ISS — Annual Report 2021

Mar 17, 2022

Untitled Annual report 2021 ISS Global A/S Buddingevej 197 DK – 2860 Søborg Denmark Tel.: +45 38 17 00 00 Fax: +45 38 17 00 11 www.issworld.com CVR 21 40 83 95 Annual report 1 January – 31 December 2021 Approved at the annual general meeting On 19 April 2022 Bjørn Raasteen Chair of the annual general meeting OVERVIEW 2 Contents Overview 3 Key figures 4 Outlook Our performance 5 Group results 8 Cash generation and free cash flow 9 Capital structure 10 Key account development 11 Strategic divestment programme 12 Continental Europe 12 Northern Europe 13 Asia & Pacific 14 Americas Our business 15 Our strategy 19 Our people 21 Our business risks Governance 24 Corporate governance 27 Our governance structure Financial statements 28 Consolidated financial statements 101 Parent company financial statements 116 Management statement 117 Independent auditors’ report 122 Definitions Corporate Responsibility Report Our CR report of the ISS A/S Group as per section 99a and §107d of the Danish Financial Statements Act is available at: https://brand.issworld.com/web/24f976f13bb57357/ corporate-responsibility-reports/ The report also serves as ISS’s communication on progress in implementing the ten principles of the Global Compact. Remuneration Report Our remuneration policy is described in our Remu- neration Report which is available at: https://brand.issworld.com/m/1cb6c4270d293ad6/o riginal/Remuneration-Report-2021.pdf ISS Global A/S – an integral part of the ISS A/S Group ISS Global A/S is an indirectly, wholly owned subsidiary of ISS A/S, a leading, global provider of workplace and facility service solutions, listed on Nasdaq Copenhagen. ISS Global A/S owns – di- rectly or indirectly – the ISS Group’s operating com- panies (together referred to as “ISS”, “the Group” or “the ISS Global Group”). ISS Global A/S operates as the ISS Group’s internal bank and therefore holds the majority of the ISS Group’s external fund- ing. ISS Global A/S is an integral part of the ISS A/S Group. Thus, operating, financing and investing activities are managed for the ISS A/S Group as a whole, rather than specifically for the ISS Global Group. The management team of the ISS Global Group formally consists of the Board of Directors and the Managing Director of ISS Global A/S. Since ISS Global A/S has no operating activities inde- pendently of the ISS A/S Group, the ISS Global Group relies on the management team of ISS A/S, which is considered the ISS Global Group’s key management personnel. Due to this structure, the sections “Our business” and “Governance” of the Management review, pp. 15–27, are described in the context of the ISS A/S Group. OVERVIEW 3 Key figures Financials 2021 1) 2020 2019 2) 2018 2017 Results (DKKm) Revenue 71,383 70,767 77,715 73,623 73,617 Operating profit before other items 2,920 (2,501) 3,829 4,260 4,545 Operating profit 1,628 (4,899) 2,059 1,998 2,911 Financial expenses, net (573) (549) (695) (583) (489) Net profit from continuing operations 496 (5,262) 798 980 1,839 Net profit from discontinued operations 3) 110 46 (46) (886) (201) Net profit 606 (5,216) 752 94 1,638 Cash flow (DKKm) Cash flow from operating activities 3,221 (886) 1,275 2,653 2,752 Acquisition of intangible assets and property, plant and equipment, net (424) (552) (897) (813) (770) Free cash flow 1,900 (2,143) (264) 1,818 1,975 Financial position (DKKm) Total assets 40,357 40,134 42,945 42,719 45,906 Goodwill 15,063 15,093 16,513 16,237 18,196 Additions to property, plant and equipment 308 382 673 881 738 Equity 4,246 3,195 2,711 3,403 1,956 Net debt 9,816 12,345 17,274 12,701 15,676 Ratios 2021 2020 2019 2018 2017 Financial ratios (%) Organic growth 2.0% (6.6)% 7.1% 3.9% 2.9% Acquisitions and divestments, net (0.5)% (0.2)% (2.2)% (0.5)% (6.9)% Currency adjustments (0.6)% (2.1)% 0.7% (3.4)% (2.5)% Total revenue growth 0.9% (8.9)% 5.6% 0.0% (6.5)% Operating margin 4) 4.1% (3.5)% 4.9% 5.8% 6.2% Equity ratio 10.5% 8.0% 6.3% 8.0% 4.3% ESG 5) 2021 2020 2019 2018 2017 Social (%) Full-time employees 76% 75% 77% 76% 76% Employees end of period, number 354,394 378,724 470,806 485,676 488,722 Employees (average), number 362,554 434,664 483,296 485,682 491,633 1) In 2021, Chile was reclassified as held for use and continuing operations. Comparative figures were restated accordingly. 2) As of 1 January 2019, the Group implemented IFRS 16 using the retrospective approach. Comparative figures were not restated. 3) In 2021, Brunei, the Czech Republic, Hungary, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia and Taiwan were treated as discontinued operations. In 2020, Brazil, Brunei, the Czech Republic, Hungary, Malaysia, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia, Taiwan and Thailand were treated as discontinued operations. In 2019, 2018 and 2017, Argentina, Brazil, Brunei, Chile, the Czech Republic, Estonia, Hungary, Israel, Malaysia, the Philippines, Romania, Slovenia, Slovakia, Thailand and Uruguay were treated as discontinued operations. 4) Based on Operating profit before other items. 5) Selected Environmental, Social and Governance data (ESG). For all ESG data for the ISS A/S Group, see the 2021 Corporate Responsibility Report for the ISS A/S Group. OVERVIEW 4 Outlook ISS Global A/S is an indirectly, wholly owned subsidi- ary of ISS A/S and an integrated part of the ISS A/S Group. In 2022, the execution of the OneISS strategy and the ongoing turnaround will continue. The operational and financial improvements achieved in 2021 provide a solid foundation for continued progress in 2022. The outlook for 2022 assumes a continued return to the workplace and Covid-19 recovery. The revenue recovery is expected to be gradual over the year as large global companies have delayed large-scale mandatory return-to-office due to the spreading of Covid-19 (the omicron variant). Organic growth Organic growth is expected to be above 2% for 2022 (2021: 2.0%). Growth is driven by the continued gradual recovery from Covid-19, positive effects from management of inflation and impact from contract wins and expansions achieved during 2021. How- ever, we are also mindful of the sustained global un- certainties from Covid-19, where the spreading of the omicron variant has led to some reinforcement of re- strictions, particularly in Asia & Pacific. A negative impact is expected from a lower level of projects and above-base work as well as the planned exit of the Danish Defence contract. Operating margin Operating margin is expected to be above 4.5% (2021: 4.1%). The main drivers of the increase are continued improvement of the underperforming con- tracts and countries, predominantly Deutsche Tele- kom, a positive impact from Covid-19 revenue recov- ery and continued improvement across the business from ongoing restructuring initiatives. Free cash flow Free cash flow is expected to be above DKK 1.0 bil- lion (2021: DKK 1.9 billion). The expected higher op- erating profit before other items compared to 2021 will have a positive effect on free cash flow. Inflow from changes in working capital is expected to be neutral to slightly positive following the positive im- pact in 2021. Payments related to restructuring pro- jects initiated in 2020, including the exit fee to Danish Defence, are expected to reduce free cash flow by around DKK 0.5 billion. Delivery on 2021 outlook As a result of the significant financial progress in 2021, we raised our outlook once and ended the full year in line with our revised guidance, as shown in the table above. The outlook should be read in conjunction with “For- ward-looking statements” on p. 122 and our expo- sure to risk, see Our business risks on pp. 21-23. Delivery on 2021 outlook Annual report 2020 Interim report H1 2021 Actual 2021 Organic growth Positive Positive 2.0% Operating margin 1) Above 2.5% Above 2.5% 4.1% Free cash flow DKK 0 - (1.0)bn DKK 0 - 1.0bn DKK 1.9bn OUTLOOK 2022 2) Organic growth Above 2% Operating margin 1) Above 4.5% Free cash flow Above DKK 1.0bn 1) Based on Operating profit before other items 2) Excluding any impact from acquisitions and divestments completed subsequent to 28 February 2022 as well as currency translation effect. OUR PERFORMANCE 5 Group results Despite continued challenges from Covid-19 and a volatile business environment, ISS de- livered significant financial and operational progress in 2021. This was not least due to improvements in our underperforming con- tracts and countries, the impact from re- structuring initiatives across our business and a strong focus on serving our key cus- tomer segments. Group revenue Group revenue was DKK 71.4 billion, an increase of 0.9% compared with 2020. Organic growth was 2.0%, while currency effects as well as divestments and ac- quisitions, net reduced revenue by 0.6% and 0.5%, re- spectively. In 2021, ISS continued to be adversely impacted by Covid-19 lockdowns and revenue reductions. Organic growth was negative in Q1 but turned positive from Q2 due to the annualisation effects of Covid-19, and the initial signs of recovery. The positive developments continued in Q3, as customers in some geographies started to return to their offices, especially from Sep- tember, and the year ended with positive organic growth of 5.8% in Q4. As a result, organic growth for the year was positive 2.0%. Revenue from key accounts continued to show resili- ence in 2021 with organic growth of 3.0% compared to organic growth of (0.2)% for non-key accounts. Pro- jects and above-base work grew organically by around 9%, especially due to continued solid demand for deep cleaning and disinfection, albeit slowing down in some countries in the later part of the year. Portfolio revenue on the other hand showed signs of recovery towards the end of the year to offset the significant negative growth in Q1, ending flat for the full year of 2021 compared to 2020. The adverse impact on revenue from Covid-19 contin- ued to vary across service types, customer segments and geographies. The services suffering the most were generally those depending on our customers’ employees being on site, such as food services. In the first six months of 2021, revenue from food services declined 26% compared to the same period last year. However, the initial signs of recovery in Q3 and Q4 in some countries contributed to reducing the majority of the decline in H1 2021, causing food services revenue for the full year of 2021 to decline 6%. As a result, rev- enue from food services accounted for 11% of the Group’s 2021 revenue (2020: 11%). ISS’s largest ser- vice line, cleaning services, has been stable through- out the pandemic and comprised around half of the Group’s revenue in 2021, which was in line with 2020. All regions, except for the Americas, reported positive organic growth in 2021, supported by Covid-19-related projects and above-base work as well as initial portfo- lio recovery, as tight Covid-19 restrictions were eased across Europe towards the end of the year. In Continental Europe, growth was driven by strong key account performance especially in Turkey, Spain, Switzerland, Italy and Austria as well as high cost in- flation in Turkey being successfully passed on to cus- tomers. In Northern Europe, projects and above-base work in Finland, Denmark and Norway contributed the most to growth. Asia & Pacific was mainly supported by strong performance in Australia and Hong Kong, whereas growth was negative or flat in the remaining countries. In the Americas, growth was supported by initial recovery in food services in the USA in the late part of 2021 and the gradual start-up of the five-year contract with a large international manufacturing cus- tomer. However, growth was slightly negative for the full year due to the significant Covid-19-related reve- nue reduction in food services and the Aviation seg- ment in the first half of the year. Revenue DKK million 2021 2020 Organic Acq./ div. FX Growth 2021 Continental Europe 27,846 27,634 4 % (1)% (2)% 1 % Northern Europe 23,424 22,642 1 % (0)% 2 % 3 % Asia & Pacific 12,381 12,385 0 % (0)% 0 % (0)% Americas 7,141 7,565 (2)% (1)% (3)% (6)% Other countries 612 561 12 % - (3)% 9 % Corporate / eliminations (21) (20) - - - - Group 71,383 70,767 2.0 % (0.5)% (6.0)% 0.9 % OUR PERFORMANCE 6 Operating profit before other items Operating profit before other items amounted to DKK 2,920 million for an operating margin of 4.1% (2020: (3.5)% or around 1.5% excluding restructuring costs and one-offs). The operating margin increased significantly in 2021, mainly due to improvements in underperforming con- tracts and countries as well as the impact from the on- going restructuring initiatives across the business, in- cluding contract exits and cost reductions. Also, the continuing demand for higher margin projects and above-base work and the initial recovery of portfolio revenue had a positive impact on margins. All regions reported positive margins in 2021 with Northern and Continental Europe contributing the most to the improvement compared to 2020. Improve- ments were seen in all countries of the two regions in 2021, but most significantly in Denmark, the UK and Germany. In Denmark, ISS reached an agreement with Danish Defence to exit the partnership gradually from Novem- ber 2021 to the end of May 2022. Danish Defence will take over all services currently being handled by ISS. The transition was initiated in November 2021 and is progressing according to plan. The turnaround initiatives in the UK led to good pro- gress in 2021. The Country Manager, who joined in 2021, has through a number of management changes been driving the restructuring initiatives, including making cost reductions, portfolio trimming and improv- ing the contract performance of key accounts. In Germany, the execution programme for the Deutsche Telekom contract developed in line with the plan to improve contract performance in one of the largest and most refined contracts in the Facility Man- agement industry. This included significant milestones being reached in relation to certain tailormade IT de- velopments. The large restructuring plan in France progressed with cost savings starting to materialise, independently of Covid-19 recovery. The French business has been heavily impacted by Covid-19 restrictions, and the pace of revenue recovery in the most severely im- pacted customer segments remains slow. In the Americas, the margin increase was mainly driven by the USA due to restructuring initiatives initi- ated in 2020, renegotiation of food services contracts and continued cost control. Furthermore, the initial re- covery of food services towards the end of the year also supported the margin progression. For Asia & Pacific, Australia and Hong Kong were the main drivers of the improved margin due to a focus on operational efficiencies and the impact of margin-ac- cretive projects and above-base work. Other income and expenses, net Other income and expenses, net was an income of DKK 456 million (2020: expense of DKK 626 million), mainly due to a gain on the divestment of Kanal Ser- vices in Switzerland and Specialized Service in the USA, partly offset by depreciation and amortisation in Chile for the years 2019 and 2020 triggered by the de- cision to cease the country’s classification as discon- tinued operations. In 2020, the net expense was mainly the result of costs related to the IT security inci- dent in February 2020. Goodwill impairment Goodwill impairment was DKK 459 million (2020: DKK 535 million) which mainly relates to France. Turn- around initiatives in France progressed slowly. How- ever, rising interest rates and growing uncertainty as to the pace of market recovery from Covid-19 within the most impacted customer segments, led to an in- crease in the applied WACC and thus recognition of a goodwill impairment of DKK 459 million in June 2021. Op erati ng p rofit b efore oth er i tems DKK million Continental Europe 773 2.8 % (2,030) (7.3)% Northern Europe 1,097 4.7 % (1,200) (5.3)% Asia & Pacific 735 5.9 % 646 5.2 % Americas 393 5.5 % 262 3.5 % Other countries 19 3.0 % 20 3.6 % Corporate / eliminations (97) - (199) - Gro up 2,920 4.1 % (2,501) (3.5)% 2021 2020 OUR PERFORMANCE 7 Operating profit Operating profit was DKK 1,628 million (2020: DKK (4,899) million). Financial income and expenses, net Financial income and expenses, net was an expense of DKK 573 million (2020: DKK 549 million). The in- crease was mainly due to a premium of DKK 90 mil- lion related to the repurchase of EUR 200 million of the total of EUR 500 million outstanding EMTN bonds maturing in 2024. Income tax The effective tax rate was 52.9% (2020: 3.4%) calcu- lated as Income tax of DKK 559 million divided by Profit before tax of DKK 1,055 million. The effective tax rate was adversely impacted by non-tax-deductible impairment in France and valuation allowances on de- ferred tax assets, mainly in France and Germany. Fur- thermore, non-tax-deductible costs, including interest limitation, impacted negatively. Net profit from discontinued operations Net profit from discontinued operations was DKK 110 million (2020: DKK 46 million), including a net gain of DKK 77 million mainly relating to the six countries di- vested in 2021, most significantly Slovakia and the Czech Republic. In December 2021, management decided to cease the held for sale classification of Chile. As a result, Chile was reported as part of the continuing operations for the full year of 2021. Comparative figures have been restated accordingly. Net profit Net profit was DKK 606 million (2020: DKK (5,216) million). Subsequent events In February 2022, a war in Ukraine broke out following a Russian invasion of the country. We are monitoring the developing humanitarian crisis, and our priority is the safety and wellbeing of our people and our cus- tomers. ISS has no material activities in Ukraine, and our business in Russia has been classified as held for sale and discontinued operations since December 2020 and recognised at an immaterial amount. It is management’s assessment that the outbreak of the war has no impact on recognition and measure- ment at 31 December 2021, and further that it will not have a material impact on the results of the Group’s operations and financial position in 2022. Other than set out above or elsewhere in these con- solidated financial statements, we are not aware of events subsequent to 31 December 2021, which are expected to have a material impact on the Group’s an- nual report. OUR PERFORMANCE 8 Cash generation and free cash flow Cash flow from operating activities Cash flow from operating activities was DKK 3,221 million (2020: DKK (886) million), an increase of DKK 4,107 million, predominantly stemming from in- creased operating profit before other items. This was mainly the result of improvements in underperforming contracts and countries, the impact of ongoing re- structuring initiatives and initial Covid-19 recovery in certain countries. Changes in working capital were an inflow of DKK 1,039 million (2020: DKK 1,007 million) mainly due to a strong focus on working capital management. Addi- tionally, employee-related accruals increased follow- ing the pick-up in activity as a result of the initial Covid-19 recovery. Further, working capital was sup- ported by improved payment terms for ISS and in- creased customer prepayments following the exten- sion of a global key account contract. Utilisation of factoring increased slightly to DKK 1.1 billion (2020: DKK 1.0 billion). Changes in provisions was an outflow of DKK 407 million, mainly due to payments related to restructur- ing projects initiated in 2020. Income tax paid was DKK 443 million (2020: DKK 389 million) mainly resulting from payment on ac- count for 2021 and final payments related to 2020. Payments were positively impacted by utilisation of tax losses carried forward from prior years, including 2020. Cash flow from investing activities Cash flow from investing activities was a net inflow of DKK 235 million (2020: net outflow of DKK 197 mil- lion). The successful execution of our divestment pro- gramme in 2021, led to an inflow of DKK 1,191 million from divestment of businesses, most significantly re- lated to the divestment of Kanal Services in Switzer- land and Specialized Services in US. Acquisition of businesses was an outflow of DKK 526 million for the acquisition of Rönesans Facility Man- agement Company in the healthcare segment in Tur- key, where we will be providing services to four newly built hospitals. Investments in intangible assets and property, plant and equipment, net, of DKK 424 million (2020: DKK 552 million), represented 0.6% (2020: 0.8%) of total revenue (including discontinued operations), and mainly reflected continued strict investment discipline during Covid-19 and fewer new contracts being tran- sitioned. Cash flow from financing activities Cash flow from financing activities was a net outflow of DKK 2,994 million (2020: inflow of DKK 1,499 mil- lion). Repayment of bonds led to a cash outflow of DKK 1,577 million due to the repurchase of EUR 200 mil- lion of the total outstanding EUR 500 million EMTN bonds maturing in 2024. The early redemption was enabled by the strong liquidity position in 2021 result- ing from the solid operational improvement and suc- cessful execution of the strategic divestment pro- gramme. Repayment of lease liabilities of DKK 935 million was broadly in line with last year (2020: DKK 1,005 mil- lion). Other financial payments, net was an outflow of DKK 431 million stemming from working capital facilities, though reduced by loan proceeds of approximately DKK 450 million from a local facility established for the purpose of the acquisition in Turkey. Transactions with non-controlling interests was an in- flow of DKK 164 million stemming from the sale of a minority share in ISS Turkey to Actera and the Turk- ish management team as an integrated part of the ac- quisition of Rönesans in Turkey. Free cash flow Free cash flow amounted to DKK 1,900 million (2020: DKK (2,143) million), an increase of DKK 4,043 mil- lion compared to 2020. The significant improvement was driven by operating profit before other items and strong working capital performance. Lease additions amounted to DKK 867 million, which was broadly in line with 2020. OUR PERFORMANCE 9 Capital structure The ISS Global Group is indirectly wholly owned by ISS A/S and is therefore part of the ISS A/S Group. Group Treasury manages financing activities and capital structure centrally for the ISS A/S Group as a whole. The ISS Global Group’s financing activities and capital structure are not assessed independently of the ISS A/S Group. In 2021, ISS delivered solid improvements in opera- tional performance and strong execution of the di- vestment programme. Based on the strong liquidity position, ISS cancelled the EUR 700 million backup credit facility in May 2021. The facility was estab- lished in Q2 2020 in response to Covid-19 related un- certainties. Further, in December 2021, we repur- chased EUR 200 million of the total of EUR 500 mil- lion outstanding EMTN bonds maturing 2024, thereby reducing gross debt levels. The Group’s liquidity re- serves at 31 December 2021 are described in note 4.6 to the consolidated financial statements. ISS has no unaddressed material debt maturities until 2024 onwards. We are committed to our Financial Policy of maintaining an investment grade profile and ISS A/S currently holds corporate credit ratings of BBB-/ Negative outlook assigned by S&P and Baa3/ Stable outlook assigned by Moody’s. At 31 December 2021, net debt had decreased to DKK 9.8 billion (2020: DKK 12.3 billion) due to the strong free cash flow performance and the divest- ment programme generating significant proceeds. Equity At 31 December 2021, equity was DKK 4,245 million (2020: DKK 3,195 million), equivalent to an equity ra- tio of 10.5% (2020: 8.0%). The increase was mainly a result of net profit of DKK 606 million and currency adjustments of foreign entities (net of hedges) of DKK 106 million. Transactions with non-controlling inter- ests added DKK 350 million due to the sale of a mi- nority share of ISS Turkey to Actera and the Turkish management team. Furthermore, actuarial gains amounted to DKK 1,145 million due to strong asset returns on plan assets, generally increasing interest rates and updated mor- tality assumptions, mainly in Switzerland. This was offset by the change in asset ceiling of DKK 1,080 million related to surplus restrictions in Switzerland. For further details, see note 5.4 to the consolidated fi- nancial statements. OUR PERFORMANCE 10 Key account development Key account revenue accounted for 69% of Group revenue (2020: 67%) and generated organic growth of 3.0%, which was slightly better than the Group’s organic growth. As such, demand from key accounts showed resilience, despite Covid-19 lockdowns and restrictions, with continued high demand for projects and above-base work, mainly deep cleaning and dis- infection. In the second half of 2021, growth was also supported by some recovery of our portfolio revenue, as several countries experienced gradual, albeit slow, signs of recovery linked to gradual normalisation of occupancy rates at our customers’ office sites. The launch of a few large contracts also contributed to the organic growth in 2021, most significantly the commencement of Iberdrola in Spain, the launch of a Hospital Authority contract in Hong Kong and the gradual start-up of the IFS contract with a large inter- national manufacturing customer in the Americas. Further, in Norway the below-mentioned contract with Equinor commenced in Q4. Covid-19 continued to impact the number of contracts won in 2021, though with activity picking up towards the end of the year. ISS secured a few significant contract wins and continued to proactively work with customers to ensure renewals. This led to several ex- tensions and expansions in 2021. In Norway, ISS won a five-year contract with Equinor, with a possible five-year extension option. ISS also extended the global contract with Barclays by five years and the Rolls Royce contract by two years. Ad- ditionally, we expanded the global contract with Philip Morris to include workplace services in 31 countries from Q1 2022. In the UK, contract extensions were signed with a retail and wholesale customer and a customer in the transportation and infrastructure seg- ment. We also extended the long-standing partner- ship with HPE, our first-ever global key account, for another five years. ISS will continue to deliver a wide range of IFS to HPE’s offices and production sites un- til August 2027. Finally, in February 2022 we renewed the existing contract with a global pharmaceutical customer for five years. The annual revenue of the contract is above 1% of Group revenue. In terms of contract exits in 2021, ISS entered into an agreement with Danish Defence to exit the partner- ship agreement gradually from November 2021 to the end of May 2022. Contract maturity The majority of our key account contracts have initial terms of three to five years. A significant share of rev- enue is therefore up for renewal every year. To miti- gate this risk, we have a strong focus on customer satisfaction and proactively work with our customers to seek renewals. In 2021, despite Covid-19-related revenue reductions, our key account retention rate increased slightly to 94% (2020: 93%). In 2021, revenue from large key accounts (> DKK 200 million) was DKK 20.9 billion, or 29% of Group revenue. Going into 2022, no large key accounts have been lost, but customer contracts representing revenue of DKK 3.4 billion (5% of Group) are up for renewal in 2022 (excluding signed renewals up until February 2022). OUR PERFORMANCE 11 Strategic divestment programme Our strategic divestment programme en- joyed strong momentum in 2021 with six countries and six business units being di- vested. Countries divested in 2021 were Slovakia, the Czech Republic, Romania, Hungary, the Philip- pines and Slovenia. In terms of business units, the most significant divestments in 2021 were Special- ized Services in the USA and Kanal Services in Switzerland. Subsequently, the Waste Manage- ment business in Hong Kong was also divested in January 2022. By the end of 2021, 13 out of 18 countries in scope for the programme had been divested. Additionally, in January 2022 we signed an agreement to divest our activities in Taiwan with expected completion in Q1 2022. In 2021, Chile (being one of the 18 countries in scope) developed positively, both financially and strategically, as demonstrated by the wins of a few large key account contracts. Based on the positive developments and improved strategic fit, manage- ment decided to take Chile off the divestment pro- gramme and cease the classification as a discontin- ued operation in December 2021. Rescoping of the programme With the significant progress made in 2021, the di- vestments signed or completed in January 2022, and Chile being reclassified to continuing opera- tions, the divestment programme is nearing com- pletion. As a result, ISS announced in January 2022 that the programme scope had been updated to com- prise the remaining three countries, i.e. Brunei, Por- tugal and Russia, and only two additional business units for which sales processes have not yet been initiated. Divestment proceeds In 2021, total net proceeds secured from the divest- ment programme amounted to approximately DKK 1.8 billion (including divestments signed or com- pleted in January 2022). Despite the rescoping of the programme, ISS continues to target around DKK 2 billion in total net proceeds for 2021 and 2022. Financial impact in 2021 At 31 December 2021, five businesses (2020: 14 businesses) were classified as held for sale, which comprised the discontinued operations in Brunei, Portugal, Russia and Taiwan as well as the Waste Management business in Hong Kong (divested in January 2022). Assets and liabilities held for sale amounted to DKK 493 million (2020: DKK 1,816 million) and DKK 280 million (2020: DKK 838 mil- lion), respectively. In 2021, completed divestments and fair value re- measurements resulted in a net gain before tax of DKK 605 million (2020: loss of DKK 59 million) of which DKK 77 million (2020: DKK 61 million) was recognised in Net profit from discontinued opera- tions, see note 3.2 to the consolidated financial statements. As a result of the reclassification of Chile to contin- uing operations, depreciation and amortisation amounting to DKK 59 million for the years 2019 and 2020 were recognised in Other income and ex- penses, net in 2021. OUR PERFORMANCE 12 Continental Europe The market Continental Europe is our largest region, compris- ing a number of key markets, where we hold lead- ing market positions, including Switzerland, Ger- many and Spain. Most of the markets are devel- oped, but with significant differences in IFS market maturity and macroeconomic environment. Key customer segments are Business Services & IT, In- dustry & Manufacturing, Public Administration, Healthcare and Pharmaceuticals. Financial update Revenue increased to DKK 27,846 million in 2021 (2020: DKK 27,634 million). Organic growth was 4.4%, while divestments and acquisitions, net and currency effects reduced revenue by 0.8% and 2.9%, respectively. In 2021, the region remained impacted by Covid-19 lockdowns and revenue reductions, resulting in negative organic growth in Q1, especially in Bel- gium and the Netherlands due to broad exposure to food services. With the annualisation of the year- over-year impact, growth turned positive from Q2, further supported by slowly improving business fun- damentals over the rest of 2021. For the full year, the positive growth was driven by strong performance in Turkey, Spain, Switzerland, Italy and Austria, albeit from a low comparison base in 2020. In Turkey, growth was supported by price increases from significant cost inflation successfully passed on to customers, and continued growth from new hospital contracts launched in H2 2020. In Spain and Italy, growth was mainly driven by contract launches and expansions with key ac- counts along with high demand for projects and above-base work, especially deep cleaning and dis- infection, which also lifted growth in Switzerland and Austria. Projects and above-base work grew organically by 12.9% to account for 18% of revenue for 2021 (2020: 17%). Despite selective contract exits in Germany and the Netherlands, and a negative year-over-year impact from lockdowns in Q1 2021, portfolio revenue grew organically by 2.7% in 2021. During Q2-Q4 2021, most countries experienced signs of recovery, albeit slow, linked to gradual nor- malisation of occupancy rates at our customers’ of- fice sites. Commercially, our key account focus secured new wins and several extensions resulting in a strong retention rate of 96% (2020: 93%). Operating profit before other items was DKK 773 million (2020: (2,030) million) for an operating mar- gin of 2.8% (2020: (7.3)% or around 0.5% adjusted for restructuring and one-off costs). Most countries contributed to the improvement, led by Spain and Switzerland. Across the region, restructuring initia- tives, portfolio trimming, focus on Covid-19 recov- ery, together with strong demand for projects and above-base work, impacted the margins positively. In Germany, the execution programme for the Deutsche Telekom contract developed in line with the plan to improve contract performance in one of the largest and most refined contracts in the Facility Management industry. The restructuring plan in France progressed with cost savings slowly materialising. However, the French business was heavily impacted by Covid-19 restrictions and the pace of revenue recovery within the most affected customer segments remains slow. The related uncertainties led to a goodwill im- pairment of DKK 459 million in H1 2021. Despite improvements compared to 2021, operating margin for the region was below Group margin due to oper- ational challenges in France and on the Deutsche Telekom contract. Northern Europe The market ISS holds a market-leading position across the re- gion where markets are generally mature, competi- tive and with a relatively high outsourcing rate. The region holds the Group’s highest key account share of 75%. The largest country in the region is the UK, contributing around 45% of revenue. Key segments are Business Services & IT, Healthcare and Public Administration. Financial update Revenue increased to DKK 23,424 million in 2021 (2020: DKK 22,642 million). Organic growth was 1.3% and currency effects increased revenue by 2.4%. In 2021, the region remained impacted by Covid-19 lockdowns and revenue reductions, among others due to a relatively large exposure to food services. In Q1, organic growth was negative with Norway OUR PERFORMANCE 13 and the UK the most significantly impacted. Or- ganic growth turned positive from Q2, when signs of recovery began to appear and as a result of the annualisation of the year-over-year impact. This was supported by improved performance in most countries, due to Covid-19 recovery and contract start-ups in Q4. For the full year, the positive organic growth across the region was driven by a partial Covid-19 recov- ery, despite some delays in the commercial pipe- line, and high demand for projects and above-base work, mainly deep-cleaning and disinfection. All countries contributed to the positive organic growth. In Denmark and Norway, growth was mainly driven by projects and above-base work, though Norway was also supported by the start-up of Equinor in Q4. In the UK, food recovery and projects and above-base work, mainly in the healthcare seg- ment, were the main drivers. Portfolio revenue declined by 0.5%, negatively im- pacted by Covid-19 restrictions, partly due to the relatively large exposure to food services. Revenue from projects and above-base work increased or- ganically by 7.6% (2020: 22%), reaching 24% of revenue for the region in 2021. Commercially, our key account focus secured both new sales and extensions resulting in a key ac- count retention rate of 93% (2020: 94%). In Nor- way, ISS won a five-year contract with Equinor with a five-year extension option. Operating profit before other items was DKK 1,097 million (2020: DKK (1,200) million), for an op- erating margin of 4.7% (2020: (5.3)% or around (0.5)% adjusted for restructuring and one-off costs). All countries contributed to the margin improvement through a continued focus on cost control and initial recovery from Covid-19. The turnaround initiatives in the UK have been very effective, and good pro- gress was seen in 2021. The Country Manager, who joined in 2021, has been driving a restructuring of the organisation in accordance with the OneISS blueprint, eliminating overhead costs, portfolio trim- ming and improving the contract performance of key accounts. In Denmark, ISS entered into an agreement with Danish Defence to exit the partnership gradually from November 2021 to the end of May 2022. The transition is progressing according to plan. Asia & Pacific The market The region comprises a mix of developed markets such as Australia, Hong Kong and Singapore and developing markets, such as China, India and Indo- nesia. ISS has a strong presence in the region and holds a market-leading position in several coun- tries. Key customer segments are Business Ser- vices & IT, Industry & Manufacturing, Healthcare and Public Administration. Financial update Revenue amounted to DKK 12,381 million in 2021 (2020: DKK 12,385 million). Organic growth was flat, while divestments and acquisitions, net and currency effects reduced revenue by 0% and 0%, respectively. In 2021, Covid-19 continued to impact the region both positively and negatively given its diverse ef- fects across the portfolio. Generally, a sequential improvement was seen throughout the year, as or- ganic growth started out in negative territory, im- proved each quarter, and ended the year in positive territory at 1.6% in Q4. Return to work has been volatile and highly de- pendent on many of the countries in the region en- forcing tougher restrictions (compared to Europe) around office work throughout the year. Many coun- tries remain at reduced office work capacity and most countries only began reopening their borders in November and December. India, Indonesia and Singapore were most signifi- cantly affected by lockdowns resulting in negative organic growth in both portfolio and non-portfolio revenue. On the other hand, despite challenging Covid-19 lockdowns, Australia and Hong Kong were favourably impacted by strong demand for projects and above-base work, including deep cleaning and disinfection. In Australia, growth was further supported by several smaller key account contract launches offsetting the negative impact from Covid-19 in the Aviation segment. Across the region, projects and above-base work grew 9% organically, largely due to demand for deep cleaning and disinfection, to account for 18% of revenue. This mitigated the impact of negative portfolio growth. Commercially, Covid-19 continued to influence the number of contracts won in 2021. Although con- tracts won declined compared to previous years, OUR PERFORMANCE 14 we still managed to secure a number of important new contracts and extend one large key account contract with an airport customer in Australia. As such, our key account retention rate was 93% (2020: 94%). Operating profit before other items increased to DKK 735 million (2020: DKK 646 million), for an op- erating margin of 5.9% (2020: 5.2%). The region thereby continued to show resilient and stable mar- gin levels above group margins, reflecting the strong operational platform in the region. Australia and Hong Kong increased their operating margins in 2021 due to improved operational efficiency and strong demand for margin-accretive projects and above-base work. In India, the improvement com- pared to last year was mainly due to global key ac- count project work. On the other hand, Singapore was adversely affected by a few large contract losses and reduced government support schemes. In Indonesia, the operating margin was negatively impacted by one-off labour-related costs. Americas The market The Americas consists of the mature North Ameri- can market as well as Mexico and Chile. North America is the world’s largest FM market, account- ing for around 30% of the global outsourced FM market. Food services account for a significantly larger share of revenue than in other regions. Key customer segments are Business Services & IT, In- dustry & Manufacturing, Pharmaceuticals, Trans- portation & Infrastructure and Food & Beverage. Financial update Revenue decreased to DKK 7,141 million in 2021 (2020: DKK 7,565 million). Organic growth was (1.6)% and currency effects as well as divestments and acquisitions, net, reduced revenue by 2.6% and 1.4%, respectively. In 2021, organic growth continued to be highly im- pacted by Covid-19 due to large exposure to food services and the Aviation segment. Revenue from food services declined 17% to account for 23% of the region’s revenue (2020: 26%) compared to 11% for the Group (2020: 11%). Organic growth was negative in Q1, but with the annualisation of the Covid-19 impact and signs of recovery, growth improved during the year and turned positive in Q3 and ended as high as 19.4% for Q4. For the full year, the negative organic growth was driven entirely by the USA due to Covid-19 related revenue reductions in food services and the Avia- tion segment at the beginning of the year. The neg- ative impact was, significantly reduced by the par- tial recovery and growth in Q3 and Q4, where reve- nue from food services increased as customers gradually returned to office. The gradual transition of the five-year IFS contract with a large interna- tional manufacturing customer also helped to miti- gate the negative impact from Covid-19. Mexico recorded strong growth in 2021, primarily due to new sales to key accounts. In December 2021, Chile was reclassified to continuing opera- tions and thus returned to being reported as part of the Americas. Chile generated revenue of DKK 1,003 million in 2021 (2020: DKK 930 million). Across the region, demand from key accounts was more robust and resilient than from other custom- ers. As such, organic growth from key accounts was positive at 6.2% in 2021 (2020: (8.1)%) and the retention rate was 91% (2020: 94%). Commercially, Covid-19 affected contract wins mainly due to delayed commercial processes. How- ever, several smaller contracts were won. Addition- ally, we extended the long-standing partnership with our first ever global key account HPE. As part of the strategic divestment programme, the USA divested its Single Service Cleaning business. The divestment will secure a sharper focus on key accounts in our strategic customer segments and IFS opportunities. Operating profit before other items was DKK 393 million (2020: DKK 262 million) for an operating margin of 5.5% (2020: 3.5%). The increase was mainly driven by restructuring initiatives in the USA initiated in 2020, renegotiation of food services con- tracts to “cost-plus” contracts to stabilise margins at reduced volumes, continued cost control and initial revenue recovery. Mexico and Chile delivered solid operating margins supported by new sales to key account customers. OUR BUSINESS 15 Our strategy In December 2020, we launched our re- freshed strategy, OneISS. The strategy confirms the long-term attraction of key accounts and our IFS business model. Acknowledging that our execution in recent years had proven unsatisfactory, OneISS outlines the strategic direction with dual priorities of delivering short-term turnaround, while at the same time en- suring long-term improvement of the global operat- ing model. The turnaround includes recovery of our four under- performing contracts (Deutsche Telekom and Dan- ish Defence) and countries (the UK and France) and sharpening our strategic focus through our di- vestment programme. Our new global operating model will further strengthen our ability to be a strategic workplace partner to our customers and consistently deliver high quality outcomes. With OneISS, we are build- ing the right foundation to become global leader in IFS and #1 globally in cleaning. We have made significant steps in 2021 and will build on that foundation as we continue the execu- tion in 2022 and towards achievement of our 2025 ambition. Divestment programme Our divestment programme had strong momentum in 2021 with seven countries and seven business units being divested (including the divestments signed or completed in January 2022). Since programme inception we have divested oper- ations in 14 out of the 18 countries in the pro- gramme scope (up until January 2022) – in addition to divesting several non-core business units. Fur- thermore, Chile was descoped from the divestment programme in December 2021 following encourag- ing strategic and financial development. With the significant progress made in 2021, and Chile being descoped, the divestment programme is nearing its completion, which is expected in 2022. For further details, see Strategic divestment programme, p. 11. OUR BUSINESS 16 Turnaround 2021-2022 Our turnaround programme 2021-2022 is outlining a healthy recovery of our business with focus on profitability and cash generation. Initiatives in the short-term focus on the recovery of our four under- performing contracts and countries, recovery from Covid-19 in addition to the divestment programme. Although there is still significant work to be done in 2022, we made good progress in 2021 with finan- cial run-rate improvements compared to 2020, see status below. As such, we reached our turnaround target for 2022 already by the end of 2021 for Dan- ish Defence, where we will exit the contract gradu- ally. In terms of recovery from Covid-19, we saw initial signs of recovery in our portfolio revenue as cus- tomers started to return to office in some geogra- phies, especially from Q3 2021. This also led to an encouraging pick-up in food services revenue in the second half of 2021, especially in the USA and the UK. We also saw a positive impact from the restructur- ing initiatives initiated in 2020 across the business in response to Covid-19, see Group results, p. 5. Underperforming contracts and countries OUR BUSINESS 17 Strengthened global operating model OneISS will deliver a new, globally aligned operat- ing model with shared structured processes that will prove more effective at supporting countries and unleashing the full potential of ISS’s global scale. Our new operating model will further strengthen our ability to be a strategic workplace partner to our customers and consistently deliver high quality out- comes. Being the global leader in IFS for key accounts is a challenging ambition – hence we need to build the best customer offering and internal operating model as ONE enterprise – OneISS. With our new operating model, we will develop our services and underlying tech-enabled platform re- quired to operate thousands of customer sites across the world in a consistent manner. Also, we will strengthen our commercial capabilities and build the right culture to support the execution of our strategy. In 2021, we initiated the journey towards a signifi- cantly improved global operating model and made good progress, particularly by establishing the core foundation of the future model. OUR BUSINESS 18 Strategic priorities for 2022 Given the significant progress we made in 2021 in relation to our global operating model, going into 2022 we have updated our strategic priorities to support and strengthen the next stage in our OneISS journey. We will focus on five key areas, where we believe, that we will achieve a lasting impact on the busi- ness and which will bring us closer to our 2025 am- bition and realising our vision. The five updated strategic priorities will provide our key accounts with a market-leading service offering and delivery globally: 1 Commercial momentum and segment leadership We will plan in advance the customer relationships we want to build, developing the right customer knowledge and segment focus to maintain long- term strategic relationships. We are continually im- proving and strengthening our bid-process, leverag- ing cross-country community support to bring the very best reference cases and expertise to new bids and renewals. 2 Brilliant operating basics Process efficiency and controls is at the very core of our success. With Brilliant Operating Basics, we will drive the next wave of process efficiency ena- bled by technology and with a focus on the core, high-volume processes. 3 Service products built on leading technology plat- forms We will offer standard service products under- pinned by best practices to ensure high quality, consistent delivery, coupled with the latest innova- tions in technology. This will unlock not only greater efficiencies, but also improve the customer experi- ence and enhance sustainability practices. 4 Environmental sustainability Our ambition is to have a positive impact on the planet, people and communities we operate in. Fur- ther, we have an ambition of making a significant positive impact on our customers’ sustainability ef- forts, which represents a significant business op- portunity. To show our commitments, in January 2022, we announced our target of Net Zero emis- sions by 2040 in all 3 scopes, and will set and ap- prove our Science- Based Targets in 2022. 5 Safe, diverse and inclusive workplaces (social sustainability) We have a 120-year legacy as a people company – social sustainability has always been in our DNA – with safety for our people being the first priority. ISS is built on a foundation of equity, inclusion, fairness, and respect for all individuals. We have a strong drive to act as social incubators and make a true difference for our employees, our customers and the communities in which we operate. Also we will continue to strengthen learning opportunities to pro- mote social mobility for all placemakers. OUR BUSINESS 19 Our people Investing in our people will be essential to our 2025 ambition of achieving industry- leading customer and employee engage- ment. Our people will play a key role by demonstrating the right behaviours, the right values and by embracing the unified mindset required to deliver on our strategy and achieve our purpose. Our leadership is essential to shaping a culture that will allow us to deliver on our strategy. We deploy our leadership model, develop and align global training processes and implement common stand- ards to drive the capabilities needed to consistently deliver on our customer value proposition. Our five ISS values, which are the cultural drivers behind OneISS, guide our people to be great ser- vice professionals and responsible citizens. Along- side the values of Honesty, Responsibility, Entre- preneurship and Quality, we launched Unity in 2021. Unity is closely linked to our strategic focus on promoting diversity, inclusion and belonging and highlights the sense of trust and empowerment that diverse teams feel within ISS. As a result, we also strengthened our diversity agenda further in 2021, and launched our global Diversity & inclusion strat- egy. Developing strong leaders We launched our new Leadership Model to develop our leaders in 2021. We have updated our learning offering to ensure that we equip our leaders with capabilities to deliver on the leadership behaviours supporting our culture. By the end of Q1 2022, all our Country Leadership Teams will have completed leadership workshops in our new leadership model and will have clear plans for the way they will em- bed our new leadership behaviours. At the same time, we will launch our renewed flag- ship leadership development programme which will facilitate clear and structured feedback allowing leaders to gain insights into their personal leader- ship style, strengths, and development areas – in line with the core behaviours central to delivering OneISS. We will deliver this to our senior leaders and mid-management across countries. Our ambi- tion is that all direct reports to Country Leadership Team members will have graduated from the pro- gramme by the end of 2022. Key accounts continue to be key to our strategy. The Key Account Manager Certification (KAMC) programme is therefore crucial to ensuring that we develop leaders able to retain and grow our key ac- count customers. The programme contains detailed training sessions in account operation, retention, and growth. Our Key Account Managers are certi- fied when they have demonstrated the necessary understanding of customer needs and priorities to engage with them in a way that will lead to higher customer satisfaction and profitable growth. In 2021, we updated the KAMC programme in line with OneISS. Deployment will begin in Q1 2022 and our aim is to deploy the programme across all of our global key accounts and more than 550 local key accounts by the end of 2022. Similarly, our site managers play an important role in the day-to-day operation of our key accounts. We run a Site Manager Programme, which equips our site-managing leaders with business acumen and leadership skills that help them manage effective customer relationships and build engaged teams. We are also focused on standardising our onboard- ing approach and on engaging with our new joiners in the most effective way. Our onboarding frame- work supports every new colleague through a holis- tic journey covering a three-month period. The pur- pose is to provide support and learning, aligned with our values, which delivers excellence in cus- tomer experience, increases compliance and boosts employee engagement and retention. Our service culture Service with a human touch (SWAHT) is the pro- gramme which for years has translated our culture into concrete service behaviours bringing our value proposition to life. This year, we launched the Placemaker’s Path, our updated service culture programme replacing SWAHT. For our customer- facing employees – who we call our placemakers – the Placemaker’s Path is a career-long learning and development programme. Deployment of the programme began in 2021 and our target is to de- ploy the Placemaker’s Path in all global key ac- counts and more than 450 local key accounts by the end of 2022. OUR BUSINESS 20 Our gratitude to our placemakers for their dedica- tion throughout the turbulence of Covid-19 cannot be overstated. Every year, at our annual Global Leadership Conference, we give the “Employee of the year” award also called the Apple Award of the Year, to one of our colleagues who has gone above and beyond to serve our customers. However, in 2021, we did not hand out any individual awards simply because it would have been impossible to do in a fair and respectful way. Instead, we decided to recognise every placemaker by organising a con- cert by a legendary British musician in tribute to all our placemakers. Digitalisation We acknowledge that technology is a key enabler for delivering on our strategy – also in our people processes. In 2021, we continued the implementa- tion of People@ISS – our global people system. Thanks to this initiative, we are enabling a data- driven approach to our people and compliance agenda. We have also identified the potential to use IT to automate our recruitment process. For example, through IRIS – a virtual hiring assistant able to an- swer common candidate questions in over 100 lan- guages, 24 hours a day. We are piloting IRIS in the USA to explore opportunities to improve efficiency for new hires and hiring managers. This year, we have taken the decision to invest in a global employee platform to amplify our ability to listen to and engage with our placemakers, as part of a digital place providing access to ‘quality of life’ functionalities (expected to include integrations with local rostering, payroll and leave request systems where possible). Integrated listening capabilities will provide our employees with the opportunity to make their voices heard, while accessing business and self-service tools, to make their working lives eas- ier. This will give ISS stronger insights into em- ployee engagement and the ability to recognise im- provement opportunities in an agile and proactive way. We continued to develop our global learning man- agement system, MyLearning. It is a multi-function platform, which supports the deployment and track- ing of over 2,000 global and country-specific e- learning modules along with over 800 training vid- eos available in 27 languages and is accessible to all ISS employees. Since its formal launch in 2015, the use of MyLearning across the organisation has continued to grow. In 2017, approximately 100,000 e-learning modules were completed; this figure now stands at over 5.3 million to date, with over 800,000 completions in 2021. Employee retention We operate in a marketplace where levels of em- ployee churn are inherently high. To reach our 2025 ambition of achieving industry-leading em- ployee engagement, we are targeting a structural improvement in our employee retention. Higher em- ployee retention underpins a more consistent, higher quality of service and reduces the costs as- sociated with attracting, recruiting and onboarding new colleagues. During 2021, Covid-19 continued to impact our em- ployee turnover, especially in Asia. However, our persistent push for retention initiatives in countries, e.g. improved labour conditions relative to the mar- ket in certain countries resulted in a global em- ployee turnover of 30% in 2021, continuing the pos- itive trend from previous years. The trend is also driven by our key account focus, including the dis- continuation of high-churn, non-key account con- tracts and not least divestment of businesses in countries with relatively high employee turnover. 2022 people priorities Looking ahead to 2022, we will work towards our 2025 ambitions through focusing on the deploy- ment of our updated leadership development and service culture programmes, supporting OneISS. We will continue to roll out People@ISS to support compliance in our people processes and begin the pilot deployment of the global employee platform to amplify our ability to engage with our employees in a number of additional countries in 2022. As per our core values, we will also explore opportunities to continuously integrate Diversity, Inclusion and Belonging into our learning and development pro- grammes. OUR BUSINESS 21 Our business risks Risk management is an integral part of our service performance and value creation. We do, however, experience incidents. Therefore, our main focus is to build a business resilience to both existing operational risks and external events, including market changes. Risk management in 2021 In 2020, we saw two significant risk events, Covid- 19 and the IT security incident. These events and the launch of the OneISS strategy in December 2020, set the tone for our risk management activi- ties in 2021 through three areas. 1 Stronger governance Our risk governance centres around bi-annual risk assessment procedures that provide bottom-up risk assessments country-by-country to support our top- down risk assessment anchored with the Executive Group Management (the EGM) and the Board of Directors (the Board). Functional risk committees (chaired by EGM members) serve as the integra- tion point where bottom-up and top-down perspec- tives meet. 2 Simpler processes The two major risk events in 2020 clearly indicated a too optimistic view on the probability of such events occurring. As a result, we have simplified our approach by moving away from a probability- based risk assessment towards a more holistic vul- nerability measure. This, we believe, is more opera- tional and action orientated, and thus simpler to work with on a daily basis. 3 Closer community We also established a new and strengthened risk- management function in our second Group HQ lo- cation in Warsaw. Our risk management activities are now operated by this team in close cooperation with local country risk management resources. Fur- ther, we have strengthened our finance blueprint organisation by defining Risk Management as a mandatory function and built a stronger cooperation between risk management and our operational functions. With these initiatives, we are enabling a strong collaboration with risk owners across cus- tomer accounts and functions. Group risks review As part of our bi-annual process, we reviewed the Group’s key risks to reflect the main exposures in achieving our strategic objectives. The key risks and mitigation measures identified in 2021 are de- scribed on the following pages. We do not consider macro-economic risks as company specific risks that can impact our competitive advantage or mar- ket relevance. Nevertheless, we monitor market de- velopments on an ongoing basis, and mitigate any adverse impacts to the extent possible. Market developments 2021 In 2020, the facility management industry experi- enced an unprecedented disruption as Covid-19 impacted ways of working and workplace environ- ments globally. The impact on our business was material. While cleaning services have been stable since the outbreak of the pandemic, other services have been materially impacted, especially food ser- vices. The impact of the pandemic has continued to be significant in 2021, and our food service revenue is still subdued with a large recovery potential from a broader return to office, particularly in the USA. The long-term implications are uncertain – with both risks and opportunities. Covid-19 has likely ac- celerated working-from-home trends, and some of- fice-based customers may therefore pursue a re- duction of their real estate footprint. This could have a negative impact on our offerings to office- based customers. At the same time, ISS is benefit- ting from customers requesting higher quality offer- ings, including increased frequency of cleaning, ad- ditional deep cleaning and higher quality food ser- vice solutions. Other macro-economic risks have also played a large role in 2021 and the beginning of 2022. In our key markets, inflation has been rising putting pres- sure on wages and cost of goods. We have a struc- tured approach to inflation risk, as even low infla- tion scenarios can impact margin significantly, if not appropriately managed. On the customer side, we generally include pass-on clauses in our contracts. Also, our scale and broad service scope often al- lows us to drive efficiencies through scope changes that can limit inflation impact for the customer. In terms of cost of goods, our efforts to centralise spend with fewer suppliers allows the same benefit of leveraging supplier scale to manage cost in- creases. Wage inflation is to a large extent a result OUR BUSINESS 22 of collective bargaining agreements or legislation and as such difficult to impact directly. Demand for labour is high and in several countries we have in 2021 experienced hiring challenges. In some cases, we incentivise new joiners through ash benefits, but generally we rely on our large net- work and solid employer reputation. 2022 risk priorities A key priority for 2022, is to make sure that we have technology in place which will further enhance risk management and compliance. In 2022, we will finalise the implementation of a new IT platform across risk management, information security and data privacy (GDPR) that will drive better transpar- ency and insight into risk and compliance areas. Corporate responsibility, including Environmental, Social and Governance (ESG), will also continue to be a priority – both as a risk and a strong oppor- tunity for making a real impact directly through our business performance and indirectly through en- gagement with our stakeholders. We acknowledge that this agenda is only continuing to grow in im- portance which is also why two of our five strategic priorities for 2022 are within ESG. OUR BUSINESS 23 GOVERNANCE 24 Corporate governance Transparency, constructive stakeholder di- alogue, sound decision-making processes and controls are key aspects of our corpo- rate governance for the benefit of ISS and our stakeholders. The management team of the Group formally con- sists of the Board of Directors and the Managing Di- rector of ISS Global A/S. Since ISS Global A/S has no operating activities of its own, the Group relies on the management team of ISS A/S, the ultimate par- ent company in Denmark. As a subsidiary of ISS A/S, ISS Global A/S is subject to the same corporate gov- ernance policies applicable in ISS A/S. Corporate governance of the ISS Global Group is therefore built on corporate governance of the ISS A/S Group, in- cluding the management team, and descriptions in this chapter should be seen in this context. Framework The Board of Directors (the Board) regularly reviews the Group’s corporate governance framework and policies in relation to the Group’s activities, business environment, corporate governance recommenda- tions and statutory requirements; and continuously assesses the need for adjustments. The rules on the governance of ISS A/S, including share capital, general meetings, shareholder deci- sions, election of members to the Board, etc., is de- scribed in the Articles of Association. The Board reviews the Group’s share and capital structure on an ongoing basis. The Board believes the present share and capital structure serves the best interests of both the shareholders and ISS as it gives ISS the flexibility to pursue strategic goals, thus supporting long-term shareholder value combined with short-term shareholder value by way of ISS’s dividend policy. Governance structure Shareholders The shareholders of ISS A/S exercise their rights at the general meeting, which is the supreme govern- ing body of ISS. Management Management powers are distributed between our Board and our Executive Group Management Board (the EGMB). No person serves as a member of both 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 members of the EGMB are the Group CEO and the Group CFO. Together, they form the manage- ment registered with the Danish Business Authority. The Group has a wider Executive Group Manage- ment (the EGM), whose members are ten Corporate Senior Officers in addition to the EGMB. The EGM has a number of committees including a Sustainabil- ity Committee addressing ESG-related matters which are reported and reviewed by the EGM and the Board as required. In the review of our governance structure on p. 27, we have outlined the primary responsibilities of the Board and the EGM as well as 2021 activity by Board committees. Strengthening the EGM In 2021, we strengthened our EGM and made neces- sary organisational changes to support our execution of the OneISS strategy even more. GOVERNANCE 25 On 1 May 2021, Liz Benizon took up the position as Country Manager of ISS UK & Ireland and joined the Executive Group Management. On 1 June 2021, Markus Sontheimer took up the po- sition as Chief Information and Digital Officer and joined the Executive Group Management. On 1 January 2022, Carl-Fredrik Langard-Bjor took up the position as CEO Northern Europe and Celia Liu the position as CEO Central & Southern Europe. On 31 December 2021, Pierre-François Riolacci stepped down as Group CEO Europe. Composition of the Board The Board consists of ten members, seven elected by the general meeting and three elected by and among the employees. Board members elected by the general meeting stand for election each year. Niels Smedegaard and Kelly Kuhn were appointed as new members of the Board at the annual general meeting on 13 April 2021 where the previous Chair of the Board Lord Allen of Kensington and board mem- ber Claire Chiang stepped down. The Board consti- tuted itself by electing Niels Smedegaard as Chair and Henrik Poulsen as Deputy Chair. Employee representatives are elected on the basis of a voluntary arrangement regarding Group represen- tation for employees of ISS World Services A/S as further described in the Articles of Association. Em- ployee representatives serve for terms of four years. The current employee representatives joined the Board after the annual general meeting held in April 2019. Board evaluation In 2021, the Board performed its annual evaluation of the Board’s performance with assistance by an exter- nal advisor. The evaluation included Board composi- tion, individual performance at meetings and prepa- ration, cooperation between the Board and the EGMB, the leadership of the Board Chair, committee structure and work as well as the organisation of work and quality of Board material. All members of the Board, CEO, CFO and the General Counsel an- swered bespoke online questionnaires and partici- pated in in-depth personal interviews. The result of the Board evaluation was subsequently presented and discussed at a Board meeting. Overall, the Board was evaluated by the external ad- visor to be well-functioning and with a diverse com- position. Under challenging circumstances, with new members and few opportunities to meet in person, 1 In respect of the specific target for ISS Global A/S cf. 99b of the Danish Financial Statements Act, the target to increase the number of women on the Board of Directors (Board) to at least one member by the annual gen- eral meeting in 2021 has been reached as the Board of ISS Global A/S cur- rently consists of one woman and four men. the board had worked well together. The evaluation identified a few focus areas to improve the Board’s performance and value-add during 2022: i) ensuring the right balance between reviewing progress on turnaround plans and ensuring long-term, profitable growth, ii) reviewing integration of and follow-up on environmental and social goals in general and lever- aging the opportunity to become a societal role model in particular and iii) strengthening the Board as a team. For further details, please see response to recom- mendation 3.5.1 of the 2021 Statutory report on Cor- porate Governance. Competencies and diversity The Board and the EGM recognise the importance of promoting diversity at management levels and have implemented policies regarding competencies and di- versity in respect of Board and EGMB nominations according to which we are committed to selecting the best candidate. Emphasis is placed on: • experience and expertise; • diversity of gender and in broader terms; and • personal characteristics matching ISS’s values and leadership principles. In 2021, we launched our global Diversity & Inclusion (D&I) strategy. As part of the strategy, we have defined a target of achieving at least 40% gen- der balance at all corporate leadership levels by 2025. Gender balance at all leadership levels re- mains a focus area in 2022. Board gender balance The Board’s gender target of having at least 40% women elected by the general meeting on the Board by 2020 1 was met with 43%. Including employee rep- resentatives, 50% of our Board is women. Assurance The Group’s external financial reporting is audited by the independent auditors. Group Internal Audit (GIA) is responsible for provid- ing an objective and independent assessment of the effectiveness and quality of the internal controls in accordance with the internal audit plan approved by the Audit and Risk Committee (ARC). GIA operates under a charter approved by the Board. Although the travel ability of GIA continued to be im- pacted by Covid-19, audit programmes have been adjusted to accommodate remote testing allowing for The Board has set a new target to further increase the number of female board members to at least one third by the annual general meeting in 2025 although ISS remains committed to always selecting the best candi- date for the Board based on competencies, experience and diversity. As ISS Global A/S does not have any employees and no defined other man- agement levels, a policy and targets for promoting gender diversity at other management levels has not been adopted. GOVERNANCE 26 GIA to continue to provide assurance over the oper- ating effectiveness of internal controls. In 2021, focus has been on: • establishment of regional based GIA in Asia & Pacific and the strengthening of the GIA team through recruitment of new members in the newly established corporate hub in Warsaw; • development of new audit working programme to provide assurance around effectiveness of inter- nal controls in our Partnership countries; • continued implementation of a structured and formalised Internal Control Framework for Finan- cial Reporting (ICOFR). The status of selected controls and on the implementation of key pro- cesses and systems is reported separately for each country as part of a Group initiative on Top 10 Controls; and • reducing the number of open audit recommen- dations and ensuring timely closure of audit rec- ommendations. The Group’s external financial reporting is audited by the independent auditors. Speak up (whistleblower) The Group’s Speak Up Policy is implemented through a reporting tool operated by GotEthics, which is available in 21 languages via ISS’s website and lo- cal ISS country websites enabling employees of ISS, business partners and other stakeholders to report serious and sensitive concerns anonymously. All business integrity and ethics issues identified through Speak Up or other sources are handled by the Business Integrity Committee (BIC) that is com- posed of the Group CFO, the Group General Coun- sel, the Group People and Culture Officer and the Head of Group Internal Audit. The BIC reports to the ARC on all matters that have been subject to investi- gation. Over 2021, the accessibility and awareness of Speak Up has been strengthened through the ongoing im- plementation of a manned phone hotline to supple- ment the reporting tool and updates of the ISS web- site with a new section on Responsible Business Conduct & Speak Up. Data ethics ISS’s focus on safe and ethical processing of data has been strengthened by the adoption of the ISS Data Ethics Policy. The purpose of the policy is to ensure transparency and accountability in ISS’s man- agement and processing of data. The policy is based on the principles of the Charter of Fundamental Rights of the European Union and emphasises ISS’s commitment to responsible, fair and progressive data handling as well as ISS’s dedication to diversity and inclusion. The Data Ethics Policy as per section 99d in the Danish Financial Statements Act has been adopted by the EGM and the Board and is subject to annual review in line with ISS’s policy standards. The policy is available at: https://brand.issworld.com/m/7718dae21a3a6761/ori ginal/ISS-Data-Ethics-Policy-20211215-_Final.pdf GOVERNANCE 27 Our governance structure FINANCIAL STATEMENTS 28 Primary statements Consolidated statement of profit or loss 29 Consolidated statement of comprehensive income 30 Consolidated statement of cash flows 31 Consolidated statement of financial position 32 Consolidated statement of changes in equity 33 Section 1 Operating profit and tax 1.1 Segment information 34 1.2 Revenue 37 1.3 Other income and expenses, net 40 1.4 Income tax 41 1.5 Deferred tax 43 Section 2 Operating assets, liabilities and free cash flow 2.1 Property, plant and equipment and leases 45 2.2 Trade receivables and credit risk 48 2.3 Other receivables 50 2.4 Other liabilities 51 2.5 Changes in working capital 51 2.6 Provisions 52 2.7 Free cash flow 55 Section 3 Strategic divestments and acquisitions 3.1 Discontinued operations 56 3.2 Assets and liabilities held for sale 58 3.3 Divestments 60 3.4 Acquisitions 62 3.5 Pro forma revenue and operating profit 64 3.6 Intangible assets 65 3.7 Goodwill impairment 67 3.8 Impairment tests 67 Section 4 Capital structure 4.1 Equity 71 4.2 Loans and borrowings 72 4.3 Financial income and expenses 74 4.4 Financial risk management 74 4.5 Interest rate risk 75 4.6 Liquidity risk 76 4.7 Currency risk 78 Section 5 Remuneration 5.1 81 5.2 Staff costs and average number of employees 81 5.3 Share-based payments 82 5.4 Pensions and similar obligations 87 Section 6 Other required disclosures 6.1 Contingent liabilities 91 6.2 Government grants 91 6.3 Related parties 92 6.4 Fees to auditors 93 6.5 Subsequent events 93 Section 7 Basis of preparation 7.1 Significant accounting estimates and judgements 94 7.2 Change in accounting policies 94 7.3 General accounting policies 95 7.4 New standards and interpretations not yet implemented 98 7.5 Group companies 99 Remuneration to the Board of Directors and the Executive Group Management Consolidated financial statements FINANCIAL STATEMENTS 29 Consolidated statement of profit or loss 1 January – 31 December (DKKm) 2021 2020 Revenue 1.1, 1.2 71,383 70,767 Staff costs 5.2, 5.3 (45,602) (46,009) Consumables (5,020) (5,750) Other operating expenses (16,276) (19,820) Depreciation and amortisation 1) 2.1, 3.6 (1,565) (1,689) Operating profit before other items 1.1 2,920 (2,501) Other income and expenses, net 1.3 456 (626) Royalty (1,225) (1,148) Goodwill impairment 3.7 (459) (535) Amortisation/impairment of brands and customer contracts 3.6 (64) (89) Operating profit 1.1 1,628 (4,899) Financial income 4.3 110 64 Financial expenses 4.3 (683) (613) Profit before tax 1,055 (5,448) Income tax 1.4, 1.5 (559) 186 Net profit from continuing operations 496 (5,262) Net profit from discontinued operations 3.1 110 46 Net profit 606 (5,216) Attributable to: The owner of ISS Global A/S 584 (5,226) Non-controlling interests 22 10 Net profit 606 (5,216) 1) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. Note FINANCIAL STATEMENTS 30 Consolidated statement of comprehensive income 1 January – 31 December (DKKm) Note 2021 2020 Net profit 606 (5,216) Other comprehensive income Actuarial gains/(losses) 5.4 1,145 (127) Impact from asset ceiling regarding pensions 5.4 (1,080) (21) Tax 1.5 (11) 29 Net total, that will not be reclassified to profit or loss in subsequent periods 54 (119) Foreign exchange adjustments of foreign entities 4.1 174 (622) Fair value adjustments of net investment hedges 4.1 (191) 180 Recycling of accumulated foreign exchange adjustments on country exits 4.1 15 1 Tax 42 (40) Net total, that may be reclassified to profit or loss in subsequent periods 40 (481) Other comprehensive income 94 (600) Comprehensive income 700 (5,816) Attributable to: The owner of ISS Global A/S 693 (5,821) Non-controlling interests 7 5 Comprehensive income 700 (5,816) FINANCIAL STATEMENTS 31 Consolidated statement of cash flows At 31 December (DKKm) Note 2021 2020 Operating profit before other items 2,920 (2,501) Operating profit before other items from discontinued operations 3.1 87 86 Depreciation and amortisation 2.1, 3.6 1,565 1,704 Share-based payments 34 11 Changes in working capital 2.5 1,039 1,007 Changes in provisions, pensions and similar obligations (407) 1,494 Other expenses paid (50) (325) Interest received from companies within the ISS Group 65 13 Interest received, external 40 71 Interest paid to companies within the ISS Group - (8) Interest paid, external (472) (513) Income tax paid 1.4 (443) (389) Payments related to royalties (1,157) (1,536) Cash flow from operating activities 3,221 (886) Acquisition of businesses 3.4 (526) (102) Divestment of businesses 3.3 1,191 505 Acquisition of intangible assets and property, plant and equipment (466) (583) Disposal of intangible assets and property, plant and equipment 42 31 Acquisition of financial assets, net (6) (48) Cash flow from investing activities 235 (197) Proceeds from bonds 4.2 - 3,694 Repayment of bonds 4.2 (1,577) (2,234) Repayment of lease liabilities 4.2 (935) (1,005) Other financial payments, net 4.2 (431) 709 Capital increase from ISS World Service A/S - 5,000 Payments (to)/from companies within the ISS Group, net (215) (4,665) Transactions with non-controlling interests 3.4 164 - Cash flow from financing activities (2,994) 1,499 Total cash flow 462 416 Cash and cash equivalents at 1 January 2,741 2,669 Total cash flow 462 416 Foreign exchange adjustments 224 (344) Cash and cash equivalents at 31 December 4.6 3,427 2,741 Free cash flow 2.7 1,900 (2,143) FINANCIAL STATEMENTS 32 Consolidated statement of financial position At 31 December (DKKm) Note 2021 2020 Assets Intangible assets 3.6, 3.8 16,055 15,910 Property, plant and equipment and leases 2.1 3,273 3,456 Receivables from companies within the ISS Group 3,164 3,116 Deferred tax assets 1.5 790 818 Other financial assets 451 351 Non-current assets 23,733 23,651 Inventories 177 175 Trade receivables 2.2 10,406 9,861 Tax receivables 164 163 Receivables from companies within the ISS Group 466 291 Other receivables 2.3 1,491 1,436 Cash and cash equivalents 4.6 3,427 2,741 Assets held for sale 3.2 493 1,816 Current assets 16,624 16,483 Total assets 40,357 40,134 Equity and liability Equity attributable to the owner of ISS Global A/S 4,039 3,166 Non-controlling interests 3.4 206 29 Total equity 4.1 4,245 3,195 Loans and borrowings 4.2 16,032 17,236 Pensions and similar obligations 5.4 1,351 1,480 Deferred tax liabilities 1.5 378 345 Provisions 2.6 755 624 Non-current liabilities 18,516 19,685 Loans and borrowings 4.2 866 1,264 Trade and other payables 5,566 4,839 Tax payables 174 103 Other liabilities 2.4 9,749 8,908 Provisions 2.6 961 1,302 Liabilities held for sale 3.2 280 838 Current liabilities 17,596 17,254 Total liabilities 36,112 36,939 Total equity and liabilities 40,357 40,134 FINANCIAL STATEMENTS 33 Consolidated statement of changes in equity 1 January – 31 December (DKKm) Note Share capital Retained earnings Trans- lation reserve 1) Total Non-con- trolling interests Total equity 2021 Equity at 1 January 180 3,998 (1,012) 3,166 29 3,195 Net profit - 584 - 584 22 606 Other comprehensive income - 54 55 109 (15) 94 Comprehensive income - 638 55 693 7 700 Transactions with non-controlling interests 3.4 180 - 180 170 350 Transactions with the owner - 180 - 180 170 350 Changes in equity - 818 55 873 177 1,050 Equity at 31 December 180 4,816 (957) 4,039 206 4,245 2020 Equity at 1 January 180 3,043 (536) 2,687 24 2,711 Net profit - (5,226) - (5,226) 10 (5,216) Other comprehensive income - (119) (476) (595) (5) (600) Comprehensive income - (5,345) (476) (5,821) 5 (5,816) Capital increase 0 6,300 - 6,300 - 6,300 Transactions with the owner 0 6,300 - 6,300 - 6,300 Changes in equity 0 955 (476) 479 5 484 Equity at 31 December 180 3,998 (1,012) 3,166 29 3,195 Attributable to the owner of ISS Global A/S 1) At 31 December 2021, DKK 39 million (2020: DKK 22 million) of accumulated foreign exchange gains related to discontinued operations. FINANCIAL STATEMENTS 34 SECTION 1 Operating profit and tax 1.1 Segment information (DKKm) Con- tinental Europe Northern Europe Asia & Pacific Americas 4) Other countries Total segments Unallo- cated 5) Elimi- nations 6) Total Group 2021 Revenue 1) 27,846 23,424 12,381 7,141 612 71,404 - (21) 71,383 Depreciation and amortisation 2) (676) (563) (214) (109) (2) (1,564) (1) - (1,565) Operating profit before other items 773 1,097 735 393 19 3,017 (97) - 2,920 () Operating margin 2.8% 4.7% 5.9% 5.5% 3.1% 4.2% - - 4.1% Other income and expenses, net 445 1 (2) 78 - 522 (66) - 456 Royalty (459) (438) (188) (131) (9) (1,225) - - (1,225) Goodwill impairment (459) - - - - (459) - - (459) Amortisation/impairment of brands and customer (11) (21) (7) (26) - (65) 1 - (64) Operating profit 288 639 539 314 10 1,790 (162) - 1,628 Total assets 15,446 14,098 7,698 4,811 752 42,805 20,997 (23,445) 40,357 Hereof assets held for sale - - 158 - 335 493 - - 493 Additions to non-current assets 3) 1,188 420 115 91 3 1,817 26 - 1,843 Total liabilities 9,597 10,047 3,341 3,341 457 26,783 32,765 (23,436) 36,112 Hereof liabilities held for sale - - 33 - 247 280 - - 280 ISS is a leading, global provider of workplace and facility service solutions operating in 30+ countries. Operations are generally managed based on a geographical structure in which countries are grouped into regions. The regions have been identified based on a key principle of grouping countries that share market conditions and cultures. Countries where we do not have a full country support structure, which are managed by Global Operations, are combined in a separate segment “Other countries”. An overview of the grouping of countries into regions is presented in 7.5, Group companies. In December 2021, ISS announced a reorganisation of the European business. Effective 1 January 2022, Europe will be segmented into Northern Europe and Central & Southern Europe consistent with the Group's internal management and reporting structure going forward. As a result, the Netherlands, Belgium, Poland and Lithuania will move from currently Continental Europe to Northern Europe. Asia & Pacific and Americas remain unchanged. 1) Including internal revenue which due to the nature of the business is insignificant and therefore not disclosed. 2) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. 3) Comprise additions to Intangible assets and Property, plant and equipment and leases, including from Acquisitions. 4) In 2021, the classification of Chile as discontinued operations ceased, and Chile was presented as part of the Americas. Comparative figures were restated accordingly. 5) Unallocated relates to the Group’s holding companies and comprises mainly internal and external loans and borrowings, cash and cash equivalents and intra-group balances. 6) Eliminations relate to intra-group balances. FINANCIAL STATEMENTS 35 1.1 Segment information (continued) (DKKm) Con- tinental Europe 4) Northern Europe Asia & Pacific Americas Other countries Total segments Unallo- cated 4) Elimi- nation 5) Total Group 2020 Revenue 1) 27,634 22,642 12,385 7,565 561 70,787 - (20) 70,767 Depreciation and amortisation 2) (781) (618) (188) (101) (1) (1,689) - - (1,689) Operating profit before other items (2,030) (1,200) 646 262 20 (2,302) (199) - (2,501) Operating margin (7.3)% (5.3)% 5.2% 3.5% 3.7% (3.3)% - - (3.5)% Other income and expenses, net (430) (120) (53) - (1) (604) (22) - (626) Royalty (456) (379) (207) (102) (4) (1,148) - - (1,148) Goodwill impairment (517) - (18) - - (535) - - (535) Amortisation/impairment of brands and customer (11) (27) (25) (26) - (89) - - (89) Operating profit (3,444) (1,726) 343 134 16 (4,677) (222) - (4,899) Total assets 15,109 13,813 7,059 4,206 1,145 41,332 21,241 (22,439) 40,134 Hereof assets held for sale 336 - 114 744 622 1,816 - - 1,816 Additions to non-current assets 3) 641 536 138 40 13 1,368 - - 1,368 Total liabilities 9,326 10,255 3,272 3,018 690 26,561 32,806 (22,428) 36,939 Hereof liabilities held for sale 150 - 32 239 417 838 - - 838 1) Including internal revenue which due to the nature of the business is insignificant and therefore not disclosed. 2) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts. 3) Comprise additions to Intangible assets and Property, plant and equipment and leases, including from Acquisitions. 4) Unallocated relates to the Group’s holding companies and comprises mainly internal and external loans and borrowings, cash and cash equivalents and intra-group balances. 5) Eliminations relate to intra-group balances. FINANCIAL STATEMENTS 36 1.1 Segment information (continued) Revenue by country – more than 5% of Group revenue (DKKm) 2021 2020 UK & Ireland 10,634 10,290 Germany 5,429 5,493 USA & Canada 5,298 5,882 Switzerland 5,212 5,286 Spain 4,420 4,221 Australia & New Zealand 4,349 3,968 Denmark (country of domicile) 3,673 3,593 Other countries 1) 32,368 32,034 Total 71,383 70,767 1) Including unallocated items and eliminations. Non-current assets 1) by country – more than 5% of Group revenue (DKKm) 2021 2020 UK & Ireland 2,334 2,265 USA & Canada 2,362 2,203 Denmark (country of domicile) 1,549 1,575 Switzerland 1,399 1,440 Australia & New Zealand 1,246 1,219 Spain 1,007 1,101 Germany 915 955 Other countries 2) 12,131 12,075 Total 22,943 22,833 1) Excluding deferred tax assets. 2) Including unallocated items and eliminations. FINANCIAL STATEMENTS 37 1.2 Revenue Performance obligations Disaggregation of revenue (DKKm) 2021 2020 Customers Key accounts 49,258 47,093 Large and medium 17,958 19,582 Small and route-based 4,167 4,092 Total 71,383 70,767 Projects and above-base work (e.g. capital projects) comprise revenue that is not necessarily contractually agreed at inception (not committed), but requested and agreed with the customer and thus provided on a non-recurring basis. Revenue is split into portfolio and projects and above-base work and the vast majority arises from portfolio. Portfolio comprises revenue from contracts with customers that is contractually agreed (committed) at inception and relates to services that we are obligated to deliver on a recurring basis over the term of the contract. Revenue is generated from rendering of workplace and facility service solutions. Our services are provided to the customer on a daily basis continuously over the term of the contract. The customer simultaneously receives and consumes the benefits provided by the Group. Thus, the performance obligations are satisfied over time. We disaggregate revenue based on customer type and geographical region as we believe that these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Disaggregation of revenue based on geographical region is disclosed in 1.1, Segment information. FINANCIAL STATEMENTS 38 1.2 Revenue (continued) Revenue backlog (DKKm) Key account customers Large and medium customers Total 2021 < 1 year 14,792 5,518 20,310 1-2 years 10,042 3,086 13,128 2-3 years 6,219 1,544 7,763 3-4 years 4,560 801 5,361 4-5 years 3,857 477 4,334 > 5 years 9,464 684 10,148 Total 48,934 12,110 61,044 2020 < 1 year 14,083 5,064 19,147 1-2 years 9,003 2,768 11,771 2-3 years 6,013 1,263 7,276 3-4 years 3,763 592 4,355 4-5 years 2,989 313 3,302 > 5 years 10,871 506 11,377 Total 46,722 10,506 57,228 Our revenue base consists of a mix of yearly contracts, which are renewed tacitly, and thousands of multi-year contracts, the majority of which have an initial term of three to five years. Depending on the size and complexity of the contract, the transition and mobilisation period is normally between six and twelve months for our key accounts. Contracts regularly include options for the customer to terminate for convenience within three to nine months. However, we maintain a high retention rate, both for key accounts and overall, supporting that these options are rarely exercised. As described in Performance obligations on p. 37, the vast majority of our revenue is portfolio revenue and the remaining part is non-recurring in the form of projects and above-base work. Since projects and above-base work is not committed as part of the main customer contract it is excluded from the transaction price to be allocated to the remaining performance obligation (revenue backlog). At 31 December, the revenue backlog (including contracts won but not yet started) was as follows: In estimating the revenue backlog, the Group has applied the exemptions of IFRS 15 and does not disclose revenue backlog for contracts: • with an original duration of less than 12 months; and • invoiced based on time incurred, i.e. contracts where the Group invoices a fixed amount for each hour of service provided. Committed savings glidepaths are taken into consideration whereas future inflation is excluded from the estimates. For our key accounts and large and medium customers, a significant number of contracts in terms of value are descoped based on a term of less than 12 months (due to termination for convenience clauses) and some contracts are descoped on the basis that they are invoiced based on time incurred. In terms of our small and route-based customers, the vast majority is descoped based on either of the two exemptions. The remaining customers in scope comprise less than 1% of Group revenue and due to immateriality revenue backlog is therefore not disclosed. In conclusion, the amounts disclosed in the maturity profile above are significantly lower than reported revenue and will likely not reflect the degree of certainty in future revenue (and cash inflows) to the Group – both due to the exemptions and due to non- portfolio revenue not being considered part of the revenue backlog. FINANCIAL STATEMENTS 39 1.2 Revenue (continued) Significant accounting judgements Accounting policy Judgements, estimates and assumptions mainly related to assessment of the impact on revenue from: 1. customers reducing their demand for services (contract modifications); 2. utilisation of government support schemes; 3. variable consideration, e.g. revenue contingent on the achievement of certain contractual KPIs; and 4. continuing service delivery to customers despite collectibility concerns. In 2021, the Group’s revenue continued to be significantly impacted by Covid-19 due to lockdowns and other restrictions, which caused customers across the globe to reduce building occupancy and reduce their request for services accordingly. During the pandemic, we have recalibrated service solutions to the needs and interests of customers as well as ISS, and to support our employees to the extent possible. This has resulted in increased uncertainty and in management making various judgements, estimates and assumptions in relation to recognition and measurement of the Group’s revenue, that could result in outcomes that require adjustments to recognised revenue in future periods. Revenue excludes amounts collected on behalf of third parties, e.g. VAT and duties. The input method is used to measure progress towards complete satisfaction of the service due to the direct relationship between labour hours and costs incurred, and the transfer of services to the customer. The Group recognises revenue on the basis of the labour hours and costs expensed relative to the total expected labour hours and costs to complete the service. Variable consideration For key accounts and other large contracts, the transaction price may include variable consideration based on achievement of certain key performance indicators. Management estimates variable consideration based on the most likely amount to which it expects to be entitled on a contract by contract basis. Management makes a detailed assessment of the amount of revenue expected to be received and the probability of success in each case. Variable consideration is included in revenue as services are performed to the extent that it is highly probable that the amount will not be subject to significant reversal. Modifications Key account contracts are often modified in respect of service requirements. Generally, modifications are agreed with the customer in accordance with a specified change management procedure and accounted for going forward with no impact on recognised revenue up to the date of modifications. Contract modifications are generally agreed with the customer in accordance with a specified change management procedures and accounted for going forward. However, the current situation has necessitated flexibility from both sides and required continuous assessments by management, among others in relation to how quickly ISS would be able to implement service changes. Likewise, when certain government support schemes have been utilised, management has assessed the extent to which such support should be passed on to customers and reduce revenue accordingly. Finally, for variable consideration, assessments have been made as to Covid-19 impacting achievement of contractual KPIs and thus reducing revenue. Gross or net presentation of revenue Management uses judgement to determine whether the nature of ISS’s promise is to provide the specified services (ISS is the principal), or to arrange for another party to provide the services (ISS is acting as an agent). This assessment is based on an evaluation of whether ISS controls the specified services before transfer to the customer. The Group has concluded that as a main rule it is the principal in its revenue arrangements, because it typically controls the services before transferring them to the customer, and consequently as a main rule recognises revenue on a gross basis. Revenue from contracts with customers is recognised when control of the services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services. Control is transferred over time as the customer simultaneously receives and consumes the benefits provided by the Group. Services are invoiced on a monthly basis. FINANCIAL STATEMENTS 40 1.3 Other income and expenses, net (DKKm) 2021 2020 Gain on divestments 621 22 IT security incident 7 - Other income 628 22 Loss on divestments (34) (107) Carrying amount adjustment re. ceased held for sale classification (59) - Acquisition costs (77) (6) IT security incident - (516) Winding up of businesses - (18) Other (2) (1) Other expenses (172) (648) Other income and expenses, net 456 (626) Accounting policy Other income and expenses, net consists of recurring and non-recurring items that management does not consider to be part of the Group’s ordinary operations, i.e. gains and losses on divestments, remeasurement of disposal groups classified as held for sale, carrying amount adjustments regarding ceased held for sale classification, the winding-up of operations, disposal of property and acquisition and integration costs. Winding up of businesses in 2020 related to the Open Space business in Australia. IT security incident in 2020 comprised unavoidable incremental costs incurred as a consequence of the IT security incident, including writedown of impaired assets, non-chargeable costs due to lack of documentation and certain customer claims and penalties. Gain on divestments mainly related to the divestment of Kanal Services in Switzerland and Specialized Services in the USA. In 2020, the gain related mainly to the divestment of the Pest control business in Singapore. Loss on divestments mainly related to adjustments to prior years’ divestments and the divestment of Fruit Baskets business in Sweden. In 2020, the loss mainly comprised adjustments to prior years’ divestments, most significantly the Hygiene & Prevention business in France. Acquisition costs related to the acquisition of Rönesans Facility Management Company in Turkey. The majority of these costs comprised transaction incentives to management in ISS Turkey. In addition, fees to external advisors were included. Carrying amount adjustment re. ceased held for sale classification comprised depreciation and amortisation for the years 2019 to 2020 recognised following the decision to cease the held for sale classification of Chile in December 2021. FINANCIAL STATEMENTS 41 1.4 Income tax (DKKm) 2021 2020 Current tax 509 242 Deferred tax 5 (426) Prior year adjustments, net 45 (2) Income tax 559 (186) Effective tax rate (ETR) Group 2021 2020 Statutory income tax rate, Denmark 22.0 % 22.0 % Foreign tax rate differential, net (14.3)% 5.8 % Total 7.7 % 27.8 % Non-tax-deductible expenses less non-taxable income 7.9% 0.2% Non-tax-deductible impairment 12.0% (3.1%) Prior year adjustments, net 4.2 % 0.0 % Change in valuation of tax assets, net 17.2 % (20.3)% Changes in tax rates (0.7)% (0.1)% Other taxes 4.6% (1.1)% Effective tax rate 52.9% 3.4% By country 1) 2021 2021 2020 3) Australia 30.0% 30.2% 30.0% Denmark (incl. HQ) 2) 22.0% (15.0)% 37.8% Finland 20.0% 25.9% (988.7)% France 2) 27.5% (10.9)% 0.6% Germany 2) 30.3% 0.0% (5.9)% Norway 22.0% 22.6% 28.3% Spain 25.0% 21.9% 4.6% Switzerland 18.0% 7.5% 18.2% UK 19.0% 122.7% 19.4% USA 21.0% 21.4% 29.3% Other - n/a n/a ETR 1) Calculated based on IFRS reporting standards. 2) Profit before tax was negative in 2021. 3) Profit before tax was negative in all countries except for Switzerland. Statutory income tax rate The Group’s effective tax rate in 2021 was adversely impacted by a few major items, namely non-tax-deductible impairment, valuation allowances on deferred tax assets and non-tax-deductible costs, mainly interest limitation. In 2020, the effective tax rate was significantly impacted by the negative profit before tax. FINANCIAL STATEMENTS 42 1.4 Income tax (continued) Accounting policy Other taxes mainly comprised withholding tax, e.g. in Denmark, and Cotisation sur la Valeur Ajoutée des Entreprises (CVAE) in France. For further details: ISS Tax Policy, see https://brand.issworld.com/m/530c5e0919524b04/original/Group-Tax-Policy.pdf Cross-border and intercompany transactions mainly comprise royalty payments, management fees and financing. Such transactions are conducted based on arm’s length principles and in accordance with current OECD principles in setting internal transfer prices. Our approach to tax and tax risks We are committed to comply with applicable tax rules and regulations in the countries where we operate. We also have an obligation to optimise the return for our shareholders by managing and planning tax payments effectively. As a good corporate citizen, we will pay applicable taxes, and at the same time ensure a competitive effective tax rate and strive to limit double taxation to the extent possible. We have zero-tolerance towards evasion of taxes, social charges or payroll taxes. For the benefit of society, our employees and customers, we support governmental and industry specific initiatives that introduce tighter controls and sanctions to ensure that companies in our industry play by the rules. Income tax comprises current tax and changes in deferred tax, including changes due to a change in the tax rate, and is recognised in profit or loss or other comprehensive income. Tax receivables and payables are recognised in the statement of financial position as tax computed on the taxable income for the year, adjusted for tax on the taxable income prior years and tax paid on account. Prior year adjustments, net related to adjustments in the final tax returns for 2020, mainly in the UK. In 2020, the adjustment mainly related to settlement of tax audit in Finland. Change in valuation of tax assets, net comprised valuation allowances on deferred tax assets, primarily in Germany and France in 2021. In 2020, the change mainly related to Germany, France, Spain and the Netherlands. Non-tax-deductible expenses less non-taxable income comprised various income and expenses across the Group. In Denmark, interest limitation tax rules, including impact from the refinancing of bonds, had a negative impact on the effective tax rate. France also contributed due to the tax credit CICE, whereas the non-taxable divestment of Kanal Services in Switzerland and Covid-19 subsidies impacted positively. Non-tax-deductible impairment related to goodwill impairment in France. Foreign tax rate differential, net was impacted by significant tax losses in countries with a higher corporate income tax rate than 22%, primarily France and Germany. Changes in tax rates in 2021 was mainly driven by the increase in the income tax rate in the UK from 19% to 25% effective from 2023 and a reduction of the corporate tax rate in France from 33% to 25% over the period 2018-2022. 2021 Corporate Responsibility Report: https://brand.issworld.com/web/24f976f13bb57357/corporate-responsibility-reports/ FINANCIAL STATEMENTS 43 1.5 Deferred tax Development in deferred tax (DKKm) 2021 2020 Deferred tax liabilities, net at 1 January (473) (89) Prior year adjustments, net 25 41 Foreign exchange adjustments (25) 23 Acquisitions and divestments, net 72 - Other comprehensive income 11 (29) Reclassification to Assets/(Liabilities) held for sale (27) 7 Tax on profit before tax 5 (426) Deferred tax liabilities, net at 31 December (412) (473) Deferred tax specification (DKKm) 2021 2020 2021 2020 Tax losses carried forward 336 466 - - Goodwill 4 4 412 372 Brands - - 1 3 Customer contracts 8 13 141 69 Property, plant and equipment 125 86 374 378 Provisions and other liabilities 1,062 861 331 312 Pensions 158 177 22 - Set-off within legal tax units and jurisdictions (903) (789) (903) (789) Total 790 818 378 345 Unrecognised deferred tax assets Uncertain tax positions Prior year adjustments, net in 2021 and 2020 were mainly related to adjustment of tax deductions (temporary differences) in the final tax returns. Acquisitions and divestments, net in 2021 related to the acquisition of Rönesans Facility Management Company in Turkey. Other comprehensive income comprised tax on actuarial gains on pensions. Deferred tax assets Deferred tax liabilities At 31 December 2021, the Group had unrecognised deferred tax assets which comprised tax losses carried forward and other deductible temporary differences of DKK 1,871 million (2020: DKK 1,688 million) for continuing operations primarily relating to Germany, France, the Netherlands and Spain. At 31 December 2021, DKK 0 million (2020: DKK 15 million) of the total unrecognised deferred tax assets related to discontinued operations. Unrecognised tax losses can be carried forward indefinitely in the individual countries, except for China, where tax losses can be carried forward for 5 years. Uncertain tax positions include ongoing disputes with tax authorities in certain jurisdictions and have been provided for in accordance with the accounting policies. Management believes that the provisions made are adequate. However, the actual obligations may deviate as they depend on the result of litigations and settlements with the relevant tax authorities. The final outcome of some of the ongoing disputes is expected to be determined in 2023. FINANCIAL STATEMENTS 44 1.5 Deferred tax (continued) Significant accounting estimates Accounting policy Deferred tax assets and liabilities are offset if the Group has a legal right to offset these, intends to settle these on a net basis or to realise the assets and settle the liabilities, simultaneously. Deferred tax assets relating to tax losses carried forward are recognised, when management assesses that these can be offset against positive taxable income in the foreseeable future. The assessment is made at the reporting date taking into account the impact from limitation in interest deductibility and local tax restrictions in utilisation of tax losses. The assessment of future taxable income is based on financial budgets approved by management and expectations on the operational development, mainly in terms of organic growth and operating margin in the following five years as well as planned adjustments to capital structure in each country. Uncertain tax positions As part of operating a global business, disputes with tax authorities around the world may occur. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a tax authority will accept an uncertain tax treatment. The possible outcome of uncertain tax positions are measured based on management’s best estimate of the amount required to settle the obligation and recognised in deferred tax or income tax depending on the tax position. Deferred tax is provided using the liability method on temporary differences between tax bases of assets and liabilities and their carrying amounts. Deferred tax is not recognised on temporary differences relating to goodwill which is not deductible for tax purposes and other items where temporary differences, apart from in business combinations, arose at the time of acquisition without affecting either Net profit 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. Deferred tax assets, including the tax base of tax loss carryforwards, are recognised in non-current assets at the expected value of their utilisation: either as a set-off against tax on future income or as a set-off against deferred tax liabilities in the same legal tax entity and jurisdiction. Management made a reassessment of the probability that future taxable profit will be available in the foreseeable future (5 years) against which the Group can utilise tax losses (i.e for current year and those carried forward from prior years (valuation allowances). The assessment is based on the cash flow projections made for the purpose of the Group’s impairment tests, see 3.8, Impairment tests, and represents management’s best estimate, but is naturally associated with significant uncertainty. FINANCIAL STATEMENTS 45 SECTION 2 Operating assets, liabilities and free cash flow 2.1 Property, plant and equipment and leases (DKKm) Properties Vehicles Other Total Total 2021 Cost at 1 January 2,313 1,301 673 4,287 3,568 7,855 Prior year adjustments (117) (203) (94) (414) - (414) Foreign exchange adjustments 51 17 (46) 22 45 67 Additions 347 369 140 856 308 1,164 Acquisitions - - 6 6 27 33 Divestments - - - - (122) (122) Disposals (127) (195) (96) (418) (489) (907) - (8) - (8) 8 - Reclass (to)/from Assets held for sale 17 15 (6) 26 36 62 Cost at 31 December 2,484 1,296 577 4,357 3,381 7,738 Depreciation at 1 January (819) (682) (353) (1,854) (2,545) (4,399) Prior year adjustments 117 203 94 414 - 414 Foreign exchange adjustments (18) (12) 21 (9) (57) (66) Impairment (32) - - (32) (5) (37) Depreciation (402) (365) (141) (908) (419) (1,327) Divestments - - - - 109 109 Disposals 126 195 95 416 456 872 - 7 - 7 (7) - Reclass (to)/from Assets held for sale (10) (9) 5 (14) (17) (31) Depreciation at 31 December (1,038) (663) (279) (1,980) (2,485) (4,465) Carrying amount at 31 December 1,446 633 298 2,377 896 3,273 2020 Cost at 1 January 2,239 1,157 641 4,037 4,363 8,400 Foreign exchange adjustments (44) (32) (57) (133) (160) (293) Additions 298 314 126 738 382 1,120 Divestments (0) (5) (0) (5) (11) (16) Disposals (73) (24) (19) (116) (551) (667) Reclass - (10) (6) (16) 4 (12) Reclass (to)/from Assets held for sale (107) (99) (12) (218) (459) (677) Cost at 31 December 2,313 1,301 673 4,287 3,568 7,855 Depreciation at 1 January (444) (374) (234) (1,052) (2,939) (3,991) Foreign exchange adjustments 16 13 21 50 114 164 Impairment (2) (0) - (2) (74) (76) Depreciation (432) (374) (154) (960) (488) (1,448) Divestments - 3 0 3 8 11 Disposals 16 8 13 37 524 561 Reclass - 5 (2) 3 (1) 2 Reclass (to)/from Assets held for sale 27 37 3 67 311 378 Depreciation at 31 December (819) (682) (353) (1,854) (2,545) (4,399) Carrying amount at 31 December 1,494 619 320 2,433 1,023 3,456 Leases (right-of-use assets) Property, plant and equipment Reclass Reclass FINANCIAL STATEMENTS 46 2.1 Property, plant and equipment and leases (continued) Lease liability Lease-related costs recognised in profit or loss (DKKm) 2021 2020 Depreciation of right-of-use assets 908 960 Interest expenses on lease liabilities 67 78 Short-term leases 168 166 Leases of low value assets 88 91 Variable lease payments 13 11 Recognised in profit or loss 1,244 1,306 Hereoff cash outflow 336 346 Significant accounting judgement The carrying amount of lease liabilities and the movements in the year are disclosed in 4.2, Loans and borrowings. The maturity profile is disclosed in 4.6, Liquidity risk. Lease term Several of ISS’s lease contracts (office buildings) have no contractual fixed lease term or contains an extension option. Management exercises judgement in determining whether these extension options are reasonably certain to be exercised. Management considers all relevant facts and circumstances that create an economic incentive for the Group to exercise the extension option. The lease term for contracts without an end date is set to ten years for head office and accessory buildings, whereas all other leases with no definite end date are set to five years. FINANCIAL STATEMENTS 47 2.1 Property, plant and equipment and leases (continued) Accounting policy Properties 5-10 years Cars 3-5 years Other equipment 2-5 years Plant and equipment 3-10 years Leasehold improvements (the lease term) 3-10 years Buildings 20-40 years Land is not depreciated. Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted prospectively, if appropriate. Right-of-use assets are recognised at the commencement date of the lease. Right-of-use assets are measured at cost less accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities, including extension options. Cost comprises the amount of lease liabilities recognised, initial direct costs and dismantling and restoration costs incurred and lease payments made at or before the commencement date less any lease incentives received. 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 Other operating expenses in the year of sale, except gains and losses arising on disposal of property, which are recognised in Other income and expenses, net. 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 separately. The estimated useful life and residual value are determined at the acquisition date. If the residual value exceeds the carrying amount depreciation is discontinued. Right-of-use assets are depreciated on a straightline basis over the shorter of the lease term and the estimated useful life of the asset. Certain leases have lease terms of 12 months or less or are leases of low-value assets, such as smaller cleaning equipment, IT equipment and office furniture. The “short-term lease” and “lease of low-value assets” recognition exemptions are applied for these leases, i.e. lease payments are recognised in Other operating expenses on a straight-line basis over the lease term. Property, plant and equipment is measured at cost, less accumulated depreciation and impairment losses. Cost comprises the purchase price and costs directly attributable to the acquisition until the date when the asset is ready for use. The net present value of estimated liabilities related to dismantling and removing the asset and restoring the site on which the asset is located is added to the cost. Subsequent costs, e.g. for replacing part of an item, are recognised in the cost of the asset if it is probable that the future economic benefits embodied by the item will flow to the Group. The carrying amount of the item is derecognised when replaced and transferred to profit or loss. All other costs for common repairs and maintenance are recognised in profit or loss when incurred. Estimated useful life Estimated useful life Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. FINANCIAL STATEMENTS 48 2.2 Trade receivables and credit risk 2021 2020 (DKKm) Gross Loss allowance Carrying amount Gross Loss allowance Carrying amount Continental Europe 5,134 (67) 5,067 5,097 (141) 4,956 Northern Europe 2,527 (34) 2,493 2,816 (57) 2,759 Asia & Pacific 1,852 (49) 1,803 1,688 (83) 1,605 Americas 964 (12) 952 496 (18) 478 Other countries 91 - 91 63 - 63 Total 10,568 (162) 10,406 10,160 (299) 9,861 2021 2020 (DKKm) Gross Loss allowance Carrying amount Gross Loss allowance Carrying amount Not past due 9,418 (4) 9,414 8,827 (5) 8,822 Past due 1 to 60 days 866 (6) 860 889 (5) 884 Past due 61 to 180 days 138 (12) 126 176 (36) 140 Past due 181 to 360 days 37 (34) 3 118 (111) 7 More than 360 days 109 (106) 3 150 (142) 8 Total 10,568 (162) 10,406 10,160 (299) 9,861 Exposure to credit risk In 2021, trade receivables increased slightly to DKK 10,406 million (2020: DKK 9,861 million). The initial recovery from Covid-19 and resulting positive growth in the later part of the year were the main drivers of the increase. At 31 December 2021, utilisation of factoring was DKK 1.1 billion (31 December 2020: DKK 1.0 billion). The Group’s exposure to credit risk is inherently low due to its business model and strategic choices leading to a diversified customer portfolio, both in terms of geography, industry sector, customer size and service types. Also, our strategic divestment programme has contributed to the low risk assessment as it has led to higher-risk countries and business units being sold off. The Group has considered the impact of Covid-19 on credit risk in general and the resulting impact on expected credit losses on its trade receivables, including an assessment of current and forward-looking reasonable and supportable information. The maximum credit risk exposure at the reporting date by reportable segments is shown above. Generally, the Group does not hold collateral as security for trade receivables. It is management’s assessment that the general credit risk continues to be elevated, though somewhat less than in 2020 following the initial recovery from Covid-19 in some countries towards the end of 2021. As a result, realised losses (write-offs) decreased slightly in 2021 to DKK 64 million (2020: DKK 77 million) in relation to insolvent customers and changed customer agreements. Additionally, we reversed DKK 120 million of expected credit losses provisioned in prior years, partly due to the improved credit environment but also due to our own collection efforts focused on aged receivables. FINANCIAL STATEMENTS 49 2.2 Trade receivables and credit risk (continued) Allowance for expected credit losses (DKKm) 2021 2020 Loss allowance at 1 January (299) (182) Foreign exchange adjustments 3 17 Acquisitions (2) - Divestments 0 1 Provision for expected credit losses (45) (244) Expected credit losses reversed 120 0 Write-off 64 77 Reclassification to Assets held for sale (3) 32 Loss allowance at 31 December (162) (299) Significant accounting estimates Accounting policy Management has considered the impact of Covid-19 on credit risk in general and the resulting impact on expected credit losses on its trade receivables, including assessment of current and forward-looking reasonable and supportable information. See further under Exposure to credit risk, p. 48. Exposure to credit risk on trade receivables and expected credit losses are managed locally in the operating entities and credit limits are set as deemed appropriate taking into account the customer’s financial position and the current market conditions. Trade receivables comprise invoiced and unbilled revenue. Trade receivables are recognised initially corresponding to the transaction price and subsequently measured at amortised cost. Generally, due to the short-term nature of trade receivables, amortised cost will equal the invoiced amount less loss allowance for expected credit losses. Generally, trade receivables are written off if they are past due for more than 180 days or when there is no reasonable expectation of recovery. Impairment losses on trade receivables are presented as net impairment losses within operating profit before other items. Subsequent recovery of amounts previously written off are credited against the same line item. Reversal of expected credit losses is recognised in Other operating expenses. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns, i.e. by geographical region, and customer type and rating. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The provision matrix is initially based on the Group’s historical observed default rates. At every reporting date, the historical observations are updated and changes in the forward-looking estimates are analysed. For instance, if forecast economic conditions are expected to deteriorate over the next year, this is taken into consideration. FINANCIAL STATEMENTS 50 2.3 Other receivables (DKKm) 2021 2020 Prepayments to suppliers 282 262 Supplier rebates and bonuses 352 287 Receivable divestment proceeds 155 19 Sign-on fees 134 133 Securities 103 76 Pass-through costs 48 72 Transition and mobilisation costs 62 115 Currency swaps - 5 Other 355 467 Total 1,491 1,436 Significant accounting judgements Accounting policy Transition and mobilisation costs comprised directly related costs incurred to fulfil the performance obligations under certain large contracts. The decrease in 2021 was due to ordinary amortisation, mainly in Norway, the UK, Denmark and the USA. Prepayments to suppliers comprised various payments related to ongoing projects and above-base work (where revenue has not yet been recognised) as well as utilities, insurance and licenses. Supplier rebates and bonuses comprised volume related discounts obtained from suppliers and reflects the Group’s efforts to consolidate the number of suppliers and drive synergies and cost savings. The increase in 2021 related mainly to increased activity levels following the initial recovery from Covid-19 as well as timing of settlement of such rebates and bonuses. Sign-on fees comprised upfront discounts to certain large customers, most significantly in the UK and on certain global key accounts. Other comprised refunds from customers, VAT, accrued interests and other recoverable amounts, including Covid-19-related government subsidies. Capitalisation of transition and mobilisation costs involves management’s judgement to assess if the criteria for capitalisation are fulfilled. Management uses judgement to determine if the costs relate directly to the contract and are incurred in order for ISS to be able to fulfil the contract. In addition, management determines if the costs generate resources that will be used in satisfying the performance obligation and are expected to be recovered, i.e. reflected in the pricing of the contract. Transition and mobilisation costs (costs to fulfil a contract) comprise costs directly related to launching certain large contracts such as transfer of employees from previous suppliers, site due diligence, planning and developing service plans. The cost includes internal direct costs and external costs e.g. to consultants. Transition and mobilisation costs are capitalised and amortised over the initial secured contract term consistent with ISS’s transfer of the related services to the customer. Bid-related costs, including costs relating to sales work and securing contracts, are expensed as incurred. Other receivables are recognised initially at cost and subsequently at amortised cost, except for securities and currency swaps, which are recognised at fair value. Due to the short-term nature of other receivables, amortised cost will equal the cost. Receivable divestment proceeds mainly related to the divestment of Specialized Services in the USA, where part of the consideration is subject to customer consent being achieved. Sign-on fees comprise upfront discounts to certain large customers incurred in the ordinary course of business. Sign-on fees are capitalised and amortised over the initial secured contract term consistent with ISS’s transfer of the related services to the customer. FINANCIAL STATEMENTS 51 2.4 Other liabilities (DKKm) 2021 2020 Accrued wages, pensions and holiday allowances 4,616 4,050 Tax withholdings, VAT etc. 2,211 2,118 Debt to companies within the ISS Group 1,245 1,149 Prepayments from customers 868 560 Contingent consideration and deferred payments 31 133 Other 778 898 Total 9,749 8,908 2.5 Changes in working capital (DKKm) 2021 2020 Changes in inventories 4 89 Changes in receivables (136) 2,784 Changes in payables 1,171 (1,866) Total 1,039 1,007 Other comprised customer discounts, accrued interests, etc. In 2021, other liabilities increased DKK 841 million mainly due to initial recovery from Covid-19, leading to an increase in activity and a resulting increase in tax withholdings, VAT, accrued wages and bonuses and related social costs. Furthermore, prepayments from customers increased following the extension of a global key account contract, which also led to improved payment terms. FINANCIAL STATEMENTS 52 2.6 Provisions (DKKm) Legal and labour-related cases Self- insurance Restruc- turings Onerous contracts Other Total 2021 Provisions at 1 January 133 261 787 285 460 1,926 Foreign exchange adjustments (6) 15 4 6 7 26 Additions 141 225 7 73 45 491 Used during the year (62) (232) (373) (21) (11) (699) Unused amounts reversed (55) (2) (52) (16) (10) (135) Reclass (to)/from other liabilities 84 (5) 1 3 24 107 Provisions at 31 December 235 262 374 330 515 1,716 Non-current 121 127 142 78 287 755 Current 114 135 232 252 228 961 2020 Provisions at 1 January 71 239 1 31 224 566 Foreign exchange adjustments (6) (13) (0) (3) (6) (28) Additions 86 204 1,174 265 385 2,114 Used during the year (10) (147) (383) (6) (136) (682) Unused amounts reversed (9) (22) - (2) (3) (36) Reclass (to)/from other liabilities 1 0 (5) - (4) (8) Provisions at 31 December 133 261 787 285 460 1,926 Non-current 19 122 199 219 65 624 Current 114 139 588 66 395 1,302 FINANCIAL STATEMENTS 53 2.6 Provisions (continued) Provision Legal and labour-related • Hong Kong: • UK: • Australia: • USA: Re- structurings Onerous contracts Other Comprised various cases, mainly redundancy-related disputes in France and Spain as well as employee-related risks in the UK. Furthermore, the provision included liability not insured under the global general liability insurance with a self- insured level of DKK 7.4 million (2020: DKK 7.5 million) worldwide, except for the USA where the self-insurance level is DKK 6.6 million (2020: DKK 6.1 million) per claim. Obligations and legal costs in relation to various insurance cases, if not covered by the insurance, were also included in the provision. Nature and extent Self- insurance The Group carries insurance provisions on employers’ liability and/or workers compensation in the countries listed below. We are continuously reviewing our business platform to ensure the right basis for execution of our strategy. In 2020, restructurings were initiated in several countries to adjust our cost structure to the lower activity level following Covid-19. The initiatives included termination of employees, contract exits and overhead reductions. Execution of the restructuring projects is ongoing, which led to payments of DKK 373 million in 2021, mainly in France, Germany and Spain. The provision for onerous contracts related to Danish Defence in Denmark, a key account contract in Hong Kong and various smaller contracts in a number of countries. For Danish Defence, the provision was recognised in 2020 and covers exit-related costs and operation until full exit in May 2022, as per the agreement with the customer. Comprised various obligations, primarily related to complex customer and contract-related risks and disputes in the major markets in which we operate. Furthermore, guarantee reserves, dismantling costs and closure of contracts were included in this item. DKKm 25.2 (2020: DKKm 23.4) yearly DKKm 26.6 (2020: DKKm 24.7) yearly aggregated limit and DKKm 4.4 (2020: DKKm 4.1) per claim DKKm 3.6 (2020: DKKm 5.8) per claim DKKm 3.3 (2020: DKKm 3.3) per claim FINANCIAL STATEMENTS 54 2.6 Provisions (continued) Significant accounting estimates and judgement Accounting policy Decommissioning liability If the Group has a legal obligation to dismantle or remove an asset or restore a site or leased facilities when vacated, a provision is recognised corresponding to the present value of expected costs to settle the obligation. The present value of the obligation is included in the cost of the relevant tangible or right-of-use asset and depreciated accordingly. The estimated future costs of decommissioning are reviewed annually and adjusted as appropriate. Changes in the estimated future costs, or in the discount rate applied, are added to or deducted from the cost of the relevant asset. Onerous contracts An onerous contract is a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. A provision is recognised in respect of the Group’s onerous contracts at the lower of the costs to fulfil the obligations under the contract and the costs of exiting the contract. Management assesses whether contracts may be onerous by estimating the expected future profitability. This involves estimating total contract revenue and the unavoidable costs of meeting the performance obligations under the contract, including any transition and mobilisation costs incurred. In estimating the expected future profitability management makes judgements. Certain contracts are complex facility management partnerships. In estimating unavoidable costs in relation to such contracts, management applies assumptions as to future realisation of costs driven by efficiencies and optimisations to be gained over the contract term as well as the effect of performance improvement initiatives. While ISS has inherent risk in this respect, ISS is by nature also dependent on aligning interest with the customer within the framework of the agreement for the benefit of both parties. Further, management makes judgements related to the contract term, taking any termination and extension options into consideration. Restructurings and other provisions Management makes judgements related to various other matters and obligations, which primarily relates to planned/initiated restructurings, and complex customer and contract-related risks and disputes, including ongoing lawsuits. For large and complex contracts, the outcome may vary significantly should the assumptions and judgements applied not be realised as expected by management in their assessment of the risks and/or disputes. In assessing the likely outcome of lawsuits, tax disputes, etc., management bases its assessment on external legal assistance and established precedents. Provisions are recognised when the Group, as a result of a past event, has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The costs required to settle the obligation are discounted using the entity’s average borrowing rate, if this significantly impacts the measurement of the liability. Customer and contract-related disputes The Group recognises provisions related hereto when, based on an assessment of available facts and circumstances in respect of the specific risks or disputes, it is deemed that a contractual, non-contractual or constructive obligation exists, and it is probable that this will lead to an outflow of economic resources from the Group. For large and complex contracts, the outcome may vary significantly should the assumptions and judgements applied not be realised as expected by management in their assessment of onerous contracts. Restructurings A provision is recognised when a detailed, formal restructuring plan is announced to the affected parties on or before the reporting date. The plan must identify the business concerned, the location and number of employees affected, and a detailed estimate of the associated costs, as well as the timeline must be in place. Onerous contracts Our strategy to focus on large key accounts will increasingly lead to a customer base comprising large, more complex contracts. The size and complexity of such contracts will often require us to incur significant transition and mobilisation costs before service delivery commences in order to fulfill the performance obligations under the contract and could also require us to do restructurings, that will be recognised as restructuring provisions, subject to fulfilment of requirements under IAS 37. Legal and labour-related cases The Group recognises a provision for e.g. lawsuits and redundancy-related disputes based on external legal assistance and established precedents. Self-insurance The Group recognises a provision on employers’ liability and/or workers compensation based on valuations from external actuaries. FINANCIAL STATEMENTS 55 2.7 Free cash flow (DKKm) 2021 2020 Cash flow from operating activities 3,221 (886) Acquisition of intangible assets and property, plant and equipment (466) (583) Disposal of intangible assets and property, plant and equipment 42 31 Acquisition of financial assets, net 1) (30) (19) Addition of right-of-use assets, net 2) (867) (686) Free cash flow 1,900 (2,143) The free cash flow measure should not be considered a substitute for those measures required by IFRS and may not be calculated by other companies in the same manner. As such, reference is made to the IFRS measures included in the consolidated statement of cash flows of the consolidated financial statements. 1) Excluding investments in equity-accounted investees which in 2021 was DKK (24) million (2020: DKK 28 million). 2) Including DKK 13 million (2020: DKK 27 million) related to discontinued operations, cf. 2.1, Property, plant and equipment and leases. Free cash flow as defined by management, cf. p. 122, is summarised below. Free cash flow is not a financial performance measure established by IFRS. Accordingly, the measure and its calculation is presented as it is used by management as an alternative performance measure in managing the business. FINANCIAL STATEMENTS 56 SECTION 3 Strategic divestments and acquisitions 3.1 Discontinued operations Impact on profit or loss Discontinued operations - presented in separate profit or loss line Net profit/(loss) from discontinued operations (DKKm) 2021 2020 Revenue 1,231 3,289 Expenses 1) (1,144) (3,203) Operating profit before other items 87 86 Other income and expenses, net 2) 94 176 Royalty (35) (70) Goodwill impairment 2) (17) (116) Operating profit 129 76 Financial income/(expenses), net 0 (12) Net profit before tax 129 64 Income tax (19) (18) Net profit from discontinued operations 110 46 1) Including depreciation and amortisation of DKK 0 million (2020: DKK 15 million). Our strategic divestment programme had strong momentum in 2021 with six countries being divested, i.e. the Czech Republic, Hungary, the Philippines, Romania, Slovakia and Slovenia. Chile developed positively in 2021, both financially and strategically, as demonstrated by the wins of a few large key account contracts. On that basis, management decided to cease the held for sale classification in December 2021. The carrying amounts were adjusted for depreciation and amortisation, that would have been recognised had the business not been classified as held for sale. The adjustment of DKK 59 milllion was recognised in Other income and expenses, net in December 2021 and related to the years 2019-2020. As a result of the changed classification, Chile was reported as part of continuing operations for the full year of 2021, including depreciation and amortisation for the year. Comparative figures were restated accordingly. With the significant progress made in 2021, and Chile being reclassified to continuing operations, the divestment programme is nearing its completion, which is expected in 2022. At 31 December 2021, four countries (2020: 11 countries), continued to be classified as discontinued operations and assets held for sale. 2) Including the combined net gain of DKK 77 million from divestments and fair value remeasurements, including recycling of accumulated foreign exchange adjustments, see 3.2, Assets and liabilities held for sale. Gains/losses related to the divestments and countries being held for sale at 31 December 2021 are specified in 3.2, Assets and liabilities held for sale. 2021: Brunei, the Czech Republic, Hungary, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia and Taiwan 2020: Brazil, Brunei, the Czech Republic, Hungary, Malaysia, the Philippines, Portugal, Romania, Russia, Slovenia, Slovakia, Taiwan and Thailand Net profit from discontinued operations is attributable to the shareholder of ISS Global A/S. FINANCIAL STATEMENTS 57 3.1 Discontinued operations (continued) Cash flow from discontinued operations DKK million 2021 2020 Cash flow from operating activities 36 48 Cash flow from investing activities (83) (150) Cash flow from financing activities (16) (197) Accounting policy The accounting policies and significant accounting estimates and judgements for discontinued operations are described together with accounting policies for assets held for sale in 3.2, Assets and liabilities held for sale. FINANCIAL STATEMENTS 58 3.2 Assets and liabilities held for sale Businesses classified as held for sale Statement of financial position (DKKm) 2021 2020 Goodwill 126 547 Customer contracts - 14 Other non-current assets 165 574 Current assets 202 681 Assets held for sale 493 1,816 Non-current liabilities 36 164 Current liabilities 244 674 Liabilities held for sale 280 838 Profit or loss effect (DKKm) 2021 Kanal Services, Switzerland 467 Specialized Services, USA 138 Other minor business units, net (18) Chile (ceased held for sale classification) (59) Other income and expenses, net (gain) 528 Slovakia 73 Czech Republic 26 Romania 17 Slovenia (11) Other countries (28) Discontinued operations (gain) 77 Total net gain 605 At 31 December 2021, five businesses (2020: 14 businesses) were classified as held for sale comprising four countries (discontinued operations) and the Waste Management business in Hong Kong. The latter was subsequently divested in January 2022. In 2021, our divestment programme resulted in recognition of a net gain of DKK 605 million in the profit or loss as a result of completed divestments, fair value remeasurements and carrying amount adjustments regarding ceased asset held for sale classification. The net gain is specified below and was recognised in: • Other income and expenses, net, DKK 528 million (gain) • Net profit from discontinued operations, DKK 77 million (gain) In 2021, we divested six countries (discontinued operations) and two of the three business units classified as held for sale when entering the year, i.e. Kanal Services in Switzerland and Specialized Services in the USA. Furthermore, management decided to cease the held for sale classification of Chile. Recycling of accumulated foreign exchange adjustments recognised in equity had a positive impact on the total net gain of DKK 15 million. FINANCIAL STATEMENTS 59 3.2 Assets and liabilities held for sale (continued) Significant accounting estimates and judgement Accounting policy Non-current assets and disposal groups are classified as held for sale when management assesses that their carrying amounts will be recovered through a sale within one year rather than continuing use. Management assesses whether the sale is highly probable and the asset or disposal group is available for immediate sale in its current condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. If a sale has not been concluded within one year, the period is extended if management assesses that the above criteria continue to be fulfilled. On classification management estimates the fair value (the final sales price and expected costs to sell). Depending on the nature of the non-current assets and the disposal group’s activity, assets and liabilities, the estimated fair value may be associated with uncertainty. Measurement of the fair value is categorised as Level 3 in the fair value hierarchy as it is not based on observable market data. Management considers intangible assets relating to the disposal groups, taking into consideration how to separate the net assets (including intangible assets) relating to the disposal group from the Group’s assets in the continuing business. Impairment of these intangibles, both on initial classification as held for sale and subsequently, is considered. The estimation uncertainty relating to impairment of intangibles is described in 3.8, Impairment tests. Assets held for sale comprise non-current assets and disposal groups held for sale. Liabilities held for sale are those directly associated with the assets held for sale and disposal groups. Immediately before classification as held for sale, they are remeasured in accordance with the Group’s accounting policies. Thereafter, they are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss is first allocated to goodwill, and then pro rata to remaining assets, 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. Once classified as held for sale, assets are not amortised or depreciated. Impairment losses on initial classification as held for sale, and subsequent gains and losses on remeasurement are recognised in profit or loss and disclosed in the notes. If the held for sale criteria is no longer met, the classification as held for sale ceases. At the date of cessation, the non-current asset or disposal group is measured at the lower of its carrying amount before classification as held for sale adjusted for depreciation and amortisation, that would have been recognised had the non-current asset or disposal group not been classified as held for sale. Any adjustments are presented in Other income and expenses, net. A disposal group is presented as discontinued operations if it is a geographical area, i.e. a CGU (country exits), that either has been disposed of, or is classified as held for sale. Discontinued operations are presented separately as Net profit from discontinued operations and specified in the notes. Comparatives are restated. Cash flows from discontinued operations are included in cash flow from operating, investing and financing activities together with cash flows from continuing operations, but specified in 3.1, Discontinued operations. Assets and liabilities of discontinued operations are presented similar to other assets held for sale. Comparative figures are not restated. Assets held for sale are presented in separate lines of the statement of financial position and specified in the notes. Comparatives are not restated. FINANCIAL STATEMENTS 60 3.3 Divestments The Group completed 12 divestments in 2021 (2020: eight): Company/activity Country Service type Excluded from P/L Interest Annual revenue (DKKm) 1) Employees (Number) 1) Fruit Baskets Sweden Food February Activities 17 19 Indoor Plants Sweden Technical February Activities 23 35 ISS Slovakia Slovakia Country exit 2) April 100% 102 831 ISS Czech Republic Czech Republic Country exit 2) April 100% 262 1,698 ISS Romania Romania Country exit 2) April 100% 88 934 ISS Hungary Hungary Country exit 2) May 100% 55 439 Kanal Services Switzerland Technical May 100% 339 280 Restoration division UK Technical June 100% 23 36 ISS Philippines Philippines Country exit 2) October 100% 173 5,391 ISS Slovenia Slovenia Country exit 2) October 100% 86 593 Food Service business Spain Food November Activities 330 1,215 Specialized Services USA Cleaning December Activities 1,077 - Total 2,575 11,471 1) Unaudited 2) Presented as discontinued operations Divestment impact (DKKm) 2021 2020 Goodwill 360 118 Customer contracts 5 11 Other non-current assets 337 79 Current assets 504 569 Non-current liabilities (43) (66) Loans and borrowings (134) (29) Current liabilities (239) (272) Net assets disposed 790 410 Gain/(loss) on divestment, net 683 224 Divestment costs 175 144 Consideration received 1,648 778 Cash in divested businesses (130) (154) Consideration received, net 1,518 624 Contingent and deferred consideration (130) 54 Divestment costs paid (197) (173) Divestment of businesses (cash flow) 1,191 505 FINANCIAL STATEMENTS 61 3.3 Divestments (continued) Divestments subsequent to 31 December 2021 Accounting policy Gain or loss on disposal of an operation that is part of a CGU, includes a portion of the related goodwill allocated to that CGU. Goodwill related to the disposed operation is measured based on the fair value of the disposed operation relative to the fair value of the entire CGU. On 31 January 2022, we completed the divestment of Waste Management in Hong Kong, a company providing waste management services with an annual revenue of approximately DKK 131 million and 232 employees. The Group signed or completed no further divestments from 1 January to 28 February 2022. On 31 January 2022, we signed an agreement to divest our activities in Taiwan (presented as discontinued operations) with an annual revenue of approximately DKK 457 million and 3,046 employees. FINANCIAL STATEMENTS 62 3.4 Acquisitions Rönesans Facility Management Company in Turkey Acquisition impact (DKKm) ISS Turkey (original acq.) Rönesans Total Customer contracts - 428 428 Other non-current assets - 26 26 Trade receivables - 184 184 Other current assets - 105 105 Non-current liabilities - (112) (112) Current liabilities - (194) (194) Fair value of net assets - 437 437 Goodwill (32) 129 97 Consideration transferred (32) 566 534 Cash in acquired business - (97) (97) Consideration transferred, net (32) 469 437 Contingent and deferred consideration 111 (22) 89 Acquisition of businesses (cash flow) 79 447 526 Acquisitions subsequent to 31 December 2021 The Group completed no acquisitions from 1 January to 28 February 2022. On 28 September 2021, ISS acquired 100% of the shares in Rönesans Facility Management Company (Rönesans İşletme Hizmetleri Danışmanlığı A.Ş.) in Turkey from Renaissance Healthcare (Rönesans Sâglik Yatirim), a Turkish contracting company owned by Rönesans Holding. With the acquisition, ISS will provide facility management services in a Public-Private-Partnership at four hospitals until 2045. The agreement builds on an already successful partnership, as ISS Turkey is currently operating two (Adana and Elazig) of the four hospitals as subcontractor. Trade receivables The fair value of trade receivables was DKK 184 million, equaling the gross amount. Management expects that the full contractual amount can be collected. The purchase consideration amounted to DKK 566 million. Based on provisionally determined fair values of net assets, goodwill amounted to DKK 129 million. The acquisition impact is specified in the table to the right. The acquisition will strengthen our leadership position in the strategically important healthcare segment in Turkey and supports the OneISS strategy to focus on key accounts in our prioritised segments. The acquisition will add annual revenue of approximately DKK 500 million and 1,500 employees (estimated based on unaudited financial information). Goodwill is attributable mainly to: 1) expertise and know-how in the healthcare segment, 2) synergies, 3) platform for growth, and 4) assembled work force, and is not deductible for tax purposes. During the period 28 September to 31 December 2021, Rönesans contributed revenue of DKK 150 million. Contingent and deferred consideration related to the settlement of a put option during 2021 in relation to ISS Turkey (original acquisition), and a deferred payment subject to finalisation of closing accounts for Rönesans. The latter was settled in January 2022. FINANCIAL STATEMENTS 63 3.4 Acquisitions (continued) Minority shareholders in ISS Turkey Transactions with non-controlling interests (DKKm) 2021 Consideration received 324 Transaction costs (26) Capital injection 113 Contingent and deferred consideration (214) Transactions with other non-controlling interests (33) Cash flow impact 164 (DKKm) 2021 Consideration received 324 Transaction costs (26) Capital injection 78 Transactions with other non-controlling interests (26) Equity impact 350 Accounting policy 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 in Financial expenses. After initial recognition, goodwill is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units (CGUs) that are expected to benefit from the combination, 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. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business 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 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 assets, liabilities and contingent liabilities, initial recognition is based on provisionally determined fair values. Changes to fair values are adjusted against goodwill up until 12 months after the acquisition date and comparative figures are restated accordingly. Thereafter no adjustments are made to goodwill, and changes in fair values are recognised in Other income and expenses, net. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for Accounting policy non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. As part of the acquisition of Rönesans, ISS agreed to partner with Actera, a large leading Turkish private equity company, to support and partly fund the acquisition. Actera has in-depth expertise in the Turkish market, a strong operational track record and became minority shareholder owning 39.9% of the shares in ISS Turkey. Furthermore, Management of ISS Turkey acquired 10% of the shares in ISS Turkey, while ISS continued to be the controlling shareholder. The impact of the transactions are specified below. FINANCIAL STATEMENTS 64 3.5 Pro forma revenue and operating profit (DKKm) 2021 2020 Revenue as reported 71,383 70,767 Pro forma revenue 70,296 70,738 Operating profit before other items as reported 2,920 (2,501) Pro forma operating profit before other items 2,875 (2,500) Pro forma revenue and operating profit before other items are presented for informational purposes and does not represent the results the Group would have achieved had the acquisitions and divestments during the year occurred on 1 January. The information should therefore not be used as the basis for or prediction of any annualised calculation. Pro forma revenue and operating profit before other items include adjustments relating to acquisitions and divestments estimated by local ISS management at the time of acquisition and divestment or actual results where available. The estimates are based on unaudited financial information. Assuming all acquisitions and divestments in the year were included/excluded as of 1 January, the effect on recognised revenue and operating profit before other items is estimated as follows: FINANCIAL STATEMENTS 65 3.6 Intangible assets (DKKm) Goodwill Brands Customer contracts Software and other Total 2021 Cost at 1 January 17,065 49 3,669 1,495 22,278 Foreign exchange adjustments 282 4 11 19 316 Additions 97 - 428 7 532 Acquisitions - - - 114 114 Divestments (19) - (106) (1) (126) Disposals - - (12) (174) (186) Reclass to Assets held for sale 67 - 49 (15) 101 Cost at 31 December 17,492 53 4,039 1,445 23,029 Amortisation and impairment losses at 1 January (1,972) (36) (3,345) (1,015) (6,368) Foreign exchange adjustments 2 (3) (117) (15) (133) Amortisation - (10) (54) (180) (244) Impairment (459) - - (23) (482) Divestments - - 101 1 102 Disposals - - 12 169 181 Reclass to Assets held for sale - - (39) 9 (30) Amortisation and impairment losses at 31 December (2,429) (49) (3,442) (1,054) (6,974) Carrying amount at 31 December 15,063 4 597 391 16,055 2020 Cost at 1 January 18,007 55 3,870 1,604 23,536 Foreign exchange adjustments (551) (6) (161) (43) (761) Acquisitions 87 - - - 87 Additions - - - 160 160 Divestments (41) - (11) - (52) Disposals - - - (225) (225) Reclass (to)/from Property, plant and equipment - - - 12 12 Reclass to Assets held for sale (437) - (29) (13) (479) Cost at 31 December 17,065 49 3,669 1,495 22,278 Amortisation and impairment losses at 1 January (1,494) (30) (3,453) (1,012) (5,989) Foreign exchange adjustments 18 4 133 24 179 Amortisation - (10) (79) (162) (251) Impairment (631) - - (98) (729) Divestments 22 - 11 - 33 Disposals - - - 222 222 Reclass to/(from) Property, plant and equipment - - - (2) (2) Reclass to Assets held for sale 113 - 43 13 169 Amortisation and impairment losses at 31 December (1,972) (36) (3,345) (1,015) (6,368) Carrying amount at 31 December 15,093 13 324 480 15,910 FINANCIAL STATEMENTS 66 3.6 Intangible assets (continued) Accounting policy Brands (finite useful life) 2-5 years Customer contracts 10-24 years Software and other intangible assets 5-10 years Impairment of goodwill comprised losses identified in impairment tests related to France of DKK 459 million (2020: DKK 500 million), see 3.8, Impairment tests. Impairment of software in 2020 mainly related to a non-cash write-down of impaired assets following the IT security incident, see 1.3, Other income and expenses, net. Amortisation methods and useful lives are reassessed at the reporting date and adjusted prospectively, if appropriate. Estimated useful life Goodwillis initially recognised at cost and subsequently at cost less accumulated impairment losses. Goodwill is not amortised. Goodwill relates mainly to assembled workforce, technical expertise and technological knowhow. Acquisition-related brands and customer contractsare recognised at fair value at the acquisition date. Subsequently, brands with indefinite useful lives are measured at cost less accumulated impairment losses. Brands with finite useful lives and customer contracts are measured at cost less accumulated amortisation and impairment losses. Acquired software and other intangible assets are measured at cost less accumulated amortisation and impairment losses. The cost of software developed for internal use includes external costs to consultants and software as well as internal direct and indirect costs related to the development. Other development costs for which it cannot be rendered probable that future economic benefits will flow to the Group are recognised in profit or loss as and when incurred. Amortisation of intangible assets with finite useful lives is calculated on a straight-line basis over the estimated useful lives except for certain customer contracts where the unit of production method better reflects the expected pattern of consumption. FINANCIAL STATEMENTS 67 3.7 Goodwill impairment (DKKm) 2021 2020 Identified in impairment tests 459 500 Loss on divestments - 35 Total 459 535 3.8 Impairment tests Cash-generating units (CGUs) Measuring recoverable amounts (general assumptions) Covid-19 impact on risk assessment Identified in impairment tests in 2021 and 2020 related to goodwill impairment in France, see 3.8, Impairment tests. Derived from divestments In 2020, the loss related to Parking Management in Indonesia and the Healthcare Catering Business in Poland. While 2021 continued to be impacted by Covid-19, the visibility around recovery improved during the year, especially in the later part of 2021, when signs of recovery appeared in a number of countries. As a result, the specific Covid-19 risk premium has been removed in the impairment test for 2021. Impairment tests are generally carried out per country as this represents the lowest level of CGUs to which the carrying amounts of intangibles, i.e. goodwill and customer contracts, can be allocated and monitored with any reasonable certainty. This level of allocation and monitoring of intangibles should be seen in light of the Group’s strategy to integrate acquired companies as quickly as possible in order to 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 exceptional 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, calculated using certain key assumptions per CGU, i.e. revenue growth, operating margin and discount rate. Value-in-use cash flow projections for the individual CGUs are based on financial budgets for the following year as approved by management. Assumptions applied in the short to medium term (forecasting period of five years) generally reflect management’s expectations considering all relevant factors, including the Group’s strategic initiatives, local initiatives, past experience and external sources of information, where possible and relevant. Management has ensured that financial budgets, forecasts and underlying assumptions applied in the impairment tests reflect the expected impact from Covid-19, including expected future revenue recovery. Despite continued uncertainty, visibility has generally improved during 2021 – though with a few exceptions. Expected impacts from OneISS and our strategic priorities have also been considered, especially around sharpened focus on key accounts, the strategic divestment programme and investments in technology and the global operating model. Our underperforming contracts (Deutsche Telekom and Danish Defence) and countries (the UK and France) have also been carefully considered to ensure, that expected turnaround is properly reflected in determining the key assumptions for the specific CGUs. Where relevant, initiated restructurings and other actions, mainly in response to Covid-19, have been taken into consideration when estimating the expected future performance and cash flows. In 2020, Covid-19 had a significant adverse impact on the Group’s performance and cash flows and led to increased uncertainty in relation to prospects for, and timing of, future recovery. To appropriately reflect the increased estimation uncertainty, a separate risk premium related to Covid-19 was introduced and added to the WACC. FINANCIAL STATEMENTS 68 3.8 Impairment tests (continued) Key assumptions (per CGU) Revenue growth (forecasting period) Revenue growth (terminal period) Operating margin Discount rates (net of tax) 30 June 2021 31 December 2021 An impairment loss of DKK 459 million was recognised in France following an update of the business case and an increase in the applied WACC. During the first six months of 2021, transparency around the recoverability from Covid-19 improved. It also became clearer, that the pace of recovery within the most impacted customer segments would remain slow. Accordingly, the risk reflected in the applied WACC was increased. Combined with increasing interest rates, this led to a higher applied WACC at 30 June 2021. Additionally, compared to previous assessments, management lowered the growth and margin expectations in 2023-2025, while assumptions for the terminal period remained unchanged. Based on the impairment tests performed, no further impairment losses were recognised. Except for France, it is management’s opinion that excess values are fairly resilient to any likely and reasonable deteriorations in the key assumptions applied. In 2021, France continued to be heavily impacted by Covid-19 restrictions and slow recovery in the most impacted customer segments, despite progress on the restructuring plan. As a result, excess value in the impairment test for France was limited at 31 December 2021. Description Result of the impairment tests 2021 • Budgeted growth for year 1 • Subsequent years based on expected market development, including recovery from Covid-19, taking market maturity and general macroeconomic environment into consideration • Impacts from local and Group strategic initiatives are considered, including our key account focus and the strategic divestment programme • Does not exceed the expected long-term average growth rate for the country, including inflation • Budgeted margin for year 1 • Impacts from local and Group strategic initiatives are considered, including our key account focus, the strategic divestment programme and investments in technology and the global operating model • Initiated restructurings, actions in response to Covid-19 and operational challenges are considered, where relevant • Based on a country-specific 10-year government bond • Premium added to adjust for the inconsistency of applying government bonds with a short-term maturity when discounting cash flows with infinite maturity • Premium added to reflect the specific risk associated with each CGU, reflecting uncertainties regarding past performance and possible variations in the amount or timing of the projected cash flows • Equity risk premium: 6.5% (2020: 6.5%) • Debt/equity target ratio (market values): 25/75 (2020: 25/75) FINANCIAL STATEMENTS 69 3.8 Impairment tests (continued) Carrying amounts and key assumptions (DKKm) Goodwill Customer contracts Total Growth (avg.) Margin (avg.) 2) Growth Margin 2) Net of tax Pre- tax 2021 USA & Canada 2,068 161 2,229 13.1 % 6.8 % 3.0 % 6.8 % 9.0 % 11.6 % UK & Ireland 1,807 121 1,928 3.9 % 4.6 % 2.5 % 6.0 % 8.7 % 11.3 % Finland 1,653 - 1,653 1.7 % 6.4 % 2.0 % 6.5 % 7.3 % 9.1 % Australia & NZ 1,324 4 1,328 2.2 % 6.1 % 2.5 % 6.1 % 8.7 % 12.3 % Switzerland 1,159 - 1,159 1.5 % 7.1 % 1.5 % 7.1 % 6.3 % 7.6 % Spain 1,005 1 1,006 0.4 % 5.9 % 2.0 % 6.5 % 7.7 % 10.2 % France 936 - 936 1.4 % 3.3 % 2.0 % 5.0 % 8.9 % 13.7 % Sweden 807 - 807 3.3 % 5.5 % 2.0 % 6.2 % 8.0 % 10.0 % Belgium & Lux. 788 - 788 3.6 % 5.7 % 2.0 % 6.0 % 7.3 % 9.8 % Other 3,516 310 3,826 - - - - - - Total 15,063 597 15,660 2020 USA & Canada 1,865 163 2,028 13.4 % 5.9 % 3.0 % 6.0 % 9.4 % 11.9 % UK & Ireland 1,687 132 1,819 4.7 % 4.4 % 2.5 % 6.0 % 8.4 % 10.0 % Finland 1,653 - 1,653 2.4 % 5.7 % 2.0 % 6.5 % 7.0 % 8.5 % France 1,396 - 1,396 3.1 % 3.1 % 2.0 % 5.0 % 7.3 % 10.4 % Australia & NZ 1,289 8 1,297 0.9 % 4.6 % 2.5 % 4.6 % 8.3 % 11.7 % Switzerland 1,147 - 1,147 2.3 % 7.0 % 1.5 % 7.2 % 6.0 % 7.3 % Spain 1,021 11 1,032 3.8 % 6.0 % 2.0 % 6.5 % 7.7 % 10.1 % Sweden 823 - 823 3.3 % 4.7 % 2.0 % 6.2 % 7.4 % 9.0 % Belgium & Lux. 788 - 788 3.9 % 5.2 % 2.0 % 6.0 % 7.2 % 9.3 % Other 3,424 10 3,434 - - - - - - Total 15,093 324 15,417 Significant accounting estimates The carrying amounts of intangibles and key assumptions 1) for CGUs representing more than 5% of intangibles, or CGUs considered to be at high risk of impairment or having incurred recent impairment losses, are disclosed below. 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 and royalty. Carrying amount Terminal period Applied discount rate Forecasting period 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. This assessment is based on estimates of expected future cash flows (value-in-use) as described in “Measuring recoverable amounts”. In 2021, Covid-19 continued to impact estimation uncertainty, particularly in relation to future expectations and prospects for recovery, though visibility improved especially in the later part of the year. FINANCIAL STATEMENTS 70 3.8 Impairment tests (continued) Sensitivity analysis Avg. rate Allowed decrease Avg. rate Allowed decrease Long- term rate Allowed decrease Long- term rate Allowed decrease Rate Allowed increase 2021 USA & Canada 13.1 % >13.1 % 6.8 % >6.8 % 3.0 % >3.0 % 6.8 % 4.6 % 9.0 % 8.7 % UK & Ireland 3.9 % >3.9 % 4.6 % >4.6 % 2.5 % >2.5 % 6.0 % 4.7 % 8.7 % >8.7 % Finland 1.7 % >1.7 % 6.4 % >6.4 % 2.0 % >2.0 % 6.5 % 2.9 % 7.3 % 3.5 % Australia & NZ 2.2 % >2.2 % 6.1 % >6.1 % 2.5 % >2.5 % 6.1 % 4.1 % 8.7 % >8.7 % Switzerland 1.5 % >1.5 % 7.1 % >7.1 % 1.5 % >1.5 % 7.1 % 6.2 % 6.3 % >6.3 % Spain 0.4 % >0.4 % 5.9 % >5.9 % 2.0 % >2.0 % 6.5 % 3.1 % 7.7 % 4.3 % France 1.4 % 0.2 % 3.3 % 0.2 % 2.0 % 0.1 % 5.0 % 0.1 % 8.9 % 0.1 % Sweden 3.3 % >3.3 % 5.5 % >5.5 % 2.0 % >2.0 % 6.2 % 5.5 % 8.0 % >8.0 % Belgium & Lux. 3.6 % >3.6 % 5.7 % >5.7 % 2.0 % >2.0 % 6.0 % 3.6 % 7.3 % 6.4 % 2020 USA & Canada 13.4 % >13.4 % 5.9 % >5.9 % 3.0 % >3.0 % 6.0 % 4.2 % 9.4 % 8.4 % UK & Ireland 4.7 % >4.7 % 4.4 % >4.4 % 2.5 % >2.5 % 6.0 % 4.9 % 8.4 % >8.4 % Finland 2.4 % >2.4 % 5.7 % >5.7 % 2.0 % >2.0 % 6.5 % 3.7 % 7.0 % 4.8 % France 3.1 % 2.0 % 3.1 % 2.0 % 2.0 % 0.6 % 5.0 % 0.5 % 7.3 % 0.5 % Australia & NZ 0.9 % >0.9 % 4.6 % 4.6 % 2.5 % >2.5 % 4.6 % 1.4 % 8.3 % 2.1 % Switzerland 2.3 % >2.3 % 7.0 % >7.0 % 1.5 % >1.5 % 7.2 % 6.6 % 6.0 % >6.0 % Spain 3.8 % >3.8 % 6.0 % >6.0 % 2.0 % >2.0 % 6.5 % 3.5 % 7.7 % 4.7 % Sweden 3.3 % >3.3 % 4.7 % 4.7 % 2.0 % >2.0 % 6.2 % 5.3 % 7.4 % >7.4 % Belgium & Lux. 3.9 % >3.9 % 5.2 % >5.2 % 2.0 % >2.0 % 6.0 % 3.9 % 7.2 % 6.7 % 1) Excluding allocated corporate costs and royalty. Accounting policy An impairment loss is recognised in the statement of profit or loss 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 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 goodwill is tested for impairment together with the other non-current assets in the CGU to which goodwill is allocated. Intangible assets with an indefinite useful life, i.e. goodwill, are subject to impairment testing 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, i.e. the higher of the fair value of the asset less anticipated costs of disposal and its value-in-use. The value-in-use is calculated as the present value of expected future cash flows from the asset or the CGU to which the asset belongs. 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. Growth Margin 1) Growth Margin 1) Forecasting period Terminal period Discount rate, net of tax FINANCIAL STATEMENTS 71 SECTION 4 Capital structure 4.1 Equity Capital management Share capital Dividend Translation reserve (DKKm) Net investment hedges Subsidiaries Total Translation reserve at 1 January 2021 (3) (1,009) (1,012) Foreign exchange adjustments of subsidiaries (ISS Global A/S's share) - 189 189 Recycling of accumulated foreign exchange adjustments on country exits - 15 15 Fair value adjustments of net investment hedges, net of tax (149) - (149) Translation reserve at 31 December 2021 (152) (805) (957) Accounting policy On full realisation of a foreign entity where control is lost the accumulated foreign exchange adjustments are transferred to profit or loss in the same line item as the gain or loss. At 31 December 2021, ISS Global A/S’s share capital comprised a total of DKK 180,200 shares (2020: 180,200) with a nominal value of DKK thousand 1 each. All shares were fully paid and freely transferable. ISS Global A/S 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. In 2021 and 2020, no dividend to ISS World Services A/S (ultimately ISS A/S) were approved. The ISS Global Group is indirectly wholly owned by ISS A/S and is therefore part of the ISS A/S Group. Group Treasury manages financing activities and capital structure centrally for the ISS A/S Group as a whole. The ISS Global Group's financing activities and capital structure are not assessed independently of the ISS A/S Group. The Group monitors the capital structure and evaluates the need for adjustments on an ongoing basis. The Group's objectives for managing capital and what is managed as capital are described in note 4.6, Liquidity risk. The dividend policy and payment of dividend is made subject to the necessary consolidation of equity and the Group's continuing expansion and profitability. ISS Global A/S (the Group's parent) is a holding company, and its primary assets are shares in subsidiaries, receivables from its subsidiaries and cash in its bank accounts. ISS Global A/S has no revenue generating operations of its own, and therefore ISS Global A/S’s cash flow and ability to service interdebtness, will primarily depend on the operating performance and financial condition of its operating subsidiaries, and the receipt by ISS Global A/S of funds from its subsidiaries. Retained earningsis 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 Global A/S. Translation reserve comprises foreign exchange differences arising from the translation of financial statements of foreign entities with a functional currency other than DKK as well as from the translation of non-current balances which are considered part of the investment in foreign entities and fair value adjustments of net investment hedges. FINANCIAL STATEMENTS 72 4.2 Loans and borrowings (DKKm) 2021 2020 Issued bonds 14,064 15,537 Lease liabilities 1) 2,464 2,481 Debt to companies within the ISS Group 9 2 Bank loans 340 474 Derivatives 21 6 Total 16,898 18,500 Non-current liabilities 16,032 17,236 Current liabilities 866 1,264 Loans and borrowings 16,898 18,500 Cash and cash equivalents and other financial items 2) (7,082) (6,155) Net debt 9,816 12,345 1) Right-of-use assets are presented in 2.1, Property, plant and equipment and leases. Refinancing Acquisition of Rönesans, Turkey Financing fees Fair value 2) Includes securities of DKK 103 million (2020: DKK 76 million), certain receivables from companies within the ISS Group of DKK 3,552 million (2020: DKK 3,330 million). In 2020, as a positive value of currency swaps and net investment hedges was also included amounting to DKK 5 million and DKK 3 million, respectively. In May 2021, as a result of the strong liquidity position and increased visibility on Covid-19, ISS cancelled the EUR 700 million backup facility, which was established in 2020. In addition, in December 2021, ISS repurchased EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing December 2024, thereby reducing gross debt levels. In 2021, financing fees amounting to DKK 3 million (2020: DKK 33 million) have been recognised in loans and borrowings while financing fees of DKK 28 million (2020: DKK 22 million) were amortised and recognised in financial expenses. Accumulated financing fees recognised in loans and borrowings at 31 December 2021 amounted to DKK 79 million (2020: DKK 104 million). The fair value of loans and borrowings was DKK 17,441 million (2020: DKK 19,027 million). The fair value of bonds is based on the quoted 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 4.5, Interest rate risk. ISS established a local facility of DKK 303 million (TRY 617 million) maturing in December 2026 for the purpose of the acquisition of Rönesans in Turkey. The facility has semi-annual amortisation profile and is subject to certain covenants. FINANCIAL STATEMENTS 73 4.2 Loans and borrowings (continued) Changes in loans and borrowings (DKKm) 1 January FX Cash flow Divest- ments Lease addition 1) FV adj. Other 1) 31 December 2021 Issued bonds 15,537 (6) (1,577) - - - 110 14,064 Lease liabilities 2,481 27 (935) - 856 - 35 2,464 Debt to companies within the ISS Group 2 - 7 - - - - 9 Bank loans 474 (131) (431) - - 185 243 340 Derivatives 6 - - - - 15 - 21 Total 18,500 (110) (2,936) - 856 200 388 16,898 2020 Issued bonds 14,123 (63) 1,460 - - - 17 15,537 Lease liabilities 2,982 (78) (1,005) (19) 738 - (137) 2,481 Debt to companies within the ISS Group 2,686 - (1,322) - - - (1,362) 2 Bank loans 247 (50) 709 (10) - (221) (201) 474 Derivatives 1 - - - - 5 - 6 Total 20,039 (191) (158) (29) 738 (216) (1,683) 18,500 1) Includes lease liabilities and bank loans reclassified to liabilities held for sale of DKK (24) million/DKK 0 million (2020: DKK (125) million/DKK 0 million). Accounting policy Issued bonds and bank loans are recognised initially at fair value net of directly attributable transaction costs and subsequently at amortised cost using the effective interest method. Any difference between the proceeds initially received and the nominal value is recognised in Financial expenses over the term of the loan. Amortisation of financing fees At the date of borrowing, financing fees are recognised as part of loans and borrowings. Subsequently, financing fees are amortised over the term of the loan and recognised in Financial expenses. Lease liabilities At the commencement date, the Group recognises lease liabilities at the present value of the lease payments to be made over the lease term. Lease payments include fixed payments less any incentive payments, variable lease payments that depend on an index or rate, e.g. when a minimum indexation is applied, and amounts expected to be paid under residual value guarantees. Lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payment of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The present value is calculated using the Group’s incremental borrowing rate if the interest rate implicit in the lease is not readily determinable. Subsequently, the lease liability is measured at amortised cost using the effective interest method. The liability is increased to reflect the accretion of interest and reduced for the lease payments made. The liability is remeasured due to a modification, a change in lease term or a change in the assessment to purchase the underlying asset. Also, the liability is remeasured due to a change in future lease payments (e.g. a change in an index or rate) or due to a change in the Group’s estimate of the amount expected to be payable under a residual guarantee. FINANCIAL STATEMENTS 74 4.3 Financial income and financial expenses (DKKm) 2021 2020 Interest income on cash and cash equivalents 41 31 Interest income from companies within the ISS Group 69 5 Foreign exchange gains - 28 Financial income 110 64 Interest expenses on loans and borrowings (388) (431) Redemption premium, bonds (90) - Interest expenses on lease liabilities (67) (78) Bank fees (52) (52) Net interest on defined benefit obligations (17) (17) Forward premiums, currency swaps (29) (15) Interest expenses to companies within the ISS Group (18) (10) Other (12) (10) Foreign exchange losses (10) - Financial expenses (683) (613) 4.4 Financial risk management Interest expenses on loans and borrowings comprised mainly interest on issued bonds. In addition, commitment fees and amortisation of financing fees amounting to DKK 89 million (2020: DKK 75 million) were included. The decrease in 2021 was due to the reduction in net debt as a result of strong cash flow development and liquidity position. Forward premiums on currency swaps ISS uses currency swaps to hedge the exposure to currency risk primarily arising from intercompany loans. The cost of hedging in 2021 increased compared to 2020, primarily driven by the hedging of TRY exposure. 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. The Group’s objectives and policies for measuring and managing risk exposure are explained in: 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. Redemption premium, bonds related to the repurchase of EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing 2024. The Group has not identified additional financial risk exposures in 2021 compared to 2020. Financial risks are managed centrally by Group Treasury based on the Financial Policy, which is reviewed and approved annually by the Board of Directors of ISS A/S. It is considered on an ongoing basis if the financial risk management approach appropriately addresses the risk exposures. • 4.5, Interest rate risk; • 4.6, Liquidity risk; and • 4.7, Currency risk. • 2.2, Trade receivables and credit risk. At 31 December 2021, the exposure to credit risk related to cash and cash equivalents and other financial items was DKK 7,082 million (2020: DKK 6,155 million). It is the Group’s policy to transact only with financial 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. Credit risk on trade receivables is described in: FINANCIAL STATEMENTS 75 4.5 Interest rate risk Exposure towards interest rates 2021 2020 (DKKm) Nominal interest rate Currency Maturity Nominal value Carrying amount Carrying amount Issued bonds (fixed interest rate) EMTNs (EUR 300 million) 2.125% EUR 2024 2,231 2,226 3,709 EMTNs (EUR 500 million) 1.250% EUR 2025 3,718 3,695 3,690 EMTNs (EUR 500 million) 0.875% EUR 2026 3,718 3,695 3,690 EMTNs (EUR 600 million) 1.500% EUR 2027 4,462 4,448 4,448 14,129 14,064 15,537 Bank loans (floating interest rate) Acquisition facility, Turkey TLFREF +3.25% TRY - 303 300 - Bank loans and overdrafts - Multi - 51 40 474 354 340 474 Intra-group (floating interest rates) Debt to companies within the ISS Group Cibor+0.5% DKK 2024 9 9 2 9 9 2 Interest rate sensitivity The estimate was based on the Group’s floating rate loans and borrowings, i.e. disregarding cash and cash equivalents, as the level at 31 December is typically the highest in the year and not a representative level for the purpose of this analysis. The analysis assumes that all other variables remain constant. An increase in relevant interest rates of 1%-point would have decreased net profit by DKK 4 million (2020: decreased by DKK 5 million). • 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 • Currently, the Group does not use nterest rate swaps • The balance between fixed and variable interest rates and gross debt duration (fixed-rate period) is measured on a monthly basis Mitigation Exposure to interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments. Exposure relates to bank loans with floating interest rates. Risk management policy • 98% of the Group’s bank loans and bonds carried fixed interest rates at 31 December 2021 (2020: 97%) • Duration of gross debt (fixed-rate period) of 4.3 years was at 31 December 2021 (2020: 5.1 years) • Exposure was primarily related to EUR denominated bank loans with floating rates Low risk FINANCIAL STATEMENTS 76 4.6 Liquidity risk Exposure to liquidity risk Liquidity reserves (DKKm) 2021 2020 Cash and cash equivalents 3,427 2,741 Restricted cash (31) (37) Unused revolving credit facilities 7,312 12,380 10,708 15,084 Not readily available 1,061 1,026 Readily available liquidity 9,647 14,058 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. Low risk • No short-term maturities • No financial covenants in our main Group facilities (certain covenants apply to the Turkish facility) • Diversified funding; bonds and bank loans • Maintain an appropriate level of shortand 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 centrally in Group Treasury to ensure efficient liquidity management • Group Treasury monitors the risk of insufficient liquidity position on a daily basis • Liquidity is transferred to/from ISS Global A/S, which operates as the Group’s internal bank • For day-to-day liquidity management cash pools have been established in the majority of the local entities Mitigation Risk management policy Liquidity reserves Unused revolving credit facilities The Group has a EUR 1 billion revolving credit facility maturing in November 2024. In May 2021, the additional backup credit facility of EUR 700 million was cancelled leading to the decrease compared to 2020. In addition to the unused revolving credit facilities at Group level, local credit facilities are available in countries, which are not considered part of the readily available liquidity. At 31 December 2021, these amounted to DKK 1.1 billion of which all was unused (2020: DKK 0.9 billion of which DKK 0.4 billion was unused). Not readily available Cash is considered readily available for upstreaming to the parent company (ISS A/S) within five days. In a number of countries, transfer to ISS A/S is assessed to take more than five days due to local administrative processes, and thus is not deemed readily available. Cash and cash equivalent at DKK 3,427 million reflects the strong liquidity position of the Group. The level is typically highest at 31 December and not a representative level for the rest of the year. Restricted cash DKK 31 million of the total cash and cash equivalents at 31 December 2021 was placed on blocked or restricted bank accounts due to legal cases and tax-related circumstances. FINANCIAL STATEMENTS 77 4.6 Liquidity risk (continued) Contractual maturities (DKKm) Carrying amount Contractual cash flows < 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years 2021 Loans and borrowings, excl. lease 1) 14,425 15,472 309 311 2,537 3,930 3,879 4,506 Lease liabilities 2,464 2,579 774 549 406 277 185 388 Debt to companies within the ISS Group 9 9 9 - - - - - Trade payables and other 2) 3,627 3,627 3,627 - - - - - Total financial liabilities 20,525 21,687 4,719 860 2,943 4,207 4,064 4,894 2020 Loans and borrowings, excl. lease 1) 16,017 17,270 691 232 234 3,956 3,845 8,312 Lease liabilities 2,481 2,592 830 641 442 268 179 232 Debt to companies within the ISS Group 2 2 2 - - - - - Trade payables and other 2) 3,737 3,737 3,628 21 88 - - - Total financial liabilities 22,237 23,601 5,151 894 764 4,224 4,024 8,544 1) Excluding debt to companies within the ISS Group The risk implied from the values reflects the one-sided scenario of cash outflows only. Trade payables and other financial liabilities are mainly used to finance assets such as trade receivables and property, plant and equipment. 2) Including payable royalties and management fees to ISS World Services A/S The contractual maturities of financial liabilities, based on undiscounted contractual cash flows, are shown in the table. The undiscounted contractual cash flows include expected interest payments, estimated based on market expectations at 31 December. FINANCIAL STATEMENTS 78 4.7 Currency risk Risk management policy Loans and borrowings – foreign currency sensitivity The analysis is based on the Group’s internal monitoring of currency exposure on loans and borrowings, intercompany loans, external longterm receivables, cash and cash equivalents as well as accrued royalties (Group internal). A change in relevant currencies, with all other variables held constant, would have impacted profit or loss with the amounts below. Currency risk is the risk that arises from changes in exchange rates, and affects the Group’s result, investments or value of financial instruments. Low risk The Group generally benefits from a natural hedge in having costs, investments and income in the same functional currency country by country. Currency risk therefore predominantly arises from funding and investments in subsidiaries. • 97.7% of the Group’s loans and borrowings (external) were denominated in EUR/DKK at 31 December 2021 (2020: 97.1%) • Including the impact of net investment hedges, 78.8% (2020: 80.9%) of the Group’s external borrowings were denominated in EUR Exposure to currency risk • It is Group policy to pool funding activities centrally and fund investments in subsidiaries through a combination of intercompany loans and equity • Currency risk on intercompany loans is as a main policy hedged against DKK or EUR when exposure exceeds DKK 5 million. Some currencies cannot be hedged within a reasonable price range in which case correlation to a proxy currency is considered and, if deemed appropriate, proxy hedging is applied • Currency risk on net investments are as a main policy hedged against DKK or EUR when annual EBITDA of the relevant functional currency corresponds to 5% or more of Group EBITDA up to an amount of 3-5x EBITDA in the relevant functional currency and adjusted as appropriate to relevant market entry and exit risk • Exposure to EUR is monitored but not hedged due to the fixed rate exchange policy between DKK/EUR • Our currency hedging exposes us to interest spread risk, see sensitivity analysis in 4.5, Interest rate risk • Currency swaps are used to hedge the exposure to currency risk on loans and borrowings (external), intercompany balances and long-term receivables (external) • Exposure on loans and borrowings, intercompany balances and cash and cash equivalents are measured at least on a weekly basis to evaluate the need for hedging currency positions • Currency swaps (net investment hedges) or debt is used to hedge the currency exposure to investments in subsidiaries (other than for EUR). Mitigation FINANCIAL STATEMENTS 79 4.7 Currency risk (continued) Currency exposure (nominal) Currency swaps (contractual) Exposure, net Increase in FX Profit or loss 2021 EUR/DKK (17,799) 6,864 (10,935) 1% (109) USD/DKK 1,435 (1,555) (120) 10% (12) Other/DKK (1,721) 1,163 (558) 10% (56) Total (18,085) 6,472 (11,613) 2020 EUR/DKK (18,415) 6,854 (11,561) 1% (116) USD/DKK 1,561 (1,636) (75) 10% (8) Other/DKK (184) (246) (430) 10% (43) Total (17,038) 4,972 (12,066) Net investment hedges – foreign currency sensitivity (DKKm) Net investment Hedging of investment Exposure, net Average price Change in fair value Fair value Maturity 2021 GBP 1,492 1,285 207 9 (100) (18) March 2022 USD 1,093 722 371 7 (60) 3 March 2022 CHF 1,847 718 1,129 7 (31) (4) March 2022 Total 4,432 2,725 1,707 - (191) (19) 2020 GBP 1,302 1,236 66 8 119 (9) March 2021 USD 804 666 138 6 58 6 March 2021 CHF 1,265 685 580 7 3 6 March 2021 Total 3,371 2,587 784 - 180 3 Translation and operational currency risk Sensitivity A 10%-change in currencies, with all other variables held constant, would have changed the fair value recognised in Other comprehensive income of GBP with DKK 20 million, of USD with DKK 37 million and of CHF with DKK 113 million. The effect of translation of net assets in foreign subsidiaries before the effect of net investment hedges increased equity by DKK 174 million (2020: a decrease of DKK 622 million) primarily related to Turkey, the USA and the UK. The Group is, however, exposed to risk related to translation into DKK of profit or loss 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. The exposure to translation of net assets of foreign subsidiaries is described above. The Group’s exposure to currency risk on transaction level is low since services are produced, delivered and invoiced in the same local currency as the functional currency of the entity delivering the services. FINANCIAL STATEMENTS 80 4.7 Currency risk (continued) Foreign currency sensitivity (DKKm) Revenue Operating profit before other items Royalty GBP 1,010 30 19 CHF 521 39 10 USD 513 26 10 AUD 413 27 8 NOK 318 23 6 SEK 279 18 5 TRY 272 22 3 EUR 233 4 4 Other 1,116 58 21 Total 4,675 247 86 Impact on profit or loss 2020 to 2021 2019 to 2020 GBP 3.2% (1.5)% CHF (1.2)% 3.7% USD (3.8)% 2.0% AUD 4.8% (2.8)% NOK 5.1% (8.1)% SEK 3.1% 0.8% TRY (22.9)% (20.0)% EUR (0.2)% (0.2)% ( ) = Weakened against DKK Accounting policy Net investment hedges Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised in other comprehensive income while gains or losses relating to the ineffective portion are recognised in profit or loss and included in financial income or financial expenses. On disposal of the foreign operation, the cumulative value of any such gains or losses recognised in equity is transferred to profit or loss. Derivative financial intruments are initially recognised at fair value at the trade date and subsequently remeasured at fair value. Derivatives are included in Other receivables when the fair value is positive and ind Other liabilities when the fair value is negative. Fair value measurement take into account current market data. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. Measurement is categorised as Level 2 in the fair value hierarchy as it is not based on observable market data. Currency swaps are used to hedge the exposure to currency risk on loans and borrowings (external) and intercompany balances. As changes in the fair value of both the hedged item and the currency swap are recognised in profit or loss, hedge accounting is not applied. Currency swaps (net investment hedges) or debt is used to hedge the currency exposure to investments in subsidiaries (other than for EUR). In 2021, changes in weighted average exchange rates resulted in a decrease in Group revenue of DKK 420 million or 0.6% (2020: decrease of 2.1%) and a decrease of the Group’s operating profit before other items of DKK 92 million or 1.2% (2020: increase of 3.5%). Change in average FX rates A 10%-change (EUR: 1%-change) in relevant currencies, with all other variables held constant, would have impacted revenue and operating profit before other items with the amounts below. FINANCIAL STATEMENTS 81 SECTION 5 Remuneration 5.1 Remuneration to the Board of Directors and the Executive Group Management DKK thousand Board EGMB Corporate Senior Officers Board EGMB Corporate Senior Officers Base salary and non-monetary benefits 8,724 21,842 39,172 8,008 16,678 34,637 Annual bonus - 12,007 18,739 - 7,461 12,163 Share-based payments 1) - (3,794) 11,695 - 8,349 2,649 Severance pay - 14,280 - - 17,799 14,629 Total remuneration 8,724 44,335 69,606 8,008 50,287 64,078 5.2 Staff costs and average number of employees The management team of the ISS Global Group formally consists of the Managing Directors and the Board of Directors. Members of the management team are not separately remunerated for their duties performed in the ISS Global Group. Remuneration to key management personnel of the ISS A/S Group is specified below: As the ISS Global Group has no significant operating activities independently of the ISS A/S Group, it relies on the management team of the ISS A/S Group who has the authority and responsibility for planning, implementing and controlling the ISS Global Group's activities. Consequently, key management personel of the ISS A/S Group is also considered key management personnel of ISS Global Group. EGM EGM 2020 2021 Remuneration policy is described in the Remuneration report which is available at: https://brand.issworld.com/m/1cb6c4270d293ad6/original/Remuneration-Report-2021.pdf At 31 December 2021, staff costs amounted to DKK 45,602 million (2020: DKK 46,009 million) and comprised mainly wages and salaries. In 2021, staff costs was positively impacted by a refund of collective insurance premiums paid in prior years in Sweden (DKK 78 million). The total number of employees is expected to be around 345,000 once the strategic divestment programme is completed. At 31 December 2021, total number of employees was 354,394 (31 December 2020: 378,724) with an average number of employees in 2021 of 362,554 (2020: 434,664). Number of employees included both the continuing and discontinued operations. 1) Share-based payments to the EGMB was an income of DKK 3,794 million and included an income of DKK 8,035 million due to forfeited PSUs and RSUs under the LTIP programmes and the Retention 2020 programme as the CEO Europe left ISS in December 2021. The decrease in 2021 was mainly the result of divestments completed in 2021. Contract losses contributed further to the reduction. FINANCIAL STATEMENTS 82 5.3 Share-based payments Long-term incentive programme Accounting policy In 2021, share-based payment costs amounted to DKK 63 million of which DKK 2 million were recognised in ISS A/S and DKK 27 million were recognised in ISS World Services A/S. Subject to certain criteria, the PSUs will vest after three years. The vesting criteria are total shareholder return (TSR) and earnings per share (EPS). For LTIP 2021, TSR and EPS weighted 40%, respectively, and the remaining 20% related to service-based objectives. For LTIP 2020 and LTIP 2019, TSR and EPS were equally weighted. TSR peers are the Nasdaq Copenhagen OMX C25 and a peer group of comparable international service companies. To drive delivery of short- and long-term financial results, retention of leaders and alignment to shareholder value creation, the Group has implemented two types of equity-settled sharebased incentive programmes: • a long-term incentive programme (LTIP); and • a special incentive programme (SIP). On initial recognition, an estimate is made of the number of PSUs and RSUs expected to vest. The estimated number is subsequently revised for changes in the number of PSUs and RSUs expected to vest due to non-market based vesting conditions. Upon vesting, each PSU entitles the holder to receive one share at no cost. Participants are compensated for any dividend The value of services received in exchange for granted performance-based share units (PSUs) and restricted share units (RSUs) are measured at fair value at the grant date and recognised in staff costs over the vesting period with a corresponding increase in debt to ISS A/S. The fair value of granted PSUs under the long-term incentive programme is measured using a generally accepted valuation model taking into consideration Accounting policy the terms and conditions upon which the PSUs were granted including market-based vesting conditions (TSR condition). Members of the EGM (EGMB and Corporate Senior Officers of the Group), and other senior officers of the Group, are granted a number of performance share units (PSUs). FINANCIAL STATEMENTS 83 5.3 Share-based payments (continued) Fair value and profit or loss impact LTIP 2018 LTIP 2019 LTIP 2020 LTIP 2021 PSUs and participants (number) Maximum PSUs under the programme at grant date 869,112 928,367 1,785,896 1,349,521 Total PSUs granted 767,447 813,090 1,473,659 1,240,947 Participants 152 142 120 140 Fair value (DKKm) PSUs expected to vest at grant date 100 101 74 94 PSUs expected to vest at 31 December 2021 - 24 52 74 Profit or loss impact (DKKm) Recognised in 2021 2 8 20 22 Not yet recognised (PSUs expected to vest) - 1 22 57 Assumptions at the time of grant LTIP 2018 LTIP 2019 LTIP 2020 LTIP 2021 Share price, DKK 228 207 98 111 Expected volatility 1) 29.0% 26.6% 29.1% 47.2% Expected life of grant, years 3 3 3 3 Risk-free interest rate 1) 0.5%-2.4% (0.3)%-2.7% (0.4)%-1.9% (0.6)%-0.9% 1) Based on observable market data for peer groups. LTIP – vested programmes In March 2021, the LTIP 2018 programme vested. Based on the annual EPS and TSR performances for 2018, 2019 and 2020, 0% of the granted PSUs vested. After this vesting, no further PSUs are outstanding under the LTIP 2018 and the programme has Furthermore, in March 2022, the PSUs granted under LTIP 2019 will vest with 0% based on the annual EPS and TSR performances for 2019, 2020 and 2021. FINANCIAL STATEMENTS 84 5.3 Share-based payments (continued) LTIP – outstanding PSUs LTIP 2018 (vested) EGMB Corporate Senior Officers Other senior officers Total Outstanding at 1 January 2020 88,503 87,410 489,381 665,294 Transferred (50,033) (18,817) 68,850 - Cancelled - - (41,435) (41,435) Outstanding at 31 December 2020 38,470 68,593 516,796 623,859 Forfeited (38,470) (68,593) (516,796) (623,859) Outstanding at 31 December 2021 - - - - LTIP 2019 Outstanding at 1 January 2020 109,369 115,075 540,174 764,618 Granted (66,786) (32,060) 98,846 - Cancelled - - (78,569) (78,569) Outstanding at 31 December 2020 42,583 83,015 560,451 686,049 Cancelled (35,686) (6,370) (23,034) (65,090) Outstanding at 31 December 2021 6,897 76,645 537,417 620,959 LTIP 2020 Granted 218,564 224,231 1,030,864 1,473,659 Transferred (85,931) (46,232) 132,163 - Cancelled - - (33,673) (33,673) Outstanding at 31 December 2020 132,633 177,999 1,129,354 1,439,986 Cancelled (72,864) - (104,144) (177,008) Outstanding at 31 December 2021 59,769 177,999 1,025,210 1,262,978 LTIP 2021 Granted 201,828 176,746 862,373 1,240,947 Transferred (53,531) - (89,652) (143,183) Outstanding at 31 December 2021 148,297 176,746 772,721 1,097,764 EGM FINANCIAL STATEMENTS 85 5.3 Share-based payments (continued) Special incentive programmes Fair value and profit or loss impact Retention 2020 Special Incentive 2020-2022 Special Incentive 2020-2023 RSU and participants (number) Maximum RSUs under the programme at grant date 145,729 64,159 246,767 Total RSUs granted 145,729 50,698 232,730 Participants 1 9 36 Fair value (DKKm) RSUs expected to vest at grant date 14 6 24 RSUs expected to vest at 31 December 2021 - 6 23 Profit or loss impact (DKKm) Recognised in 2021 (5) 5 10 Not yet recognised (RSUs expected to vest) - 1 10 Retention 2020 Special Incentive 2020-2022 Special Incentive 2020-2023 Share price, DKK 98 101 101 Expected life of grant, years 2 2 3 The RSUs granted under the Retention 2020 programme in 2020 was forfeited in 2021 as the participant left ISS and vesting of the programme was subject to continued employment. Thereafter the programme has lapsed. Assumptions at the time of grant There are currently two different incentive plans with duration between two and three years. Restricted share units (RSUs) granted under the programmes in 2020 and 2021 will vest in either 2022 or 2023, subject to achievement of individual service or performance criteria. Upon vesting, each RSU entitles the holder to receive one share at no cost. FINANCIAL STATEMENTS 86 5.3 Share-based payments (continued) Special incentive programmes – outstanding RSUs Retention 2020 EGMB Corporate Senior Officers Other senior officers Total - Granted 145,729 - - 145,729 Cancelled - - - - Outstanding at 31 December 2020 145,729 - - 145,729 Cancelled (145,729) - - (145,729) Outstanding at 31 December 2021 - - - - Special incentive 2020-2022 Granted - - 22,296 22,296 Outstanding at 31 December 2020 - - 22,296 22,296 Granted - 26,619 1,783 28,402 Cancelled - - (6,513) (6,513) Outstanding at 31 December 2021 - 26,619 17,566 44,185 Special incentive 2020-2023 Granted - - 204,223 204,223 Outstanding at 31 December 2020 - - 204,223 204,223 Granted - 26,619 1,888 28,507 Cancelled - - (12,853) (12,853) Outstanding at 31 December 2021 - 26,619 193,258 219,877 EGM FINANCIAL STATEMENTS 87 5.4 Pensions and similar obligations Defined contribution plans The majority of the Group’s pension schemes are defined contribution plans where contributions are paid to publicly or privately administered pension plans. The Group has no further payment obligations once the contributions have been paid. In 2021, contributions amounted to DKK 1,186 million (2020: DKK 1,203 million), corresponding to 86% of the Group’s pension costs (2020: 84%). Defined benefit plans The Group has a number of defined benefit plans where the responsibility for the obligation towards the employees rests with the Group. The largest plans are in Switzerland and the UK accounting for 86% (2020: 86%) of the Group’s obligation (gross) and 97% (2020: 97%) of its plan assets. The plans are primarily based on years of service, and benefits are determined on the basis of salary and rank. 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, France, Turkey and Hong Kong, the obligation is unfunded. For these unfunded plans, obligation amounted to DKK 788 million or 9% of the present value of the gross obligation (2020: DKK 843 million or 10%). Switzerland Participants are insured against the financial consequences of retirement, disability and death. The pension plans guarantee a minimum interest credit and fixed conversion rates at retirement and include a risk-sharing element between ISS and the plan participants. Contributions are paid by both the employee and the employer. The plans must be fully funded. 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 UK Participants are insured against the financial consequences of retirement and death, and do not provide any insured disability benefits. The pension plans guarantee a defined benefit pension at retirement on a final salary basis. The majority of the plans does not include a risk-sharing element between ISS and the plan participants. Developments in 2021 Actuarial (gain)/loss, including return on plan assets, was a gain of DKK 1,145 million (2020: loss of DKK 127 million). Impact from asset ceiling was a loss of DKK 1,080 million (2020: loss of DKK 21 million). Consequently, the net impact recognised in other comprehensive income in 2021 was a gain of DKK 65 million (2020: loss of DKK 148 million). In 2021, we saw strong asset returns, mainly in Switzerland (accounts for 80% of the Group’s plan assets). The assets are primarily placed in listed shares (40%), bonds (25%) and real estate (15%), and the market conditions, especially for shares and real estate, led to the significant return on plan assets. Furthermore, changes to actuarial assumptions (increased discount rates and updated mortality rates) led to a reduction in the gross obligation and a resulting actuarial gain, predominantly in Switzerland. As a result of the strong asset returns and development in actuarial assumptions, a significant increase in the surplus on the major plans in Switzerland was realised. However, due to surplus restrictions (ISS does not have access to the overfunding), a resulting increase in the asset ceiling was recognised. As such, by the end of 2021, the accumulated impact from the asset ceiling was DKK 1,253 million (2020: DKK 163 million). FINANCIAL STATEMENTS 88 5.4 Pensions and similar obligations (continued) Significant accounting estimates Actuarial calculations and valuations are performed annually for all major plans. 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. Applied actuarial assumptions vary from country to country due to local conditions. 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 not able to provide the necessary information in order for the Group to account for the schemes as defined benefit plans and these schemes are therefore accounted for as defined contribution plans. There is a risk that the plans are not sufficiently funded. However, information on surplus or deficit in the schemes is not available. Accounting policy Contributions to defined contribution plans are recognised in Staff costs when the related service is provided. Any contributions outstanding are recognised in Other liabilities. Defined benefit plans The Group’s net obligation is calculated by a qualified actuary using the projected unit credit method, separately for each plan by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods. The present value less the fair value of any plan assets is recognised in Pensions and similar obligations. When the calculation results in a potential asset, recognition is limited to the present value of economic benefits available in the form of future refunds from or reductions in future contributions to the plan. To calculate the present value, consideration is given to applicable minimum funding requirements. Pension costs are calculated based on actuarial estimates and financial expectations at the beginning of the year. Service costs are recognised in Staff costs and net interest is recognised in Financial expenses. Differences between the expected development in pension assets and liabilities and the realised amounts at the reporting date are designated actuarial gains or losses and recognised in other comprehensive income. When the benefits are changed or a plan is curtailed, the resulting change in benefits that relates to past service or the gain or loss on curtailment is recognised in Staff costs. Gains and losses on settlement is recognised when incurred. Other long-term employee benefits are recognised as defined pension plans, except that actuarial gains and losses are recognised in Staff costs. Other long-term employee benefits comprise jubilee benefits, long-service or sabbatical leave etc. FINANCIAL STATEMENTS 89 5.4 Pensions and similar obligations (continued) 2021 2020 (DKKm) Present value of obligation Fair value of plan assets Obliga- tion, net Present value of obligation Fair value of plan assets Obliga- tion, net Carrying amount at 1 January 8,684 7,796 888 8,394 7,542 852 Current service costs 187 - 187 174 - 174 Interest on obligation/plan assets 45 28 17 61 44 17 Past service costs 32 - 32 59 - 59 Recognised in profit or loss 264 28 236 294 44 250 Actuarial (gain)/loss, demographic assumptions (256) - (256) (10) - (10) Actuarial (gain)/loss, financial assumptions (209) - (209) 290 - 290 Actuarial (gain)/loss, experience adjustments 67 - 67 27 - 27 Return on plan assets excl. interest income - 747 (747) - 180 (180) Impact from asset ceiling - (1,080) 1,080 - (21) 21 Recognised in other comprehensive income (398) (333) (65) 307 159 148 Foreign exchange adjustments 386 414 (28) (115) (93) (22) Acquisitions and divestments, net - 0 (0) (3) (0) (3) Additions from new contracts, net - - - - 35 (35) Employee contributions 141 141 - 135 135 - Employer contributions - 199 (199) - 195 (195) Benefits paid (266) (174) (92) (313) (234) (79) Impact from asset ceiling - 1,080 (1,080) - 21 (21) Reclassification to Liabilities held for sale (186) (154) (32) (15) (8) (7) Other changes 75 1,506 (1,431) (311) 51 (362) Carrying amount at 31 December 8,625 8,997 (372) 8,684 7,796 888 Other long-term employee benefits 470 429 Accumulated impact from asset ceiling 1,253 163 Pensions and similar obligations at 31 December 1,351 1,480 Major categories of plan assets 2021 2020 Listed shares 40% 35% Corporate bonds 20% 24% Property 15% 15% Government bonds 4% 4% Cash and cash equivalents 3% 3% Other 18% 19% Total 100% 100% FINANCIAL STATEMENTS 90 5.4 Pensions and similar obligations (continued) Actuarial assumptions 2021 2020 CHF GBP EUR Other currencies CHF GBP EUR Other currencies Discount rates 0.3% 2.0 % 0.35-1.0% 0.2-19.3% 0.1% 1.5% 0.35-0.75% 0.2-15.4% Salary increase 1.0% 0.0-2.65% 0-3.5% 0-15.0% 1.0% 0.0-2.19% 0.0-3.5% 0.0-10.0% Pension increase 0.0% 2.65-3.20% 0-0.64% 0-2.0% 0.0% 2.2-3.0% 0.0-2.0% 0.0-1.75% Sensitivity analysis 2021 2020 (DKKm) +0.5% -0.5% +0.5% -0.5% Discount rate (490) 545 (535) 598 Price inflation 165 51 121 (103) Salary increase 132 4 74 (69) Pension increase 302 (85) 314 (78) +1 year -1 year +1 year -1 year Life expectancy 212 (182) 203 (197) The estimated weighted average duration of the defined benefit obligation was 12 years (2020: 13 years) and is split into: Years 2021 2020 Active employees 8 13 Retired employees 15 15 Deferred vested 1) 6 14 Total employees 12 13 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: 1) The impact from deferred vested on total estimated weighted average duration is minor due to the fact that deferred vested make up less than 2% of the participants, and do not exist in many of the shorter duration plans. FINANCIAL STATEMENTS 91 SECTION 6 Other required disclosures 6.1 Contingent liabilities Type Guarantee commitments Performance guarantees Divestments Legal proceedings Restructuring projects 6.2 Government grants The Group received government grants in the form of wage subventions, which have been recognised 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. Restructuring projects are being undertaken on an ongoing basis across different geographies and service areas, currently mainly in Germany, France and Spain. Labour laws especially in Europe include restrictions on dismissals and procedural rules to be followed. The procedures applied by ISS could be challenged in certain jurisdictions resulting in 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 2021. Nature and extent Indemnity and guarantee commitments (mainly towards public authorities and insurance companies) at 31 December 2021 amounted to DKK 479 million (31 December 2020: DKK 426 million). The Group has issued performance guarantee bonds for service contracts amounting to DKK 3,580 million (31 December 2020: DKK 3,305 million) of which DKK 1,761 million (31 December 2020: DKK 1,454 million) were bank-guaranteed performance bonds. Such performance bonds are issued in the ordinary course of business in the service industry to guarantee towards our customers satisfactory completion of work in accordance with service contracts. 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 2021 are adequate. However, there can be no assurance that major claims will not arise out of the Group’s divestments and adversely affect the Group’s profit or loss and financial position. In addition, in some cases the Group’s divestment activities give rise to possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, not wholly within ISS’s control, e.g. labour-related obligations, including relating to multi-employer plans. In such cases, the occurrence of future events may adversely affect the Group’s profit or loss and financial position. The Group is party to certain legal proceedings. Management believes that these proceedings (many of which are disputes with customers and labour-related cases incidental to the business) will not have a material impact on the Group’s financial position beyond the assets and liabilities already recognised in the statement of financial position at 31 December 2021. FINANCIAL STATEMENTS 92 6.2 Government grants (continued) Covid-19 related grants (DKKm) 2021 2020 Wage subvention 415 1,321 Sick pay compensation 11 15 Social security contribution 6 12 Recognised in Staff costs 432 1,348 10 118 6.3 Related parties Parent and ultimate controlling party Key management personnel Other related party transactions Directorship and external executive positions of management A description of directorship and external executive positions of management at 31 December 2021 are available here: https://www.issworld.com/about/global-management-and-organisation/leadership-and-structure In 2021, the Group had the following transactions with other related parties, which were all made on market terms: The Board of Directors of ISS A/S and the Executive Group Management of ISS A/S are considered the Group's key management personnel as defined in 5.1, Remuneration to the Board of Directors and the Executive Group Management. Apart from remuneration, including share-based incentive programmes, there were no significant transactions with members of the Board and the EGM in 2021. The Group received Covid-19 related grants to compensate costs related to e.g. employees on furlough, social security contribution and sick pay compensation mainly in the UK, Hong Kong and Switzerland. As the grants compensate costs already incurred, they are recognised as a reduction of staff costs. Depending on the specific commercial model, customers were appropriately and accordingly compensated. Hereof included in Other receivables • The Group was charged royalty and management fee from ISS World Services A/S amounting to DKK 1,260 million (2020: DKK 1,218 million) of which DKK 35 million (2020: DKK 89 million related to discontinued operations); • The Group received/paid interest from/to companies within the ISS Group, see 4.3, Financial income and expenses; • The Group's receivable from ISS A/S amounted to DKK 3,164 million (2020: debt of DKK 3,116 million) at 31 December 2021; • The Group's net receivable from ISS World Services A/S amounted to DKK 424 million (2020: debt of DKK 211 million) at 31 December 2021. The sole shareholder of ISS Global A/S, ISS World Services A/S, has controlling influence in the Group and is wholly owned by ISS A/S (the ultimate parent). FINANCIAL STATEMENTS 93 6.4 Fees to auditors (DKKm) 2021 2020 Statutory audit 62 68 Tax and VAT advisory services 6 6 Other services 8 10 Total 76 84 6.5 Subsequent events Other than set out above or elsewhere in these consolidated financial statements, we are not aware of events subsequent to 31 December 2021, which are expected to have a material impact on the Group’s financial position. Other services comprised among other things work related to acquisitions and divestments, such as financial and tax due diligence. Tax and VAT advisory services mainly related to tax compliance services. In February 2022, a war in Ukraine broke out following a Russian invasion of the country. We are monitoring the developing humanitarian crisis, and our priority is the safety and wellbeing of our people and our customers. ISS has no material activities in Ukraine, and our business in Russia has been classified as held for sale and discontinued operations since December 2020 and recognised at an immaterial amount. It is management’s assessment that the outbreak of the war has no impact on recognition and measurement at 31 December 2021, and further that it will not have a material impact on the results of the Group’s operations and financial position in 2022. FINANCIAL STATEMENTS 94 SECTION 7 Basis of preparation 7.1 Significant accounting estimates and judgements Note Item Estimates Judgements 1.2 Revenue x x 1.5 Deferred tax x x 2.1 Right-of-use assets x 2.2 Trade receivables and credit risk x 2.3 Other receivables x 2.6 Provisions x x 3.1 Discontinued operations x x 3.2 Assets and liabilities held for sale x x 3.6 Intangible assets x x 3.8 Impairment tests x 5.4 Pensions and similar obligations x 7.2 Change in accounting policies • Amendments to IFRS 7, IFRS 9 and IAS 39 and IFRS 16: Interest Rate Benchmark Reform – Phase 2. The preparation of the Group’s consolidated financial statements required management to make judgements, estimates and assumptions that affected the reported amounts of assets, liabilities, income and expenses, the accompanying disclosures, including contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods. Estimates and assumptions are reviewed on an ongoing basis and have been prepared taking macroeconomic 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 for the future. From 1 January 2021, the Group has adopted the below standards and interpretations with no significant impact on recognition and measurement: In 2021, Covid-19 continued to have an adverse impact on our business, although to a lesser extend than in 2020, including the Group’s operating performance and cash flows in 2021 and our financial position at 31 December 2021. Items being subject to significant estimates and judgements are described in the notes listed below. FINANCIAL STATEMENTS 95 7.3 General accounting policies Basis of preparation Fair value measurement and disclosure Climate change Going concern The consolidated financial statements of ISS Global A/S for the year ended 31 December 2021 comprise ISS Global A/S and its subsidiaries (collectively, the Group). Significant subsidiaries are listed in 7.5, Group companies. The 2021 Annual Report for ISS Global A/S was discussed and approved by the Managing Director and the Board of Directors (the Board) on 17 March 2022 and issued for approval at the subsequent annual general meeting on 19 April 2022. The consolidated financial statements of the Group have been prepared in accordance with IFRS as adopted by the EU and additional requirements of the Danish Financial Statements Act. In addition, the consolidated financial statements have been prepared in compliance with the IFRSs issued by the IASB. The Board and the EGMB have during the preparation of the consolidated financial statements of the Group assessed the going concern assumption. The Board and the EGMB have concluded that it is reasonable to apply the going concern concept as underlying assumption for the consolidated financial statements of the Group. In reaching this conclusion, the Board and the EGMB have considered all available information, including existing and anticipated impacts of Covid-19 and other relevant events and conditions, up until the date on which the consolidated financial statements are issued. Further, the conclusion is based on knowledge of the Group, the estimated economic outlook and identified risks and uncertainties in relation hereto. This includes review of budgets, expected development in available liquidity and capital, current credit facilities and their contractual and expected maturities. The consolidated financial statements have been prepared on a historical cost basis, except for assets and liabilities held for sale, derivative financial instruments and contingent consideration that have been measured at fair value. The assets and liabilities above for which the fair value is measured are categorised within the fair value hierarchy and disclosed in the relevant notes. For the purpose of fair value disclosures, management has assessed that the fair values of cash and cash equivalents, trade receivables, contingent consideration, trade payables and other current and non-current financial assets and liabilities approximates their carrying amount largely due to the short-term maturities of these instruments. The fair value of loans and borrowings, including methods and assumptions used to estimate the fair value, are disclosed in 4.2, Loans and borrowings. In preparing these consolidated financial statements management has considered the impact of climate change, which did not have a material impact on the estimates and judgements in these consolidated financial statements. In addition, it is management assessment that climate change is not expected to have a significant impact on the Group’s going concern assessment, or in the long-term (next five years). The Group’s significant accounting policies and accounting policies related to IAS 1 minimum presentation items are described in the relevant notes to the consolidated financial statements or otherwise stated below. A list of the notes is shown on p. 28. All amounts have been rounded to nearest DKK million, unless otherwise stated. ISS Global A/S is indirectly wholly owned by ISS A/S and is therefore part of the ISS A/S Group. ISS Global A/S has no operating activities independently of ISS A/S and the ISS Global Group's financing activities and capital structure are not assessed independently of the ISS A/S Group, but managed centrally for the ISS A/S Group as a whole by Group Treasury. Due to this structure, going concern is assessed for the ISS Group as a whole by the Board of Directors (Board) and Executive Group Management (EGMB) of ISS A/S. FINANCIAL STATEMENTS 96 7.3 General accounting policies (continued) Defining materiality Basis of consolidation Foreign currency On consolidation all intra-group assets and liabilities, equity, income, expenses and cash flow relating to transactions between members of the Group 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. A change in ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. The consolidated financial statements comprise Global A/S and entities controlled by Global A/S. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to 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. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in Other income and expenses, net. Any investment retained is recognised at fair value on initial recognition. The consolidated financial statements are presented in Danish kroner (DKK), which is ISS Global A/S’s functional currency. Transactions in currencies other than the functional currency of the respective Group companies are considered transactions denominated in foreign currencies. On initial recognition, these are translated to the respective functional currencies of the Group companies at the exchange rates at the transaction date. Foreign exchange adjustments arising between the exchange rates at the transaction date and at the date of payment are recognised in Financial income or Financial expenses. Receivables, payables and other monetary items denominated in foreign currencies are translated at the exchange rates at the reporting date. The difference between the 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 Financial income or Financial expenses. 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 separately present items that are considered individually significant, or are required under the minimum presentation requirements of IAS 1. In addition, information that is considered material, either individually or in combination with other information, is disclosed. In determining whether an item is individually significant, or information is material, ISS considers both quantitative and qualitative factors. If the presentation or disclosure could reasonably be expected to influence economic decisions made by primary users, the information is considered material. FINANCIAL STATEMENTS 97 7.3 General accounting policies (continued) Segment reporting Reporting under the ESEF regulation Foreign exchange adjustments of balances with foreign entities which are considered part of the investment in the entity are recognised in other comprehensive income and presented in equity under a separate translation reserve. 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. On recognition in the consolidated financial statements of Group companies with a functional currency other than DKK, the statements of profit or loss 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 profit or loss statements from the exchange rates at the transaction date to the exchange rates at the reporting date are recognised in other comprehensive income and presented in equity under a separate translation reserve. However, if the foreign entity is a non-wholly owned subsidiary, the relevant proportion of the translation difference is allocated to the non-controlling interest. 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 tax. The segment reporting is prepared in a manner consistent with the Group’s internal management and reporting structure and excludes discontinued operations. 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. As we are a Group with securities listed on a regulated market within the EU, we are from 2021 required to prepare our Annual Report using a combination of the XHTML format and to tag the primary consolidated financial statements using iXBRL (Inline eXtensible Business Reporting Language). The Annual Report submitted to the Danish Financial Supervisory Authority (the Officially Appointed Mechanism) are included in the zip file ISS-Global-2021-12-31-en.zip. The Group’s iXBRL tags have been prepared in accordance with the ESEF taxonomy, which is included in the ESEF regulation and developed based on the IFRS taxonomy published by the IFRS Foundation. The line items in the consolidated financial statements are tagged to elements in the ESEF taxonomy. For financial line items that are not directly defined in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions that are subtotals. Transactions between reportable segments are made on market terms. FINANCIAL STATEMENTS 98 7.4 New standards and interpretations not yet implemented Based on the current business setup and level of activities, none of these standards and interpretations are expected to have a material impact on the recognition and measurement in the consolidated financial statements. IASB has published certain new standards, amendments to existing standards and interpretations that are not yet mandatory for the preparation of the consolidated financial statements of the Group at 31 December 2021. • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current; • Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies; • Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates; • Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction; • Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts – Costs of Fulfilling a Contract. None of these new standards, amendments to existing standards and interpretations are adopted by the EU at 31 December 2021. The Group expects to adopt the new standards and interpretations when they become 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. FINANCIAL STATEMENTS 99 7.5 Group companies Continental Europe Austria Turkey ISS Austria Holding GmbH 100% ISS Hazir Yemek Üretim ve Hizmet A.Ş. 50,1% 2) ISS Facility Services GmbH 100% ISS Proser Koruma ve Güvenlik Hizmetleri A.Ş. 50,1% 2) ISS Ground Services GmbH 51% ISS Tesis Yönetim Hizmetleri A.Ş. 50,1% 2) ISS İşletme Hizmetleri A.Ş (Rönesans) 50,1% 2) Belgium & Luxembourg ISS Catering N.V. 100% Northern Europe ISS Facility Services N.V. 100% ISS Facility Services S.A. 100% Denmark (ISS A/S's country of domicile) ISS Facility Services A/S 100% France ISS Finance B.V. 100% GIE ISS Services 100% ISS Global Management A/S 100% ISS Facility Management SAS 100% ISS Holding France A/S 100% ISS Holding Paris SAS 100% ISS Lending A/S 100% 3) ISS Logistique et Production SAS 100% Finland Germany ISS Palvelut Holding Oy 100% ISS Automotive Services GmbH 100% ISS Palvelut Oy 100% ISS Facility Services Holding GmbH 100% ISS Integrated Facility Services GmbH 100% Norway ISS Pharma Services GmbH 100% ISS Holding AS 100% ISS Energy Services GmbH 100% ISS Management AS 100% ISS Communication Services GmbH 100% ISS Facility Services AS 100% ISS Serveringspartner AS 100% Italy ISS Service Management AS 100% ISS Facility Services S.r.l. 100% Sweden Netherlands ISS Facility Services Holding AB 100% ISS Catering Services B.V. 100% ISS Facility Services AB 100% ISS Holding Nederland B.V. 100% ISS Palvelut Holding AB 100% ISS Integrated Facility Services B.V. 100% ISS Nederland B.V. 100% UK & Ireland ISS Security & Services B.V. 100% ISS UK Holding Limited 100% ISS UK Limited 100% Poland ISS Facility Services Ltd. 100% ISS Facility Services Sp. Z o.o. 100% ISS Mediclean Limited 100% ISS World Services Poland Sp. Z.o.o 100% ISS Damage Control (Scotland) Ltd. 100% ISS Ireland Ltd. 100% Spain Integrated Service Solutions, S.L. 100% ISS Facility Services, S.A. 100% ISS Soluciones De Seguridad, S.L. 100% UTE-HOSPITALES S.A.S 65% 1) Switzerland ISS Facility Services AG 100% ISS Schweiz AG 100% Below the Group's significant subsidiaries and joint ventures are presented per region. Together these are referred to as "Companies within the ISS Group". FINANCIAL STATEMENTS 100 7.5 Group companies (continued) Americas Asia & Pacific (continued) Chile Hong Kong Apunto Servicios de Alimentacion S.A. 100% Hung Fat Cleaning Transportation Co., Ltd. 100% ISS Chile S.A. 100% ISS Adams Secuforce Ltd. 100% ISS Facility Services S.A. 100% ISS China Holdings Ltd. 100% ISS Servicios Generales Ltda. 100% ISS China Holdings I Ltd. 100% ISS Servicios Integrales Ltda. 100% ISS EastPoint Properties Ltd. 100% ISS EastPoint Property Management Ltd. 100% Mexico ISS Environmental Services (HK) Ltd. 100% ISS Centro América, S. de R.L. de C.V. 100% ISS Facility Services Ltd. 100% ISS Facility Services, S.A. de C.V. 100% ISS Greater China Ltd. 100% ISS Servicios Integrales, S. de R.L. de C.V. 100% ISS Mediclean (HK) Ltd. 100% ISS Pan Asia Security Services Ltd. 100% USA & Canada JSL Ltd. 100% ISS Facility Services Holding, Inc 100% Silvertech E&M Engineering Co., Ltd. 100% ISS Management and Finance Co, Inc 100% ISS Facility Services, Inc (US) 100% India Guckenheimer Enterprises Inc 100% Innovative and Payroll Advisory Services Pvt. Ltd. 46% 2) ISS C&S Building Maintenance Corporation 100% ISS Facility Services India Pvt. Ltd. 100% ISS Facility Services California, Inc 100% ISS SDB Security Services Pvt. Ltd. 46% 2) ISS Holding Inc 100% Modern Protection & Investigations Pvt. Ltd. 46% 2) ISS TMC Services, Inc 100% ISS Support Services Pvt. Ltd. 100% ISS Uniguard Security Inc. 100% ISS Facility Services Inc. (CA) 100% Indonesia PT ISS Facility Services 49% 2) Asia & Pacific PT ISS Indonesia 100% PT ISS Jasa Fasilitas 0% 2) Australia & New Zealand ISS Facility Management Pty Limited 100% Singapore ISS Facility Services Australia Ltd. 100% ISS Catering Services Pte. Ltd. 100% ISS Facility Services Pty Ltd. 100% ISS Facility Services Pte. Ltd. 100% ISS Health Services Pty Ltd. 100% ISS Hydroculture Pte. Ltd. 100% ISS Hospitality Pty Limited 100% ISS M&E Pte. Ltd. 100% ISS Integrated Services Pty Ltd. 100% ISS Property Services Pty Ltd. 100% Discontinued operations ISS Security Pty Ltd. 100% Pacific Invest December 2004 Pty Ltd. 100% Brunei Pacific Service Solutions Pty Ltd. 100% ISS Facility Services Sdn. Bhd. 50% 2) ISS Facilities Services Ltd. 100% ISS Holdings NZ Ltd. 100% Portugal ISS Facility Services G. eM de E., Lda 100% China ISS Facility Services (Shanghai) Ltd. 100% Russia ISS Hongrun (Shanghai) Cleaning Services Limited 100% Facility Services RUS LLC 100% Shanghai B&A Property Management Co., Ltd. 100% Shanghai B&A Security Co., Ltd. 100% Taiwan Shanghai ISS Catering Management Ltd. 100% ISS Facility Services Ltd. 100% ISS Security Ltd. 100% Notes 1) Joint venture 2) By virtue of the governance structure, the Group has the power to govern the financial and operating policies of the company. Consequently, the company is consolidated as a subsidiary. 3) ISS Lending A/S applies §78a of the Danish Financial Statements Act. Consequently, their annual report is prepared in accordance with the requirements for Class B companies. ISS Global A/S is liable for all ISS Lendings A/S's current and future obligations. PARENT COMPANY FINANCIAL STATEMENTS 101 102 102 103 104 105 1 Significant accounting policies 106 2 Significant accounting estimates and judgements 106 3 Other operating income and expenses, net 106 4 Fees to auditors 107 5 Other expenses 107 6 Financial income and expenses 107 7 Income tax 108 8 Investments in subsidiaries and joint ventures 108 9 Deferred tax 110 10 Loans and borrowings 110 11 Remuneration to the Board of Directors and the Executive Group Management 111 12 Contingent liabilities 111 13 Financial risk management 112 14 Interest rate risk 112 15 Liquidity risk 113 16 Currency risk 113 17 Related parties 114 18 New standards and interpretations not yet implemented 115 19 Subsidiaries and joint ventures 115 Primary statements Other required disclosures Accounting policies Statement of profit or loss Statement of financial position Statement of profit or loss Statement of comprehensive income Statement of cash flows Statement of financial position Statement of changes in equity Parent company financial statements PARENT COMPANY FINANCIAL STATEMENTS 102 Statement of profit or loss 1 January – 31 December (DKKm) Note 2021 2020 Other operating income and expenses, net 3, 4 25 35 Operating profit before other items 25 35 Other income and expenses, net 5 (52) (5) Operating profit (27) 30 Income from subsidiaries and joint ventures 8 (22) (1,762) Financial income 6 547 911 Financial expenses 6 (975) (932) Profit before tax (477) (1,753) Income tax 7 (4) 10 Net profit (481) (1,743) 1 January – 31 December (DKKm) 2021 2020 Net profit (481) (1,743) Comprehensive income (481) (1,743) Statement of comprehensive income PARENT COMPANY FINANCIAL STATEMENTS 103 Statement of cash flows 1 January – 31 December (DKKm) Note 2021 2020 Operating profit before other items 25 35 Changes in working capital (84) (43) Other expenses paid (11) (5) Interest received from companies within the ISS Group 259 206 Interest received, external 3 0 Interest paid to companies within the ISS Group (87) (43) Interest paid, external (284) (356) Income tax and joint taxation contribution received/(paid), net (1) 10 Cash flow from operating activities (180) (196) Payment of earn-out (76) (99) Capital increase in subsidiaries and joint ventures 8 (586) (3,107) Divestment and liquidation of subsidiaries and joint ventures 8 283 623 Dividends received from subsidiaries and joint ventures 8 241 611 Cash flow from investing activities (138) (1,972) Repayment of bonds 10 (1,577) (2,234) Other financial payments, net 10 (130) 118 Capital increase - 5,000 Payments (to)/from companies within the ISS Group, net 2,144 (53) Cash flow from financing activities 437 2,831 Total cash flow 119 663 Cash and cash equivalents at 1 January 796 133 Total cash flow 119 663 Foreign exchange adjustments - - Cash and cash equivalents at 31 December 915 796 PARENT COMPANY FINANCIAL STATEMENTS 104 Statement of financial position At 31 December (DKKm) Note 2021 2020 Assets Investments in subsidiaries and joint ventures 8 22,676 22,188 Receivables from companies within the ISS Group 8,196 8,521 Other financial assets 118 - Deferred tax assets 9 12 10 Non-current assets 31,002 30,719 Receivables from companies within the ISS Group 2,914 3,181 Other receivables 180 163 Cash and cash equivalents 915 796 Investments in subsidiaries and joint ventures held for sale 8 150 459 Current assets 4,159 4,599 Total assets 35,161 35,318 Equity and liability Equity 9,215 9,696 Loans and borrowings 10 14,067 15,537 Non-current liabilities 14,067 15,537 Loans and borrowings 10 11,692 9,694 Other liabilities 187 391 Current liabilities 11,879 10,085 Total liabilities 25,946 25,622 Total equity and liabilities 35,161 35,318 PARENT COMPANY FINANCIAL STATEMENTS 105 1 January – 31 December (DKKm) Note Share capital Retained earnings Total 2021 Equity at 1 January 180 9,516 9,696 Net profit - (481) (481) Comprehensive income - (481) (481) Changes in equity - (481) (481) Equity at 31 december 180 9,035 9,215 2020 Equity at 1 January 180 4,959 5,139 Net profit - (1,743) (1,743) Comprehensive income - (1,743) (1,743) Capital increase - 6,300 6,300 Transactions with the owner - 6,300 6,300 Changes in equity - 4,557 4,557 Equity at 31 December 180 9,516 9,696 Statement of changes in equity PARENT COMPANY FINANCIAL STATEMENTS 106 1 Significant accounting policies The financial statements of ISS Global A/S have been prepared in accordance with IFRS as adopted by the EU and additional requirements of the Danish Financial Statements Act. In addition, the financial statements have been prepared in compliance with the IFRSs issued by the IASB. Changes in accounting policies are described in 7.2 to the consolidated financial statements. Accounting policies With the exception of the items described below, the accounting policies for ISS Global A/S are identical to the Group's accounting policies, which are described in the notes to the consolidated financial statements. Income from subsidiaries and joint ventures comprises dividends, impairment losses, reversal of prior years' impairment losses and gains and losses on divestment and liquidation of subsidiaries and joint ventures. Dividends are recognised in the income statement in the financial year in which the dividend is declared. If dividends declared exceed the total comprehensive income for the year, an impairment test is performed. Investments in subsidiaries and joint ventures are measured at cost, which comprises consideration transferred measured at fair value and any directly attributable transaction costs. If there is indication of impairment, an impairment test is performed as described in the accounting policies in 3.8 to the consolidated financial statements. Where the recoverable amount is lower than the cost, investments are written down to this lower value. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only to the extent that the recoverable amount does not exceed the original cost. Tax As required by Danish legislation ISS Global A/S is jointly taxed with all Danish resident subsidiaries. Joint taxation contributions to/from jointly taxed companies are recognised in the income statement in Income tax and in the statement of financial position in Receivables from or Debt to companies within the ISS Group. Companies which utilise tax losses in other companies pay joint taxation contribution to ISS A/S (the administration company) equivalent to the tax base of the tax losses utilised. Companies whose tax losses are utilised by other companies receive joint taxation contributions from ISS A/S equivalent to the tax base of the tax losses utilised (full absorption). Derivative financial intruments are initially recognised at fair value at the trade date and subsequently remeasured at fair value. The fair value of derivative financial instruments is calculated on the basis of current market data and in accordance with generally accepted valuation methods. Measurement is categorised as Level 2 in the fair value hierarchy as it is not based on observable market data. For derivative financial instruments used as net investment hedges at Group level, changes in the fair value are recognised in Financial income or Financial expenses. The fair value of derivative financial instruments is presented in Other receivables or Loans and borrowings. 2 Significant accounting estimates and judgements Significant accounting estimates and judgements relating to the applied accounting policies for ISS Global A/S are the same as for the Group to the extent of similar accounting items, see 7.1 to the consolidated financial statements for a description. The specific risks for ISS Global A/S are described in the notes to the financial statements of the parent company. Investments in subsidiaries and joint ventures are tested for impairment when there is an indication that the investments may be impaired. The assessment of whether there is an indication of impairment is based on both external and internal sources of information such as performance of the subsidiaries and joint ventures, significant decline in market values etc. 3 Other operating income and expenses, net Other operating income and expenses, net mainly comprise procurement bonuses and revaluation of receivables from companies within the ISS Group. Basis of preparation Changes in accounting policies PARENT COMPANY FINANCIAL STATEMENTS 107 4 Fees to auditors (DKKm) 2021 2020 Statutory audit 0 0 Other assurance services 1 1 Total 1 1 5 Other income and expenses, net (DKKm) 2021 2020 Other (52) (5) Other expenses (52) (5) 6 Financial income and expenses (DKKm) 2021 2020 Interest income on cash and cash equivalents 10 0 Interest income from companies within the ISS Group 260 200 Fair value adjustments of net investment hedges - 180 Foreign exchange gains 277 531 Financial income 547 911 Interest expenses on loans and borrowings (271) (336) Redemption premium, bonds (90) - Forward premiums, currency swaps (15) (15) Fair value adjustments of net investment hedges (191) - Interest expenses to companies within the ISS Group (87) (63) Amortisation of financing fees (non-cash) (25) (22) Bank fees (9) (11) Foreign exchange losses (287) (485) Financial expenses (975) (932) Other assurance services comprised work related to interim financial statements and other assurance services. Forward premiums on currency swaps ISS uses currency swaps to hedge the exposure to currency risk primarily arising from intercompany loans. The cost of hedging in 2021 increased compared to 2020, primarily driven by the hedging of TRY exposure. Foreign exchange gains and losses mainly related to exchange rate movements on intercompany loans to foreign subsidiaries as well as on external loans and borrowings denominated in currencies other than DKK. In addition, fair value adjustments of currency swaps were included. Interest expenses on loans and borrowings comprised mainly interest on issued bonds. In addition, commitment fees and amortisation of financing fees amount to DKK 85 million (2020: DKK 75 million) were included. The decrease in 2021 was driven by a lower utilisation than in 2020. Other related to the Group's acquisition of Rönesans Facility Management Company in Turkey and comprised transaction incentives to management in ISS Turkey and fees to external advisors. In 2020, other comprised divestment-related costs in connection with the divestment of the indirectly owned subsidiary in Israel. Redemption premium, bonds related to the repurchase of EUR 200 million of the total outstanding EUR 500 million EMTN bonds maturing 2024. PARENT COMPANY FINANCIAL STATEMENTS 108 7 Income tax (DKKm) 2021 2020 Current tax 4 9 Deferred tax (1) (2) Prior year adjustments, net 1 (17) Income tax 4 (10) In % 2021 2020 Statutory income tax rate in Denmark 22.0 % 22.0 % Income from subsidiaries and joint ventures (1.0)% (24.9)% Non-tax deductible expenses less non-taxable income (22.0)% 2.5 % Prior year adjustments, net 0.2 % 1.0 % Effective tax rate (0.8)% 0.6 % 8 Investments in subsidiaries and joint ventures (DKKm) Continuing operations Assets held for sale Continuing operations Assets held for sale Cost at 1 January 30,634 954 27,815 2,137 Additions 1) 932 22 2,989 221 Disposals (355) (578) (0) (1,574) Reclassification to assets held for sale 191 (191) (170) 170 Cost at 31 December 31,402 207 30,634 954 Revaluation at 1 January (8,446) (495) (5,986) (1,533) Impairment losses (400) - (2,596) (181) Reversal of prior years' impairment losses 120 81 - 15 Disposals - 357 - 1,340 Reclassification to assets held for sale - - 136 (136) Revaluation at 31 December (8,726) (57) (8,446) (495) Carrying amount at 31 December 22,676 150 22,188 459 1) In 2021, DKK 368 million was related to non-cash transactions (2020: DKK 103 million). Effective tax rate Additions In 2021, ISS Global A/S made capital increases mainly in subsidaries in Germany of DKK 483 million, ISS Holding France A/S of DKK 400 million, Chile of DKK 65 million and Hungary of DKK 13 million. Furthermore, a capital increase was made in Portugal (held for sale) of DKK 24 million, partly offset by a capital repayment in Hungary of DKK 2 million. 2021 2020 PARENT COMPANY FINANCIAL STATEMENTS 109 8 Investments in subsidiaries and joint ventures (continued) (DKKm) Impairment losses 2021 Recoverable amount Applied discount rate, net of tax Investments in subsidiaries and joint ventures (Continuing operations) France 1) 400 (649) - Impairment losses 400 Income from subsidiaries and joint ventures (DKKm) 2021 2020 Received dividends 1) 241 611 Proceeds from divestment and liquidation of subsidiaries and joint ventures 512 623 Carrying amount of disposed subsidiaries and joint ventures (576) (234) Impairment losses (400) (2,777) Reversal of prior years' impairment losses 201 15 Income from subsidiaries and joint ventures (22) (1,762) Subsidiaries and joint ventures For a list of significant directly owned subsidiaries and joint ventures, see note 19, Subsidiaries and joint ventures. Disposals In 2021, ISS Global A/S sold their subsidaries (assets held for sale) in Slovakia, the Czech Republic, Hungary, Slovenia and the Philippines. Furthermore, as part of the Group's acquisition of the Rönesans Facility Management Company in Turkey, ISS Global A/S sold a minority shareholding in their Turkish subsidary to Actera (39.9%) and local Management (10.0%). In total the divestments resulted in a net loss of DKK 64 million (2020: net gain of DKK 389 million). The investment in France was impaired by DKK 400 million mainly driven by a decrease in the recoverable amount of the French activities due to a reassessment of the business case and an increase in the applied WACC. During the first six months of 2021, transparency around the recoverability from Covid-19 improved. It also became clearer, that the pace of recovery within the most impacted customer segments would remain slow. Accordingly, the risk reflected in the applied WACC was increased. Combined with increasing interest rates, this led to a higher applied WACC at 30 June 2021. Additionally, compared to previous assessments, management lowered the growth and margin expectations in 2023-2025, while assumptions for the terminal period remained unchanged. Reversal of prior years' impairment losses In 2021, losses of DKK 120 million on the investment in ISS Lending A/S (continuing operations), DKK 79 million in Portugal (asset held for sale) and DKK 2 million in Hungary (asset held for sale) were reversed. In 2020, losses of DKK 15 million were reversed in Hungary (asset held for sale) in connection with repayment of part of their capital. 1) The French activities are owned through a holding company, ISS Holding France A/S. The recoverable amount is based on the equity at 31 December 2021 in this holding company. Reclassification to assets held for sale In 2021, it was decided to descope Chile from the divestment programme and cease the classification as asset held for sale. Chile is owned directly by ISS Global A/S and consequently the subsidiary has been reclassified to continuing operations. 1) In 2021, dividends of DKK 0 million were received from subsidaries classified as held for sale (2020: DKK 64 million). Impairment losses The recoverable amount of investments in subsidiaries and joint ventures is determined on the basis of the value-in-use adjusted for net debt. Value-in-use applied in the impairment test is equal to value-in-use established for the Group, see 3.8 to the consolidated financial statements. Subsidiaries classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses recognised in 2021, see below. PARENT COMPANY FINANCIAL STATEMENTS 110 9 Deferred tax Development in deferred tax (DKKm) 2021 2020 Deferred tax assets/(liabilities) at 1 January 10 (15) Prior year adjustments, net 1 23 Tax on profit before tax 1 2 Deferred tax assets at 31 December 12 10 10 Loans and borrowings 2021 2020 Issued bonds 10,369 11,847 Bank loans (14) (17) Debt to companies within the ISS Group 15,389 13,401 Derivatives 15 - Total 25,759 25,231 Non-current liabilities 14,067 15,537 Current liabilities 11,692 9,694 Loans and borrowings 25,759 25,231 Cash and cash equivalents and other financial items 1) (12,025) (12,503) Net debt 13,734 12,728 Changes in loans and borrowings (DKKm) 1 January FX Cash flow FV adj. Other 31 December 2021 Issued bonds 11,847 (5) (1,577) - 104 10,369 Debt to companies within the ISS Group 13,401 (156) 2,144 - - 15,389 Bank loans and other (17) - (130) 186 (53) (14) Derivatives - - - 15 - 15 Total 25,231 (161) 437 201 51 25,759 2020 Issued bonds 14,123 (56) (2,234) - 14 11,847 Debt to companies within the ISS Group 1) 11,497 (156) 3,390 - (1,330) 13,401 Bank loans and other (7) - 118 (216) 88 (17) Total 25,613 (212) 1,274 (216) (1,228) 25,231 1) Other includes conversion of intercompany loan from ISS World Services A/S of DKK 1,300 million. Deferred tax assets include provisions for uncertain tax positions. ISS Global A/S has no recognised or unrecognised deferred tax assets regarding tax losses carried forward. 1) Includes certain receivables from companies within the ISS Group of DKK 11,110 million (2020: DKK 11,702 million) and value of currency swaps of DKK 0 million (2020: DKK 5 million). The average interest rate related to receivables from companies within the ISS Group was 2.05% (2020: 1.90%). PARENT COMPANY FINANCIAL STATEMENTS 111 10 Loans and borrowings (continued) Fair value Financing fees 11 Remuneration to the Board of Directors and the Executive Group Management 12 Contingent liabilities Senior facility agreement EMTNs (EUR 500 million) maturing in 2025 ISS Global A/S and certain Danish Group companies are jointly registered for VAT and are jointly liable for the payment hereof. The fair value of loans and borrowings amounted to DKK 26,088 million (2020: DKK 25,538 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 part of the loans and borrowings fair value is equal to the nominal value as illustrated in note 13, Financial risk management. In 2021, financing fees amounting to DKK 0 million (2020: DKK 33 million) have been recognised in loans and borrowings while financing fees of DKK 25 million (2020: DKK 22 milllion) have been amortised and recognised in financial expenses. Accumulated financing fees recognised in loans and borrowings on 31 December 2021 amounted to DKK 56 million (2020: DKK 104 million). Key management personnel of the Group as defined in 5.1 to the consolidated financial statements are also considered key management personnel of the parent. Remuneration to key management personnel is specified in 5.1 to the consolidated financial statements. VAT ISS Global A/S guarantees the borrowings under the unsecured senior facility agreement. Parent company guarantees ISS Global A/S has credit facilities in place totalling DKK 300 million (2020: DKK 300 million) which can be used to issue guarantees for subsidiaries' local bank overdrafts. As per 31 December 2021, DKK 26 million was utilised (2020: DKK 50 million). Furthermore, ISS Global A/S has issued parent guarantees and performance bonds for various subsidiaries' current and future financial liabilities and obligations under customer contracts amounting to DKK 7.5 billion (2020: DKK 8.0 billion). These financial liabilities are primarily local bank overdrafts, bank guarantee lines and pension liabilities. Withholding taxes ISS Global A/S is jointly taxed with all Danish resident subsidiaries. ISS Global A/S and the companies within the joint taxation have a joint and unlimited liability of Danish corporate and withholding taxes related to dividends, interests and royalties. As per 31 December 2021 Danish corporate and withholding taxes within the joint taxation amounted to DKK 0 million (2020: DKK 0 million). Any subsequent adjustments to Danish withholding taxes may change this joint and unlimited liability. ISS Global A/S guarantees the EMTN bonds for a principal amount of EUR 500 million maturing in 2025 issued by ISS Finance B.V., a 100% owned subsidiary. PARENT COMPANY FINANCIAL STATEMENTS 112 13 Financial risk management Credit risk 14 Interest rate risk 2021 2020 Nominal interest rate Currency Year of maturity Nominal value Carrying amount Carrying amount Issued bonds (fixed interest rate) EMTNs (EUR 300 million) 2.125% EUR 2024 2,231 2,226 3,709 EMTNs (EUR 500 million) 0.875% EUR 2026 3,718 3,695 3,690 EMTNs (EUR 600 million) 1.500% EUR 2027 4,462 4,448 4,448 10,411 10,369 11,847 Bank loans (floating interest rate) Revolving Credit Facility (EUR 1,000 million) Libor + 1.75% 1) Multi 2024 - (14) (17) - (14) (17) Intra-group (floating interest rate) - Multi 2024 15,389 15,389 13,401 15,389 15,389 13,401 The estimate was based on ISS Global A/S's floating rate loans and borrowings, i.e. disregarding cash and cash equivalents, as the level at 31 December is typically the highest in the year and not a representative level for the purpose of this analysis. The analysis assumes that all other variables remain constant. Interest rate sensitivity An increase in relevant interest rates of 1%-point would have decreased net profit by DKK 143 million (2020: decreased by DKK 125 million). ISS Global A/S's financial risks are managed centrally by Group Treasury based on the treasury policy approved by the Board of Directors of ISS A/S. The objectives and policies for measuring and managing exposure to financial risks is described in 4.4 to the consolidated financial statements. The risks specific to ISS Global A/S related to interest rate risk, liquidity risk and currency risks are described below in note 14, 15 and 16, respectively. Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial instruments. Exposure relates to bank loans with floating interest rates. ISS Global A/S's exposure towards interest rates is illustrated below, where a breakdown of ISS Global A/S's loans and borrowings in floating and fixed rates is provided. The interest rate exposure to floating interest rates is primarily in EUR. (DKKm) Debt to companies within the ISS Group 1) In addition, a utilisation fee applies based on the actual level of utilisation. The interest rate risk is measured by the duration of the gross debt (fixed-rate period). As at 31 December 2021, the duration of gross debt was approximately 1.9 years (2020: 2.6 years). At 31 December 2021, the exposure to credit risk related to cash and cash equivalents, loans to companies within the ISS Group and other financial items was DKK 12,025 million (2020: DKK 12,503 million), see note 10, Loans and borrowings. Exposure to credit risk on loans to companies within the ISS Group is managed at Group level. As these loans are controlled by the Group and part of the Group’s capital management, expected credit losses are considered to be insignificant. PARENT COMPANY FINANCIAL STATEMENTS 113 15 Liquidity risk Liquidity reserves Contractual maturities of financial liabilities (DKKm) Carrying amount Contractual cash flows < 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years 2021 Issued bonds and bank loans 10,355 11,073 147 147 2,374 99 3,800 4,506 Debt to companies within the ISS Group 15,389 15,602 11,789 46 46 3,721 - - Other financial liabilities 96 96 96 - - - - - Total financial liabilities 25,840 26,771 12,032 193 2,420 3,820 3,800 4,506 2020 Issued bonds and bank loans 11,830 12,841 179 179 179 3,892 100 8,312 Debt to companies within the ISS Group 13,401 13,825 9,943 46 46 46 3,744 - Other financial liabilities 263 263 154 21 88 - - - Total financial liabilities 25,494 26,929 10,276 246 313 3,938 3,844 8,312 16 Currency risk Currency risk is the risk that arises from changes in exchange rates and affects ISS Global A/S's result, investment or value of financial instruments. To a limited extent ISS Global A/S is exposed to currency risk on loans and borrowings (external) that are denominated in currencies other than DKK as well as intercompany loans to foreign subsidiaries as these are typically denominated in the functional currency of the subsidiary. At 31 December 2021, 83.2% (2020: 87.2%) of ISS Global A/S's loans and borrowings were denominated in EUR or DKK. The contractual maturities of financial liabilities, based on undiscounted contractual cash flows, are shown in the table. The undiscounted contractual cash flows include expected interest payments, estimated based on market expectations at 31 December. The risk implied from the values in the maturity table below reflects the one-sided scenario of cash outflows only. Liquidity risk results from ISS Global A/S's potential inability or difficulty in meeting the contractual obligations associated with its financial liabilities due to insufficient liquidity. ISS Global A/S's liquidity reserves mainly consist of 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 2021, ISS Global A/S's liquid reserves consisted of readily available liquid funds of DKK 915 million (2020: DKK 796 million) and unused revolving credit facilities of DKK 7,312 million (2020: DKK 12,380 million) where the majority is available for drawing until 3 November 2024. PARENT COMPANY FINANCIAL STATEMENTS 114 16 Currency risk (continued) (DKKm) Exposure, net Net profit 2021 EUR/DKK (14,821) 6,864 (7,957) 1% (80) GBP/DKK (188) (1,099) (1,287) 10% (129) USD/DKK 1,435 (2,259) (824) 10% (82) CHF/DKK (935) 218 (717) 10% (72) Other/DKK (691) 827 136 10% 14 Total (15,200) 4,551 (10,649) 2020 EUR/DKK (15,752) 6,854 (8,898) 1% (89) GBP/DKK 291 (1,516) (1,225) 10% (123) USD/DKK 1,561 (2,314) (753) 10% (75) CHF/DKK (294) (389) (683) 10% (68) Other/DKK (493) 695 202 10% 20 Total (14,687) 3,330 (11,357) Net investment hedges 17 Related parties Loans and borrowings – foreign currency sensitivity Increase in FX Currency swaps (contractual) Currency exposure (nominal) A change in relevant currencies, with all other variables held constant, would have impacted net profit with the amounts below. The analysis is based on the ISS Group's internal monitoring of currency exposure on loans and borrowings, intercompany loans and cash and cash equivalents. Sensitivity Net investment hedges at Group level are disclosed in note 4.7 to the consolidated financial statements. At Group level changes in the fair value of derivative financial instruments designated as net investment hedges are recognised in Other comprehensive income. In ISS Global A/S the change in fair value is recognised in the income statement. • ISS Global A/S received dividends in total of DKK 241 million (2020: DKK 611 million) from companies within the ISS Group, see note 8, Investments in subsidiaries and joint ventures. • ISS Global A/S increased the share capital in seven subsidiaries by DKK 986 million (2020: DKK 2,967 million in five subsidiaries) and founded no new subsidiaries (2020: founded three subsidaries for DKK 22 million), see note 8, Investments in subsidiaries and joint ventures. In addition to the description in note 6.3 to the consolidated financial statements of related parties and transactions with these, related parties of ISS Global A/S comprise ISS World Services A/S and its subsidiaries, associates and joint ventures, see 7.5 to the consolidated financial statements. • ISS Global A/S received/paid interest from/to companies within the ISS Group, see note 6, Financial income and expenses. • ISS Global A/S paid joint taxation contribution equal to 22% of taxable income to jointly taxed Danish resident subsidiaries. In 2021, ISS Global A/S had the following transactions with other related parties, which were all made on market terms: • Debt to companies within the ISS Group is disclosed in note 10, Loans and Borrowings. • ISS Global A/S's short-term receivable from subsidiaries was DKK 2,914 million (2020: DKK 3,181 million). PARENT COMPANY FINANCIAL STATEMENTS 115 18 New standards and interpretations not yet implemented 19 Subsidiaries and joint ventures Directly owned subsidiaries and joint ventures ISS Facility Services Australia Ltd. Australia 100% Pacific Invest December 2004 Pty Ltd. Australia 100% ISS Austria Holding GmbH Austria 100% ISS N.V. Belgium 100% ISS Chile S.A. Chile 100% ISS Greater China Ltd. China 100% ISS Facility Services A/S Denmark 100% ISS Global Management A/S Denmark 100% ISS Holding France A/S Denmark 100% ISS Lending A/S Denmark 100% Signal Arkitekter ApS Denmark 100% ISS Palvelut Holding Oy Finland 100% ISS Facility Services GmbH Germany 100% ISS Facility Services India Pvt. Ltd. India 100% PT ISS Indonesia Indonesia 100% PT ISS Catering Services Indonesia 49% ISS Ireland Holding Limited. Ireland 100% ISS Facility Services S.r.l. Italy 100% Nihon ISS KK Japan 100% ISS Lietuva UAB Lithuania 100% ISS Centro América, S de RL de CV Mexico 100% ISS Holding Nederland B.V. Netherlands 100% ISS Finance B.V. Netherlands 100% ISS Holdings NZ Ltd. New Zealand 100% ISS Holding AS Norway 100% ISS Facility Services Sp. Z.o.o. Poland 100% ISS Asia Pacific Pte. Ltd. Singapore 100% ISS Facility Services Pte. Ltd. Singapore 100% ISS Facility Services (Pty) Limited South Africa 100% Integrated Service Solutions S.L. Spain 100% ISS Facility Services Holding AB Sweden 100% ISS Holding AG Switzerland 100% ISS Tesis Yönetim Hizmetleri A.Ş. Turkey 50% ISS UK Holding Limited. United Kingdom 100% Directly owned subsidiaries and joint ventures classified as held for sale ISS Facility Services Sdn. Bhd. Brunei 100% ISS Facility Services, Lda. Portugal 100% FS East Oy Russia 100% New standards and interpretations not yet implemented are described in 7.4 to the consolidated financial statements. FINANCIAL STATEMENTS 116 Management statement Copenhagen, 17 March 2022 The Board of Directors and the Executive Group Management Board have today discussed and ap- proved the annual report of ISS Global A/S for the financial year 2021. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. It is our opinion that the consolidated financial state- ments and the Parent company financial statements give a true and fair view of the Group’s and the Par- ent company’s financial position at 31 December 2021 and of the results of the Group’s and the Par- ent company’s operations and cash flows for the fi- nancial year 1 January – 31 December 2021. In our opinion, the Management review includes a fair review of the development in the Group’s and the Parent company’s operations and financial con- ditions, the results for the year, cash flows and fi- nancial position as well as a description of the most significant risks and uncertainty factors that the Group and the Parent company face. In our opinion, the annual report of ISS Global A/S for the financial year 2021 identified as ISS-Global- 2021-12-31-en.zip has been prepared, in all mate- rial respects, in compliance with the ESEF-regula- tion. We recommend that the annual report be approved at the annual general meeting. Managing Director Kristoffer Lykke-Olesen Board of Directors Jacob Aarup-Andersen Chair Kasper Fangel Corinna Refsgaard Bjørn Raasteen FINANCIAL STATEMENTS 117 Independent auditors’ report To the shareholder of ISS Global A/S Opinion We have audited the consolidated financial state- ments and the parent company financial statements of ISS Global A/S for the financial year 1 January – 31 December 2021, pp. 28-115, which comprise statement of profit or loss, statement of comprehen- sive income, statement of cash flows, statement of fi- nancial position, statement of changes in equity and notes, including accounting policies for the Group and the Parent Company. The consolidated financial statements and the parent company financial state- ments are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act. In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the financial position of the Group and the Parent Company at 31 December 2021 and of the results of the Group’s and the Parent Company’s operations and cash flows for the finan- cial year 1 January – 31 December 2021 in accord- ance with International Financial Reporting Stand- ards as adopted by the EU and additional require- ments of the Danish Financial Statements Act. Our opinion is consistent with our long-form audit re- port to the Audit and Risk Committee and the Board of Directors. Basis for opinion We conducted our audit in accordance with Interna- tional Standards on Auditing (ISAs) and additional re- quirements applicable in Denmark. Our responsibili- ties under those standards and requirements are fur- ther described in the “Auditor’s responsibilities for the audit of the consolidated financial statements and the parent company financial statements” (hereinafter collectively referred to as “the financial statements”) section of our report. We believe that the audit evi- dence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Account- ants’ Code of Ethics for Professional Accountants (IESBA Code) and additional requirements applica- ble in Denmark, and we have fulfilled our other ethi- cal responsibilities in accordance with these rules and requirements. To the best of our knowledge, we have not provided any prohibited non-audit services as described in ar- ticle 5(1) of Regulation (EU) no. 537/2014. Appointment of auditor Subsequent to ISS Global A/S being listed on Bourse de Luxembourg, we were initially appointed as audi- tor of ISS Global A/S on 1 April 2003. We have been reappointed annually by resolution of the general meeting for a total consecutive period of eighteen years up until the financial year 2021. Key audit matters Key audit matters are those matters that, in our pro- fessional judgement, were of most significance in our audit of the financial statements for the financial year 2021. These matters were addressed during our au- dit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled our responsibilities described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report, including in relation to the key audit matters. Accordingly, our audit in- cluded the design and performance of procedures 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 financial state- ments. Revenue from contracts with customers, including cut-off and accrual of revenue and onerous contracts Revenue from contracts is recognised as the ser- vices are rendered to the customers. Some contracts require the Group to incur significant transition and mobilisation costs at contract inception which are capitalised and amortised over a multi-annual con- tract term. Accordingly, appropriate cut-off and ac- crual of revenue and capitalisation and amortisation of transition and mobilisation costs is critical and in- volve management judgement, especially in relation to the more integrated and complex facility service FINANCIAL STATEMENTS 118 contracts. Further, the assessment of whether a con- tract may be considered onerous involves manage- ment judgement in making accounting estimates about future contract profitability, including the deter- mination of the total contract revenue, contract period and the unavoidable costs of meeting the obligations under the contract. Due to the inherent uncertainty involved in the cut off and accrual of revenue, the assessment of whether transition and mobilisation costs meet the criteria to be capitalised and the determination of the contract period and the future contract profitability, including the uncertainty relating to estimating the impact from Covid-19, we considered the accounting for revenue from contracts with customers, including cut-off and accrual of revenue and onerous contracts, to be a key audit matter. For details on revenue from contracts with custom- ers, transition and mobilisation costs and provisions for onerous contracts, reference is made to notes 1.2, 2.2, 2.3 and 2.6 in the consolidated financial statements. In response to the identified risks, our audit proce- dures included, among others: • Test on a sample basis of accrued revenue (un- billed receivables) to supporting documentation, including procedures such as: Inspection of proof of work done, review of contracts with customers, comparison of amounts accrued to subsequent in- voices and cash receipts. • Test on a sample basis of capitalised transition and mobilisation costs, including procedures such as: Inspection of proof of costs incurred, review of contracts with customers, evaluation of manage- ment’s assessment of costs meeting the criteria to be recognised. • Evaluation of management’s process to identify and quantify onerous contracts. Our evaluation in- cluded inquiries to local management responsible for carrying out the identification process at coun- try level, review of documentation of manage- ment’s analysis as well as our own analytical pro- cedures over contract margins. • Test on a sample of provisions for onerous con- tracts, including procedures such as: Review of the relevant contract and management’s estimate of the future contract revenue and unavoidable cost, assessment of the assumptions applied by management to estimate the future contract reve- nue, including the expected Covid-19 impact, con- tract term including termination and extension op- tions and unavoidable cost, comparison of the rev- enue assumptions used to the services and fees specified in the contract, comparison of unavoida- ble cost assumptions used to underlying cost pro- jections and actual costs incurred historically as well as testing the completeness and accuracy of the underlying cost projections. Valuation of intangible assets The carrying amounts of goodwill and customer con- tracts related to prior years’ acquisitions comprise a significant part of the consolidated statement of fi- nancial position. The cash-generating units in which goodwill and customer contracts are included are im- pairment 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 inher- ent uncertainty involved in determining the net pre- sent value of future cash flows, including the uncer- tainty relating to estimating the impact from Covid-19, we considered these impairment tests to be a key audit matter. For details on the impairment tests per- formed by Management reference is made to notes 3.6, 3.7 and 3.8 in the consolidated financial state- ments. In response to the identified risks, our audit proce- dures included, among others, testing the mathemati- cal accuracy of the discounted cash flow model and comparing forecasted profitability to board approved budgets. We evaluated the assumptions and meth- odologies 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 and assessed impact of Covid-19. We compared the assumptions applied to externally derived data as well as our own assess- ments in relation to key inputs such as projected eco- nomic growth and discount rates. Further, we evalu- ated the sensitivity analysis on the key assumptions applied. Our audit procedures primarily focused on cash generating units where likely changes in key as- sumptions could result in impairment. We further evaluated the adequacy of disclosures provided by Management in the financial statements compared to applicable accounting standards. Assets and liabilities held for sale and discontinued operations When classifying businesses as held for sale and as discontinued operations in the consolidated financial statements, Management makes judgments and esti- mates, including assessment of impairment of the net assets. Due to the materiality of Management’s dis- posal plans and inherent uncertainty involved in clas- sifying and assessing assets and liabilities held for sale and discontinued operations, we considered these judgments and estimates as a key audit mat- ter. For details on the assets and liabilities held for FINANCIAL STATEMENTS 119 sale and discontinued operations reference is made to note 3.1 and note 3.2 in the consolidated financial statements. In response to the identified risks, our audit proce- dures included, among others, agreeing the carrying amounts of the assets and liabilities held for sale to underlying accounting records, considered Manage- ment’s criteria for classification of businesses as held for sale and discontinued operations and reading draft agreements where relevant, including reviewing minutes and other relevant documentation of the sales processes and board decisions. We considered the impairment assessment made by Management, including assessment of key assumptions applied and evaluation of the explanations provided by com- paring key assumptions to market data, where avail- able. We further evaluated the adequacy of disclo- sures provided by Management in the financial state- ments compared to applicable accounting standards. Income tax and deferred tax balances The Group’s operations are subject to income taxes in various jurisdictions having different tax legislation. Management makes judgments and estimates in de- termining the recognition of income taxes and de- ferred taxes. Given the inherent uncertainty involved in assessing and estimating the income tax and de- ferred tax balances, including tax exposures and write-down of deferred tax assets and given the un- certainty estimating the impact from Covid-19 on fu- ture taxable income, we considered these balances as a key audit matter. For details on the income tax and deferred tax bal- ances reference is made to notes 1.4 and 1.5 in the consolidated financial statements and notes 7 and 9 in the Parent company financial statements. In response to the identified risks, our audit proce- dures included review of tax computations in order to assess the completeness and accuracy of the amounts recognised as income taxes and deferred taxes, as well as assessment of correspondence with tax authorities and evaluation of tax exposures as well as write-down of deferred tax assets. In respect of the deferred tax assets recognised in the state- ment of financial position, we assessed Manage- ment’s assumptions as to the probability of recover- ing the assets through taxable income in future years and available tax planning strategies. We further evaluated the adequacy of disclosures provided by Management compared to applicable accounting standards. Valuation of investments in and receivables from sub- sidiaries The investments in and receivables from subsidiaries comprise a significant part of the statement of finan- cial position of the parent company. The valuation of investments in and receivables from subsidiaries is based on Management’s assessment of whether in- dications or objective evidence of impairment exists. This assessment is based on an assessment of the net present value of the expected future cash flows generated by the subsidiaries which is determined on the basis of, among others, the expected future prof- itability, long-term growth and discount rate for each subsidiary. Due to the inherent uncertainty involved in determining the net present value of expected fu- ture cash flows, we considered the valuation of in- vestments in and receivables from subsidiaries to be a key audit matter. For details on the valuation of in- vestments in subsidiaries reference is made to note 8 in the parent company financial statements. In response to the identified risks, our audit proce- dures included, among others, testing the mathemati- cal accuracy of the discounted cash flow model and comparing forecasted profitability to board approved budgets. We evaluated the assumptions and meth- odologies 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 and results as well as as- sessed impact of Covid-19. We compared the as- sumptions applied to externally derived data as well as our own assessments in relation to key inputs such as projected economic growth and discount rates. Further, we evaluated the sensitivity analysis on the key assumptions applied. Our audit proce- dures primarily focused on investments, where likely changes in key assumptions could result in impair- ment. We further evaluated the adequacy of disclo- sures provided by Management in the parent com- pany financial statements compared to applicable ac- counting standards. Statement on the Management’s review Management is responsible for the Management’s review, pp. 2-27. Our opinion on the financial statements does not cover the Management’s review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial state- ments, our responsibility is to read the Manage- ment’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 materi- ally misstated. FINANCIAL STATEMENTS 120 Moreover, it is our responsibility to consider whether the Management’s review provides the information required under the Danish Financial Statements Act. Based on the work we have performed, we conclude that the Management’s review is in accordance with the financial statements and has been prepared in accordance with the requirements of the Danish Fi- nancial Statements Act. We did not identify any ma- terial misstatement of the Management’s review. Management’s responsibilities for the financial statements Management is responsible for the preparation of consolidated financial statements and parent com- pany financial statements that give a true and fair view in accordance with International Financial Re- porting Standards as adopted by the EU and addi- tional requirements of the Danish Financial State- ments Act and for such internal control as Manage- ment determines is necessary to enable the prepara- tion 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 Par- ent Company’s ability to continue as a going con- cern, disclosing, as applicable, matters related to go- ing concern and using the going concern basis of ac- counting in preparing the financial statements unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance as to whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that in- cludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in ac- cordance with ISAs and additional requirements ap- plicable in Denmark will always detect a material mis- statement when it exists. Misstatements can arise from fraud or error and are considered material if, in- dividually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit conducted in accordance with ISAs and additional requirements applicable in Den- mark, we exercise professional judgement and main- tain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstate- ment of the financial statements, whether due to fraud or error, design and perform audit proce- dures responsive to those risks and obtain audit evidence that is sufficient and appropriate to pro- vide a basis for our opinion. The risk of not detect- ing a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omis- sions, misrepresentations or the override of inter- nal control. • Obtain an understanding of internal control rele- vant to the audit in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of accounting poli- cies used and the reasonableness of accounting estimates and related disclosures made by Man- agement. • Conclude on the appropriateness of Manage- ment’s use of the going concern basis of account- ing in preparing the financial statements and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to con- tinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents of the financial statements, including the note disclosures, and whether the financial state- ments represent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evidence re- garding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with govern- ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in in- ternal control that we identify during our audit. FINANCIAL STATEMENTS 121 We also provide those charged with governance with a statement that we have complied with relevant ethi- cal 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 consoli- dated financial statements and the parent company financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regula- tion precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our re- port because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Copenhagen, 17 March 2022 EY Godkendt Revisionspartnerselskab CVR no. 30 70 02 28 Torben Bender Claus Kronbak State Authorised Public Accountant State Authorised Public Accountant mne21332 mne28675 DEFINITIONS 122 Definitions 1) Based on management’s expectations at the acquisition date. 2) Includes the effect stemming from exclusion of currency effects from the calculation of organic growth and acquisition/divestment growth, net. 3) Based on estimated or actual revenue where available at the divest- ment date. 4) Implies the exclusion of changes in revenue attributable to acquisi- tions/divestments, net 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 current year’s foreign currency exchange rates. Acquisitions are treated as having been integrated into ISS upon acquisition, and ISS’s calculation of organic growth includes changes in revenue of these acquisitions compared with revenue expectations at the date of acquisition. 213800W6DPUGWBGTD7662021-01-012021-12-31213800W6DPUGWBGTD7662021-01-012021-12-31cmn:ConsolidatedMember213800W6DPUGWBGTD7662020-01-012020-12-31cmn:ConsolidatedMember213800W6DPUGWBGTD7662020-01-012020-12-31213800W6DPUGWBGTD7662020-12-31213800W6DPUGWBGTD7662021-12-31213800W6DPUGWBGTD7662019-12-31213800W6DPUGWBGTD7662020-12-31ifrs-full:IssuedCapitalMember213800W6DPUGWBGTD7662021-01-012021-12-31ifrs-full:IssuedCapitalMember213800W6DPUGWBGTD7662021-12-31ifrs-full:IssuedCapitalMember213800W6DPUGWBGTD7662020-12-31ifrs-full:RetainedEarningsMember213800W6DPUGWBGTD7662021-01-012021-12-31ifrs-full:RetainedEarningsMember213800W6DPUGWBGTD7662021-12-31ifrs-full:RetainedEarningsMember213800W6DPUGWBGTD7662020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800W6DPUGWBGTD7662021-01-012021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800W6DPUGWBGTD7662021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800W6DPUGWBGTD7662020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800W6DPUGWBGTD7662021-01-012021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800W6DPUGWBGTD7662021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800W6DPUGWBGTD7662020-12-31ifrs-full:NoncontrollingInterestsMember213800W6DPUGWBGTD7662021-01-012021-12-31ifrs-full:NoncontrollingInterestsMember213800W6DPUGWBGTD7662021-12-31ifrs-full:NoncontrollingInterestsMember213800W6DPUGWBGTD7662019-12-31ifrs-full:IssuedCapitalMember213800W6DPUGWBGTD7662020-01-012020-12-31ifrs-full:IssuedCapitalMember213800W6DPUGWBGTD7662019-12-31ifrs-full:RetainedEarningsMember213800W6DPUGWBGTD7662020-01-012020-12-31ifrs-full:RetainedEarningsMember213800W6DPUGWBGTD7662019-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800W6DPUGWBGTD7662020-01-012020-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800W6DPUGWBGTD7662019-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800W6DPUGWBGTD7662020-01-012020-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800W6DPUGWBGTD7662019-12-31ifrs-full:NoncontrollingInterestsMember213800W6DPUGWBGTD7662020-01-012020-12-31ifrs-full:NoncontrollingInterestsMember213800W6DPUGWBGTD7662021-01-012021-12-311cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-312cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-313cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-314cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-315cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-311cmn:ConsolidatedMember213800W6DPUGWBGTD7662021-01-012021-12-312cmn:ConsolidatedMemberxbrli:pureiso4217:DKKDenmarkDenmarkBuddingevej 197, 2860 SøborgGloballyService, trade and other related business, including holding shares in other companies as well as intra-group financingN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2021-01-012021-12-312020-01-012020-12-31213800W6DPUGWBGTD766Reporting class Dhttps://inv.issworld.com/governancereport213800W6DPUGWBGTD76628504799ISS Global A/SBuddingevej 197DK-2860 SøborgOpinionBasis for Opinion