77

Addresses as of February 1999

Austria France Luxembourg Slovakia

ISS Servisystem GmbH ISS France S.A. / ISS CGS Group ISS Luxembourg S.A. ISS Servisystem spol. s.r.o. Brünner Strasse 85 50 avenue Gabriel Péri Avenue de la Faïencerie 121 Trnavská Cesta 3 A-1210 Vienna F-94 117 Arcueil L-1511 Luxembourg SK-831 04 Bratislava Tel.: +43 1 291110 Tel.: +33 1 41 24 13 13 Tel.: +32 2 255 8300 Tel.: +42 17 5556 2670 Fax: +43 1 2911178 Fax: +33 1 41 24 13 03 Fax: +32 2 255 8311 Fax: +42 17 5556 4747 Country Manager: Michael Maximilian Country Manager: Emmanuel Airy Country Manager: Daniel van Cauteren Country Manager: Honor Ilavsky

Belgium Germany Malaysia Slovenia

Contents 1 1998 in Brief 40 Shareholder Information ISS Servisystem S.A.-N.V. ISS-NWG ISS Servisystem Sdn. Bhd. ISS Servisystem d.o.o. 2 Board of Directors and Board of Management 43 Financial Analysts Luchthavenlaan 25B, Building C Keniastrasse 24 No. 1 Jalan 2/118B Kopitarjeva 5 B-1800 Vilvoorde D-47269 Duisburg Desa Tun Razak, Cheras SI-62000 Maribor 3 Group Financial Highlights and Key Figures 44 Signatures to the Accounts Tel.: +32 2 255 8300 Tel.: +49 203 99 82 0 56000 Kuala Lumpur Tel.: +386 62 220860 4 Report to Shareholders, Employees 45 Auditors’ Report Fax: +32 2 255 8311 Fax: +49 203 99 82 222 Tel.: +60 3 973 1282 Fax: +386 62 2208638 and Customers 46 Accounting Policies Country Manager: Daniel van Cauteren Country Managers: Rainer Thomas and Fax: +60 3 973 1281 Country Manager: Bojan Rajtmajer Rainer Gossmann Country Manager: Terry Kong ® 16 EVA 50 Consolidated Profit and Loss Accounts Brazil Spain 17 Business Conduct 51 Consolidated Statements of Cash Flows Greece Netherlands 18 The Service Enterprise Concept 52 Consolidated Balance Sheets ISS Sulamericana Comercial S/C Ltda. ISS España Estrada da Ressaca 960, Caixa Postal 29 ISS Servisystem s.a. ISS Servisystem B.V. Tel.: +34 90 934 5207 20 Country Reports 54 Notes to the Consolidated Financial Statements 06844-900-Embu-SP, São Paulo 4, Amaroussiou-Halandriou Drentsestraat 4 Fax: +34 93 759 2218 22 Denmark 67 Profit and Loss Accounts of Tel.: +55 11 7961 6355 15125 Maroussi Postbus 1000 Country Manager: Joaquim Borrás 24 United Kingdom and Ireland the Parent Company Fax: +55 11 494 6252 Tel.: +30 1 689 6461-4 NL-3800 BA Amersfoort Country Manager: Eugênio Marianno Fax: +30 1 689 6460 Tel.: +31 33 4 680680 Sri Lanka 26 Sweden 68 Balance Sheets of the Parent Company Country Manager: Xenophon A. Digenis Fax: +31 33 4 655562 28 Norway 70 Notes to the Financial Statements of Brunei Country Manager: Theo Buitendijk ISS Abans Environmental 29 Germany the Parent Company Hong Kong SAR Services (PT) Ltd. ISS Thomas Cowan Sdn. Bhd. Norway 141 Kirula Road 30 Austria 74 ISS Subsidiaries and Associated Companies 1A, Bangunan Menglait 1 ISS ESGO Services (HK) Ltd. Colombo 05 30 Slovenia 76 Definitions of Key Figures Mile 2, Jalan Gadong, B.S.B. 3180 9/F Stelux House ISS Norge a.s. Tel.: +941 500 631 30 Greece 77 Addresses Negara Brunei Darussalam 689 Prince Edward Road East Ulvenveien 83 Fax: +941 590 555 Tel.: +673 2 446 497 San Po Kong, Kowloon Postboks 132 Økern Country Manager: Rusi Pestonjee 30 Czech Republic Fax: +673 2 446 498 Tel.: +852 2621 4333 N-0509 Oslo 30 Slovakia Country Manager: Jose Robles III Fax: +852 2621 5260 Tel.: +47 2 2288 5000 Sweden 30 Hungary Country Manager: Gregory Rooke Fax: +47 2 2288 5121 China Country Manager: Thorbjørn Graarud ISS Sverige AB 30 Poland Hungary Årstaängsvägen 25 31 Switzerland and Italy ISS ESGO Poland Box 42071 32 Finland Beijing ESGO – Xin Sha Building Services ISS Servisystem Kft. S-126 13 Stockholm Co. Ltd. Gubacsi ut. 6 ISS Multiservice Sp.z.o.o. Tel.: +46 8 681 6000 33 Belgium and Luxembourg 5A Citic Building H-1097 Budapest ul. Kasprzaka 29/31 Fax: +46 8 681 9087 33 Netherlands 19 Jiangoumenwai Dajie Tel.: +361 216 3948 PL-01-234 Warsaw Country Manager: Arne Pedersen 34 France Beijing 10004 Fax: +361 216 3947 Tel.: +48 22 36 16 01 Tel.: +86 106 5002255 Country Manager: Gerald Thalmaier Fax: +48 22 36 10 44 Switzerland 34 Portugal Fax: +86 106 5010978 Country Manager: Dariusz Malewski 35 Brazil Country Manager: Yuan Yong Indonesia ISS Holding A.G. 36 China and Hong Kong SAR Portugal Talackerstrasse 5 Czech Republic P.T. Egana Prima Mandiri Box 1733 37 Singapore Komplek Mahkota Mas, Blok E/1 ISS Servisystem Lda. CH-8065 Zürich 38 Thailand ISS Harvilla spol. s.r.o. Jl. M.H. Thamrin Rua Moinho da Barrunchada, Tel.: +41 1 874 18 18 38 Malaysia Budejovicka 5 Cikokol, Tangerang-15117 4-1.o Dt. - Carnaxide Fax: +41 1 874 18 19 CZ-140 00 Prague 4 Tel.: +6221 554 5753 P-2795 Linda-A-Velha Country Manager: Romano Spadaro 39 Indonesia Tel.: +4202 6112 2241 Fax: +6221 554 5754 Tel.: +351 1 424 6798 39 Brunei Fax: +4202 6112 2481 Country Manager: Houtman Fax: +351 1 424 6799 Thailand 39 Sri Lanka Forward-looking Statements Country Manager: Gerald Thalmaier Simanjuntak Country Manager: Luis Andrade ISS ESGO Co. Ltd. This annual report contains statements regarding Denmark Ireland Russia 92/9 Moo 7, Phaholyothin Road expectations to the future development, Klongthanon, Bangken in particular future sales, operating efficiencies ISS Danmark ISS Contract Cleaners Ltd. NWG RUS GmbH Bangkok 10220 Rentemestervej 62 14/17 Hanbury Lane Alabjana 25, 125252 Moscow Tel.: +66 2 552 5015 and business expansion. Such statements are DK-2400 Copenhagen NV Dublin 8 Tel.: +007/095-198 1679 Fax: +66 2 552 1260 subject to risks and uncertainties as various factors, Tel.: +45 38 17 17 17 Tel.: +353 1 453 7711 Fax: +007/095-198 3506 Country Manager: many of which are outside of ISS’s control, Fax: +45 38 33 23 11 Fax: +353 1 453 7870 Theinsiri Theingviboonwong Country Manager: Sven Ipsen Country Manager: David Healy Singapore may cause the actual development and results to United Kingdom differ materially from the expectations contained Finland Italy ISS Servisystem Pte. Ltd. in the report. Factors that might affect such 315 Outram Road #04-09 ISS UK Ltd ISS Suomi Oy ISS Robustelli s.r.l. Italia Tan Boon Liat Building 44-50 Bath Road Annual general meeting expectations include, among others, overall Laulukuja 6 Viale Aguggiari 178 Singapore 169074 Hounslow Thursday, 22 April 1999 at 5pm economic and business conditions, fluctuations in FIN-00421 Helsinki I-21100 Varese Tel.: +65 227 9711 Middlesex TW3 3EB Radisson SAS Falconer Center currencies, the demand for ISS’s services, Tel.: +35 8 205 155 Tel.: +39 0332 22 77 06 Fax: +65 225 8340 Tel.: +44 181 569 6080 Fax: +35 8 2051 50155 Fax: +39 0332 22 43 67 Country Manager: C.C. Woon Fax: +44 181 569 6607 Falkoner Allé 9 competitive factors in the industry and Country Manager: Matti Kyytsönen Country Manager: Giuliano Robustelli Country Manager: Kevin Mahoney 1908 Frederiksberg C uncertainties concerning possible acquisitions Denmark and divestments. ISS B-share price during 1998

1998 in Brief

Turnover 1992-1998 Turnover growth 1997-1998 Operating profit *) 1992-1998 Amounts in DKKbn Amounts in DKKm Amounts in DKKm 2,100 Total 875 14 growth 12 1,800 750

10 1,500 Acquisi- 625 tions, net 8 1,200 500

6 900 Organic 375 growth 4 600 250

2 300 125 Currency 0 0 effect 0 92 93 94 95 96 97 98 92 93 94 95 96 97 98 – 300 *) Before other income and expenses

Key figures 1998 Amounts in DKKm, except per share data 1998 1997 1996

Turnover 13,801 11,782 10,738 Operating profit 1) 735 639 553 Ordinary profit after tax before goodwill amortisation 487 395 239 Net profit (loss) 211 451 (1,856) Sustainable cash flow 2) 440 356 290 Total equity 1,454 1,310 894

Earnings per share (EPS) 2) 9.28 8.29 3.41 Sustainable cash flow per share 2) 14.78 11.96 9.75

Share of turnover generated by specialised business units 42% 35% 30% 1) Before other income Share of employees on full time 55% 50% 30% and expenses Number of employees 137,800 106,600 103,400 2) Cf. page 76 for definitions

Growth in 1998 Total Continued business business 3)

Organic growth + 6% + 6% Turnover + 17% + 20% Operating profit + 15% + 19% Ordinary profit before amortisation of goodwill + 23% Sustainable cash flow per share + 24% 3) Excluding Darenas (Denmark and Number of employees + 29% United Kingdom) sold in 1997

Main events

• 32 acquisitions, including NWG, Germany and Reliance, Hong Kong • Many new, large contracts in key segments, including major Private Finance Initiative contracts in the UK • EVA implemented. Proposal for employee shares and stock options • No dividends proposed as opportunities for value creating acquisitions are expected to persist 2

Board of Directors Board of Management

Board of Directors Peter Lorange (56) Member of the Board of ISS A/S From left to right: since 1998. President of IMD, International Sven Riskær (60) Institute of Management Member of the Board of ISS A/S Development, Switzerland; since 1987. Managing Director member of the board of Royal of The Industrialization Fund for Carribbean Cruise Lines Ltd., Developing Countries (IFU), The Citibank International plc, Investment Fund for Central and Christiania Eiendomsselskap A/S Eastern Europe (IØ) and The In- and S. Ugelstad Skipsrederi A/S vestment Fund for the Emerging Markets (IFV); chairman of the Anette Aksten* (46) board of Dansk Olie og Natur- Member of the Board of ISS A/S gas A/S; member of the board since 1998. of C. L. Davids Legat and Executive secretary Ejendomsselskabet Vennelyst A/S Number of B-shares: 564 Georg Poulsen (69) Member of the Board of ISS A/S Erik Sørensen (54) since 1991. Former Trade Union Member of the Board of ISS A/S President; chairman of the since 1996. Managing Director Ingrid Jakobsen* (58) Arne Madsen (65) the board of Aktieselskabet board of A/S Dansk Erhvervs- of Chr. Hansen Holding A/S; Member of the Board of ISS A/S Chairman. Ny Kalkbrænderi, Litodomus A/S, investering af 3/9 1983, Aarhus member of the board of SAS since 1991. Member of the Board of ISS A/S Ejendomsaktieselskabet “Ved Flydedok A/S and A/S Bankinvest; Danmark A/S and Maersk Secretary since 1977. Senior Partner, Lufthavnen A3”, Pankas A/S, member of the board of Sund Medical A/S Number of B-shares: 2,211 The Law Firm Jonas Bruun; Ejendomsselskabet Vennelyst A/S og Bælt Holding A/S, Kelsen chairman of the board of and Ejendomsselskabet Store The International Bakery A/S, Kaare Vagner (53) Labotek A/S, Springbanen A/S, Kongensgade 88 A/S A/S Helsingør Fællesbageri, Vice-Chairman. Scan-Horse A/S, Ellehammers Number of A-shares: 83 Asea Brown Boveri A/S, D-Energi Member of the Board of ISS A/S Laboratorium A/S; member of Number of B-shares: 1,417 A/S and Aalborg Industries A/S since 1992. Chairman of the board of Riegens A/S; member of the board of A/S Det Øst- *) Employee representative asiatiske Kompagni Number of B-shares: 1,885

Board of Management Corporate functions

Seated: Business Analysis: John B. Johnstone Waldemar Schmidt (58) Control: Group Chief Executive. Søren Kongsbak Joined ISS in 1973. Present Corporate Affairs: position since 1995. Jørgen Hauglund Chairman of Crisplant Finance: Industries a/s since 1998; Pernille Fabricius member of the board of IMD, Investor Relations: International Institute of Lynge Blak Management Development, Legal: Switzerland Carsten Rich Number of A-shares: 6,273 M & A Support: Number of B-shares: 800 From left to right: Jens Ebbe Olesen Phantom Shares: 25,000 *) Stig Pastwa Stock Options: 100,000 *) Eric Søe Rylberg (42) Theo Dilissen (45) Stuart Graham (44) Risk Management: Group Chief Financial Officer. Chief Operating Officer. Managing Director, ISS Overseas. Einar Langkjær Joined ISS in 1997. Joined ISS in 1989. Joined ISS in 1990. Treasury: Member of the Board of Member of the Board of Member of the Board of Karsten Poulsen Management since 1997. Management since 1996. Management since 1997. Member of the board of Member of the Board of V.E.V. Number of B-shares: 6,400 InWear Group A/S (Flemish Economic Federation) Phantom Shares: 25,000 *) Number of B-shares: 2,300 Number of B-shares: 19,300 Stock Options: 25,000 *) *) See Notes to the Phantom Shares: 25,000 *) Phantom Shares: 25,000 *) Consolidated Financial Stock Options: 25,000 *) Stock Options: 25,000 *) Statements page 54, note 2 3

Group Financial Highlights and Key Figures

Amounts in DKKm

Financial highlights 1998 1997 1996 1995 1994 1993 1992

Turnover 13,801 11,782 10,738 9,198 8,053 8,259 8,355 Operating profit 1) 735 639 553 405 364 413 411 Net profit/(loss) 211 451 (1,856) 20 323 406 188 Sustainable cash flow 2) 440 356 290 309 192 216 508 Total assets 7,117 4,652 4,644 6,108 5,754 5,819 5,172 Goodwill 3,005 1,614 1,703 1,777 1,399 1,249 1,323 Total equity 1,454 1,310 894 2,721 2,859 2,219 1,933 Interest bearing debt, net 2) 1,897 338 678 670 545 1,429 600 Dividends declared 0 59.5 0 65.5 65.5 51.9 43.3

Key figures 2) Earnings per share (EPS), DKK 9.28 8.29 3.41 6.61 4.95 6.76 6.21 Earnings per share before goodwill amortisation, DKK 16.37 13.28 8.10 10.69 8.28 10.10 10.16 Sustainable cash flow per share, DKK 14.78 11.96 9.75 10.39 7.08 8.31 19.58 Dividend per share, DKK 0.00 2.00 0.00 2.20 2.20 2.00 1.70 Equity ratio, % 20.44 28.15 19.25 44.55 49.69 38.13 37.37 Interest coverage 3) 9.41 11.94 7.31–––– Average number of shares, m 29.76 29.76 29.76 29.76 27.10 25.97 21.64

Quoted share price, 31 December A-shares, DKK 390 237 149 132 165 231 201 B-shares, DKK 422 251 154 126 165 227 190 Market capitalisation, DKKm 12,437 7,417 4,564 3,773 4,911 5,911 4,149

Number of employees at year-end 137,800 106,600 103,400 96,650 78,300 79,000 84,900

Note: The financial statements are audited and have been prepared on the same principles as in previous years. Comparative figures for 1992-1996 are excluding ISS Inc. The classification of certain items in the profit and loss account, cash flow statement and balance sheet has been changed. Ordinary profit is stated before amortisation of goodwill and tax on profit from ordinary operations does no longer include the tax effect of amortisation of good- will. The tax effect of amortisation of goodwill is separately stated. Effective from 1 January 1998 Group equity is stated including minority interests. Comparative figures and key figures are restated accordingly.

1) Before other income and expenses 2) Cf. page 76 for definitions 3) Interest coverage prior to 1996 omitted due to lack of comparability 4

Report to Shareholders, Employees and Customers

The dedicated and focused efforts of management In the new organisation, the divisions are and employees throughout ISS enabled the Group being replaced by a flatter structure in which the in 1998 to achieve a turnover of DKK 13,801m country organisations will report directly to Group (up 17%), a record operating profit before other Head Office in Copenhagen. The tasks previously income and expenses of DKK 735m (up 15%), undertaken by the divisions will be shared by the all in line with expectations announced in the country organisations and the Head Office, which interim statements, and significant progress in will be strengthened with new, key staff functions important areas of its operations. in the areas of procurement, information technol- The positive development was achieved despite ogy, human resources and business development. the financial turbulence that hit major parts of As part of the restructuring, Theo Dilissen, the world, in particular Asia and Brazil, and the formerly Managing Director of the ISS Europe general economic uncertainty that characterised Division, has been appointed Chief Operating most other countries. Officer, with responsibility for the operations in Turnover growth was fuelled by solid organic all of Europe. growth in most markets and 32 acquisitions, Stuart Graham, formerly Managing Director of including the purchase of the German NWG, the ISS Asia Division, has been appointed Europe’s largest hospital cleaning company and Managing Director for ISS Overseas, with overall the Group’s largest acquisition to date. A number responsibility for operations in Brazil and the of key strategic initiatives were taken, which are countries of the former ISS Asia Division. expected to have a profoundly positive impact on The costs involved in the reorganisation are the Group’s future development. estimated at DKK 50m, i.e. less than the expected The many acquisitions caused the Group’s net annual net savings. These costs have been debt to increase significantly. The resulting provided for under extraordinary items in the increase in financial gearing is part of the Group’s accounts for 1998. Apart from the cost related policy of optimising the capital structure. During to the development of the reorganisation plan 1998, the Group’s debt was reallocated from ISS (DKK 6m), none of the costs provided for have A/S to the operating subsidiaries. Following the actually been incurred in 1998, and therefore reallocation, ISS A/S is free of interest bearing debt. DKK 43.9m of the provisions remain in the balance sheet.

Restructuring the organisation Group branding

While we in the last couple of years have seen extensive consolidation in many other service In connection with the reorganisation, a branding industries, the markets in which ISS operates are project was necessary to reflect the new way the still fragmented. From its current position as Group operates. The project has been initiated to market leader in the European cleaning market, develop a new brand architecture for the Group’s ISS is uniquely positioned to lead the consolida- wide range of services. The programme will reflect tion and professionalisation of its industry. the growing specialisation of ISS’s service portfolio The specialisation of the operating companies and will serve as a launch pad for initiatives aimed calls for enhanced international co-ordination at stimulating organic growth. and global service delivery capabilities in order to ISS sees significant potential in building strong meet customers’ expectations of continuous brand names for its specialised services hand in improvement in the scope and quality of our hand with increased international co-ordination of service solutions. the marketing and delivery of these services. The These considerations have resulted in a com- branding project is seen as a means of positioning pletely new organisational structure. The new the Group’s services for maximum organic growth. structure is expected to generate annual savings of more than DKK 50m when fully implemented in the year 2000. 5

Report to Shareholders, Employees and Customers

Review of operating countries made positive contributions, most ISS Group performance significantly Norway, where operating profit Turnover development 1997-1998 increased by 23%. A total of 22 mainly smaller The Group’s operating performance was satisfac- acquisitions were made in the region during 1998. DKKm % tory in 1998, with turnover growing 17% to DKK Adjusted for the sale of ISS Darenas Interna- Turnover 1997 11,782 100 13,801m and operating profit growing 15% to tional A/S in 1997, turnover in the Nordic Acquisitions 1,681 14 DKK 735m. As turnover grew faster than operating countries grew by 14% and operating profit Disposals (276) (2) profit, the operating margin eased slightly to 5.3% increased by 16%. Organic growth 722 6 in 1998 from 5.4% in 1997. Currency adjustments (108) (1) The Darenas businesses in Denmark and the Turnover 1998 13,801 117 United Kingdom were sold in August 1997 and Europe December 1997 respectively. If adjusted for the sale of ISS Darenas, the continuing business The former ISS Europe Division comprised all of recorded a growth of 20% in turnover and 19% in Europe, except the Nordic countries. The region operating profit. achieved a satisfactory result overall, which was Acquisitions accounted for 14% of the turnover strongly impacted by eight smaller and one large growth, while organic growth added 6%. Divest- acquisition made during the year. Total turnover ments and currency adjustments reduced turnover increased by 23%, of which 7% was organic. by 2% and 1% respectively. Operating profit increased by 22%. The operating In 1998, the Group’s strategic effort to increase profit margin was unchanged at 5.9%. turnover in the more sophisticated segments for At country level, operating performance was specialised services and multi-service provision mixed, with very positive developments in the was reflected in several new very large contracts. United Kingdom and Ireland, where operating profit increased by 19% to DKK 144m. Operating performance was also encouraging in Portugal and The Nordic countries the countries in Eastern Europe whereas Belgium, France, Switzerland, Austria and the Netherlands In 1998, the former ISS Scandinavia Division, experienced declining operating profit margins. comprising the four Nordic countries, Denmark, In Germany, the acquired NWG performed in Sweden, Norway and Finland produced a strong accordance with expectations, resulting in a performance. Total turnover in the region combined turnover of DKK 1,161m, an operating amounted to DKK 6.3 billion, an increase of 13%, profit of DKK 68m and an operating margin of of which 7% was organic. Operating profit reached 5.9%. The integration of NWG progressed DKK 411m, an increase of 13%. The operating according to plan. margin remained stable at 6.5%. All Nordic

Group Turnover Operating profit *) Operating margin operations DKKm DKKm

1998 1997 Change 1998 1997 Change 1998 1997

Nordic countries 6,285 5,568 13% 411 362 13% 6.5% 6.5% Europe 6,383 5,202 23% 376 308 22% 5.9% 5.9% Asia 579 436 33% 16 15 5% 2.8% 3.5% Brazil 554 568 (3%) 8 21 (61%) 1.4% 3.6% Corporate – 8 – (76) (67) 13% – –

Total 13,801 11,782 17% 735 639 15% 5.3% 5.4%

*) Before other income and expenses 6

Report to Shareholders, Employees and Customers

Asia Tax Tax on ordinary profit before goodwill amounted Given the turbulent economic conditions prevail- to DKK 190m in 1998, an increase of DKK 13m. ing in Asia in 1998, and their adverse impact on The effective tax rate was 29% against 31% in the service market, the overall performance of the 1997. The tax rate for 1999 is expected to be Asian businesses was satisfactory and in line with slightly above that of 1998. Group Management’s expectations. Total turnover grew by 33% being the net effect of 48% growth Amortisation of goodwill and tax thereof from acquisitions and minus 11% due to currency Effective from 1998, goodwill amortisation is stat- adjustments and minus 4% due to negative organ- ed in a separate line below ordinary profit before ic growth. The acquisition of Reliance Environ- goodwill amortisation. Goodwill amortisation was mental Services in August 1998 strengthened the previously stated below operating profit. The new Group’s market position in the region and has presentation is seen to provide a clearer overview already resulted in a number of important new of the Group’s profitability. contracts being awarded to ISS. Amortisation of goodwill was DKK 206m in 1998, which was a substantial increase from 1997, when the amount was DKK 149m. The increase is Brazil a result of the large number of acquisitions made during 1998, of which the full-year effect on In Brazil, adverse macroeconomic developments goodwill amortisation is not yet reflected in the created difficulties for ISS. In Danish kroner terms, profit and loss account. Assuming no further turnover decreased 3% to DKK 554m, after organic acquisitions, the amortisation of goodwill for a full growth of minus 4%. Operating profit more than year would amount to DKK 256m. After five years halved to DKK 8m, causing the operating margin this amount will have decreased by DKK 38m. to drop to 1.4% in 1998 from 3.6% in 1997. Goodwill amortisation is only partly deductible for tax purposes. In 1998, tax relating to goodwill amortisation reduced Group taxes by DKK 7m.

Review of accounts for 1998 Net ordinary profit Net ordinary profit amounted to DKK 276m, Profit and loss accounts compared to DKK 247m in 1997.

Turnover and operating profit Extraordinary items and discontinued business As mentioned in the section “Review of operating Extraordinary items, net of tax and minorities, of performance” on page 5, the Group’s turnover DKK 42m are primarily related to costs associated increased by 17% to DKK 13,801m and with the reorganisation of the Group. The costs operating profit increased by 15% to DKK 735m. included i.a. early termination of leases of divi- sional offices, international relocation of man- Other income and expenses agers, redundancies, the Group branding project Other income and expenses, net of DKK 22m necessitated by the organisational changes and the primarily relate to reversal of provisions related to costs of developing the reorganisation plan itself. ISS Inc. and loss on disposal and write-down of ISS defines extraordinary items as significant properties. gains and losses other than those relating to the ordinary course of business, including gains and Net interest expenses losses relating to divestment of businesses. As a Due to the acquisitions made in 1998, interest consequence, and in order to facilitate the expenses rose significantly from DKK 54m in 1997 assessment of the Group’s financial performance to DKK 78m in 1998. over time and relative to other companies, the costs relating to the reorganisation, which are not related to the ordinary course of business, are classified as extraordinary costs. 7

Report to Shareholders, Employees and Customers

Discontinued business, showing a net loss of Balance sheet DKK 23.5m included a profit of DKK 14m relating to the sale of shares in Aaxis Ltd., which ISS At year-end 1998, total assets amounted to received in connection with the sale of ISS Inc. DKK 7,117m. The increase of 53% since 1997, Certain receivables, primarily claims on refund of was primarily a result of acquisitions. VAT, amounting to DKK 30m, which relates to the previous disposal of Well’s activities in Brazil have Goodwill been written off. As a consequence of the many acquisitions, in particular the purchase of NWG in Germany, the Net profit booked value of goodwill almost doubled in 1998 In 1998, net profit was DKK 211m, against DKK to a year-end amount of DKK 3,005m. The carrying 451m in 1997, when the sale of the Darenas busi- value of goodwill is evaluated on a regular basis. nesses and the reversal of guarantees regarding ISS Inc.’s self-insurance programme, produced an Tangible assets extraordinary income of DKK 204m. At year-end 1998, tangible assets totalled DKK 1,059m, an increase of 23% from 1997. The addition of tangible assets in acquired companies Cash flow statement was partly offset by the sale and rent back of fixed assets in certain countries. Cash flow from operations In 1998, cash flow from operations amounted to Liquid funds DKK 695m, an increase of DKK 111m or 19%. ISS usually receives large payments on the last day The increase in operating cash flow was primarily of each month. The Group's cash management due to an increase in operating profit of DKK 96m system enables ISS to net such payments against and a cash influx from working capital of Group funding on the bank value date, typically DKK 14m against an outflow of DKK 80m in 1997. the successive bank business day. On 31 December 1998, ISS had liquid funds totalling the equivalent Sustainable cash flow of DKK 821m. In the beginning of January 1999, Sustainable cash flow, defined as cash flow from a significant part of the liquid funds was interest operations less depreciation, increased by DKK netted against Group funding. Liquid funds of 84m (+ 24%). DKK 254m were held by ISS A/S as a cash reserve for acquisitions and other investment purposes. Cash flow from investments ISS is in the process of setting up local credit facili- In 1998, the cash outflow to acquisitions was DKK ties to fund the working capital requirements. 1,906m, while the sale of the Darenas business in These facilities and a new electronic cash netting the UK resulted in an inflow of DKK 88m. Net system are under implementation. This will enable investments in fixed assets amounted to DKK ISS to further improve the Group's cash netting 264m against DKK 274m in 1997. system and reduce the cash position.

Equity After retained earnings and foreign exchange adjustments of investments in foreign subsidiaries, the total equity amounted to DKK 1,454m at the end of 1998 compared to DKK 1,310m at year-end 1997. Total equity as a percentage of total assets was 20%. This was a decrease compared to 1997, when the equity ratio was 28%. The increased gearing is part of the Group’s aim of optimising its capital structure. 8

Report to Shareholders, Employees and Customers

Provisions Financial management At the end of 1998, deferred tax amounted to DKK 102m, against DKK 136m in 1997. Pension As part of the Group’s policy to relocate its capital obligations and other provisions increased from from investments in buildings, vehicles, machinery DKK 284m in 1997 to DKK 384m in 1998. The and other non-core fixed assets to value-enhancing increase was mainly related to provisions arising as investments in acquisitions and other core business a direct consequence of acquisitions. activities, ISS has entered a pan-European leasing agreement with ABN Amro LeasePlan International. Debt So far, the agreement covers the sale and rent back By the end of 1998, the total interest bearing debt of a significant part of the Group’s European fleet was DKK 2,718m. This was an increase from 1997, of motor vehicles, but the Group’s remaining when the total interest bearing debt amounted to vehicles are also expected to be included in this DKK 723m. The increase can be attributed to the arrangement. funding of acquisitions.

Funding structure

EVA® During 1998, the ISS Group restructured its fund- – the shareholder value concept ing and reallocated the interest bearing debt from ISS-International Service System A/S, the parent company, to the operating subsidiaries. Following As part of the Group’s focus on creating value for the debt reallocation, ISS A/S is free of interest its shareholders, ISS has adopted the EVA manage- bearing debt. Performance guarantees amounting ment concept. EVA is short for Economic Value to DKK 345m are still outstanding. In 1997, the Added, a concept developed and trademarked by total amount of guarantees issued by ISS A/S was the US financial services firm Stern Stewart, which DKK 1,847m. has supported ISS in implementing the concept. The new funding structure is based on a core EVA is a measure of the actual return on the bank policy, which means that the Group will use capital invested in the company, less the cost of fewer banks than previously. the capital invested. In other words, EVA is a mea- As at year-end 1998, ISS had credit facilities of sure of the additional return that ISS generates for DKK 4,377m, of which DKK 2,718m were utilised. its shareholders compared to the expected return The liquidity reserve amounted to DKK 2,481m, on alternative investments with the same risk consisting of unutilised credit facilities and liquid profile as ISS. funds. On page 16 of this report, the EVA concept and In Europe, ISS is changing the cash manage- terminology is described in more detail. ment system, which will be based on the inter- In 1998, the Group’s EVA increased by DKK national IBOS (Interbank online system) co- 51m. The advance was due to an increase in the operation. In the Nordic countries, the aim is to net operating profit after tax (NOPAT) of DKK manage the individual entities’ cash flow through 74m, partly offset by a rise in the capital charge of a multi-currency netting system. Similar solutions DKK 23m. The higher capital charge reflected the will be established for the Group’s Asian and net effect of an increase in capital invested and a Brazilian entities. reduction in the cost of capital, resulting from the generally lower interest rates prevailing and the increased gearing of ISS in 1998. Financial risk management From the beginning of 1999, the compensation schemes for a number of country managers in The new funding structure has not caused signifi- Europe have been converted to EVA-related bonus cant change in risk management, since the schemes. Later in 1999, and in the year 2000, Group’s financial arrangements are still negotiated many more ISS managers are planned to have and controlled by ISS A/S. bonus programmes linked to the EVA performance To reduce the risk related to movements in the of their respective operating company or country. financial markets, the Group’s financial risk is 9

Report to Shareholders, Employees and Customers

managed in accordance with a policy approved by Interest rate risk Interest coverage *) the Board of Directors, defining guidelines for 12 managing and controlling the Group’s financial risk. During 1998, the Group’s net interest bearing debt 9 increased to DKK 1,897m at year-end, an increase of DKK 1,560m from year-end 1997. Net debt 6

Currency risk amounting to the equivalent of DKK 1,058m was 3 denominated in currencies participating in the 0 ISS’s operations outside Denmark are not directly Euro, DKK 798m was in Danish kroner and the 19961997 1998 affected by changes in foreign exchange rates, remaining net debt equivalent of DKK 41m con- since turnover and expenses are primarily denomi- sisted of other currencies. nated in the same local currency. However, the ISS manages the Group’s interest rate exposures Interest bearing debt, net *) DKKm. Group’s net profit and equity is affected by so that the duration of the net debt is normally 2,000 currency movements, as the results of foreign less than five years. At year-end 1998, the average subsidiaries are converted into Danish kroner on duration was less than one month. 1,500 the basis of an average exchange rate for the year. The increased net debt and the short duration 1,000 Equity investments in foreign subsidiaries are con- make ISS more sensitive to interest rate volatility. 500 verted at the end of the year using the year-end Based on the net debt and duration as per year- rates. Any difference compared to the year before end 1998, a general increase in the interest rate 0 19961997 1998 is booked directly in the equity account. If the level of one percentage point would cause the value of the Danish krone versus all other curren- pre-tax interest expense of ISS to increase by *) Cf. page 76 for definitions cies were to change by one percent, the effect on approximately DKK 19m on an annual basis. operating profit and equity in 1998 would have As the duration is very short, interest rate been approximately DKK 7m and DKK 22m changes would have no material impact on the respectively. The currency risk on internal royalties market value of the Group’s debt. If the duration Turnover distribution and dividends is limited, as the total amount of of the net debt were five years, i.e. the normal by currency such royalties and dividends in foreign currencies upper limit under current financial management normally amounts to less than 2% Group turnover. policy, a drop in interest rates of 1 percentage Other DKK NOK 10% 15% 12% As shown in the diagrams, the Euro currencies point would cause the market value of the debt to and the Scandinavian currencies constitute the increase by five percent. majority of the Group’s turnover and operating profit. Furthermore, the significant development in the Group’s activities in the United Kingdom Operational risk management has led to increased exposure to the sterling exchange rate. In 1998, risk management at ISS adapted to the CHF GBP SEK Financial risk management has been adjusted to strategy contained in aim2002. The Group’s focus 6% 14% 13% reflect the increased concentration of the Group’s on special segments and several new service areas EUR risk to a few significant currency blocks. Under the has challenged the way in which ISS deals with 30% adjusted risk management, most of the Group’s risk evaluation, risk management and risk financ- investments will be funded in local currency, ing. During the year, new risk policies and guide- Operating profit distribution thereby reducing currency exposure. For further lines were developed to strengthen the monitoring by currency information on currency exposure please refer to and control of operational risk. note 21 in Notes to the Consolidated Financial ISS has also changed the way it operates on the Other DKK NOK 6% 10% 14% Statements on page 64. insurance market. Relationships with many local insurance brokers have been replaced by a world wide broker concept. The change is expected to reduce overall risk financing costs and improve the ability to monitor and manage operational risks throughout the Group.

CHF GBP SEK 8% 19% 15%

EUR 28% 10

Report to Shareholders, Employees and Customers

Year 2000 aim2002 follow-up

The Group has carried out internal surveys relat- In October 1997, ISS launched its new strategic ing to the risk that computers and other electronic vision, aim2002, which describes the Group’s equipment may be affected by the change from concept for the systematic transformation of ISS year 1999 to year 2000. In this respect, the Group from The World’s Largest Cleaning Company into has taken steps to minimise the potential impact “ISS – The Leading and most Innovative Interna- from such problems on the Group’s operations, tional Service Enterprise”. The main strategies of including changing or updating many software aim2002 are described on page 18. applications. As stated in aim2002, the Group’s financial ambition is to create long-term value for its share- holders. A prerequisite for this is the ability to create and maintain satisfied customers and employees.

ISS Virtuous Circle Follow-up on financial goals

1997 1998 Target aim2002

r Turnover growth 10% 17% >10% e Em A m p m o b Operating profit increase 15% 15% 15% t n lo s i o y t u i CEPS increase 23% 24% 15% t e i o C ≈ a e Operating margin 5.4% 5.3% 6% n v

i

t

o M

S h a re In Follow-up on specialisation goals ho nov n lder atio Target Service segment 1998 aim2002

General cleaning 58% 20%

Healthcare 16% Development in the proportion of full-time employees in 1998 Food hygiene 6% Transport/Airport 6% Total no. Full-time % Care 2% of employees employees Catering 4% Industrial/hightech 4% Year-end 1997 106,600 53,500 50% After-damage 1% Year-end 1998 137,800 75,200 55% Team Service 1% Other 2% Group target 2002 80% Total specialised services 42% 80% 11

Report to Shareholders, Employees and Customers

Financial goals Major acquisitions and geographical expansion The financial goals contained in aim2002 are related to turnover growth, operating profit, cash earnings per share (CEPS) and margin develop- Acquisition of NWG Holding, Germany ment. Actual performance in 1998 compared to the goals is shown in the table on the left. While In 1998, ISS acquired NWG Holding GmbH, ISS was successful in meeting the financial goals Europe’s largest hospital cleaning company and relating to turnover, operating profit and CEPS, Germany’s second largest general cleaning com- the operating margin decreased slightly to 5.3%. pany. The acquisition, effective 1 July, established ISS as a leading provider of general and specialised cleaning services in Germany, the largest cleaning Progress in specialisation market in Europe. In 1997, the company had a turnover of DKK 1.4 billion, 60% of which came aim2002 defines two specific operational areas, from hospital services. which are regarded as key to the Group’s long The acquisition is part of the Group’s strategic term success, namely specialisation and increasing ambition to lead the consolidation of the highly the proportion of full-time employees. fragmented market for cleaning and specialised The specialisation process is measured by the services. The acquisition of NWG is an important amount of turnover from specialised business step towards leadership in the market for hospital units as a percentage of total turnover. The target services, which is characterised by high quality is to have 80% of the Group’s turnover generated requirements, complex contracts, a high level of by specialised business units in the year 2002. In integration with other areas of hospital operations, 1998, the percentage of turnover generated by and sophisticated and demanding contract tender- specialised business units was 42%. Just two years ing processes. ago, approximately 30% of the turnover came The operating companies of the former ISS from specialised business units. Germany are currently in the process of being integrated into the new ISS-NWG organisation. Full integration, which will be finalised in the year Progress in full-time employment 2000, is expected to generate synergies and pro- vide a solid base for further growth in turnover In 1998, the total number of full-time employees and profit. increased from 53,500 at year-end 1997 to 75,200 The integration process has proceeded as corresponding to 55% of all employees in ISS. The expected and the reactions from customers, target is to have 80% of employees working full employees and suppliers of ISS-NWG have been time for ISS. The improvement during 1998 was very positive. The former ISS head office in primarily due to the fact that the companies Munich has been closed and other integration acquired during 1998 had a high proportion of activities are also proceeding according to plan. full-time employees. The acquisition of Reliance Environmental Services in Hong Kong brought 7,000 employees to ISS, almost all on a full time Acquisition of Reliance, Hong Kong basis. NWG in Germany also contributed to the increase in full-time employees, as approximately In August 1998, ISS acquired Reliance Environ- 10,000 of the company’s 17,000 strong workforce mental Services, the only other leading Asian are employed full-time. service provider with a 1997 turnover in excess of USD 70m, of which Hong Kong and Singapore generated approximately 60%. The company had operations in many of the same markets as ISS, and synergies have been, or will be, derived from combining the Reliance operations with ISS’s existing business. 12

Report to Shareholders, Employees and Customers

The acquisition, which doubles ISS’s presence Contract portfolio development in Asia, secures ISS leadership in the region, which the Group entered in 1995. The Reliance acquisi- Major PFI and multi-service contracts tion demonstrated ISS’s long-term commitment to the business in Asia, despite the present uncertain- The development of the contract portfolio in 1998 ty caused by the financial turmoil in the region. gave concrete form to the aim2002 strategy, as a So far, the integration process has progressed number of major specialised and multi-service as planned, and the reactions from customers, contracts were awarded to ISS and the degree of employees and suppliers of Reliance and ISS have specialisation increased. been very positive. All head offices in countries The Group’s UK operations were particularly where ISS and Reliance both had operations have successful in securing a number of large long-term been merged, and the combined overhead costs of contracts in connection with Private Finance the two companies have been reduced. Initiative (PFI) projects. PFI is a concept used in the United Kingdom to attract private funds into financing public infrastructure investments, such Geographical expansion as hospitals, roads, transportation terminals, prisons and other public facilities. Long-term In June 1998, ISS acquired Robustelli SAS, a clean- service contracts for the operation of the facilities ing company that operates in Varese, Northern financed under PFI schemes are put out for tender. Italy. The acquisition represented a first footprint In March 1998, ISS Cleaning Services in the for ISS in the large Italian market. Robustelli, UK, was awarded a five-year PFI contract totalling which in 1997 had 95 employees and an annual approximately DKK 440m. The contract comprises turnover of DKK 20m, is located in the region the provision of a range of services at 500 Depart- adjacent to the Italian-speaking Ticino region in ment of Social Security (DSS) sites in Southern and Southern Switzerland. Central England. Only a month later, in April 1998, ISS Medi- On page 58 of this report, is a complete list of all clean, the Group’s UK hospital service company, acquisitions made during 1998, with details on secured the Group’s largest contract to date, when turnover and employees. the company was awarded a 30-year PFI-contract to provide a range of integrated services for the Hairmyres & Stonehouse Hospitals NHS Trust in East Kilbride, Scotland. The contract starts in mid-2001, when the new hospital is due for com- pletion. ISS services will include housekeeping, catering, site security, car park management, help desk/receptionist, portering, estate management, IT and telecommunications maintenance, and general, mechanical and electrical maintenance. The total turnover from the contract over its 30- year duration is estimated to be approximately DKK 1.8 billion. The transformation of the ISS Group was also evident in Switzerland, where several significant contracts were secured, including a comprehensive multi-service contract with COOP, the second largest retailer in Switzerland. Another major contract was the takeover on 1 January 1999 of the housekeeping and cleaning of all facilities of Swisscom, the leading Swiss telecommunication provider. A new company operated by ISS and owned 80% by ISS and 20% by Swisscom will 13

Report to Shareholders, Employees and Customers

deliver the services. The contract will have an New incentive plans annual turnover of approximately DKK 110m. A partnership was also established in Norway We want the business culture of ISS to be char- with The Norwegian Post Office (Posten), where a acterised by entrepreneurship and accountability jointly owned company, operated by ISS, will take in a decentralised organisation. The ISS spirit of over the cleaning operations. The annual turnover corporate commitment and individual entrepre- will initially be approximately DKK 170m, but will neurship has been a key driver in the development decrease as the operation becomes more efficient of the Group. and the savings are reflected in the pricing for To further encourage this spirit and align it Posten. with the Group’s commitment to the creation of shareholder value, the Board of Directors has decided to ask for the shareholders’ approval of Elderly care centre in Sweden two incentive schemes, which will be based on up to one million new B-shares. The new incentive The relatively new business area of elderly care ser- programmes will reinforce the Group’s managerial vices is growing fast in the Nordic countries. In focus on creating shareholder value and help to order to fuel growth and lead improvement and attract, retain and build talent at all levels of the innovation in this area, ISS has opened a centre in organisation. Vittsjö, Sweden, which is dedicated to elderly care The first incentive scheme is an employee share development. programme, which will allow employees world The centre engages researchers from universi- wide to buy newly issued shares at a price equal to ties and other institutions in seminars and projects 35% of the market price prevailing at the time of for interested parties both inside and outside ISS. purchase. The maximum number of shares will be ISS Care Service in Sweden, responsible for the 500,000. To participate in the programme, Vittsjö centre, now has 1,300 employees and 23 employees will generally have to hold their shares contracts with local authorities to run homes for for five years. the elderly, centres for the disabled and homes for The second incentive scheme is an option substance abusers. Nine new contracts were added programme based on warrants directed at approxi- during 1998. mately 120 senior managers around the world. The total number of new shares resulting from the option programme will not exceed 500,000. The Kindergarten in Denmark options are out-of-the-money call options, mean- ing that the exercise price of the options is higher The Group’s care service concept gained a new than the market price at the time of grant. The dimension, when ISS Junior Service opened its first exercise price will be calculated as the share price kindergarten in Denmark in August 1998, following at the time of grant multiplied by 1.4, which more than two years of preparation. The opening approximately reflects a compound interest, from of the first private kindergarten of this type in time of grant to earliest exercise date, equal to the Denmark was the subject of intense attention from company’s cost of equity. The call options can be the media, politicians, labour organisations and exercised from March 2003 and each following the general public. Some 60 children and 12 March until and including March 2006. employees now occupy the purpose-built premises, ISS currently has two incentive programmes in which have been designed to meet the highest place in the form of phantom shares and stock quality standards. Since the opening of its first options. These programmes are targeted at mem- kindergarten ISS Junior Service has been awarded bers of the Group’s Executive Management Board. five other contracts of a similar nature. Maximum dilution from the proposed schemes (1,000,000 new shares) and the existing schemes (325,000 share equivalents) is 4.4%. Further information on existing schemes can be found in note 2 page 54 to the Group's consolidated accounts. 14

Report to Shareholders, Employees and Customers

Global policy for Group Outlook for relations with trade unions 1999

The ISS Union Policy In August 1998, ISS announced its first official In 1999, focused and profitable growth is expected Statement: global policy for the Group’s relationship with to continue. The full year effect of acquisitions trade unions. The formal statement of ISS’s union made in 1998 and organic growth are expected to We believe that an open policy represents a continuation of ISS’s historical lead to a double digit increase in turnover. New dialogue on equal terms between management and commitment to the enhancement of the service acquisitions in 1999 are expected to add further employees is a prerequisite for workers’ working terms and conditions and public growth. Operating profit is expected to increase at the continuing success of ISS. esteem. This commitment has been demonstrated least in line with turnover growth, but will also be through the social dialogue that ISS has always affected by the operating margin in companies Freedom to organise and support in the dialogue are supported and been a part of. In 1995, ISS became which might be acquired during 1999. and will remain lasting the first service sector company to successfully Net interest expenses are expected to increase elements of ISS’s personnel negotiate the establishment of a European Works in 1999 as a consequence of the acquisitions and policy. Council (EWC), moving well ahead of European the resulting higher level of net debt. In the future, as in the past, legislation in this field. In establishing its EWC, Sustainable cash flow per share (CEPS) is ISS’s key people strategy is the ISS was assisted by the International Federation of expected to improve further in 1999. However, enhancement of the working Commercial, Clerical, Professional and Technical the CEPS figure is more volatile than turnover and terms and conditions of its Employees (FIET), which represents 11 million pri- operating profit, especially during periods of front line personnel and the improvement of the public vate sector workers in 140 countries. FIET has also strong acquisition driven growth. The CEPS perception and esteem of the collaborated closely with ISS in the preparation of development should therefore be seen in a multi- service worker. the ISS Union Policy Statement. year perspective. The previously stated expectation of an average annual growth in CEPS of 15% is maintained. The Group’s transformation process, set out in Subsequent events aim2002, is expected to continue in 1999, with the share of turnover from specialised services Apart from the events discussed above, no events increasing further. which could have a material effect on the consoli- dated financial statements for 1998 have occurred subsequent to year-end 1998.

Forward-looking Statements This annual report contains statements regarding expectations to the future development, in particular future sales, operating efficiencies and business expansion. Such statements are subject to risks and uncertainties as various factors, many of which are outside of ISS’s control, may cause the actual development and results to differ materially from the expectations contained in the report. Factors that might affect such expectations include, among others, overall economic and business conditions, fluctuations in currencies, the demand for ISS’s services, competitive factors in the industry and uncertainties concerning possible acquisitions and divestments. 15

Report to Shareholders, Employees and Customers

Proposal for the subscribed to under such a programme will be Annual General Meeting restricted for 5 years. Finally, the Board of Directors proposes that it At the ordinary annual general meeting (AGM) on is authorised to increase the share capital through 22 April 1999, the Board of Directors will propose one or more issues with up to 5,000,000 B-shares, that the net profit for 1998 of DKK 210.7m is allo- and that the Board of Directors is empowered to cated entirely to the reserves. Given the growth decide whether such an increase, wholly or in potential of our business and the numerous acqui- part, should be used in consideration of the take- sitions that the Group is expected to make in the over by ISS of an existing business, or allocated to coming years, ISS expects to earn a satisfactory one or more investors. return on the capital retained in the company. The proposed authorisations shall be effective At the AGM, the Board of Directors will seek for five years. the shareholders' approval of an option programme Mr. Georg Poulsen, who joined the Board in consisting of up to 500,000 options (warrants) to 1991, has informed the Board that he due to age be granted to a selected group of key managers in wants to retire from the Board at the AGM in April ISS (excluding the Board of Management). 1999. Mr. Kaare Vagner, Vice Chairman of the Furthermore, the Board of Directors will ask the Board, has informed the Board that he does not shareholders to grant authorisation to the Board want re-election at the AGM in April 1999. to increase the share capital with up to 500,000 B-shares for subscription by all employees at a price which is below the market price under a Waldemar Schmidt Arne Madsen general Employee Share Programme. The shares Group Chief Executive Chairman 16

EVA®

EVA implemented at ISS Capital invested

As part of the Group’s focus on value creation and Capital is calculated as total assets plus all good- value based management, ISS has implemented will that has been amortised previously, less any the EVA management concept. EVA is short for non-interest bearing current liabilities. In addi- Economic Value Added, a concept developed and tion, other minor adjustments are made in order trademarked by the US financial services firm to provide the best estimate of the total capital Stern Stewart. EVA is a performance indicator, tied up in the business. which measures the Group’s financial return more accurately than conventional accounting measures. Cost of capital

EVA as a measure of performance The cost of capital represents the average of the returns that shareholders and lenders expect on EVA is a better financial measure because it adjusts the capital invested. The weighted average cost of for certain major distortions contained in the these two sources of capital is often referred to as conventional accounting statements. the WACC. As interest expenses are deductible for In the profit and loss statement of convention- tax purposes, the cost of debt is calculated on an al accounts only the cost of debt is reflected. The after tax basis. WACC figures are often highly cost of employing equity is not taken into debated as they relate to future return expectations. account. This means that conventional accounts do not reflect the true cost of financing the com- EVA definition pany. Another issue is related to goodwill, which, Calculating EVA in the conventional accounts, is amortised over a EVA = period of up to 20 years. This means that the The EVA for 1997 and 1998 is calculated below: NOPAT – Capital Charge balance sheet does not reflect the capital actually invested in the acquired businesses. DKKm 1998 1997 Change NOPAT = EVA addresses these and other issues in the Net Operating Profit After Tax conventional accounts, thus establishing better NOPAT 535 461 74 measure of the company’s financial performance. Capital Charge 308 285 23 Capital Charge = EVA is calculated as the profit from operations, Capital invested × Cost of Capital after taxes (adjusted for accounting distortions) less EVA 227 176 51 a charge for the capital invested in the operations. Cost of Capital = When evaluating the EVA development, the Weighted Average Cost of Capital relevant performance measures is the change in (WACC) EVA, not the absolute level of EVA. Value is created EVA as a management tool only if the company is succesful in increasing the NOPAT, without increasing the capital charge With EVA implemented, the Group has established corresponding. a new criteria against which all management actions, plans and strategies will be measured. In 1998, ISS already used EVA calculations sys- NOPAT tematically when evaluating the financial attrac- tiveness of acquisitions. From the beginning of NOPAT (Net Operating Profit After Tax) is calculated 1999, the country managers of several European as the Group’s operating profit plus interest income countries will have an incentive scheme linked to less tax. The tax is calculated only on the operat- their EVA performance. In coming years, EVA ing income plus interest income, but no tax bene- linked incentive schemes will be spread to a large fit from the Group’s interest expense is included. number of managers throughout the Group. The EVA performance of every country and operating unit is measured on a monthly basis, and the eval- uation of the business units’ financial development will be based on EVA and its underlying drivers. 17

Business Conduct

A people business Our values

Since the early years of the Group, our corporate We seek to promote our values outside ISS too. behaviour has been guided by ethical values, We actively pursue the establishment of minimum which today are deeply embedded in the ISS standards of employment and skills upgrading culture. across the service sector, working through the ISS The Group does not measure its success simply European Works Council. We undertake this in in financial terms, but equally by how much it ful- close co-operation with the International fils its responsibilities to its employees, customers, Federation of Commercial, Clerical, Professional shareholders and society at large. and Technical Employees (FIET) and the European ISS was formed in Denmark with core Commission. Scandinavian values – equality, fairness and open- Reflecting our Scandinavian roots, we oppose ness – in its dealings with people inside and out- all corrupt business practices. We totally reject the side the organisation. A profound commitment to use of child labour and any form of forced labour, training and education is another fundamental regardless of local market practices. part of the Group’s Danish inheritance. A multi-national company with a multi-racial workforce, we are wholly against any form of racial prejudice and have long been established as an equal opportunity employer with regards to both gender and ethnic origin. As demonstrated by our pioneering work in setting up a European Works Council – the first in the service sector – we believe that an open dia- logue on equal terms between our management and our employees is a prerequisite for success. Our employees’ freedom to organise, and ISS’s support of this dialogue, have become central elements of our personnel policy. The environmental dimension of ISS’s values is Today, ISS operates in 32 countries and has some contained in our long-standing aim to ensure a 138,000 employees, the vast majority of whom are good, safe and healthy working environment for engaged in the front-line delivery of general clean- our employees, our customers and society at large. ing, specialised cleaning, special services, multi- This is reflected in our selection of materials and service solutions and facilities management. We equipment for our employees and in training in are a true people business with virtually no other best practice regarding the indoor and outdoor assets. environment. This, in turn, forms part of our Developing our people is, and will remain, wider commitment to promoting sustainable at the heart of our values. We employ many development. unskilled cleaners and, through proper training, work wear, responsibility and fair pay, raise their skills, self-esteem level and thereby job satisfac- Responsiveness tion. Our aim throughout is to be a responsible and Our ethical principles have played, and will con- caring employer, encouraging employees to fulfil tinue to play, a central role in establishing and their career potential. Only the development of maintaining ISS’s leadership in its chosen markets. skilful, motivated and satisfied employees will Maintaining high ethical standards is an essential allow us to satisfy customers and shareholders. element in our pursuit of excellence. To ensure The Group’s systematic enhancement of com- that we maintain high standards, we intend to petences, through on-the-job training and formal remain open and responsive to the ethical views education programmes, is a commitment to all our of our employees, customers, investors and society employees – from front-line service operative to at large. senior management. 18

The Service Enterprise Concept

Our transformation from the world’s largest Stakeholder value cleaning company into a customer-focused service enterprise is charted in aim2002, the Group The ISS Virtuous Circle is based on creating value Strategic Vision launched in October 1997. for our stakeholders – customers, employees and At the end of 1996, some 70% of Group turn- shareholders. To ensure that the wheel of mutual over was generated by general cleaning companies, interest keeps spinning, we seek to give customers with specialised ISS companies accounting for high quality support services at competitive prices, 30%. By 2002, our goal is to have general cleaning our employees more rewarding jobs and our share- companies generate 20% of turnover and specia- holders a competitive return on their investment. lised companies 80%. Our focus on shareholder value in recent years completes a step-by-step process of focusing on the interests of our stakeholder groups and forms Our service segments an integral part of our culture of stakeholder value.

General Cleaning Large Customers Our market Medium-sized Customers Small Customers Other Strategic Segment The highly fragmented market in which we operate presents many opportunities for organic Homes for Elderly growth and acquisitions and we are uniquely placed to lead the consolidation and professionali- After Damage Service sation of our industry. Food Manufacturers In specialist segments, international customers Airport/Transport E need co-ordinated service contracts across borders, ANC MAINTEN KS many local customers demand world class service, CARPAR NG and we face competitors with global capabilites in CATERI G E TERINANC specific segments and services. MPAORINTEN NG CLEANI The general cleaning market has been charac- terised by low margins, low barriers to entry by Hospitals Example of hospital multi-service concept competitors, unsophisticated delivery systems and relatively loose relationships with customers. There are an estimated 80,000 cleaning companies in Western Europe with approximately 2.3 million General cleaning employees. ISS, with its size and quality provision, Cleaning and maintenance focuses on the high end of this market. for offices, schools and other private The market for specialised services is charac- and public sector organisations. terised by fewer professional players, higher barriers to entry, sophisticated delivery systems Specialised service segments and a high degree of operational integration with Airport/Transport – multi-service solutions customers. Unlike general cleaning, where the for airports, trains and railway stations, outsourced market is stagnating, outsourcing in passenger ships and harbour facilities specialised services is growing fast and less than Food hygiene – multi-service solutions for 50% of the European market is outsourced. abattoirs, fish and agricultural processors Multi-service contracts and facilities manage- and food manufactures ment solutions have become more important and Healthcare – multi-service solutions for today constitute a significant part of ISS’s organic hospitals, elderly care, kindergartens etc. growth. New forms of public/private sector co- Other multi-service and facilities management operation are emerging, prime examples of which solutions for private and public sector customers. are our contract with the municipality of Duis- burg, and our major multi-service and facilities management contracts in the United Kingdom. 19

An ISS multi-service joint venture with the City of Duisburg The Service Enterprise Concept SRD, Service- und Reinigungsgeschellschaft Duisburg mbH was founded in 1994 as a joint venture between the City of Duisburg’s public utility and traffic company, Duisburger Versorgungs- und Verkehrsgeschellschaft mbH, Duisburg and ISS-NWG, Duisburg. The company delivers high quality services within cleaning, care, security, logistics and maintenance of buildings, parks and public transport.

Hospitals and canteens Dish washing, catering, courier and porter service, care assistants and dining room staff.

Information service Telephone and facsimile service for conferences and fairs.

Swimming pools and leisure facilities Public transport service Cleaning, life-guarding Security and ticket control at and maintenance of the U-bahn (underground technical installations. railway) and bus company operations.

Exhibition and trade fair centres Cleaning, arranging of furnishings for Public transport performances and conferences, Cleaning and maintenance cloak room and wash room services. of trains, busses, stations and excursion boats.

Building maintenance Frontage maintenance, removal of graffiti, cleaning of sanitary installations, landscaping and snow clearing. 20

Country Reports

Stockholm

Nuuk Arctic Circle

Oslo

Amsterdam Helsinki

Moscow Dublin Copenhagen London

Brussels Berlin Warsaw Paris Prague Luxembourg Bratislava Bern Budapest Vienna Ljubljana Lisbon Rome Ankara

General cleaning Madrid

Healthcare services Athens Food hygiene services

Airport/Transport services

Care services

Catering services

Industrial/Hi-tech services

After-damage services

Team Service *)

Denmark United Kingdom Sweden Norway Germany Switzerland Country reports Finland Austria The ISS Group currently operates in 32 countries Belgium in Europe, Asia and Latin America, having Netherlands entered Italy, Russia and Turkey during 1998. ISS’s Brazil geographical presence at the end of 1998 is shown Hong Kong on the map above. France A new partnership was formed in Greenland, Singapore expanding the business from management and Ireland advisory to general cleaning and specialised Portugal services. Slovenia In Spain, ISS no longer participates in the Greece management of SAEL, although ISS still retains its Thailand ownership stake in the company as a financial Malaysia investment. A new country manager is currently Czech Republic planning the re-establishment of an ISS entity in Luxembourg Service provided Spain. Slovakia by general cleaning Outside Europe, the event which dominated Brunei company 1998 was the acquisition in August of the Hong Hungary Kong-based Reliance Environmental Services from Indonesia Service provided Jardine Pacific, which effectively doubled ISS’s Poland by specialised turnover in Asia. The Group’s operations in Asia Italy service company and Brazil were seriously affected in 1998 by the China international economic turmoil that began in Russia *) Cleaning services Thailand in mid-1997. Sri Lanka provided by Turkey mobile teams 21

Country Reports

Beijing

Hong Kong

Bandar Seri Begawan Colombo

Bangkok

Kuala Lumpur Equator Singapore

Jakarta

Reorganisation In addition to key information on financial Brasília As described in the Report to Shareholders, performance, the tables give an overview of the Employees and Customers, the Group’s previous degree of specialisation and number of full-time divisional structure has been abolished, and all employees in each country. countries now report directly to the Group The number of employees is stated as at year Head Office. end, and the percentage of full-time employees comprises staff working more than 25 hours per Service offerings week. Country reports 22 Denmark Through a network of operating companies ISS “Specialisation” is the percentage of turnover 24 United Kingdom and Ireland provides general cleaning, special cleaning, spe- derived from services other than general cleaning. 26 Sweden cialised services, multi-service solutions and facili- The component, “Acquisitions, net”, indicates 28 Norway 29 Germany ties management for both the private and public the net growth from acquisitions and divestments, 30 Austria sectors. as a percentage of turnover. 30 Slovenia 30 Greece The services offered in any one country vary 30 Czech Republic according to demand and the immediate capacity aim2002 targets 30 Slovakia of the local ISS organisation. The current geo- The target level for full-time employees for the 30 Hungary 30 Poland graphical availability of specific ISS services is Group as a whole, set out in aim2002, is 80%, 31 Switzerland and Italy shown in the matrix on page 20. The ISS country identical to the target for specialisation, which 32 Finland 33 Belgium and Luxembourg organisations are listed by size of turnover in should also reach 80% by the year 2002. These 33 Netherlands Danish kroner. goals are central elements in the transformation of 34 France ISS into the Leading and Most Innovative 34 Portugal 35 Brazil Financial figures and aim2002 International Service Enterprise. 36 China In the following country reports, the key figures of 36 Hong Kong SAR 37 Singapore each country are contained in tables adjacent to 38 Thailand the text, providing a three-year comparison. It 38 Malaysia 39 Indonesia should be noted that the operating profit is stated 39 Brunei before other Income and Expenses. 39 Sri Lanka 22

Country Reports

Denmark Denmark ISS Tele Response is a telecommunications message and answering service centre that pro- DKKm 1998 1997 1996 In 1998, the total turnover of ISS Denmark vides personal around-the-clock specialised service Turnover 2,072 2,035 2,005 increased by 1.8% to DKK 2,072m. When adjusted and back-up functions to many large companies Operating profit 150.3 136.9 127.4 for the effect of the sale of ISS Darenas in 1997, – in addition to ISS. The company also performs Operating margin 7.3% 6.7% 6.4% the turnover growth was 4.7%. Operating profit telemarketing analyses. ISS Tele Response achieved Employees 10,646 10,708 10,508 advanced strongly by 9.8%, improving the an increase in turnover of 20% and doubled its do. full-time 49% 43% – operating margin to 7.3% against 6.7% in 1997. number of employees during 1998. Specialisation 54% – – Another result in the IT area is the co-operation Specialisation between ISS Skadeservice (after-damage services) Turnover growth, in % Specialisation has for the past 10-15 years proven and the insurance company Codan concerning the Organic growth 2.8 3.2 4.3 to be the appropriate strategy in the Danish development of a PC-based system for claims Acquisitions, net (1.0) (1.8) 1.8 market. The market for general cleaning services handling with online access to digital photographs Currency effect – – – is characterised by a large number of competitors from the damage site, direct assessment, etc. This Total 1.8 1.5 6.0 and price is the key parameter when competing provides more effective handling of claims to the for business. Despite the increase in competition benefit of insurance customers and employees of within general cleaning, ISS has improved its Codan. The concept will be offered to other insur- profit through the introduction of several initia- ance companies later. tives to ensure high quality performance. Within its line of business, ISS remains the undisputed Care for children and the elderly market leader in Denmark. The Danish market for childcare and care for the elderly opened up in 1998. ISS Junior Service Business development established its first kindergarten in August 1998. The general cleaning segment and ISS Teamservice, In the beginning of 1999, ISS entered agreements continues to develop according to expectations regarding the management of another five with regard to both turnover and profit. childcare centres. ISS Senior Service signed three ISS Denmark’s segments for special services contracts with the public sector covering care for currently account for 54% of turnover and will be senior citizens. expanded continuously to meet demand. Intense press coverage concerning bacteria in Greenland food led to higher market requirements for ISS Denmark has provided management and hygiene in this area and contributed to an increase advisory services in Greenland for several years, in turnover for ISS Foodservice which covers the and in 1998 a partnership was formed with meat-processing industry, dairies, bakeries and Godthåb Gruppen, establishing ISS Grønland A/S. other food producers. New concepts, such as The company primarily services the fishing indus- “Deep Cleaning”, have helped to ensure that ISS try, but also covers daily cleaning, hotel services, fulfil these requirements. catering and other services for the mineral and oil ISS Catering benefited from the outsourcing exploration industry. of canteen services by many private and public companies. This development fits well with ISS’s Training aim for a higher degree of specialisation, and has ISS Denmark’s employees are continuously offered resulted in an increase in turnover of 9% com- training and in 1998, 25% of the employees pared to 1997. attended seminars arranged by ISS Denmark. ISS Building Maintenance entered a co- During 1998, ISS trained about three times as operation agreement with the largest property many front line service employees as in 1997 company in Denmark, Ejendomsselskabet Norden under the Labour Market Training Scheme in sub- A/S. The agreement has led to improved technical jects such as basic working techniques and quality competence in energy management, which along awareness, with ISS managers participating as with other specialised services covering ventilation instructors. and humidity control has secured ISS Building Maintenance the position of market leader. 23

Multi-service contract for TNT Danmark Country Reports TNT Danmark is a courier company, which delivers packages and mail worldwide. The company is owned by the Royal Dutch Post Office. From what was initially a general cleaning service contract, the TNT contract has expanded over the past three years to a comprehensive multi-service solution, where ISS Denmark today provides eight different services. TNT Danmark also co-ordinates the service delivery for TNT Scandinavia, where ISS has similar contracts.

Landscape service Snow clearing and maintenance of outdoor Window cleaning areas

Property advising Advising on the selection of materials Catering for construction in Norway

Industrial service Telephone and computer cleaning Warehouse cleaning

Daily cleaning Indoor climate service with dust sampling and analysis and oil treatment of wooden floors 24

Country Reports

United Kingdom and Ireland United Kingdom and Ireland New PFI-related contracts also enabled ISS Cleaning Services to continue its strong perfor- DKKm 1998 1997 1996 In the United Kingdom and Ireland, ISS increased mance and to make a significant contribution to Turnover 2,068 1,888 1,413 combined turnover by 9.6% in 1998 to DKK the overall ISS UK results. Operating profit 143.6 120.5 76.1 2,068m with operating profit rising by 19% to To further underpin this improvement, ISS Operating margin 6.9% 6.4% 5.4% DKK 144m. The operating margin rose to 6.9% Cleaning Service has invested substantially in Employees 23,386 21,272 22,924 from 6.4% in 1997. management development and in IT-based cus- do. full-time 25% 33% – The underlying improvement was even better, tomer support systems expected to give the com- Specialisation 64% – – as the disposal in December 1997 of ISS Darenas pany a competitive advantage in customer reten- Ltd. had a negative impact on turnover growth tion and business development. Turnover growth, in % and operating profit. Excluding the effect of the Organic growth 11.0 15.1 10.8 sale of ISS Darenas, the continuing business in the Business development Acquisitions, net (3.3) (0.2) 4.9 UK and Ireland achieved a 23% increase in In 1998, ISS London added more prestigious Currency effect 1.9 18.7 2.4 turnover and a 37% surge in operating profit. names from the financial services sector to its cus- Total 9.6 33.6 18.1 The operating companies demonstrated a very tomer portfolio, including Morgan Stanley and strong performance, in particular ISS Mediclean, Dresdner Kleinwort Benson. ISS Cleaning Service and the newly acquired ISS The acquisition of Airspeed has given ISS a Airspeed. ISS Ireland also had a very successful significant presence in the important airport sector 1998 with turnover growth fuelled by healthy and the company has achieved strong growth in organic growth. turnover and operating profit. In 1998, the development of specialised, higher ISS Transport developed its rail business strong- margin services continued, now accounting for ly in 1998, securing a contract to clean and service 64% of turnover. The hospital service company, the Heathrow Express line and signing a new ISS Mediclean, constitutes the Group’s largest contract with Eurostar, the high-speed London- dedicated special service company, with a 1998 Paris-Brussels rail link. turnover of approximately DKK 790m. The slow evolvement of outsourcing in food manufacturing continued to constrain the expan- PFI contracts sion of the contract portfolio in this segment. ISS Developments in the market for contracts under Food Service nevertheless achieved strong organic the Private Finance Initiative (PFI) accelerated in growth, adding more sites and services for existing 1998, benefitting ISS Mediclean. This market is customers. Demand for full facilities management expected to grow in areas outside public sector was also on the rise in 1998. healthcare, as well as in the commercial arena. To In Ireland, the business development focus is enable it to capitalise on the opportunities offered primarily on the key account, transport and food by PFI, ISS UK has made specific structural changes segments. which aim at improving the company’s competi- tive position in the PFI market. ISS sees major Personal development opportunities to develop its PFI business outside As stated in aim2002, ISS continuously develops the sectors it has targeted so far. all its employees’ competences in order to During 1998, ISS Cleaning Services secured constantly meet the business demands from cus- ground-breaking new contracts under PFI schemes, tomers. In 1998, ISS UK put 70 senior managers including a five-year, GBP 44m contract to provide through personal development and training pro- a range of services at 500 Department of Social grammes and employed the ISS 5-Star programme Security (DSS) sites in England. In April, ISS across the organisation. Mediclean signed a 30-year, GBP165m PFI-contract to provide facility services and management for the Hairmyres & Stonehouse Hospitals NHS Trust in Scotland. ISS Mediclean significantly increased its operating profit as a result of introducing new management control processes and by moving increasingly into specialised higher margin services. 25

Multi-service partnership with King George Hospital Country Reports Redbridge NHS Trust is a large multidisciplinary trust providing both acute, mental health and community based services in East London. The ISS/Redbridge working partnership started in 1993 and is today one of ISS’s largest and most prestigious multi-service contracts. ISS serves 20,000 meals and performs more than 1,000 portering tasks a week, cleans in excess of 50,000 m2 a day and manages over 1,000 car parking spaces. ISS also runs a café and a gift shop.

Mailroom service Sorting and delivery of internal mail

Restaurant Restaurant for employees and visitors

Portering Transportation of patients, Catering for patients linen and clinical waste Control of food quality, delivery and serving

Retail outlet Sale of kiosk items in the wards and the shop

Delivery of oxygen cylinders, blood samples and blood plasma

Cleaning Covering outdoor premises, operating theatres, corridors, wards and living rooms

Car park management Payment control 26

Country Reports

Sweden Sweden Product development As part of its business development, ISS Sweden DKKm 1998 1997 1996 In 1998, ISS Sweden achieved an increase in turn- has implemented new operational concepts for Turnover 1,741 1,504 1,479 over of 16% to DKK 1,741m, and an improvement the specific service areas. One example is “Result Operating profit 110.5 103.2 100.4 in operating profit of 7% to DKK 110.5m. Defined Cleaning” introduced in the cleaning and Operating margin 6.4% 6.9% 6.8% During 1998, the contract portfolio rose by a maintenance area. This is based on a definition of Employees 10,560 8,940 9,005 healthy 23%, of which an impressive 16% was due four levels of quality within which work is do. full-time 65% 58% – to organic growth and 7% arose from acquisitions. planned and followed up. This means less use of Specialisation 24% – – The significant organic growth is a result of a con- frequency checks, a higher degree of focus on the siderable improvement in customer retention, an end result and flexibility in the execution of the Turnover growth, in % area to which ISS Sweden successfully has devoted work. Furthermore, the concept is compatible with Organic growth 8.1 0.1 9.2 substantial resources in recent years. the future international standard for cleaning, Acquisitions, net 10.1 1.6 9.6 The falling unemployment rate in Sweden in CEN/TC-328. Currency effect (2.5) 0.0 10.0 1998 caused a rise in labour costs which was not Another initiative within product development Total 15.7 1.7 28.8 fully offset by price increases. This meant that the is the establishment of a development centre in operating margin compared to 1997 fell by Vittsjö, in Southern Sweden, where ISS Care 0.5 percentage points to 6.4%. Service develops service concepts for care for the elderly and the disabled. The work primarily Outsourcing targets four areas: management, qualification, The Swedish market for services is currently charac- quality development and research. terised by a rising degree of outsourcing as compa- nies increasingly focus on core business activities. Employee and customer analyses This is also the case in the public sector, where As a service business, ISS Sweden’s ability to com- private companies are invited to tender for many pete is closely related to its ability to foster its services within the healthcare sector. Care for the employees’ competence and satisfaction. With elderly and disabled is also subject to outsourcing. assistance from external, independent consultants The privatised part of this market is currently ISS Sweden carries out annual evaluations of estimated at 8% of the total market potential. employee and customer satisfaction. The results provide valuable information in the ongoing Business development programmes for quality improvement and cus- The special service areas of food hygiene services, tomer retention at ISS. healthcare services and care service have grown At the end of 1998, 65% of the employees were sharply in 1998 with a number of new contracts, working full-time. A special initiative in Western including the University Hospital in Linköping Sweden brought the proportion of full-time and the Karolinska Hospital in Stockholm. In addi- employees to 80% in that region within a year. tion to the many new contracts, improved client Similar efforts throughout the country are expect- loyalty has enabled ISS to expand the amount of ed to bring the countrywide proportion to the business with existing customers. same level in the future. In accordance with aim2002, ISS Sweden has established new specialist service businesses within industrial services, airport services and retail services. These new market segments have been set up partly through ISS’s own development of the areas and partly through acquisitions.

Acquisitions In the course of 1998, ISS Sweden made seven acquisitions, strengthening ISS’s market position in the special service segments. As a result, 24% of the company’s turnover is presently derived from special service segments. 27

Development centre in Vittsjö Country Reports In Southern Sweden, ISS Care Service has opened a development centre exploring new care concepts for the elderly and the disabled. The centre provides a framework for increased training and innovation within care service with the participation of researchers from universities and other institutions of higher education. Here an environment is formed with the aim of enhancing the quality of care service throughout Scandinavia.

Quality training of ISS Care Service employees Development and research within care for the elderly and the disabled

Daily cleaning Cleaning of flats and living rooms

Rehabilitation and habilitation Physiotherapy and work therapists activate the residents to stimulate the physical and mental functions

Swimming pool Cleaning and maintenance of technical equipment

Catering for residents Preparation, delivery and serving of meals

Outdoor premises Gardening, maintenance, snow clearing etc. 28

Country Reports

Norway Norway management solutions for several years, and in line with the Group’s specialisation concept, DKKm 1998 1997 1996 In 1998, ISS Norway maintained the impressive facilities management was established as an Turnover 1,714 1,409 1,204 performance that has characterised the company independent operating unit in 1998. Operating profit 105.0 85.0 72.1 in recent years. This is a result of the professional Operating margin 6.1% 6.0% 6.0% and focused work with long-term quality develop- New companies Employees 6,290 5,515 5,545 ment, in which ISS Norway has invested since the In 1998, ISS Norway acquired the highly-reputed do. full-time 45% 47% – beginning of the 1990s. This has led to an increase Vaktmester Kompagniet A/S, a property service Specialisation 34% – – in customer satisfaction and loyalty, thereby nour- company with an annual turnover of approxi- ishing organic growth. mately DKK 117m. The acquisition, effective Turnover growth, in % In 1998, total turnover increased by a substan- 1 January 1999, enhances ISS’s leading market Organic growth 14.2 10.5 15.4 tial 22%, of which 14% was organic and 12% position in property and landscape services. Acquisitions, net 12.3 2.6 7.0 came from acquisitions. Operating profit rose by Together with the Norwegian postal service, Currency effect (4.9) 4.0 1.5 23%, resulting in an operating margin of 6.1% Posten ISS established a joint venture, Postens Total 21.6 17.1 23.9 against 6.0% in 1997. renhold AS. Posten and ISS respectively hold 85% Outsourcing of services in the public sector was and 15% of the shares in the company. The joint continuously debated in 1998, and the general venture has taken over 1,400 employees from attitude towards closer co-operation between pub- Posten, and this co-operation is expected to lead lic and private companies developed favourably. to substantial savings in operating costs at Posten. The newly established partnership is based on ISS’s Specialisation positive experiences from other large partnership In line with aim2002, ISS Norway has increasingly projects, such as Telenor Renhold og Kantine A/S, focused on the development of its specialised a joint venture operated in partnership with services and achieved increased market shares in Telenor, the Norwegian national telecommunica- catering and care services. The latter encompasses tion company. a successful new concept for running the care centre Risenga Bo- og Omsorgscenter in Oslo, for Human resources and education which ISS has received very positive feed back. The number of employees increased by 14% in ISS’s care service has been covered in the media 1998, partly due to of the above mentioned on several occasions and this has positively contri- contracts and acquisitions. ISS’s programmes for buted to awareness of the company. employee development have made the company More resources have been devoted to expanding an attractive employer in the service industry. the specialised property, industrial and after- In 1998, ISS Norway was awarded the Training damage services, partly through acquisitions. Prize of the Industry and Commerce Federation These market segments, in which ISS Norway is (Næringslivets Hovedorganisasjon), partly due to the market leader, are expected to develop very the company’s good educational provision for all strongly in the years ahead. employees. Emphasis in 1998 was on management The demand for facilities management solu- development in particular, with ISS combining tions is also expected to grow substantially in efforts with the Oslo business school, Handelshøy- the years ahead. ISS Norway has offered facilities skolen to develop two management programmes, one of which now forming part of the Norwegian educational programme.

Technology ISS Norway has upgraded its information tech- nology systems and will in the beginning of 1999 implement a new market analysis and sales man- agement system. This will improve the ability of ISS Norway to closely monitor the development of the company’s business. 29

Country Reports

Germany has initiated a redesign of its organisational struc- Germany ture, which will enable the company to continue ISS in Germany was transformed in 1998 with the process of transforming the operational activi- DKKm 1998 1997 1996 the acquisition in July of NWG Holding GmbH, ties into dedicated, customer focused companies Turnover 1,161 442 506 the second largest general cleaning company in in highly specialised service segments. Operating profit 68.2 7.8 19.4 Germany and Europe’s largest hospital cleaning Operating margin 5.9% 1.8% 3.8% company. The business environment Employees 23,393 6,217 7,134 The acquisition of NWG was the dominant ISS-NWG is a trendsetter in Germany in public/ do. full-time 44% 15% – event of the year and represented the Group’s private sector partnerships, as exemplified by the Specialisation 59% – – biggest acquisition to date. The second half of comprehensive multi-service contract with the 1998 was therefore largely devoted to integrating local authority in Duisburg (see illustration on Turnover growth, in % ISS and NWG and realising the synergies from page 19). Organic growth (9.3) (11.6) (14.4) bringing the two companies together. The new As a result of changes in the social and political Acquisitions, net 172.0 – 12.6 parent company for Germany, ISS-NWG Holding environment in Germany, competition between Currency effect (0.0) (1.2) (1.4) GmbH, is headquartered in Duisburg, where the service providers to the healthcare market has Total 162.7 (12.8) (3.2) NWG head office was located. intensified. Prices have come under increasing As part of the acquisition of NWG, ISS took pressure and competitive bidding processes have over three hospital service joint ventures in Russia, become fiercer. The general trend towards out- Turkey and China. sourcing of service-related activities continues. Reflecting the NWG acquisition, ISS’s turnover A key issue in the German healthcare sector is in Germany in 1998 rose by 163% to DKK 1,161m, the practice of setting up service companies with while operating profit increased sharply to DKK hospitals as partners, as a means of dealing with 68.2m. NWG figures were only included for the the fact that municipal institutions, such as second half of 1998. hospitals are not allowed to recover value added The losses of contracts in NWG following the tax. Joint ventures between private service pro- acquisition have been minimal and more than viders and hospitals are therefore widely used in compensated for by new sales. the service industry, as a way of dealing with the VAT disadvantage. ISS-NWG is strengthening its Integrating NWG and ISS position in such hospital service companies on a The process of integrating NWG and the smaller long-term basis, as it sees significant future busi- existing ISS organisation began immediately after ness growth in this area. the acquisition was announced in June 1998. The Major new contracts in 1998 were Herzzentrum integration is proceeding according to plan under Bad Oeynhausen, Uniklinik Würzburg, Forschungs- the management and organisation of NWG. zentrum Karlsruhe, RWE Essen and Citicorp, The Munich headquarters of the ISS company Düsseldorf. for Germany, ISS Holding GmbH, was closed in mid-October and all country management func- tions of the newly formed ISS-NWG were moved to NWG’s head office in Duisburg. Operations were largely integrated by the end of 1998, indicating the priority given to this task. Management will continue to fine-tune integration with a view to wholly realising during 1999 the synergies antici- pated from the process. In line with the goals stated in aim2002, the acquisition of NWG has established ISS as the market leader in hospital services in Germany. Following the NWG acquisition, the share of turnover from specialised services in Germany was 59% in the combined business. In line with the Group’s strategic vision, and in continuation of the integration process, ISS-NWG 30

Country Reports

Central Europe Central Europe joint venture with Austrian Airlines, ISS Airest, continued to develop and expand its airport and DKKm 1998 1997 1996 Central Europe, embracing Austria, Slovenia, Greece, aircraft cleaning, and non-food provisioning. Turnover 860 777 690 the Czech Republic, Slovakia, Hungary and Poland Key contracts in Austria in 1998 included Operating profit 50.7 49.5 44.3 increased turnover by 11% to DKK 860m in 1998, Interspar, Sappi, BCD, PCD-Borealis, UCI, Becom Operating margin 5.9% 6.4% 6.4% while operating profit increased by 3% to DKK and Belvedere. Employees 9,219 9,133 7,032 50.7m. The operating margin decreased to 5.9% do. full-time 62% 61% – from 6.4% in 1997 reflecting heavy start-up costs Slovenia Specialisation 34% – – on a number of new key contracts. ISS entered an extensive agreement to service more One of the initiatives taken to release capital than 60 petrol stations including motels, restaurants Turnover growth, in % tied up in assets was a sale and rent back arrange- and outdoor premises. ISS Slovenia was also Organic growth 11.2 13.7 9.9 ment with LeasePlan regarding motor vehicles. awarded a multi-service contract providing Acquisitions, net 0.1 0.4 (12.6) These will be sold to and managed by LeasePlan in cleaning, internal transportation of patients, blood Currency effect (0.6) (1.5) (2.2) the course of 1999. supplies and food at Ljubljana Hospital. The Total 10.7 12.6 (4.9) specialised food service operations of ISS Slovenia Market developments were also strengthened in 1998. The market trend towards outsourcing continued in 1998. The countries undergoing transformation Greece from communist plan economies to market ISS secured two new hospital contracts, including economies have shown undiminished interest in the University Hospital of Larisa, thereby extending outsourcing and upgrading support services, the company’s geographical range outside the two unaffected by the serious setbacks suffered by main cities, Athens and Thessaloniki. important neighbours, such as Russia and Ukraine. The specialisation and segmentation of ISS’s Czech Republic services in Central Europe progressed rapidly in ISS has invested in specific competences within 1998, in line with aim2002. In particular, specia- industrial cleaning targeted at the automotive lised services for the hospitals advanced, with sector. As part of the Group’s international strong hospital service capabilities now present in development of its specialised services, a Centre of Austria, Slovenia, Greece, Slovakia and Poland. Excellence within automotive paint shop cleaning Services targeted at the automotive industry and maintenance was established in January 1998 and food manufacturers also developed positively, in the Czech Republic. the latter especially in Austria and Hungary. Slovakia Full-time employees ISS became market leader in the hospital service The strategic target of 80% of employees working sector and acquired Jakabb, a street cleaning and full-time for ISS has been largely achieved in ISS snow clearing company. ISS also entered the food Central Europe’s constituent countries, except for service segment, through a contract with edible oil Austria and Greece, where the percentage of full- producer Palma. time employees were 54% and 31% respectively. Hungary Austria ISS strenghtened its position in the food segment ISS in Austria increased turnover in 1998 by organic and is now market leader in this area. growth of 3% to DKK 606m, but saw a slight dip in operating profit. The company gained a number Poland of significant new contracts including two hospital The public hospital system in Poland has changed service contracts in Bregenz. The launch of the to a system of self-financing, a development Team Service concept, pioneered by ISS Denmark, expected to fuel the demand for efficient and high was adopted successfully by the Austrian ISS quality service solutions. ISS continued to develop organisation in 1998. Team Service consists of small its hospital service business accordingly. ISS teams of employees servicing a number of customer increased its ownership of ISS Poland from 60% sites each day. This concept has proved particularly to 80%. efficient for smaller contracts in urban areas. The 31

Country Reports

Switzerland and Italy In 1998, a major international organisation Switzerland and Italy in Geneva awarded ISS a novel new contract for In 1998, the turnover of ISS Switzerland (including personnel transport, involving shuttle services at DKKm 1998 1997 1996 ISS’s operations in Italy) increased by 7.4% to DKK its sprawling Geneva premises. Turnover 855 796 784 855m, while operating profit decreased slightly by Operating profit 59.2 61.9 55.9 4% to DKK 59.2m. As a result, the operating mar- VAT disadvantage Operating margin 6.9% 7.8% 7.1% gin decreased to 6.9% in 1998 from 7.8% in 1997. In the Swiss public healthcare sector, ISS and other Employees 5,962 6,019 5,630 The operating profit was heavily impacted by private service providers face a serious price dis- do. full-time 37% 32% – start up costs on several major multi-service con- advantage, compared to in-house operations, as Specialisation 52% – – tracts. Furthermore, earnings were under pressure the public hospitals are unable to recover value- due to weaker performance in the food service seg- added tax (VAT), if services are outsourced. VAT is Turnover growth, in % ment. currently 7.5% but is expected to rise to 10% in Organic growth 0.9 4.6 20.7 ISS consolidated its position as market leader in coming years. In 1998, the VAT issue caused several Acquisitions, net 4.9 – 30.9 cleaning and multi-service provision in Switzer- hospitals, which had earlier outsourced support Currency effect 1.6 (3.0) (1.0) land. The company’s multi-service concept, which services, to take such operations back in-house. Total 7.4 1.6 50.6 is considered key to its long term competitive In order to overcome the VAT disadvantage and advantage, was further developed during 1998, the detrimental effect it is having on the hospital when several new service components were added service market, ISS is evaluating with its tax to the existing range of multi-service elements. advisers alternative ways of organising public/ Such new components included petrol station private co-operation projects in the future. service, painting service, lighting service, office furniture service, hygiene service and personnel Employees transportation. The increased focus on multi-service provision The strong focus on specialised services and means that ISS in Switzerland has reduced the multi-service solutions has resulted in 52% of the proportion of employees working part-time, as turnover being generated by specialised services. multi-service activities primarily require full-time specialist employees. At year-end 1998, 37% of the New contracts employees were employed on full time basis, up In October 1998, ISS signed a major new contract from 32% a year earlier. with Swisscom, the newly privatised Swiss tele- communications company. Under the contract, Acquisitions ISS and Swisscom Real Estate Ltd., a subsidiary of ISS entered the Italian market in June 1998 with Swisscom, established a jointly owned company, the acquisition of Robustelli SA, a cleaning compa- ISS COMMulti-service AG, which from January ny in Varese, Northern Italy, close to the Swiss 1999 took over the housekeeping and cleaning of border. ISS expects strong demand for multi-ser- all Swisscom facilities. ISS holds more than 80% of vice solutions in the highly developed region of the shares in the joint venture, which has 1,600 Northern Italy. employees and an annual turnover of approxi- The move into Italy was followed in July by the mately DKK 110m. The Swisscom contract is par- acquisition of Manzoni SA, a cleaning company ticularly important, as it represents the first major based in Lugano, in the Italian-speaking Ticino outsourcing of building maintenance and cleaning region of Switzerland. by a privatised Swiss company. The innovative partnership with Swisscom is seen as opening the way for similar large-scale outsourcing agreements. Other significant new contracts signed in 1998 included a cleaning contract for Nestlé’s World Headquarters in Lausanne. This has given ISS a good reference for other tenders which this key account customer is organising. ISS took over the cleaning staff at Nestlé’s headquarters in January 1999. 32

Country Reports

Finland Finland highly specialised services but is still delivered as part of the company's general service provision. DKKm 1998 1997 1996 ISS Finland’s turnover amounted to DKK 759m in In the future, these services will be performed Turnover 759 620 573 1998, an increase of 22% compared to 1997. This increasingly by new dedicated companies spe- Operating profit 45.2 41.3 32.3 substantial increase was due to a combination of cialising in specific service areas and customer Operating margin 6.0% 6.7% 5.6% organic growth of 5% and four acquisitions which segments. Employees 6,301 4,394 4,473 contributed with 19% to turnover growth. do. full-time 69% 55% – In 1998, the operating profit increased by 9% Acquisitions Specialisation 33% – – to DKK 45.2m. In 1997, the operating profit and In 1998, ISS acquired four companies in Finland: operating margin were positively influenced by a Mikonmäen Huolto Oy, Kehäyhtiöt Oy, Talotek Oy Turnover growth, in % one-off lease payment. and Yhdyshuolto Oy. The companies mainly Organic growth 4.7 0.5 (4.3) The economic situation in Finland was stable operate in property service and facilities manage- Acquisitions, net 19.2 6.9 11.1 in 1998, and unemployment was down slightly ment and will strengthen ISS’s leading position in Currency effect (1.5) 0.8 (1.6) compared to 1997. As a result, labour market these areas as well as contribute to an increase in Total 22.4 8.2 5.2 tightened somewhat in 1998, especially in the future organic growth. Southern part of the country, a development which had a slightly negative impact on the Human resources and education operating profit. Apart from this, ISS’s business The organic growth and acquisitions are reflected developed very favorably, and ISS Finland rein- in the number of employees, which grew by 43% forced its position as market leader in all its in 1998. ISS Finland has introduced a system for segments, including its newly developed strategic remuneration, which rewards employees who con- business areas of care service, service management tribute to maintaining a high degree of customer and facilities management. satisfaction and loyalty. This system has helped ISS to attain a level of customer satisfaction, which is Outsourcing higher on average than that of its competitors in In Finland there is a clear tendency for companies Finland. In 1998, approximately one third of ISS to focus more on their core activities and outsource Finland’s employees received special remuneration peripheral functions to external suppliers. An for good performance. This reflects a high level of estimated one third of the Finnish market for ser- customer satisfaction. vices supplied by ISS is currently outsourced, while Another initiative that will strengthen ISS’s the remaining two thirds are still performed in- management resources in Finland in the long-term, house. is the collaboration with Jyväskylä Polytechnic, where an ISS-specific MBA programme has been Focus on the environment established, with the first post-graduates expected In the course of 1998, ISS Finland devoted sub- to qualify during 1999. ISS is also an active mem- stantial resources to implementing quality control ber of the Centre for Relationship Marketing and and environmental systems which comply with Service Management at the Swedish-language the ISO 9001 and 14001 standards. Internal ques- School of Economics and Business Administration tionnaires, as well as customer assessments accord- in Helsinki. ing to the European Quality Award criteria, are used to ensure that customers and employees are Branding satisfied with the services provided. The above initiatives, combined with a systematic internal and external communication process have Specialisation enabled ISS to become the most recommended In keeping with the aim2002 strategy, ISS Finland service company among its customers. is in the process of specialising and segmenting the company's service offering. In 1998, 33% of the turnover was generated by operating units which have specialised in service solutions for specific customer segments, such as hospitals, the food industry, etc. A significant part of the remaining 67% of the turnover also consists of 33

Country Reports

Belgium and Luxembourg service contract replaced the general cleaning Belgium contracts ISS previously had with Sunparks. In 1998, ISS Belgium increased turnover by 12% to The July acquisition of Van Den Steen, a well- DKKm 1998 1997 1996 DKK 528m. Organic growth reached 6.7% reflect- established cleaning company, gave ISS market Turnover 528 470 441 ing major new contracts and extension of existing leadership in the Belgian cleaning market. Elma Operating profit 38.8 38.9 35.8 contracts. The first Belgian acquisition for 10 years Cleaning, a specialised service company operating Operating margin 7.3% 8.3% 8.1% added 5.7% to turnover growth. in the food segment, was also acquired in July. Employees 3,132 2,856 2,878 The profitability in the Belgian service industry Specialised services generated 22% of turnover do. full-time 39% 35% – remained under pressure from high wage costs, in 1998. Following the above acquisitions, the Specialisation 22% – – and the operating margin in ISS Belgium dropped percentage of specialised services has increased from 8.3% in 1997 to 7.3% in 1998. to 25%. Turnover growth, in % A Job Bank database is being introduced to Organic growth 6.7 8.0 4.2 New contracts and acquisitions allow ISS and its customers to better match jobs Acquisitions, net 5.7 – – New contracts were added in the retail sector with and resources. It is expected to increase average Currency effect (0.0) (1.4) (1.5) Makro and GIB, and ISS extended key contracts hours per employee per week to 25 or more from Total 12.4 6.6 2.7 with the Ministry of Defence, Hospital St. Jan and the current level of 24 hours. Sunparks, the large Belgian holiday park company. The Sunparks contract was highly innovative, Luxembourg deploying tailormade software and including ISS in Luxembourg continued to focus on cleaning services related to technical maintenance and contracts for major financial and government inventory for some 3,000 holiday homes, hotels institutions. ISS secured new activities in the and sub-tropical swimming pools in the Ardennes principality through the acquisition of NWG in mountains and the coastal region. The multi- Germany.

Netherlands procedures approved by the works council. In the Netherlands second half of 1998, this effort resulted in a reduc- In 1998, ISS Netherlands maintained its turnover tion in the cost of absenteeism at ISS Netherlands DKKm 1998 1997 1996 at DKK 521m, effectively unchanged from the to below the Dutch average. Turnover 521 515 493 level of the previous year. Operating profit, how- In order to improve the return on capital Operating profit 24.2 39.3 41.1 ever, dropped sharply to DKK 24.2m from DKK employed, the head office of ISS Netherlands will Operating margin 4.7% 7.6% 8.4% 39.3m in 1997, due to a higher cost of absen- be sold and rented back, and the company’s Employees 5,094 5,417 5,111 teeism, higher wages and strong downward pres- distribution and warehousing functions will be do. full-time 21% 19% – sure on prices. outsourced. Specialisation 41% – –

Increased cost of absenteeism The market Turnover growth, in % Increased absenteeism was a general occurrence The specialist segments of food service, healthcare Organic growth 0.3 6.1 6.6 throughout the Dutch labour market in 1998, services and transport and terminal services Acquisitions, net – – – partly an effect of the low unemployment rate, achieved considerable turnover growth in 1998, Currency effect 0.8 (1.6) (1.5) which decreased to 3.8% in 1998. The increased while the turnover in the general cleaning seg- Total 1.1 4.5 5.1 cost of absenteeism was also due to a change in ment declined. A number of major accounts, labour market regulation in 1996, the full-year including the electronics group Philips, were suc- impact of which came in 1998. The legislation cessfully re-tendered in 1998, but profit margins requires employers to pay all costs of employees were reduced. being absent due to illness for a prolonged period Further specialisation and multi-service capa- of time. ISS implemented new measures including bility were developed in 1998 as part of the com- closer monitoring of absence, workshops and pany’s strategy to improve organic growth and training programmes, the establishment of the ISS profit margin. Middle Management School and new standard 34

Country Reports

France France Major hotel cleaning customers include Disney- land near Paris and the Accor hotel chain. The DKKm 1998 1997 1996 ISS in France produced a robust 29% increase in hotel cleaning services now account for 25% of Turnover 265 206 209 turnover to DKK 265m in 1998, but the operating the total turnover in France, and the hotel service Operating profit 9.8 12.0 12.0 profit declined to DKK 9.8m from DKK 12m in business was a major contributor to the healthy Operating margin 3.7% 5.8% 5.7% 1997. The decline mainly reflected new regula- organic growth in France in 1998. ISS is market Employees 2,902 2,826 2,244 tions on social charges, introduced by the French leader in ski resort cleaning, and the leisure do. full-time 41% 43% – government, which imposed higher costs on ser- market segment now accounts for 12% of ISS Specialisation 13% – – vice companies. France’s turnover. The French economy continued to suffer from ISS’s cleaning contract on the Eiffel Tower has Turnover growth, in % high unemployment, which contributed to keep- been extended to include new special services, Organic growth 19.7 (1.6) (22.4) ing service prices under pressure. In addition, all such as computer cleaning and specialised clean- Acquisitions, net 8.9 – 78.7 the major international service providers are now ing for major events. Currency effect 0.4 (0.2) 1.0 established in France, which has led to intensified In May 1998, ISS France acquired the cleaning Total 29.0 (1.8) 57.3 competition. company Union Maintenance SA, gaining entry to Despite the very difficult market conditions the Alsace region and contracts at Basle Airport. prevailing in France during 1998, ISS France suc- The acquisition was part of ISS’s strategy to ceeded in achieving an impressive organic growth expand geographically outside the Greater Paris of 20%. and Savoie regions.

Business expansion ISS in France has developed a substantial hotel cleaning operation, which showed continued strong growth and improved performance.

Portugal Portugal Gourmet and Cateringpor (Sky-Chef) will be the first to benefit from this specialised service. DKKm 1998 1997 1996 ISS Portugal achieved substantial growth in turn- ISS Portugal’s market strengths can be gauged Turnover 126 109 102 over and profitability in 1998, a year in which the particularly well from the leading position it has Operating profit 7.5 5.8 5.0 company benefited from the one-off effect of built up in recent years in the retail segment in Operating margin 6.0% 5.3% 4.9% EXPO ’98 World Exhibition in Lisbon. Turnover which it provides services to a number of the Employees 2,072 1,984 2,344 rose by 16% to DKK 126m. Operating profit was country’s front-rank hypermarkets and shopping do. full-time 44% 40% – 29% higher at DKK 7.5m. malls. Specialisation 3% – – EXPO ’98 represented an event of outstanding In response to growing demand in Portugal for cultural and commercial importance to the Lisbon multi-service solutions for large facilities, ISS is Turnover growth, in % region and the whole Portuguese economy. currently developing its capabilities in additional Organic growth 17.1 5.8 16.9 ISS secured contracts at the exhibition with key services in the transport, pest control and light Acquisitions, net – – 36.4 customers, such as Siemens and Ferrovial, and maintenance segments. Currency effect (1.4) 0.3 0.6 provided 24-hour services to most of the main Total 15.8 6.1 53.9 theme pavilions, such as the Utopia and Future Pavilions. The services provided at EXPO '98 also consti- tuted a major part of the organic growth, which jumped to 17%. In 1998, the major business initiative at ISS in Portugal was the preparation for the launch in 1999 of a specialised, dedicated company for the food segment, to be called ISS Higiene Alimentar. Key customers, such as Knorr, Sara Lee, Gate 35

Country Reports

Brazil The sophisticated multi-service contracts which Brazil ISS has developed with Brahma, Brazil’s biggest Turnover and operating profit brewer, demonstrate that such contracts offer a DKKm 1998 1997 1996 Economic stagnation and price deflation created way forward to expand business into new services. Turnover 554 568 434 serious difficulties for ISS in Brazil in 1998. ISS’s Brahma has integrated ISS service employees close- Operating profit 8.0 20.5 14.9 turnover was maintained at DKK 554m, broadly ly into its production, thereby enabling Brahma to Operating margin 1.4% 3.6% 3.4% unchanged from 1997, but operating profit fell focus increasingly on its core business. Employees 9,545 9,482 9,060 sharply to DKK 8m. do. full-time 97% 95% – Recent fiscal and monetary measures adopted Specialisation Specialisation 30% – – by the government have added to uncertainty In line with aim2002, ISS in Brazil initiated the about future market developments and the diffi- segmentation of its operations in late 1998, creat- Turnover growth, in % cult conditions of 1998 are expected to persist in ing specialised business units. By the end of the Organic growth (4.0) 17.2 25.6 the years ahead. year, it had established dedicated units for food Acquisitions, net – – – hygiene, hospital service, daily industrial service, Currency effect 1.5 13.9 3.5 Business development daily office service and Master Service. Each unit Total (2.5) 31.1 29.1 The government’s privatisation programme has has an exclusive team specialising in its work area. created an entirely new market segment for ISS Multi-service contracts, which currently represent in Brazil, as major utilities and manufacturing 30% of ISS’s contract volume in Brazil, are expect- companies are brought into the private sector. ed to increase further in 1999. This gives ISS an opportunity to seek major new customers, which were unavailable when they Human resources projects were in public ownership. The previously state The human resources department at ISS in Brazil owned steelmaker CSN (Companhia Siderúrgica coordinated and executed various projects in 1998, Nacional) and the power company CPFL mainly in the area of motivation. The projects (Companhia Paulista de Força e Luz) awarded ISS have already given very promising results. One contracts with a combined value equivalent of project is the implementation of an improved DKK 28m a year. decentralised selection process for front line ISS Master Service, which cleans and maintains employees, which has contributed to a reduction condominiums, developed “ISS Viver Bem” (Live in personnel turnover to 5.5% per month, against Well), a unit that guarantees comfort, peace of 8% when the project was initiated in 1996. mind and security to subscribers in emergency or Some 97% of ISS Brazil’s employees are non-emergency situations. “ISS Viver Bem” is a full-time, a level which the company expects to convenience product where subscribers, through a maintain. 24 hour service centre, have at their disposal a In 1998, 600 team supervisors and managers wide range of services, such as household services were put through training and development (electrician, plumber and bilingual chauffeur, etc.) programmes, involving a minimum of 40 hours a and quality-of-life services (babysitter, personal year of training and development through the trainer, etc.). 5 Star Programme and management development A pioneering ISS service development in 1998 programmes. was the Health Services Solid Waste Management Project, which aims to implant the idea of waste segregation in the workplace through a continous education programme. This service is much more than simple waste collection. The aim is to make workers who generate waste products environ- mentally aware and responsible for separating infectious and non-infectious waste, and proper storage and transportation of infectious material. The final destination of waste is a constant preoccupation for health authorities too. This material must be rendered inert, so that bacteria are eliminated. 36

Country Reports

China and Hong Kong SAR China and Hong Kong SAR building cleaning and support service market and enhanced its multi-service capability. DKKm 1998 1997 1996 By far the Group’s biggest market in Asia, ISS in The concentration of state-of-the-art high-rise Turnover 287 179 140 Greater China, with principal activities in Beijing buildings in mainland China and Hong Kong Operating profit 15.0 6.0 4.1 and Hong Kong Special Administrative Region means that service providers must keep up with Operating margin 5.2% 3.4% 2.9% (SAR) increased turnover in 1998 by 61% to world-class technical developments. ISS in Hong Employees 5,701 2,777 2,109 DKK 287m, in spite of a worsening economic Kong holds ISO 9002 certification. do. full-time 73% 69% – climate as this traditionally robust market felt the Specialisation 19% – – effects of the turmoil sweeping Asia. Business development The increase in turnover came from the strate- ISS Hospital Support Services was set up to tap Turnover growth, in % gic acquisition of Reliance Environmental Services opportunities in the target market for hospital Organic growth 0.6 13.9 4.4 in August from Jardine Pacific. Operating profit cleaning services, which will be supported by the Acquisitions, net 58.8 – 71.7 rose to DKK 15m from DKK 6m, despite essentially ISS Asian Hospital Service Centre of Excellence in Currency effect 1.2 13.9 5.5 recession-driven downward pressure on property Singapore. Total 60.6 27.8 81.6 and related service prices in Hong Kong. The The Group’s main strength in Hong Kong is operating margin increased to 5.2% from 3.4%. providing cleaning services to the highly sophisti- cated property sector. Integrating ISS and Reliance ISS’s capabilities in providing services for The Reliance acquisition gave ISS in Hong Kong a large transport contracts secured it a cleaning major opportunity to reinforce its market leader- contract on Hong Kong’s Mass Transit railway ship, strengthen its management team and benefit system and the overland Kowloon-Canton Railway from synergies in a market where both companies Corporation. had their largest Asian operations. In Greater China, where ISS has a joint venture In September, the Reliance and ISS offices in company with China International Trust & Hong Kong were merged at new premises, reduc- Investment Corp. (CITIC), a shopping mall service ing rental costs by more than 70%. Other syner- has been developed. gies have been identified. ISS’s newly-developed food hygiene service in Hong Kong secured its first contract in 1998, a The business environment telephone and computer cleaning service was also The economic downturn has accelerated the trend developed, and ISS Sanitation Services established, towards outsourcing non-core activities, particular- supplying portable toilet facilities, waste equip- ly cleaning and related services. This has been evi- ment rental and related services. dent in key market segments, such as hospitals, Reliance brought the Group its first contract at hotels and food hygiene. Hong Kong’s newly-opened Chek Lap Kok Merging ISS with Reliance has heightened the International Airport, partially offsetting ISS’s con- Group’s competitiveness at the high end of the tract when Kai Tak Airport closed in June. ISS also secured a contract to clean Festival Walk, the largest shopping centre in Hong Kong. In Beijing, ISS won two major new shopping mall contracts – the Sun Dong An Market and The Henderson Centre, and contracts to clean the headquarters of The Industrial and Commercial Bank of China and Motorola’s new regional head office. 37

Country Reports

Singapore Major new contracts also reflected ISS’s Singapore strength in providing service solutions for residen- In Singapore, the Group’s second largest market in tial and commercial properties. At Changi Airport, DKKm 1998 1997 1996 Asia, ISS increased turnover in 1998 by 48% to ISS introduced the first real computer-aided Turnover 159 107 85 DKK 159m, with the effect of the slowdown more cleaning management system on its Terminal 2 Operating profit 0.9 3.5 3.4 than offset by the increase in turnover from the contract. Operating margin 0.6% 3.3% 4.0% acquisition of Reliance, which had significant The integration of the portable toilet rental Employees 3,216 1,102 437 business in Singapore. Operating profit fell business into the former Reliance waste manage- do. full-time 100% 100% – sharply, however, to DKK 1m, mainly reflecting ment company was started and should be com- Specialisation 37% – – increased operating and labour related costs. The pleted in early 1999, creating ISS Sanitation effect of this was a sharp decline in the operating Services, Singapore. Turnover growth, in % margin, which fell to 0.6% from 3.3% in 1997. The ISO 9002 certifications of Reliance and ISS Organic growth (10.4) 18.8 18.1 in Singapore are being integrated with a view to Acquisitions, net 68.2 – 84.4 Integrating ISS and Reliance re-certification in early 1999. Currency effect (9.4) 7.7 5.6 The Reliance acquisition made ISS the clear market The economic slowdown has provided ISS in Total 48.4 26.5 108.1 leader in Singapore and enlarged its range of Singapore with an opportunity to develop perfor- services to include waste disposal, portable toilet mance-based contracts with its customers, instead rental and pest control. The integration of the two of the traditional manpower-driven contracts. companies was completed by October, producing an initial 25% reduction in overhead costs. Combining ISS and Reliance operations has given the Group greater depth in experienced personnel in the highly-developed Singapore market.

The business environment Although the Singapore economy was better able than most countries to withstand the economic turbulence sweeping Asia, the influx of people seeking an economic safe haven prompted the Singapore authorities to take special measures. These included clampdown on foreign workers during 1998, tightening the labour market in the cleaning industry, which has typically relied heavily on non-Singaporeans. ISS fully supports this governmental action as a way of improving future market conditions.

Business development ISS in Singapore continued to develop its leading position in the hospital service market, further strengthening management resources and extend- ing its market leadership by winning an important new contract with Tan Tock Seng Hospital. 38

Country Reports

Thailand Thailand business sentiment and many public works pro- jects remained idle. DKKm 1998 1997 1996 ISS in Thailand, faced with a market in its second In spite of the circumstances, ISS Thailand has Turnover 70 76 67 year of economic crisis, experienced an 8% decline continued its management and employee develop- Operating profit 5.6 6.2 5.9 in turnover to DKK 70m. The operating profit ment programmes nationally. Operating margin 8.0% 8.1% 8.8% eased only slightly to DKK 5.6m from DKK 6.2m Employees 5,390 5,136 3,958 in 1997, in spite of the economic recession. The Business development do. full-time 100% 98% – operating margin decreased slightly to 8.0% from ISS expanded its business to all regions in Specialisation 44% – – 8.1% in 1997. Thailand during 1998, having previously concen- trated almost exclusively on Bangkok. A major Turnover growth, in % Integrating ISS and Reliance focus area in this geographic expansion was Organic growth (7.3) 10.1 3.9 The Thai activities of Reliance were integrated heavy-duty industrial cleaning. A refinery cleaning Acquisitions, net 22.2 8.6 75.2 fully with ISS’s existing business immediately after contract with Esso brought ISS’s market share to Currency effect (23.2) (5.3) 4.0 the acquisition in August. 80% in the segment. Total (8.3) 13.4 83.1 ISS has achieved market leadership in clean- The business environment room cleaning for the semi-conductor industry The economic crisis continued to depress the Thai and in private sector hospital cleaning, following property market in 1998 and led to reduced pro- its 1997 acquisition of a specialised company. ISS’s duction in key industries. Although multi-national strong market position is underlined by the fact investment in Thailand was maintained, a long- that it is the only support service company in running credit squeeze continued to dampen Thailand to hold full ISO 9002 certification.

Malaysia Malaysia specialised services still offer opportunities for high quality service providers. DKKm 1998 1997 1996 The authorities’ efforts to shield the economy Turnover 41 42 34 from the worst turbulence could not prevent the Business development Operating profit 4.1 5.5 4.1 Asian crisis from impacting on Malaysia. ISS in The successful introduction of sanitation service Operating margin 10.1% 13.1% 12.0% Malaysia was, however, able to achieve turnover by ISS added a new specialised service to its Employees 1,878 1,315 1,319 of DKK 41m in 1998, compared to DKK 42m in general cleaning business. The high profile do. full-time 96% 81% – 1997. The operating profit fell back more sharply Commonwealth Games in Kuala Lumpur in Specialisation 0% – – to DKK 4.1m from DKK 5.5m. Although exceeding September brought ISS’s sanitation division its expectations in difficult circumstances, the profit largest order to date. Turnover growth, in % margin eased back to 10.1% from 13.1% in 1997. Within its main competences of general Organic growth 1.0 22.7 11.4 cleaning, hi-tech services and sanitation, ISS in Acquisitions, net 22.8 – 74.2 Integrating ISS and Reliance Malaysia is also developing cleaning services to Currency effect (26.8) 1.9 4.9 In December, ISS’s Malaysian head office was the retail sector. A major new contract was secured Total (3.0) 24.6 90.5 relocated to a Southern district of Kuala Lumpur with Carrefour, the hypermarket group, at and ISS and Reliance staff integrated, bringing a Seberang Prai. sizeable reduction in overheads. The integration of ISS and Reliance is expected to generate new business on several fronts, with The business environment Malaysia’s investment in attracting hi-tech indu- Malaysia continues to offer growth potential for stries likely to produce opportunities for ISS in support services, with highly sophisticated infra- demanding environments, such as cleanrooms for structure projects expected to foster demand from the new Multi-media Service Corridor. modern manufacturing and commerce. Economic slowdown has intensified competi- tion in general cleaning, but areas requiring 39

Country Reports

Indonesia Brunei Indonesia

In an extremely difficult environment, marked by Bad debt from a major customer had a severely DKKm 1998 1997 1996 economic and political turmoil and civil unrest, negative impact on ISS in Brunei in 1998. Turnover 7 13 12 ISS in Indonesia continued to operate with success Turnover decreased from DKK 19m in 1997 to Operating profit 0.4 (0.1) (0.6) in 1998 and even achieved an organic growth of DKK 15m. The operating profit dropped to Operating margin 4.9% (0.4%) (5.4%) 5%. The drop in total turnover of 42% to DKK 7m DKK 1.5m from DKK 4.8m, reflecting the loss of Employees 2,915 1,284 1,265 was entirely due to currency effects. The company certain profitable contracts and client demands for do. full-time 100% 97% – succeeded in producing a small operating profit contract price reductions. The operating margin Specialisation 20% – – after an operating loss in 1997. The operating was more than halved to 10%. margin also turned positive in 1998 to reach 4.9%. Turnover growth, in % Monthly turnover has been doubled by the Business development Organic growth 5.0 14.6 25.8 acquisition of Reliance. Securing a multi-service contract for plumbing and Acquisitions, net 22.7 – 73.8 sanitary maintenance, repair and works with the Currency effect (70.0) (5.9) 2.2 Integrating ISS and Reliance Health Ministry was an important development Total (42.3) 8.7 101.8 Reliance activities in Indonesia are planned to be in 1998. fully integrated with ISS by the first quarter of ISS improved its competitive position by 1999. becoming the first company in the industry to obtain ISO 9002 certification for pest control Brunei The business environment services. ISS lost no contracts in Indonesia in 1998, apart DKKm 1998 1997 1996 from one which was discontinued as the facilities Turnover 15 19 15 were destroyed by fire, and the economic crisis is Sri Lanka Operating profit 1.5 4.8 3.7 seen as an opportunity to take advantage of weak- Operating margin 10.0% 24.7% 24.2% nesses affecting key international competitors. ISS has an associate company in Sri Lanka – ISS Employees 149 184 141 Abans Environmental Services. In 1998, the com- do. full-time 100% 94% – Business development pany, which is market leader in general cleaning Specialisation 62% – – ISS’s special focus in Indonesia is on the provision and maintenance, entered the street cleaning and of cleaning services to hospitals, shopping malls car park management markets. Turnover growth, in % and commercial property. A major new contract secured with the local Organic growth (11.7) 17.9 13.1 In spite of the turbulent conditions, in which Carlsberg brewery is expected to allow greater Acquisitions, net – – 72.0 some ISS customers were targeted by arsonists, the penetration of the food and beverage sector. Currency effect (9.5) 7.9 5.8 cleaning market continued to function, with cus- The company continues to grow and has Total (21.2) 25.8 90.9 tomers in demanding environments, such as hos- secured its first municipal contract with Colombo pitals, making great efforts to assure continuity in City. It is also presently seeking ISO 9002 certifica- service provision. tion for all activities and expects to receive this in early 1999. 40

Shareholder Information

The ISS share during 1998 Turnover The aggregated turnover of ISS shares in 1998 on Price development the stock exchanges in Copenhagen and London The closing prices at year-end 1998 on the Copen- amounted to a market value of DKK 19.9 billion, hagen Stock Exchange (CSE) for the ISS A- and which is more than twice the turnover of 1997 B-shares were DKK 237 and DKK 422 respectively and 1996. The significant increase was partially a compared to DKK 239 and DKK 251 at year-end result of the higher share price but was also caused 1997. This corresponds to increases of 65% and by an increase in the number of shares traded. On 68% in the A- and B-share prices. The total the CSE, the number of A-shares traded was 1.8m increase in the prices of A and B shares over the and the number of B-shares 39.6m, totalling Turnover and liquidity two-year period from year-end 1996 to year-end 41.4m corresponding to an increase of 33% from of the ISS-B share 1998 were 162% and 174% respectively. In the 1997 and a clear indication of the high liquidity DKK bn first half of 1998 the ISS share price increased of the shares. 16,000 250% steadily. The ISS B-share reached DKK 455 in July – Measured by market value of the turnover ISS 14,000 a new all time high. However, at the onset of the was eighth on the list of most traded shares on the 200% international financial turbulence, the Danish CSE in 1998. The number of B-shares traded in 12,000 stock market and the ISS share suffered. August percent of all B-shares outstanding, the turnover 10,000 150% and September were characterised by declines in rate, was 153% during the year, which places the 8,000 the share price and at the end of September ISS-B share among the most frequently traded shares in 100% traded as low as DKK 310. Renewed optimism on the KFX index. 6,000 the international financial market redirected focus On the London Stock Exchange (LSE) the 4,000 50% to the ISS share. The Group’s active strategy of market value of ISS B-shares traded was DKK 4.6 2,000 acquisitions and signing of new, large contracts billion which is more than twice the 1997 volume contributed to a positive development in the share and the highest turnover to date. 0 0% 96 97 98 price in the second half of the year. The Copenhagen Stock Index, KFX, consisting Left hand scale Copenhagen of the 21 most traded shares on the CSE per- Shareholders London formed well during the first half of 1998, with an Right hand scale increase of 20%. However, the international After a relatively stable 1997, the shareholder base Turnover rate of the financial crisis, combined with a series of profit shifted gradually in 1998 from North American ISS B-share warnings mainly from industrial companies, investors to Danish and other European investors. Turnover rate: resulted in a closing price of 219 for the index, up At the end of 1998, approximately 42% of the ISS Shares traded as a percentage of shares issued only 4% from the beginning of the year. shares were held by Danish investors, 23% by investors in the US and Canada, 20% by British investors, 13% were held in the rest of Europe and 2% in Asia. The corresponding figures as per year- end 1997 are shown in the pie-chart on page 41. The ISS-B share and the KFX (index linked to ISS) 1996-1998 475 Development of the share base 425

375 The number of private and institutional share- holders who wished to have their shares registered 325 by name increased steadily during 1998 and now 275 amounts to approximately 10,000. Accordingly, 225 the total number of registered shareholders now represents 74% of the share capital and 86.5% of 175 votes. Danish institutional and private investors 125 hold 35.1% of share capital and 68.1% of votes. 75 The 3,000 employees, who in 1994 subscribed to Jan. 96 Jan. 97 Jan. 98 Dec. 98 ISS shares, will have their shares released for free ISS B-share KFX index disposal at the end of 1999, amounting to 782,045 41

Shareholder Information

shares. ISS emphasises the importance of a contin- Stock exchange quotations Shareholders 31 December 1998 uous dialogue with the company’s shareholders Rest of who automatically receive the Group financial The ISS B-share has been listed on the CSE since Asia Europe Denmark 2% 13 % 42% publications and the company magazine ISSnews. 1977 with the A-shares joining in 1979. Since During 1998 Tryg-Baltica Forsikring, Codan 1989, the B-shares have been listed on the LSE. Group and Capital Group Companies Inc. have In December 1997, a delisting of ISS’s ADR- announced their ownership of more than 5% of programme from the New York Stock Exchange the shares or the votes in ISS-International Service was announced with effect from 1 March 1998. System A/S, while C.L. Davids Foundation and ADS investors were given the opportunity until Trimark Investment Management, Toronto, have 1 September 1998 to convert their shares into announced that they no longer own 5% or more ordinary B-shares. USA and of ISS's shares or votes. ATP, Fidelity Investments, Canada United Kingdom 23% 20% Unibank A/S and LD continue to own or manage 5% of the shares or votes in ISS. Dividend Shareholders 31 December 1997

Rest of In consideration of the Group's active acquisition Asia Europe Denmark 4% 7% 37% Share capital strategy, the Board of Directors of ISS A/S will recommend at the annual general meeting that The ISS share capital base remained unchanged no dividend is paid in respect of the financial in 1998 with 29,763,733 shares outstanding, year 1998. comprising 3,840,000 A-shares and 25,923,733 B-shares. The denomination of both types of shares is DKK 20 giving a total nominal share capital of DKK 595.3m. The A- and B-shares give USA and holders 10 and 1 vote(s) respectively, with the Canada United Kingdom 35% 17% total A-share capital representing 60% of all votes. Shareholders as of 31 December 1998 Number of Shares Capital % Votes % New employee shares and share option schemes ATP, The Danish Labour Market As described on page 4, the Board of Directors will Supplementary Pension Scheme 3,576,150 12.0 10.9 propose the implementation of a share option Capital Group Companies, Inc. 2,304,140 7.7 3.6 scheme for approximately 120 managers. The Fidelity Investments 2,241,861 7.5 3.5 scheme will result in a potential increase of the Unibank A/S 893,821 3.0 10.5 share capital of up to a maximum of 500,000 shares. LD, The Danish Employees’ Capital Simultaneously, the Board of Directors will pro- Pension Fund 791,320 2.7 12.3 pose an employee share scheme for all employees Tryg-Baltica Forsikring 771,000 2.6 5.4 of 500,000 shares. Codan – Group 595,121 2.0 9.3 For further information please refer to page 13 in the Report to Shareholders, Employees and Other Danish pension funds 1,560,074 5.2 7.2 Customers and to note 2 in the Consolidated Other Danish institutions 554,877 1.9 2.3 Financial Statements on page 54. Private investors, trusts and foundations 917,821 3.1 9.0 Non-Danish private and institutional investors 7,022,545 23.6 11.3 Restricted employee shares 782,045 2.6 1.2

Registered shareholders 22,010,775 74.0 86.5

Other shareholders 7,752,958 26.0 13.5

Total 29,763,733 100.0 100.0 42

Shareholder Information

Selected stock exchange releases in 1998 Investor Relations

2 February Sale of Darenas Ltd. (UK) completed Through 1998 ISS has aspired to maintain a high and uniform level of information to the company’s 11 February ISS enters the after-damage market in Norway institutional and private shareholders in keeping with the stock exchange rules of ethics. Commu- 19 February ISS sells its shareholding in Aaxis and reaches an agreement nications with all parties who have relations to with BHI the stock market are based on an extensive investor relations programme including presenta- 10 March First PFI contract with a British consortium tions in conjunction with the release of financial results, participation in investment seminars, as 12 March 1997 Annual Report records an increase in operating profit of well as meetings with shareholders and financial 15% and a 23% increase in cash earnings per share analysts.

1 April ISS Mediclean wins a thirty-year contract in Scotland Inquiries can be directed to: Lynge Blak 20 April Annual General Meeting Vice President, Investors Relations Telephone: +45 38 17 63 17 4 May ISS expands its airport service concept by acquiring Fax: +45 33 91 55 97 London-based Airspeed Hygiene Systems e-mail: [email protected]

8 June ISS enters the Italian market Investor Relations on the ISS website 11 June ISS acquires the German NWG Holding, Europe’s largest hospital cleaning company In 1998, the website address of ISS A/S changed to www.iss-group.com. Under News/Releases press 29 July ISS establishes its first operations in Greenland and stock exchange releases dating back to 1995 are available. Published results for the first half and 3 August ISS secures market leadership in Asia by acquiring Reliance the full year of 1998 and corresponding investor Environmental Services, Hong Kong presentations are also available.

20 August Half-year Report shows continued positive development and intensified acquisition activity but growth is negatively influenced by the disposal of companies and by a low acquisition activity in 1997. The EVA concept implementation begins

21 September ISS in Sweden acquires NFI, the Nordic region’s leading specialised industrial service company

29 October ISS and Swisscom establish a jointly owned service company

2 November ISS Finland expands within property service

20 November ISS Mediclean secures a new PFI contract

4 December ISS restructures its organisation

11 December ISS and the Norwegian Post Office set up a joint venture 43

Financial Analysts

The analysts listed below follow ISS on an ongoing basis

Denmark Company Name Telephone no. E-mail address Alfred Berg Carsten Dehn + 45 33 96 19 23 [email protected] Aros Securities Lars Larsen + 45 33 33 57 91 [email protected] BG Bank Steen Clausen + 45 43 30 61 19 [email protected] Carnegie Carsten Leth + 45 32 88 02 72 [email protected] Codan Bank Bjarne Sørensen + 45 33 55 21 36 [email protected] Den Danske Bank Allan Nielsen + 45 33 44 03 76 [email protected] Enskilda Securities Kenneth Graversen + 45 33 17 74 22 [email protected] Gudme Raaschou Securities David Dalgas + 45 33 13 19 70 [email protected] Handelsbanken Markets Torben Sand + 45 33 41 82 00 [email protected] Jyske Bank, Silkeborg Lars Almind Jensen + 45 89 22 49 17 [email protected] Midtbørs, Herning John Christensen + 45 96 26 28 49 [email protected] Nykredit Bank Thomas Bolvig + 45 33 42 18 85 [email protected] Sydbank Markets Claus Juul + 45 74 36 44 52 [email protected] Alm. Brand Børs Robert Neumann + 45 33 30 68 50 [email protected]

Stockholm H. Lundén Fondkommission Harald Lundén + 46 8 611 2100 [email protected] Swedbank Markets Jonas Palmquist + 46 8 5859 1448 [email protected]

London Cazenove & Co. Charles Evans Lombe + 44 171 588 2828 [email protected] Credit Agricole Indosuez Cheuvreux Jeff Saul + 44 171 621 5177 [email protected] Credit Lyonnais Securities Matthew Lloyd/Tom Musto + 44 171 214 5558 [email protected] Goldman Sachs International Boris Bernstein + 44 171 774 5715 [email protected] Merrill Lynch & Co Andreas Tholstrup + 44 171 772 2485 [email protected] Warburg Dillon Read Elizabeth Farr + 44 171 568 1975 [email protected]

Financial diary 1999

Release of the 1998 Annual Report Thursday 25 February 1999 Annual General Meeting Thursday 22 April 1999 at 5 pm Radisson SAS Falconer Center Falkoner Allé 9 1908 Frederiksberg C, Denmark Shareholders’ meeting in Århus Wednesday 28 April 1999 Varna Palæet, Marselisborg Skov Ørneredevej 3, 8000 Århus C, Denmark Interim result 1999 Tuesday 17 August 1999 44

Signatures to the Accounts

The Board of Directors and Management have today discussed and approved the consolidated financial statements, including the report to share- holders and the financial statements of the parent Company. The consolidated financial statements and the financial statements of the parent Company have been prepared according to the accounting provisions of Danish legislation. In our opinion, the financial statements give a true and fair view of the Group’s and the parent Company’s assets and liabilities, financial position, result for the year and the cash flows of the Group. The consolidated financial statements and the financial statements of the parent Company are presented for approval at the Annual General Meeting.

Copenhagen, 25 February 1999

Board of Management Waldemar Schmidt Theo Dilissen Stuart Graham Eric Søe Rylberg Group Chief Executive Chief Operating Officer Managing Director Group Chief ISS Overseas Financial Officer

Board of Directors Arne Madsen Kaare Vagner Anette Aksten Ingrid Jakobsen Chairman Vice-Chairman

Peter Lorange Georg Poulsen Sven Riskær Erik Sørensen 45

Auditors’ Report

We have audited the consolidated and parent com- Opinion pany financial statements of ISS-International Service System A/S for the year 1998 presented by In our opinion, the consolidated and parent com- the Board of Directors and the Management. pany financial statements have been presented in accordance with the accounting provisions of Danish legislation and give a true and fair view of Basis of opinion the Group’s and the parent Company’s assets and liabilities, financial position, result for the year and We have, in accordance with generally accepted of the cash flows of the Group. auditing standards, planned and conducted our audit to obtain reasonable assurance whether the Copenhagen, 25 February 1999 financial statements are free of material misstate- ments. During the audit, we have, based on an evaluation of materiality and risk, examined the basis and documentation for the amounts and other disclosures in the financial statements. Our audit also included an assessment of the accounting policies laid down and estimates made by the Board of Directors and the Management as well as an evaluation of the overall adequacy of the presentation in the financial statements. Our audit has not resulted in any qualifications.

KPMG C. Jespersen Deloitte & Touche Statsautoriseret Revisionsaktieselskab

Finn L. Meyer Søren Thorup Sørensen Bent Hansen Jens Østerby State Authorized State Authorized State Authorized State Authorized Public Accountant Public Accountant Public Accountant Public Accountant 46

Accounting Policies

General deemed to exist, the goodwill is written down to its recoverable amount. The financial statements of ISS-International Minority interests’ proportional share of profit Service System A/S (“the Company”) and its sub- and equity in subsidiaries is entered separately in sidiaries (together with the Company referred to connection with the calculation of the consolida- as “the Group”) have been prepared in accordance ted net result and equity. The proportional share with the provisions of Danish legislation on of the results of associated undertakings is included accounting and the rules and regulations of the in the profit and loss accounts using the equity Copenhagen Stock Exchange, including generally method. accepted accounting principles in Denmark (“Danish GAAP”). The financial statements have been prepared Foreign currency on the same principles as in the previous year. The classification of certain items in the profit and loss Transactions in foreign currency are translated account, cash flow statement and balance sheet into Danish kroner at the exchange rate on the has been changed. Ordinary profit is stated before day of transaction. Assets and liabilities in foreign amortisation of goodwill and tax on profit from currency are translated at year-end exchange rates. ordinary operations does no longer include the Realised and unrealised exchange rate differences tax effect of amortisation of goodwill. The tax are included in the profit and loss accounts under effect of amortisation of goodwill is separately interest income and expenses. stated. Effective from 1 January 1998 group equity Balance sheet items of foreign subsidiaries are is stated including minority interests. Comparative translated at year-end exchange rates. Profit and figures and key figures are restated accordingly. loss accounts are translated at average exchange rates prevailing during the year. Exchange rate adjustments relating to investments in subsidiaries The consolidated financial statements and associated undertakings are taken directly to reserves. Exchange rate adjustments of loans in The consolidated financial statements include the foreign currency and of financial instruments Company and those subsidiaries in which the hedging the net investment in foreign entities are Group holds more than 50% of the voting rights. taken directly to reserves. Also included are subsidiaries in which the Group Financial instruments are recorded at fair value. holds voting rights and exercises a dominating in- Gains/losses are included in interest income/ fluence. Undertakings not deemed subsidiaries, but expenses, except for financial instruments which in which the Group holds voting rights and exer- are designated as hedges. Financial instruments cises significant influence, are considered associa- used for hedging purposes are recorded in ted undertakings. Inter-company profits and other accordance with the accounting items to which intra-group transactions have been eliminated on they relate. As a consequence, offsetting gains and consolidation. Newly-acquired undertakings are losses are reported in the profit and loss account included in the consolidated financial statements in the same period. as from the time of acquisition. Divested undertak- ings are included until the date of divestment. Goodwill is calculated as the excess of purchase Profit and loss account price over the fair value of net identifiable assets acquired at the time of acquisition. The calcula- Turnover tion of goodwill includes provisions that arise at Turnover represents the value of services rendered. the date of acquisition as a direct consequence The method used quantifies the services per- thereof, including severance pay and close-down formed as a percentage of total services to be of duplicate facilities. Goodwill is capitalised and performed and applies this percentage to total amortised in the profit and loss account over its turnover expected. expected economic life, however over a maximum of 20 years. The carrying value is evaluated on a regular basis. To the extent that an impairment is 47

Accounting Policies

Operating expenses Balance sheet Staff costs comprise salaries and wages, pension contributions, social security costs and other costs Intangible and tangible fixed assets relating to staff. Cost of goods sold includes mate- Fixed assets are recorded at historical cost. rials consumed in connection with the rendering Depreciation or amortisation is provided on fixed of services. assets at rates calculated to write off the cost less estimated residual value on a straight-line basis Interest receivable/payable over the following periods: comprises interest, realised and unrealised exchange rate gains/losses and gains/losses on Goodwill maximum of 20 years financial instruments and securities. Interest on Buildings 20-40 years insurance and pension provisions is included in Leasehold improvements over the lease term interest payable. Service equipment, vehicles, fixtures, edp, etc. 3-10 years Income from associated undertakings includes the Group’s share of profit on ordinary Minor assets are expensed in the profit and loss operations before tax in associated undertakings. accounts. Gains and losses on sale of fixed assets are included in the profit and loss accounts in the Extraordinary items year of sale. Development costs are generally include gains and losses other than those relating expensed in the profit and loss accounts in the to the ordinary course of business, including gains year they are incurred. and losses relating to divestment of businesses. Gains and losses on sale of buildings, operating Financial fixed assets equipment and related items are entered as ordi- Investments in subsidiaries and associated under- nary operating items. takings are accounted for using the equity method. Other securities are recorded at the lower Tax of cost and net realisable value. on profit for the year consists of income tax expense and changes in deferred tax. Provision for Stocks deferred tax is made under the liability method on Raw materials and supplies are stated at the lower temporary differences between accounting and of cost under the FIFO principle and net realisable taxation treatment. Deferred tax liabilities are not value. Finished goods and work in progress are recognised on unremitted earnings of subsidiaries recorded at the lower of cost plus attributable and goodwill not deductible for tax purposes. indirect costs and net realisable value. The Company is jointly taxed with a number of Danish subsidiaries. The income tax payable is Accounts receivable allocated proportionally between the Company are stated at nominal value less provision for and the jointly taxed companies. doubtful debtors.

Securities Cash flow statement are highly-liquid investments held principally for the purpose of sale in the near term. They are The statement of cash flow is prepared using the recorded at fair value, with changes in fair value indirect method based on operating profit before being included in the profit and loss accounts. other income and expenses. The liquidity effect of acquisitions and divestments is shown separately with cash flows in acquired undertakings being included from the date of acquisition and cash flows in divested undertakings being included until the date of divestment. 48

Accounting Policies

Provisions Provisions comprise obligations related to employee retirement plans, restructurings etc. The provisions are recognised when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. The majority of the Group’s employees are eli- gible for retirement benefits under defined contri- bution and defined benefit plans. Contributions to defined contribution plans are charged to the profit and loss accounts as incurred. Any difference between the charge to the profit and loss accounts and the contributions payable is recorded in the balance sheet under Other payables and accrued expenses. For defined benefit plans the recognised amount in the balance sheet is determined as the present value of the defined benefit obligation adjusted for the actuarial gains or losses not recognised and less any past service costs not yet recognised. The present value of the defined benefit obliga- tions and the related service costs are calculated by a qualified actuary. 49

Consolidated Accounts and Accounts of the Parent Company 1998 50

Consolidated Profit and Loss Accounts

1 January - 31 December. Amounts in DKKm

1998 1997 Note 1 Turnover 13,801.2 11,782.0

2 Staff costs (9,992.1) (8,352.9) Cost of goods sold (878.0) (833.7) Other operating costs (1,941.8) (1,728.8) 6, 12, 13 Depreciation (254.7) (227.8)

1 Operating profit before other income and expenses 734.6 638.8

3, 6, 13 Other income and expenses, net 21.9 (14.8)

Operating profit 756.5 624.0

4 Interest payable, net (78.0) (53.5) Income from associated undertakings 0.5 0.7 6, 14 Write-down of financial fixed assets (2.1) –

Ordinary profit before tax and amortisation of goodwill 676.9 571.2

Tax on ordinary profit 5 before amortisation of goodwill (189.7) (176.6)

Ordinary profit before amortisation of goodwill 487.2 394.6

6, 12 Amortisation of goodwill (206.3) (148.6) 5 Tax effect of amortisation of goodwill 7.2 7.4 17 Minorities’ part of ordinary profit (12.0) (6.6)

Net ordinary profit 276.1 246.8

7 Extraordinary items, net of tax and minorities (41.9) 103.2

234.2 350.0

6, 8 Discontinued business, net of tax (23.5) 101.1

Net profit 210.7 451.1 51

Consolidated Statements of Cash Flows

1 January - 31 December. Amounts in DKKm

1998 1997 Note Operating profit before other income and expenses 734.6 638.8 Depreciation 254.7 227.8 6, 12, 13 Changes in working capital 1) 13.7 (80.4) 9 Changes in other provisions 1) (2.4) (30.0) Interest payments (83.6) (46.2) Tax paid (244.2) (109.5) 5 Payments related to other income and expenses 14.3 (6.3) Payments related to extraordinary items 8.0 (10.4)

Cash flow from operations 695.1 583.8

Acquisition of businesses Purchase price paid (2,051.3) (92.9) Net liquidity in acquired businesses 145.7 12.4

(1,905.6) (80.5) 10

Divestment of businesses Sales proceeds 87.8 132.2 Net liquidity in divested businesses – (3.3)

87.8 128.9 10

Investments in fixed assets 1) (264.2) (273.5) 11

Cash flow from investments (2,082.0) (225.1)

Financial payments, net 2) 1,898.7 (517.9) Dividend paid to ISS shareholders (59.5) – Minority interests (6.5) (3.1)

Cash flow from financial items 1,832.7 (521.0)

Total cash flow 445.8 (162.3)

Liquid funds at beginning of the year 385.5 542.8 Total cash flow 445.8 (162.3) Exchange rate adjustments, etc. (9.9) 5.0

Liquid funds at year-end 3) 821.4 385.5

1) Net of effects of acquisitions and divestments 2) Proceeds from bank debt less repayment of bank debt 3) Definition changed in 1998. The comparative figures have been restated accordingly 52

Consolidated Balance Sheets

At 31 December. Amounts in DKKm

Assets 1998 1997 Note Intangible assets 12 Goodwill 3,005.3 1,614.0 12 Leasehold improvements 22.7 16.7

3,028.0 1,630.7 Tangible assets 13 Land and buildings 307.6 327.2 13 Service equipment, vehicles, fixtures, edp etc. 746.4 527.7 13 Assets under construction 4.8 3.6

1,058.8 858.5 Financial assets 14 Investments in associated undertakings 8.2 9.2 14 Other securities 29.5 28.9 14 Other receivables 65.4 53.3

103.1 91.4

Total fixed assets 4,189.9 2,580.6

Current assets 15 Stocks 94.6 76.3 Trade accounts receivable 1,589.2 1,204.1 16 Other accounts receivable 422.0 405.9 Liquid funds 821.4 385.5

Total current assets 2,927.2 2,071.8

Total assets 7,117.1 4,652.4 53

Consolidated Balance Sheets

Liabilities and equity 1998 1997 Note Equity Share capital 595.3 595.3 Reserves 822.5 698.6

1,417.8 1,293.9 Minority interests in subsidiaries equity 36.6 15.9

Total equity 1,454.4 1,309.8 17

Provisions Pensions and similar obligations 138.9 147.0 23 Deferred tax 102.1 135.8 5 Other provisions 245.5 137.4 18

486,5 420.2

Long-term debt 2,048.6 704.0 19

Total provisions and long-term debt 2,535.1 1,124.2

Current liabilities Current portion of long-term debt 28.2 15.3 19 Bank loans and other debt 641.7 3.7 19 Prepayments from customers 17.7 35.0 Trade creditors 313.3 271.8 Accrued income taxes 85.1 130.8 Tax withholdings, VAT, etc. 758.2 625.4 Accrued wages and holiday allowances 974.1 848.3 Other payables and accrued expenses 309.3 228.6 Dividends payable – 59.5

Total current liabilities 3,127.6 2,218.4

Total provisions and liabilities 5,662.7 3,342.6

Total liabilities and equity 7,117.1 4,652.4

Contingent liabilities 20 Derivative financial instruments 21 Transactions with related parties 22 Employee retirement plans 23 54

Notes to the Consolidated Financial Statements

Amounts in DKKm

1. Segment information The Group’s activities are concentrated on providing commercial and industrial cleaning service and related facility services. The geographical segments with respect to the Group’s turnover, operating profit before other income and expenses (net of inter-company items), assets and employees are as follows:

Europe Overseas Corporate Consoli- functions dated

As at and for the year ended 31 December 1998 Turnover 12,668 1,133 – 13,801 Operating profit before other income and expenses 787 24 (76) 735 Assets 6,233 595 289 7,117 Employees at year-end 108,965 28,814 38 137,817

As at and for the year ended 31 December 1997 Turnover 10,770 1,004 8 11,782 Operating profit before other income and expenses 670 36 (67) 639 Assets 4,122 378 152 4,652 Employees at year-end 85,288 21,259 34 106,581

2. Staff costs 1998 1997

Wages and salaries 7,831.1 6,609.5 Pensions and social charges, etc. 341.7 314.1 Other costs 1,819.3 1,429.3

9,992.1 8,352.9

Emoluments to the Board of Directors of the Company amounts to DKK 1.4m (DKK 1.2m in 1997). Manage- ment salaries total DKK 23.2m (DKK 18.7m in 1997) and include total emoluments to the Board of Management. As announced simultaneous with the announcement of the stock option programme granted to the Executive Management Board, salaries for the EMB members are frozen in 1998 and 1999. The increase in total emoluments is due to the effect of new management board members joining and payment of previous management board members. The Company has implemented stock based bonus schemes for the Group’s Management. The first scheme is a phantom share scheme which is based on a value of ISS B-shares in excess of an average share price in December 2000 for ISS B-shares of DKK 342. Under another scheme call options, exercisable between 1 January 2002 and 31 December 2005 with an exercise price of DKK 385, have been granted.

Phantom share scheme Call option scheme No. of shares No. of shares

Waldemar Schmidt 25,000 100,000 Theo Dilissen 25,000 25,000 Stuart Graham 25,000 25,000 Sven Ipsen 25,000 25,000 Eric Søe Rylberg 25,000 25,000

No provisions have been included in the financial statements relating to these schemes. See also note 20. 55

Notes to the Consolidated Financial Statements

3. Other income and expenses, net 1998 1997

Provision related to ISS Inc. 47.9 (50.0) Legal, audit and advisory costs and compensations regarding the US investigation and the negotiation of borrowing arrangements 12.0 49.4 Loss on sale of properties (17,6) (14.2) Write-down of buildings (8.9) – Provision for legal cases (13.0) – Other 1.5 –

21.9 (14.8)

4. Interest payable, net 1998 1997

Interest receivable, etc. 30.2 24.8 Foreign currency exchange gain 0.1 0.0

Interest receivable 30.3 24.8

Interest payable, etc. 98.1 73.9 Interest on pension provisions 5.4 4.4 Foreign currency exchange loss 4.8 –

Interest payable 108.3 78.3

Interest payable, net (78.0) (53.5)

5. Tax 1998 1997

Tax composition Tax on ordinary profit before goodwill 189.7 176.6 Tax effect of amortisation of goodwill (7.2) (7.4) Tax on extraordinary items (14.4) 15.3

Total tax charge 168.1 184.5

Specification of tax effect of amortisation of goodwill: Total tax effect of amortisation of goodwill 11.6 9.7 Amortisation of goodwill related to tax loss not recognised (4.4) (2.3)

Tax effect of amortisation of goodwill 7.2 7.4

Tax payable 194.0 184.0 Changes in deferred tax (25.9) 0.5

Total tax charge 168.1 184.5

Tax paid in 1998 amounts to DKK 244.2m (DKK 109.5m in 1997). 56

Notes to the Consolidated Financial Statements

The actual tax on ordinary profit before goodwill differs from the “expected” tax expense (computed by applying the Danish corporate tax rate to income from ordinary profit before tax and goodwill) as follows:

1998 1997

“Expected” corporate tax at Danish statutory rate 229.9 194.2 Foreign tax rate differential (12.3) (10.1) Non deductible expenses/non taxable income, net (12.9) 4.5 Other (15.0) (12.0) Tax on ordinary profit before goodwill 189.7 176.6

Effective tax rate 28.6% 30.9%

Assuming amortisation of goodwill was fully tax deductable the effect would amount to DKK 69.6m (DKK 47.2m in 1997).

Specification of deferred tax: 1998 1997 Deferred tax assets Tax loss carried forward 37.3 12.5 Other 99.3 53.5 Total gross deferred tax assets 136.6 66.0 Valuation allowance (29.0) (19.3) Total deferred tax assets, net 107.6 46.7

Deferred tax liabilities Goodwill 53.9 43.9 Untaxed profit reserve 24.6 16.4 Other 131.2 122.2 Total deferred tax liabilities 209.7 182.5

Deferred tax liabilities, net 102.1 135.8

A deferred tax liability associated with investments in subsidiaries is not recognised as the Group is able to control the timing of the reversal of the temporary differences and does not expect the temporary differences to reverse in the foreseeable future.

6. Depreciation, amortisation and write-down of assets

The total amount of depreciation, amortisation and write-down of fixed assets amount to DKK 476.1m (DKK 376.4m in 1997). The amounts are included in the profit and loss statement as follows:

1998 1997

Depreciation 254.7 227.8 Write-down of buildings 8.9 – Write-down of buildings related to discontinued business 4.1 – Write-down of financial assets 2.1 – Amortisation of goodwill 206.3 148.6

476.1 376.4 57

Notes to the Consolidated Financial Statements

7. Extraordinary items, net of tax and minorities 1998 1997

Restructuring expenses Discontinuation of divisional offices including leasehold improvement write-off (18.8) – Redundancies and related costs (9.3) – Branding changes (10.0) – Organisation project costs including software changes (11.8) –

(49.9) – Gain/loss on divestment of the Darenas businesses (6.4) 118.5 Tax on extraordinary items 14.4 (15.3)

(41.9) 103.2

In connection with the organisational changes of the Group, DKK 49.9m has been expensed. As at 31 December 1998 a provision amounting to DKK 43.9 relating to the restructuring remains in other provisions.

8. Discontinued business, net of tax 1998 1997

Provision related to disposals earlier years (7.0) – Reversal of guarantee regarding ISS Inc.’s self-insurance programme – 101.1 Gain on sale of shares in Aaxis Ltd. 13.5 – Write down related to disposals by ISS Brazil in earlier years (30.0) –

(23.5) 101.1

9. Changes in working capital 1998 1997

Changes in debtors (57.8) (77.2) Changes in stocks (7.3) (32.6) Changes in creditors 78.8 29.4

13.7 (80.4) 58

Notes to the Consolidated Financial Statements

10. Acquisition and divestment of businesses During 1998, the Group has made 32 acquisitions:

Company Service area Country Takeover Share Annual Number of month turnover employees1) DKKm 1)

Pulito Lindo SA Cleaning Switzerland Jan 98 100% 29 150 Airspeed Hygiene Systems Ltd. Transport and terminal services (airports) United Kingdom Jan 98 100% 137 1,200 Sporty Skadeservice A/S After-damage services Norway Jan 98 85% 99 180 Narvesen (Arena Event) (activities) Catering services Norway Jan 98 – 23 30 AB Servicestyrkan IMA Transport and terminal services (airports) Sweden Jan 98 100% 37 159 Stadsbolaget Prästkragen AB Cleaning Sweden Jan 98 100% 14 50 Hjulsbro Sanerings Förvaltnings AB After-damage services Sweden Apr 98 100% 17 34 Union Maintenance SA Transport and terminal services (airports) France Apr 98 100% 21 200 Sørvad Møbelreparation After-damage services Denmark May 98 100% 1 1 Mikonmäen Huolto Oy Care services Finland May 98 100% 3 11 S.P. Rengøring ApS Industrial services Denmark May 98 100% 24 90 NWG Holding GmbH Hospital cleaning Germany July 98 100% 1,442 17,200 Robustelli SAS Cleaning and special services Italy July 98 100% 20 95 Godthåb Group A/S Food hygiene services Greenland July 98 50% 25 90 Stenbäckens och Linneagårdens Behandlingshem AB Care services Sweden July 98 100% 32 42 Van Den Steen Cleaning Belgium July 98 100% 45 300 Elma Cleaning Food hygiene services Belgium July 98 100% 5 27 Manzoni SA Cleaning Switzerland July 98 100% 18 100 Förvaltningsbolaget Predio 66 KB U.N.Ä. Property services Sweden July 98 83% 1 – Reliance Environmental Services Cleaning, sanitation etc. Hong Kong Aug 98 100% 470 7,000 Talotek Oy Property services Finland Aug 98 100% 52 190 Kehäyhtiöt Oy Property services Finland Aug 98 100% 163 1,000 Scatec Tromsø (activities) After-damage services Norway Aug 98 – 5 12 Norrköbings Fabriks- och Industrisanering AB Industrial services Sweden Sept 98 100% 133 400 Alfa Haugesund (activities) After damage Norway Sept 98 – 10 40 Arctic Contractors (activities) Cleaning and special services Greenland Oct 98 – 24 75 Jakabb spol.s.r.o. Cleaning Slovakia Oct 98 100% 4 18 Tican a.m.b.a. (contracts) Food hygiene services Denmark Oct 98 – 9 – Villa (activities) Property services Finland Oct 98 – 1 – Yhdyshoulto Oy Property services Finland Nov 98 100% 55 124 Stäfab Städ & Fastighetsservice AB Property services Sweden Nov 98 100% 15 40 Keski-Suomen Sisäilmatutkimus Oy Property services Finland Dec 98 100% 1 3

Total 2,935 28,861

1) Approximate figures based on information available at the time of acquisition.

The total acquisition price amounts to DKK 1,905.6m. The effect of the acquisitions on the development in turnover is described in the review of Group accounts page 5. No businesses have been divested during 1998. 59

Notes to the Consolidated Financial Statements

1998 1997

The assets and liabilities of the combined acquisitions are as follows: Assets acquired: Goodwill (1,653.5) (76.4) Fixed assets (excl. goodwill) (184.6) (37.4) Current assets (796.5) (34.0) Liabilities assumed: Costs following the acquisitions 47.7 – Long-term liabilities 89.4 29.5 Other current liabilities 446.2 25.4

Purchase price (2,051.3) (92.9) Net liquidity in acquired businesses 145.7 12.4

Cash flow from acquisition of businesses (1,905.6) (80.5) Provision for costs following the acquisitions (84.5) –

(1,990.1) (80.5)

The assets and liabilities of the combined divestments are as follows: Assets divested: Fixed assets – 75.7 Current assets 87.8 (10.3) Liabilities divested: Long-term liabilities – (6.8) Current liabilities – (28.8) Gains on divestment of businesses 0.0 102.4

Sales proceeds 87.8 132.2 Net liquidity in divested businesses – (3.3)

Cash flow from divestment of businesses 87.8 128.9

11. Investments in fixed assets 1998 1997

Purchase of fixed assets (443.3) (308.8) Proceeds on sale of fixed assets 179.1 35.3

(264.2) (273.5)

Proceeds on sale of fixed assets include proceeds from sale of corporate headquarter in Holte DKK 96m and properties in Switzerland DKK 17.1m. 60

Notes to the Consolidated Financial Statements

12. Intangible assets Goodwill Leasehold improvements 1998 1997 1998 1997

Cost at 1 January 2,343.6 2,292.9 49.5 47.9 Exchange rate adjustments (95.4) 16.0 (1.5) 0.8 Additions 1,696.9 74.6 22.8 5.0 Disposals – (39.9) (14.2) (4.2)

Cost at 31 December 3,945.1 2,343.6 56.6 49.5

Amortisation at 1 January 729.6 590.3 32.8 30.6 Exchange rate adjustments (39.3) 7.1 (0.8) 0.4 Amortisation 206.3 148.6 5.1 5.1 Amortisation from acquisition 43.2 – 8.9 – Disposals – (16.4) (12.1) (3.3)

Amortisation at 31 December 939.8 729.6 33.9 32.8

Book value at 31 December 3,005.3 1,614.0 22.7 16.7

13. Tangible assets Land and buildings Service equipment, vehicles, fixtures, edp etc. 1998 1997 1998 1997

Cost at 1 January 362.7 530.7 1,404.7 1,245.4 Exchange rate adjustments (9.4) 6.2 (50.9) 18.2 Additions 40.9 28.6 705.0 310.2 Disposals (34.8) (202.8) (245.0) (169.1)

Cost at 31 December 359.4 362.7 1,813.8 1,404.7

Depreciation at 1 January 35.5 93.1 877.0 769.5 Exchange rate adjustments (1.2) 0.1 (32.7) 10.1 Depreciation for the year 4.3 5.3 245.3 217.4 Depreciation from acquisitions 1.2 – 185.4 – Write-down 13.0 – – – Disposals (1.0) (63.0) (207.6) (120.0)

Depreciation at 31 December 51.8 35.5 1,067.4 877.0

Book value at 31 December 307.6 327.2 746.4 527.7

The Group owns property in Denmark, Norway, Sweden, Finland, the UK, Ireland, France, Austria, The Nether- lands, Thailand, Malaysia and Brazil. Land and buildings with a book value of DKK 213m (DKK 223m in 1997) have been provided as collateral for a mortgage debt of DKK 41m (DKK 43m in 1997). Assets under construction comprises various minor projects. In the profit and loss account, write-down of land and buildings is included in other income and expenses, net and discontinued business, net of tax. 61

Notes to the Consolidated Financial Statements

14. Financial assets Investments in Other securities Other receivables associated undertakings 1998 1997 1998 1997 1998 1997

Book value at 1 January 9.2 1.4 28.9 17.9 53.3 63.7 Exchange rate adjustments (0.1) 0.0 0.0 – (3.1) 1.5 Additions 5.9 7.8 10.0 11.0 19.8 9.5 Transfer (6.8) – 6.8––– Write-down – – (2.1) – – – Disposals – – (14.1) – (4.6) (21.4)

Book value at 31 December 8.2 9.2 29.5 28.9 65.4 53.3

As at 31 December 1998, the Company no longer exercised a significant influence over SAEL, Spain. In accor- dance with the accounting policy, the investment was written down to cost and included in Other securities.

Investments in associated undertakings are listed on page 75. Receivables from associated undertakings amount to DKK 0.4m (DKK 0.1m in 1997) and are included in other accounts receivable.

15. Stocks 1998 1997

Raw materials and supplies 13.9 14.0 Work in progress 32.8 31.3 Finished goods 47.9 31.0

94.6 76.3

16. Other accounts receivable In 1997 the sales price of DKK 96m from the sale of the Head Office site in Denmark and DKK 93m from the sale of ISS Darenas (UK) are included in other accounts receivable.

In 1998 other accounts receivable includes DKK 168m relating to the acquisition of Vaktmesterkompagniet completed as per 2 January 1999.

17. Equity Share Reserves Minority Total capital interest equity

1997 Equity at 1 January 1997 595.3 280.9 17.8 894.0 Exchange rate adjustments – 26.1 0.0 26.1 Disposal of minority interests – – (8.5) (8.5) Net profit – 451.1 6.6 457.7 Dividends to ISS shareholders – (59.5) – (59.5)

Equity at 31 December 1997 595.3 698.6 15.9 1,309.8 62

Notes to the Consolidated Financial Statements

Share Reserves Minority Total capital interest equity

1998 Equity at 1 January 1998 595.3 698.6 15.9 1,309.8 Exchange rate adjustments – (83.3) (0.3) (83.6) Increase in minority interests – – 9.0 9.0 Net profit – 210.7 12.0 222.7 Dividends to ISS shareholders –––– Other – (3.5) – (3.5)

Equity at 31 December 1998 595.3 822.5 36.6 1,454.4

18. Other provisions 1998 1997

Provision for restructuring of the Group 43.9 – Provision for expenses following the incidents in ISS Inc. – 63.5 Labour cases 16.8 13.7 Provision related to self-insurance programmes 12.9 12.1 Integration costs 84.5 – Other 87.4 48.1

245.5 137.4

Integration costs primarily include provisions for costs arising as a direct consequence of acquisitions.

19. Interest-bearing loans and borrowings 1998 1997

Long-term debt Revolving loan facility 1,956.2 485.0 Bank and mortgage loans 90.2 230.7 Obligations under finance leases 30.4 3.6

2,076.8 719.3 Current portion of long-term debt (28.2) (15.3)

2,048.6 704.0

Repayments of long-term debt are scheduled as follows: More than one year, less than two years 72.3 138.1 More than two years, less than three years 16.0 24.3 More than three years, less than four years 16.0 9.7 More than four years, less than five years 1,908.7 491.4 More than five years 35.6 40.5

2,048.6 704.0

Bank loans and other debt – current Bank and mortgage loans 641.7 3.7 63

Notes to the Consolidated Financial Statements

Following the capital restructuring of the Group, the Group’s financial policy is that the individual subsidiaries obtain their own funding. This is primarily undertaken in local currencies.

The Group has no subordinated debt and no debt convertible into equity.

The Group’s total long-term loans and borrowings at 31 December are denominated in the following original currencies:

Share 1998 1997

DKK 28% 85% DEM 56% 0% SEK 2% 6% NOK 8% 1% FRF 1% 2% Others 5% 6%

100% 100%

Significant components of long-term debt Maturity Fixed/ Effective Carrying amount floating interest rate Loan 1998 1997 1998 1997

DKK 700m revolving loan facility 2002 Floating – 4.1% – 485.0 DKK 123.7m bank loan 1999 Floating – 4.7% – 123.7 FRF 14.8m mortgage loan 2007 Fixed 8.8% 8.8% 15.7 16.8 SEK 16m mortgage loan 1) 2044 Fixed 9.0% 5.4% 12.4 13.9 1) The increase in interest SEK 70m overdraft facility 2001 Floating 5.5% 5.5% 24.1 29.4 rate relates to the fact that NOK 8m bank loan 2003-2008 Floating 3.9% 3.9% 6.7 7.4 a governmental interest CHF 2m bank loan 2000 Fixed – 5.25% – 9.4 grant amounting to 3.6% DKK 700m revolving loan facility expired in april 1998. NOK 200m utilised 2003 Floating 9.0% – 167.8 – DKK 200m revolving loan facility 2003 Floating 4.6% – 186.0 – DKK 200m revolving loan facility 2003 Floating 4.6% – 150.0 – DKK 1.450m revolving loan facility GBP 5m utilised 2003 Floating – – 52.9 – DKK 241m utilised 2003 Floating 4.6% – 241.0 – DEM 304m utilised 2003 Floating 3.6% – 1,158.5 –

2,015.1 685.6

Other mortgage loans 12.8 12.2 Other bank loans and obligations under finance leases 48.9 21.5

2,076.8 719.3 Current portion of long-term debt (28.2) (15.3)

2,048.6 704.0 64

Notes to the Consolidated Financial Statements

20. Contingent liabilities The total rentals under operating leases expensed in the profit and loss accounts amount to DKK 139m (DKK 141m in 1997). The future minimum lease payments under operating leases with a remaining term in excess of one year at 31 December 1998 are as follows: After Total lease 1999 2000 2001 2002 2003 2003 payments

132 83 58 41 28 38 380

The operating leases are leases of buildings, vehicles and administrative equipment.

Indemnity and guarantee commitments at 31 December 1998 amount to DKK 8m (DKK 9m in 1997).

The Group is party to certain legal proceedings. The management’s view is that these proceedings (which to a large extent are labour cases incidental to its business) will not have a material impact on the Group’s financial position.

As described in note 2 the Company has implemented stock based bonus schemes for the Groups Management. As at 31 December 1998 the total obligation related to these scheemes amounts to DKK 17.4m (DKK 0m in 1997) based on the stock price at year end.

The Group has issued bank guaranteed performance bonds for service contracts with an annual turnover of DKK 88m. Such performance bonds are issued in the normal course of business in the service industry. The Group has not paid any compensation under such performance bonds in the past years.

21. Derivative financial Instruments

Foreign exchange risk Foreign exchange risk can be classified in three categories: Economic, Transaction and Translation.

In practical terms the economic currency exchange risk is minimal for ISS as all of ISS competitors will have to deliver the services in the same currency cost structure as ISS.

Transaction risk in ISS primarily relates to payment of royalties and dividends to the parent company. These payments are calculated in local currency which means that an exchange rate risk exists in relation to the exchange of these payments into DKK.

Translation risk is the major accounting currency exchange rate risk for ISS. Equity translation risk in ISS is normally not hedged but ISS generally tries to secure high gearing in subsidiaries via local currency debt whereby translation risk is considerably lowered. Profit translation risk in ISS is from time to time hedged in currencies that are regarded high risk either permanently or for a shorter period of time.

The hedging instruments used by the Group consist mainly of forward exchange contracts, options and currency swaps. Their contractual and fair values are specified below together with the unrealised gains and losses. 65

Notes to the Consolidated Financial Statements

Recognised transactions 1998 1997

Forward foreign currency sales: • Contractual values 395.3 173.5 • Fair values: Unrealised gains 1.2 0.2 Unrealised losses 0.5 1.6

Forward foreign currency purchases: • Contractual values 230.9 480.0 • Fair values: Unrealised gains 0.2 0.3 Unrealised losses 0.3 2.0

Recognised transactions relate to balance sheet positions such as receivables, payables and investment in subsidiaries. There is no hedging of anticipated future transactions using forward agreements.

Anticipated future transactions 1998 1997

Options regarding foreign currency sales: • Contractual values 184.3 – • Fair values 7.5 – • Unrealised gains 0.0 – • Unrealised losses 1.9 –

Anticipated future transactions relate to the hedging of the cash flow in Hong Kong Dollar over a 3 year period, ending August 2001. The option matures in August 1999.

Credit risk Credit risk represents the accounting loss that would be recognised if counterparties failed to perform as con- tracted. The Group does not have significant exposure to any individual customer or counterparty. To reduce exposure to credit risk, ongoing credit evaluations of the financial condition of its counterparties are performed.

Interest rate risk The Group did not use derivative financial instruments to hedge the interest rate exposure.

For further information regarding derivative financial instruments refer to Report to Shareholders page 9.

22. Transactions with related parties Apart from normal trade, there have been no significant transactions during the year with related parties, i.a. major shareholders, Board of Management and Board of Directors. 66

Notes to the Consolidated Financial Statements

23. Employee retirement plans The Group contributes to pension plans that cover certain employees in its various subsidiaries. The pension plans include defined contribution plans as well as defined benefit plans. The defined benefit plans are pri- marily based upon years of service and benefits are generally determined on the basis of salary and ranking.

The majority of the pension plans are funded through payments of annual premiums to unrelated insurance companies who are responsible for the pension obligation. The Group does not have a pension obligation once an employee leaves the Group. Pension costs from such plans are recorded as expenses when incurred.

In Norway and Sweden, the Group has unfunded benefit plans where the actuarially determined pension obligations are recorded in the consolidated balance sheets.

The unfunded obligation regarding the benefit plan in Norway amounts to DKK 8.1m (1997: DKK 13.6m). The calculation of the obligation is based on the following assumptions: Discount rate 6% (1997: 6%), salary increase 2.5% (1997: 2.5%), post retirement pension increase 1.6% (1997: 1.6%) and expected return of assets of 7% (1997: 7%).

In Sweden the unfunded obligation amounts to DKK 95.2m (1997: DKK 100.8m). The calculation of the obligation is based on the following assumptions: Discount rate 5.5% (1997: 7%), salary increase 3% (1997: 4%) and post retirement pension increase of 2% (1997: 3%).

The total amounts expensed relating to the Group’s defined benefit plans are as follows:

1998 1997

Current service costs 13.0 9.4 Interest on obligation 10.9 11.1 Amortisation of transition obligation – (0.6) Expected return on plan assets (4.2) (3.7) Net actuarial (gains)/losses in the year (0.7) (1.9) Other gains (1.9) –

17.1 14.3 67

Profit and Loss Accounts of the Parent Company

1 January - 31 December. Amounts in DKKm

1998 1997 Note Royalty revenue, net 138.2 117.3 1

Staff costs (29.5) (26.1) 2 Other operating costs (43.3) (35.2) Depreciation (3.0) (3.3) 8, 9

Operating profit before other income and expenses 62.4 52.7

Other income and expenses 46.9 (14.8) 3

Operating profit 109.3 37.9

Income from subsidiaries, net of tax 156.6 393.1 10

Interest payable, net (47.9) (82.4) 4

Write-down of financial assets (2.1) – 10

Ordinary profit 215.9 348.6

Tax on ordinary profit 7.4 1.4 5

Net ordinary profit 223.3 350.0

Extraordinary items, net of tax (19.1) – 6

204.2 350.0

Discontinued business, net of tax 6.5 101.1 7

Net profit 210.7 451.1 68

Balance Sheets of the Parent Company

At 31 December. Amounts in DKKm

Assets 1998 1997 Note Intangible assets 8 Leasehold improvements 2.1 –

Tangible assets 9 Vehicles, fixtures, edp etc. 8.2 5.8

Financial assets 10 Investments in subsidiaries 1,217.6 2,674.9 10 Investments in associated undertakings – 6.8 10 Other securities 4.7 13.5

1,222.3 2,695.2

Total fixed assets 1,232.6 2,701.0

Current assets 5 Deferred tax 10.2 – Company tax 1.1 – Receivables from subsidiaries 59.5 49.3 11 Other receivables 33.7 130.0 Liquid funds 161.3 0.2

Total current assets 265.8 179.5

Total assets 1,498.4 2,880.5 69

Balance Sheets of the Parent Company

Liabilities and equity 1998 1997 Note Share capital 595.3 595.3 Reserves 822.5 698.6

Equity 1,417.8 1,293.9 12

Provisions Other provisions 45.9 72.2 13

Total provisions and long-term debt 45.9 72.2

Trade creditors and accrued expenses 17.0 16.1 Accrued income taxes – 2.8 Amounts owed to subsidiaries 17.7 1,436.0 Dividends payable – 59.5

Total current liabilities 34.7 1,514.4

Total provisions and liabilities 80.6 1,586.6

Total liabilities and equity 1,498.4 2,880.5

Contingent liabilities 14 Fees to Group auditors 15 70

Notes to the Financial Statements of the Parent Company

Amounts in DKKm

1. Royalty revenue, net 1998 1997 4. Interest payable, net 1998 1997

Royalty and goodwill pay- Other interest receivable 2.4 1.1 ments from subsidiaries 188.5 165.4 Repaid to subsidiaries (50.3) (48.1) Interest receivable 2.4 1.1

138.2 117.3 Interest payable on loans from subsidiaries (37.7) (55.8) Other interest payable (12.6) (27.7) 2. Staff costs 1998 1997 Interest payable (50.3) (83.5) Wages and salaries (25.5) (24.7) Pensions, etc. (4.0) (1.4) Interest payable, net (47.9) (82.4)

(29.5) (26.1) 5. Tax 1998 1997 Management salaries total DKK 9.9m (DKK 8.0m in 1997). Emolument to directors amounts to DKK Tax on profit for the year 6.4 1.4 1.0m (DKK 0.9m in 1997). The average number of Changes in deferred tax 10.2 – employees during 1998: 35 (31 in 1997). 1 January 1998, 5 employees were transferred from the 100% Tax (expense)/income 16.6 1.4 owned subsidiary ISS Finans A/S to ISS A/S. Tax composition: Tax on ordinary operations 7.4 1.4 3. Other income and Tax on extraordinary items 9.2 – expenses 1998 1997 16.6 1.4 Provision related to ISS Inc. 47.9 (50.0) Legal, audit and advisory The Company has paid tax of DKK 2.1m (DKK 9.9m costs and compensations received in 1997). The income tax payable is allo- regarding the US investigation cated proportionally between the Company and the and the negotiation of Danish, jointly-taxed companies. borrowing arrangements 12.0 49.4 In 1997, the allocation of income tax payable was Loss on sale of head office – (14.2) made proportionally between the Company and the Provision for legal cases (13.0) – Danish jointly-taxed companies based on their posi- tive income. 46.9 (14.8)

6. Extraordinary items, net of tax 1998 1997

Provision for restructuring of the Group (28.3) – Tax on extraordinary items 9.2 –

(19.1) – 71

Notes to the Financial Statements of the Parent Company

7. Discontinued business, net of tax 1998 1997

Provision related to disposals previous year (7.0) – Reversal of parent guarantee regarding the sale of ISS Inc. – 101.1 Gain on sale of shares in Aaxis Ltd. 13.5 –

6.5 101.1

8. Intangible assets Leasehold improvements 1998 1997

Cost at 1 January – – Additions 2.3 – Disposals – –

Cost at 31 December 2.3 –

Depreciation at 1 January – – Depreciation for the year 0.2 – Disposals – –

Depreciation at 31 December 0.2 –

Book value at 31 December 2.1 –

9. Tangible assets Vehicles, fixtures, edp etc. 1998 1997

Cost at 1 January 23.9 22.0 Additions 7.5 3.3 Disposals (18.0) (1.4)

Cost at 31 December 13.4 23.9

Depreciation at 1 January 18.1 15.2 Depreciation for the year 2.8 2.5 Disposals (15.7) 0.4

Depreciation at 31 December 5.2 18.1

Book value at 31 December 8.2 5.8

In the profit and loss accounts for 1997 depreciations of DKK 0.8m related to land and buildings are included. 72

Notes to the Financial Statements of the Parent Company

10. Financial assets Investments in Investments in associ- Other securities subsidiaries ated undertakings 1998 1997 1998 1997 1998 1997

Cost at 1 January 3,179.2 2,978.2 4.7 – 13.5 13.5 Additions 836.9 358.5 – 4.7 – – Transfer – – (4.7) – 4.7 – Disposals (796.9) (157.5) – – (13.5) –

Cost at 31 December 3,219.2 3,179.2 – 4.7 4.7 13.5

Revaluation at 1 January (504.3) (502.4) 2.1––– Exchange rate adjustments (83.3) 26.1–––– Net profit for the year 156.6 393.1–––– Disposals – (211.2) –––– Transfer – – (2.1) – 2.1 – Write-down ––––(2.1) – Dividends received (1,567.1) (209.5) –––– Other adjustments (3.5) (0.4) – 2.1 – –

Revaluation at 31 December (2,001.6) (504.3) – 2.1 – –

Book value at 31 December 1,217.6 2,674.9 – 6.8 4.7 13.5

As at 31 December 1998, the Company no longer exercised a significant influence over SAEL, Spain. In accor- dance with the accounting policy, the investment was written down to cost and included in Other securities.

11. Other receivables Proceeds of DKK 96m from the sale of the Head Office site in Denmark are included in other receivables as at 31 December 1997.

12. Equity Share capital Reserves Total Class A Class B equity

1997 Equity at 1 January 1997 76.8 518.5 280.9 876.2 Exchange rate adjustments – – 26.1 26.1 Net profit – – 451.1 451.1 Dividends – – (59.5) (59.5)

Equity at 31 December 1997 76.8 518.5 698.6 1,293.9

1998 Equity at 1 January 1998 76.8 518.5 698.6 1,293.9 Exchange rate adjustments – – (83.3) (83.3) Net profit – – 210.7 210.7 Other – – (3.5) (3.5)

Equity at 31 December 1998 76.8 518.5 822.5 1,417.8 73

Notes to the Financial Statements of the Parent Company

The share capital includes 3,840,000 class-A shares in DKK 20 denominations and 25,923,733 class-B shares in DKK 20 denominations. As at 31.12.98, class-A and class-B shares were officially quoted at DKK 390 and DKK 422 respectively. As at 31.12.98, the Danish Labour Market Supplementary Pension Scheme (ATP), Capital Group, Fidelity Investments, Unibank A/S, the Employee’s Capital Pension Fund (LD), Tryg-Baltica Forsikring and Codan Forsikring each held more than 5% of the Company’s share capital or the voting rights attached thereto.

As at 31.12.98 the Board of Management and the Board of Directors held 6,356 class-A shares and 35,082 class-B shares.

13. Provisions 1998 1997

Provision for irregularities in ISS Inc. – 63.5 Provision for restructuring of the Group 22.2 – Provision related to divestments and lawsuits 20.0 – Other provisions 3.7 8.7

45.9 72.2

14. Contingent liabilities The Company has issued performance bonds and guarantees for subsidiaries for service contracts with an annual turnover of DKK 345m (DKK 492m in 1997). Such performance bonds are issued in the normal course of business as a parent company in the service industry. Certain performance bonds and guarantees have no fixed limit. The Company has not paid any compensation under such performance bonds in the past years.

The future minimum lease payments under operating leases amounts to DKK 19m.

The Company and the other Danish, jointly-taxed companies are jointly liable for the taxes on the income subject to joint taxation.

15. Fees to Group auditors 1998 1997

Audit fees: KPMG 0.8 0.8 Deloitte & Touche 0.3 0.3

1.1 1.1

Fees, other than audit fees: KPMG 0.7 1.3 Deloitte & Touche – 0.1

0.7 1.4 74

ISS Subsidiaries and Associated Companies

At 31 December 1998

Company ISS share NWG Klinikdienste-Reinigung-Service GmbH & Co., München Germany 100% ISS Airest GesmbH Austria 51% NWG Neue Wirtschafts- ISS Central Europe Holding GesmbH Austria 100% dienst-GmbH & Co. KG Germany 100% ISS Servisystem GesmbH Austria 77% NWG Neuer Wirtschafts- und ISS Airport Services S.A.- N.V. Belgium 100% Gebäudeservice Sachsen GmbH Germany 100% ISS Europe N.V. Belgium 100% NWG Wäscheservice GmbH & Co. KG Germany 100% ISS Food Hygiene S.A.- N.V. Belgium 100% SRD Service- und Reinigungs- ISS Healthcare Services S.A.- N.V. Belgium 100% Gesellschaft Duisburg GmbH Germany 50% ISS Servisystem S.A.- N.V. Belgium 100% ISS Servisystem S.A. Greece 100% ISS Servisystem Com. e Ind. Ltda. Brazil 100% ISS ESGO Services Ltd. Hong Kong 100% ISS Sulamericana Commercial Ltda. Brazil 100% ISS Servisystem (HK) Ltd. Hong Kong 100% ISS Thomas Cowan Sdn. Bhd. Brunei 50% Reliance Airport Cleaning Services Ltd. Hong Kong 100% ISS Elltech spol. s.r.o. Croatia 80% ISS Servisystem Kft. Hungary 90% ISS Harvilla spol. s.r.o. Czech Rep. 60% P.T. Egana Prima Mandiri Indonesia 100% ISS Asia A/S Denmark 100% P.T. Reliance Tempindo Indonesia 100% ISS Catering A/S Denmark 100% ISS Contract Cleaners Ltd. Ireland 100% ISS Data A/S Denmark 100% ISS Robustelli s.r.l Italia Italy 100% ISS Europe A/S Denmark 100% ISS Luxembourg S.A. Luxembourg 100% ISS Finans A/S Denmark 100% NWG Luxembourg S.A.R.L. Luxembourg 54% ISS Grønland A/S Denmark 50% ISS Asia Sdn. Bhd. Malaysia 100% ISS Hospitalsservice A/S Denmark 100% ISS Servisystem Sdn. Bhd. Malaysia 100% ISS Junior Service Denmark 100% Reliance Suci Environmental Sdn. Bhd. Malaysia 100% ISS Scandinavia A/S Denmark 100% ISS Food B.V. Netherlands 100% ISS Suomi Oy Finland 100% ISS Hospital Service B.V. Netherlands 100% Kehäyhtiöt Oy Finland 100% ISS Servisystem B.V. Netherlands 100% Talotek Oy Finland 100% ISS Norge a.s. Norway 100% Yhdyshuolto Oy Finland 100% Renva A/S Norway 100% ISS CGS Group France 100% Sporty Skadeservice A/S Norway 85% ISS France S.A. France 100% Telenor Renhold og Kantiner A/S Norway 49% Union Maintenance S.A. France 100% ISS Multi Service Sp.z.o.o. Poland 80% “CARE” Reinigungs Gmbh Germany 100% ISS Servisystem Lda. Portugal 100% Dr. Harren Gebäudereinigung Blue Cosmos Disposal Pte. Ltd. Singapore 100% GmbH & Co. KG Germany 100% ISS ESGO Pte. Ltd. Singapore 100% Gebäudereinigung Jörg Lenz GmbH Germany 100% ISS Hospital Services Pte. Ltd. Singapore 100% Ibing Beteiligungs-GmbH & Co. KG Germany 100% ISS Servisystem Pte. Ltd. Singapore 100% ISS Food Hygiene Service GmbH Germany 100% ISS Servisystem spol. s.r.o. Slovakia 100% ISS Gebäudeservice GmbH Germany 100% ISS Servisystem d.o.o. Slovenia 100% * ISS Gebäudeservice Holding GmbH Germany 100% ISS Care Service AB Sweden 100% ISS Hansa GmbH Germany 100% ISS Catering AB Sweden 100% Klaus Harren Gebäudereinigung GmbH Germany 100% ISS Sverige AB Sweden 100% Klaus Harren GmbH & Co. KG Germany 100% Norrköping Fabriks- NWG Klinik und Gebäudedienste och Industrisanering AB Sweden 100% GmbH & Co. KG Germany 66% Stenbäckens och Linnegårdens NWG Klinik-Entsorgung Behandlingshem AB Sweden 100% GmbH & Co. KG Germany 60% Trobeck Rehabiliterings Center AB Sweden 100% NWG Klinikdienste-Reinigung-Service ISS Airport Multiservice A.G. Switzerland 50% GmbH & Co., Falkensee Germany 66 2/3% ISS Airport Multiservice S.A. Switzerland 50% NWG Klinikdienste-Reinigung-Service ISS Food Hygiene Services A.G. Switzerland 100% GmbH & Co., Freiburg Germany 66 2/3% ISS Holding S.A. Switzerland 100% NWG Klinikdienste-Reinigung-Service ISS Hospital Service A.G. Switzerland 100% GmbH & Co., Laatzen Germany 66 2/3% ISS Manzoni Service S.A. Switzerland 100% 75

ISS Subsidiaries and Associated Companies

Company ISS share Associated companies ISS share

ISS Servisystem A.G. Switzerland 100% Beijing ESGO Xin Sha International Servex Cleaning Co. Ltd. Thailand 100% Building Services Co. Ltd. China 50% ISS ESGO Co. Ltd. Thailand 100% Abans Environmental Services (PT) Ltd. Sri Lanka 50% Reliance Environmental Services Co. Ltd. Thailand 100% ISS Airport Services UK 100% ISS Cleaning Services Ltd. UK 100% Undertakings of immaterial interest are left out. ISS Food Hygiene Ltd. UK 100% ISS London Ltd. UK 100% * Certain of the newly acquired companies in the NWG Group have ISS Mediclean Ltd. UK 100% not been audited by KPMG or Deloitte & Touche but by a local ISS Scotland Ltd. UK 100% audit firm. ISS Servisystem Ltd. UK 100% ISS Transport Services Ltd. UK 100% ISS UK Ltd. UK 100% 76

Definitions of Key Figures

Sustainable cash flow = Cash flow from operations – depreciation The adjustment factor (f) is used in connection with share offerings made to existing shareholders when the subscription Interest bearing debt, Long-term debt + Current portion of long-term price is below the market price at the time of the net = debt + Bank loans and other debt – Liquid funds offering. The adjustment factor must be used for calculating comparable figures for EPS and CEPS and dividends per share for the years before the Earnings per share Net ordinary profit × f offering. The adjustment factor was 0.8333 for (EPS), DKK = 1992 and 1.0 for other years. Average no. of shares

Earnings per share The definition of certain key figures are not in before amortisation of Ordinary profit before amortisation of goodwill × f compliance with the definitions set out by The goodwill, DKK = Danish Association of Financial Analysts, as the used Average no. of shares definitions are seen to be more appropriate for the ISS business. Sustainable cash flow per share Sustainable cash flow × f (CEPS), DKK = Average no. of shares

Dividend per share, DKK = Dividends declared per share × f

Total equity × 100 Equity ratio, % = Total assets

Operating profit before other income and expenses Interest coverage = Interest payable, net

© 1999

ISS-INTERNATIONAL SERVICE SYSTEM A/S

DESIGN AND PRODUCTION: DESIGNGRAFIK, COPENHAGEN

PHOTOGRAPHY: DENNIS ROSENFELDT

PREPRESS: DANSK KLICHÉ, COPENHAGEN

PRINTING: SALOPRINT, COPENHAGEN

PRINTED ON CONSORT ROYAL OSPERY SATIN TINT FROM DONSIDE 77

Addresses as of February 1999

Austria France Luxembourg Slovakia

ISS Servisystem GmbH ISS France S.A. / ISS CGS Group ISS Luxembourg S.A. ISS Servisystem spol. s.r.o. Brünner Strasse 85 50 avenue Gabriel Péri Avenue de la Faïencerie 121 Trnavská Cesta 3 A-1210 Vienna F-94 117 Arcueil L-1511 Luxembourg SK-831 04 Bratislava Tel.: +43 1 291110 Tel.: +33 1 41 24 13 13 Tel.: +32 2 255 8300 Tel.: +42 17 5556 2670 Fax: +43 1 2911178 Fax: +33 1 41 24 13 03 Fax: +32 2 255 8311 Fax: +42 17 5556 4747 Country Manager: Michael Maximilian Country Manager: Emmanuel Airy Country Manager: Daniel van Cauteren Country Manager: Honor Ilavsky

Belgium Germany Malaysia Slovenia

Contents 1 1998 in Brief 40 Shareholder Information ISS Servisystem S.A.-N.V. ISS-NWG ISS Servisystem Sdn. Bhd. ISS Servisystem d.o.o. 2 Board of Directors and Board of Management 43 Financial Analysts Luchthavenlaan 25B, Building C Keniastrasse 24 No. 1 Jalan 2/118B Kopitarjeva 5 B-1800 Vilvoorde D-47269 Duisburg Desa Tun Razak, Cheras SI-62000 Maribor 3 Group Financial Highlights and Key Figures 44 Signatures to the Accounts Tel.: +32 2 255 8300 Tel.: +49 203 99 82 0 56000 Kuala Lumpur Tel.: +386 62 220860 4 Report to Shareholders, Employees 45 Auditors’ Report Fax: +32 2 255 8311 Fax: +49 203 99 82 222 Tel.: +60 3 973 1282 Fax: +386 62 2208638 and Customers 46 Accounting Policies Country Manager: Daniel van Cauteren Country Managers: Rainer Thomas and Fax: +60 3 973 1281 Country Manager: Bojan Rajtmajer Rainer Gossmann Country Manager: Terry Kong ® 16 EVA 50 Consolidated Profit and Loss Accounts Brazil Spain 17 Business Conduct 51 Consolidated Statements of Cash Flows Greece Netherlands 18 The Service Enterprise Concept 52 Consolidated Balance Sheets ISS Sulamericana Comercial S/C Ltda. ISS España Estrada da Ressaca 960, Caixa Postal 29 ISS Servisystem s.a. ISS Servisystem B.V. Tel.: +34 90 934 5207 20 Country Reports 54 Notes to the Consolidated Financial Statements 06844-900-Embu-SP, São Paulo 4, Amaroussiou-Halandriou Drentsestraat 4 Fax: +34 93 759 2218 22 Denmark 67 Profit and Loss Accounts of Tel.: +55 11 7961 6355 15125 Maroussi Postbus 1000 Country Manager: Joaquim Borrás 24 United Kingdom and Ireland the Parent Company Fax: +55 11 494 6252 Tel.: +30 1 689 6461-4 NL-3800 BA Amersfoort Country Manager: Eugênio Marianno Fax: +30 1 689 6460 Tel.: +31 33 4 680680 Sri Lanka 26 Sweden 68 Balance Sheets of the Parent Company Country Manager: Xenophon A. Digenis Fax: +31 33 4 655562 28 Norway 70 Notes to the Financial Statements of Brunei Country Manager: Theo Buitendijk ISS Abans Environmental 29 Germany the Parent Company Hong Kong SAR Services (PT) Ltd. ISS Thomas Cowan Sdn. Bhd. Norway 141 Kirula Road 30 Austria 74 ISS Subsidiaries and Associated Companies 1A, Bangunan Menglait 1 ISS ESGO Services (HK) Ltd. Colombo 05 30 Slovenia 76 Definitions of Key Figures Mile 2, Jalan Gadong, B.S.B. 3180 9/F Stelux House ISS Norge a.s. Tel.: +941 500 631 30 Greece 77 Addresses Negara Brunei Darussalam 689 Prince Edward Road East Ulvenveien 83 Fax: +941 590 555 Tel.: +673 2 446 497 San Po Kong, Kowloon Postboks 132 Økern Country Manager: Rusi Pestonjee 30 Czech Republic Fax: +673 2 446 498 Tel.: +852 2621 4333 N-0509 Oslo 30 Slovakia Country Manager: Jose Robles III Fax: +852 2621 5260 Tel.: +47 2 2288 5000 Sweden 30 Hungary Country Manager: Gregory Rooke Fax: +47 2 2288 5121 China Country Manager: Thorbjørn Graarud ISS Sverige AB 30 Poland Hungary Årstaängsvägen 25 31 Switzerland and Italy ISS ESGO Poland Box 42071 32 Finland Beijing ESGO – Xin Sha Building Services ISS Servisystem Kft. S-126 13 Stockholm Co. Ltd. Gubacsi ut. 6 ISS Multiservice Sp.z.o.o. Tel.: +46 8 681 6000 33 Belgium and Luxembourg 5A Citic Building H-1097 Budapest ul. Kasprzaka 29/31 Fax: +46 8 681 9087 33 Netherlands 19 Jiangoumenwai Dajie Tel.: +361 216 3948 PL-01-234 Warsaw Country Manager: Arne Pedersen 34 France Beijing 10004 Fax: +361 216 3947 Tel.: +48 22 36 16 01 Tel.: +86 106 5002255 Country Manager: Gerald Thalmaier Fax: +48 22 36 10 44 Switzerland 34 Portugal Fax: +86 106 5010978 Country Manager: Dariusz Malewski 35 Brazil Country Manager: Yuan Yong Indonesia ISS Holding A.G. 36 China and Hong Kong SAR Portugal Talackerstrasse 5 Czech Republic P.T. Egana Prima Mandiri Box 1733 37 Singapore Komplek Mahkota Mas, Blok E/1 ISS Servisystem Lda. CH-8065 Zürich 38 Thailand ISS Harvilla spol. s.r.o. Jl. M.H. Thamrin Rua Moinho da Barrunchada, Tel.: +41 1 874 18 18 38 Malaysia Budejovicka 5 Cikokol, Tangerang-15117 4-1.o Dt. - Carnaxide Fax: +41 1 874 18 19 CZ-140 00 Prague 4 Tel.: +6221 554 5753 P-2795 Linda-A-Velha Country Manager: Romano Spadaro 39 Indonesia Tel.: +4202 6112 2241 Fax: +6221 554 5754 Tel.: +351 1 424 6798 39 Brunei Fax: +4202 6112 2481 Country Manager: Houtman Fax: +351 1 424 6799 Thailand 39 Sri Lanka Forward-looking Statements Country Manager: Gerald Thalmaier Simanjuntak Country Manager: Luis Andrade ISS ESGO Co. Ltd. This annual report contains statements regarding Denmark Ireland Russia 92/9 Moo 7, Phaholyothin Road expectations to the future development, Klongthanon, Bangken in particular future sales, operating efficiencies ISS Danmark ISS Contract Cleaners Ltd. NWG RUS GmbH Bangkok 10220 Rentemestervej 62 14/17 Hanbury Lane Alabjana 25, 125252 Moscow Tel.: +66 2 552 5015 and business expansion. Such statements are DK-2400 Copenhagen NV Dublin 8 Tel.: +007/095-198 1679 Fax: +66 2 552 1260 subject to risks and uncertainties as various factors, Tel.: +45 38 17 17 17 Tel.: +353 1 453 7711 Fax: +007/095-198 3506 Country Manager: many of which are outside of ISS’s control, Fax: +45 38 33 23 11 Fax: +353 1 453 7870 Theinsiri Theingviboonwong Country Manager: Sven Ipsen Country Manager: David Healy Singapore may cause the actual development and results to United Kingdom differ materially from the expectations contained Finland Italy ISS Servisystem Pte. Ltd. in the report. Factors that might affect such 315 Outram Road #04-09 ISS UK Ltd ISS Suomi Oy ISS Robustelli s.r.l. Italia Tan Boon Liat Building 44-50 Bath Road Annual general meeting expectations include, among others, overall Laulukuja 6 Viale Aguggiari 178 Singapore 169074 Hounslow Thursday, 22 April 1999 at 5pm economic and business conditions, fluctuations in FIN-00421 Helsinki I-21100 Varese Tel.: +65 227 9711 Middlesex TW3 3EB Radisson SAS Falconer Center currencies, the demand for ISS’s services, Tel.: +35 8 205 155 Tel.: +39 0332 22 77 06 Fax: +65 225 8340 Tel.: +44 181 569 6080 Fax: +35 8 2051 50155 Fax: +39 0332 22 43 67 Country Manager: C.C. Woon Fax: +44 181 569 6607 Falkoner Allé 9 competitive factors in the industry and Country Manager: Matti Kyytsönen Country Manager: Giuliano Robustelli Country Manager: Kevin Mahoney 1908 Frederiksberg C uncertainties concerning possible acquisitions Denmark and divestments. ISS-International Service System A/S Bredgade 30 DK-1260 Copenhagen K Denmark

Telephone: + 45 38 17 00 00 Fax: + 45 38 17 00 11 E-mail: [email protected] Website: www.iss-group.com

A/S Reg. No.: 37.702 Annual Report 1998 Annual Report 1998

ISS – The Service Enterprise ISS International

• Table of Contents • Overview • Summary 1998 • Key figures • Report of the Board of Directors • Income Statement • Balance Sheet • Cash Flow Analysis • Notes • Shareholders Policy

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