Annual Report 2006 ISS Global A/S

Organic growth
ISS Global uses estimates of its organic growth in analysing its revenue, including in the analysis on page 32. Organic growth
is intended to represent the percentage change in ISS Global’s revenue as compared to the prior period, excluding changes
in revenue attributable to businesses acquired or divested and the effect of changes in foreign exchange rates. Organic
growth is not a measure of financial performance under Danish GAAP or IFRS and should not be considered as a substitute
for operating profit, net profit, cash flow or other financial measures computed in accordance with Danish GAAP or IFRS or
as a measure of ISS Global’s results of operations.
In calculating organic growth, ISS Global applies two different methodologies with respect to the revenue generated by acquired
businesses, based upon the size of the acquisitions.
Acquisitions of businesses with reported annual revenue of less than DKK 50 million (EUR 7 million)
Acquisitions of businesses with reported annual revenue of less than DKK 50 million (EUR 7 million) and which do not establish
an ISS Global presence in a new jurisdiction are treated as having been integrated into ISS Global upon acquisition and
ISS Global’s calculation of organic growth includes changes in revenue of these acquired businesses from the date of acquisition.
Accordingly, for such acquisitions, ISS Global calculates organic growth by including revenue generated by these acquired
businesses in the current period, beginning with the date of acquisition. To establish a comparable base, revenue of
the acquired businesses for the comparable prior period is added to ISS Global’s actual prior period consolidated revenue.
The prior period revenue is generally based on internal management accounts of the acquired businesses and is subject to
adjustments, on a case by case basis, to take into account additional information, available at the time of acquisition, regarding
known material positive or negative changes in the acquired businesses, such as contract gains and losses. Such information
may come from interim reports, management accounts of the acquired businesses or other sources. The difference
between ISS Global’s actual current period consolidated revenue and its adjusted prior period consolidated revenue is
deemed by ISS Global to be its organic growth, which is expressed as a percentage calculated by dividing organic growth
calculated in this manner by ISS Global’s actual prior period consolidated revenue. The calculations of organic growth are
based on the unaudited internal management accounts of the acquired businesses and related estimates. These organic
growth numbers have not been, and cannot be, audited.
Acquisitions of businesses with reported annual revenue of DKK 50 million (EUR 7 million) or more
Prior to 1 January 2005, ISS Global used the methodology it applies to acquisitions of businesses with reported annual revenue
of less than DKK 50 million (EUR 7 million) to acquisitions of businesses with reported annual revenue of DKK 50 million
(EUR 7 million) or more, as well as to acquisitions that establish an ISS Global presence in a new jurisdiction. Since that
date, ISS Global has treated these acquisitions differently. Under the new approach, ISS Global excludes from its calculation
of organic growth any growth generated by such larger acquisitions during the first 12 months of ISS Global ownership. The
determination of current period revenue is straightforward for acquisitions that have not been integrated into ISS Global’s operations,
and the revenue from these separate entities is disregarded in calculating organic growth. The determination of current
period revenue is more complex for acquired businesses that have been integrated into ISS Global. In relation to integrated
businesses ISS Global estimates current period revenue based on internal management reports, and exercises discretion
in allocating revenue between the integrated and pre-existing operations, which may significantly affect the organic
growth calculation. These organic growth numbers have not been, and cannot be, audited.
ISS Global calculates organic growth by excluding revenue generated by divested businesses from its current period revenue.
Such revenue is derived from ISS Global’s unaudited internal management accounts.
Cost of sales
Cost of sales consists primarily of costs of cleaning
supplies, catering supplies and other materials used
in ISS Global’s operations related to the recorded
revenue. Cost of sales increased by DKK 1,158 million,
or 31%, from DKK 3,753 million in 2005 to DKK
4,911 million in 2006. This increase was due primarily
to acquisitions and organic growth. Cost of sales
as a percentage of revenue increased from 8.1% in
2005 to 8.8% in 2006 due to increased revenue
from services with higher average cost of sales,
primarily within Office Support services.
Other operating expenses
Other operating expenses consists primarily of selling
and distribution costs, subcontracting costs, administrative
expenses, marketing and advertising
expenses and vehicle lease payments. Other operating
expenses also include costs incurred in re-
ANNUAL REPORT 2006 / Financial Review
spect of professional services, such as audit and legal
fees, as well as losses on accounts receivable.
Other operating expenses increased by DKK 1,886
million, or 22%, from DKK 8,671 million in 2005 to
DKK 10,557 million in 2006. This increase was due
primarily to acquisitions and organic growth. Other
operating expenses as a percentage of revenue increased
slightly from 18.7% in 2005 to 18.9% in
2006
Depreciation and amortisation
Depreciation and amortisation consists of depreciation
of property, plant and equipment and amortisation
of intangible assets other than goodwill, customer
contracts and brands. Depreciation and amortisation
increased DKK 93 million, or 14.4%, from
DKK 647 million in 2005 to DKK 740 million in 2006.
Depreciation and amortisation excluding amortisation
of intangibles related to acquisitions remained
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