The facility services provider has delivered its highest organic growth rate – 6.2% – in more than a decade, accelerating such growth for the third year running. Operating profit before other items stands at DKK 4,388 million, which is the highest ever reported by the company.
These results arrive in the wake of successful implementations of several large national and international integrated facility services contracts, the company having grown to employ 534,519 people on a global basis (and adding almost 12,000 new jobs across the world during the year).
Jeff Gravenhorst, the ISS Group’s CEO, explained: “We see our strong performance in 2011 as a clear sign that ISS is on the right track, implementing ‘The ISS Way’ strategy both with customers and employees. ISS exists to provide services, and we have now built a platform enabling ISS to deliver a full range of services across the world.”
Gravenhorst continued: “The fact that we’ve accelerated growth for the third consecutive year and achieved the highest organic growth in more than a decade is a clear proof point that both new and existing customers are happy with the services delivered by ISS. In 2011, we successfully converted several large global contract wins into well-implemented long-term contracts.”
Group performance: the top line figures
Group revenue amounted to DKK 77.6 billion in 2011, an increase of 5% compared with 2010. This has been driven by organic growth of 6.2% and a positive effect from exchange rate movements of 1% (which was offset by negative net effect from acquisitions and divestments of 2%).
The 6.2% organic growth was a continuation of the positive organic growth trend seen in 2009 and 2010, fuelled by the start-up of several large integrated facility services contracts. North America, Latin America and Asia all delivered double digit organic growth rates.
Operating margin (ie operating profit before other items as a percentage of revenue) was 5.7% in 2011 compared with 5.8% for the previous 12 months.
The operating margin in 2011 was supported by strong margins in Switzerland, the United Kingdom, Turkey and the Asia region in particular. This was offset by the negative impact resulting from challenging economic conditions in the Mediterranean region, operational challenges in the Netherlands and the start-up of large national and international integrated facility services contracts.
In order to adapt to the challenging economic conditions in, mainly, the Mediterranean region, the company responded with a strict operational focus (including exiting some contracts).
Improvements in net loss
Net loss improved from a loss of DKK 532 million in 2010 to a loss of DKK 507 million in 2011, and was positively impacted by growth in revenue and higher operating profit before other items. The net loss of DKK 507 million is impacted by financial expenses of DKK 2.8 billion due to the capital structure of the company and approximately DKK 1 billion in non-cash expenses related to goodwill impairment and amortisation of intangible assets (as well as DKK 111 million related to exit processes).
The cash conversion for 2011 was 93% as a result of “strong cash flow performance” – especially in Western Europe – despite the negative effect from the strong organic growth and a slight increase in debtor days.
Emerging markets (comprising Asia, Eastern Europe, Latin America, Israel, South Africa and Turkey, where ISS has more than half of its global workforce) delivered organic growth of 13%. They represent 19% of total revenue and 37% of total organic growth for the Group.
In addition to boosting organic growth, the emerging markets delivered an operating margin of 6.9% in 2011 which is well above most mature markets.
Focusing on customer requirements
During 2011, ISS focused on customer needs, deploying Best Practice globally and aligning the organisation behind the consistent delivery of excellence.
ISS continued to drive excellence, looking at customer segments, services and business system dimensions to enhance our ability to deliver on our value propositions.
The business srvices and IT arena remained the largest customer segment in 2011, representing 28% compared with 26% in 2010. Share of revenue from the public administration segment decreased from 16% in 2010 to 14% in 2011, affected as it was by austerity measures reducing public spending in many countries, while revenue from industry and manufacturing increased from 14% in 2010 to 15% in 2011. This was positively impacted by large contract wins (such as BMW in Germany).
Revenue share from healthcare remained unchanged at 11%.
In December, Henrik Andersen – the former CEO of ISS in the United Kingdom – replaced Jakob Stausholm as new Group CFO.
In addition, Harry Klagsbrun and Jennie Chua were elected new members of the Board of Directors and replaced Peter Korsholm and Jorgen Lindegaard. The Board has thanked Jakob, Peter and Jorgen for their contribution to ISS.
Company outlook for 2012
ISS will maintain its focus on the key operational objectives: cash conversion, operating margins and organic growth.
The outlook for 2012 is based on expectations of a “challenging macroeconomic outlook” and “difficult market conditions” in Europe (in particular certain Mediterranean countries).
The company statement issued this morning comments: “We expect a continued strong growth in emerging markets. ISS experienced a strong positive trend in organic growth in 2011 following the start-up of several large integrated facility services contracts leading to organic growth of 6.2% for the Group. A sound development in the contract portfolio in late 2011 is expected to ensure a continuation of the organic growth rate which, in 2012, is expected to be in the 4%-6% range.”
In 2011, ISS achieved an increase in operating profit before other items compared with 2010. However, the operating margin was slightly below the level realised in 2010. In 2012, the operating margin is expected to be around the level realised in 2011.
ISS will continue to prioritise cash flow and focus on managing the absolute level of debt supported by a continued low level of acquisition spending and continued robust cash conversion which, in 2012, is expected to be around 90%.
