Annual Report 2006 ISS Global A/S

Risk Factors
ISS Global is a fully owned subsidiary of ISS A/S (“ISS” or the “Group”) and is therefore affected by the same risk
factors as ISS. The following section describes the risk factors identified by ISS.
The description of risk factors set out below relates to ISS A/S, its operating subsidiaries and its parents FS Funding
A/S (“FS Funding”) and FS Equity A/S (“FS Equity”), together referred to as “ISS” or the “Group”. The Group
strives to counter and reduce the risks, which the Group is able to impact. However, ISS wishes to emphasise
that any investment in securities will be subject to risk. Such factors as developments in the financial markets, in
the Group’s operating performance etc. could cause an investment to be loss making. An investor could lose all or
part of his or her investment. In addition to the financial market risk, ISS’s risk profile reflects both the Group’s
day-to-day operations and its continued expansion. Other stakeholders having relations with ISS should also consider
that the risks of ISS could adversely impact their interests. Some of the risk factors, which may adversely affect
the Group’s future growth, activities, financial position and results, are described below. This is not an exhaustive
description of the risk factors to which the Group or an investment in ISS’s securities is subject, nor are
they listed in any order of priority.
Demand for ISS’s services is subject to changes
in economic conditions in its markets, as well as
outsourcing trends and other factors beyond
ISS’s control
ISS believes that the potential growth in demand for
its services generally correlates with economic conditions,
including growth in gross domestic product,
in the countries in which it operates. Although the
Facility Services industry is normally considered to
be less sensitive to economic cycles than a number
of other industries, macroeconomic cyclicality – both
weak and strong economic activity – presents a
challenge for ISS. Periods of recession or deflation
may have an adverse impact on prices and on the
demand for services, particularly if customers
downsize their businesses or reduce their demand
for services. If ISS is not able to reduce its costs in
line with price declines, then its margins will be reduced.
In addition, in periods of rapid economic growth, ISS
may encounter problems in recruiting qualified employees
or generally experience increasing staff
costs. Although ISS generally seeks to include inflation
adjustment clauses in its contracts in order to
pass on wage increases to its customers, it may not
be able to effectively pass on these increases or
manage its costs, in which case its margins would
be reduced. As a result of these factors, fluctuations
in economic conditions may have a material adverse
effect on ISS’s business, results of operations
and financial condition.
In addition, growth in demand for Facility Services is
also influenced by general outsourcing trends. The
development of outsourced Facility Services is expected
to be more volatile than the Facility Services
market as a whole as outsourced Facility Services
may be affected by political decisions, public opinion,
positive and negative experiences with outsourcing,
demand by public institutions and individual
users, as well as media coverage of isolated
ANNUAL REPORT 2006 / Risk Factors
events. These factors may dampen growth in outsourcing,
cause contracts to be discontinued or reduce
ISS’s ability to achieve satisfactory growth
rates in the future.
ISS’s business is subject to governmental regulation,
which may constrain its operations, and
its compliance costs may increase in the future
ISS’s operations are subject to a variety of laws and
regulations. In particular, because of ISS’s large
work force, laws and regulations relating to labour,
employment and immigration affect ISS’s operations.
ISS’s failure to comply with applicable regulations
could result in substantial fines, claims relating
to violations of social and working environment legislation
or revocation of licenses. In addition,
changes in such laws and regulations may constrain
ISS’s ability to provide services to customers or increase
the costs of providing such services. For instance,
under certain circumstances current EU law
allows ISS, in the event that it loses a customer contract,
to transfer employees working under the contract
to the new provider of the services, and any restriction
on ISS’s ability to transfer employees under
such circumstances could substantially increase
ISS’s employment costs and restrict its operational
flexibility. Changes which result in Facility Services
companies employing a greater proportion of workers
from traditionally lower wage countries could reduce
prices for Facility Services and negatively affect
ISS’s results. In addition, changes in tax legislation
may cause ISS to incur higher costs or reduce
ISS’s competitiveness relative to in-house service
providers. For example, tax regulations in certain
countries may discourage the outsourcing of Facility
Services. In some countries, tax laws are structured
such that if entities in certain sectors outsource their
Facility Services, they cannot deduct value added
tax, or VAT.
In first quarter 2007, the Danish Minister for Taxation
has published a draft bill for public hearing. The
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