Annual Report 2006 ISS Global A/S

growth. Furthermore, the effect of the full year inclusion
of ISS Management A/S had a positive impact
on the operating profit due to lower royalty payments.
Net finance costs increased from DKK 0.5 billion in
2005 to DKK 1.2 billion in 2006 due to the increase in
financial leverage in the second half of 2005 and in
2006.
As a result of the above, profit before impairment/amortisation
of intangibles decreased by 24%
compared with 2005 to DKK 1.0 billion.
Cash flow statement
The cash flow from operating activities was a net inflow
of DKK 3.0 billion, an increase of DKK 1.4 billion
from DKK 1.6 billion in 2005. The improvement was
primarily due to the increase in operating profit, the
cash inflow from changes in working capital and
lower tax payments. The free cash flow was DKK 2.2
billion in 2006, an increase of DKK 1.1 billion from
DKK 1.1 billion in 2005.
Interest paid, net, which is included in cash flow from
financing activities was a cash outflow of approximately
DKK 1.3 billion compared to a cash inflow of
DKK 18 million in 2005. In 2005, interest paid included
a net gain of approximately DKK 0.5 billion
from a partial settlement of interest rate swaps. Adjusted
for this gain, the increase in interest paid was
approximately DKK 0.8 billion, primarily due to the
planned increase in financial leverage.
Cash conversion ratios for individual years may vary.
The cash flows from operations for the individual periods
depend on the timing of a number of payments
towards the end of the individual months and years.
Cash conversion was 95% in 2006. The free cash
flow of DKK 2,175 million did not include the gain on
the sale of a call option on property, which was included
in profit before impairment/ amortisation of intangibles.
Accordingly, the calculation of cash conversion
in 2006 was adjusted for the gain of DKK 108
million. Cash conversion was negatively impacted by
payments of DKK 94 million, which were expensed in
2005 under the Group Restructuring Project; a payment
of DKK 40 million related to a loss on a settlement
of interest rate swaps, of which only DKK 2 million
was recognised in the income statement; and
DKK 88 million related to a partial recognition in the
income statement in 2006 of a net gain of DKK 514
million on the settlement of interest rate swaps,
which was fully included in the cash flow statement in
2005. This was offset by the receipt of a tax repayment
of DKK 114 million related to on account tax
payments for 2005, which was not included in the income
statement.
Interest-bearing debt, net
Interest-bearing debt, net, increased from DKK 15.7
billion to DKK 20.0 billion at year-end 2006. Non-
ANNUAL REPORT 2006 / Company Report
interest-bearing items amounted to DKK 0.2 billion
at year-end 2006 and were primarily related to the
part of the above-mentioned net gain on interest
rate swaps, which will be included in the income
statements for the financial years 2007-2014. The
increase in interest-bearing, net, debt was primarily
due to acquisitions made during the year and payment
of dividends of approximately DKK 1.3 billion.
Business development
In 2006, ISS Global continued the strategic transformation
towards Integrated Facility Services, as
set out by ISS A/S
Country operations generally continued the process
towards becoming Facility Services providers. The
service offering within Cleaning, Office Support,
Property Services and Catering and the management
capabilities were strengthened, as was the offering
of more IFS solutions.
A group of ISS Global countries are advancing towards
IFS and already have a number of IFSclients
and contracts. Other ISS Global countries
still have some way to go before they can provide
the necessary service offering and management
capabilities for more advanced IFS-solutions. Generally,
this depends on aspects related to local
business conditions.
Consequently, the development of local IFS providers
throughout the Group will inevitably vary in
terms of pace and timing.
Nevertheless, in line with the Group strategy, ISS
Global continues to build a broader service offering
to the clients. This is illustrated by the development
from 2004 to 2006 in the composition of the services
offered by ISS Global. In only two years,
Cleaning’s share of total Group revenue has decreased
from 67% to 57%. During the same time
span, Office Support services have increased from
2% to 8% and IFS have increased from 3% to 7%
of Group revenue.
Following the acquisition of major security companies
in Thailand, Turkey and the United Kingdom
as well as the security services division of Tempo
in Australia, Security Services will be added as a
fifth pillar of the business structure from 2007 (see
the strategy section set out on pages 13-15 of this
report).
Single services form the foundation for ISS Global
in its development towards IFS. It is important for
ISS Global to be able to deliver services of the
highest quality. In general, ISS Global will seek to
gain critical mass in one business area before expanding
into new ones.
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