ISS, one of the world’s leading facility services companies, has announced its preliminary results for 2013 after “a year of solid organic growth”.
• Organic growth reached 4.3% for FY 2013 (2012: 1.7%)
• Operating margin was 5.5% for FY 2013 (2012: 5.6%)
• Profit before goodwill impairment/amortisation, etc increased to DKK 1,026 million for FY 2013 (2012: DKK 421 million)
• Cash conversion was 102% (2012: 103%)
• Net debt reduced by DKK 3,304 million in 2013
• Intention to launch an Initial Public Offering (IPO) announced
Jeff Gravenhorst, group CEO at ISS A/S, said: “We further focused our business in 2013, which supported our delivery of solid financial results. Despite challenging economic conditions we delivered higher organic growth. This was mainly driven by the commencement of some of our strategically important IFS contracts with major international customers, and we have recently extended our large global IFS contract with HP until 2018.”
Gravenhorst continued: “During 2013 and in early 2014, we have successfully divested a number of non-core activities which has further focused our business platform. In combination with our strong cash conversion, the divestment proceeds have significantly reduced our debt. We are well positioned and ready for continued and accelerated execution of our strategy in 2014.”
Jeff Gravenhorst: CEO at the ISS Group
Group revenues and organic growth
Group revenue amounted to DKK 78.5 billion and organic growth was a robust 4.3% compared with 1.7% in 2012. Organic growth was driven by both developed and emerging markets. All regions but one delivered positive organic growth rates.
Western Europe, which is ISS’ largest region, delivered strong organic growth of 5% while Asia delivered double-digit organic growth rates for the 34th consecutive quarter. Organic growth for Q4 2013 was 5.0% compared with 1.9% for the same period in 2012.
Total Group revenue was down 1.3% compared with 2012 as the organic growth was more than offset by the successful strategic divestment of non-core activities and a negative effect from exchange rate movements (which decreased revenue by 2% and 3% respectively).
Operating profit before other items decreased by 2.2% to DKK 4,315 million (2012: DKK 4,411 million), and was negatively affected by both the successful divestments of non-core activities and currency effects.
The operating profit before other items as a percentage of revenue (ie the operating margin) decreased to 5.5% from 5.6% in 2012.
Operating margin for Q4 2013 was 6.2% compared with 6.0% for the same period in 2012. The operating margin was in line with expectations.
The divestment of the large and margin accretive pest control business in May 2013 negatively affected the operating profit margin. Adjusted for the divestment of the pest control activities, the operating margin was slightly improved from 2012 to 2013.
Operating profit increased by 3% to DKK 4,215 million in 2013 from DKK 4,103 million in 2012.
Profit before goodwill impairment/amortisation and impairment of brands and customer contracts increased to DKK 1,026 million (2012: DKK 421 million) driven by an increase in operating profit and a decrease in financial expenses, net.
The net loss decreased to DKK 397 million (2012: DKK 450 million), positively impacted by a decrease in other income and expenses, net, and lower financial expenses, net which were partly offset by higher non-cash expenses related to goodwill impairment.
The cash conversion for 2013 was 102% (2012:103%) as a result of a strong cash flow performance across the Group.
Focus on encouraging timely payment by customers and on exiting customer contracts with unsatisfactory payment conditions led to a decrease in debtor days of more than one day.
Focus on emerging markets
Emerging markets (comprising Asia, Eastern Europe, Latin America, Israel, South Africa and Turkey) now represent 23% of total ISS Group revenues, 55% of total organic growth in 2013 and 56% of ISS’ employee base.
The emerging markets delivered organic growth of 11% and, in addition to significantly increasing the Group’s organic growth, these markets delivered an operating margin of 6.3% in 2013 (2012: 5.8%).
New major contracts
In 2012, ISS won some of the largest contracts in its history, including Barclays, Novartis and Citi APAC. By the end of 2013, all three contracts were fully operational in all key geographies.
In 2013, ISS signed major IFS contracts with H.J. Heinz and Nordea Bank.
In addition to these new global corporate clients contracts, several other important contracts were secured in 2013 – new contracts as well as expansion of existing contracts.
In 2014, ISS has extended the global IFS contract with HP until 2018.
With the proceeds from divestments and improved conditions for repaying debt, in 2013 ISS completed two excess proceeds offers and conditional partial redemptions in aggregate of EUR 325.2 million of its EUR 581.5 million 8.875% Senior Subordinated Notes due 2016.
At the end of 2013, this leaves an aggregate principal amount of approximately EUR 256.3 million of Notes outstanding.
In 2013, ISS has repaid more than half of the most expensive element of the debt which will lead to significant interest cost savings going forward. Currently, ISS has no significant short-term financing maturities. In 2013, net debt was reduced by DKK 3,304 million to DKK 22,651 million (2012: DKK 25,955 million) and financial income and expenses, net was reduced by DKK 450 million.
Launch of an IPO and the general outlook
In connection with the release of the 2013 preliminary results, ISS has also announced today its intention to launch an Initial Public Offering (IPO) of its shares and to list on NASDAQ OMX Copenhagen.
ISS expects revenue growth in 2014 to be 3%-4% assuming constant foreign exchange rates1 and before the impact of any acquisitions or divestments completed in 2013 and 2014.
Changes in foreign exchange rates are expected to negatively impact revenue growth in 2014 by approximately 3 percentage points2.
Divestments and acquisitions completed in 2013 and divestments completed in 2014 are expected to negatively impact revenue growth in 2014 by 2 to 3 percentage points3.
ISS expects total revenue growth in 2014 to be negative by approximately 2%.
Operating margin in 2014 is expected to be above the 5.5% realised in 2013. Cash conversion in 2014 is expected to be above 90%.
1For the purpose of the outlook for the year ending 31 December 2014, constant foreign exchange rates are the realised average exchange rates for the financial year 2013
2Calculated revenue for 2014 at exchange rates at 31 December 2013, less the same revenue calculated at the average exchange rates for the financial year 2013 relative to revenue realised in 2013 less estimated revenue from divestments completed in 2013 and 2014
3At 31 December 2013, ISS had certain businesses held for sale. The outlook for the year ending 31 December 2014 includes only divestments completed in 2014 as of and including 14 February 2014, comprising the pest control activities in India and the security activities in Israel