Revenue in the first half of 2013 was DKK 39.6 billion, driven by an organic growth of 3.5%, while oranic growth in Q2 was 4.3%.
Other topline results posted are as follows: Operating margin for H1 was 4.8% compared with 4.9% in the same period in 2012. Operating margin in Q2 was 5.1%. Net profit in the first six months of 2013 was DKK 131 million compared with a loss of DKK 297 million in the same period in 2012. The LTM (Last Twelve Months) cash conversion for June 2013 stands at 98%.
Speaking about this latest set of financials, Jeff Gravenhorst (CEO at the ISS Group), said: “In Q2 we delivered solid results and increased organic growth, although we continue to experience overall challenging macroeconomic conditions. In the second quarter our business grew organically by 4.3%. We are growing in both developed and emerging markets, partly driven by the successful implementation of large contracts like Barclays, Novartis, Citibank and H.J. Heinz.”
Gravenhorst added: “We continue executing our strategy with the divestments of several non-core businesses, including our pest control activities in 12 countries and our Nordic damage control activities. The divestments have led to further financial deleverage. I’m very pleased that we now have our new Executive Group Management Board in place with two new chief operating officers and a new CFO. This represents a significant strengthening of our management resources, in turn enabling a sharper focus on our global operations.”
Group performance: the detailed breakdown
Group revenue amounted to DKK 39.6 billion in the first six months of 2013, an increase of 1.4% compared with the same period in 2012. This was driven by organic growth of 3.5%, but partly offset by the successful divestment of non-core activities amounting to 1.1% and a negative effect from exchange
rate movements of 1.1%.
Jeff Gravenhorst: CEO at the ISS Group
The organic growth was driven by both developed and emerging markets. Western Europe, Asia, Latin America, North America and Eastern Europe delivered positive organic growth rates, with Asia continuing to report double-digit organic growth.
Operating profit before other items amounted to DKK 1,883 million (H1 2012: DKK 1,904 million) in the first six months of 2013 and was negatively impacted by both currency effects and divestments. The negative effect from exchange rate movements reduced the operating profit by DKK 16 million compared with the same period in 2012.
The operating margin (operating profit before other items as a percentage of revenue) was 4.8% in the first six months of 2013 compared with 4.9% in the same period in 2012. The operating margin was in line with expectations and positively impacted by margin increases (especially in the Nordic region
and certain countries in Asia).
This was offset by the strategic divestments of non-core activities (including the washroom activities in the Netherlands, Belgium and Luxembourg and the pest control activities in 12 developed countries), as well as the start-up of multinational IFS contracts and the negative impact from operational challenges in certain countries in Europe and the Americas.
Focus on the net profit and emerging markets
The net profit amounted to DKK 131 million in the first six months of 2013 compared with a loss of DKK 297 million in the first six months of 2012, positively impacted by growth in revenue, other income and expenses, net, lower financial expenses, net and lower non-cash expenses related to goodwill impairment and amortisation of customer contracts.
The LTM (last twelve months) cash conversion for June 2013 was 98% as a result of a strong cash flow performance in all regions. Ensuring a strong cash performance continues to be a key priority, and the result reflects the efforts regarding payments for work performed and exiting customer contracts with unsatisfactory payment conditions. This led to a decrease in debtor days of 0.5 day compared with 30 June 2012.
The emerging markets comprising Asia, Eastern Europe, Latin America, Israel, South Africa and Turkey (where ISS has more than half of its employees) delivered organic growth of 10% and represent 22% of total revenue for the Group. In addition to fuelling the Group’s organic growth, the emerging markets delivered an operating margin of 5.9% in the first six months of 2013.
ISS will continue the evaluation of its activities in the light of accelerating ‘The ISS Way’ strategy to ensure clear focus on the core businesses. At the end of June 2013, the company had six businesses classified as ‘Held for Sale’ as a result of this ongoing review of its business platform.
Proceeds from the divestments have been and will be used to repay debt, thereby contributing to the continued deleveraging of ISS.
Key appointments to the Board
During the quarter, ISS announced two key appointments strengthening the Executive Group Management Board. Henrik Andersen was appointed to the new position of Group Chief Operating Officer (COO) Europe.
Heine Dalsgaard was appointed Group Chief Financial Officer (CFO) and replaced Henrik Andersen in August 2013.
Furthermore, on 8 July 2013 ISS announced the appointing of John Peri as Group Chief Operating Officer (COO) Americas and Asia Pacific. The appointments allow ISS to further align the organisation and focus deeper on the markets in which ISS operates.
In terms of the immediate outlook, that for 2013 is based on a mixed global macroeconomic outlook with continued strong growth in emerging markets combined with weak growth and difficult macroeconomic conditions in large parts of Europe, including the uncertainty surrounding current and future austerity measures.
In 2013, ISS had a solid start following the wins of several large IFS contracts in 2012. Combined with the underlying business development, the company expects to realise around 3% organic growth in 2013.
The divestment of the margin accretive pest control activities in 12 developed markets in May 2013 has been followed by restructuring activities to align the cost structures in the impacted countries. ISS expects a negative impact on the operating margin from these divestments of around 0.2 percentage points for the Group in 2013.
As a result, the operating margin for 2013 is expected to be slightly lower than the level realised in 2012. Cash conversion is expected to be maintained above 90%.