I. Table of Contents - ISS

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tatiana\Bank Book\Public Bank Book\FINAL ISS PUBLIC Bank IM - Press Release to EMTN_1.doc 9 Nov 2005 10:32 28/91 D. Flexible Cost Base 28 Company Characteristics ISS has a flexible cost base, particularly with respect to staff costs, which, as a percentage of revenue, were approximately 66% in 2004. Due to the relatively high employee turnover that is characteristic of the facility services industry, ISS is able to reduce its staffing levels when necessary by limiting its hiring of new employees. In addition, as a result of its local scale and density, ISS may also be able to shift employees among existing customers’ contracts and locations. Moreover, according to EU law, when facility services contracts are lost to a competitor, the former provider may under certain circumstances be able to pass on-site staff to the new provider, an option which provides additional operational flexibility. Figure 8: 2004 Cost Categories and EBITA (1) % of Revenues 100% 80% 60% 40% 20% 0% 5.6% 20.7% 7.8% 65.9% 2004 EBITA Margin Other Cost of Goods Sold Employee Costs Note: (1) EBITA represents Earnings before Interest, Taxes, Amortization, Other Income and Expenses, and Income from Associates. Amortization represents only the amortization of intangible assets and software. Further amortization, which is not included herein, is amortization of goodwill Source: ISS E. Stable and Predictable Business Demand for cleaning services, which comprised 66% of ISS’s revenue in 2004, has historically been relatively resilient to economic downturns as compared with other industries. ISS believes that its target customers consider a basic level of cleaning and other facility services to be necessary for the operation of their core businesses and operations. ISS believes that it benefits from quality customer relationships and estimates that the average length of its customer relationships is approximately eight to ten years, equating to approximately 90% customer retention. ISS believes that the steady demand for facility services, the characteristics of its customer contracts and its relatively flexible cost base have contributed to the stability and predictability of ISS’s operations in the last five years.
tatiana\Bank Book\Public Bank Book\FINAL ISS PUBLIC Bank IM - Press Release to EMTN_1.doc 9 Nov 2005 10:32 29/91 Figure 9: Historical Revenues and EBITA Margins, 1995 – 2004 Revenues (DKK billion) 60 50 40 30 20 10 0 4.4% 5.1% 9.2 10.7 11.8 5.4% 5.3% 5.2% 13.8 19.8 29 5.1% 28.7 4.7% 34.9 5.3% 38.0 Company Characteristics 5.6% 5.6% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Revenues EBITA Margin Note: (1) EBITA represents Earnings before Interest, Taxes, Amortization, Other Income and Expenses, and Income from Associates. Amortization represents only the amortization of intangible assets and software. Further amortization, which is not included herein, is amortization of goodwill Source: ISS F. Disciplined and Well-established Approach to Acquisitions ISS has a well-developed approach to acquisitions that capitalizes on the market knowledge and acquisition experience of its local managers and the expertise of a centralized M&A department. Since the beginning of 2000, ISS has acquired and integrated 375 companies in more than 30 countries. The total consideration for these acquisitions was more than DKK 15 billion (EUR 2.0 billion). More than 330 of these acquisitions were of relatively small companies, with annual revenues of less than DKK 100 million (EUR 13 million). ISS’s local management teams are responsible for the acquisition process from target identification through integration of the acquired businesses. ISS’s centralized M&A department works closely with local ISS managers to facilitate this acquisition process, including the negotiation of material acquisition agreements and the performing of valuation analyses. In addition, every acquisition is approved by ISS Management A/S’s Executive Management Board. ISS believes that its experienced local management teams, dedicated M&A resources and disciplined acquisition process allow it to understand local market conditions, identify opportunities and capitalize on the fragmented and consolidating facility services market. Moreover, ISS believes that its practice of acquiring mostly smaller companies helps to limit integration risks relating to individual acquisitions. In recent years, ISS has followed a strategy of selectively acquiring smaller companies, typically with annual revenues of less than DKK 100 million (EUR 13 million), in order to strengthen ISS’s competencies, enhance its service offering or establish critical mass. The volume of acquisitions has varied in recent years depending upon market conditions. In the years ended December 31, 2002, 2003 and 2004, ISS made 31, 51 and 95 acquisitions respectively. ISS reduced its acquisition activity in 2002 to concentrate on initiatives aimed at increasing its operating margin. Divestments in the last three years have been limited and have focused on under-performing and noncore businesses. Most of these divestments have been relatively small. However, in 2002 ISS divested most of its aviation service operations in the United Kingdom, The Netherlands and the Nordic countries, with combined revenue of DKK 714 million (EUR 96 million) in 2001. In H1-2005, the Company divested the Health Care Operations in two separate transactions to funds advised by EQT. Figure 10 provides unaudited information concerning ISS’s acquisitions and divestments for the periods presented. Revenue presented in the table represents the prior year revenue of the acquired companies. 36.2 40.4 6% 5% 4% 3% 2% 1% 0% EBITA Margin (%)
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I. Table of Contents - ISS

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