Annual Report 2006 ISS Global A/S

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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 _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Parent Company Financial Statements 118
NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY 1 January - 31 December. Amounts in DKK millions 14. Derivatives (continued) Contractual values and unrealised gains and losses are specified below for financial instruments used to hedge the foreign exchange risk and the interest rate risk: Unrealised Included in Taken directly 2006 gain/(loss) the income to equity on Contractual on revaluation statement for 31 December Financial instruments Forward foreign currency, purchases value to fair value 2006 2006 Maturity AUD 22 (0) (0) - 2007 CHF 209 (0) (0) - 2007 EUR 5,740 1 1 - 2007 GBP 692 (1) (1) - 2007 NOK 352 (0) (0) - 2007 Others 27 0 0 - 2007 7,042 Forward foreign currency, sales AUD 1,474 HKD 203 SEK 66 USD 183 USD-related 32 Others 344 Interest rate instruments Interest rate swap - 2010 (CHF), payer 1) Interest rate swap - 2010 (EUR), payer 1) Interest rate swap - 2010 (EUR), payer 1) Interest rate swap - 2010 (GBP), payer 1) Interest rate swap - 2010 (GBP), payer 1) Interest rate swap - 2010 (NOK), payer 1) Interest rate swap - 2010 (SEK), payer 1) 2,302 (0) (0) - (5) 0 0 0 (1) (0) (5) 0 0 0 (1) (0) (6) (6) - 179 0 0 600 6 0 3,132 58 (0) 420 2 0 1,443 18 0 552 7 0 503 6 0 Total financial instruments 91 Hedging of net investments in foreign subsidiaries at 31 December 2006. As at 31 December 2006, no such hedging was entered into. 1) The swaps convert a major part of the floating rates within the bank loans to fixed interest rate. 6,829 97 (0) 97 - - - - - - (6) 97 2007 2007 2007 2007 2007 2007 0 2010 6 2010 58 2010 2 2010 18 2010 7 2010 6 2010 Continues _____________________________________________________________________________________________________________ ANNUAL REPORT 2006 / Parent Company Financial Statements 119
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ISS Global A/S Bredgade 30 DK - 126
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Key Figures Amounts in DKK millions
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growth. Furthermore, the effect of
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In 2006, ISS Global continued the p
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to costs related to a turnaround pl
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structure, ISS established an Opera
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Strategy ISS Global is a fully owne
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Geography ISS intends to increasing
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Openness and transparency In additi
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tors. The controllers perform follo
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Risk Factors ISS Global is a fully
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tual obligations could harm ISS’s
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If ISS fails to manage growth and i
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ISS may incur substantial liabiliti
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thus reduce or prevent dividend pay
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Independent Auditor’s Report To t
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Organic growth ISS Global uses esti
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2006 primarily related to redundanc
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Tempo as well as a number of smalle
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including non-interest-bearing debt
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CONSOLIDATED CASH FLOW STATEMENT 1
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CONSOLIDATED STATEMENT OF TOTAL REC
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NOTES TO THE CONSOLIDATED FINANCIAL
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Page 67 and 68: NOTES TO THE CONSOLIDATED FINANCIAL
Page 103 and 104: CASH FLOW STATEMENT OF THE PARENT C
Page 105 and 106: STATEMENT OF TOTAL RECOGNISED INCOM
Page 107 and 108: NOTES TO THE FINANCIAL STATEMENTS O
Page 117: NOTES TO THE FINANCIAL STATEMENTS O
Page 123: Definitions EBITDA = Operating prof
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Annual Report 2006 ISS Global A/S

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