companies.
The GoDaddy-ISS relationship began in 2013. Today, approximately 124 ISS staff serve 4,500 GoDaddy employees at 13 sites in the USA. Main services delivered are catering, maintenance, cleaning, mailroom services, shipping and receiving, security, reception and landscaping. GoDaddy has grown the value of the account by awarding us more service lines.
the beginning of the relationship
ISS people serving GoDaddy users
4,500 GoDaddy employees at 13 sites in the USA KARA MCFERRAN Client Services Representative
MARK DAVORE Facilities Coordinator
GoDaddy, ISS USA
Providing a great workplace experience has been instrumental in helping GoDaddy to be included in the fortune 100 "best companies to work for" list
The combination of growing demand for Integrated Facility Services (IFS) and our strategic choices continued to drive both organic growth and margin improvements in 2016. In view of our continued steady performance, we distributed an extraordinary dividend of DKK 4.00 per share in November.
Group revenue for 2016 was DKK 79.1 billion, a slight decrease compared with 2015. Organic growth was 3.4%, while the impact from currency effects and acquisitions and divestments, net, reduced revenue by 3% and 1%, respectively.
Organic growth was mainly driven by good performances in emerging markets as well as contract launches and strong demand for IFS, projects and non-portfolio work in the Continental Europe and Northern Europe regions as well as in the USA. Our IFS business continued to grow and remained a focus point for the Group. All regions delivered positive organic growth rates with the UK, Turkey, Denmark and the USA as the principal drivers, although we experienced difficult market conditions in certain European countries and notable negative organic growth in Australia due to downsizing and contract losses and in Brazil due to contract exits as part of the structural adjustments of our business platform.
amounted to DKK 4,566 million in 2016 for an operating margin of 5.8% (2015: 5.7%), the third consecutive year of improvement in spite of the difficult market conditions in certain European countries. Margin developments were generally supported by growth and
| Growth components | ||||||
|---|---|---|---|---|---|---|
| DKK million | 2016 | 2015 | Growth | Organic | Acq./div. | Currency |
| Continental Europe | 30,095 | 29,955 | 0 % | 3 % | (1)% | (2)% |
| Northern Europe | 26,515 | 27,256 | (3)% | 3 % | (0)% | (6)% |
| Asia & Pacific | 14,606 | 14,582 | 0 % | 2 % | (0)% | (2)% |
| Americas | 7,885 | 7,770 | 1 % | 6 % | 0 % | (5)% |
| Other countries | 104 | 113 | (8)% | (4)% | - | (4)% |
| Corporate / eliminations | (68) | (97) | 30 % | - | - | - |
| Group | 79,137 | 79,579 | (1)% | 3.4 % | (1)% | (3)% |
| Emerging markets | 20,105 | 19,918 | 1 % | 7 % | (1)% | (5)% |
| Operating profit before other items |
Operating margin | ||||
|---|---|---|---|---|---|
| DKK million | 2016 | 2015 | Growth | 2016 | 2015 |
| Continental Europe | 1,823 | 1,750 | 4 % | 6.1 % | 5.8 % |
| Northern Europe | 1,982 | 2,056 | (4)% | 7.5 % | 7.5 % |
| Asia & Pacific | 1,098 | 1,043 | 5 % | 7.5 % | 7.2 % |
| Americas | 328 | 323 | 2 % | 4.2 % | 4.2 % |
| Other countries | (1) | (1) | - | (1.3)% | (0.8)% |
| Corporate / eliminations | (664) | (638) | (4)% | (0.8)% | (0.8)% |
| Group | 4,566 | 4,533 | 1 % | 5.8 % | 5.7 % |
| Emerging markets | 1,311 | 1,274 | 3 % | 6.5 % | 6.4 % |
the implementation of GREAT including procurement savings and efficiency gains. From a geographic perspective, the higher operating margin was supported by good performances in Continental Europe, mainly through margin increases in Germany, the Netherlands and Spain combined with strong performances in Switzerland and Turkey. Asia & Pacific also contributed to the improvement, driven by margin increases in Singapore and Indonesia partly due to a one-off income related to pensions. This was
partly offset by a 3 bps negative Group margin impact from divestments, mainly related to the high margin call centre activities in Turkey, which were divested in November 2015, and a 4 bps currency translation effect as well as one-off costs for legal and labour-related cases. Corporate costs amounted to 0.8% of revenue (2015: 0.8%), which was in line with expectations.
We define emerging markets as comprising Asia, Eastern Europe, Latin America,
Israel, South Africa and Turkey, see p. 115 for a list of countries. Combined, these markets represent 25% of Group revenue and they delivered 7% organic growth. In addition to significantly contributing to the Group's organic growth, emerging markets delivered an operating margin of 6.5% in 2016 (2015: 6.4%). Emerging markets remain an important part of our strategic platform and we aim to continue to grow our footprint in these markets in a balanced and controlled manner.
was an expense of DKK 139 million (2015: income of DKK 44 million), which was mainly the result of restructuring projects of DKK 140 million predominantly related to the implementation of GREAT in several countries, and the restructuring of the business platform in Brazil of DKK 74 million. Furthermore, losses on divestments amounted to DKK 101 million. This was partly offset by divestment gains of DKK 140 million, primarily on the security activities in Finland.
Goodwill impairment amounted to DKK 202 million (2015: DKK 95 million) principally due to a reassessment of the fair values of businesses classified as held for sale of DKK 83 million and divestments in the Northern Europe and Americas regions of DKK 119 million.
was an expense of DKK 486 million (2015: DKK 709 million). The reduction compared to last year was mainly due to an improvement in foreign exchange gains, net of DKK 112 million. Additionally, interest expenses, net were reduced by DKK 58 million as a result of lower interest margins combined with lower average net debt in 2016.
The effective tax rate for 2016 was 27.1% (2015: 28.0%) calculated as Income taxes (adjusted) of DKK 1,068 million divided by Profit before tax (adjusted) of DKK 3,941 million. The effective tax rate was positively impacted by significant non-taxable gains on divestments in 2016, largely related to the security activities in Finland. Adjusted for this, the effective tax rate was approximately 28.0%.
Net profit (adjusted) was DKK 2,873 million (2015: DKK 2,785 million).
Net profit was DKK 2,220 million (2015: DKK 2,218 million).
Delivering IFS solutions to our selected customers is a key part of our strategy. The IFS share of Group revenue has grown steadily in recent years, from 30% in 2014 to 37% in 2016. The increase was supported by the successful implementation of our strategic initiatives, once again illustrated by a number of IFS contract wins and expansions during 2016. Furthermore, as part of the GREAT initiative, we revisited the classification of customers in the UK within the technical services and security segments, which led to a one-off step-up in the share of IFS in 2016 of 1%-point.
Revenue generated from IFS in 2016 was up 14% (2015: 11%) in local currencies to DKK 29.3 billion. Growth was mainly driven by IFS contract launches and extensions, including Novartis and Swisscom in the Continental Europe region and DSB, Danske Bank and Homerton Hospital in the Northern Europe region. Global Corporate Clients contracts in general, changes in our customer mix and the successful conversion of existing single service contracts to IFS contracts also contributed to the increase.
Significant IFS contracts won in 2016 included contracts with Bombardier in North America, the Royal Mail Group, Hitachi Rail, a contract within the Transportation and Infrastructure segment in the UK, Heineken in the Netherlands, John Crane in the USA and Mitsui Fudosan Group in Taiwan. We also won contracts with Northern Health in Australia and Jakarta Airport in Indonesia. In 2016, ISS Australia lost a large contract within the hospital sector as well as two large contracts within the remote site resources segment.
We extended our existing IFS contracts with SKANSKA, SEB and ICA, the latter being one of the largest retailers in the Nordics, and expanded our contract with a large telecommunication company in
France. Furthermore, we strengthened our position within the healthcare sector in Singapore by expanding a significant IFS contract with a local hospital.
Revenue generated from Global Corporate Clients increased 19% in 2016 (2015: 11%) in local currencies to DKK 9.0 billion and now accounts for 11% of Group revenue (2015: 10%). In 2016, we extended two of our existing Global Corporate Clients contracts within the banking sector. In addition, in 2017
we won a five year IFS contract with Shire, a global biotechnology company covering more than 40 countries with a phased-in commencement from 1 June 2017.
Our strategy is built on customer focus and the premise that investing in the engagement and capabilities of our employees will drive a positive customer experience.
In 2016, we continued to invest in our employees and sharpening our focus on talent. We introduced the ISS Leadership Competency Framework to guide all of our core people processes, accelerated our leadership training and continued to roll out training programmes, including Key Account Manager Certification (KAMC) and Service with a Human Touch. Our continuing efforts once again resulted in high employee satisfaction with an employee Net Promoter Score (eNPS) of 59.2, up 2.8 points from last year – the fourth consecutive year of improvement.
Read more about employee engagement and our survey results on pp. 34 and 35.
Customer satisfaction also continued to grow – our customer Net Promotor Score (cNPS) improved for the fourth consecutive year, arriving at 43.2 in 2016 (2015: 36.7). We believe the improvement reflects our continued efforts to drive our focus on key account customers. This includes the on-going implementation of account development plans, roll-out of the Key Account Manager Certification (KAMC) programme, supported by our focus on improving employee engagement.
Read more about cNPS on p. 32.
Health and safety is a top priority for us – over a period of six years, we have consistently improved our Lost Time Injury Frequency (LTIF) performance by almost 65% from the baseline figure of 13 in 2010 to 4.7 in 2016, thanks to our systematic approach to managing health and safety risks. However, sadly in 2016 we experienced six work-related fatalities associated with our operations. Our Group target is zero fatalities, so we must improve our vigilance.
Read more about our HSE initiatives on p. 35.
Cash conversion for 2016 was 98% (2015: 99%), driven by a strong general cash performance across the Group. Ensuring strong cash performance remains a key priority, and the result reflects our consistent efforts to ensure timely payment for work performed and focus on strong working capital processes. These efforts were once again reflected in our cash flows for the year.
Trade receivables amounted to DKK 11,307 million (2015: DKK 10,770 million), the increase relative to 2015 was mainly due to contracts won in 2016 and quarterly timing differences, partly offset by the impact from divestments.
of DKK 3,690 million was in line with last year (2015: DKK 3,706 million) despite a higher cash outflow from changes in working capital of DKK 80 million mainly due to timing differences. Cash outflows from provisions, pensions and similar obligations of DKK 191 million marked a DKK 96 million increase, as 2015 was impacted by a positive one-off effect from pension obligations on new contracts. On the other hand, interest paid was DKK 69 million lower than last year due to reduced margins combined with a lower average net debt in 2016.
Other expenses paid of DKK 211 million mainly included restructuring projects initiated and expensed in 2015 and 2016.
was a net outflow of DKK 748 million (2015: outflow of DKK 840 million). The cash outflow was mainly due to investments in intangible assets and property, plant and equipment, net, of DKK 805 million (2015: DKK 841 million), which represented 1.0% of Group revenue (2015: 1.1%). Cash inflow from the acquisition and divestment of businesses, net of DKK 32 million, mainly
related to the divestment of the security business in Finland and the Group's activities in Greenland, partly offset by a prepayment related to the acquisition of Evantec in Germany and the acquisition of Apunto in Chile.
was a net outflow of DKK 3,087 million (2015: outflow of DKK 1,931 million). The cash outflow was primarily related to ordinary and extraordinary dividends paid to shareholders of DKK 1,358 million and DKK 734 million, respectively, repayment of overdraft facilities of DKK 842 million and the purchase of treasury shares of DKK 149 million for the purpose of hedging the obligations arising from ISS's share-based incentive programme (LTIP).
In November 2016, we acquired Apunto, a leading catering company in Chile with annual revenue of DKK 116 million in 2015 and more than 700 employees. The acquisition supports our strategic aim of strengthening our catering capabilities in the Americas region.
On 1 January 2017, we acquired Evantec, a technical and building services company in Germany with annual revenue of approximately DKK 352 million and about 800 employees. The acquisition is in line with our strategic priorities of further expanding our competences within technical and building services.
On 3 February 2017, we acquired SIGNAL, a Danish-based workplace management consulting firm with annual revenue of approximately DKK 30 million and 30 employees based in offices in Copenhagen and Oslo. Our customers increasingly focus on how the workplace can help them achieve their purpose. The acquisition of SIGNAL will add greater insights into how workplace design and service can come together to drive engagement. It will therefore enable us to enhance our strategically important IFS offering, and serve as a centre of global excellence in the field.
Going forward, we will continue to consider acquisition opportunities that enhance our core competencies subject to tight strategic and financial filters.
In 2016, we divested our activities in Greenland, our security activities in Finland, the remaining landscaping activities in the USA, while also making minor divestments in Norway, the Czech Republic and Slovakia. Furthermore, in December 2016 we announced the divestment of our activities in Iceland, and in January 2017 we completed the divestment of our Danish sewage and industrial service activities. All divestments support our strategy to focus on geographies and services where we see the greatest opportunities for customer growth and profitability.
Our continued strategic focus also led to three businesses being classified as held for sale at 31 December 2016, comprising businesses in the Continental Europe, Northern Europe and Asia & Pacific regions. Assets and liabilities held for sale amounted to DKK 1,520 million (2015: DKK 1,539 million) and DKK 426 million (2015: DKK 444 million), respectively.
In 2016, divestments and disposal groups resulted in a net loss before tax of DKK 178 million (2015: net gain of DKK 291 million), which comprised impairment losses on goodwill and customer contracts of DKK 202 million and DKK 15 million, respectively, partly off-set by a net gain of DKK 39 million recognised in Other income and expenses, net.
Intangible assets at 31 December 2016 amounted to DKK 26,361 million and mainly comprised goodwill, customer contracts and brands. A significant part of these assets relate to the acquisition of ISS World Services A/S in May 2005. Furthermore, a significant number of acquisitions made in subsequent years have added intangible assets.
At 31 December 2016, goodwill was DKK 22,354 million (2015: DKK 22,868 million) reflecting negative foreign exchange adjustments of DKK 360 million and impairment losses of DKK 202 million, which were partly off-set by additions from acquisitions of DKK 43 million, mainly Apunto in Chile.
We wish to maintain a strong and efficient balance sheet and to strike an optimal balance between reinvesting capital back into our business and returning surplus funds to our shareholders. At the annual general meeting to be held on 30 March 2017, the Board will propose a dividend for 2016 of DKK 7.70 per share of DKK 1, equivalent to DKK 1,430 million.
ISS's investment grade ratings, assigned by Standard and Poor's and Moody's, were upgraded in 2016 to BBB / Stable outlook and Baa2 / Stable outlook, respectively. In line with our Group Financial Policy, our objective is to maintain an investment grade financial profile with a financial leverage below 2.5x pro forma adjusted EBITDA, taking seasonality into account. At 31 December 2016, the financial leverage was 2.1x (2015: 2.1x) with net debt of DKK 10,977 million (2015: DKK 11,115 million).
ISS has diversified funding through the combination of bank debt (senior unsecured facilities) and bonds issued under the EMTN programme, and with rates on a significant proportion of the debt fixed at attractive levels. Furthermore, we have no short-term maturities.
At 31 December, equity was DKK 13,920 million, equivalent to an equity ratio of 28.5% (2015: 29.4%). The decrease of DKK 584 million was mainly a result of ordinary and extraordinary dividends paid to shareholders, net of DKK 1,358 million and DKK 734 million, respectively, purchase of treasury shares of DKK 149 million and negative currency adjustments of DKK 596 million relating to investment in foreign subsidiaries. This was partly offset by net profit of DKK 2,220 million. The negative currency adjustments were mainly due to GBP, TRY and SEK depreciating against DKK.
EQUITY AND EQUITY RATIO
Acquisitions and divestments completed in the period 1 January to 15 February 2017 are described under Strategic acquisitions and divestments, see pp. 18 and 19.
On 3 February 2017, we signed an agreement to divest our security activities in Ireland. The divestment supports our strategy to focus on geographies and services where we see the greatest opportunities for customer growth and profitability.
Other than as set out above or elsewhere in this Group Annual Report, we are not aware of events subsequent to 31 December 2016, which are expected to have a material impact on the Group's financial position.
Most markets of this region are developed markets, but with differences from country to country in terms of IFS market maturity and macroeconomic environment. There are also developing outsourcing markets in the eastern part of the region. We hold leading market positions in several countries, including in Spain, Switzerland, France and Turkey. Key customer segments for the region are Business Services & IT, Industry & Manufacturing, Public Administration, Healthcare and Pharmaceuticals.
The year 2016 was characterised by the expansion of existing Global Corporate Clients contracts, e.g. Novartis, and several key local contracts, which supported organic growth rates for the region. Going forward, our technical services will be strengthened by the acquisition of Evantec in Germany, which enhances our technical and building services capabilities in the important German facility services market.
In 2017, we will also continue to strengthen our commercial mind-set and with recent large IFS contract wins and a strong sales pipeline across most countries, we remain positive about the future performance of the region. Focus will be on the successful transition of
recent contract wins and expansions. In terms of strategy implementation through GREAT, focus will be on France and the Netherlands. In addition, we will continue the transformation of our business in the eastern part of the region by gradually reducing the proportion of customers in the public sector.
We are working across countries to share and leverage excellence from concepts within commercial, IT and back office optimisation. As part of our cost leadership initiatives, we focus on spend visibility and procurement compliance across the region. We identify best practices through benchmarking KPIs and have service experts working across borders to support local organisations. Our focus is on key accounts and we train our account managers in all aspects of the business, e.g. through our Key Account Manager Certification (KAMC) programme. In the eastern part of the region, clustering management structures in certain countries has proven to be a key component in the development of our business with multinational customers.
Revenue amounted to DKK 30,095 million in 2016 (2015: DKK 29,955 million). Organic growth was 3%, while the
impact from divestments reduced revenue by 1% and currency effects reduced revenue by 2%, mainly due to depreciation of TRY and CHF against DKK. The main contributors to the strong organic growth rate were Turkey, Switzerland, Belgium and Austria, the main drivers being volume and price increases in Turkey, project and other non-portfolio services in Switzerland and contract launches in Belgium and Austria. In addition, we saw strong growth from expansion of a Global Corporate Clients contract across the region. As a result, the IFS share of revenue grew to 34% (2015: 31%).
Operating profit before other items was up by 4% to DKK 1,823 million, resulting in an improved operating margin of 6.1% (2015: 5.8%). The higher margin was mainly supported by increases in Germany, the Netherlands and Spain combined with strong performances in Switzerland and Turkey following the good growth and focus on operational efficiencies. Furthermore, the margin was supported by the impact of our strategic initiatives including cost savings initiatives, procurement and commercial activities. The operating margin was negatively impacted by the divestment of the high margin call centre activities in Turkey in 2015 and by difficult market conditions in certain Eastern European countries.
The markets of this region are mature, developed, very competitive and with high outsourcing rates. ISS holds a market-leading position in the Nordic countries and is recognised as a leader in the UK & Ireland. Key customer segments are Business Services & IT, Public Administration, Industry & Manufacturing and country-specific segments such as Healthcare and Transportation & Infrastructure.
In 2016, a Nordic IFS contract was secured with PostNord, a leading retailer ICA entered into a partnership agreement with ISS Sweden, a contract was secured with the Norwegian Armed Forces, services to one of Norway's largest retailers were further expanded and in the UK we secured significant contracts with Royal Mail, Hitachi rail and a contract in the Hotel sector. We experienced significant growth in the UK Education sector following major contract wins.
In 2017, we will remain focused on our key customer segments, building the sales pipeline in these segments and aiming to further harvest from and develop our capabilities within the technical services and capital projects areas.
The strategic focus remains to leverage the strong market position, mainly through cost leadership, sharing best practices and utilising our footprint to develop solutions and concepts tailored to specific customer segments. We aim to further develop and grow our key accounts and to upskill and develop our people. The Key Account Manager Certification (KAMC) programme has been a success in terms of both developing our people and benefitting our key accounts, and KAMC will remain a priority going forward. The region successfully demonstrated how increasing focus on touchpoints with customer end-users can support customer purposes, and this will remain a strategic priority. Benchmarking and productivity will be greater priorities throughout the region for the purpose of developing our key accounts and securing the most efficient service delivery. A key priority will be to further leverage from the partnership with IBM by utilising technology for workforce planning and optimisation purposes. Finally, benefitting from both Group and regional scale to drive procurement efficiency, back office process excellence supported by the right IT strategy is expected to increase transparency in country performance. The increased transparency enables us to focus on cost leadership, i.e. delivering
the best service value to our customers at the most efficient prices.
Revenue was DKK 26,515 million (2015: DKK 27,256 million). Organic growth was 3%, while currency effects reduced revenue by 6%. Organic growth was driven by contract launches in the UK, Denmark and Norway and by strong demand for non-portfolio services. This was partly offset by negative organic growth in Sweden and Finland that was mainly due to contract downsizing, especially within the industry segment in Sweden and the technology sector in Finland and lower demand for non-portfolio services in Finland. Revenue generated from IFS increased to 44% (2015: 38%) positively impacted by a one-off step-up in revenue due to reclassification of customers in the UK of 3%-points.
Operating profit before other items was DKK 1,982 million (2015: DKK 2,056 million), for an operating margin of 7.5% (2015: 7.5%). The high stable margin was the result of a good performance across the region, supported by the focus on key account customers, margin increases in the security division in Finland and property services in Denmark. This was partly offset by operational challenges within the healthcare sector in Sweden.
The region consists of large and relatively established markets, such as Australia, Hong Kong and Singapore, as well as developing outsourcing markets, such as China, India, Indonesia and Thailand. ISS has a strong presence in the region and holds a market-leading position in most countries despite competition from local and international players. Key customer segments are Business Services & IT, Industry & Manufacturing, Healthcare, Retail & Wholesale, Energy & Resources and Transportation & Infrastructure.
In 2016, we further strengthened our IFS offering in selected customer segments, leading to important contract wins and extensions in key customer segments. Organic growth was impacted by the contract losses and reductions within the remote site resources segment in Australia resulting from industry downsizing as well as certain losses in China and Hong Kong. We continued to implement the GREAT initiatives in the region in 2016, focusing strongly on aligning organisational structures with the global organisational blueprint, leveraging best practice commercial and business development approaches, and driving procurement excellence.
DKK billion 0 1 2 3 4 5 33% 30% 30% 2016: 2015: 2014: % of Asia & Pacic
Operating prot before other items, DKK billion Operating margin, %
Going forward, our focus will be on strengthening our footprint by further developing our value proposition for selected customer segments, accelerating strategy implementation through GREAT, driving in-country and contract leadership development, and further strengthening commercial and operational capabilities to drive future growth. Moreover, driving the change towards performance-based commercial models will remain in focus as markets mature and change from input-based to output-based contracts.
In 2016, we focused on cost leadership and achieved scale benefits through our focus on procurement excellence and the sustained good momentum in terms of spend visibility and contract compliance across countries. Sharing skills and best practices is done by utilising virtual teams of subject matter experts throughout the region. This was recently done successfully through the deployment of a Learning Management System between India and Pacific as well as within the Healthcare segments in Singapore and China. Sharing talent across the region and developing leadership and key account management skills through local, regional and global training programmes will remain in focus going forward.
Revenue was DKK 14,606 million (2015: 14,582 million) driven by organic growth of 2% which was offset by the negative impact from currency effects of 2%. Double-digit organic growth rates were seen in Singapore, Indonesia, India, the Philippines and Malaysia, partly due to the start-up of Global Corporate Clients contracts in countries such as Singapore, India and the Philippines. Growth in Indonesia was supported by a strong performance in the security division while Singapore benefitted from contract launches and increased demand for non-portfolio services. This was partly offset by reduced services within the remote site resource sector and the loss of a large contract within the hospital sector in Australia. Excluding Australia, organic growth was 8% in 2016. The share of revenue generated from IFS increased to 33% (2015: 30%).
Operating profit before other items grew by 5% to DKK 1,098 million for an operating margin of 7.5% (2015: 7.2%). The improvement was mainly supported by a one-off income related to pensions in Indonesia and operational efficiencies in Singapore. This was partly offset by a margin decrease in Thailand, mainly due to increased labour costs in certain business sectors and investments in operational improvements in Indonesia.
36% 33% 29%
2016: 2015: 2014:
DKK billion % of Americas
0 1 2 3
We have built a strong presence in several parts of the USA and Latin America with a developed service offering highly focused on IFS. During 2016, focus was to advance performance-based IFS solutions to large customers seeking a strategic facility services partner. In addition, focus was on further developing our industry-specific solutions to our key customer segments: Business Services & IT, Transportation & Infrastructure, Industry & Manufacturing and Public Administration.
Three topics were in special focus in 2016. Firstly, to grow ISS North America. We enhanced our IFS capabilities and market position in North America, and significant amounts of resources were allocated for this purpose. As a result, ISS North America reported the strongest organic growth since 2011. This positive and highly satisfactory performance is further proof that GREAT is working in North America and, given the market opportunities and our investments made, we remain optimistic about the future growth potential. Secondly, we initiated the restructuring of our business platform in Brazil, including contract exits from certain business segments, which will lead to a more focused and operationally efficient business. Finally, to enhance our IFS capabilities in Chile, we acquired Apunto, Chile's fourth-largest catering company, in November 2016. The integration of Apunto and our more than 700 new colleagues is progressing according to plan.
Going forward, our focus will be on further refining and advancing our IFS capabilities across the Americas whilst maintaining single service excellence. North America remains a key market and, similar to 2016, enhancing capabilities and our market position is a key priority in 2017.
Focus during 2016 was to leverage volume, concepts, and talent, by strengthening links between the region, Group level and other countries within the Group. This has led to the implementation of global concepts such as Service with a Human Touch, Key Account Manager Certification (KAMC), Insight@ISS and the transfer of talent internally across the region and from Corporate. Lastly, we continued the implementation of a regional procurement programme, leveraging know-how from roll-outs in other regions.
Revenue increased by 1% to DKK 7,885 million (2015: DKK 7,770 million). Organic growth was 6%, while the impact from currency effects reduced revenue by 5%. All countries except for Brazil delivered positive organic growth rates, with the USA, Mexico, Argentina and Chile being the main contributors. The negative organic growth in Brazil was mainly due to contract exits in certain business segments following the structural adjustments of our business platform. Organic growth was especially supported by non-portfolio services in the IFS division as well as contract start-ups in the IFS division and the aviation segment in the USA resulting in an organic growth for North America of 12%. In addition Mexico and Chile had significant new sales, and Argentina delivered high organic growth stemming from price increases and non-portfolio services. Revenue generated from IFS increased to 36% (2015: 33%).
Operating profit before other items was DKK 328 million (2015: DKK 323 million) for an operating margin of 4.2% (2015: 4.2%). The operating margin was supported by a strong performance in the IFS division in the USA mainly due to new contracts started up in 2016 and increased demand for non-portfolio services. This was partly offset by profitability challenges in Brazil as well as costs related to low-margin contract exits in Argentina.
Group revenue in Q4 was DKK 20.5 billion (Q4 2015: DKK 20.5 billion).
Organic growth in Q4 was 2.9% (Q3 2016: 3.3%), while currency effects reduced revenue by 3%.
The organic growth in Q4 was mainly driven by projects and other non-portfolio work in the Northern Europe region, as well as by our IFS business in general. Growth was negatively impacted by the annualisation effect of last year's significant contract wins and negative growth in Australia and Brazil. Furthermore, growth was affected by the Continental Europe region, which as expected saw reduced organic growth compared with Q3 following a reduction in non-portfolio services. On the other hand, organic growth was supported by stronger demand for non-portfolio services in certain countries and contract launches in the Americas, mainly relating to key accounts.
was up by 2% to DKK 1,370 million (Q4 2015: DKK 1,347 million) for an operating margin of 6.7% in Q4 (Q4 2015: 6.6%). In line with previous years, seasonality influenced operating profit before other items, which is typically higher in the third and fourth quarters than in the first and second quarters.
The operating margin improvement was mainly driven by strong performances in the Continental Europe and Asia & Pacific regions. The main contributors to the improvement in the Continental Europe region were Spain, primarily as a result of quarterly timing differences and non-portfolio work in the IFS
| Growth components | ||||||
|---|---|---|---|---|---|---|
| DKK million | Q4 2016 | Q4 2015 | Growth | Organic | Acq./div. | Currency |
| Continental Europe | 7,732 | 7,665 | 1 % | 2 % | (1)% | - |
| Northern Europe | 6,892 | 7,179 | (4)% | 5 % | (0)% | (9)% |
| Asia & Pacific | 3,697 | 3,758 | (2)% | (3)% | - | 1 % |
| Americas | 2,177 | 1,924 | 13 % | 11 % | 1 % | 1 % |
| Other countries | 29 | 40 | (28)% | (26)% | - | (2)% |
| Corporate / eliminations | (18) | (31) | 42 % | - | - | - |
| Group | 20,509 | 20,535 | (0)% | 2.9 % | (0)% | (3)% |
| Emerging markets | 5,183 | 5,052 | 3 % | 4 % | (0)% | (1)% |
| Operating profit before other items |
Operating margin | ||||
|---|---|---|---|---|---|
| DKK million | Q4 2016 | Q4 2015 | Growth | Q4 2016 | Q4 2015 |
| Continental Europe | 629 | 547 | 15 % | 8.1 % | 7.1 % |
| Northern Europe | 558 | 610 | (9)% | 8.1 % | 8.5 % |
| Asia & Pacific | 324 | 309 | 5 % | 8.8 % | 8.2 % |
| Americas | 96 | 83 | 16 % | 4.4 % | 4.3 % |
| Other countries | (0) | (0) | - | (1.5)% | (0.9)% |
| Corporate / eliminations | (237) | (202) | (17)% | (1.2)% | (1.0)% |
| Group | 1,370 | 1,347 | 2 % | 6.7 % | 6.6 % |
| Emerging markets | 392 | 355 | 10 % | 7.6 % | 7.0 % |
division, and Germany, due to strong performances in the energy sector and price increases in the industry segment. In Asia & Pacific, the improvement was mainly driven by Indonesia due to a one-off income related to pensions and operational efficiencies in Singapore. This was partly offset by quarterly timing differences and challenging macroeconomic conditions in certain countries. Corporate costs amounted to 1.2% of revenue (2015: 1.0%), which was in line with expectations.
amounted to a net expense of DKK 14 million (Q4 2015: net income of DKK 162 million) mainly related to restructuring projects but partly offset by gain on divestments, net.
Goodwill impairment in Q4 was DKK 178 million (Q4 2015: DKK 89 million) and was related to a reassessment of fair values of businesses classified as held for sale and divestments in the Northern Europe and Americas regions.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Continental Europe | 2 % | 4 % | 4 % | 4 % | 5 % | 4 % | 6 % | 4 % |
| Northern Europe | 5 % | 3 % | 4 % | 2 % | 4 % | 3 % | 1 % | (1)% |
| Asia & Pacific | (3)% | 1 % | 4 % | 7 % | 9 % | 11 % | 9 % | 8 % |
| Americas | 11 % | 7 % | 4 % | 2 % | 2 % | 3 % | 3 % | 2 % |
| Group | 2.9 % | 3.3 % | 3.8 % | 3.7 % | 4.8 % | 4.8 % | 4.8 % | 3.1 % |
| Emerging markets | 4 % | 7 % | 8 % | 10 % | 9 % | 8 % | 8 % | 7 % |
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Continental Europe | 8.1 % | 6.1 % | 5.5 % | 4.3 % | 7.1 % | 6.3 % | 5.3 % | 4.5 % |
| Northern Europe | 8.1 % | 8.9 % | 7.1 % | 5.9 % | 8.5 % | 8.7 % | 7.0 % | 5.9 % |
| Asia & Pacific | 8.8 % | 7.8 % | 6.9 % | 6.6 % | 8.2 % | 7.8 % | 6.3 % | 6.2 % |
| Americas | 4.4 % | 4.8 % | 4.1 % | 3.2 % | 4.3 % | 4.5 % | 4.5 % | 3.3 % |
| Group | 6.7% | 6.5% | 5.4% | 4.5% | 6.6 % | 6.5 % | 5.3 % | 4.4 % |
| Emerging markets | 7.6% | 6.2% | 6.2% | 6.1% | 7.0 % | 6.4 % | 6.1 % | 6.1 % |
amounted to a net expense of DKK 115 million (Q4 2015: net expense of DKK 161 million). The improvement was mainly a result of lower costs related to amortisation of financing fees and a net gain on foreign exchange.
In Q4, Net profit (adjusted) amounted to DKK 929 million (Q4 2015: DKK 1,021 million). The decrease was mainly a result of other expenses, net of DKK 14 million compared with a net income of DKK 162 million in the same period of last year.
Cash conversion (LTM) in Q4 2016 was 98% due to the strong cash flow performance across the Group. Ensuring a strong cash performance remains a key priority, and the result reflects our efforts to ensure timely payment for work performed and strong working capital processes.
in Q4 was an inflow of DKK 2,741 million (2015: inflow of DKK 2,661 million). The Q4 cash inflow followed the usual pattern, as cash flow from operating activities tends to become increasingly positive as the year progresses, and it usually peaks in the fourth quarter when revenue recognised in the third quarter is collected. The increase in cash inflow was mainly due to an improved cash inflow from changes in working capital.
Revenue generated from Integrated Facility Services (IFS) in Q4 was up 14% (Q3 2016: 15%) in local currencies to DKK 8.1 billion, which corresponds to approximately 39% of Group revenue (Q3 2016: 37%). Growth was impacted by the annualisation effect of last year's significant contract wins, partly offset by IFS contract launches including a significant expansion of a large Global Corporate Clients contract in the Americas region as well as the continued successful conversion of existing single service contracts into IFS contracts. Furthermore, we revisited the classification of customers in the UK within the technical services and security segment, which led to a 2%-point one-off step-up in IFS share in Q4 2016.
In Q4, ISS won new IFS contracts with Teva Pharmaceuticals in Mexico, a cleaning and technical services contract with Sanifair in Germany and a 24-year catering contract with Ben Gurion Airport in Israel. Furthermore, we expanded the contract with the Norwegian Broadcasting Corporation with an increased scope from 5 to 31 locations in Norway and renewed our IFS contract with ACT Health and a security and cleaning contract wiht Queensland Airport in Australia.
Revenue generated from Global Corporate Clients in Q4 increased by 25% (Q3 2016: 18%) in local currencies to DKK 2.7 billion, representing approximately 13% of Group revenue (Q3 2016: 11%). The increase was positively impacted by an increased level of non-portfolio services.
In addition, we extended two of our existing Global Corporate Clients contracts within the banking sector.
The evolution of ISS Germany over the past decade provides a compelling illustration of how we implement and execute our strategy, the ISS Way. Today, ISS Germany is a quality business with a strong market position and growth prospects.
Back in 2005, ISS Germany was little more than a conglomerate of acquired cleaning companies. On the back of Chancellor Schroder's Agenda 2010, the German cleaning industry experienced major liberalisation and a proliferation of new entrants. Maintaining positive organic growth and profitability became very challenging, but a number of important developments have subsequently transformed the business.
First, in November 2006, we acquired DEBEOS, DaimlerChrysler's in-house facility management services company, which provided technical maintenance, catering, internal logistics, security and other services in the Stuttgart area. This was a significant step towards Integrated Facility Services (IFS) in Germany. In 2008, ISS began to provide a broad range of facility services to HP in Europe – including in Germany – thereby further strengthening our German IFS credentials.
In November 2010, ISS won a contract with BMW to provide technical and infrastructure facility management and technical cleaning services, leveraging the expertise gained from the DEBEOS acquisition four years earlier. Our increasing emphasis on IFS led us to divest our non-core, damage control business, Vatro, in June 2011, shrinking our revenue base but sharpening our focus. ISS Germany has since secured further transformational IFS business with Novartis (2012) and Vattenfall (2015).
Following this, ISS Germany was restructured as part of the GREAT initiative and became a key account focused organisation, targeting the Automotive, Energy, Pharmaceutical and Business Services & IT industries. Focus, flexibility and innovation all improved. In 2016, ISS Germany generated 77% of its revenue from key account customers.
CHARLEEN BOLBETH Trainee Catering, ISS Germany VATTENFALL
ISS customers in Germany, including Vattenfall, are now benefiting from our new catering concept
We operate in a market where customers demand that the costs associated with their buildings and facilities continually decrease while the user experience increases.
Our business model and strategy are designed to deliver on our ultimate goal of creating shareholder value on the basis of this market backdrop.
Our ambition encompasses more than just geographic regions or industries. We intend to be the leading service organisation overall, globally.
To achieve our vision we must meet our customers' needs by offering reliability, responsiveness, convenience, and cost-effectiveness. In fact, we strive to go beyond that by delivering outcomes that meet their often unspoken needs, helping to create workplaces that are pleasant, safe, and nurturing for their employees and visitors, as well as for the ISS employees who represent us there. In this way, we can support our customers in achieving their goals.
The spirit of our approach is articulated in our mission statement:
At its core, our mission statement tells a story of a differentiated value proposition. Not simply delivering services but providing outcomes to customers and focusing on how we support their purpose, whether it is a hospital helping patients get well or a bank focused on providing a pleasant and safe working environment while maintaining compliance with regulatory obligations, and all in a cost effective manner. Lastly, it is a mission built on the empowerment of our more than 494,000 people globally giving them the flexibility to deliver an exceptional customer experience through an approach rooted in our values and attitude and supported by robust processes and tools.
These factors form the foundation of our value proposition at the centre of which is our self-delivery model.
Our strategy, The ISS Way, has choice-making at its core; clarity on the customer segments we target, the services we provide and the places on the globe where we provide them. Furthermore, through consolidation and alignment of our capabilities, our strategy drives the skill and scale benefits of being a large, global organisation. The skill and scale benefits we strive to extract relate to leveraging our volume through aligning procurement and business processes, the sharing of the concepts and best practices our organisation develops and the proactive management of our comprehensive talent pool.
The advantages of driving these scale benefits are wide-ranging. Our customers increasingly demand aligned and consistent service performance across all sites. In addition to the savings procurement drives, using the same supplier across customer sites supports innovation and consistent delivery.
Similarly, service performance based on international best practices is a key source of scale benefits and a driver of our value proposition by e.g. supporting customer compliance and risk management. Finally, talent management promotes a strong and uniform culture which is a core part of our value proposition and helps us attract, retain and develop the best – from the front line to the support functions.
ISS is a leader in the global USD 1 trillion outsourced facility-services market, which comprises a host of different types of customers, services and providers. The market is both vast and diverse with customers ranging from those requiring small and ad hoc cleaning jobs driven purely by price to highly sophisticated integrated solutions for large corporations focusing on a value added offering on a global scale.
The market is evolving towards integrated services, centralisation of procurement, and a more strategic view of facility services that increases the level of value added and supports the customer's purpose. Essentially, customers are increasingly focused on securing a defined and expected output and outcome of service provision rather than stipulating input in terms of hours of service delivered.
Market growth is driven by underlying global GDP growth – including changes in business activity, employment levels and office or factory occupancy levels – as well as continued growth in outsourcing rates. Over the past decade, the overall market has grown at mid-single digit rates annually. This rate consolidates growth nearing double digits from Integrated Facility Services (IFS), which we estimate represents approximately 8% of the market, and low, single-digit growth from
single services representing the rest of the market.
Broadly speaking, providers of facility services can be split into three groups with varying legacies: those coming with a real estate background, those with a design and construction background, and those with a facility management background. We are seeing the delineation lines between market players with different legacies becoming blurred, certain facility services providers strengthening their IFS capabilities and the entry of new players and technologies. Our facility management legacy, our long-term commitment to IFS, and our self-delivery model gives us a keen advantage as only a few competitors yet have the scale to self-deliver IFS on a global basis.
In response to market developments and customer needs, our business model is based on taking over facility services that are non-core to our customers, thereby allowing them to concentrate on their core business.
We have chosen to focus on providing on-site facility services solutions to large and blue-chip (B-t-B) customers, with whom our value proposition resonates. The size of these customers allows us to invest in on-site key account management, which is an important factor in
delivering our value proposition, as well as processes and enabling technology to meet the demands of this customer base.
Our key customer segments are
Business Services & IT (e.g. banks), Industry & Manufacturing (e.g. the automotive industry), Public Administration (e.g. defence) and Healthcare (e.g. hospitals), which in 2016 accounted for approximately 68% of Group revenue.
Our selected services, illustrated below, share the following characteristics: people intensive/capex light, on-site delivery, recurring nature, suitable for integration into IFS and suitable for performance (output-based) contracts.
Cleaning, property (technical) and catering services are delivered globally as single services, multi-services or IFS solutions. Other support services, security and facility management, are principally offered as part of IFS contracts. With our strategy focused on delivering IFS solutions, the relative shares of catering and property (technical) are expected to further increase over time.
Going forward, we expect workplace management services to become an increasingly important part of our service offering. Although it will remain modest in total revenue share, workplace management services are strategic in nature as they involve advising
customers on how workplace design can positively impact their employees' engagement and the user experience of their facilities. Thus, this service area will provide strong support to our overall value proposition and to the depth of our customer dialogue.
From a geographical perspective we want to follow our target customers and thus ensure global reach covering a very high percentage of global GDP. This is the result of our customer segment choices. We are already present in the major markets and in the vast majority of the future mega-cities and are thus focused on consolidating our positions there by increasing the penetration of our selected customer segments as well as selected market expansion when supported by customer demand.
We aim to deliver IFS across our entire business, as this is a key part of our unique value proposition and also a high growth, high margin activity. In 2016, IFS accounted for 37% (2015: 34%) of Group revenue. The increase is driven by our strategy of clearly focusing on delivering IFS solutions to selected customers. Over the past decade, it has helped us grow our IFS revenue significantly, from approximately DKK 7.6 billion in 2006 to approximately DKK 29.3 billion in 2016. We expect to grow our IFS revenue even further as we continue to implement our strategy.
PROPERTY 20%
• Building and technical maintenance • Technical services • Energy management • Grounds maintenance
Internal mail handling, scanning and
Manned guarding • Access control
FACILITY MANAGEMENT 3% • On-site management of facility services • Change
Based on our ability to deliver specialised service excellence, through IFS we are able to integrate the delivery while offering the benefits of best in class service.
Synergy comes from integration and is key to providing cost effective workflows and consistent high quality service. This synergy is very difficult to obtain when working with a variety of sub-suppliers, and this is why our self-delivery concept gives us a keen advantage.
To illustrate the IFS concept, case stories on our contracts with GoDaddy and Royal Derby Hospital are presented on pp. 14 and 112, respectively.
In 2016, we continued to focus on our five strategic GREAT initiatives (1) empowering people through leadership, (2) optimising our customer base, (3) ensuring fitfor-purpose organisational structures, (4) establishing broad-based IFS readiness, and (5) striving for excellence. The GREAT initiatives have been outlined in detail in previous annual reports.
Evaluating the success of our strategy and business model, and ultimately our creation of shareholder value, requires measurement of specific metrics. By using key performance indicators (KPIs), we can systematically measure the effect of our efforts to achieve our vision.
We measure Group performance using the following six KPIs, as we believe that in combination they give us the best picture of whether we are driving the business forward in the desired direction and creating value for our shareholders. Bonus plans for the Executive Group Management are also based on these KPIs as described in the Remuneration report on p. 48:
See ISS at a glance on p. 2 for an overview of our performance on each of our KPIs.
In 2016, we launched a performance management project with the objective of increasing transparency across the Group, thereby facilitating cost leadership and profitable growth initiatives leading to value creation for our shareholders. Through that project we will establish enhanced insights into the performance of our key account customers, align our management reporting to the GREAT segmented customer approach (Key Accounts, Specialised and Direct) and increase our benchmarking possibilities across the Group. The initiative will be further implemented through 2017.
Through GREAT, we have established a more detailed understanding of our customer base through a process of mapping. Countries representing over 70% of Group revenue have been through this process (or are underway) and, as a result, we are securing an aligned set of fit-for-purpose organisational structures designed to serve our selected customers.
Based on the progress with the GREAT transformation in our country organisations, a new Group structure took effect on 1 September 2015. First and foremost, the structural adjustments we made in the corporate and regional organisations mirror those made in the country organisations and thus better enable the exploitation of our skill and scale benefits.
GREAT enables these benefits by ensuring that the above unit organisation (from business unit to corporate head office) acts as a highway for the implementation of our strategy and is focused on supporting the delivery of our value proposition at customer sites.
Through GREAT, we develop our leadership and talent both on and above site. We define our target customers and establish a fit-for-purpose structure optimised to servicing these customers efficiently. GREAT also ensures that we continue to develop our ability to deliver IFS, not least by rolling out excellence in
the form of concepts, processes and supporting technology which assists in providing a truly integrated solution. Lastly, GREAT is focused on driving out our volume benefits where we continue to invest in our supply chain efforts, in aligning and outsourcing back-office processes (BPO project) and in service excellence.
Outlined below are some of the highlights of our progress through GREAT during 2016 in the extraction of our benefits of skill and scale within volume, concepts and talent.
During the past three years, we have invested substantially in establishing a central procurement team. We have completed phases I–III of the procurement excellence programme, which primarily involved our European operations. This demonstrated that attending to procurement and alignment across countries produces considerable benefits to the Group by way of savings of DKK 450-550 million to be achieved during 2013–2019. In 2016, we initiated phase IV of the programme in Europe and increased the scope to also include the Americas and Asia & Pacific. Identified cost savings amount to a total of DKK 200-300 million, which we aim to achieve during 2016–2020. While part of the cost savings will increase margins, a substantial amount has been and will continue to be re-invested in
the business in order to maintain and strengthen our competitive strength.
In 2016, we also continued to roll out our BPO project, which covers certain finance and accounting processes and targets improved processes and cost savings. The project has now been implemented in countries accounting for approximately 40% of Group revenue, i.e. the Nordic countries, the Netherlands, Belgium and Luxembourg, Australia, Germany, Austria, Hong Kong, the UK and Switzerland. The potential for deployment of BPO in additional high labour-cost countries in Europe is currently being evaluated for potential execution in 2017. Furthermore, initiatives have been launched in 2016 to harmonise selected sub-processes across the countries that have already launched the BPO project. These initiatives will continue in 2017.
In our pursuit of excellence and to enhance our value proposition and profitability, we both drive the deployment of our existing best practices and continuously explore innovations in customer segments, services, business systems, and processes.
We spent a significant amount of time in 2016 viewing our service performance through the eyes of the user. We worked extensively with mapping
the journey of the user in order to ensure that we focus on ensuring the optimal experience in each of the key touchpoints we have with our customers' end-users on a daily basis. See the illustration below.
We also continue to apply a greater level of technology in our solutions. In June 2016, we signed a commercial agreement with IBM to use technology for workforce optimisation (Integration@ ISS) and thereby further leverage our integrated, self-delivery capabilities. Initial pilot tests have demonstrated a potential for material productivity improvements. Further, technology will be used to transform the management of over 25,000 customer buildings around the world. This will lead to insights from sensors and devices to create more personalised, intuitive and user friendly buildings as well as support synergies through integration of services. We are currently piloting the solutions at a number of sites and expect to initiate implementation at our customer sites during 2017.
During the year, we also continued to roll out best practices with a focus on those related to our commercial, operations and people & culture functions. An example is transition excellence as described on p. 58.
Within finance excellence, we continue to drive working capital efficiency elements, which continues to have
a positive effect on our cash conversion performance. The ongoing rollout of solutions such as FMS@ISS and Insight@ISS continues to yield further transparency and financial benefits, which are key to our value proposition.
The ingredient most essential to successfully implementing our strategy is leadership. Given our self-delivery model, our employees are our core asset. We dedicate significant resources to developing and managing them. In 2016, we continued to invest in securing and developing talent at all levels of our organisation, people with the right capabilities and mindset to deliver on our vision.
Read more about our specific people initiatives in Our people on p. 33.
We believe that strong leadership drives employee engagement, which in turn drives customer satisfaction and hence leads to improved financial results.
We carried out our customer experience survey for the sixth time in 2016. We invited 6,941 customers across 44 countries to participate, and enjoyed a response rate of 82%. Responses cover close to 80% of Group revenue as we focus on inviting Global Corporate Clients, IFS and key account customers. The lead indication for the status of the customer experience is the Net Promoter Score. With a score in 2016 of 43.2 (2015: 36.7) we saw an improvement for the fourth consecutive year. We believe the improvement is a result of:
• the roll-out of our Key Account Manager Certification (KAMC) programme globally
We will move ahead with further measurements of our leadership through assessments and regular surveys, and through our performance in employee and customer net promoter scores and lost time injury frequency ratings, among other benchmarks.
Great leadership is key to bringing out the true value embedded in our strategy. It is the root of our people's engagement and the desired customer experience, and what gives us the strength that differentiates us.
Our people are the true source of our competitive advantage, and the proof point of our ability to deliver on our value proposition lies in every single interaction between one of our people and a customer.
It is our fundamental belief that great service moments can be architected by the right combination of people with
a common purpose and the right attitude, who are:
The quality and consistency of our leadership is the biggest single driver of our ability to truly unleash the Power of the Human Touch, which is why we continue to invest in developing our leaders across the Group through key Group-wide ISS University programmes.
To ensure that ISS continuously has the right organisational competencies, in 2016 we also developed the ISS Leadership Competency Framework,
which provides an architecture that ensures consistency in the leadership competencies required for our leaders to succeed. The Leadership Competency Framework will guide all of our core people processes from recruitment, performance evaluation, development to succession planning, and will be rolled out to all current and future leaders in 2017.
The ISS University is the Group-wide learning academy representing our leadership development programmes which are delivered globally, regionally and locally and always to consistent standards. The ISS University is structured to enhance our leadership capability across three core dimensions:
• strategic leadership – building an intimate understanding of our strategy and our key performance drivers
– a modular development programme directed at account leaders of our key accounts across the world.
Key to the successful execution of our strategy, our key account managers hold complex general management positions; are profit accountable, customer accountable and accountable for leading large and diverse teams, often across multiple customer sites.
The KAMC programme was launched late 2013, but truly went global in 2016; roll-out is well underway in Northern and Continental Europe, it went live in Asia & Pacific in May, and in the Americas in September. Focus in 2016 was to develop capabilities to further support and continue rolling out the programme in the future. At the end of 2016, 565 certifications had been issued under the programme, touching
on more than 500 of our largest key accounts across the globe. Based on current plans to roll out KAMC and support its implementation, we expect to have more than 1,000 key account managers certified by the end of 2017.
Read more about KAMC on p. 40.
Leadership is a key strategy enabler. Ensuring that our leaders are equipped to communicate the strategy and engage the organisation is a key focus area for leadership development. Our leadership programmes provide our employees with an essential understanding of the key elements of our strategy and give them tools relevant for their day-to-day work.
In 2013, we launched the Leadership Mastery programme, a comprehensive five-module programme for selected executives. The focus is on personal leadership development and behaviour, developing a team as well as securing a deep understanding of our strategy and facilitating greater understanding of customers and employees. In 2015, 21 of our people graduated from the Leadership Mastery programme. In 2016, 23 people were accepted for the programme.
In parallel to the significant focus on developing current leaders, we are also looking ahead, and building our pipeline of future leaders through the ISS
This programme is directed at university graduates and we select the brightest and the best in a rigorous assessment process.
Our trainees go through an 18-month programme, including an international assignment, before being assigned to their first line appointment. The programme is structured in modules which first enable candidates to build an understanding of the ISS business model and strategy, before moving on to build knowledge of operational excellence and basic key account management capabilities. At this stage we feel it is a good opportunity for them to embark on an international exchange to build international key account management capabilities, sharing knowledge and best practices. They then return to their home countries to conclude the programme by applying all learnings working with a specific key account.
Since starting up in Europe in 2013, the programme has gone from strength to strength, with 8 trainees employed in 2013, 11 in 2014, 33 in 2015 and 36 in 2016. To date, the retention rate has been 95%. After completing the 18-month programme, the trainees typically take up key account manager, contract manager or contract support roles. For 2017, our aim is to recruit close to 50 new trainees. The benefits of the programme are twofold; it
enables us to build a sustainable talent pipeline for the future, whilst at the same time building our global employer brand in the external marketplace.
Employee engagement is critical for our ability to serve our customers – engaged and motivated employees have a direct impact on the customer experience of our services. For this purpose we survey our employees on how engaged and motivated they are in working for ISS and, more importantly, what we can do better to drive engagement of our people.
In 2016, we carried out our fifth global employee engagement survey. The survey covered 45 countries and was conducted in 53 languages. Scope has been expanded each year since inception. In 2016, more than 300,000 employees were invited to participate, with 241,487 responding. Once again, the response rate improved, climbing to approximately 73% from 72% in 2015.
The survey revealed an overall employee engagement of 4.5 (2015: 4.4) out of a possible 5. As part of the survey, we also measure our employees' willingness to recommend ISS as an employer (eNPS). For the fourth consecutive year, the score improved, arriving at 59.2, up from 56.4 in 2015.
The conclusions to this survey led to a specific focus on the engagement of our frontline employees. As a result, we have implemented the Service with a Human Touch programme, which has been running since 2013. This is a key strategic game changer driving cultural change at ISS, communicating our mission and
translating customer value propositions into concrete service behaviours for thousands of service professionals.
Service with a Human Touch is now operational in 47 countries, with 600 accredited trainers and more than 70,000 trained employees across 512 key accounts. We will continue the work to continuously improve engagement, which in turn increases the overall sense of purpose of our people in the delivery of our services. Furthermore, we see a clear correlation between employee engagement scores and customer satisfaction, making them key drivers of financial and operational performance.
Our concern for health, safety, and environment (HSE) and initiatives in that respect are aimed both at our employees and our customers. As a company with more than 494,000 employees globally, it is crucial for us to provide proper working conditions including safe and healthy working environments for our employees and customers in the facilities we serve.
Consistent with the ISS values, our highest priority is to protect our employees from injury. We are steadfast in our commitment to making our workplaces free of hazards. We operate under the assumption that all injuries can be prevented and that injuries are unacceptable. Our goal will always be zero injuries and zero environmental incidents.
In order to stay on course and keep HSE in constant focus, we run global HSE campaigns three times a year
with changing focus points reflecting current challenges, for example driving safely, working at heights, and slips, trips and falls. In addition to the global HSE campaigns, in 2016 we continued the highly successful ISS Toolbox Talk Calendar, building on the feedback received from the initial launch in 2015. The Toolbox Talk reinforces and embeds safety behaviours as part of our safety culture. Two topics are chosen each month to inspire our operational teams to hold Toolbox talks at their sites. We have also developed and rolled out an HSE e-learning module for supervisors and frontline employees as a means of understanding the safety culture we aspire to in ISS. All of our CR and HSE initiatives and our related performance are described in our Corporate Responsibility Report 2016.
Read more at www.responsibility. issworld.com/report2016
Performance and targets for 2016 are shown below for selected employeerelated HSE KPIs.
In accordance with our HSE vision, our first priority is to prevent fatalities at our workplaces. Sadly, in 2016 we experienced six work-related fatalities associated with our operations. Our Group target is zero fatalities, so we must improve our vigilance. Because the majority of our work-related fatalities in recent years have been traffic-related, our emphasis for the 2016 global safety campaign was driving safely. In view of our fleet of more than 20,000 vehicles, in 2016 we rolled out an e-learning module on driving safely to complement the ISS Driver Safety Handbook and the Driver Safety campaigns we run.
We work to make safety a common responsibility. Our policy is that management at all levels must understand their roles and responsibilities when it comes to safety.
We have improved our performance by almost 65% from the baseline figure of 13 in 2010 to an LTIF of 4.7 in 2016,
the sixth straight year of improvement. The improvement has been driven by our systematic approach to managing HSE risks since 2010 with:
As a global company with more than 494,000 employees, we influence the lives of many people every day through providing employment and training as well as safe and healthy work environments.
We believe that long-term sustainable business success relies on a high level of CR, as economic, social and environmental issues are inevitably interconnected. CR is therefore a fundamental part of our corporate values and strategy, and universally accepted principles on sustainable development are integral to the way we conduct our business.
CR is also becoming increasingly important for our selected customers as they strive to improve their own business performance and make a positive impact on society. Leading global companies require a consistent CR performance from their partners, and this is often a key factor in winning and retaining contracts. CR is therefore an important part of our value proposition to our customers.
We have adopted a principles-based approach to CR that contributes to sustainable development as defined by the international community. We have developed and rolled out across the Group a strategy for Health, Safety, Environment and Quality (HSEQ) and CR, which supports The ISS Way, our GREAT initiatives and the extraction of benefits of skill and scale within volume, concepts and talent.
By aligning procurement across countries, we ensure better control of the products and services we procure; this results in safer products, more environmentally friendly products and better control of the suppliers we use to deliver our services.
In our pursuit of excellence and to enhance our value proposition to our customers, we have built an HSE value proposition to our customers. Customers require effective and credible risk management, including risks related to safety, labour conditions and influencing human rights in a positive direction. Our processes and systems within these areas allow us to provide support to our customers in managing these risks.
We have incorporated HSE in our training programmes Service with a Human Touch and Key Account Manager Certification (KAMC) programme, providing a better highway for the deployment of our HSE culture and processes.
As a signatory and supporter of the United Nations Global Compact since its inception in 1999, we have made a strong commitment on human rights, labour rights, environmental protection and anti-corruption. We remain committed to aligning our strategy and operations with the ten Global Compact principles.
Furthermore, we respect, support and promote human rights and support the ambitions set out in the United Nations Universal Declaration of Human Rights, the Core Conventions of the International Labour Organisation and the United Nations Guiding Principles on Business and Human Rights.
We remain fully committed to our global agreement with the international network of national labour organisations – Union Network International (UNI) – covering our employees where UNI cooperates with local unions. We also continue to work closely with our European Works Council (EWC). We hold quarterly meetings with the steering committee and annual meetings with the entire EWC. At these annual meetings, the EWC visits our head office for three days, and we spend considerable executive management time with them to ensure alignment with our priorities and a common understanding of our strategy and the Group's direction.
Our full CR report as per section 99a of the Danish Financial Statements Act is available at www.responsibility.issworld.com/ report2016. The CR Report also serves as ISS's communication on progress in implementing the ten principles of the Global Compact.
At ISS, we see risk management as an important means of supporting value creation – both for us and for our customers. It is an integral part of our governance structure and of the way we do business.
As a global business, we take an active approach to risk management, ensuring that our key risks are structured, prioritised and managed at the right levels throughout the organisation. Supported by our risk governance structure, key risks are identified and reported all the way up the organisation to the Board of Directors.
Our governance structure, see p. 43.
Our business model is based on taking over facility services that are non-core to our customers. When outsourcing, customers increasingly expect risk management to be an integral part of ISS's service delivery. Further, as our services are increasingly being integrated into our customers' value streams there is an increased risk of disrupting our customers' operations if operational procedures or contract requirements are not complied with. This is for instance relevant for our customers in the banking or pharmaceutical industry, as we often manage critical infrastructure such as data centres or production facilities. Therefore, risk management at ISS is about understanding our customers' risks and supporting their compliance and risk management – just as much as it is about managing our own risks.
With the growth in IFS revenue from Global Corporate Clients and key accounts, we experience growing risk awareness and demand for risk transfer, operational risk management and risk control compliance from our customers. At the same time, the complexity of our service delivery is increasing, as explained above.
To support sound operational risk management and contract compliance, we have initiated the roll-out of a Contract Risk & Compliance tool for selected key accounts. By the end of 2016, the tool had been implemented for 120 accounts. The roll-out will continue during 2017.
Our customers also increasingly focus on information security and how we as their service provider comply with information security policies and other IT process and documentation standards. Our growing IFS business increasingly leads us to hold and manage data related to our customers' business, e.g. basic personal data, asset information, manufacturing plant design and the like. Combined with our business strength within highly regulated industries such as pharma, food manufacturing and banking, this increasingly exposes us to information security and cyber risk.
Consequently, we have expanded our Information Security Policy and strengthened the supporting organisation, and initiated the roll-out of the updated policy in Q3 2016.
In addition to the above risks, focus in 2017 will be on supplier and sub-contractor risk, as we will be formalising minimum requirements and reducing risk through a wider risk management framework.
Presented in the overview to the left and on the following pages are the key risks that the Group currently faces. The risks are unchanged from last year.
In addition to the key business risks, we are exposed to financial risks as a result of our operating, investing and financing activities. Financial risk management is described in note 5.4 to the consolidated financial statements.
| GROUP KEY RISKS 1) | RISK DRIVERS | MITIGATING MEASURES |
|---|---|---|
| 1. Operational execution including IFS As our services are increasingly becoming an integral part of our customers' value streams, any lack of compliance with operational procedures or contract requirements may disrupt or damage our customers' operations and/or brands. |
• Complexity in our service delivery • Customer requirements relating to operational control and risk management (e.g. in the financial services and pharmaceutical industries) |
• Contract risk and compliance tool • ISS facility management IT system (FMS@ ISS) implemented on selected major ac counts. Supports automation of operating processes and ensures that services are delivered and managed according to the process frameworks • Operational risk reviews on selected contracts as part of global risk manage ment framework • Group HSE policies • Group Escalation Policy and Emergency Response Plan |
| 2. Employee risks Our continued success depends on our ability to attract, develop and retain talented and engaged people, especially in leadership and key account manager positions. It also requires that we take good care of our people with respect to HSE and work environment. We depend on our leaders throughout the organisation to lead by example and to empower their colleagues to mitigate risk. |
• "War for talent" • Customer require ments on HSE • Decentralised structure |
• Our GREAT initiative "Empowering people through leadership" focusing on leadership development and training • Global People Standards and Group HSE policies • Global employee engagement surveys |
| 3. Contract risk and governance The profitability of our contracts depends upon our ability to successfully calculate prices by taking economic factors, legal and other risk elements into consideration, and to manage our day-to-day operations under these contracts. |
• Complexity in contracts and services (e.g. IFS and energy management) • Increasing contract volumes (e.g. the increasing share of Global Corporate Clients) |
• Framework and IT tool for contract risk management (CRAM@ISS) • Approval procedure for large contracts • Contract risk reviews performed by Group Risk Management for specific contracts • High risk contract dashboard for monitoring limitation of liability |
| 4. Regulatory compliance We are subject to a variety of complex and restrictive laws and regulations such as labour, employment, immigration, health and safety, tax (including social security, withholding and transfer pricing), corporate governance, customer protection, business practices, competition and the environment. We incur substantial costs and commit a significant amount of our management's resources to regulatory compliance. |
• Changes in local regulations and stepped-up enforcement • Customers outsourc ing a part of their compliance risk to ISS |
• Group Corporate Governance Policy • Code of Conduct, Anti-Corruption Policy and Competition Law Policy • Mandatory e-learning modules in Code of Conduct, anti-corruption, anti-bribery and competition law for selected managers and employees |
| 5. Information security incl. cyber risk Due to the increasing IFS share of Group revenue, we increasingly hold and manage data related to customers' businesses, e.g. basic personal data, asset information, manufacturing plant design and the like. Combined with our business strength in highly regulated industries such as pharma, food manufacturing and banking, this increasingly exposes us to information security and cyber risk. |
• IFS contracts • Change in data privacy regulations |
• Information Security Policy and other Group IT policies and procedures • Process initiated to implement Binding Corporate Rules (BCR) for the exchange of personal data between ISS Group companies |
1) The risks are presented in the context of the entire Group, which means that the risks identified are considered to be globally applicable throughout the organisation. Consequently, the mitigation action plans are largely Group initiatives, or at least initiatives with the ultimate owner in a Group function. As a consequence, the risk environment and the prioritisation of Group risk mitigation action plans may be different at country level, reflecting the different maturity levels throughout the Group.
| GROUP KEY RISKS 1) | RISK DRIVERS | MITIGATING MEASURES |
|---|---|---|
| 6. Customer retention and competition Our ability to target selected customer segments with attractive and competitive value propositions is key to attracting and retaining IFS, multi-service and single service customers. Failure to develop and execute on value propositions may lead to increased price competition and contract losses as the facility services market is fragmented with relatively low barriers to entry and significant competition from local and regional players. |
• Customer concen tration • Key account management • Inconsistent service delivery for key accounts • Strategic market position |
• Roll-out of Customer Relationship Management system (CRM@ISS) • Measuring customer satisfaction (cNPS) through an annual survey covering most of the Group's revenue • KAMC being rolled out |
| 7. Financial reporting fraud, fraud and corruption Our decentralised structure of financial IT systems and operational control structures increases the risk of fraud and corruption. Our growing presence in emerging markets increases our exposure to compliance risks in countries where improper practises may be common. |
• Exposure in emerging markets • Decentralised financial IT systems and control structures • Step-up in extraterri torial regulation and enforcement |
• Well-established and documented control environment, see p. 46 • Review of the integrity and robustness of interfaces as an integral part of internal audit assignments • Monitoring the implementation of key controls through the system of Control Self-Assessment • Mandatory e-learning modules on Code of Conduct, anti-corruption, anti-bribery and competition law for selected managers and employees • Speak Up policy (Whistleblower system hosted by third party) • Roll-out of automated interfaces between local ERP platforms and the Group's stan dardised financial reporting tool, see p. 46. |
| 8. Subcontractors We depend on subcontractors where we do not have self-delivery capabilities. This represents a risk primarily with respect to: • Performance – if subcontractors do not perform in accordance with the customer contract ISS has entered into. • Compliance – potential risk of noncompliance with labour laws or other regulatory requirements |
• Growth in countries with low IFS capabilities • Growth in Global Corporate Clients portfolio |
• Negotiation Process Framework • Separate framework when using subcontractors in countries with no ISS presence • Supplier Code of Conduct |
| 9. Macroeconomy In recent years, financial turmoil has been recurring and has affected the global economy, in particular in southern Europe and in emerging markets. Revenue, operating margin, cash conversion and debt position could potentially be adversely impacted. |
• Financial turmoil • Customers downsiz ing their businesses or reducing their demand for services |
• On-going formal monitoring of market developments |
| 10. Reputational risk Protecting our reputation is the responsibility of every employee, because our reputation is shaped by all actions and statements made by ISS. |
• IFS contracts • Use of social media |
• Any incident or issue must be escalated to senior-level management for evaluation • Crisis communication plan integrated in Group Escalation Policy and Group Crisis Response Plan • Media handling and monitoring tools • Media communication guidelines |
ISS is a key account focused organisation – key accounts are customers we believe offer the greatest economic potential in terms of revenue and profitability, long-term partnership and IFS delivery.
For ISS to unlock the full potential of these strategically important customer relationships, we need to deliver our full capabilities of volume, concepts and talent, right down to each key account site. With this in mind, we continue to roll out our in-house Key Account Manager Certification (KAMC) programme. This extensive training and development initiative takes place over several months and entails modules that focus on Account Development, Commercial Excellence and Operational Excellence, in addition to a number of home assignments throughout. Those managers demonstrating the requisite commitment, development and on-site implementation of their learnings receive a certification at the end of the programme.
KAMC seeks to bridge the gap between the Group's strategic priorities and the operational excellence our key account managers must deliver on each contract. This helps to deeply embed the ISS Way strategy and our GREAT initiatives in our most important customer relationships. KAMC supports account development and retention through effective sharing and implementation of best practices. Moreover, the programme ensures accountability for introducing and executing key processes. Finally, ISS can develop and assess the commercial capability of key account managers and thereby ensure that our top performers are matched with our top accounts.
KAMC was launched in late 2013, with 66 certifications awarded during the following year. The programme was accelerated through 2015 (101 certifications) and 2016 (398 certifications) and now covering more than 500 of our largest key accounts across the globe. Programmes are run across the globe and KAMC is now an important component of our People & Culture strategy as we seek to attract, develop and retain the best talent in our industry.
May 2013 launch of the programme
565 certifications to date
20
trainers FRANK SCHÄFER
Account Manager, ISS Germany
SHIRLY MIMRAN VP People & Culture, ISS Israel
Networking with peers and team work is a critical part of the KAMC learning experience
We base our corporate governance on transparency, constructive stakeholder dialogue, sound decision-making processes and controls for the benefit of the Group and our stakeholders.
The Board of Directors regularly reviews the Group's corporate governance framework and policies in relation to the Group's activities, business environment, corporate governance recommendations and statutory requirements; and continuously assesses the need for adjustments.
The 2016 statutory report on corporate governance, which is available at http://inv.issworld.com/governancereport. cfm, provides an overview of our overall corporate governance structure and our position on each of the Danish Corporate Governance Recommendations.
At the end of 2016, we complied with all of the Danish Corporate Governance Recommendations, except recommendation 3.1.4 regarding stipulating a retirement age for board members in the articles of association. Considering international trends, the nomination process focusing on the candidate's background, competencies and experience and recent Danish legislation on age discrimination, the Board of Directors proposed to delete the retirement age in the Company's Articles of Association at the 2016 annual general meeting, which the shareholders approved.
The shareholders of ISS A/S exercise their rights at the general meeting, which is the supreme governing body of ISS.
Rules on the governance of ISS A/S, including share capital, general meetings, shareholder decisions, election of members to the Board of Directors, Board meetings, etc. are described in our Articles of Association, which are available at http://inv.issworld.com/articles.cfm
As is current practice in Denmark, management powers are distributed between our Board of Directors (Board) and our Executive Group Management Board (EGMB). No person serves as a member of both of these corporate bodies. Our EGMB carries out the day-to-day management, while our Board supervises the work of our EGMB and is responsible for the overall management and strategic direction.
The primary responsibilities of the Board and the four board committees established by the Board are outlined in our governance structure on the following page. Each board committee has a charter. Key matters transacted annually by the Board can be found on p. 44.
On an ongoing basis, the Board reviews the Group's capital structure. The Board considers that the present capital and share structure serves the best interests of both the shareholders and ISS as it gives ISS the flexibility to pursue strategic goals thus supporting long-term shareholder value, combined with short-term shareholder value by way of ISS's dividend policy.
Dividend, see p. 53
The Board performs an annual evaluation of its performance, including of its individual members and an evaluation of the performance of the EGMB and of the cooperation between the Board and the EGMB. In 2016, a Board evaluation performed with the assistance of external consultants and an evaluation of the performance of the Board and the cooperation with the EGMB were completed.
All board members elected by the general meeting stand for election each year at our annual general meeting. Board members are eligible for re-election.
In April 2016, the general meeting elected Ben Stevens as new board member while Jo Taylor did not seek re-election. As part of the induction programme, Ben Stevens met with board members, members of the wider management representing regions and functions of ISS, as well as key employees.
In addition to the board members elected by the general meeting, three employee representatives serve on the Board. They are elected on the basis of a voluntary arrangement regarding Group representation for employees of ISS World Services A/S as further described in the Articles of Association. Employee representatives serve for terms of four years. The current employee representatives joined the Board after the annual general meeting in April 2015.
The members of the EGMB are the Group CEO and Group CFO. Together, they form the management registered with the Danish Business Authority.
| Responsible for the overall management and strategic direction of the Group, including: |
Board biographies pp. 54–55 |
||||
|---|---|---|---|---|---|
| • strategy plan and annual budget • appointing members of the EGMB • supervising the activities of the Group • reviewing the financial position and capital resources to ensure that |
Remuneration Remuneration report, see p. 48 and note 6.1 to the consolidated financial statements |
||||
| these are adequate | Meetings | ||||
| The Board receives a monthly financial reporting package and is briefed on important matters in between board meetings |
Nine meetings held in 2016. The Board convenes at least six times a year, including for one strategy meeting |
||||
| BOARD COMMITTEES | |||||
| AUDIT AND RISK COMMITTEE | NOMINATION COMMITTEE | ||||
| • Evaluates the external financial reporting and use of significant account ing estimates and judgement related to items such as impairment tests, disposal groups and deferred tax, see section 1 to the consolidated financial statements • Monitors the Group internal audit function • Monitors and considers the relationship with the independent auditors, reviews the audit process and recommends auditors to the board • Reviews and monitors the Group's risk management and internal controls • Evaluates the Financial Policy and the Tax Policy • Six meetings held in 2016 |
• Assists the Board in ensuring that appropriate plans and processes are in place for the nomination of candidates to the Board and the EGMB • Evaluates the composition of the Board and the EGMB • Makes recommendations for nomination or appointment of members of the Board, the EGMB and the board committees • Three meetings held in 2016 |
||||
| REMUNERATION COMMITTEE | TRANSACTION COMMITTEE | ||||
| • Assists the Board in preparing the remuneration policy and the overall guidelines on incentive pay • Recommends to the Board the remuneration of the members of the Board and the EGMB, approves remuneration of EGM as well as the remuneration policy applicable to ISS in general • Four meetings held in 2016 Remuneration report, see p. 48 |
• Makes recommendations to the Board in respect of certain large acqui sitions, divestments and customer contracts • Reviews the transaction pipeline • Considers ISS's procedures for large transactions • Evaluates selected effected transactions • Four meetings held in 2016 |
||||
pp. 56 – 57
Remuneration report, see p. 48 and note 6.1 to the consolidated financial statements
2ND LEVEL
Appointed to manage 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
pp. 116–117
Country management teams are set out under each relevant country at www.issworld.com
1ST LEVEL
The Group has a wider Executive Group Management (EGM), whose members are nine Corporate Senior Officers of the Group in addition to the EGMB.
Information on the members of the EGMB and the EGM can be found on pp. 56–57.
The primary responsibilities of the EGM are outlined in our governance structure on the previous page.
As one of the world's largest private employers and with operations in 47 countries, we are committed to fostering and cultivating a culture of diversity and inclusion. With more than 494,000 employees, ISS embraces and encourages diversity in its broadest sense. We recognise that our diverse workforce gives us a key competitive advantage, and we consider our employees to be our most valuable asset. Diversity makes ISS creative, productive and an attractive place to work.
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 and EGM nominations according to which we are committed to selecting the best candidate while aspiring to have diversity in gender as well as in broader terms such as international experience. Emphasis is placed on:
In support of our commitment to gender diversity, the Board adopted a target in 2014 of increasing the number of women on our Board elected by the general meeting from one to at least two members not later than at the 2017 annual general meeting. With the election of two women to the Board in 2015, the target was achieved, and the Board set
a new target of reaching at least 40% women on the Board by 2020. Currently, there are 33% women on the Board.
In terms of international experience, the Board aims at all times to have sufficient international experience at all management levels taking into account the size and activities of ISS. The Board considers that it has diverse and broad international experience. The EGM is considered to have the necessary international experience if half of its members have international experience from large international companies. Presently, all members of the EGM have international experience.
In order to promote, facilitate and increase the number of women in management level positions at ISS's global head office, we continue leveraging our Diversity Policy, which defines a number of initiatives. Our initiatives include ensuring that female candidates are identified for vacant positions, developing succession plans aiming at identifying female successors and tabling the matter of women in leadership at ISS for discussion at least once a year at EGM level. Furthermore, we ensure strong representation of women in
Group Financial Policy
one annual deep dive review of each region
various ISS leadership development and graduate programmes across the Group and at the global head office.
The amount of women at management level at the global head office increased slightly in 2016 compared to 2015 and gender diversity remains a focus area in 2017.
Reference is also made to the 2016 statutory report on corporate governance available at http://inv.issworld.com/governancereport.cfm
The Group's financial reporting and internal controls are audited by the independent auditors elected by the annual general meeting. The
nomination follows an assessment of the qualifications, objectivity and independence of the auditors and the effectiveness of the audit process.
All board members receive the auditors' long-form audit reports in connection with the audit of the annual consolidated financial statements and any other long-form audit reports. Auditor reports are discussed in detail by the Audit and Risk Committee.
GIA regularly reports to the Audit and Risk Committee and the Board, and its activities are governed by a charter approved by the Board.
The work of GIA and internal controls relating to financial reporting are described on p. 46.
The Group has adopted a whistleblower policy – which in 2016 was re-branded as the "Speak Up policy" – to enable employees, business partners and other stakeholders to report any serious and sensitive concerns in a confidential manner. Such concerns may be reported to the Head of GIA via a secure and externally hosted reporting site, which is accessible via the ISS website.
Quality and efficiency of financial reporting is a fundamental objective, requiring a strong governance and internal controls framework.
The responsibility for the Group's internal control environment lies with the Board of Directors (Board).
Policies of relevance to financial reporting are approved by the Board and include the Code of Conduct, the Accounting Manual, the Reporting Manual, the Financial Policy, Control Procedures and the Escalation Policy.
The Audit and Risk Committee appointed by the Board is responsible for monitoring the internal controls and risk management systems.
Group Internal Audit (GIA), consisting of 9 employees, is responsible for providing an objective and independent assessment of the effectiveness and quality of the internal controls in accordance with the internal audit plan approved by the Audit and Risk Committee. To ensure that GIA works independently of the Executive Group Management Board (the EGMB), it operates under a charter approved by the Board and reports not only to the Group CFO, but also directly to the Audit and Risk Committee.
GIA's responsibility is to provide the Board and the EGMB with reasonable assurance that:
• internal controls are in place to support the quality and efficiency of the financial reporting processes;
Country management is responsible for ensuring that the control environment in each operating country is sufficient to prevent material errors in the country's financial reporting. Regional management provides governance of the country control environment.
Group Controlling is responsible for controlling the financial reporting from subsidiaries and for preparing the consolidated financial reporting.
Our governance structure, see p. 43.
The EGMB annually identifies and assesses the material financial reporting risks and decides which control activities and systems are required to detect and prevent such risks. This is done based on a materiality test, including an assessment of the impact of quantitative and qualitative factors and an assessment of the likelihood of any material error occurring.
To challenge the EGMB, the Audit and Risk Committee on an ongoing basis discusses:
The Group has implemented a formalised financial reporting process, which includes the reporting requirements and related control activities for key areas illustrated in the table on the next page.
In addition to the use of a standardised process and system for the consolidated financial reporting, the work to strengthen controls for financial reporting continues through the implementation across the Group of a shared ERP system platform. By the end of 2016, the ERP system had been implemented in 22 countries covering 30% of Group revenue.
Furthermore, the roll-out of an automated interface has strengthened the control of consistency between local ERP systems and the Group's standard financial reporting tool. At the end of 2016, this was in place for 34 countries covering 85% of Group revenue. The objective is to reach a further 12 countries by the end of 2017, which would cover all countries where ISS operates and has an office and approximately 100% of Group revenue.
An essential element to ensure the correct and timely financial reporting is the availability of relevant information to the employees involved in the process. For this purpose, information and communication systems have been established, providing easy access to the appropriate information, including the Accounting Manual, the Reporting Manual, the Budgeting Manual and other relevant guidelines.
GIA performs audits across the Group. The annual audit planning is based on the group key risks as described on pp. 37–39, a risk assessment performed for the
individual countries and the outcome of the annual control self-assessment survey.
The internal audit framework consists of three elements:
In 2016, GIA performed 26 baseline audits in individual countries and 20 contract audits. Furthermore, 20 riskbased audits were performed covering internal control areas related to the quality and effectiveness of financial reporting. A key focus area for the assurance activities in 2016 was governance and internal controls within Group corporate functions in support of the objectives to increase the use of shared system solutions, process consistency and data transparency across the Group.
The findings and conclusions of the internal audits, including recommendations on how to improve the control environment, are reported to country and regional management, the EGMB and the independent Group auditors. The key findings are presented to the Audit and Risk Committee, which evaluates the results and considers the conclusions when reviewing the internal audit plan for the coming year.
To support the efforts to improve the internal controls environment, GIA tracks the progress on resolving the audit findings. Reports on the progress are prepared for the Audit and Risk Committee, the EGMB, and regional management. Follow-up audits are performed to provide assurance on the implementation of the measures to resolve audit findings.
| ITEM | REPORTING | CONTROL ACTIVITIES |
|---|---|---|
| Financial position and results |
All countries report an income statement, statement of financial position, statement of cash flows, portfolio analysis and three-month forecasts etc. on a monthly basis. |
Group Controlling monitors and controls the reporting for significant deviations compared to budget. |
| Cash flow forecasts |
All countries bi-weekly report their daily cash flow forecasts for a rolling three-month period. |
Actual figures are continuously monitored and validated by Group Treasury for deviations compared to forecasted figures, including e.g. daily follow-up on local material cash balances. |
| Business reviews |
All countries report an income statement, statement of financial position, statement of cash flows, portfolio analysis, three-month forecasts and contract performance etc. on a monthly basis. |
Monthly meetings between regional management and country management with a focus on the current performance and the state of the business. |
| Budgets and financial plans |
All countries prepare budgets and plans for the following financial year in a pre-defined format. |
Regional management reviews the proposed budgets and plans with the countries. |
| Full-year forecasts |
All countries update and report their full-year estimates twice a year and submit a three-month rolling forecast on a monthly basis |
Regional management reviews the proposed full-year estimates with the countries in light of the current performance and the state of the business. |
| Strategy reviews |
Country management provide annual updates of a predefined strategy template, including progress on key strategic priorities. |
Annual meetings held with country managers at which the strategy is discussed and priorities and plans for the coming year are agreed. |
| Acquisitions and divestments |
Acquisition and divestment proposals are presented in a predefined report format and valuation model. |
Transaction Committee/Board approval is required for large or strategic acquisitions and divestments. |
| Large contracts |
Bids for large contracts are presented in a predefined format focusing on risk evaluation. |
Depending on size, approval is required by regional management, EGMB or Transaction Committee/ Board. |
| Control self assessments |
Once a year, country manage ment performs a self-assess ment of the implementation of certain key internal control activities and develop plans to close any implementation gaps. |
Group Internal Audit performs ongoing audits based on the countries' control self-assessment. |
Remuneration is a key lever for ISS in supporting our strategic goals and creating value for our shareholders.
Remuneration is based on responsibilities, competencies and performance and is designed to be competitive and in line with market practice of comparable listed companies.
The remuneration policy is reviewed at least annually by the Remuneration Committee (the Committee) and the overall objectives of the policy are:
The principles outlined in the Remuneration Policy also apply to members of the Executive Group Management (EGM) in addition to the EGMB.
The Remuneration Policy and Overall Guidelines on Incentive Pay are available at http://inv.issworld.com/ policies.cfm
In 2015, the Committee conducted a review of remuneration and incentives of the EGMB in cooperation with Kepler, our external advisers. The Committee concluded that remuneration of the EGMB was broadly competitive and could be further strengthened through the following adjustments:
All of the above adjustments were implemented in 2016.
The latter will remain a priority in 2017.
In 2017, the Committee will also remain focused on identifying potential areas for improvement to ensure that our remuneration practices remain competitive
and support the attraction, motivation and retention of key executive talent.
The remuneration elements are summarised and described in the table on the next page and apply to the members of the EGM for 2016 unless otherwise stated.
Bonuses and other variable components of remuneration are subject to claw-back if in exceptional cases it is subsequently determined that payment was based on manifestly misstated information. Reclaim in full or in part of the variable component of remuneration is determined at the discretion of the Board.
Remuneration to the members of the EGMB is disclosed on the next page. An overview of PSUs granted under the LTIP is disclosed in the table on p. 50. An overview of minimum, target and maximum remuneration for 2016 to the Group CEO is disclosed below. Remuneration to other members of the EGM is disclosed in note 6.1 to the consolidated financial statements.
In March 2016, the remaining 50% of the PSUs under the TSP vested and the programme lapsed.
The employment contract of the Group CEO may be terminated at 24 months' notice. Employment contracts of the Group CFO and other members of the EGM may be terminated at 12 months' notice. Members of the EGM may terminate their positions at six months' notice, except for one member who has a 12-month termination notice. Members of the EGM are not entitled to severance payments. The employment contracts contain no special termination rights and no change
of control clauses. ISS does not provide loans to the members of EGM.
LTIP is granted as Performance Share Units (PSUs) and the annual grant has a value of 125% of the annual base salary for the Group CEO and 70%
| ELEMENT | OBJECTIVE | AWARD LEVEL | PERFORMANCE MEASURES |
|---|---|---|---|
| Annual base salary |
Attract and retain high-per forming leaders reflecting their position, skills, competencies and experience |
Take into account competitive market rate of industry peers as well as competencies and experience |
Reviewed annually based on individ ual responsibilities, qualifications and performance |
| Annual bonus | Drive delivery of short-term financial results, implementa tion of The ISS Way strategy and behaviour consistent with the ISS Values and Leadership Principles |
Target bonus is up to 66% (Group CEO) / 60% (EGM) of annual base salary. Maximum bonus opportunity is up to 100% (Group CEO) / 90% (EGM) and is awarded for performance significantly above budget. Targets are set for periods of one year |
Financial and non-financial KPIs and weighting: Operating margin (27.5%), organic growth (27.5%), cash conver sion (20%), employee engagement, customer experience and health and safety (15%) and individual objectives (10%). Performance is measured for each financial year. Pay-outs are subject to certain profit and cash flow targets being achieved |
| Long-Term Incentive Programme (LTIP) |
Drive delivery of long-term financial results, retention of leaders and alignment to shareholder value creation |
Face value of grant of PSUs is 125% of annual base salary for the Group CEO and 70% for other members of the EGM |
The vesting criteria of the LTIP are TSR measured against peers and growth in EPS (equally weighted). Performance conditions are measured over three years |
| Non-monetary perquisites and benefits |
Perquisites and benefits (such as company car, insurance, communication and IT equipment) to support recruitment and retention |
Benefits corresponding to market standards |
N/A |
| Pension | Except for two members, the members of the EGM are not covered by an ISS Group pension plan |
N/A | N/A |
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| DKK thousand | Jeff Gravenhorst |
Pierre-François Riolacci 1) |
Heine Dalsgaard 1) |
Jeff Gravenhorst |
Heine Dalsgaard |
| Base salary and non-monetary benefits | 8,842 | 1,215 | 2,862 | 8,320 | 6,619 |
| Annual bonus | 6,183 | 535 | 1,625 | 5,844 | 4,441 |
| Share-based payments | 6,014 | 252 | 505 | 6,344 | 3,604 |
| Total remuneration | 21,039 | 2,002 | 4,992 | 20,508 | 14,664 |
1) Heine Dalsgaard stepped down as Group CFO on 31 May 2016. Pierre-François Riolacci replaced Heine Dalsgaard as Group CFO with effect from 7 November 2016.
for other members of the EGM. PSUs have vesting criteria of total shareholder return (TSR) and earnings per share (EPS), equally weighted. TSR peers are the Nasdaq Copenhagen OMX C20 and a peer group of comparable international service companies. The vesting criteria and peer groups are outlined on p. 51. The vesting criteria were determined by benchmarking against international service companies. PSUs vest three years after grant, provided the performance conditions are met. Prior to vesting, holders of PSUs do not have any of the rights that holders of shares would otherwise be entitled to, such as voting rights. For the LTIP 2016 (but not previous programmes) participants are compensated for any dividend distributed during time of grant and time of vesting. For the extraordinary dividend in November 2016 it was decided to compensate participants in the existing three LTIP programmes.
Unvested PSUs will lapse in the event that employees terminate their employment without cause or if ISS terminates their employment with cause.
The PSUs granted as part of the LTIP 2014 programme will vest on 18 March 2017. This is the first vesting of LTIP post the IPO in 2014. Based on the annual EPS and TSR performances for 2014, 2015 and 2016, 96% of the PSUs granted under the LTIP 2014 will vest.
This total vesting is achieved through 25% annual growth in EPS (weight 50%) over a three-year period, which is above the target for maximum vesting (100%) of 18% annual growth. Additionally, ISS's TSR of 73% for the period from the IPO and ending on 31 December 2016 was at the upper quartile of our Danish peers (weight 25%), which resulted in full vesting. Against the Industry peers (weight
25%), ISS's TSR was marginally below the upper quartile (73rd), which resulted in 96% total vesting.
| 2016 | 2015 | ||||
|---|---|---|---|---|---|
| TSP (number of PSUs) | Jeff Gravenhorst |
Pierre-François Riolacci |
Heine Dalsgaard 1) |
Jeff Gravenhorst |
Heine Dalsgaard |
| Outstanding at 1 January | 24,863 | - | 14,532 | 49,725 | 29,063 |
| Vested | (24,863) | - | (14,532) | (22,846) | (13,353) |
| Cancelled | - | - | - | (2,016) | (1,178) |
| Outstanding at 31 December | - | - | - | 24,863 | 14,532 |
| LTIP (number of PSUs) | |||||
| Outstanding at 1 January | 86,756 | - | 47,325 | 49,725 | 27,125 |
| Granted | 47,846 | 7,524 | - | 37,031 | 20,200 |
| Cancelled | - | - | (47,325) | - | - |
| Outstanding at 31 December | 134,602 | 7,524 | - | 86,756 | 47,325 |
| Deferred bonus (number of RSUs) 2) | |||||
| Outstanding at 1 January | 7,130 | - | 5,556 | - | - |
| Vested | - | - | - | 7,130 | 5,556 |
| Paid out | (3,565) | - | (2,777) | - | - |
| Outstanding (vested) at 31 December | 3,565 | - | 2,779 | 7,130 | 5,556 |
1) Heine Dalsgaard's unvested PSUs under the LTIP programme were cancelled as he stepped down as Group CFO on 31 May 2016.
2) Granted RSUs relate to the annual bonus for 2014. One-third of the annual bonus was settled in restricted shares.
| CRITERIA | TSR (LTIP 2014-2016) | EPS GROWTH2) (LTIP 2014) | EPS GROWTH2) (LTIP 2015) | EPS GROWTH2) (LTIP 2016) |
|---|---|---|---|---|
| No vesting | Below median of peer group |
Less than 12% annually | Less than 7.5% annually |
Less than 6% annually |
| 25% vesting 1) | At median of peer group | 12% annually | 7.5% annually | 6% annually |
| 100% vesting 1) | At upper quartile of peer group or better |
18% annually or more | 13.5% annually or more |
12% annually or more |
International service companies: ABM Industries, Adecco, Aramark, Bunzl, Berendsen, Compass Group, Capita, G4S, Interserve, Mitie Group, Randstad, Rentokil Initial, Securitas, Serco, Sodexo.
OMX C20: Comprise companies included in the OMX C20 at the time of grant i.e. A.P. Møller – Mærsk A, A.P. Møller – Mærsk B, Carlsberg, Chr. Hansen Holding, Coloplast, Danske Bank, DSV, FLSmidth & Co, Genmab, GN Store Nord, Jyske Bank, Nordea Bank, Novo Nordisk, Novozymes, Pandora, TDC, Topdanmark (not in 2015 and 2016), Tryg, Vestas Wind Systems, William Demant Holding.
1) Linear vesting between 25% and 100% vesting.
2) Adjusted earnings per share excluding Other income and expenses, net. EPS growth is measured as compound annual growth rate (CAGR).
In order to strengthen the alignment of interests between the EGM and the shareholders, the Committee has established share ownership requirements for the members of the EGM. The guidelines and actual holdings for the Group CEO and Group CFO at 31 December 2016 are above. Other members of the EGM is expected to build up a holding of shares equivalent to 35% of his or her annual base salary. To build up the required holding of shares over time, the members of the EGM will be required to retain a minimum of 50% of the shares received from the LTIP and the TSP (subject to disposals required to meet any tax and other associated obligations) until the required share ownership is met.
| At 31 December 2016 | Jeff Gravenhorst |
Pierre-François Riolacci |
|---|---|---|
| Share ownership of annual base salary (over time) | 125% | 70% |
| Shares to be retained from vested incentive programmes | 5,049 | - |
| Actual holding | 41,187 | - |
| Actual holding of annual base salary | 114% | - |
| Unvested PSUs/RSUs | 138,167 | 7,524 |
Members of the Board receive remuneration for duties performed on behalf of ISS A/S and other companies of the ISS Group based on a fixed fee approved at the general meeting for the current year. Remuneration guidelines are illustrated in the tables below.
Members of the Board did not receive any performance- or share-based remuneration in 2016.
Expenses, such as for travel and accommodation incurred in relation to board meetings, relevant training and reasonable office expenses for the Chairman, are reimbursed by ISS. A fixed travel allowance per day of travelling and physical meeting attendance is paid to Board members who are required to travel overseas to attend board meetings.
| Base fee, DKK |
Committee fee, % of base fee |
|
|---|---|---|
| Board members | 400,000 | |
| Chairman of the Board | 1,200,000 | |
| Deputy chairman of the Board | 600,000 | |
| Chairman of the Audit and Risk Committee | 100% | |
| Chairman of other committees | 75% | |
| Ordinary committee members | 37.5% | |
| Member | Base fee |
Committee fee |
Travel allowance |
Total | 1 January 2016 |
Additions | Sold | 31 December 2016 |
|---|---|---|---|---|---|---|---|---|
| Lord Allen of Kensington Kt CBE | 1,200 | 900 | - | 2,100 | 86,843 | - | - | 86,843 |
| Thomas Berglund | 600 | 300 | - | 900 | 8,676 | - | 6,676 | 2,000 |
| Claire Chiang | 400 | 300 | 285 | 985 | - | - | - | - |
| Henrik Poulsen | 400 | 550 | - | 950 | 26,052 | - | - | 26,052 |
| Ben Stevens | 300 | 225 | - | 525 | - | 2,000 | - | 2,000 |
| Cynthia Mary Trudell | 400 | 300 | 285 | 985 | - | - | - | - |
| Pernille Benborg | 400 | - | - | 400 | - | - | - | - |
| Joseph Nazareth | 400 | - | - | 400 | 3,125 | - | - | 3,125 |
| Palle Fransen Queck | 400 | - | - | 400 | - | - | - | - |
| Total | 4,500 | 2,575 | 570 | 7,645 | 124,696 | 2,000 | 6,676 | 120,020 |
Our shareholders are important to us. We are committed to maintaining a constructive dialogue and a high level of transparency in our communication with the market.
ISS A/S is listed on Nasdaq Copenhagen and part of the Nasdaq Copenhagen OMX C20 index.
The Board of Directors (Board) has adopted a dividend policy with a target pay-out ratio for ordinary dividends of approximately 50% of Net profit (adjusted) 1). The dividend for 2015 approved in April 2016 was DKK 7.40 per share.
We also have a stated intention of returning additional funds to shareholders – above and beyond the ordinary dividend – in the absence of strategically and financially accretive investment opportunities. Thus, in November 2016, we paid an extraordinary dividend of DKK 4.00 per share.
At the annual general meeting to be held on 30 March 2017, the Board will propose an ordinary dividend for 2016 of DKK 7.70 per share, equivalent to a pay-out ratio of approximately 50% of Net profit (adjusted) 1), and an increase of 4% compared with 2015.
For further details on how we intend to create value for our shareholders, see p. 8.
We aim to ensure that investors have adequate and equal access to relevant information by providing quality communications to the financial markets in an accurate and timely manner.
We strive to be recognised by the investor community as an honest, open and reliable company and to be well-known among institutional and private investors. We seek to achieve this by maintaining an active dialogue with current as well as potential new investors, analysts and other stakeholders through roadshows and conferences across the globe.
For further details on our Investor Relations Policy, please visit http://inv. issworld.com/policies.cfm
Furthermore, we communicate via company announcements, press releases, conference calls and investor presentations. We have an investor section on our corporate website, where investors can subscribe to announcements of financial results, other company announcements, press releases, etc.
For announcements published in 2016, please visit http://inv.issworld. com/announcements.cfm
We aim to have broad analyst coverage of ISS. At year-end 2016, we were covered by 18 sell-side equity analysts (2015: 17), who regularly publish their recommendations on our stock.
For a full list of analysts, please visit http://inv.issworld.com/analysts.cfm
1) Previously referred to as Profit before amortisation/impairment of acquisition-related intangibles.
Extraordinary dividend 1) Peer group includes international service peers listed on p. 51. All share prices are shown in DKK.
LORD ALLEN OF KENSINGTON KT CBE CHAIRMAN
Born: 1957 Nationality: British First elected: March 2013
Independence: Independent
THOMAS BERGLUND DEPUTY CHAIRMAN Born: 1952
Nationality: Swedish First elected: March 2013 Independence: Independent
CLAIRE CHIANG Born: 1951 Nationality: Singaporean First elected: April 2015 Independence: Independent
HENRIK POULSEN Born: 1967 Nationality: Danish First elected: August 2013 Independence: Independent
Chairman of the Nomination Committee, the Remuneration Committee and the Transaction Committee.
Chairman of Global Radio Group (and a member of the board of directors of seven of its subsidiaries), Boparan Holdings Ltd and 2 Sisters Food Group Ltd and a member of the board of directors of Grandmet Management Ltd and Grandmet Development Ltd as well as a partner of Xseqour Partners. In addition, Advisory Chairman of Moelis & Company and advisor to Boparan Holdings Ltd and Powerscourt.
Previously CEO of Compass as well as chief executive of Granada Group Plc. and ITV plc and executive chairman of Granada Media Plc. He has also been chairman of EMI Music, a member
Member of the Audit and Risk Committee and the Transaction Committee.
President and CEO of Capio AB (Publ) (and holds positions on the board of directors and/or executive management of 12 of its subsidiaries). In addition, a member of the executive management of TA Consulting GmbH.
Previously president and CEO of Securitas and CEO of Eltel.
of the board of directors of Virgin Media Ltd and Tesco Plc. In addition, previously chairman of the British Red Cross and a member of the London Organising Committee of Olympic and Paralympic Games as well as vice chairman of the London 2012 Bid Committee for the Olympic and Paralympic Games.
Education: FCMA from Institute of Management Accountants and Honorary Doctorate Degrees from the University of Salford, the Manchester Metropolitan University and the Southampton Solent University.
Competencies: Professional experience in managing multi industry companies, significant financial and commercial skills and extensive board experience.
Education: Bachelor of Science in Business Administration and Economics from Stockholm School of Economics.
Competencies: Extensive experience in leading and growing international service companies.
Member of the Remuneration Committee and the Nomination Committee.
Co-founder of Banyan Tree Hotels & Resorts, senior vice president of Banyan Tree Holdings Ltd., member of the Board of Directors of Dufry AG and chairperson for China Business Development. Also chairs Banyan Tree Global Foundation Ltd, holds executive and non-executive directorships in three subsidiaries and companies affiliated with Banyan Tree Holdings and holds directorships in four family holding companies. Honorary council member of the Singapore Chinese Chamber of Commerce and Industry and holds directorships in the Wildlife Reserves Singapore Conservation Fund, Mandai Park Holdings Pte. Ltd. and Mamaboss Pte. Ltd.
Chairman of the Audit and Risk Committee and member of the Transaction Committee.
CEO of DONG Energy A/S. In addition, independent industrial advisor to EQT.
Previously CEO and president of TDC A/S, operating executive at Capstone/KKR in London and has held various positions with LEGO, including executive vice president of Markets and Products. In addition, chairman or member of several non-profit organisations.
Previously served as a Singapore Nominated Member of Parliament for two terms (1997-2001).
Education: Arts and Social Sciences graduate from University of Singapore and Master of Philosophy (Sociology) degree from University of Hong Kong.
Competencies: Founder and senior management expertise from the hotel and hospitality industry, international sales and business development experience, broad entrepreneurial experience, human capital management and development experience.
Education: Bachelor of Science in International Business and a Master in Finance and Accounting, both from Aarhus School of Business.
Competencies: International as well as executive management experience from large international companies.
BEN STEVENS Born: 1959 Nationality: British First elected: April 2016 Independence: Independent
CYNTHIA MARY TRUDELL Born: 1953 Nationality: American First elected: April 2015 Independence: Independent
Member of the Audit and Risk Committee and the Transaction Committee.
Group Finance Director and a member of the Board of Directors of British American Tobacco p.l.c. since 2008. Director of 17 UK subsidiaries of the British American Tobacco Group.
Previously held a number of roles on British American Tobacco's Executive Management Board as Regional Director Europe and Development Director, with responsibility for corporate strategy, M&A and IT.
Prior to this, held a number of senior executive roles within the Group, including Head of Merger Integration (following the merger with Rothmans International), Head of Corporate Affairs, Chairman and Managing Director Russia, Chairman and Managing Director of listed subsidiary in
Member of the Remuneration Committee and the Nomination Committee.
Executive vice president, chief human resources officer for PepsiCo.
Previously held a number of executive operating and general management positions with General Motors Corporation and Brunswick Corporation including president of IBC Vehicles (UK), chairman and president of Saturn Corporation (US) and president of Sea Ray Group (US). In addition, served as a director of PepsiCo, Canadian Imperial Bank of Commerce and Pepsi Bottling Group prior to its acquisition by PepsiCo.
Pakistan, Regional Finance Controller Europe, East Africa and South Asia, and various marketing roles in Switzerland. Earlier career includes finance roles at both BET and at Thorn EMI. Held non-executive director roles with Ciberian and Trifast in the UK, and with ITC in India.
Education: Bachelor's Degree in Economics from University of Manchester and MBA from Manchester Business School, University of Manchester.
Competencies: Broad global experience spanning senior finance, general management, commercial, strategy and M&A roles in one of the leading public listed companies on the London Stock Exchange.
Education: Bachelor of Science (Chemistry) from the Acadia University (Nova Scotia), and Doctorate (Physical Chemistry) from the University of Windsor (Ontario).
Competencies: Executive operating and general management experience with global operations in the durable goods and consumer products industries, human capital management and strategy development, and diverse board experience.
PERNILLE BENBORG (E) Born: 1970 Nationality: Danish First elected: March 2011 Independence: Not independent
Group Vice President and Head of Group Compliance since 2007.
Previously held various positions with the ISS Group including as Vice President of Compliance and Group Financial Controller of Group Finance. Joined the ISS Group in 2000.
Education: Master of Science in Business Administration and Auditing from Copenhagen Business School.
JOSEPH NAZARETH (E) Born: 1960 Nationality: Canadian First elected: March 2011 Independence: Not independent
Group Vice President and Head of Group Health, Safety and Environment and Corporate Responsibility since 2010. Joined the ISS Group in 2010 from A.P. Møller-Mærsk, where he was Head of Group HSSE.
Education: Civil Engineering degree from Mc-Gill University and Master of Science in Business Administration from the University of Ottawa.
PALLE FRANSEN QUECK (E) Born: 1975 Nationality: Danish First elected: March 2011 Independence: Not independent
Group Vice President and Regional Excellence Director, Central Europe since February 2017.
Previously held various positions with the ISS Group including as Head of Group Transition, Business Development Director, Central Europe and Vice President of Process Improvement and Business Solutions. Joined the ISS Group in 2000.
Education: Bachelor of Science (Hons) in Engineering from Copenhagen University College of Engineering and a Master of Science in Business Administration (MBA) from Henley Business School.
JEFF GRAVENHORST GROUP CEO (since April 2010)
Joined ISS: 2002 Born: 1962 Nationality: Danish
Member of the Executive Group Management Board of ISS A/S registered with the Danish Business Authority and member of the board of directors of certain ISS Group companies.
Chairman of the board of directors of Rambøll Gruppen A/S, deputy chairman of the board of directors of Nets A/S and a member of the Confederation of Danish Industry's (DI) Permanent Committee on Business Policies.
Previously held management positions within ISS as Group COO, Group CFO and CFO of ISS UK. Prior to joining ISS held management positions in Europe and US.
PIERRE-FRANÇOIS RIOLACCI GROUP CFO (since November 2016)
Joined ISS: November 2016 Born: 1966 Nationality: French
Member of the Executive Group Management Board of ISS A/S registered with the Danish Business Authority and member of the board of directors of certain ISS Group companies.
Member of the board of directors of KLM (Koninklijke Luchtvaart Maatschappij N.V.).
Prior to joining ISS held positions as CFO of Air-France-KLM and CFO of Veolia Environnement.
TROELS BJERG REGIONAL CEO NORTHERN EUROPE (since January 2015)
Joined ISS: 2009 Born: 1963 Nationality: Danish
Member of the board of directors of Ejner Hessel Holding A/S (and three of its subsidiaries) and member of the central board of the Confederation of Danish Industry (DI) and member of DI's executive committee.
Previously held positions within ISS as Regional CEO Nordic and Regional CEO Eastern Europe. Prior to joining ISS held management positions in Europe and Asia.
JACOB GÖTZSCHE REGIONAL CEO CENTRAL EUROPE (since July 2008)
Joined ISS: 1999 Born: 1967 Nationality: Danish
Previously held positions within ISS as COO Central Europe, Regional Director Central Europe and International Business Director Central Europe and various positions within M&A, corporate finance and controlling.
MICHELLE HEALY GROUP CHIEF PEOPLE & CULTURE OFFICER (since April 2015)
| Joined ISS: | 2015 |
|---|---|
| Born: | 1968 |
| Nationality: Irish |
Michelle Healy is also a non-executive director of PageGroup plc.
Prior to joining ISS held senior management positions latest at SABMiller plc as Director Group Integrated Change Programme, and at British American Tobacco plc as General Manager UK & Ireland, Regional Head of HR Europe, and Regional Head of HR Asia Pacific.
DANE HUDSON REGIONAL CEO ASIA PACIFIC (since January 2016)
| Joined ISS: 2011 | |
|---|---|
| Born: | 1961 |
| Nationality: Australian |
Previously held position as Country Manager of ISS Pacific (Australia and New Zealand).
Prior to joining ISS held a number of senior roles including most recently CEO of Australian Vintage Ltd and Chief Finance, Development and Procurement Officer and SVP of Yum Restaurants International (KFC, Pizza Hut and Taco Bell).
HENRIK LANGEBÆK REGIONAL CEO EASTERN EUROPE, MIDDLE EAST & AFRICA (since February 2016) AND CFO GLOBAL OPERATIONS & GROUP COMMERCIAL (since January 2017)
| Joined ISS: 2004 | |
|---|---|
| Born: | 1966 |
| Nationality: Danish |
Previously held positions within ISS as acting Regional CEO as well as Regional CFO Western Europe, Group CFO EMEA & Group Procurement, COO Projects & Group Procurement, interim Regional CEO APAC, COO Business Carve-Out & Group Procurement and Regional CFO APAC.
ANDREW PRICE GROUP CCO (since September 2015)
Joined ISS: 1995 Born: 1964 Nationality: British
Previously held positions within ISS as Head of Global Corporate Clients, COO Facility Services as well as Managing Director of Integrated Solutions and Commercial Director, Healthcare of ISS UK.
DANIEL RYAN REGIONAL CEO AMERICAS (since February 2016)
Joined ISS: 2016 Born: 1962 Nationality: American
Prior to joining ISS held senior management position as Regional CEO Asia & Middle East and member of Group Executive Committee at G4S. Prior to G4S, held various senior management positions and member of the Executive Management Team with NOL Group (primarily in its APL subsidiary).
RICHARD SYKES REGIONAL CEO WESTERN EUROPE (since August 2016)
| Joined ISS: 2012 | |
|---|---|
| Born: | 1970 |
| Nationality: British |
Previously held position within ISS as Country Manager of ISS UK. Prior to joining ISS held senior management positions and CEO of Carillion Business Services, COO of Taylor Woodrow FM & Construction and MD of Taylor Woodrow Facilities Management.
MARTIN GAARN THOMSEN GROUP COO (since February 2016)
Joined ISS: 1999 Born: 1970 Nationality: Danish
Member of the board of directors of Gaarn Thomsen & Partners A/S and Copenhagen Select A/S.
Previously held positions within ISS as Country Manager of ISS Denmark, Regional CEO Western Europe, Regional CEO Asia & Pacific, International Operations Director and Group VP Corporate Affairs.
Outsourcing to ISS is about unlocking value through carefully designed and tailored facility services solutions. Transition is the process of handing over the outsourced responsibilities to ISS and transforming the service solution. Managing this change in a customer's business is central to value creation. Thus, getting it right during transition is a vital success factor in forming a great and profitable relationship from day one.
A sound and robust transition process is a prerequisite for providing an outstanding service experience. Stakeholders form their first and lasting impression of ISS during this early stage. ISS makes significant investments in resource and expertise to manage transitions. Over the past six years, we have worked to refine and perfect our global best practices and toolbox. We have established a global transition team, which today includes more than 100 dedicated transition experts, all of whom have undertaken a transition certification programme centred on the following modules:
ISS engages stakeholders through continuous communication and a shared focus around the customer's objectives. Our experts also design the transition process, managing business risks and maintaining business continuity. Using the ISS Transition Process Framework provides consistency in planning, communication, due diligence and organisational set up. The outcome is a professional approach to transition, which combines understanding the needs of stakeholders with strong project and change management capabilities.
As an example, the Novartis transition began with a stakeholder analysis to ensure ISS understood expectations and preferences. This helped shape the right service culture and delivery model, thereby driving user satisfaction, streamlined services, cost reductions and flexibility. The contract has expanded from 22 sites in 4 countries to 82 sites in 31 countries in less than three years.
dedicated transition experts globally
3,000+
hours of training annually to develop transition experts
transition programmes implemented at key accounts utilising Group-wide transition practices since 2010
MICHAEL VILLADSEN Senior Transition Manager Group Transition
SARAH JONES ANG Group Business Intelligence Analyst, Group IT
SIGNE BLAD JOHNSEN Brand & Web Manager Group Marketing
ANDERS GJØRUP HANSEN Marketing Manager Group Marketing
SANIA QAYYUM Student Helper Group Communications
PALLE FRANSEN QUECK Group Vice President and Regional Excellence Director, Central Europe
Having a robust plan in place together with the right transition team is fundamental for any successful start-up of a new contract
"Wherever I fly, I leave a world of cleanness behind me – and happy travellers all around"
ASRI ARYANIH Cleaning Professional, ISS Indonesia
Asri Aryanih serves on the ISS team that keeps Soekarno-Hatta International Airport's cutting-edge Terminal 3 clean and neat. She brings a high personal standard to her work as well as the belief that kindness goes a long way.
| 2016 | 2015 | ||||||
|---|---|---|---|---|---|---|---|
| DKK million | Note | Adjusted results |
Acquisition related |
Reported results |
Adjusted results |
Acquisition related |
Reported results |
| Revenue | 2.1 | 79,137 | - | 79,137 | 79,579 | - | 79,579 |
| Staff costs | 2.2, 7.2 | (50,851) | - | (50,851) | (51,900) | - | (51,900) |
| Consumables | (6,636) | - | (6,636) | (6,808) | - | (6,808) | |
| Other operating expenses | 6.4 | (16,392) | - | (16,392) | (15,602) | - | (15,602) |
| Depreciation and amortisation 1) | 4.5, 7.1 | (692) | - | (692) | (736) | - | (736) |
| Operating profit before other items | 4,566 | - | 4,566 | 4,533 | - | 4,533 | |
| Other income and expenses, net | 2.4 | (139) | - | (139) | 44 | - | 44 |
| Goodwill impairment | 4.7 | - | (202) | (202) | - | (95) | (95) |
| Amortisation/impairment of customer contracts | 4.5 | - | (642) | (642) | - | (654) | (654) |
| Operating profit | 2.1, 7.5 | 4,427 | (844) | 3,583 | 4,577 | (749) | 3,828 |
| Financial income | 5.3 | 58 | - | 58 | 41 | - | 41 |
| Financial expenses | 5.3 | (544) | - | (544) | (750) | - | (750) |
| Profit before tax | 3,941 | (844) | 3,097 | 3,868 | (749) | 3,119 | |
| Income taxes | 2.5, 2.6 | (1,068) | 191 | (877) | (1,083) | 182 | (901) |
| Net profit | 2,873 | (653) | 2,220 | 2,785 | (567) | 2,218 | |
| Attributable to: | |||||||
| Owners of ISS A/S | 2,216 | 2,211 | |||||
| Non-controlling interests | 4 | 7 | |||||
| Net profit | 2,220 | 2,218 | |||||
| Earnings per share: | |||||||
| Basic earnings per share (EPS), DKK | 5.1 | 12.1 | 12.0 | ||||
| Diluted earnings per share, DKK | 5.1 | 12.0 | 11.9 | ||||
| Adjusted earnings per share, DKK 2) | 5.1 | 15.5 | 15.0 |
1) Excluding Goodwill impairment and Amortisation/impairment of customer contracts.
2) Calculated as Net profit (adjusted) divided by the average number of shares (diluted).
Background for the income statement presentation is described in section 1, p. 67.
| DKK million Note |
2016 | 2015 |
|---|---|---|
| Net profit | 2,220 | 2,218 |
| Items not to be reclassified to the income statement in subsequent periods: | ||
| Actuarial gains/(losses) 7.2 |
(79) | (255) |
| Impact from asset ceiling regarding pensions 7.2 |
(6) | (3) |
| Tax 2.6 |
22 | 62 |
| Items to be reclassified to the income statement in subsequent periods: | ||
| Foreign exchange adjustments of subsidiaries and non-controlling interests | (596) | 546 |
| Fair value adjustment of hedges, net | - | (3) |
| Fair value adjustment of hedges, net, transferred to Financial expenses | - | 12 |
| Tax | - | (2) |
| Other comprehensive income | (659) | 357 |
| Comprehensive income | 1,561 | 2,575 |
| Attributable to: | ||
| Owners of ISS A/S | 1,557 | 2,569 |
| Non-controlling interests | 4 | 6 |
| Comprehensive income | 1,561 | 2,575 |
| DKK million | Note | 2016 | 2015 |
|---|---|---|---|
| Operating profit before other items | 4,566 | 4,533 | |
| Depreciation and amortisation | 4.5, 7.1 | 692 | 736 |
| Share-based payments (non-cash) | 95 | 90 | |
| Changes in working capital | 3.4 | (114) | (34) |
| Changes in provisions, pensions and similar obligations | (191) | (95) | |
| Other expenses paid | (211) | (312) | |
| Interest received | 55 | 44 | |
| Interest paid | (331) | (389) | |
| Income taxes paid | (871) | (867) | |
| Cash flow from operating activities | 3,690 | 3,706 | |
| Acquisition of businesses | 4.1 | (155) | (446) |
| Divestment of businesses | 4.2 | 187 | 477 |
| Acquisition of intangible assets and property, plant and equipment | (875) | (913) | |
| Disposal of intangible assets and property, plant and equipment | 70 | 72 | |
| (Acquisition)/disposal of financial assets | 25 | (30) | |
| Cash flow from investing activities | (748) | (840) | |
| Proceeds from bonds and senior facilities | - | 4,526 | |
| Repayment of bonds and senior facilities | - | (4,645) | |
| Other financial payments, net | (842) | (734) | |
| Capital increase, non-controlling interests | - | 33 | |
| Purchase of treasury shares | (149) | (204) | |
| Dividends paid to shareholders | (2,092) | (901) | |
| Dividends paid to non-controlling interests | (4) | (6) | |
| Cash flow from financing activities | (3,087) | (1,931) | |
| Total cash flow | (145) | 935 | |
| Cash and cash equivalents at 1 January | 4,526 | 3,557 | |
| Total cash flow | (145) | 935 | |
| Foreign exchange adjustments | (81) | 34 | |
| Cash and cash equivalents at 31 December | 4,300 | 4,526 |
| DKK million | Note | 2016 | 2015 |
|---|---|---|---|
| ASSETS | |||
| Intangible assets | 4.5, 4.6 | 26,361 | 27,242 |
| Property, plant and equipment | 7.1 | 1,572 | 1,613 |
| Deferred tax assets | 2.6 | 861 | 931 |
| Other financial assets | 358 | 425 | |
| Non-current assets | 29,152 | 30,211 | |
| Inventories | 276 | 299 | |
| Trade receivables | 3.1 | 11,307 | 10,770 |
| Tax receivables | 235 | 263 | |
| Other receivables | 3.2 | 1,992 | 1,677 |
| Cash and cash equivalents | 4,300 | 4,526 | |
| Assets classified as held for sale | 4.3 | 1,520 | 1,539 |
| Current assets | 19,630 | 19,074 | |
| Total assets | 48,782 | 49,285 | |
| EQUITY AND LIABILITIES | |||
| Total equity attributable to owners of ISS A/S | 13,910 | 14,494 | |
| Non-controlling interests | 10 | 10 | |
| Total equity | 5.1 | 13,920 | 14,504 |
| Loans and borrowings | 5.2 | 15,055 | 14,926 |
| Pensions and similar obligations | 7.2 | 1,638 | 1,683 |
| Deferred tax liabilities | 2.6 | 1,383 | 1,475 |
| Provisions | 7.3 | 256 | 277 |
| Non-current liabilities | 18,332 | 18,361 | |
| Loans and borrowings | 5.2 | 283 | 752 |
| Trade payables | 4,068 | 3,411 | |
| Tax payables | 339 | 386 | |
| Other liabilities | 3.3 | 11,227 | 11,235 |
| Provisions | 7.3 | 187 | 192 |
| Liabilities classified as held for sale | 4.3 | 426 | 444 |
| Current liabilities | 16,530 | 16,420 | |
| Total liabilities | 34,862 | 34,781 | |
| Total equity and liabilities | 48,782 | 49,285 |
| 2016 | Attributable to owners of ISS A/S | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| DKK million | Note | Share capital |
Retained earnings |
Trans lation reserve |
Treasury shares |
Proposed dividends |
Total | Non-con trolling interests |
Total equity |
| Equity at 1 January | 185 | 12,666 | 592 | (323) | 1,374 | 14,494 | 10 | 14,504 | |
| Net profit | - | 786 | - | - | 1,430 | 2,216 | 4 | 2,220 | |
| Other comprehensive income | - | (63) | (596) | - | - | (659) | 0 | (659) | |
| Comprehensive income | - | 723 | (596) | - | 1,430 | 1,557 | 4 | 1,561 | |
| Purchase of treasury shares | 5.1 | - | - | - | (149) | - | (149) | - | (149) |
| Share-based payments | 6.1 | - | 95 | - | - | - | 95 | - | 95 |
| Settlement of vested PSUs | - | (49) | - | 49 | - | - | - | - | |
| Settlement of vested RSUs | - | - | - | 5 | - | 5 | - | 5 | |
| Dividends paid to shareholders | 5.1 | - | (743) | - | - | (1,374) | (2,117) | - | (2,117) |
| Dividends, treasury shares | - | 25 | - | - | - | 25 | - | 25 | |
| Dividends paid to non-controlling interests | - | - | - | - | - | - | (4) | (4) | |
| Transactions with owners | - | (672) | - | (95) | (1,374) | (2,141) | (4) | (2,145) | |
| Changes in equity | - | 51 | (596) | (95) | 56 | (584) | 0 | (584) | |
| Equity at 31 December | 185 | 12,717 | (4) | (418) | 1,430 | 13,910 | 10 | 13,920 | |
| 2015 | |||||||||
| Equity at 1 January | 185 | 11,959 | 16 | (160) | 910 | 12,910 | 10 | 12,920 | |
| Net profit | - | 837 | - | - | 1,374 | 2,211 | 7 | 2,218 | |
| Other comprehensive income | - | (218) | 576 | - | - | 358 | (1) | 357 | |
| Comprehensive income | - | 619 | 576 | - | 1,374 | 2,569 | 6 | 2,575 | |
| Purchase of treasury shares | 5.1 | - | - | - | (204) | - | (204) | - | (204) |
| Share-based payments | 6.1 | - | 101 | - | - | - | 101 | - | 101 |
| Settlement of vested PSUs | - | (41) | - | 41 | - | - | - | - | |
| Disposal of shares in subsidiary | - | (14) | - | - | - | (14) | - | (14) | |
| Capital increase, non-controlling interests | - | 33 | - | - | - | 33 | - | 33 | |
| Dividends paid to shareholders | 5.1 | - | - | - | - | (910) | (910) | - | (910) |
| Dividends, treasury shares | - | 9 | - | - | - | 9 | - | 9 | |
| Dividends paid to non-controlling interests | - | - | - | - | - | - | (6) | (6) | |
| Transactions with owners | - | 88 | - | (163) | (910) | (985) | (6) | (991) | |
| Changes in equity | - | 707 | 576 | (163) | 464 | 1,584 | - | 1,584 | |
| Equity at 31 December | 185 | 12,666 | 592 | (323) | 1,374 | 14,494 | 10 | 14,504 |
In 2016, we continued our focus on providing decision-useful and transparent financial information based on materiality. Our aim is to ensure, that the financial statements, including note disclosures, appropriately reflect and portray ISS specific circumstances.
With that in mind, we changed the presentation of the income statement to a three-column statement, where Goodwill impairment and Amortisation of customer contracts are presented separately in the new column "Acquisition-related" together with income tax related hereto. The background for the presentation is described below under Presentation of the income statement.
New income statement format with three columns
None with material effect on recognition and measurement
The consolidated financial statements of ISS A/S as of and for the year ended 31 December 2016 comprise ISS A/S and its subsidiaries (together referred to as "the Group"). Significant subsidiaries are included in 7.9, Group companies.
The Annual Report for ISS A/S for 2016 was discussed and approved by the Executive Group Management Board (EGMB) and the Board of Directors (Board) on 23 February 2017 and issued for approval at the subsequent Annual General Meeting on 30 March 2017.
The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and additional requirements of the Danish Financial Statements Act. In addition, the consolidated financial statements have been prepared in compliance with the IFRSs issued by the IASB.
The Group's significant accounting policies and accounting policies related to IAS 1 minimum presentation items are described in the relevant individual notes to the consolidated financial statements or otherwise stated below.
A list of the notes is shown on p. 61.
The consolidated financial statements are presented in Danish kroner (DKK), which is ISS A/S's functional currency. All amounts have been rounded to nearest DKK million, unless otherwise indicated.
Except for the changes below, the Group has consistently applied the accounting policies set out below to all periods presented in these consolidated financial statements. However, based on new information minor adjustments to comparative figures in primary statements and notes have been implemented.
With effect from 1 January 2016, the Group has implemented:
The adoption of these standards and interpretations did not affect recognition and measurement for 2016.
When designing our income statement our aim has been to ensure that line items, headings and subtotals presented are relevant to understand ISS's financial performance.
In the past, ISS has built its business platform, and grown its business, through a significant number of acquisitions, including the acquisition of ISS World Services A/S in 2005, which has added a substantial amount of intangibles to the statement of financial position. Consequently, large amounts of noncash amortisation/impairment of intangibles are recognised in our income statement every year.
It is important for us to clearly separate these items to understand the impact of our growth strategy and to enable comparison with our peers. For those reasons, the income statement is presented in a three-column format, where the line items Goodwill impairment and Amortisation/ impairment of customer contracts are presented separately in the column "Acquisition-related" together with the income tax related hereto.
The income statement and the statement of financial position separately present items that are considered individually significant, or are required under the minimum presentation requirements of IAS 1.
In determining whether an item is individually significant ISS considers both quantitative and qualitative factors. If the presentation or disclosure of an item is not decision-useful, the information is considered insignificant.
Explanatory disclosure notes related to the consolidated financial statements are presented for individually significant items. Where separate presentation of a line item is made solely due to the minimum presentation requirements in IAS 1, no further disclosures are provided in respect of that line item.
The consolidated financial statements comprise ISS A/S and entities controlled by ISS A/S. Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
On consolidation all intra group transactions, balances, income and expenses are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investment. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
The non-controlling interest's share of net profit and equity of subsidiaries, which are not wholly-owned, are included in the Group's net profit and equity, respectively, but disclosed separately. By virtue of agreement certain non-controlling shareholders are only eligible of receiving benefits from their non-controlling interest when ISS as controlling shareholder has received their initial investment and compound interest on such. In such instances the subsidiaries' result and equity are fully allocated to ISS until the point in time where ISS has recognised amounts exceeding their investment including compound interest on such.
Changes in ownership interest in a subsidiary, without loss of control, are accounted for as equity transactions.
If the Group looses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in Other income and expenses, net. Any investment retained is recognised at fair value on initial recognition.
Transactions denominated in currencies other than the functional currency of the respective Group companies are considered transactions denominated in foreign currencies.
On initial recognition, transactions denominated in foreign currencies are translated to the respective functional currencies of the Group companies at the exchange rates at the transaction date. Foreign exchange adjustments arising between the exchange rates at the transaction date and at the date of payment are recognised in the income statement under Financial income or Financial expenses.
Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the reporting date. The difference between the exchange rates at the reporting date and at the date of transaction or the exchange rate in the latest financial statements is recognised in the income statement under Financial income or Financial expenses.
On recognition in the consolidated financial statements of Group companies with a functional currency other than DKK, the income statements and statements of cash flows are translated at the exchange rates at the transaction date and the statements of financial position are translated at the exchange rates at the reporting date. An average exchange rate for the month is used as the exchange rate at the transaction date to the extent that this does not significantly deviate from the exchange rate at the transaction date. Foreign exchange adjustments arising on translation of the opening balance of equity of foreign entities at the exchange rates at the reporting date and on translation of the income statements from the exchange rates at the transaction date to the exchange rates at the reporting date are recognised in other comprehensive income and presented in equity under a separate translation reserve. However, if the foreign entity is a non-wholly owned subsidiary, the relevant proportion of the translation difference is allocated to the non-controlling interest.
Foreign exchange adjustment of balances with foreign entities which are considered part of the investment in the entity is recognised in other comprehensive income and presented in equity under a separate translation reserve.
In preparing these consolidated financial statements, management made various judgements, estimates and assumptions concerning future events that affected the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses, the accompanying disclosures, and the disclosure of 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 developments into consideration, but still ensuring that one-off effects which are not expected to exist in the long term do not affect estimation and determination of these key factors, including discount rates and expectations of the future.
The following are the areas involving significant accounting estimates and judgements:
| Accounting item | Estimates | Judgements | Note |
|---|---|---|---|
| Deferred tax | X | 2.6 | |
| Acquisitions | X | 4.1 | |
| Disposal groups | X | 4.3 | |
| Intangible assets – the ISS brand | X | 4.5 | |
| Impairment tests | X | 4.6 | |
| Pensions and similar obligations | X | 7.2 | |
| Provisions | X | 7.3 | |
| Revenue – gross or net presentation | X | 2.1 | |
| Large contracts – revenue and costs | X | 2.1 | |
| Other income and expenses, net | X | 2.4 |
In this section, we provide information in relation to the Group's operating profit and tax to assist the reader in getting a deeper understanding of the Group's performance in 2016.
Group and regional performance for 2016 are described on p. 16 and pp. 20-23, respectively.
Revenue amounted to DKK 79,137 million and organic growth was 3.4%. Growth was supported by good performance in emerging markets and solid growth rates in all regions, despite notable negative organic growth in Australia and Brazil. Contract launches and strong demand for IFS, projects and non-portfolio work were the main drivers.
Operating profit before other items was DKK 4,566 million for an operating margin of 5.8%, up by 0.1%-point for the third consecutive year. The improvement was supported by GREAT, including procurement savings, efficiency gains, and from a regional perspective, good performances in Continental Europe and Asia & Pacific, including a one-off income related to pensions in Indonesia.
Additional details on revenue and operating profit by region as well as revenue by country and by service are provided in 2.1, Segment and revenue information.
ISS is exposed to a low level of currency risk on transaction level, since services are produced, delivered and invoiced in the same local currency as the functional currency of the entity delivering the services. With operations in 74 countries, we are however exposed to risk from translation of local currency financial statements into DKK. This is explained in 2.3, Translation and operational currency risk.
Other income and expenses, net was an expense of DKK 139 million and consisted of both recurring and non-recurring items, that the Group does not consider to be part of its ordinary operations. A break-down including commentary is included in 2.4, Other income and expenses, net.
The effective tax rate was 27.1%, impacted by significant non-taxable gains on divestments, largely related to the security activities in Finland. Adjusted for this, the effective tax rate was approximately 28.0%. Details on the composition of the Group's effective tax rate and deferred tax are provided in 2.5, Income taxes and 2.6, Deferred tax, respectively.
In this section, the following notes are presented:
79,137 DKKm (2015: 79,579 DKKm)
3.4% (2015: 4.4%) Organic growth 1)
1) Unaudited
4,566 DKKm (2015: 4,533 DKKm)
5.8% (2015: 5.7%) Operating margin
1) Before other items
| Organic growth1) |
Operating margin |
|
|---|---|---|
| Continental Europe | 3% | 6.1% |
| Northern Europe | 3% | 7.5% |
| Asia & Pacific | 2% | 7.5% |
| Americas | 6% | 4.2% |
1) Unaudited
139 DKKm (expense) (2015: 44 DKKm (income))
Related to GREAT restructuring projects, business platform adjustments in Brazil and net gain from divestments
27.1% (2015: 28.0%) Effective tax rate
ISS is a global facility services company, that operates in 74 countries and delivers a wide range of services within the areas cleaning, support, property, catering, security and facility management.
Operations are generally managed based on a geographical structure in which countries are grouped into regions. Following the changed organisational structure in 2015, the regional management structure has been adjusted from seven to four regions:
Comparative figures have been adjusted accordingly.
• Americas is a merger of the previous Latin and North America regions
The regions have been identified based on a key principle of grouping countries that share market conditions and cultures. However, countries with limited activities which are managed by the Global Corporate Clients organisation are excluded from the geographical segments and combined in a separate segment called "Other countries". An overview of the grouping of countries into regions is presented in 7.9, Group companies.
The segment reporting is prepared in a manner consistent with the Group's internal management and reporting structure. Disclosures relating to the income statement of the segments are presented in this note, whereas segment assets and liabilities are disclosed in 7.5, Other segment information together with reconciliation of segment information to the consolidated group amounts.
Transactions between reportable segments are made on market terms.
DKK million Continental Europe Northern Europe Asia & Pacific Americas Other countries Total segments 2016 Revenue 1) 30,095 26,515 14,606 7,885 104 79,205 Depreciation and amortisation 2) (275) (201) (120) (54) - (650) Operating profit before other items 1,823 1,982 1,098 328 (1) 5,230 Operating margin 3) 6.1% 7.5% 7.5% 4.2% (1.3)% 6.6% Other income and expenses, net (99) 51 11 (98) - (135) Goodwill impairment - (147) - (55) - (202) Amortisation/impairment of customer contracts (125) (278) (52) (186) (1) (642) Operating profit 1,599 1,608 1,057 (11) (2) 4,251 2015 Revenue 1) 29,955 27,256 14,582 7,770 113 79,676 Depreciation and amortisation 2) (283) (230) (133) (55) - (701) Operating profit before other items 1,750 2,056 1,043 323 (1) 5,171 Operating margin 3) 5.8% 7.5% 7.2% 4.2% (0.8)% 6.5% Other income and expenses, net 202 (42) (36) (35) - 89 Goodwill impairment (18) - - (77) - (95) Amortisation/impairment of customer contracts (291) (274) (55) (33) (1) (654) Operating profit 1,643 1,740 952 178 (2) 4,511
1) Including internal revenue which due to the nature of the business is insignificant and is therefore not disclosed.
2) Excluding Goodwill impairment and Amortisation/impairment of customer contracts.
3) Excluding Other income and expenses, net, Goodwill impairment and Amortisation/impairment of customer contracts.
| DKK million | 2016 | 2015 |
|---|---|---|
| UK & Ireland | 11,801 | 12,518 |
| Switzerland | 5,251 | 5,174 |
| France | 4,731 | 4,794 |
| USA & Canada | 4,680 | 4,161 |
| Spain & Portugal | 4,635 | 4,681 |
| Denmark (ISS A/S's country of domicile) | 3,500 | 3,116 |
| Other countries 1) | 44,539 | 45,135 |
| Total | 79,137 | 79,579 |
1) Including unallocated items and eliminations.
Revenue from rendering services is recognised in the income statement in proportion to the stage of completion of the transaction at the reporting date. Revenue is recognised when the recovery of the consideration is probable and when the amount of revenue, the stage of completion, the costs incurred for the transaction, and the costs to complete the transaction can be measured reliably.
The stage of completion of a contract is assessed by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.
Revenue is measured at fair value of the consideration received less VAT and duties as well as price and quantity discounts.
The accounting policies of the reportable segments are the same as the Group's accounting policies described throughout the notes. Segment revenue, costs, assets and liabilities comprise items that can be directly referred to the individual segments. Unallocated items mainly consist of revenue, costs, assets and liabilities relating to the Group's Corporate functions (including internal and external loans and borrowings, cash and cash equivalents and intra-group balances) as well as Financial income, Financial expenses and Income taxes.
For the purpose of segment reporting, segment profit has been identified as Operating profit. Segment assets and segment liabilities have been identified as Total assets and Total liabilities, respectively.
When presenting geographical information segment revenue and non-current assets are based on the geographical location of the individual subsidiary from which the sales transaction originates.
Gross or net presentation of revenue In some instances, ISS does not self-deliver all services under a contract, either because the service is outside our selected strategic services or because we do not have the capabilities ourselves. In those cases, ISS delivers services through selected partners or subcontractors. The issue is whether revenue should be presented gross, i.e. based on the gross amount billed to the customer (ISS is the principal) or based on the net amount retained (the amount billed to the customer less the amount paid to the subcontractor) because ISS has only earned a commission fee (ISS is the agent).
Management considers whether ISS is acting in the capacity of an agent or a principal. This is based on an evaluation of the risks and responsibilities borne by ISS, including responsibility for delivery of services and credit risk. Judgement is required when evaluating all relevant facts and circumstances.
The Group has entered into certain significant contracts with complex revenue and cost structures. Accounting for these contracts requires management's judgement in terms of recognition of the individual items of revenue and costs, including recognition in the correct periods over the term of the contract.
The Group received government grants in the form of wage subventions, which have been recognised in the income statement as a reduction of staff costs. The grants compensate the Group for staff costs primarily related to social security and wage increases as well as hiring certain categories of employees such as trainees, disabled persons, long-term unemployed and employees in certain age groups.
The Group is exposed to a low level of currency risk on transaction level, since the services are produced, delivered and invoiced in the same local currency as the functional currency in the entity delivering the services with minimal exposure from imported components. The Group is, however, exposed to risk in relation to translation into DKK of income statements and net assets of foreign subsidiaries, including intercompany items such as loans, royalties, management fees and interest payments between entities with different functional currencies, since a significant portion of the Group's revenue and operating profit is generated in foreign entities.
It is estimated that a change in foreign exchange rates of the Group's main currencies would have impacted revenue, operating profit before other items and other comprehensive income by the amounts shown below. As in 2015, the analysis is based on foreign exchange rate variances that the Group considered to be reasonably possible at the reporting date. It is assumed that all other variables, in particular interest rates, remain constant and any impact of forecasted sales and purchases is ignored.
| DKK million |
Change in foreign ex change rates |
Revenue | Operating profit before other items |
Net assets in foreign subsidiaries |
|---|---|---|---|---|
| 2016 | ||||
| GBP | 10% | 1,113 | 83 | 359 |
| CHF | 10% | 525 | 45 | 100 |
| USD | 10% | 455 | 18 | 97 |
| NOK | 10% | 390 | 32 | 49 |
| AUD | 10% | 367 | 22 | 109 |
| SEK | 10% | 352 | 24 | 163 |
| TRY | 10% | 278 | 20 | 45 |
| EUR | 1% | 235 | 14 | 90 |
| Other | 10% | 1,732 | 110 | 514 |
| Total | - | 5,447 | 368 | 1,526 |
| 2015 | ||||
| GBP | 10% | 1,190 | 88 | 408 |
| CHF | 10% | 517 | 44 | 106 |
| USD | 10% | 404 | 17 | 103 |
| NOK | 10% | 394 | 33 | 50 |
| AUD | 10% | 422 | 25 | 106 |
| SEK | 10% | 371 | 29 | 176 |
| TRY | 10% | 279 | 22 | 51 |
| EUR | 1% | 235 | 13 | 86 |
| Other | 10% | 1,717 | 103 | 521 |
| Total | - | 5,529 | 374 | 1,607 |
| 31 % EUR | 7 % NOK | 4 % TRY | |
|---|---|---|---|
| 2016 | 18 % GBP | 5 % SEK | 4 % USD |
| 10 % CHF | 5 % AUD | 16 % Other | |
| % of Group operating prot before other items |
In 2016, the currencies in which the Group's revenue was denominated decreased with an weighted average of 3.5% (2015: increased with 4.2%) relative to DKK, decreasing the Group's revenue by DKK 2,585 million (2015: an increase of DKK 3,017 million). Currency movements decreased the Group's operating profit before other items by DKK 183 million (2015: an increase of DKK 195 million). The effect of the translation of net assets in foreign subsidiaries decreased other comprehensive income by DKK 596 million (2015: an increase of DKK 546 million).
| Functional currency |
Change in average FX rate 2015 to 2016 |
Change in average FX rate 2014 to 2015 |
|---|---|---|
| GBP | (11.5)% | 11.2 % |
| CHF | (2.3)% | 13.9 % |
| AUD | (0.9)% | (0.3) % |
| USD | 0.1 % | 19.7 % |
| NOK | (3.9)% | (6.6) % |
| EUR | (0.2)% | 0.1 % |
| TRY | (9.9)% | (3.5) % |
| SEK | (1.4)% | (2.7) % |
| DKK million | 2016 | 2015 |
|---|---|---|
| Gain on divestments | 140 | 351 |
| Other | - | 12 |
| Other income | 140 | 363 |
| Restructuring projects | (140) | (170) |
| Loss on divestments | (101) | (38) |
| Acquisition and integration costs | (12) | (22) |
| Senior management changes | - | (44) |
| Other | (26) | (45) |
| Other expenses | (279) | (319) |
| Other income and expenses, net | (139) | 44 |
Gain on divestments mainly related to the sale of the security activities in Finland. In 2015, the gain mainly related to the sale of the call centre activities (CMC) in Turkey as well as minor activities and adjustments to prior years' divestments.
Restructuring projects mainly related to the implementation of GREAT under which the review of the customer segmentation and organisational structure has led to structural adjustments in a number of countries. Initiation of structural adjustments of the business platform in Brazil also contributed. This was partly offset by reassessment of previously recognised exceptional provisions for impairment losses on receivables. In general, the costs primarily comprised redundancy payments, termination of leaseholds and relocation costs as well as contract termination costs and related labour claim costs in Brazil. In 2016, costs mainly related to Argentina, Belgium, Brazil, China, Denmark, the Netherlands, Spain & Portugal and the USA. In 2015, costs related to Belgium, Brazil, Denmark, Germany, Spain and the USA as well as at Group level.
Loss on divestments comprised adjustments to prior years' divestments, most significantly the landscaping business in France, the route-based special cleaning services in the Netherlands and the security activities in Greece. Furthermore, remeasurement of one business classified as held for sale in Northern Europe and the divestment of the Group's activities in Greenland resulted in additional losses. In 2015, the loss mainly related to the sale of the route-based special cleaning services in the Netherlands, the temporary labour and staffing activities in Portugal and adjustments to prior years' divestments.
Acquisition and integration costs mainly related to Apunto in Chile and GS Hall plc in the UK and comprised financial and legal fees to advisors as well as costs incurred to integrate the acquired businesses.
Senior management changes in 2015 related to redundancy payments to members of the EGM as a result of the new, delayered and strengthened Group organisational structure as per September 2015.
Other income and expenses, net consists of significant recurring and non-recurring income and expenses that management does not consider to be part of the Group's ordinary operations, primarily major restructuring projects and gains and losses on divestments. Classification as other expenses is subject to management's review and approval.
Restructuring projects include cost reductions to make ISS more efficient going forward. The types of costs qualifying for treatment as restructuring are costs that are considered of no value to the continuing business and that do not form part of the normal ordinary operations. Whether a restructuring project qualifies for classification as other expenses is evaluated by management from case to case based on a restructuring request. The request includes a detailed project description and cost type specification.
| DKK million | 2016 | 2015 |
|---|---|---|
| Current tax | 896 | 976 |
| Deferred tax | 159 | 88 |
| Adjustments relating to prior years, net | 13 | 19 |
| Income taxes (adjusted) | 1,068 | 1,083 |
| Income taxes (acquistion-related) | (191) | (182) |
| In % | 2016 | 2015 |
|---|---|---|
| Statutory income tax rate in Denmark | 22.0 % | 23.5 % |
| Foreign tax rate differential, net | 0.9 % | (0.4)% |
| Total | 22.9 % | 23.1 % |
| Non-tax deductible expenses less non-taxable | ||
| income | (0.0)% | (0.2)% |
| Adjustments relating to prior years, net | 0.3 % | 0.5 % |
| Change in valuation of net tax assets | 1.3 % | 2.0 % |
| Effect of changes in tax rates | 0.2 % | (0.1)% |
| Other taxes | 2.4 % | 2.7 % |
| Effective tax rate (profit before tax (adjusted)) | 27.1 % | 28.0 % |
Non-tax deductible expenses less non-taxable income comprise various income and expenses, including the impact from interest limitation tax rules and the French tax credit CICE. 2016 was positively impacted by a non-taxable gain on the divestment of the security activities in Finland and 2015 was positively impacted by a non-taxable gain on the divestment of the call centre activities (CMC) in Turkey.
Other taxes mainly comprise withholding tax and the French Cortisation sur La Valeur Ajoutee des Entreprises (CVAE).
| DKK million | 2016 | 2015 |
|---|---|---|
| Deferred tax liabilities, net at 1 January | 544 | 660 |
| Adjustments relating to prior years, net | 32 | - |
| Foreign exchange adjustments | (11) | (4) |
| Acquisitions and divestments, net | (5) | 29 |
| Tax on other comprehensive income | (22) | (62) |
| Reclassification to Assets/(Liabilities) classified as held for sale |
16 | 15 |
| Tax on profit before tax (adjusted) | 159 | 88 |
| Tax effect of amortisation/impairment of | ||
| acquisition-related intangibles | (191) | (182) |
| Deferred tax liabilities, net at 31 December | 522 | 544 |
| DKK million | 2016 | 2015 |
|---|---|---|
| Tax losses carried forward | 494 | 496 |
| Goodwill | 8 | 12 |
| Customer contracts | 29 | 5 |
| Property, plant and equipment | 63 | 68 |
| Provisions and other liabilities | 285 | 378 |
| Pensions | 298 | 292 |
| Set-off within legal tax units and jurisdictions | (316) | (320) |
| Deferred tax assets | 861 | 931 |
| DKK million | 2016 | 2015 |
|---|---|---|
| Goodwill Brands |
421 350 |
404 350 |
| Customer contracts | 315 | 464 |
| Property, plant and equipment | 121 | 104 |
| Provisions and other liabilities | 469 | 450 |
| Tax losses in foreign subsidiaries under Danish joint taxation |
23 | 23 |
| Set-off within legal tax units and jurisdictions | (316) | (320) |
| Deferred tax liabilities | 1,383 | 1,475 |
At 31 December 2016, the Group had unrecognised deferred tax assets which comprised tax losses carried forward and other deductible temporary differences of DKK 1,008 million (2015: DKK 993 million) primarily relating to France, Germany, Brazil, Israel and Argentina.
Unrecognised tax losses can be carried forward indefinitely in the individual countries, except for Argentina (5 years). Deferred tax assets have not been recognised in respect of the above tax losses as it is not deemed probable that future taxable profit will be available in the foreseeable future against which the Group can utilise these.
Tax losses carried forward Pensions Provisions and other liabilities Other
Customer contracts Provisions and other liabilities
Deferred tax assets The Group recognises deferred tax assets relating to tax losses carried forward, when management assesses that these tax assets can be offset against positive taxable income in the foreseeable future. The assessment is made at the reporting date and is based on relevant information, taking into account any impact from limitation in interest deductibility and restrictions in utilisation of tax losses in local tax legislation. The assessment of future taxable income is based on financial budgets approved by management as well as management's expectations regarding the operational development, primarily in terms of organic growth and operating margin in the following 5 years. Furthermore, planned adjustments to capital structure in each country are taken into consideration.
Uncertain tax positions As part of operating a global business, disputes with tax authorities around the world may occur. Management judgement is applied to estimate the possible outcome of such disputes. Provisions for uncertain tax positions are measured based on management's best estimate (more likely than not) of the amount required to settle the obligation. Management believes that the provisions made for such disputes are adequate. However, the actual obligations may deviate, as they depend on the result of litigations and settlements with the relevant tax authorities.
Income tax for the year consists of current tax and changes in deferred tax and is recognised in the income statement or other comprehensive income. Income tax effect of amortisation/impairment of acquisition-related intangibles is presented in a separate column in connection with these items.
Tax receivables and payables is recognised in the statement of financial position as tax computed on the taxable income for the year, adjusted for tax on the taxable income for previous years and for tax paid on account.
Deferred tax is measured in accordance with the liability method and comprises all temporary differences between accounting and tax values of assets and liabilities. Deferred tax is adjusted for elimination of unrealised intra-group profits and losses. Deferred tax is not recognised on temporary differences relating to goodwill which is not deductible for tax purposes and on office premises and other items where temporary differences, apart from in business combinations, arose at the time of acquisition without affecting either profit for the year or taxable income. Where alternative taxation rules can be applied to determine the tax base, deferred tax is measured according to management's intended use of the asset or settlement of the liability. 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. Change in deferred tax as a result of changes in tax rates is recognised in the income statement.
Deferred tax assets, including the tax base of tax losses carried forward, are recognised under non-current assets at the expected value of their utilisation: either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction. Deferred tax assets are assessed yearly and only recognised to the extent that it is more likely than not that they can be utilised in the foreseeable future.
Deferred tax assets and liabilities are offset if the Group has a legal right to offset current tax assets and tax liabilities or intends to settle current tax assets and tax liabilities on a net basis or to realise the assets and settle the liabilities simultaneously.
Uncertain tax positions Ongoing tax disputes are measured at the amount estimated to be required to settle the obligation (more likely than not). The liability is recognised under deferred tax.
Ensuring a strong cash flow performance, and in particular managing working capital, is a key priority at ISS. Our approach to managing working capital is structured and well proven through continuous delivery of steady cash flows reflected in our consistently high cash conversion over the last decade.
As a result of the continued working capital focus across the Group, the cash conversion for 2016 was 98%. The strong cash flow performance reflects our efforts to ensure timely payment for work performed and focus on strong working capital processes.
The approach to improving capital efficiency consists primarily of the following tools:
In this section:
In general, we assess the Group's overall exposure to credit risk as low. The Group's customer portfolio is diversified in terms of geography, industry sector and customer size. The Group is not exposed to credit risk related to significant individual customers. In some geographies, mainly southern Europe and Latin America, in recent years the general credit risk has increased for certain specific groups of customers. However, amounts written off as uncollectible have remained at a relatively low level, which was also the case in 2016, where amounts written off was 0.3% of gross trade receivables (2015: 0.2%).
Exposure to credit risk on trade receivables is managed locally in the operating entities and credit limits are set as deemed appropriate for the customer taking into account the customer's financial position and the current market conditions. Generally, the Group does not hold collateral as security for trade receivables.
The maximum credit risk exposure at the reporting date by reportable segments is shown to the right.
11,307 DKKm (2015: 10,770 DKKm)
23% of total assets
| DKK million | Gross | Impairment | Carrying amount |
|---|---|---|---|
| 2016 | |||
| Not past due | 9,130 | - | 9,130 |
| Past due 1 to 60 days | 1,690 | (2) | 1,688 |
| Past due 61 to 180 days | 358 | (14) | 344 |
| Past due 181 to 360 days | 114 | (28) | 86 |
| More than 360 days | 256 | (197) | 59 |
| Total | 11,548 | (241) | 11,307 |
| 2015 | |||
| Not past due | 8,817 | - | 8,817 |
| Past due 1 to 60 days | 1,484 | (8) | 1,476 |
| Past due 61 to 180 days | 347 | (8) | 339 |
| Past due 181 to 360 days | 124 | (25) | 99 |
| More than 360 days | 256 | (217) | 39 |
| Total | 11,028 | (258) | 10,770 |
| DKK million | 2016 | 2015 |
|---|---|---|
| Impairment losses at 1 January | (258) | (244) |
| Acquisitions | (2) | (11) |
| Impairment losses recognised | (71) | (48) |
| Impairment losses reversed | 44 | 34 |
| Amounts written off | 32 | 21 |
| Reclassification from Provisions | - | (14) |
| Reclassification to Assets classified as held for sale | 14 | 4 |
| Impairment losses at 31 December | (241) | (258) |
Trade receivables are recognised initially at fair value and subsequently at amortised cost, less any impairment losses.
Impairment losses are recognised when objective evidence indicates that an individual receivable or a portfolio of receivables with similar risk characteristics is impaired. This is based on an individual review for impairment due to customer insolvency, past due amounts and mathematically computed impairment losses based on classification of debtors, maturity and historical information.
Impairment losses, both individual and collective, are recognised in a separate account unless the Group is satisfied that no recovery of the amount owing is possible; at that point the amount is considered irrecoverable and is written off against the receivable directly.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income statement.
| DKK million | 2016 | 2015 |
|---|---|---|
| Prepayments | 974 | 909 |
| Currency swaps | 30 | 9 |
| Other | 988 | 759 |
| Other receivables | 1,992 | 1,677 |
Prepayments comprise mainly prepayments to suppliers and sign-on fees related to customer contracts.
Other comprise various receivables such as supplier rebates and bonuses, refunds from customers and other recoverable amounts, receivable sales price from divestments, contract work in progress, outlay for customers, VAT, etc.
Other receivables are recognised initially at cost and subsequently at amortised cost. Prepayments are measured at cost. Costs relating to sales work and securing contracts are recognised in the income statement as incurred.
| DKK million | 2016 | 2015 |
|---|---|---|
| Accrued wages, pensions and holiday allowances | 4,455 | 4,504 |
| Tax withholdings, VAT etc. | 2,747 | 2,802 |
| Prepayments from customers | 434 | 547 |
| Other | 3,591 | 3,382 |
| Other liabilities | 11,227 | 11,235 |
Other comprise accrued supplier expenses, utilities such as rent, telephone, electricity etc., contingent consideration and deferred payments, accrued interests, fees to advisors and auditors, customer discounts and insurance, etc.
| DKK million | 2016 | 2015 |
|---|---|---|
| Changes in inventories Changes in receivables |
(3) (1,113) |
(7) (524) |
| Changes in payables | 1,002 | 497 |
| Changes in working capital | (114) | (34) |
Changes in receivables The negative development compared to 2015 is mainly related to invoicing of non-portfolio services in the UK, delays in invoicing in Norway and timing differences in the USA.
Changes in payables The positive development compared to 2015 is mainly related to accrued supplier invoices related to a large IFS project in the USA, wage increases in Turkey and timing differences in the Netherlands.
Our asset base is the result of our acquisition strategy in previous years to build our geographical and service platform. A significant number of businesses were acquired and added substantial amounts of acquisition-related intangibles, including ISS World Services A/S in May 2005 when ISS was taken private. Consequently the Group continues to be exposed to possible impairment losses, both following annual impairment tests and divestments. In 2016, impairment losses on goodwill of DKK 202 million were recognised in connection with divestment of businesses, mainly related to the USA, Ireland and Greenland. The impairment test at 31 December 2016 did not result in impairment losses on goodwill.
In 2016, we continued our selective acquisition strategy aimed at enhancing our core competences and increasing self-delivery capabilities. In November, we acquired Apunto in Chile, a leading catering company. The acquisition supports our strategic aim of strengthening our catering capabilities in the Americas region. Furthermore, in the first two months of 2017 we acquired Evantec in Germany, expanding our competences within technical and building services, and SIGNAL, a Danish-based workplace management consulting firm, enabling us to enhance our strategically important IFS offering.
We also continued to review the strategic rationale and fit of business units in 2016. As a result, we divested five non-core businesses of which the security activities in Finland were the most significant. Furthermore, as per 31 December 2016, three businesses were classified as held for sale as sales processes had been initiated.
In support of our continued strategic alignment, we will continue to review our business platform to identify potential divestments as well as capability enhancing acquisitions.
In this section:
26,361 DKKm (2015: 27,242 DKKm)
54% of total assets
202 DKKm (2015: 95 DKKm) Goodwill impairment
1 acquisition strengthening catering capabilities in the Americas region
116 DKKm of annual revenue acquired
5 divestments within non-core activities
684 DKKm of annual revenue divested
1,520 DKKm (2015: 1,539 DKKm) of assets held for sale
426 DKKm (2015: 444 DKKm) of liabilities held for sale
On 28 October 2016, ISS acquired 100% of the shares in Apunto, a leading catering company in Chile. The annual revenue is estimated at DKK 116 million (unaudited financial information) based on expectations at the time of the acquisition. In 2016, Apunto contributed revenue of DKK 24 million and operating profit before other items of DKK 1.3 million. Number of employees taken over was approximately 700.
Acquisition-related costs of DKK 3 million have been included in Other income and expenses, net.
The acquisition supports our strategy by strengthening our catering capabilities in the Americas region. Thus, goodwill added on acquisition is attributable mainly to: 1) catering expertise, 2) synergies mainly by enhancing self-delivery possibilities, 3) platform for growth primarily within IFS, and 4) assembled work force.
Based on the provisionally determined fair values of net assets, goodwill amounted to DKK 41 million. Goodwill is not expected to be deductible for income tax purposes.
| DKK million | 2016 | 2015 |
|---|---|---|
| Customer contracts | 19 | 250 |
| Other non-current assets | 2 | 52 |
| Trade receivables | 25 | 183 |
| Other current assets | 8 | 78 |
| Loans and borrowings | (0) | (104) |
| Other non-current liabilities | (5) | (54) |
| Other current liabilities | (30) | (320) |
| Fair value of net assets acquired | 19 | 85 |
| Goodwill | 43 | 452 |
| Consideration transferred | 62 | 537 |
| Cash and cash equivalents in acquired businesses | (5) | (17) |
| Cash consideration transferred | 57 | 520 |
| Contingent and deferred consideration | 17 | (74) |
| Prepaid acquisitions (Evantec, Germany) | 81 | - |
| Acquisition of businesses (cash flow) | 155 | 446 |
On 1 January 2017, we completed the acquisition of Evantec, a technical and building services company in Germany, with an annual revenue of approximately DKK 352 million (unaudited) and about 800 employees.
On 3 February 2017, we completed the acquisition of SIGNAL, a Danishbased workplace management consulting firm, with an annual revenue of approximately DKK 30 million (unaudited) and 30 employees.
The Group completed no further acquisitions in the period 1 January to 15 February 2017.
In accordance with usual Group procedures, acquisition balances are prepared in the first months following the acquisition. Consequently, final acquisition balances are not available for acquisitions completed subsequent to 31 December 2016.
The most significant assets acquired generally comprise goodwill, customer contracts and trade receivables. As no active market exists for the majority of acquired assets, liabilities and contingent liabilities, in particular in respect of intangible assets, management estimates the fair value. The methods applied are based on the present value of future cash flows calculated based on after-tax royalty payments, churn rates or other expected cash flows related to the specific asset. Estimates of fair value are associated with uncertainty and may be adjusted subsequently.
The fair value of customer contracts acquired is based on an evaluation of the conditions relating to the customer contract portfolio and related customer relationships. Measurement is based on a discounted cash flow model based on key assumptions about the estimated split of the acquired revenue in business segments and the related churn rates and profitability of the revenue at the time of the acquisition. Further, management estimates the Weighted Average Cost of Capital (WACC) and a risk premium for the assumed risk inherent in customer contracts.
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 measued at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, 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 included in Other income and expenses, net.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date.
If uncertainties exist at the acquisition date regarding identification or measurement of identifiable assets, liabilities and contingent liabilities or regarding the consideration transferred, initial recognition will take place on the basis of provisionally determined fair values. If identifiable assets, liabilities and contingent liabilities are subsequently determined to have a different fair value at the acquisition date from that first assumed, goodwill is adjusted up until 12 months after the acquisition date and comparative figures are restated accordingly. Thereafter no adjustments are made to goodwill, and changes in estimates of contingent consideration relating to business combinations are recognised under Other income and expenses, net.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all assets acquired and all liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, the gain is recognised in the income statement. (CONTINUES)
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Written put options held by non-controlling shareholders are accounted for in accordance with the anticipated acquisition method, i.e. as if the put option has been exercised already. Such options are recognised as Other
liabilities initially at fair value. Fair value is measured at the present value of the exercise price of the option.
Subsequent fair value adjustments of put options held by non-controlling interests relating to business combinations effected on or after 1 January 2010 are recognised directly in equity. Subsequent fair value adjustments of put options held by non-controlling interests related to business combinations effected prior to 1 January 2010 are recognised in goodwill. The effect of unwind of discount is recognised under Financial expenses.
The Group completed five divestments in 2016 (2015: six divestments):
| Company/activity | Country | Service type | Excluded from the income statement |
Percentage interest |
Annual revenue 1) (DKK million) |
Number of employees 1) |
|---|---|---|---|---|---|---|
| ISS Greenland | Denmark | Country exit | May | 100% | 87 | 266 |
| Pest control | Czech Republic and Slovakia | Property | August | Activities | 5 | 11 |
| Grounds control | USA | Landscaping | January 2017 | Activities | 80 | 228 |
| Archiving | Norway | Support services | January 2017 | Activities | 4 | 3 |
| Security | Finland | Security services | January 2017 | 100% | 508 | 1,427 |
| Total | 684 | 1,935 |
1) Unaudited financial information.
| DKK million | 2016 | 2015 |
|---|---|---|
| Goodwill | 64 | 101 |
| Customer contracts | 15 | 8 |
| Other non-current assets | 74 | 88 |
| Current assets | 94 | 121 |
| Loans and borrowings | (4) | (55) |
| Other non-current liabilities | (10) | (33) |
| Other current liabilities | (121) | (68) |
| Fair value of net assets disposed | 112 | 162 |
| Gain/(loss) on divestment of businesses, net | 61 | 313 |
| Divestment costs, net of tax | 80 | 87 |
| Consideration received | 253 | 562 |
| Cash and cash equivalents in divested businesses | (4) | (18) |
| Cash consideration received | 249 | 544 |
| Contingent and deferred consideration | 49 | 26 |
| Divestment costs paid, net of tax | (111) | (93) |
| Divestment of businesses (cash flow) | 187 | 477 |
On 10 January 2017, we completed the divestment of ISS Kloak- & Industriservice, the Danish sewage and industrial services business, with an annual revenue of approximately DKK 208 million (unaudited) and 164 employees.
The Group completed no further divestments in the period 1 January to 15 February 2017.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.
At 31 December 2015, assets classified as held for sale comprised three businesses in the Continental Europe and Northern Europe regions. In 2016, one of these, the security business in Finland, was divested. The divestment resulted in a gain of DKK 136 million, which was recognised in Other income and expenses, net. Sales processes are still ongoing for the other two businesses. In 2016, a reassessment of the fair value of one of the businesses resulted in an impairment loss of DKK 121 million being recognised in Other income and expenses, net with DKK 27 million, in Goodwill impairment with DKK 83 million, in Amortisation/impairment of customer contracts with DKK 13 million and in Income taxes with DKK (2) million.
Additionally in 2016, the continued evaluation of our activities has led to sales process initiation for one additional business in the Asia & Pacific region, and this business was classified as held for sale. The reclassification did not result in any impairment losses. Consequently, at 31 December 2016, assets classified as held for sale comprised three businesses in the Continental Europe, the Northern Europe and the Asia & Pacific regions.
In 2016 and 2015, no cumulative income or expenses were recognised in other comprehensive income related to assets classified as held for sale.
| DKK million | 2016 | 2015 |
|---|---|---|
| Goodwill Other non-current assets Other current assets |
759 286 475 |
840 329 370 |
| Assets classified as held for sale | 1,520 | 1,539 |
| Other non-current liabilities Other current liabilities |
101 325 |
81 363 |
| Liabilities classified as held for sale | 426 | 444 |
Assets classified as held for sale comprise non-current assets and disposal groups held for sale. Liabilities classified as held for sale are those directly associated with the assets that will be transferred in the transaction. Assets are classified as held for sale when the carrying amount of the assets is expected to primarily be recovered through a sale within 12 months of the reporting date in accordance with a formal plan rather than through continuing use.
Immediately before classification as held for sale, the assets or disposal groups are remeasured in accordance with the Group's accounting policies. Thereafter, the assets or disposal groups are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is first allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets or employee benefit assets, which continue to be measured in accordance with the Group's accounting policies. Intangible assets and property, plant and equipment once classified as held for sale are not amortised or depreciated.
Impairment losses on initial classification as held for sale, and subsequent gains and losses on remeasurement are recognised in the income statement and disclosed in the notes
Non-current assets and disposal groups held for sale are presented in separate lines in the statement of financial position and the main elements are specified in the notes. Comparative figures are not adjusted.
When classifying non-current assets and disposal groups as held for sale management makes estimates of their fair value (the final sales price and expected costs to sell). Depending on the nature of the non-current assets and disposal group's activity, assets and liabilities, the estimated fair value may be associated with different levels of uncertainty and possibly adjusted subsequently. Measurement of the fair value of disposal groups is categorised as Level 3 in the fair value hierarchy as measurement is not based on observable market data.
Management considers intangible assets relating to the disposal groups, taking into consideration how to separate the net assets (including intangible assets) relating to the disposal group from the Group's assets in the continuing business. Impairment of these iintangibles, both on initial classification as held for sale and subsequently, is considered. The estimation uncertainty relating to impairment of intangibles in general is described in 4.6, Impairment tests.
Assuming all acquisitions and divestments in the year were included/excluded as of 1 January, the effect on revenue and operating profit before other items is estimated as follows:
| DKK million | 2016 | 2015 |
|---|---|---|
| Revenue recognised in the income statement Acquisitions |
79,137 95 |
79,579 65 |
| Divestments | (624) | (435) |
| Pro forma revenue | 78,608 | 79,209 |
| Operating profit before other items recognised in the income statement Acquisitions |
4,566 5 |
4,533 6 |
| Divestments | (53) | (54) |
| Pro forma operating profit before other items | 4,518 | 4,485 |
For the purpose of estimating pro forma revenue and operating profit before other items, adjustments relating to acquisitions and divestments are based on estimates made by local ISS management in the respective jurisdictions in which the acquisitions and divestments occurred at the time of acquisition and divestment, or actual results where available. Synergies from acquisitions are not included for periods in which the acquisitions were not controlled by the Group. The estimates are based on unaudited financial information.
These adjustments and the computation of total revenue and operating profit before other items on a pro forma basis are presented for informational purposes only. This information does not represent the results the Group would have achieved had the divestments during the year occurred on 1 January. In addition, the information should not be used as the basis for or prediction of any annualised calculation.
| DKK million | Goodwill | Brands | Customer contracts |
Software and other intangible assets |
Total |
|---|---|---|---|---|---|
| 2016 | |||||
| Cost at 1 January | 26,074 | 1,615 | 9,977 | 1,542 | 39,208 |
| Foreign exchange adjustments | (357) | - | (143) | (3) | (503) |
| Acquisitions | 43 | - | 19 | 0 | 62 |
| Additions | - | - | - | 487 | 487 |
| Divestments | (82) | - | (16) | (27) | (125) |
| Disposals | - | - | - | (68) | (68) |
| Reclassification from/(to) Property, plant and equipment | - | - | - | (73) | (73) |
| Reclassification to Assets classified as held for sale | (74) | - | (23) | (1) | (98) |
| Cost at 31 December | 25,604 | 1,615 | 9,814 | 1,857 | 38,890 |
| Amortisation and impairment losses at 1 January | (3,206) | (26) | (7,746) | (988) | (11,966) |
| Foreign exchange adjustments | (3) | - | 77 | 2 | 76 |
| Amortisation | - | - | (627) | (151) | (778) |
| Impairment losses | (202) | - | (15) | - | (217) |
| Divestments | 82 | - | 16 | 14 | 112 |
| Disposals | - | - | - | 64 | 64 |
| Reclassification (from)/to Property, plant and equipment | - | - | - | 66 | 66 |
| Reclassification to Assets classified as held for sale | 79 | - | 34 | 1 | 114 |
| Amortisation and impairment losses at 31 December | (3,250) | (26) | (8,261) | (992) | (12,529) |
| Carrying amount at 31 December | 22,354 | 1,589 | 1,553 | 865 | 26,361 |
Additions on software and other intangible assets was impacted by licenses related to the commercial agreement with IBM to use technology for workforce optimisation and managing services in customer buildings. At 31 December 2016, the carrying amount was DKK 210 million and was classified as assets under finance leases.
Impairment losses on goodwill related to divestments, see 4.7, Goodwill impairment. In relation to customer contracts, impairment losses related to divestment of the Group's activities in Greenland and non-core activities in the Czech Republic as well as remeasurement of non-core activities classified as held for sale.
The carrying amount of brands is related to the ISS brand, which is considered to have an indefinite useful life since there is no foreseeable limit to the period over which the brand is expected to generate net cash inflows. Factors that played a significant role in determining that the ISS brand has an indefinite useful life are: i) the ISS brand has existed for decades, ii) the Group's strategy is based on the ISS brand, iii) all acquired brands are converted to or co-branded with the ISS brand and iv) the ISS brand is used in the business-to-business and public segments with low maintenance costs attached.
| Customer | Software and other intangible |
||||
|---|---|---|---|---|---|
| DKK million | Goodwill | Brands | contracts | assets | Total |
| 2015 | |||||
| Cost at 1 January | 25,962 | 1,615 | 9,829 | 1,387 | 38,793 |
| Foreign exchange adjustments | 454 | - | 198 | 4 | 656 |
| Acquisitions | 452 | - | 250 | 5 | 707 |
| Additions | - | - | - | 212 | 212 |
| Divestments | (60) | - | (18) | (7) | (85) |
| Disposals | - | - | - | (51) | (51) |
| Reclassification from/(to) Property, plant and equipment | - | - | - | 8 | 8 |
| Reclassification to Assets classified as held for sale | (734) | - | (282) | (16) | (1,032) |
| Cost at 31 December | 26,074 | 1,615 | 9,977 | 1,542 | 39,208 |
| Amortisation and impairment losses at 1 January | (3,166) | (26) | (7,255) | (881) | (11,328) |
| Foreign exchange adjustments | 4 | - | (136) | 0 | (132) |
| Amortisation | - | - | (650) | (159) | (809) |
| Impairment losses | (95) | - | (4) | - | (99) |
| Divestments | 18 | - | 17 | 0 | 35 |
| Disposals | - | - | - | 41 | 41 |
| Reclassification to Assets classified as held for sale | 33 | - | 282 | 11 | 326 |
| Amortisation and impairment losses at 31 December | (3,206) | (26) | (7,746) | (988) | (11,966) |
| Carrying amount at 31 December | 22,868 | 1,589 | 2,231 | 554 | 27,242 |
Impairment losses on goodwill related to impairment test and divestments, see 4.7, Goodwill impairment. In relation to customer contracts, impairment losses related to divestments of non-core activities in Belgium and Portugal.
Goodwill is initially recognised at cost and subsequently at cost less accumulated impairment losses. Goodwill is not amortised. Goodwill is attributable mainly to assembled workforce, technical expertise and technological knowhow.
Acquisition-related brands are recognised at fair value at the acquisition date. Subsequently, acquired brands with indefinite useful lives are measured at historical cost less any accumulated impairment losses. Brands are not amortised.
Acquisition-related customer contracts are recognised at fair value at the acquisition date and subsequently carried at cost less accumulated amortisation and any accumulated impairment losses. The value is amortised using the straight-line method based on the estimated useful life of the acquired portfolio which is estimated to range between 11 and 15 years.
Software and other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.
The cost of software developed for internal use includes external costs to consultants and software as well as internal direct and indirect costs related to the development. Other development costs for which it cannot be rendered probable that future economic benefits will flow to the Group are recognised in the income statement as and when incurred.
Amortisation is based on the cost of the asset and recognised in the income statement on a straight-line basis over the estimated useful lives of the assets, which are estimated to 5-10 years.
Amortisation methods and useful lives are reassessed at each reporting date and adjusted if appropriate. When changing the amortisation period due to a change in the useful life, the effect on the amortisation is recognised prospectively as a change in accounting estimates.
Please refer to 4.6, Impairment tests, for a description of impairment testing of intangible assets.
The impairment test as per 31 December 2016 did not result in the recognition of any impairment losses on goodwill.
Impairment tests are generally carried out per country as this represents the lowest level of cash-generating units (CGUs) to which the carrying amount of intangibles, i.e. goodwill and customer contracts, can be allocated and monitored with any reasonable certainty. This level of allocation and monitoring of intangibles should be seen in the light of the Group's strategy to integrate acquired companies as quickly as possible in order to benefit from synergies. Management of certain countries has been combined to take advantage of similarities in terms of markets, shared customers and cost synergies. In such cases, the countries are regarded as one CGU when performing the impairment tests.
The recoverable amount of each CGU is determined on the basis of its value-in-use. The value-in-use is established using certain key assumptions as described below. The key assumptions are revenue growth, operating margin and discount rates.
Value-in-use cash flow projections are based on financial budgets approved by management covering the following financial year. Revenue growth and operating margin assumptions applied in the short to medium term (forecasting period) are based on management's expectations regarding the growth and operational development considering all relevant factors including past experience and external sources of information where possible and relevant.
When estimating the CGUs' margin development in the forecasting period, past experience and the impact from expected efficiency improvements are taken into consideration. Since 2013, we have accelerated our strategy implementation through GREAT, which among other things include customer segmentation, organisational structure, IFS readiness and excellence projects, e.g. our procurement programme and business process outsourcing (BPO). The expected impact of these initiatives are taken into consideration for the relevant CGUs.
Revenue growth projections in the forecasting period for the individual CGUs' are estimated on the basis of expected market development including IFS readiness, impact from Global Corporate Clients' contracts and the macroeconomic environment in general. Past experience is taken into consideration as well as the expected impact from local and Group initiatives, such as GREAT, where especially initiatives on customer segmentation, organisational structure and IFS readiness are assumed to affect growth opportunities.
Terminal growth rates do not exceed the expected long-term average growth rate including inflation for the country in which the CGU operates.
The country specific discount rates, which are calculated net of tax, are generally based on 10-year government bonds of the individual countries. An interest premium is added to adjust for the inconsistency of applying government bonds with a short-term maturity when discounting the estimated future cash flows with infinite maturity.
A target ratio of 25/75 (2015: 25/75) between the market value of debt and equity value has been applied in the calculation. As a company based in Europe, the Group assumes the long-term market equity risk premium to be 6.5% (2015: 6.5%).
Uncertainties reflecting past performance and possible variations in the amount or timing of the projected cash flows are generally reflected in the discount rates. Consequently, a country specific risk premium is added to the discount rates to reflect the specific risk associated with each CGU.
1) Goodwill and customer contracts
2) Internal assessment of the likelihood of incurring a material impairment loss taking into account various factors, including the excess value of value-in-use over the net assets of the CGU.
In performing the impairment test management assesses whether the CGU to which the intangibles relate will be able to generate positive net cash flows sufficient to support the value of intangibles and other net assets of the entity.
This assessment is based on estimates of expected future cash flows (value-in-use) made on the basis of financial budgets for the following financial year and estimated discount rates, growth and margin development. The procedure is described in detail in "Estimates used to measure recoverable amount". In recent years, volatility in risk free interest rates has increased, which generally has increased the estimation uncertainty.
Intangible assets with an indefinite useful life, i.e. goodwill and the ISS brand, are subject to impairment testing at least annually or when circumstances indicate that the carrying amount may be impaired. The carrying amount of other non-current assets is tested annually for indications of impairment.
If an indication of impairment exists, the recoverable amount of the asset is determined. The recoverable amount is the higher of the fair value of the asset less anticipated costs of disposal and its value-inuse. 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.
The carrying amount of goodwill is tested for impairment together with the other non-current assets in the CGU to which goodwill is allocated. Management believes that the value of the ISS brand supports the ISS Group in its entirety rather than any individual CGU. Accordingly, the ISS brand is tested for impairment at Group level. The impairment test is based on group-wide cash flows adjusted for the Group's total goodwill and other non-current assets.
An impairment loss is recognised in the income statement in a separate line if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses are only reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation and amortisation, if no impairment loss had been recognised.
The carrying amount of intangibles, i.e. goodwill and customer contracts, and the key assumptions1) used in the impairment testing as per 31 December are presented below for each CGU representing more than
5% of the carrying amount of the Group's intangibles or considered to be at high risk of impairment.
| Carrying amount | Forecasting period | Applied Terminal period discount rate |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| DKK million | Goodwill | Customer contracts |
Total intangibles |
Growth (avg.) |
Margin (avg.) 2) |
Growth | Margin 2) | Net of tax | Pre-tax |
| 2016 | |||||||||
| UK & Ireland | 2,702 | 420 | 3,122 | 2.8% | 7.0% | 2.5% | 7.0% | 8.1% | 9.4% |
| Finland | 2,194 | 198 | 2,392 | 1.8% | 7.7% | 2.0% | 7.7% | 7.6% | 9.2% |
| France | 1,784 | - | 1,784 | 2.3% | 5.8% | 2.5% | 6.4% | 9.5% | 12.3% |
| Denmark | 1,644 | 77 | 1,721 | 2.6% | 7.5% | 2.0% | 7.5% | 8.1% | 10.0% |
| Norway | 1,420 | 172 | 1,592 | 2.7% | 8.1% | 2.5% | 8.1% | 8.8% | 11.1% |
| Australia & New Zealand | 1,428 | 98 | 1,526 | 2.3% | 5.9% | 3.0% | 5.9% | 9.8% | 13.0% |
| Switzerland | 1,407 | 105 | 1,512 | 1.7% | 7.6% | 2.0% | 7.6% | 6.3% | 7.6% |
| Belgium & Luxembourg | 1,326 | - | 1,326 | 2.0% | 6.6% | 2.0% | 6.6% | 8.2% | 11.8% |
| Spain & Portugal | 1,158 | 97 | 1,255 | 2.2% | 6.2% | 2.5% | 6.2% | 8.6% | 10.8% |
| Netherlands 3) | 994 | - | 994 | 2.5% | 4.9% | 2.0% | 5.0% | 8.1% | 10.3% |
| Other | 6,297 | 386 | 6,683 | - | - | - | - | - | - |
| Total | 22,354 | 1,553 | 23,907 | ||||||
| 2015 | |||||||||
| UK & Ireland | 3,377 | 588 | 3,965 | 3.0% | 7.3% | 2.5% | 7.3% | 8.6% | 10.1% |
| Finland | 2,203 | 270 | 2,473 | 2.0% | 7.2% | 2.0% | 7.2% | 8.1% | 9.8% |
| France | 1,791 | - | 1,791 | 2.1% | 5.1% | 2.5% | 6.0% | 8.1% | 13.4% |
| Denmark | 1,644 | 102 | 1,746 | 4.6% | 7.1% | 2.0% | 7.1% | 8.6% | 10.7% |
| Norway | 1,347 | 216 | 1,563 | 2.3% | 8.1% | 2.0% | 8.1% | 8.6% | 11.1% |
| Switzerland | 1,402 | 141 | 1,543 | 1.7% | 7.4% | 2.0% | 7.4% | 6.4% | 7.8% |
| Australia & New Zealand | 1,395 | 117 | 1,512 | 2.2% | 5.9% | 3.0% | 5.9% | 9.8% | 13.2% |
| Belgium & Luxembourg | 1,331 | - | 1,331 | 2.2% | 6.3% | 2.5% | 6.3% | 8.6% | 12.1% |
| Spain & Portugal | 1,162 | 128 | 1,290 | 2.1% | 6.2% | 2.5% | 6.3% | 8.9% | 11.3% |
| Netherlands 3) | 998 | - | 998 | 2.1% | 4.2% | 2.0% | 5.0% | 8.5% | 10.7% |
| Other | 6,218 | 669 | 6,887 | - | - | - | - | - | - |
| Total | 22,868 | 2,231 | 25,099 |
1) The key assumptions applied in the impairment tests are used for accounting purposes and should not be considered a forward-looking statement within the meaning of the US Private
Securities Litigation Act of 1995 and similar laws in other countries regarding expectations to the future development.
2) Excluding allocated corporate costs.
3) The recoverable amount of the CGU equals the carrying amount of the CGU's net assets. Net assets comprise total intangible plus/minus other net assets. At 31 December 2016, the recoverable amount adjusted for other net assets was estimated at DKK 1.0 billion (2015: DKK 1.0 billion).
The Netherlands The assumptions applied for the Netherlands have been prepared based on the general principles described on p. 84. Specifically for the Netherlands, the assumptions are based on management's business plan for improving growth and profit in the course of the forecasting period as laid out last year, but updated based on developments in 2016. In terms of growth, the major part is assumed to come from new IFS contracts as a result of an improved commercial culture and focus being directed towards IFS customers in line with the GREAT initiative. First signs of improvements were seen in 2016, with some important contract wins, e.g. Heineken.
Operating margin is assumed in the range 4.7%-5.0% in the forecasting period. The improvement is mainly a result of implementation of GREAT, including the establishment of a customer-focused organisation in line with the GREAT blueprint. Furthermore, focus on operational excellence on contract level (cost overspend and general contract efficiencies) will contribute positively along with other excellence initiatives under GREAT, such as the procurement programme and BPO.
France The assumptions applied for France have been prepared based on the general principles described on p. 84. Specifically for France, the assumptions are based on management's business plan for improving growth and profit in the course of the forecasting period in continuation of the plan laid out last year and developments in 2016. In terms of growth, increased sales are expected to derive from focused sales initiatives mainly directed at key account and IFS customers in line with GREAT. Initiatives to improve customer retention and customer Net Promoter Score (cNPS) are also expected to support growth. IFS as a share of revenue in France is below Group average and represents an opportunity for growing the business through focus on larger and more complex customers.
Operating margin is assumed in the range 4.9%-6.4% in the forecasting period. Following some major divestments in recent years, France is going through a reorganisation process also in light of the ongoing GREAT implementation. Thus, improvements are mainly expected from adapting overhead costs and excellence initiatives like procurement and investments in improved cost transparency. The French tax credit CICE has a significant impact on the margin. The CICE is currently enacted until 31 December 2017, but it is commonly assumed that it will be prolonged or replaced by a new arrangement with a similar financial impact. For 2017, the French government has approved an increase to 7% of all wages no more than 2.5 times the minimum wage (previously 6%).
A sensitivity analysis on the key assumptions in the impairment testing is presented below. The allowed change represents the percentage points by which the value assigned to the key assumption can change, all other things being equal, before the CGU's recoverable amount equals its carrying amount.
| Forecasting period | Terminal period | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Growth | Margin 1) | Growth | Margin 1) | Discount rate, net of tax |
||||||
| Applied avg. rate |
Allowed decrease |
Applied avg. rate |
Allowed decrease |
Applied long-term rate |
Allowed decrease |
Applied long-term rate |
Allowed decrease |
Applied rate |
Allowed increase |
|
| 2016 | ||||||||||
| UK & Ireland | 2.8% | >2.8% | 7.0% | >3.0% | 2.5% | >2.5% | 7.0% | >3.0% | 8.1% | >3.0% |
| Finland | 1.8% | >1.8% | 7.7% | >3.0% | 2.0% | >2.0% | 7.7% | >3.0% | 7.6% | >3.0% |
| France | 2.3% | >2.3% | 5.8% | >3.0% | 2.5% | >2.5% | 6.4% | 2.9% | 9.5% | >3.0% |
| Denmark | 2.6% | >2.6% | 7.5% | >3.0% | 2.0% | >2.0% | 7.5% | >3.0% | 8.1% | >3.0% |
| Norway | 2.7% | >2.7% | 8.1% | >3.0% | 2.5% | >2.5% | 8.1% | >3.0% | 8.8% | >3.0% |
| Australia & New Zealand | 2.3% | >2.3% | 5.9% | >3.0% | 3.0% | >3.0% | 5.9% | 2.2% | 9.8% | 2.6% |
| Switzerland | 1.7% | >1.7% | 7.6% | >3.0% | 2.0% | >2.0% | 7.6% | >3.0% | 6.3% | >3.0% |
| Belgium & Luxembourg | 2.0% | >2.0% | 6.6% | >3.0% | 2.0% | >2.0% | 6.6% | 2.0% | 8.2% | 1.9% |
| Spain & Portugal | 2.2% | >2.2% | 6.2% | >3.0% | 2.5% | >2.5% | 6.2% | 2.5% | 8.6% | 2.8% |
| Netherlands | 2.5% | 0.0% | 4.9% | 0.0% | 2.0% | 0.0% | 5.0% | 0.0% | 8.1% | 0.0% |
| 2015 | ||||||||||
| UK & Ireland | 3.0% | >3.0% | 7.3% | >3.0% | 2.5% | >2.5% | 7.3% | >3.0% | 8.6% | >3.0% |
| Finland | 2.0% | >2.0% | 7.2% | >3.0% | 2.0% | >2.0% | 7.2% | 2.5% | 8.1% | 2.2% |
| France | 2.1% | >2.1% | 5.1% | >3.0% | 2.5% | 1.7% | 6.0% | 1.5% | 8.1% | 1.3% |
| Denmark | 4.6% | >4.6% | 7.1% | >3.0% | 2.0% | >2.0% | 7.1% | >3.0% | 8.6% | >3.0% |
| Norway | 2.3% | >2.3% | 8.1% | >3.0% | 2.0% | >2.0% | 8.1% | >3.0% | 8.6% | >3.0% |
| Switzerland | 1.7% | >1.7% | 7.4% | >3.0% | 2.0% | >2.0% | 7.4% | >3.0% | 6.4% | >3.0% |
| Australia & New Zealand | 2.2% | >2.2% | 5.9% | >3.0% | 3.0% | >3.0% | 5.9% | 2.9% | 9.8% | >3.0% |
| Belgium & Luxembourg | 2.2% | 2.2% | 6.3% | >3.0% | 2.5% | 1.7% | 6.3% | 1.5% | 8.6% | 1.4% |
| Spain & Portugal | 2.1% | >2.1% | 6.2% | >3.0% | 2.5% | >2.5% | 6.3% | 2.6% | 8.9% | 2.9% |
| Netherlands | 2.1% | 0.0% | 4.2% | 0.0% | 2.0% | 0.0% | 5.0% | 0.0% | 8.5% | 0.0% |
1) Excluding allocated corporate costs.
| DKK million | 2016 | 2015 |
|---|---|---|
| Impairment losses identified in impairment tests | - | 77 |
| Impairment losses derived from divestment of businesses |
202 | 18 |
| Goodwill impairment | 202 | 95 |
Impairment losses identified in impairment tests in 2015 related to Brazil due to an update of business plan assumptions and an increase in the discount rate following the significant deterioration of the Brazilian economy in 2015.
Impairment losses derived from divestment of businesses related to the divestment of the remaining landscaping activities in the USA of DKK 55 million, the Group's activities in Greenland of DKK 25 million and the security activities in Ireland of DKK 39 million. Furthermore, remeasurement of businesses classified as held for sale resulted in impairment losses of DKK 83 million. In 2015, impairment losses related to the divestment of the landscaping activities in Belgium of DKK 6 million and the temporary labour and staffing activities in Portugal of DKK 12 million.
Since the IPO in March 2014 on the back of the 2013 financial statements, our capital structure has undergone significant change. From an equity ratio of 8.7%, financial leverage of 4.5x and net financial expenses of around DKK 2.3 billion, our financial position today is significantly strengthened – and at a more steady and sustainable level.
We wish to maintain a strong and efficient balance sheet and to strike an optimal balance between reinvesting capital back into our business and returning surplus funds to our shareholders.
Our objective is to maintain an investment grade financial profile with a financial leverage below 2.5x pro forma adjusted EBITDA, taking seasonality into account. At 31 December 2016, financial leverage was 2.1x (2015: 2.1x).
At 31 December 2016, equity ratio was 28.5% (2015: 29.4%) and net debt was slightly reduced to DKK 10,977 million (2015: 11,115 million) as a result of our continued focus on reducing our debt. Financial income and expenses, net arrived at DKK 486 million, down DKK 223 million from 2015.
We have a diversified funding through the combination of bank debt and bonds, and with rates fixed at attractive levels on a significant proportion of the debt. Furthermore, we have no short-term maturities.
In this section: 5.1 EQUITY 5.2 LOANS AND BORROWINGS 5.3 FINANCIAL INCOME AND FINANCIAL EXPENSES 5.4 FINANCIAL RISK MANAGEMENT 5.5 INTEREST RATE RISK 5.6 LIQUIDITY RISK 5.7 CURRENCY RISK
10,977 DKKm (2015: 11,115 DKKm)
486 DKKm (2015: 709 DKKm)
We wish to maintain a strong and efficient balance sheet and to strike an optimal balance between reinvesting capital back into our business and returning surplus funds to our shareholders. Our objective is to maintain an investment grade financial profile with a financial leverage below 2.5x pro forma adjusted EBITDA, taking seasonality into account. At 31 december 2016, the financial leverage was 2.1x (2015: 2.1x).
Our dividend policy targets a pay-out ratio of approximately 50% of Net profit (adjusted)1). At the annual general meeting to be held on 30 March 2017, the Board of Directors will propose a dividend for 2016 of DKK 7.70 per share of DKK 1, equivalent to DKK 1,430 million (2015: DKK 1,374 million) and a pay-out ratio of approximately 50%. In addition, an extraordinary dividend of DKK 4.00 per share, equivalent to DKK 743 million was paid to shareholders in November 2016.
ISS A/S (the Group's parent) is a holding company, and its primary assets are shares in ISS World Services A/S. ISS A/S has no revenue generating operations of its own, and therefore ISS A/S's cash flow will primarily depend on the operating performance and financial condition of ISS World Services A/S and its operating subsidiaries, and the receipt by ISS A/S of funds from ISS World Services A/S and its subsidiaries.
1) Previously referred to as Profit before amortisation/impairment of acquisitionrelated intangibles.
At 31 December 2016, ISS's share capital comprised a total of DKK 185,668,226 shares (2015: 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.
| Nominal value | ||
|---|---|---|
| DKK million | 2016 | 2015 |
| Share capital at 1 January | 185 | 185 |
| Share capital at 31 December | 185 | 185 |
At 31 December 2016, ISS held a total of 2,119,983 treasury shares (2015: 1,777,475) equal to 1% of share capital for the purpose of covering obligations under existing share-based incentive programmes. The fair value of treasury shares was DKK 505 million at 31 December 2016 (2015: DKK 442 million).
| 2016 | 2015 | ||
|---|---|---|---|
| Purchase | Number of | Number of | |
| price | shares (in | shares (in | |
| (DKK million) | thousands) | thousands) | |
| Treasury shares at 1 January | 324 | 1,777 | 1,000 |
| Additions | 149 | 618 | 1,000 |
| Settlement of vested PSUs | (49) | (249) | (223) |
| Settlement of vested RSUs | (5) | (26) | - |
| Treasury shares at 31 December | 419 | 2,120 | 1,777 |
| In thousands | 2016 | 2015 |
|---|---|---|
| Average number of shares Average number of treasury shares |
185,668 (2,055) |
185,668 (1,618) |
| Average number of shares (basic) Average number of PSUs expected to vest and outstanding (vested) RSUs |
183,613 1,441 |
184,050 1,158 |
| Average number of shares (diluted) | 185,054 | 185,208 |
Average number of shares are calculated for the purpose of the calculation of EPSs. The calculation of diluted EPS excludes 328,038 (2015: 724,314) PSUs which are not expected to vest.
Definitions, see p. 13.
Retained earnings is the Group's free reserves, which includes share premium. Share premium comprises amounts above the nominal share capital paid by shareholders when shares are issued by ISS A/S.
Translation reserve comprises all foreign exchange differences arising from the translation of financial statements of foreign entities with a functional currency other than DKK as well as from the translation of non-current balances which are considered part of the investment in foreign entities.
On full or partial realisation of a foreign entity where control is lost the foreign exchange adjustments are transferred to the income statement under the same line item as the gain or loss.
Dividends are recognised as a liability at the date when they are adopted at the annual general meeting (declaration date). Dividends proposed for the year are shown in a separate reserve under Equity.
Treasury shares Cost of acquisition and proceeds from sale of treasury shares are recognised in reserve for treasury shares. Dividends received in relation to treasury shares are recognised in retained earnings.
| DKK million | 2016 | 2015 |
|---|---|---|
| Issued bonds | 12,576 | 12,611 |
| Bank loans | 2,423 | 2,920 |
| Finance lease liabilities | 335 | 137 |
| Derivatives | 4 | 10 |
| Total | 15,338 | 15,678 |
| Non-current liabilities Current liabilities |
15,055 283 |
14,926 752 |
| Loans and borrowings | 15,338 | 15,678 |
| Cash and cash equivalents and other financial items 1) |
(4,361) | (4,563) |
| Net debt | 10,977 | 11,115 |
1) Includes securities of DKK 32 million (2015: DKK 28 million) and positive value of currency swaps of DKK 30 million (2015: DKK 9 million).
The fair value of loans and borrowings was DKK 15,951 million (2015: DKK 15,805 million). The fair value of bonds is 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 fair value is equal to the nominal value as illustrated in 5.5, Interest rate risk.
In 2016, financing fees amounting to DKK 2 million (2015: DKK 37 million) have been recognised in loans and borrowings while financing fees of DKK 34 million (2015: DKK 64 million) have been amortised and recognised in financial expenses. Accumulated financing fees recognised in loans and borrowings on 31 December 2016 amounted to DKK 105 million (2015: DKK 137 million).
Financial liabilities are recognised at the date of borrowing at fair value less related transaction costs paid. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. Any difference between the proceeds initially received and the nominal value is recognised in the income statement under Financial expenses over the term of the loan. Financial liabilities also include the capitalised residual obligations on finance leases, which are measured at amortised cost.
| DKK million | 2016 | 2015 |
|---|---|---|
| Interest income on cash and cash equivalents | 44 | 41 |
| Foreign exchange gains | 14 | - |
| Financial income | 58 | 41 |
| Interest expenses on loans and borrowings | (406) | (461) |
| Other bank fees | (69) | (81) |
| Net interest on defined benefit obligations | (35) | (34) |
| Amortisation of financing fees | (34) | (37) |
| Refinancing | - | (27) |
| Net change in fair value of cash flow hedges | - | (12) |
| Foreign exchange losses | - | (98) |
| Financial expenses | (544) | (750) |
Interest expenses on loans and borrowings The decrease was mainly a result of lower interest margins combined with lower average net debt in 2016.
Foreign exchange gains and losses mainly related to exchange rate movements on intercompany loans from the parent company to foreign subsidiaries as well as on external loans and borrowings denominated in currencies other than DKK. In addition, fair value adjustments of currency swaps were included.
The Group is exposed to a number of financial risks arising from its operating and financing activities, mainly interest rate risk, liquidity risk, currency risk and credit risk. These financial risks are managed centrally by Group Treasury based on the Group Financial Policy, which is reviewed and approved annually by the Board of Directors. Within the framework of the Group Financial Policy it is on an ongoing basis considered if the financial risk management approach appropriately adresses the exposures.
It is the Group's policy to mitigate risk exposure derived from its business activities. Group policy does not allow taking speculative positions in the financial markets.
The areas exposed to financial risks are mainly loans and borrowings and financial income and expenses. The Group's objectives, policies and processes for measuring and managing the risk exposure related to these items are summarised in the table below and further explained in:
Credit risk on trade receivables and currency risk (operational) are described in:
The Group has not identified additional financial risk exposures in 2016 compared to 2015.
| FINANCIAL RISK | EXPOSURE | RISK MANAGEMENT POLICY | MITIGATION |
|---|---|---|---|
| Interest rate risk (5.5) |
Low risk • 84% of the Group's bank loans and bonds carried fixed interest rates at 31 December 2016 (2015: 81%) • Duration of gross debt (fixed rate period) of 3.9 years at 31 December 2016 • Exposure primarily related to EUR denominated bank loans with floating rates |
• At least 50% of the Group's bank loans and issued bonds must carry fixed interest rates directly or through derivatives • Duration of gross debt (fixed-rate period) shall be 2-6 years |
• The balance between fixed and variable interest rates and gross debt duration (fixed-rate period) is measured on a monthly basis to ensure compliance |
| Liquidity risk (5.6) |
Low risk • Diversified funding through bank loans and bonds • No short-term maturities at 31 December 2016 |
• 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 |
• Raising capital is managed cen trally in Group Treasury to ensure efficient liquidity management • Liquidity is transferred to/from ISS Global A/S, which operates as the internal bank of the Group • For day-to-day liquidity man agement cash pools have been established in the majority of the local entities |
| Currency risk (5.7) |
Low risk • 96.7% (2015: 96.4%) of the Group's loans and borrowings (external) were denominated in EUR at 31 December 2016 • In addition, exposure relates to intercompany loans from the parent company to foreign subsidiaries and intercompany balances as these are typically denominated in the functional currency of the subsidiary |
• All hedging is conducted at Group level • Main policy is to hedge foreign exchange ex posures towards EUR or DKK exceeding DKK 5 million. However, some currencies cannot be hedged within a reasonable price range, e.g. ARS and ISK, in which case 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 exchange rate policy between DKK/EUR • Exposure to translation of net assets to DKK in foreign investments is currently not hedged |
• Use of currency swaps to hedge the exposure to currency risk on loans and borrowings (external) and intercompany balances • Exposure on loans and borrow ings, intercompany balances and cash and cash equivalents are measured at least on a weekly basis to evaluate the need for hedging currency positions |
| Credit risk | Low risk • Exposure on cash and cash equiv alents and securities was DKK 4,361 million at 31 December 2016 (2015: DKK 4,563) |
• Main policy is to transact only with finan cial institutions with at least A-1/P-1 credit ratings |
• Group Treasury monitors credit ratings on an ongoing basis and approves exceptions to credit rating requirements |
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments, currently bank loans and issued bonds. The Group's exposure towards interest rates is illustrated below, where a breakdown of the Group's loans and borrowings in floating and fixed rates is provided. Currently, the Group does not use interest rate swaps.
For a description of exposure, policy and mitigation, see the overview in 5.4, Financial risk management.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| DKK million | Nominal interest rate |
Currency | Year of maturity |
Nominal value |
Carrying amount |
Carrying amount |
| Issued bonds (fixed interest rate): | ||||||
| EMTNs (EUR 700 million) | 1.125% | EUR | 2020 | 5,204 | 5,183 | 5,196 |
| EMTNs (EUR 500 million) | 1.125% | EUR | 2021 | 3,717 | 3,697 | 3,708 |
| EMTNs (EUR 500 million) | 2.125% | EUR | 2024 | 3,717 | 3,696 | 3,707 |
| 12,638 | 12,576 | 12,611 | ||||
| Bank loans (floating interest rate): Senior Unsecured Facilities 1): |
||||||
| Term Facility B (EUR 300 million) | Euribor + 0.85% | EUR | 2019 | 2,230 | 2,220 | 2,223 |
| Revolving Credit Facility (EUR 850 million) | Libor + 0.85% | Multi | 2019 | 148 | 115 | 521 |
| Bank loans and overdrafts | - | Multi | - | 88 | 88 | 176 |
| 2,466 | 2,423 | 2,920 |
1) The senior facilities include a margin grid where the margin is dependent on the Group's leverage. The current margin of 0.85% will decrease to 0.65% if leverage is below 2.5x and increase to 1.10% if leverage is above 3x. At 31 December 2016, leverage was 2.1x meaning that as of beginning of March 2017 margin will decrease to 0.65%.
The interest rate risk is measured by the duration of the gross debt (fixedrate period). At 31 December 2016, the duration of gross debt was 3.9 years (2015: 4.7 years).
It is estimated that a general increase in relevant interest rates of 1%-point would have decreased profit for the year and other comprehensive income by DKK 20 million (2015: decreased both items by DKK 26 million).
The estimate was based on loans and borrowings with floating interest rates, i.e. disregarding cash and cash equivalents, as the level at 31 December is typically the highest in the year and not a representative level for the purpose of this analysis. The analysis assumes that all other variables, in particular foreign currency rates, remain constant.
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.
For a description of exposure, policy and mitigation, see the overview in 5.4, Financial risk management.
The Group's liquidity reserves mainly consist of liquid funds (cash and cash equivalents less not readily available or restricted cash) and unused credit facilities. The level of cash and cash equivalents is typically highest at 31 December and not a representative level for the rest of the year. As at 31 December 2016, the Group's liquid reserves consisted of readily available liquid funds of DKK 4,268 million (2015: DKK 4,498 million) and unused revolving credit facilities of DKK 6,005 million (2015: DKK 5,575 million) where the majority is available for drawing until 19 February 2019.
In addition, as of 31 December 2016, ISS had DKK 1.1 billion of other credit facilities of which DKK 0.7 billion was unused. Such facilities comprise mainly other local credit facilities and finance leases, which are not part of the senior unsecured facilities.
DKK 32 million (2015: DKK 28 million) of the total cash position at 31 December 2016 was placed on blocked or restricted bank accounts due to legal circumstances.
The bank loans are subject to customary undertakings, covenants (including financial covenants) and other restrictions. Financial covenants comprise: i) Debt cover and ii) Interest cover. The financial covenants are calculated on a last-twelve-months basis and reported bi-annually. In the event of a default under those agreements, the debt incurred including accrued interest could be declared immediately due and payable. In 2016, all covenants have been complied with.
The contractual maturities of financial liabilities, based on undiscounted contractual cash flows, are shown below. The undiscounted contractual cash flows include expected interest payments, estimated based on market expectations at the reporting date.
The risk implied from the values in the maturity table below reflects the one-sided scenario of cash outflows only. Trade payables and other financial liabilities will mainly finance assets such as trade receivables and property, plant and equipment.
The maturity profile of the Group's current financing, i.e. issued bonds and bank loans, is illustrated above. The maturity profile is based on nominal values including any undrawn amounts and excluding interest payments.
| DKK million | Carrying amount |
Contractual cash flows |
< 1 year | 1–2 years | 2–3 years | 3–4 years | 4–5 years | > 5 years |
|---|---|---|---|---|---|---|---|---|
| 2016 | ||||||||
| Loans and borrowings | 15,338 | 16,481 | 530 | 273 | 2,477 | 5,378 | 3,832 | 3,991 |
| Trade payables and other financial liabilities | 4,537 | 4,546 | 4,475 | 71 | - | - | - | - |
| Total financial liabilities | 19,875 | 21,027 | 5,005 | 344 | 2,477 | 5,378 | 3,832 | 3,991 |
| 2015 | ||||||||
| Loans and borrowings | 15,678 | 17,067 | 1,027 | 239 | 224 | 2,437 | 5,354 | 7,786 |
| Trade payables and other financial liabilities | 3,937 | 3,960 | 3,853 | 22 | 85 | - | - | - |
| Total financial liabilities | 19,615 | 21,027 | 4,880 | 261 | 309 | 2,437 | 5,354 | 7,786 |
Currency risk is the risk that arises from changes in exchange rates, and affects the Group's result or value of financial instruments. The Group uses currency swaps to hedge the exposure to currency risk. As fair value adjustments of both the hedged item and the derivative financial instrument are recognised in the income statement under financial income and expenses, hedge accounting in accordance with IAS 39 is not applied.
For a description of exposure, policy and mitigation, see the overview in 5.4, Financial risk management.
It is estimated that a change in relevant foreign exchange rates would have increased/(decreased) net profit and other comprehensive income by the amounts shown below. The analysis is based on the Group's internal monitoring of currency exposure on loans and borrowings, intercompany loans, cash and cash equivalents as well as accrued royalties (Group internal). Further, the analysis is based on foreign exchange rate variances that the Group considered to be reasonably possible at the reporting date and assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecasted sales and purchases.
Fluctuations in foreign exchange rates will affect the value of loans and borrowings (external) as well as the income statement as funding is obtained in various currencies. In 2016, changes in foreign exchange rates related to loans and borrowings resulted in a gain of DKK 57 million (2015: loss of DKK 142 million). The impact is derived from loans and borrowings in EUR, which depreciated 0.4% against DKK in 2016.
Sensitivity
| DKK million | Currency exposure (nominal value) |
Currency swaps (contractual value) |
Total exposure |
Increase in foreign ex change rates |
Net profit | Other com prehensive income |
|---|---|---|---|---|---|---|
| 2016 | ||||||
| EUR/DKK | (13,008) | 5,151 | (7,857) | 1% | (79) | (79) |
| USD/DKK | 610 | (723) | (113) | 10% | (11) | (11) |
| Other/DKK | 1,386 | (1,095) | 291 | 10% | 29 | 29 |
| Total | (11,012) | 3,333 | (7,679) | |||
| 2015 | ||||||
| EUR/DKK | (12,192) | 4,659 | (7,533) | 1% | (75) | (75) |
| USD/DKK | 800 | (990) | (190) | 10% | (19) | (19) |
| Other/DKK | 627 | (318) | 309 | 10% | 31 | 31 |
| Total | (10,765) | 3,351 | (7,414) |
The Group's incentive plans are designed to create alignment of the interests of the EGM and other employees in key positions with the interests of the shareholders as well as to create a strong link between remuneration and achievement of our strategic goals and financial performance – both short-term and long-term.
Two share-based incentive programmes are implemented; a Long-Term Incentive Programme (LTIP) and a Transition Share Programme (TSP). Under the LTIP, new performance-based share units (PSUs) were granted to plan participants in 2016. This was the third grant following the IPO in 2014.
The PSUs granted as part of the LTIP 2014 programme will vest on 18 March 2017. This is the first vesting of LTIP post the IPO. Based on the annual EPS and TSR performances for 2014, 2015 and 2016, 96% of the PSUs granted under the LTIP 2014 will vest.
With respect to the TSP, in 2016 the remaining outstanding PSUs vested and the programme has lapsed.
In this section, the following notes are presented:
96% expected vesting of LTIP 2014 on 18 March 2017
TSP
96% vesting of the programme
Programme vested and lapsed in March 2016
joined ISS in November 2016. Reflected in the notes relating to remuneration
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.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| EGM | EGM | |||||
| DKK thousand | Board | EGMB 1) | Corporate Senior Officers |
Board | EGMB | Corporate Senior Officers |
| Base salary and non-monetary benefits | 7,645 | 12,919 | 40,620 | 6,758 | 23,816 | 43,192 |
| Annual bonus | - | 8,343 | 24,247 | - | 15,867 | 21,027 |
| Share-based payments 2) | - | 6,771 | 17,547 | - | 14,822 | 30,263 |
| Severance payments 3) | - | - | - | - | - | 34,041 |
| Total remuneration | 7,645 | 28,033 | 82,414 | 6,758 | 54,505 | 128,523 |
1) Heine Dalsgaard stepped down as Group CFO on 31 May 2016. Pierre-François Riolacci replaced Heine Dalsgaard as Group CFO with effect from 7 November 2016.
2) In 2015, DKK 9 million related to senior management changes at Group level was recognised in Other income and expenses, net.
3) Severance payments related to senior management changes at Group level were included in Other income and expenses, net.
Remuneration policy is described in the Remuneration report on p. 48.
The Group has two equity-settled share-based incentive programmes; a Long-Term Incentive Programme (LTIP) and a transition share programme (TSP) (one-time grant). Furthermore, the Group has a bonus programme, which is partly settled in shares.
In March 2016, the remaining 50% of the PSUs under the TSP vested and the participants received shares in ISS A/S at no cost corresponding to their granted number of PSUs. After this vesting, no further PSUs are outstanding and the programme has lapsed.
Members of the EGM (EGMB and Corporate Senior Officers of the Group), and other senior officers of the Group, were granted a number of PSUs. Upon vesting, each PSU entitles the holder to receive one share at no cost.
The programme will vest on the date of the third anniversary of the grant. PSUs have vesting criteria of total shareholder return (TSR) and earnings per share (EPS), equally weighted. TSR peers are the Nasdaq Copenhagen OMX C20 and a peer group of comparable international service companies.
For the LTIP 2016 (but not previous programmes) participants are compensated for any dividend distributed during time of grant and time of vesting. For the extraordinary dividend in November 2016 it was decided to compensate participants in the existing three LTIP programmes.
| CRITERIA | TSR (LTIP 2014-2016) | EPS GROWTH2) (LTIP 2014) | EPS GROWTH2) (LTIP 2015) | EPS GROWTH2) (LTIP 2016) |
|---|---|---|---|---|
| No vesting | Below median of peer group |
Less than 12% annually | Less than 7.5% annually |
Less than 6% annually |
| 25% vesting 1) | At median of peer group | 12% annually | 7.5% annually | 6% annually |
| 100% vesting 1) | At upper quartile of peer group or better |
18% annually or more | 13.5% annually or more |
12% annually or more |
International service companies: ABM Industries, Adecco, Aramark, Bunzl, Berendsen, Compass Group, Capita, G4S, Interserve, Mitie Group, Randstad, Rentokil Initial, Securitas, Serco, Sodexo.
OMX C20: Comprise companies included in the OMX C20 at the time of grant, i.e. A.P. Møller – Mærsk A, A.P. Møller – Mærsk B, Carlsberg, Chr. Hansen Holding, Coloplast, Danske Bank, DSV, FLSmidth & Co, Genmab, GN Store Nord, Jyske Bank, Nordea Bank, Novo Nordisk, Novozymes, Pandora, TDC, Topdanmark (not in 2015 and 2016), Tryg, Vestas Wind Systems, William Demant Holding.
1) Linear vesting between 25% and 100% vesting.
2) Adjusted earnings per share excluding Other income and expenses, net. EPS growth is measured as compound annual growth rate (CAGR).
| LTIP 2014 | LTIP 2015 | LTIP 2016 | TSP | |
|---|---|---|---|---|
| Total PSUs granted | 964,550 | 785,976 | 782,043 | 526,720 |
| Number of participants | 141 | 142 | 141 | 36 |
| Fair value of PSUs expected to vest at grant date, DKK million | 83 | 89 | 106 | 59 |
| Fair value of PSUs expected to vest at 31 December 2016, DKK million | 105 | 102 | 94 | - |
| Recognised in the income statement in 2016, DKK million 1) | 38 | 35 | 24 | 9 |
| Not yet recognised in respect of PSUs expected to vest, DKK million | 8 | 41 | 70 | - |
1) DKK 106 million was recognised in Other operating expenses, hereof DKK 11 million related to employer social security contributions.
| LTIP 2014 | LTIP 2015 | LTIP 2016 | TSP | |
|---|---|---|---|---|
| Share price (DKK) | 160 | 219 | 241 | 160 |
| Expected volatility | 23%1) | 21.9%1) | 24.5%1) | - |
| Expected life of grant | 3 years | 3 years | 3 years | 1-2 years |
| Risk-free interest rate | 1.7%-2.8% | 0.8%-2.0% | 0.6%-1.6% | - |
1) Based on observable market data for peer group.
| EGM | |||
|---|---|---|---|
| EGMB 1) | Corporate Senior Officers |
Other senior officers |
Total |
| 131,914 | 157,204 | 663,051 | 952,169 |
| (55,064) | (68,850) | 123,914 | - |
| - | - | (25,802) | (25,802) |
| 76,850 | 88,354 | 761,163 | 926,367 |
| 749 | 1,604 | 10,028 | 12,381 |
| - | 32,878 | (32,878) | - |
| (27,125) | (14,606) | (59,574) | (101,305) |
| 50,474 | 108,230 | 678,739 | 837,443 |
| 57,231 | 101,157 | 617,372 | 775,760 |
| - | - | (9,169) | (9,169) |
| 57,231 | 101,157 | 608,203 | 766,591 |
| 558 | 1,726 | 7,932 | 10,216 |
| - | 26,012 | (26,012) | - |
| (20,200) | (12,419) | (47,452) | (80,071) |
| 37,589 | 116,476 | 542,671 | 696,736 |
| 54,063 | 142,823 | 585,157 | 782,043 |
| - | (12,539) | (92,923) | (105,462) |
| 54,063 | 130,284 | 492,234 | 676,581 |
1) Heine Dalsgaard's unvested PSUs under the LTIP were cancelled as he stepped down as Group CFO on 31 May 2016.
2) The PSUs granted as part of the LTIP 2014 programme will vest on 18 March 2017. This is the first vesting of LTIP post the IPO in 2014. Based on the annual EPS and TSR performances for 2014, 2015 and 2016, 96% of the PSUs granted under the LTIP 2014 will vest.
| EGM | ||||
|---|---|---|---|---|
| Number of PSUs | EGMB | Corporate Senior Officers |
Other senior officers |
Total |
| Outstanding at 1 January 2015 | 137,786 | 157,204 | 231,730 | 526,720 |
| Transferred | (58,998) | (68,850) | 127,848 | - |
| Vested | (36,199) | (40,592) | (159,087) | (235,878) |
| Cancelled | (3,194) | (3,584) | (27,342) | (34,120) |
| Outstanding at 31 December 2015 | 39,395 | 44,178 | 173,149 | 256,722 |
| Transferred | - | 9,966 | (9,966) | - |
| Vested | (39,395) | (54,144) | (155,597) | (249,136) |
| Cancelled | - | - | (7,586) | (7,586) |
| Outstanding at 31 December 2016 | - | - | - | - |
The Group has an annual bonus programme under which two-thirds were paid out in cash the following year, while one-third was deferred and settled in restricted share units (RSUs) of which 50% are converted into shares
after one year and 50% are converted into shares after two years. There are no performance conditions attached to the RSUs. With effect from 2015, bonuses will be settled entirely in cash.
| EGM | ||||
|---|---|---|---|---|
| Number of RSUs | EGMB | Corporate Senior Officers |
Other senior officers |
Total |
| Vested | 23,965 | 28,016 | - | 51,981 |
| Transferred | (11,279) | (8,079) | 19,358 | - |
| Outstanding (vested) at 31 December 2015 | 12,686 | 19,937 | 19,358 | 51,981 |
| Transferred 1) | (2,779) | (1,909) | 4,688 | - |
| Paid out | (6,342) | (9,013) | (10,633) | (25,988) |
| Outstanding (vested) at 31 December 2016 | 3,565 | 9,015 | 13,413 | 25,993 |
1) Heine Dalsgaard's remaining RSUs have been transferred from EGMB to other senior officers as he stepped down as Group CFO on 31 May 2016.
The value of services received in exchange for granted performance-based share units (PSUs) is measured at fair value at the grant date and recognised in the income statement under staff costs over the vesting period with a corresponding increase in equity.
The fair value of granted PSUs is measured using a generally accepted valuation model taking into consideration the terms and conditions upon which the PSUs were granted including market-based vesting conditions (TSR condition).
On initial recognition, an estimate is made of the number of PSUs expected to vest. The estimated number is subsequently revised for changes in the number of PSUs expected to vest due to non-market based vesting conditions.
The Group's parent ISS A/S is the ultimate controlling party. At 31 December 2016, ISS had no related parties with either control of the Group or significant influence in the Group.
The Board and the EGM are considered the Group's key management personnel as defined in 6.1, Remuneration to the Board of Directors and the Executive Group Management.
Apart from remuneration, there were no significant transactions with members of the Board and the EGM in 2016.
| 2016 | 2015 | |||
|---|---|---|---|---|
| DKK million | EY | EY Non-EY | Total | |
| Statutory audit | 26 | 23 | 1 | 24 |
| Other assurance services | 1 | 1 | 0 | 1 |
| Tax and VAT advisory services | 6 | 1 | 11 | 12 |
| Other services | 1 | 2 | 3 | 5 |
| Total | 34 | 27 | 15 | 42 |
Other assurance services comprised mainly work related to the interim financial statements.
Other services comprised among other things work related to acquisitions and divestments such as financial and tax due diligence.
This section includes other disclosures required by IFRS but which are not material or relevant for the understanding of the business and the activities in ISS as outlined in section 2 to 6.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| DKK million | Land and buildings |
Plant and equipment |
Total | Land and buildings |
Plant and equipment |
Total |
| Cost at 1 January | 104 | 5,241 | 5,345 | 103 | 5,398 | 5,501 |
| Foreign exchange adjustments | (3) | (83) | (86) | 1 | 92 | 93 |
| Acquisitions | - | 2 | 2 | 33 | 15 | 48 |
| Additions | 1 | 648 | 649 | 3 | 743 | 746 |
| Divestments | (7) | (51) | (58) | - | (27) | (27) |
| Disposals | (0) | (630) | (630) | (36) | (603) | (639) |
| Reclassification from/(to) Intangible assets | - | 73 | 73 | - | (8) | (8) |
| Reclassification to Assets classified as held for sale | - | (28) | (28) | (0) | (369) | (369) |
| Cost at 31 December | 95 | 5,172 | 5,267 | 104 | 5,241 | 5,345 |
| Depreciation and impairment losses at 1 January | (25) | (3,707) | (3,732) | (39) | (3,824) | (3,863) |
| Foreign exchange adjustments | (0) | 57 | 57 | 0 | (47) | (47) |
| Acquisitions | - | - | - | - | (14) | (14) |
| Depreciation | (3) | (538) | (541) | (2) | (575) | (577) |
| Divestments | 3 | 28 | 31 | - | 12 | 12 |
| Disposals | 0 | 560 | 560 | 16 | 556 | 572 |
| Reclassification (from)/to Intangible assets | - | (66) | (66) | - | 0 | 0 |
| Reclassification to Assets classified as held for sale | - | (4) | (4) | 0 | 185 | 185 |
| Depreciation and impairment at 31 December | (25) | (3,670) | (3,695) | (25) | (3,707) | (3,732) |
| Carrying amount at 31 December | 70 | 1,502 | 1,572 | 79 | 1,534 | 1,613 |
| Hereof carrying amount at 31 December of assets held under finance leases |
- | 166 | 166 | - | 150 | 150 |
The Group leases a number of properties, vehicles (primarily cars) and other equipment under operating leases. The leases typically run for a period of 2-5 years, with an option to renew the lease after that date.
The disclosed non-cancellable operating lease payments below assume no early termination of any agreement.
| DKK million | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | After 5 years |
Total lease payments |
|---|---|---|---|---|---|---|---|
| At 31 December 2016 | 1,171 | 816 | 535 | 339 | 210 | 418 | 3,489 |
| At 31 December 2015 | 1,231 | 847 | 538 | 329 | 239 | 395 | 3,579 |
In 2016, DKK 1,773 million (2015: DKK 1,782 million) was recognised as an expense in the income statement in respect of operating leases.
Leasing of cars is primarily entered under an international car fleet lease framework agreement which is valid until end 2018. The majority of the underlying agreements have a lifetime duration of 3-5 years.
Property, plant and equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Cost of assets comprises the purchase price and any costs directly attributable to the acquisition until the date when the asset is ready for use. The net present value of estimated liabilities related to dismantling and removing the asset and restoring the site on which the asset is located is added to the cost.
The cost of assets held under finance leases is stated at the lower of fair value of the asset and the net present value of future minimum lease payments. When calculating the net present value, the interest rate implicit in the lease or an approximated rate is applied as the discount rate.
A finance lease is a lease that transfers substantially all risks and rewards of ownership to the lessee. Other leases are classified as operating leases.
Subsequent costs, e.g. for replacing part of an item, are recognised in the carrying amount of the asset if it is probable that the future economic benefits embodied by the item will flow to the Group. The replaced item is transferred to the income statement. All other costs for common repairs and maintenance are recognised in the income statement when incurred.
Depreciation is based on the cost of an asset less its residual value. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. The estimated useful life and residual value is determined at the acquisition date. If the residual value exceeds the carrying amount depreciation is discontinued.
Depreciation of property, plant and equipment is recognised in the income statement on a straight-line basis over the estimated useful lives of
the assets. Assets under finance leases are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. The estimated useful lives for current and comparative years are as follows:
| Buildings | 20-40 years |
|---|---|
| Leasehold improvements | (the lease term) 5-12 years |
| Plant and equipment | 3-10 years |
Land is not depreciated.
Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. When changing the depreciation period or the residual value, the effect on the depreciation is recognised prospectively as a change in accounting estimates.
Gains and losses arising on the disposal or retirement of property, plant and equipment are measured as the difference between the selling price less direct sales costs and the carrying amount, and are recognised in the income statement under Other operating expenses in the year of sale, except gains and losses arising on disposals of property, which are recognised under Other income and expenses, net.
Assets held under operating leases are not recognised in the statement of financial position. Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
The majority of the Group's pension schemes are defined contribution plans where contributions are paid to publicly or privately administered pension plans on a statutory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. Pension costs related to such plans are recognised under Staff costs and amounted to DKK 1,607 million in 2016 (2015: 1,704 million), corresponding to 14% of the Group's pension costs (2015: 16%).
The Group has a number of defined benefit plans where the responsibility for the pension obligation towards the employees rests with the Group. The largest plans are in Switzerland and the UK accounting for 88% (2015: 85%) of the Group's obligation (gross) and 98% (2015: 95%) of its plan assets.
The defined benefit plans are primarily based on years of service, and benefits are generally determined on the basis of salary and rank. For defined benefit plans the Group assumes the risk associated with future developments in salary, interest rates, inflation, mortality and disability etc.
The majority of the obligations are funded with assets placed in independent pension funds. In some countries, primarily Sweden and France, the obligation is unfunded. For these unfunded plans the retirement benefit obligations amounted to DKK 690 million or 9% of the present value of the gross obligation (2015: DKK 660 million or 9%).
Switzerland Pension plans are governed by the Swiss Federal Law on Occupational retirement, Survivors' and Disability Pension Plans (LPP/BVG), which stipulates that plans must be managed by independent, legally autonomous units.
Plan participants are insured against the financial consequences of retirement, disability and death.
The pension plans are contribution-based plans guaranteeing a minimum interest credit and fixed conversion rates at retirement. Contributions are paid by both the employee and the employer. The plans must be fully funded under the LPP/BVG law on a static basis at all times. In case of underfunding, recovery measures must be taken, such as additional financing from the employer or from the employer and employees, reduction of benefits or a combination of both.
The main pension plan has the legal structure of a foundation responsible for the governance of the plan and for the investment of the assets. The foundation defines the investment strategy and has set up guidelines on allocation between assets.
The pension plans include a risk-sharing element between ISS and the plan participants.
The UK Participants are insured against the financial consequences of retirement and death. The schemes do not provide any insured disability benefits.
The pension plans are plans guaranteeing defined benefit pension at retirement on a final salary basis. Contributions are paid by both the employee and the employer.
The schemes are legally structured as trust-based statutory sectionalised pension schemes. ISS has no control over the operation of the plans or their investments. An independent trustee or external administrator is responsible for the investment of the assets. The trustee or external administrator defines the investment strategy and have set up guidelines on asset allocation.
The majority of the pension plans does not include a risk-sharing element between ISS and the plan participants.
The present value of defined benefit obligations is determined on the basis of assumptions about the future development in variables such as salary levels, interest rates, inflation and mortality. All assumptions are assessed at the reporting date. Changes in these assumptions may significantly affect the liabilities and pension costs under defined benefit plans. The range and weighted average of these assumptions as well as sensitivities on key assumptions are disclosed in this note.
The discount rates used for calculating the present value of expected future cash flows are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit obligations.
ISS participates in multi-employer pension schemes that by nature are defined benefit plans. Some funds are however not able to provide the necessary information in order for the Group to account for the schemes as defined benefit plans and the schemes are therefore accounted for as defined contribution plans. There is a risk that the plans are not sufficiently funded. However, information on surplus or deficit in the schemes is not available.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| DKK million | Present value of obligation |
Fair value of plan assets |
Obligation, net |
Present value of obligation |
Fair value of plan assets |
Obligation, net |
| Carrying amount at 1 January | 7,516 | 5,999 | 1,517 | 6,259 | 5,023 | 1,236 |
| Current service costs | 189 | - | 189 | 205 | - | 205 |
| Interest on obligation/plan assets | 108 | 73 | 35 | 134 | 100 | 34 |
| Past service costs | (43) | - | (43) | 5 | - | 5 |
| Recognised in the income statement | 254 | 73 | 181 | 344 | 100 | 244 |
| Actuarial (gains)/losses from demographic assumptions | (109) | - | (109) | (2) | - | (2) |
| Actuarial (gains)/losses from financial assumptions | 324 | - | 324 | 144 | - | 144 |
| Actuarial (gains)/losses due to experience adjustments | 75 | - | 75 | 214 | - | 214 |
| Return on plan assets excluding interest income | - | 211 | (211) | - | 101 | (101) |
| Impact from asset ceiling | - | (6) | 6 | - | (3) | 3 |
| Recognised in other comprehensive income | 290 | 205 | 85 | 356 | 98 | 258 |
| Foreign exchange adjustments | (136) | (118) | (18) | 584 | 520 | 64 |
| Reclassifications | (142) | (142) | - | 5 | 5 | - |
| Acquisitions and divestments, net | - | - | - | 47 | 51 | (4) |
| Additions from new contracts, net | 3 | - | 3 | (1) | (28) | 27 |
| Employee contributions | 132 | 132 | - | 129 | 129 | - |
| Employer contributions | - | 180 | (180) | - | 217 | (217) |
| Benefits paid | (173) | (101) | (72) | (207) | (119) | (88) |
| Impact from asset ceiling | - | 6 | (6) | - | 3 | (3) |
| Other changes | (316) | (43) | (273) | 557 | 778 | (221) |
| Carrying amount at 31 December | 7,744 | 6,234 | 1,510 | 7,516 | 5,999 | 1,517 |
| Other long-term employee benefits | 187 | 210 | ||||
| Reclassification to Liabilities classified as held for sale | (93) | (72) | ||||
| Accumulated impact from asset ceiling | 34 | 28 | ||||
| Pensions and similar obligations at 31 December | 1,638 | 1,683 |
Past service costs In 2016, the negative past service costs mainly related to decrease of benefits in Indonesia due to plan amendment.
Actuarial (gains)/losses due to experience adjustments in 2016 mainly related to higher number of employees being eligible for benefits in Indonesia, changed employee mix and higher paid interest on savings capital in Switzerland compared to previous actuarial assumptions.
Contribution to defined benefit plans The Group expects to contribute DKK 240 million in 2017 compared to DKK 238 million in 2016.
Actuarial calculations and valuations are performed annually for all major defined benefit plans. The actuarial assumptions vary from country to country due to local conditions. Discount rates are based on the market yield of high quality corporate bonds or government bonds with a maturity approximating to the terms of the defined benefit obligations.
| CHF | GBP | EUR | Other currencies |
|
|---|---|---|---|---|
| 2016 | ||||
| Discount rates at 31 December |
0.6% | 2.8% | 1.1-2.6% | 1.0-8.3% |
| Future salary increases | 1.0% | 1.0% | 0.0-3.5% | 0.0-10.0% |
| Future pension increases | 0.0% | 3.2% | 0.0-2.0% | 0.0-1.5% |
| 2015 | ||||
| Discount rates at | ||||
| 31 December | 0.8% | 3.9% | 1.8-2.4% | 1.3-9.9% |
| Future salary increases | 1.0% | 1.9% | 0.0-2.6% | 0.0-10.0% |
| Future pension increases | 0.0% | 3.0% | 0.0-2.0% | 0.0-3.0% |
The table below illustrates the sensitivity related to significant actuarial assumptions used in the calculation of the defined benefit obligation recognised at the reporting date. The analysis is based on changes in assumptions that the Group considered to be reasonably possible at the reporting date. It is estimated that the relevant changes in assumptions would have increased/ (decreased) the defined benefit obligation by the amounts shown below:
| 2016 | 2015 | |||
|---|---|---|---|---|
| DKK million | +0.5% | -0.5% | +0.5% | -0.5% |
| Discount rate | (524) | 591 | (487) | 550 |
| Future price inflation | 90 | (84) | 126 | (114) |
| Future salary increases | 78 | (77) | 82 | (80) |
| Future pension increases | 383 | (78) | 358 | (77) |
| +1 year | -1 year | +1 year | -1 year | |
| Life expectancy | 180 | (179) | 157 | (157) |
The estimated weighted average duration of the defined benefit obligation was 15 years (2015: 14 years) and is split into:
| 2016 | 2015 | |
|---|---|---|
| Active employees | 14 | 14 |
| Retired employees | 14 | 14 |
| Deferred vested | 22 | 22 |
| Total employees | 15 | 14 |
Contributions to defined contribution plans are recognised as Staff costs when the related service is provided. Any contributions outstanding are recognised as Other liabilities.
Defined benefit plans The Group's net obligation is calculated annually by a qualified actuary using the projected unit credit method. This calculation is done separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. The present value less the fair value of any plan assets is recognised under Pensions and similar obligations.
When the calculation results in a potential asset, recognition is limited to the present value of economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Pension costs are calculated based on actuarial estimates and financial expectations at the beginning of the year. Service costs are recognised under Staff costs and net interest is recognised under Financial expenses. Differences between the expected development in pension assets and liabilities and the realised amounts at the end of the year are designated actuarial gains or losses and are recognised in other comprehensive income.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefits that relates to past service or the gain or loss on curtailment is recognised in the income statement under Staff costs. The Group recognises gains and losses on the settlement when the settlement occurs.
Other long-term employee benefits are recognised based on an actuarial calculation. Service costs and actuarial gains and losses are recognised in the income statement under Staff costs. Interest on long-term employee benefits are recognised under Financial expenses. Other long-term employee benefits comprise jubilee benefits, long-service or sabbatical leave etc.
| DKK million | Legal and labour related cases |
Self-insurance | Other | Total |
|---|---|---|---|---|
| Provisions at 1 January 2016 | 159 | 217 | 93 | 469 |
| Foreign exchange adjustments | 14 | (2) | 7 | 19 |
| Additional provisions recognised | 62 | 180 | 56 | 298 |
| Used during the year | (39) | (210) | (49) | (298) |
| Reversal of unused provisions | (41) | (2) | (10) | (53) |
| Unwind of discount and other financial expenses | 8 | 2 | 0 | 10 |
| Reclassification to Liabilities classified as held for sale | (2) | - | (6) | (8) |
| Reclassification (to)/from Other liabilities | 6 | (1) | 1 | 6 |
| Provisions at 31 December 2016 | 167 | 184 | 92 | 443 |
| Current | 63 | 78 | 46 | 187 |
| Non-current | 104 | 106 | 46 | 256 |
Self-insurance In the UK & Ireland, the USA, Australia and Hong Kong, the Group carries insurance provisions on employers' liability and/or workers compensation. Generally, the provisions for self-insurance are based on valuations from external actuaries. The countries are self-insured up to the following limits:
Furthermore, the provision includes liability not insured under the global general liability insurance with a self-insured level of DKK 0.2 million per claim and obligations and legal costs in relation to various insurance cases if not covered by the insurance.
Other comprises various obligations incurred, e.g. restructuring costs, guarantee reserves, dismantling costs, operational issues, closure of contracts and costs of meeting obligations under onerous contracts. At 31 December 2016, provisions for onerous contracts were included with DKK 23 million (2015: DKK 5 million).
The amount recognised as a provision is management's best estimate of the amount required to settle the obligation. The outcome depends on future events that are uncertain by nature. In assessing the likely outcome of lawsuits and tax disputes etc., management bases its assessment on external legal assistance and established precedents.
Provisions are recognised if the Group, as a result of a past event has a present legal or constructive obligation, and it is probable that an outflow of economic benefits will be required to settle the obligation. The costs required to settle the obligation are discounted if this significantly impacts the measurement of the liability. The entity's average borrowing rate is used as discount rate.
Restructuring costs are recognised under Provisions when a detailed, formal restructuring plan is announced to the affected parties on or before the reporting date.
Onerous contracts A provision is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting the obligations under the contract.
Asset retirement obligation When the Group has a legal obligation to dismantle or remove an asset or restore a site or rented facilities when vacated, a provision is recognised corresponding to the present value of expected future costs. The present value of the obligation is included in the cost of the relevant tangible asset and depreciated accordingly.
Indemnity and guarantee commitments (mainly towards public authorities and insurance companies) at 31 December 2016 amounted to DKK 478 million (2015: DKK 480 million).
The Group has issued performance guarantee bonds for service contracts with an annual revenue of DKK 1,791 million (2015: DKK 1,773 million) of which DKK 1,316 million (2015: DKK 1,280 million) were bank-guaranteed performance bonds. Such performance bonds are issued in the ordinary course of business in the service industry to guarantee towards our customers satisfactory completion of work in accordance with service contracts.
The Group makes provisions for claims from purchasers or other parties in connection with divestments and representations and warranties given in relation to such divestments. Management believes that provisions made at 31 December 2016 are adequate. However, there can be no assurance that one or more major claims arising out of the Group's divestment of companies will not adversely affect the Group's activities, results of operations and financial position.
The Group is party to certain legal proceedings. Management believes that these proceedings (many of which are labour-related cases incidental to the business) will not have a material impact on the Group's financial position beyond the assets and liabilities already recognised in the statement of financial position at 31 December 2016.
Restructuring projects, e.g. related to implementation of the strategic initiative GREAT, have been undertaken across different geographies and service areas. Labour laws especially in Europe include restrictions on dismissals and procedural rules to be followed. The procedures applied by ISS could be challenged in certain jurisdictions resulting in liabilities. Management believes that this would not have a material impact on the Group's financial position beyond the assets and liabilities already recognised in the statement of financial position at 31 December 2016.
| DKK million | Conti nental Europe |
Northern Europe |
Asia & Pacific |
Americas | Other countries |
Total segments |
Unallo cated 1) |
Elimina tion 2) |
Total Group |
|---|---|---|---|---|---|---|---|---|---|
| 2016 | |||||||||
| Operating profit | 1,599 | 1,608 | 1,057 | (11) | (2) | 4,251 | (668) | - | 3,583 |
| Total assets | 19,907 | 18,153 | 8,357 | 3,734 | 15 | 50,166 | 24,364 | (25,748) | 48,782 |
| Hereof assets classified as held for sale | 1,051 | 258 | 211 | - | - | 1,520 | - | - | 1,520 |
| Additions to non-current assets 3) | 318 | 297 | 159 | 125 | - | 899 | 301 | - | 1,200 |
| Total liabilities | 10,839 | 8,249 | 3,785 | 2,317 | 13 | 25,203 | 35,003 | (25,344) | 34,862 |
| Hereof liabilities classified as held for sale | 281 | 47 | 98 | - | - | 426 | - | - | 426 |
| 2015 | |||||||||
| Operating profit | 1,643 | 1,740 | 952 | 178 | (2) | 4,511 | (683) | - | 3,828 |
| Total assets | 19,636 | 18,951 | 7,932 | 3,701 | 15 | 50,235 | 25,280 | (26,230) | 49,285 |
| Hereof assets classified as held for sale | 1,357 | 182 | - | - | - | 1,539 | - | - | 1,539 |
| Additions to non-current assets 3) | 381 | 1,049 | 157 | 79 | - | 1,666 | 47 | - | 1,713 |
| Total liabilities | 10,548 | 8,596 | 3,358 | 2,230 | 14 | 24,746 | 35,835 | (25,800) | 34,781 |
| Hereof liabilities classified as held for sale | 353 | 91 | - | - | - | 444 | - | - | 444 |
1) Unallocated assets and liabilities relate to the Group's holding companies and comprise internal and external loans and borrowings, cash and cash equivalents and intra-group balances.
2) Eliminations relate to intra-group balances.
3) Comprise additions to Intangible assets and Property, plant and equipment, including from Acquisitions.
The accounting policies of the reportable segments are described in 2.1, Segment and revenue information.
| DKK million | 2016 | 2015 |
|---|---|---|
| UK & Ireland | 3,359 | 4,058 |
| France | 2,030 | 2,031 |
| Denmark (ISS A/S's country of domicile) | 1,866 | 1,951 |
| Switzerland | 1,671 | 1,702 |
| Spain & Portugal | 1,378 | 1,428 |
| USA & Canada Other countries (including unallocated items |
1,232 | 1,406 |
| and eliminations) | 16,755 | 16,704 |
| Total | 28,291 | 29,280 |
1) Excluding deferred tax assets.
In 2016, average number of employees was 498,708 (2015: 509,232). The decrease was due to divestments.
Acquisitions and divestments completed in the period 1 January to 15 February 2017 are listed in 4.1, Acquisitions and 4.2, Divestments, respectively.
On 3 February 2017, we signed an agreement to divest our security activities in Ireland. The divestment supports our strategy to focus on geographies and services where we see the greatest opportunities for customer growth and profitability.
Other than as set out above or elsewhere in these consolidated financial statements, we are not aware of events subsequent to 31 December 2016, which are expected to have a material impact on the Group's financial position.
IASB has published the following new standards, amendments to existing standards and interpretations that are not yet mandatory for the preparation of the consolidated financial statements of the Group for the year ended 31 December 2016:
In addition IASB has published the following new standards, amendments to existing standards and interpretations, which are not yet adopted by the EU at 31 December 2016:
The Group expects to adopt the new standards and interpretations when they become mandatory. The standards and interpretations that are approved with different effective dates in the EU than the corresponding effective dates under IASB will be early adopted so that the implementation follows the effective dates under IASB.
IFRS 15 "Revenue from Contracts with Customers" (superseding all current revenue recognition requirements under IFRS) will be effective for the financial year beginning on 1 January 2018. The new standard establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
In 2016, a process was commenced to analyse and evaluate the impact of the new standard. Based on our preliminary assessment, the new standard will result in some new disclosures, e.g. on contract balances, but is expected to have a limited impact on recognition and measurement. The evaluation will be finalised in 2017.
IFRS 16 "Leases" (superseding IAS 17) will be effective for the financial year beginning on 1 January 2019. The new standard significantly changes the accounting treatment of leases currently treated as operating leases, in that lessees, with a few exceptions, should recognise all types of leases as assets in the statement of financial position and the related lease obligations as liabilities. The annual cost of the lease, which will comprise two elements – depreciation and interest expense – will be charged to the lessee's income statement. Currently, operating lease cost is recognised in a single amount under Other operating expenses. Similarly, operating lease payments will be presented in the cash flow statement in two lines – Interest paid and Other financial payments. Currently, operating lease payments are presented as part of Cash flow from operating activities as they are included in Operating profit before other items.
Our business model is based on leasing, rather than owning, property, vehicles (cars) and equipment, primarily under operating leases. We have therefore entered into a significant number of operational lease agreements across the Group, e.g. for our more than 20,000 cars. Expectedly, the new standard will have a significant impact on recognition and measurement in the consolidated financial statements.
In 2016, a process was commenced to analyse and evaluate the impact of the new standard. Being a decentralised company with leased equipment across our more than 50 countries, the evaluation process is extensive and involves a significant number of people. The analysis will continue in 2017 and is expected to be finalised in 2018.
Except as mentioned above for IFRS 16 "Leases", based on the current business setup and level of activities, none of the standards and interpretations are expected to have a material impact on the recognition and measurement in the consolidated financial statements of the Group.
Below the Group's significant subsidiaries, associates and joint ventures are presented per region. Together these are referred to as "Companies within the ISS Group".
| Austria | |
|---|---|
| ISS Austria Holding GmbH | 100% |
| ISS Facility Services GmbH | 100% |
| ISS Ground Services GmbH | 51% |
| Belgium & Luxembourg | |
| ISS Catering N.V. | 100% |
| ISS N.V. | 100% |
| ISS Facility Services S.A. | 100% |
| Czech Republic | |
| ISS Facility Services s.r.o | 100% |
| Estonia | |
| ISS Haldus OÜ | 100% |
| France | |
| Extincteurs Haas SAS | 100% |
| GIE ISS Services | 100% |
| ISS Facility Management SAS | 100% |
| ISS Holding Paris SAS | 100% |
| ISS Hygiene & Prevention SAS | 100% |
| ISS Logistique et Production SAS | 100% |
| ISS Proprete SAS | 100% |
| Germany | |
| ISS Automotive Services GmbH | 100% |
| ISS Facility Services GmbH | 100% |
| ISS Facility Services Nord GmbH | 100% |
| ISS Facility Services Süd GmbH | 100% |
| ISS IT & Business Services GmbH | 100% |
| ISS Pharma Services GmbH | 100% |
| ISS VSG GmbH | 100% |
| Greece | |
| ISS Facility Services S.A. | 100% |
| Hungary | |
| ISS Facility Services Kft. | 100% |
| Profi-Komfort Kft. | 100% |
| Israel | |
| Catering Ltd. | 100% |
| ISS Ashmoret Ltd. | 100% |
| ISS Integrated Facility Service Management Ltd. 100% | |
| ISS Israel Comprehensive Business Services Ltd. 100% | |
| Norcat Ltd. | 100% |
| Norfolk International Ltd. | 100% |
| Italy | |
| ISS Facility Services S.r.l. | 100% |
| Netherlands | |
| ISS Catering Services B.V. | 100% |
ISS Cure & Care B.V. 100%
| ISS Holding Nederland B.V. | 100% |
|---|---|
| ISS Integrated Facility Services B.V. | 100% |
| ISS Nederland B.V. | 100% |
| ISS Security & Services B.V. | 100% |
| Poland | |
| ISS Facility Services Sp. Z o.o. | 100% |
| Romania | |
| ISS Facility Services S.R.L. | 100% |
| ISS Romania Group S.R.L | 100% |
| Russia | |
| Facility Services RUS LLC | 100% |
| Slovakia | |
| ISS Facility Services spol. s.r.o. | 100% |
| Slovenia | |
| ISS Facility Services d.o.o. | 100% |
| Spain & Portugal | |
| Integrated Service Solutions, S.L. | 100% |
| ISS Facility Services, S.A. | 100% |
| ISS Soluciones de Seguridad, S.L. | 100% |
| ISS Facility Services, Lda. | 100% |
| Switzerland | |
| ISS Facility Services AG | 100% |
| ISS Kanal Services AG | 100% |
| ISS Schweiz AG | 100% |
| Turkey | |
| ISS Hazir Yemek Üretim ve Hizmet A.Ş. | 90% 3) |
| ISS Proser Koruma ve Güvenlik Hizmetleri A.Ş. 90% 3) | |
| ISS Tesis Yönetim Hizmetleri A.Ş. | 90% 3) |
| NORTHERN EUROPE | |
| Denmark (ISS A/S's country of domicile) ISS Facility Services A/S |
100% |
| ISS Kloak- & Industriservice A/S | 100% |
| ISS World Services A/S | 100% |
| ISS Global A/S | 100% |
| ISS Global Management A/S | 100% |
| ISS Holding France A/S | 100% |
| ISS Lending A/S | 100% |
| Finland | |
| ISS Palvelut Holding Oy | 100% |
| ISS Palvelut Oy | 100% |
| ISS Proko Oy | 100% |
| Opset Oy | 76% 1) |
| Iceland | |
|---|---|
| ISS Ísland ehf. | 100% |
| Norway | |
|---|---|
| ISS Facility Services AS | 100% |
| ISS Holding AS | 100% |
| ISS Management AS | 100% |
| ISS Serveringspartner AS | 100% |
| ISS Service Management AS | 100% |
| NSB Trafikkservice AS | 45% 1) |
| Sweden | |
| ISS Facility Services AB | 100% |
| ISS Palvelut Holding AB | 100% |
| UK & Ireland | |
| ISS Mediclean Ltd. | 100% |
| ISS Technical Services UK LTD | 100% |
| ISS Technical Solutions LTD | 100% |
| ISS UK Holding Ltd. | 100% |
| ISS UK Ltd. | 100% |
| Spectrum Franchising Ltd. | 100% |
| ISS Ireland Ltd. | 100% |
| Australia & New Zealand | |
|---|---|
| ISS Catering Services Pty Ltd. | 100% |
| ISS Facility Services Australia Ltd. | 100% |
| ISS Facility Services Pty Ltd. | 100% |
| ISS Health Services Pty Ltd. | 100% |
| ISS Holdings Pty Ltd. | 100% |
| ISS Hospitality Pty Limited | 100% |
| ISS Integrated Services Pty Ltd. | 100% |
| ISS Management Pty Limited | 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 Facilities Services Ltd. | 100% |
| ISS Holdings NZ Ltd. | 100% |
| Brunei ISS Facility Services Sdn. Bhd. |
100% |
| China ISS Facility Services (Shanghai) Ltd. |
100% |
| ISS Facility Services (Tianjin) Ltd. | 100% |
| Shanghai B&A Security Service Co., Ltd. | 100% |
| Hung Fat Cleaning Transportation Co., Ltd. | 100% |
|---|---|
| ISS Adams Secuforce Ltd. | 100% |
| ISS China Holdings I Ltd. | 100% |
| ISS China Holdings Ltd. | 100% |
| ISS EastPoint Properties Ltd. | 100% |
| ISS EastPoint Property Management Ltd. | 100% |
| ISS Environmental Services (HK) Ltd. | 100% |
| ISS Facility Services China 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 and Payroll Advisory Services Pvt. Ltd. 49% 2) | |
| ISS Facility Services (India) Pvt. Ltd. | 100% |
| ISS SDB Security Services Pvt. Ltd. | 49% 2) |
| Modern Protection & Investigations Ltd. | 49% 2) |
| Indonesia | |
| PT ISS Facility Services | 49% 2) |
| PT ISS Indonesia | 100% |
| PT ISS Jasa Fasilitas | 0% 2) |
| PT ISS Parking Management | 100% |
| Japan | |
| Nihon ISS KK | 100% |
| Malaysia | |
| ISS Facility Services Sdn. Bhd. | 30% 2) |
| Philippines | |
| ISS Facility Services Phils., Inc. | 100% |
| Singapore | |
| ISS Catering Services Pte. Ltd. | 100% |
| ISS Facility Services Private Limited | 100% |
| ISS Hydroculture Pte. Ltd. | 100% |
| ISS M&E Pte. Ltd. | 100% |
| Taiwan | |
| ISS Facility Services Ltd. | 100% |
| ISS Security Ltd. | 100% |
| Thailand | |
| ISS Facility Services Co., Ltd. | 100% |
| ISS Security Services Co., Ltd. | 100% |
| ISS Support Services Co., Ltd. | 100% |
| AMERICAS | |
| Argentina | |
|---|---|
| ISS Argentina S.A. | 100% |
| ISS Facility Services S.R.L. | 100% |
| ISS Food S.A. | 100% |
| Brazil | |
| ISS Servisystem do Brasil Ltda. | 100% |
| Chile | |
| Apunto Servicios de Alimentacion S.A. | 100% |
| ISS Facility Services S.A. | 100% |
| ISS Servicios Generales Ltda. | 100% |
|---|---|
| ISS Servicios Integrales Ltda. | 100% |
| Mexico | |
| ISS Centro América, S de RL de CV | 100% |
| ISS Facility Services, SA de CV | 100% |
| Uruguay | |
| ISS Uruguay S.A. | 100% |
| USA & Canada | |
| ISS C&S Building Maintenance Corporation | 100% |
| ISS Facility Services California, Inc. | 100% |
| ISS Facility Services Holding, Inc. | 100% |
ISS Facility Services, Inc. 100%
| ISS Holding Inc. | 100% |
|---|---|
| ISS Management and Finance Co., Inc. | 100% |
| ISS TMC Services, Inc. | 100% |
| ISS Uniguard Security, Inc. | 100% |
| ISS Facility Services Inc. | 100% |
| 1) Associate |
|---|
| 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) The non-controlling shareholder holds a put option |
which is accounted for as if the put option has already been exercised. Accordingly, the subsidiary is consolidated with no non-controlling interest.
The Board of Directors and the Executive Group Management Board have today discussed and approved the annual report of ISS A/S for the financial year 2016.
The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act.
It is our opinion that the consolidated financial statements and the Parent company financial statements give a true and fair view of the Group's and the Parent company's financial position at 31 December 2016 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 2016.
In our opinion, the Management review includes a fair review of the development in the Group's and the Parent
company's operations and financial conditions, the results for the year, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that the Group and the Parent company face.
We recommend that the annual report be approved at the annual general meeting.
Pierre-François Riolacci Group CFO
Lord Allen of Kensington Kt CBE Chairman
Henrik Poulsen Ben Stevens
Thomas Berglund Deputy Chairman
Claire Chiang
Cynthia Mary Trudell
Pernille Benborg (E) Palle Fransen Queck (E) Joseph Nazareth (E)
E = Employee representive
This Group Annual Report is an extract of the ISS Annual Report pursuant to section 149 of the Danish Financial Statements Act. For the sake of clarity and user friendliness, ISS has chosen to issue a Group Annual Report that excludes the financial statements of the Parent company, ISS A/S.
The financial statements of the Parent company are an integral part of the full Annual Report, which is available from ISS on request, and the full Annual Report is also available at and can be downloaded from www.issworld. com. After approval at the annual general meeting, the full Annual Report is also available on request from the
Danish Business Authority. The full Annual Report has the Management statement by the Executive Group Management Board and Board of Directors as well as the Independent auditor's report.
We have audited the consolidated financial statements and the Parent company financial statements (the "financial statements") of ISS A/S for the financial year 1 January – 31 December 2016, pp. 61–107 and pp. 119–127, which comprise income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and notes, including accounting policies, for the Group as well as for the Parent company. The financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act.
In our opinion, the financial statements give a true and fair view of the financial position of the Group and the Parent company at 31 December 2016 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 2016 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act.
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 "Auditors' responsibilities for the audit of the financial statements" section of this auditors' report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants
(IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these rules and requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the financial year 2016. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the "Auditors' responsibilities for the audit of the financial statements" section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement 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 accompanying financial statements.
The carrying amounts of goodwill and customer contracts related to prior years' acquisitions comprise a significant part of the consolidated balance sheet. 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 inherent 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 4.5, 4.6 and 4.7 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 profitability to board approved budgets. 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 assumptions applied. Our audit procedures primarily focused on cash generating units where changes in key assumptions could result in impairment. We further evaluated the disclosures provided by Management in the financial statements compared to applicable accounting standards.
When classifying businesses as held for sale Management makes judgements and estimates, including assessment of impairment of the net assets. Due to the inherent uncertainty involved in classifying and assessing assets and liabilities held for sale, we considered these balances as a key audit matter.
For details on the assets and liabilities held for sale reference is made to note 4.3 in the consolidated financial statements.
In response to the identified risks, our audit procedures included, among others, agreeing the carrying amounts of the assets held for sale to underlying accounting records, discussing with Management the criteria for classification as held for sale and reading draft agreements where relevant. We considered the fair value assessment made by Management, including assessment of key assumptions applied and evaluation of the explanations provided by comparing key assumptions to market data, where available. We further evaluated the disclosures provided by Management in the financial statements compared to applicable accounting standards.
The Group's operations are subject to income taxes in various jurisdictions having different tax legislation. Management makes judgements and estimates in determining the accrual for 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 2.5 and 2.6 in the consolidated financial statements and notes 4 and 6 in the Parent company financial statements.
In response to the identified risks, our audit procedures included review of completeness and accuracy of the amounts recognised as income tax and deferred tax, including 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 disclosures provided by Management compared to applicable accounting standards.
Management is responsible for the Management's review, pp. 1–60.
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 concluded that the Management's review is in accordance with the financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the Management's review.
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, Management 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.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements 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 these financial statements.
As part of an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement 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.
We communicate with those charged with governance 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 governance 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 independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Copenhagen, 23 February 2017 ERNST & YOUNG Godkendt Revisionspartnerselskab CVR no. 30 70 02 28
Jesper Ridder Olsen State Authorised Public Accountant
Michael Groth Hansen State Authorised Public Accountant
ISS has been the Facility Services provider for this NHS UK Foundation Trust teaching hospital since 2009. It is the principal hospital in its region, with a high profile amongst the local population and the business community. It illustrates the essence of public service – highly valued by the community, while facing strong challenges in terms of growing demand for services against budget limits.
ISS is valued as a flexible and proactive partner, aligned to the client's culture and objectives, energetic in innovating solutions to support the way the hospital delivers clinical services. In 2016, ISS and Royal Derby Hospital agreed a ten-year contract extension, which is unprecedented in the sector. Key innovations and solutions aligned to the hospital's objectives include the following:
Financial – ISS cost leadership to drive continuous financial and service improvement. The commercial model actively supports partnership joint savings through shared targets that incentivise.
Exceptional patient experience – delivering quality in all aspects of patient care, safety, effectiveness and the quality of the building.
Infection reduction – ISS participation in the development of a Cleanliness Charter, supported by structured and proactive education and training for all staff to ensure infection prevention.
Premises Assurance Model – partner in the joint working groups, compiling and implementing a robust compliance model for the hospital to maintain this NHS national standard.
FOR-Ward Model – reviewing activities of both clinical and non-clinical tasks, to identify and scope opportunities to ensure that tasks are undertaken by the appropriate people.
Value for the client is realised through the ISS team's commitment to service quality, the adaptability in meeting the changing needs of clinical staff, and in transforming service methods to reduce cost and raise standards.
"The commitment shown by the ISS team to providing a quality service to the patients of Derby has been outstanding; through solid leadership ISS have convinced the Trust to extend their contract for 10 years. This has led to an increased morale and higher levels of satisfaction amongst hospital staff, patients and visitors, which has a positive impact of the contract extension. The stability this will give to the contract is immeasurable". Paul Brooks, Assistant Director, Royal Derby Hospital
140 DKKm annual contract value
752 ISS staff delivering facility management services
1,159 beds the hospital operates
patients the hospital cares for annually
VICKY EDWARDS Receptionist
PIP HERBERT Receipt and Distribution Porter, Healthcare Cleaner
ROYAL DERBY HOSPITAL, ISS UK
Providing the right logistical set-up and support is essential when patients are involved
"By keeping the school clean, I help the students focus on learning and developing their talents – while I do the same in my job every day"
IFRAH MOHAMED Cleaning Professional, ISS Denmark
Ifrah Mohamed cleans one of the schools in Næstved Municipality in Denmark. Along with her colleagues, she keeps the facilities clean and inviting, so the students can focus on learning and growing.
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| DKK million | Revenue | % of Group revenue |
Employees | % of Group employees |
Revenue | % of Group revenue |
Employees | % of Group employees |
| Switzerland | 5,251 | 7% | 12,037 | 2% | 5,174 | 7% | 11,202 | 2% |
| France | 4,731 | 6% | 23,180 | 5% | 4,794 | 6% | 24,296 | 5% |
| Spain & Portugal | 4,635 | 6% | 34,175 | 7% | 4,681 | 6% | 35,622 | 7% |
| Turkey 1) | 2,783 | 4% | 29,394 | 6% | 2,787 | 4% | 28,401 | 6% |
| Belgium & Luxembourg | 2,615 | 3% | 9,362 | 2% | 2,494 | 3% | 9,201 | 2% |
| Germany | 2,474 | 3% | 8,522 | 2% | 2,435 | 3% | 8,749 | 2% |
| Israel 1) | 1,824 | 2% | 7,666 | 2% | 1,826 | 2% | 8,341 | 2% |
| Austria | 1,761 | 2% | 7,069 | 1% | 1,647 | 2% | 7,112 | 1% |
| Netherlands | 1,676 | 2% | 6,246 | 1% | 1,731 | 2% | 6,840 | 1% |
| Italy | 450 | 1% | 746 | 0% | 407 | 1% | 626 | 0% |
| Czech Republic 1) | 384 | 0% | 3,637 | 1% | 392 | 0% | 4,448 | 1% |
| Greece | 323 | 0% | 2,204 | 0% | 400 | 1% | 3,282 | 1% |
| Poland 1) | 226 | 0% | 2,104 | 0% | 225 | 0% | 2,453 | 0% |
| Slovakia 1) | 224 | 0% | 2,549 | 1% | 232 | 0% | 3,262 | 1% |
| Slovenia 1) | 177 | 0% | 867 | 0% | 179 | 0% | 935 | 0% |
| Estonia 1) | 173 | 0% | 1,719 | 0% | 148 | 0% | 1,703 | 0% |
| Hungary 1) | 143 | 0% | 1,539 | 0% | 144 | 0% | 1,675 | 0% |
| Russia 1) | 130 | 0% | 1,233 | 0% | 118 | 0% | 1,342 | 0% |
| Romania 1) | 115 | 0% | 1,662 | 0% | 141 | 0% | 1,684 | 0% |
| CONTINENTAL EUROPE | 30,095 | 38% | 155,911 | 32% | 29,955 | 38% | 161,174 | 32% |
| UK & Ireland | 11,801 | 15% | 45,853 | 9% | 12,519 | 16% | 47,081 | 9% |
| Norway | 3,901 | 5% | 9,152 | 2% | 3,943 | 5% | 8,709 | 2% |
| Finland | 3,623 | 5% | 8,774 | 2% | 3,753 | 5% | 8,981 | 2% |
| Sweden | 3,520 | 4% | 7,994 | 2% | 3,708 | 5% | 8,390 | 2% |
| Denmark | 3,500 | 4% | 6,896 | 1% | 3,116 | 4% | 7,103 | 1% |
| Iceland | 142 | 0% | 732 | 0% | 130 | 0% | 695 | 0% |
| Greenland (divested in 2016) | 28 | 0% | 0 | 0% | 87 | 0% | 264 | 0% |
| NORTHERN EUROPE | 26,515 | 34% | 79,401 | 16% | 27,256 | 34% | 81,223 | 16% |
| Australia & New Zealand | 3,896 | 5% | 11,502 | 2% | 4,478 | 6% | 12,407 | 2% |
| Hong Kong 1) | 2,381 | 3% | 14,410 | 3% | 2,316 | 3% | 14,856 | 3% |
| Singapore 1) | 1,912 | 2% | 8,566 | 2% | 1,694 | 2% | 8,156 | 2% |
| Indonesia 1) | 1,733 | 2% | 57,598 | 12% | 1,511 | 2% | 58,606 | 12% |
| Thailand 1) | 1,345 | 2% | 33,205 | 7% | 1,357 | 2% | 32,893 | 7% |
| India 1) | 1,299 | 2% | 51,325 | 10% | 1,221 | 2% | 46,215 | 9% |
| China 1) | 1,073 | 1% | 14,555 | 3% | 1,114 | 1% | 17,502 | 3% |
| Taiwan 1) | 375 | 0% | 2,785 | 1% | 364 | 0% | 2,787 | 1% |
| Philippines 1) | 310 | 0% | 7,911 | 2% | 255 | 0% | 6,996 | 1% |
| Malaysia 1) | 118 | 0% | 1,681 | 0% | 107 | 0% | 1,743 | 0% |
| Japan 1) | 109 | 0% | 39 | 0% | 107 | 0% | 44 | 0% |
| Brunei 1) | 39 | 0% | 460 | 0% | 40 | 0% | 496 | 0% |
| Other countries – Asia 1) | 16 | 0% | 10 | 0% | 18 | 0% | 12 | 0% |
| ASIA & PACIFIC | 14,606 | 18% | 204,047 | 41% | 14,582 | 18% | 202,713 | 40% |
| USA & Canada | 4,680 | 6% | 14,103 | 3% | 4,161 | 5% | 15,355 | 3% |
| Brazil 1) | 1,038 | 1% | 7,786 | 2% | 1,310 | 2% | 13,641 | 3% |
| Chile 1) | 979 | 1% | 14,651 | 3% | 944 | 1% | 13,039 | 3% |
| Mexico 1) | 649 | 1% | 14,399 | 3% | 690 | 1% | 13,243 | 3% |
| Argentina 1) | 365 | 0% | 2,414 | 0% | 501 | 1% | 3,029 | 1% |
| Uruguay 1) | 114 | 0% | 1,306 | 0% | 97 | 0% | 1,222 | 0% |
| Other countries – Latin America 1) | 60 | 0% | 8 | 0% | 67 | 0% | 4 | 0% |
| AMERICAS | 7,885 | 10% | 54,667 | 11% | 7,770 | 10% | 59,533 | 12% |
| Other countries 1) | 104 | 0% | 0 | 0% | 113 | 0% | 0 | 0% |
| Corporate functions / eliminations | (68) | (0)% | 207 | 0% | (97) | (0)% | 173 | 0% |
| ISS Group | 79,137 | 100% | 494,233 | 100% | 79,579 | 100% | 504,816 | 100% |
1) Emerging markets.
Please refer to pp. 116–117 for a list of countries where ISS operates.
Austria Erich Steinreiber www.at.issworld.com
Belgium & Luxembourg Kris Cloots www.be.issworld.com www.lu.issworld.com
Czech Republic & Slovakia Jan Bohácek www.cz.issworld.com www.sk.issworld.com
Estonia & Russia Priit Paiste www.ee.issworld.com www.ru.issworld.com
France Antoine Namand
www.fr.issworld.com
Germany Alexander Granderath www.de.issworld.com
Italy Antonio Winteler www.it.issworld.com
Israel Avi Hochman www.il.issworld.com
Greece
Hungary & Slovenia Péter Szabo (acting) www.hu.issworld.com www.si.issworld.com
Laurentiu Gheorghe www.gr.issworld.com
Netherlands Kees Stroomer www.nl.issworld.com
Poland Dawid Dolata www.pl.issworld.com
Romania Laurentiu Gheorghe www.ro.issworld.com
Spain & Portugal Javier Urbiola www.es.issworld.com www.pt.issworld.com
Turkey Cavit Habib www.tr.issworld.com
Denmark Flemming Bendt www.dk.issworld.com
Sweden Gary Kidd www.se.issworld.com
UK & Ireland Matt Brabin www.uk.issworld.com www.ie.issworld.com
Australia & New Zealand Scott Davies www.au.issworld.com www.nz.issworld.com
Brunei & Indonesia Elisa Lumbantoruan www.bn.issworld.com www.id.issworld.com
Purvin Patel www.in.issworld.com
India
Philippines Peter Lund www.ph.issworld.com
Singapore & Malaysia C.C. Woon www.sg.issworld.com www.my.issworld.com
Taiwan Peter Trampe www.tw.issworld.com
Thailand Abhijit Datta www.th.issworld.com
Hong Kong Calvin Chin www.hk.issworld.com
Argentina & Uruguay Mariano Miguel Papa www.ar.issworld.com www.uy.issworld.com
Brazil Waldomiro Modena Filho www.br.issworld.com
Chile Rodrigo González www.cl.issworld.com
Mexico Juan Paulo Mendoza www.mx.issworld.com
USA & Canada Phil McVey www.us.issworld.com
In addition to the 47 countries shown above, where ISS operates and has an office, ISS operates in 27 countries where we have no office. These countries are: Algeria, Bahrain, Bulgaria, Cayman Islands, Colombia, Costa Rica, Croatia, Cyprus, Ecuador, Egypt, Jordan, Kuwait, Latvia, Lithuania, Monaco, Morocco, Nigeria, Pakistan, Panama, Peru, Puerto Rico, South Africa, South Korea, Sri Lanka, Ukraine, United Arab Emirates and Vietnam.
Buddingevej 197 DK-2860 Søborg Denmark Tel.: +45 38 17 00 00 Fax: +45 38 17 00 11 www.issworld.com CVR 28 50 47 99
Kenth Kærhøg Head of Group Communications Tel.: +45 38 17 00 00
Nicholas Ward Head of Group Investor Relations Tel. +45 38 17 00 00
EDITED BY Group Controlling ISS A/S
DESIGN, PRODUCTION & PRINT KIRK & HOLM Rosendahls
ISS A/S www.issworld.com
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