Annual Report 2006 ISS Global A/S

tual obligations could harm ISS’s reputation, as well
as result in customer losses and financial liabilities,
any of which could have a material adverse effect
on ISS’s business, results of operations and financial
condition.
ISS faces additional risks with respect to its performance
under Integrated Facility Services contracts.
Generally, these contracts place greater demands
on ISS due to their scope and complexity as
compared with single service contracts, and these
demands may increase to the extent that the contract
involves newly introduced Facility Services. Although
ISS seeks to minimise the difficulties associated
with its Integrated Facility Services contracts
by obtaining a clear understanding of the customer’s
expectations, including defined success criteria, it
may not be able to eliminate these difficulties altogether.
ISS’s inability to successfully manage its Integrated
Facility Services contracts could limit its
ability to provide Integrated Facility Services and
may have a material adverse effect on ISS’s business,
results of operations and financial condition.
Adverse changes in ISS’s financial position, operating
results or cash flows could impact its
credit ratings, loan covenants and ability to finance
its business
Credit rating agencies and debt investors traditionally
use a range of key financial figures, such as operating
margin, cash flow from operating activities,
cash conversion ratio, results of operations, asset
valuations (including any goodwill impairment), interest
coverage and debt ratios, to evaluate ISS’s financial
position and performance. Macroeconomic
trends, as well as changes in legislation, impairment
of assets, outsourcing and leasing decisions, staffing
shortages and other operational issues could
cause ISS’s key financial figures to fluctuate substantially.
An adverse change in these figures, and
any resulting change in its credit ratings, may affect
ISS’s ability to finance its operations, development
and growth. ISS evaluates its capital structure regularly
with the aim to manage the development in its
key financial figures to comply with the covenants
specified in its loan agreements. For this purpose,
ISS continuously analyses its future capital expenditure
requirements. However, if ISS is unsuccessful
in maintaining its key financial figures at a satisfactory
level, any resulting adverse change in its credit
ratings or failure to comply with loan covenants
could have a material adverse effect on ISS’s business,
liquidity, results of operations or financial condition.
ISS may also be precluded from borrowing
under ISS’s lines of credit in those circumstances.
Fluctuations in foreign currency exchange rates
and interest rates may affect ISS’s results of operations
Although ISS has operations in 49 countries, currency
rate fluctuations generally do not have an immediate
impact on its business because the revenue
and costs of ISS’s subsidiaries are usually de-
ANNUAL REPORT 2006 / Risk Factors
nominated in the same currency. However, fluctuations
in exchange rates may affect ISS to the extent
that its interest payments with respect to borrowings
are not denominated in the same currencies as
ISS’s revenue. In addition, currency movements
may materially affect the economic environment in
which ISS’s subsidiaries operate, which could have
a material adverse effect on ISS’s business, results
of operations and financial condition. Further, currency
fluctuations may have a significant affect on
royalties, dividends and service fees which are paid
to ISS in local currency by ISS’s subsidiaries. Currency
fluctuations may also have a significant impact
on the year-on-year growth of revenue, earnings
and cash flow when measured in ISS’s reporting
currency, Danish kroner. Currency fluctuations
may cause actual growth rates to fall short of management’s
forecasts and expectations.
ISS may also be affected by changes in interest
rates. Increases in interest rates increase ISS’s interest
expenses relating to variable rate indebtedness
and increase the costs of refinancing existing
indebtedness and of issuing new debt. In addition,
increases in interest rates increase the funding cost
of acquisitions, thereby limiting ISS’s ability to grow
through acquisitions on a cost effective basis, as
well as limiting ISS’s ability to implement its growth
strategy. Accordingly, higher interest rates could
adversely affect cash flow and ISS’s ability to service
its debt. Although ISS monitors and assesses
trends in interest rates on an ongoing basis, there
can be no assurance that ISS will be successful in
responding to interest rate variations.
ISS’s international operations and decentralised
organisational structure may subject ISS to additional
risks
ISS currently operates in 49 countries, and more
than 93% of its total revenue is generated outside
Denmark. Because of the international scope of its
activities, ISS is subject to a number of risks and
challenges, many of which are beyond its control.
These include the management of a decentralised
international business and the complexities of complying
with the legislative and regulatory requirements,
including tax rules and social security legislation,
of many different jurisdictions. For example,
where local tax rules are complex or their applicability
is uncertain, compliance with such rules may
lead to unforeseen tax consequences. In addition,
structuring decisions and local legal compliance
may be more difficult due to conflicting laws and
regulations, including those relating to, among other
things:
� employment, social security and collective bargaining;
� immigration;
� health and safety;
� competition; and
� environmental protection.
23