Annual Report 2006 ISS Global A/S

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY
1 January - 31 December. Amounts in DKK millions
14. Derivatives
ISS Global A/S's financial risk management is based on policies approved by the Board of Directors, specifying guidelines and risk
limits for ISS Global's financial transactions and positions. ISS Global A/S may use derivatives to hedge financial risks.
Currency risk can be classified in three categories: economic, transaction and translation.
In practical terms, the economic currency risk is somewhat limited for ISS Global A/S, as ISS Global A/S and its competitors generally
have similar cost structures. However, currency movements may have an adverse effect on the general economic situation of
countries in which ISS Global A/S operates and ISS Global A/S may be impacted by such events.
The service industry is characterised by a relatively low level of transaction risk, since the services are produced and delivered in the
same local currency with minimal exposure from imported components. ISS Global A/S's translation risk primarily relates to foreign
investments and loans and receivables to/from affiliates.
ISS Global A/S may choose to hedge the currency exposure on foreign investments by funding such investments in local currencies
or entering into hedging transactions. As at 31 December 2006, no such hedging was entered into.
Interest rate risk is measured by the duration of the net debt. The duration reflects the effect of a simultaneous increase or decrease
in the general level of interest rates for the currencies included in the debt portfolio. As at 31 December 2006, the duration of net debt
was approximately 4.0 years (2005: 5.2 year). Thus, all other things being equal, an increase (decrease) of one percentage point in
the relevant interest rates would reduce (increase) the market value of net debt by approximately DKK 739 million (2005: DKK 539
million). Based on the net debt and taking into account the effect of hedging instruments as at 31 December 2006, a general
decrease (increase) of one percentage point in relevant interest rates would reduce (increase) the annual net interest expense by
approximately DKK 14 million (2005: DKK 17 million), all other things being equal.
ISS Gloal A/S's loan portfolio primarily consists of bonds issued under the EMTN-program and bank loans. A part of the interest
payments on the bank loans have been swapped from floating into fixed rates (see note 12, Long-term debt). To manage the duration
of the net debt, ISS Global A/S applies derivatives, such as interest rate swaps, futures and options. The deferred gain or loss on the
interest rate instruments will be recognised directly in equity, net of tax. On realisation of the hedged item, value changes recognised
under equity are reversed and recognised together with the hedged item. When a hedging instrument expires or is sold, terminated or
exercised but the hedged future transactions are still expected to occur, the cumulative gain or loss at that point remains in equity and
is recognised in accordance with the above policy when the transaction occurs.
Credit risk represents the risk of the accounting loss that would be recognised if counterparties failed to perform as contracted.
Losses on bad debt relating to individual customers or counterparties have historically been relatively low. ISS Global A/S performs
ongoing credit evaluations of the financial condition of ISS Global A/S' counterparties in order to reduce the credit risk exposure.
Continues
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