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 54/91 54 Company Overview ISS made 95 bolt-on acquisitions during 2004, of which two had particular strategic importance: the acquisitions of Grupo Unica in Spain and Engel Group in Finland. Through Grupo Unica, ISS established a presence in Madrid and in southern Spain, where the Company previously had a weak or limited presence. With the acquisition of Engel, which provides cleaning, property services and security services, ISS strengthened the Finnish operations. A total of 74 acquisitions were made during the period January 1 – September 30, 2005, adding revenue of approximately DKK 3.2 billion on an annualised basis. 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. The aviation services business had revenues of DKK 714 million in 2001. In November 2002, ISS sold 51% of CarePartner AB, its elderly care business which operated a number of old age homes in the Nordic region, to a group made up of this business’s local management. In February 2005, ISS sold its 49% interest in the elderly care business and 100% of its Swedish Health Care business, which provided diagnostic and certain other medical services in Sweden, to a newly formed joint venture entity between EQT and ISS. At the end of June 2005, ISS sold its 49% interest in the joint venture entity to EQT. The table below 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. Table 25: ISS Acquisition History 2002- present Acquisitions For the Year Ended 31-Dec 2002 2003 2004 2005 (through September 30) Number of acquisitions 31 51 95 74 Average annual Revenue of acquired companies (DKK 62 25 64 43 million) (1) Smallest acquisition (DKK million) 1 1 1 1 Largest acquisition (DKK million) 902 217 1,443 242 Sum of acquired revenue (DKK million) 1,930 1,280 6,095 3,150 Acquired employees 9,871 5,255 37,057 29,493 Divestments Number of divestments 15 7 8 7 Revenue attributable to divestments (DKK million) (2) 1,652 221 192 380 Note: (1) Based on estimated revenue of the acquired companies made at the time of acquisition. (2) On an annualized basis according to revenue for the prior year Source: ISS F. Customers and Contracts As of September 30, 2005, ISS had more than 100,000 public and private sector customers, and in 2004, revenue derived from its ten largest customers was less than 5% of its total revenue. In 2004, no more than 19% of ISS’s revenue was generated in any one country, with France being the largest contributor to revenue. ISS’s customers operate in a number of industries, and ISS does not believe that its business is dependent on any particular industry segment in the private sector or particular authority in the public sector. ISS’s commercial customers range in size from small firms requiring a single cleaner to large, multinational organisations seeking integrated facility services. ISS is focused on developing larger accounts, particularly European multinational companies, with the goal of becoming their sole provider of integrated facility services. In addition, ISS believes that these customers may be more likely to require integrated facility services.
tatiana\Bank Book\Public Bank Book\FINAL ISS PUBLIC Bank IM - Press Release to EMTN_1.doc 9 Nov 2005 10:32 55/91 55 Company Overview For larger contracts, the quality of the service delivery is often measured against defined quality benchmarks stipulated in Service Level Agreements (SLA). More than 90% of ISS’s operations have adopted a formalised quality approach. Generally, ISS uses ISO certified quality management systems, and a number of countries have implemented Total Quality and Business Excellence models. The terms of ISS’s customer contracts vary widely by country and customer segment due to differing customer requirements and applicable legislation. However, ISS typically provides services under multi-year contracts with a stated term of between two and five years and reciprocal termination rights upon three to 12 months prior written notice. ISS’s commercial customer contracts typically provide for automatic renewal in the absence of a party’s notice to terminate the contract. ISS is highly focused on customer retention and, as a result, recently introduced Customer Retention Managers in a number of countries with the aim of improving customer churn rates even further. ISS also provides its services to governmental entities, primarily in Europe. The contractual arrangements with these entities differ from ISS’s commercial contracts in that they are generally subject to public procurement rules. Under these rules, facility services contracts are generally retendered on a regular basis. As a result, ISS must tender to maintain existing governmental contracts. ISS will seek to continue to provide facility services to public sector customers in the future. In the United Kingdom, ISS has entered into a number of arrangements with government-owned hospitals under Private Finance Initiative (PFI) contracts. The PFI contracts generally have a contract length of between five and 30 years. With respect to three projects, ISS has a joint equity investment in the entity providing services under the contract along with third party equity sponsors of the project. ISS is providing some form of facility services in each of the PFI projects, ranging from new hospital builds with integrated facility services to single services contracts. Under some of the PFI contracts, ISS has agreed that, in the event that the entity is unable to pay for ISS’s services, then ISS will convert its receivables from the entity into a loan. G. Human Resources The facility services industry is characterised by relatively high levels of employee turnover, as the industry is often considered a short-term or secondary source of employment. As a result, ISS pursues a number of strategies to reduce the turnover among blue collar employees, including arranging for more full-time and daytime work. ISS also seeks to enhance employee satisfaction and reduce turnover by providing multitasking jobs, encouraging career development opportunities and providing programs designed to promote teamwork and skills development. In 2004, the share of full-time employees (working 25 hours or more per week) rose to 57% from 55% in 2003. The distribution of employee tenure (in years) provides another perspective on employee loyalty at ISS. In 2004, 69% of the Group’s employees had been with ISS for more than one year. Figure 15: Total Number of Employees and Percentage of Full Time Employees # of Employees Source: ISS 400,000 300,000 200,000 100,000 0 53% 55% 248,500 245,000 57% 273,500 2002 2003 2004 Number of Employees Share of employees full time 60% 50% 40% 30% 20% Share of Full-time Employees Reduction of employee turnover is one of the principal challenges ISS faces. ISS’s employees are generally members of trade unions, and employee and trade union relations have a high priority to ISS.
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