ISS, the global provider of facility services, has announced its interim financial report for the first six months of 2019. Revenue increased by 5.0% in H1 and 5.0% in Q2 (Q1 2019: 4.9%) driven by organic growth and positive currency effects, partly offset by negative net impact from acquisitions and divestments of 1.5%.
There has been organic revenue growth of 6.0% in H1 and 5.8% in Q2 (Q1 2019: 6.1%) driven by wins and expansions of key account contracts following strong commercial momentum and continued solid non-portfolio demand in the first half of 2019.
Revenue from key accounts grew organically by 7.9% in H1 and 7.7% in Q2 and represented 61% of Group revenue (Q1 2019: 60%).
Operating profit before other items amounted to DKK 1,418 million in H1 (H1 2018: DKK 1,395 million).
The operating margin of 3.7% in H1 (H1 2018: 3.9%) reflects the launch of the announced transformational investments (2019-2020), renewals and start-ups of a number of significant key account contracts as well as operational challenges in certain countries.
Net profit (adjusted) increased to DKK 822 million in H1 (H1 2018: DKK 704 million) due to improved net profit from discontinued operations. Net profit was DKK 402 million in H1 (H1 2018: loss of DKK 130 million) mainly driven by lower goodwill impairment.
Free cash flow was an outflow of DKK 2,671 million for H1 (H1 2018: an outflow of DKK 1,401 million) driven by the usual seasonality as well as a significant reduction in the use of non-recourse factoring leading to a higher cash outflow from operating activities.
Jeff Gravenhorst, Group CEO at ISS, added: “We continued our consistent and strong commercial momentum with the extension of large key account contracts like Danske Bank and an international manufacturing company. On 1 July 2019, we launched our Integrated Facility Services partnership with Deutsche Telekom at approximately 9,000 buildings across Germany, making it the largest partnership in the history of ISS. Our focus on key accounts is paying off and we’re on track to deliver industry leading organic growth of 6.5%-7.5% in 2019.”
Gravenhorst added: “As expected, margins were slightly lower in the first half of the year, reflecting the contract start-ups and expansions as well as the launch of the announced transformational investments (2019-2020). We’re making good progress on our divestment programme and we expect divestments and proceeds to step up in the second half of 2019.”
Strategic divestment programme
The Group’s strategic divestment programme is proceeding as planned with three of the 15 countries presented as discontinued operations being divested by the end of July. The divestment process for the remaining countries and business units continues according to plan.
The accelerated investment programme to further strengthen delivery capabilities to key accounts covering DKK 700-800 million over 2019-2020 is also said to be progressing according to plan. The investment in the first six months of 2019 was approximately DKK 200 million.
On 1 July, the Group went live with the aforementioned Deutsche Telekom contract which is the single largest contract in ISS’ history. Although still in ramp-up phase, the go-live was on time on all sites. Stabilisation is expected to be completed in the coming months and, on that basis, revenue and profitability expectations for 2019 remain unchanged.
As a result of the stronger than expected organic growth, the 2019 outlook for organic growth is adjusted to 6.5%-7.5% (previously 5%-7%). Operating margin is adjusted to 5.0%-5.1% (previously 5.0%-5.2%), while free cash flow remains unchanged at DKK 1.8-2.2 billion.
Matthew Brabin, CEO for ISS UK & Ireland, observed: “Our strong top line growth in the UK & Ireland is consistent with our Group results. We’ve maintained key partnerships with organisations such as West Middlesex University Hospital, where the contract is valued at £40 million over the next five years. It has been a year of significant transformation with a focus on improvement and innovation at each touch point for our people and our clients.”