Annual Report 2006 ISS Global A/S

Through the acquisitions of broad-ranged service companies
in Germany, Switzerland and the United Kingdom,
ISS is able to provide management of Facility Services.
The acquired capabilities have provided an approach
to clients where ISS is able to offer management
of services, delivered either through subcontracting or
through own service provisions depending on the preference
of the client.
An IFS implementation team was established in 2006
with the primary focus of accelerating the IFS implementation
in selected countries. The team consists of four
experienced specialists with an overlying mission of
providing operational support in winning, bidding, transitioning
and operating the first IFS contract within a
country. The prioritised countries in 2006 were Spain,
Belgium and Switzerland. In 2007, the prioritised countries
are Germany, the Netherlands and Australia.
Single service excellence
The foundation for being the leading Facility Services
company is a continuous focus on delivering service excellence
in every service area. Going forward, ISS will
continue to focus heavily on developing single service
excellence and spreading it throughout the organisation.
Operational efficiency
ISS will seek to maintain and enhance operational efficiency
by retaining its focus on three well-established
and prioritised operational objectives for its local managers:
(i) cash flow; (ii) operating margin; and (iii) profitable
organic growth. In addition, ISS will focus on reducing
the financial leverage on a multiple basis.
Cash flow
ISS’s first objective is to continue to maintain a relatively
high rate of cash conversion primarily by operating in a
manner that optimises working capital. Through this approach,
ISS expects to continue to generate a positive
free cash flow.
Operating margin
ISS’s second objective is to maintain or improve its operating
margin, which increased from 5.1% in 2000 to
5.8% in 2006. ISS will seek to generate operational efficiencies
by increasing its local market positions and operational
densities, as well as through the implementation
of company-wide best practices.
Profitable organic growth
ISS’s third objective is to continue to leverage its international
market position and service offering in order to
increase its local market positions and drive organic
growth. To do this, ISS established a Sales Excellence
Centre in 2006 to create sales systems and to promote
benchmarking and the sharing of best practices between
countries. ISS continues to work with a wide
range of initiatives to: (i) attract new customers; (ii) increase
customer retention rates, including through the
establishment of dedicated key account teams; and (iii)
cross-sell related services, such as pest control and
washroom services, to existing customers. Additionally,
ISS has established a market presence and operating
ANNUAL REPORT 2006 / Strategy
platforms in selected high-growth economies,
particularly in Latin America and Asia.
Reduce financial leverage
Following the acquisition of ISS A/S by FS
Funding A/S, ISS is determined also to seek to
reduce, on a multiple basis, the financial leverage
of the FS Funding Group, which increased
as a result of the acquisition. This is expected to
be achieved primarily through growth in ISS’s
operating profit through a continued focus on
cash flow, operating margin, organic growth and
acquisitions. However, as a result of this growth
strategy, ISS expects to incur additional debt in
the future. The extent and timing of the FS
Funding Group’s deleveraging on a multiple basis
will, however, depend upon, among other
things, ISS’s cash flow generation and the scale
and timing of payments related to its future acquisition
activities, which may temporarily increase
its leverage on a multiple basis in terms
of net debt to pro forma adjusted EBITDA.
Growth
A wide range of initiatives will underpin organic
growth spanning from further investment in the
growth economies of the world via an enhanced
sales force and training to new customer retention
initiatives.
ISS expects to continue to make acquisitions to
facilitate its strategy of increasing local scale
and broadening its local service offerings. Since
the beginning of 2000, ISS has acquired and integrated
more than 500 businesses, more than
450 of which were acquisitions of relatively
small businesses with annual revenues of less
than DKK 100 million (EUR 13.4 million). The
two largest acquisitions to date have been Abilis
in France in 1999 and Tempo in Australia in
2006 which on the date of the respective acquisitions
had estimated annual revenue of approximately
DKK 5.2 billion and approximately
DKK 2.9 billion. Apart from Tempo, the two largest
acquisitions in 2006 were Edelweiss in Switzerland
(estimated annual revenue of DKK 0.7
billion) and DEBEOS in Germany (estimated
annual revenue of DKK 0.5 billion). ISS expects
to continue focusing primarily on smaller acquisitions,
which it believes will reduce the risks relating
to individual acquisitions and enable it to
leverage the experience of local management
teams throughout its countries of operation. ISS
cannot provide any assurance, however, that it
will not pursue larger acquisitions in the future. It
is important to emphasize that acquisition driven
revenue growth will vary widely from year to
year, among other things depending on opportunities,
organisational capability, financial resources,
etc. and thus acquisition speed could
deviate significantly from the range mentioned
above.
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