Annual Report 2006 ISS Global A/S

ISS is subject to economic risks and uncertainties in
the countries in which it operates. Over the past few
years, certain of the countries in which ISS operates
have experienced economic growth and improved
economic stability in certain sectors. However, there
can be no assurance that economic growth will continue
in the future. Any slowdown in the development
of these economies, any deterioration or disruption
of the economic environment in the countries
in which ISS operates or any reduction in government
or private sector spending may have a material
adverse effect on ISS’s business, financial
condition, and results of operations. Furthermore,
certain incidents could lead to international tension
causing boycotts or otherwise restrict ISS’s ability to
perform its services. This may have a material adverse
effect on ISS’s financial condition and results
of operations.
ISS is also subject to political and social uncertainties,
particularly in some of the developing countries
in which it operates, which have been undergoing
substantial political transformations. There can be
no assurance that the political reforms necessary to
complete such transformations will continue. The
political systems in these countries may be vulnerable
to the populations’ dissatisfaction with reforms,
social and ethnic unrest and changes in government
policies. Any disruption or volatility in the political or
social environment in these countries may have a
material adverse effect on ISS’s business, financial
condition, and results of operations.
ISS delegates considerable operational responsibility
to its subsidiaries. Although ISS has adopted
Group-wide control procedures and reporting and
codes of conduct policies and makes regular visits
to its individual country operations, there can be no
assurance that ISS will not experience incidents of
accounting irregularities, unintended accounting
misstatements or breaches of local legislation, any
of which could, individually or collectively, have a
material adverse effect on ISS’s business, results of
operations and financial condition.
ISS depends on its local management teams and
employees, and ISS’s inability to attract and retain
qualified local managers or a sufficient
number of qualified employees could harm its
business and prevent ISS from implementing its
strategy
ISS has a decentralised organisational structure in
which local managers retain substantial autonomy
regarding the management of ISS’s operations in
their markets. As a result, ISS depends to a large
extent upon these local managers, and its inability
to attract and retain an adequate number of qualified
local managers could have a material adverse
effect on ISS’s business and its ability to meet its
objectives. The ability to retain key management
personnel in acquired businesses is also important
in order to ensure their effective integration into ISS
and thus minimise the costs of integration. The res-
ANNUAL REPORT 2006 / Risk Factors
ignation of key local managers may have a material
adverse effect on ISS’s business, results of operations
and financial condition.
Employee costs make up ISS’s largest single expense,
representing approximately 65% of ISS’s
2006 revenue, and its competitive strength partly
depends upon its ability to attract, train and retain
employees. The Facility Services and related industries
are, in general, characterised by a relatively
high staff turnover. To the extent that ISS is unable
to offer satisfactory pay and working conditions, ISS
could experience a labour shortage. A labour shortage
may also arise due to low unemployment and
increased competition for workers, requiring the use
of temporary staff, which would likely increase ISS’s
staff costs. ISS’s inability to attract and retain the
required number of qualified employees could have
a material adverse effect on its business, results of
operations and financial condition.
In addition, many sectors of the Facility Services industry
involve unionised employees. As these union
contracts expire, ISS may be required to renegotiate
them in an environment of increasing wage rates.
There can be no assurance that ISS will be able to
renegotiate union contracts on terms favourable to it
or without experiencing a work stoppage.
Consolidation in the Facility Services industry
may adversely affect ISS’s business
ISS believes that the Facility Services industry will
undergo consolidation during the next several years.
ISS expects that, in response to such consolidation,
it will consider from time to time additional strategies
to enhance its business. These may include pursuing
strategic alliances or joint ventures or purchase,
sale or merger transactions with other companies.
In considering any of these strategies, ISS will
evaluate, among other things, the potential to leverage
existing operations and assets, to the extent
permitted under its financial instruments and credit
agreements, as well as tax and accounting effects
of the proposed transactions. In addition, such
strategies could have various other significant consequences,
including changes in ISS’s management,
control or operational or acquisition strategies.
There can be no assurance that any one of
these strategies will be undertaken or that, if undertaken,
any such strategy will be implemented successfully.
ISS also expects to face significant competition in
the acquisition of Facility Services businesses from
companies that currently pursue, or in the future
would pursue, acquisitions as part of their strategies,
and competition for acquisitions may increase
as the Facility Services industry undergoes continuing
consolidation. Such competition could lead to
higher prices for target companies limiting ISS’s
ability to grow through acquisitions on a cost effective
basis and limit ISS’s ability to implement its
growth strategy.
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