Speaking about the company’s latest set of financials, Jeff Gravenhorst (ISS Group’s CEO), said: “This has been a very important quarter for ISS. We secured two of the largest global contracts in our history and welcomed two new long term investors resulting in a significant deleverage of ISS.”
Gravenhorst continued: “We still see challenging macro-economic conditions. Therefore, we remain focused on driving profitable growth with acceptable payment conditions. In some areas we have deliberately withdrawn from certain business relationships. For Q3 our efforts helped improve the margin and secure strong cash conversion. More than half of the new Barclays contract is now operational and, together with a strong pipeline of new customer contracts, we expect a solid finish to 2012.”
The topline financial results for ISS are as follows:
Group performance in the spotlight
Group revenue amounted to DKK 58.9 billion in the first nine months of 2012, an increase of 2% compared with the same period in 2011. Ultimately, this was driven by organic growth of 1.7% and a positive effect from exchange rate movements of 2%, which was partly offset by the successful divestment of non-core activities of 2%.
All regions except North America and the Pacific zone delivered a positive organic growth rate, including Asia with a double-digit organic growth rate. Organic growth was influenced by challenging business conditions in certain European countries where the main focus of ISS remains ensuring a profitable customer base with satisfactory payment conditions. This has led to the identification of contracts which have been exited in 2012, resulting in a reduced organic growth.
Furthermore, a decline in non-portfolio services in 2012 and the timing of contract start-ups have negatively impacted the organic growth.
Operating profit before other items amounted to DKK 3,176 million in the first nine months of 2012 compared with DKK 3,201 million in the same period in 2011. The operating margin (operating profit before other items as a percentage of revenue) was 5.4% for the first nine months of 2012 compared with 5.5% for the same period in 2011.
The operating margin improved in Q3 and was positively impacted by increases, especially in the Nordics and certain Western European countries. For the first nine months of 2012 the margin was impacted by the introduction of austerity measures in a number of ISS’ mature markets as well as some operational challenges in the Netherlands, France and Brazil.
In addition, the margin was negatively impacted by the strategic divestments of non-core activities including the damage control business in Germany, the coffee vending business in Denmark and Norway and the governmental outplacing services in Norway.
Operating profit amounted to DKK 3,030 million in the first nine months of 2012 compared with DKK 2,979 million in the same period in 2011.
The net result improved from a loss of DKK 597 million in the first nine months of 2011 to a loss of DKK 88 million in the first nine months of 2012. For Q3 the net profit amounted to DKK 206 million compared with a loss of DKK 159 million in the same period in 2011.
The LTM cash conversion for September 2012 was 98% as a result of a strong cash flow perfor-mance in all regions, reflecting continued focus on securing payments for work performed.
Focusing on the immediate outlook
The outlook for 2012 is based on a continued challenging macroeconomic outlook and difficult market conditions in some European countries.
ISS experienced a strong positive trend in organic growth in 2011 following the start-up of several large Integrated Facility Services (IFS) contracts leading to organic growth of 6.2% for the Group. The organic growth in 2012 is negatively impacted by the challenging macroeconomic conditions, decline in non-portfolio services, exiting customer contracts with unsatisfactory payment conditions and timing of contract start-ups.
However, due to the start-up of recent multinational IFS contract wins and the continued strong growth in emerging markets, ISS expects an organic growth for 2012 of around 2%.
The operating margin for 2012 is expected to be around the level realised in 2011. Cash conversion is expected to be around 90%.
