Finansforeningens Virksomhedsdag 2015 ISS. Heine Dalsgaard, CFO June 2015

Transcription

1 Finansforeningens Virksomhedsdag 2015 ISS Heine Dalsgaard, CFO June

2 Forward-looking statements This presentation contains forward-looking statements, including, but not limited to, the statements and expectations contained in the Outlook section of this presentation. Statements herein, other than statements of historical fact, regarding future events or prospects, are forward-looking statements. The words may, will, should, expect, anticipate, believe, estimate, plan, "predict," intend or variations of these words, as well as other statements regarding matters that are not historical fact or regarding future events or prospects, constitute forward-looking statements. ISS has based these forward-looking statements on its current views with respect to future events and financial performance. These views involve a number of risks and uncertainties, which could cause actual results to differ materially from those predicted in the forwardlooking statements and from the past performance of ISS. Although ISS believes that the estimates and projections reflected in the forward-looking statements are reasonable, they may prove materially incorrect, and actual results may materially differ, e.g. as the result of risks related to the facility service industry in general or ISS in particular including those described in the Annual Report 2014 of ISS A/S and other information made available by ISS. As a result, you should not rely on these forward-looking statements. ISS undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. The Annual Report 2014 of ISS A/S is available at the Group s website, 2

3 Introduction

4 114 years of success in global facilities services Global Expansion 1901 Founded in Denmark 1946 Nordic (Sweden in 1946 and Norway in 1952) 1965 Western Europe 1973 Latin America 1995 Asia entry 2002 Australia 2007 North America 2013 #1 Global outsourcing company 2014 #1 Global outsourcing company Building the company globally further increasing scale and global presence alignment of the company behind a core value proposition Shareholders 1977 Listed on the Copenhagen Stock Exchange 2005 Taken private by funds advised by EQT and Goldman Sachs CP OTPP & KIRKBI 3 as new investors 2014 IPO Largest ever to list in Denmark, Largest in over 10 years in Nordic Strategy 1997 Aim 2002 strategy focus on multi-service 2000 Create strategy introduces IFS facility services concept 2005 Integrated Facility Services 2008 The ISS Way strategy focus on alignment 4

5 Becoming the world's greatest service organisation 1 Industry leadership Global presence through a strong platform across the globe 1 Leading and differentiated global facility services provider #1 amongst The Top 100 Global Outsourcing companies Strategically positioned ahead of peers 2 Resilient and attractive growth Robust growth profile through the cycle 3 Cash generation Superior and stable cash conversion driving high returns Track record of organic growth with average of 4.0% Operating margin (%) 06-14: 50bps % of 2014 group revenue CAGR Cash conversion pre capex (%) average IFS 31% 15% 59% Cash conversion post capex (%) average Global Corporate Clients 9% Emerging Markets 17% 24% Resilient margins staying within a tight range since 2006 Consistently high and best in class cash conversion Capital structure strategy drives earnings growth 4 Enhanced profitability Leadership Segmentation Organisation IFS Excellence 5

6 An attractive offering and business mix What we do Integrated Facility Services Cleaning Support Property Catering % of 2014 revenue 51% 8% 17% 12% for whom End-market exposure Global presence Delivery model Business Services & IT Public Administration Industry & Manufacturing Healthcare Transportation & Infrastructure Retail and Wholesale Other Western Europe Nordic Asia Pacific Latin America North America Eastern Europe Focused on the segments most receptive to our offering A strong mix of Europe and Emerging Markets Security Facility Management (FM) 7% 5% Single services Multi-services IFS Single service excellence with IFS upside Customer size Key Accounts Large & Medium Small Route based Margin upside through optimisation of the customer base 6

7 Our value proposition Customer benefits Accountability through ISS people on the premises End-user centricity by ensuring the right service attitude Single service Single service Single service Single service Efficiency and consistency through excellence programs, standards and training Flexibility and scalability to meet changing business needs Selfdelivery Risk reduction and brand protection through focus on regulatory compliance Transparency and convenience through single-point-of-contact, common processes and IT support Enhanced efficiencies through the integration of multiple services IFS 7

8 Highlights

9 Financial Highlights: 2015 Three key financial priorities 1. Resilient Organic Growth 2. Improved Operating Margin 1) 3. Strong Cash Conversion Organic growth was 3.1% in 2015 vs. 2.7% in Q Driven by continued strong growth in IFS and Emerging Markets, Pacific as well as large contract launches in Europe Partly offset by challenging macroeconomic conditions in certain European countries. Operating margin was 4.4% in 2015 vs. 4.3% in 2014 The development was supported by margin progression across several regions Strategic initiatives to improve profitability and competitiveness progressing according to plan LTM cash conversion was 97% in 2014 compared with 98% in Q Ensuring a strong cash performance continues to be a key priority Result reflects our efforts to ensure payment for work performed ORGANIC GROWTH OPERATING MARGIN (LTM) CASH CONVERSION (LTM) 7% 6% 5% 4% 3% 2% 1% 0% 2011 Organic Growth (Q) Organic Growth (LTM) % 5.9% 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% 5.1% 5.0% Operating Margin (LTM) % 100% 80% 60% 40% 20% 0% Cash Conversion (LTM) ) Operating profit before other items 2) Cash conversion is defined as Operating profit before other items plus Changes in working capital as a percentage of Operating profit before other items 9

10 Business Highlights: 2015 Integrated Facility Services (IFS) Strong growth in IFS (+9% in local currency) which now represents 32% of Group revenue Significant IFS contract start-ups with Vattenfall (Germany) and Swisscom (Switzerland) Recent local IFS wins include UBS (UK), Huawei (China), an expansion with RWE (Czech Rep.) and Danske Bank (Nordic) Global Corporate Clients (GCC) revenue increased 6% in local currency Emerging Markets Represents 26% of group revenues Organic growth of 7% and an operating margin of 6.1% (+10 bps year-on-year) Strategic Initiatives Strategic initiatives are progressing according to plans Positive effect on margins continues to be seen Further divestment of non-core activities Technical Services competencies in Europe strengthened with the acquisition of GS Hall 10

11 Key IFS Contracts Background ISS has provided soft, hard and specialised nuclear services to Vattenfall in Sweden since 2006 A new German contract was announced in November 2014 and operations commenced 1 January, 2015 ISS has been providing Cleaning and Caretaker services for Swisscom since 1999 ISS now selected to provide Technical and Infrastructure services, starting 1 January, 2015 Scope 5 year contract with an option to extend for 2 years Broad range of services provided at c. 500 Vattenfall sites across Germany with more than 500 Vattenfall employees transferring to ISS 5 year contract with an option to extend More than 3,000 buildings including 11 data centres and 90 office parks More than 1,000 ISS employees engaged on the account Why ISS? Global credentials and experience were clearly recognised ISS worked in partnership with Vattenfall to explore the optimal way to deliver maximum value within facility services High quality and commercially competitive offering Proven track record of large scale transitions Local decision-making authority Future potential ISS profile in Germany now significantly higher Provides significant footprint from which to expand German customer base Increased self-delivery and increased services (e.g. Technical Field Services) Increase scope of project work for Swisscom and its subsidiaries 11

12 Looking ahead

13 Return to shareholders Three key characteristics 1. Strong operational performance Resilient organic growth Improving operating margins High cash conversion Asset light business model Strong and stable cash flow which drive attractive returns Dividend policy with a target pay-out ratio of ~50% 2) Focus on additional shareholder returns to drive balance sheet efficiency PROFIT BEFORE GOODWILL IMPAIRMENTS 2) 2. Disciplined and efficient balance sheet Clear financial objective to maintain Investment Grade financial profile DKK million 2,500 2,000 1,816 2,169 Target a financial leverage 1) below 2.5x 1, Acquisitions and divestments 1,000 1,026 Considering competence enhancing acquisitions subject to tight strategic and financial filters Reviewing existing business for potential divestments of non-core activities LTM ) Financial leverage defined as Net Debt / Pro Forma Adjusted EBITDA. EBITDA pro forma adjusted for acquired and divested activities 2) Profit before goodwill impairment and amortisation/impairment of brands and customer contracts 13

14 Outlook 2015 Organic growth 2% - 4% (2014: 2.5%) Continued growth in the existing portfolio expected, combined with the launch of new contracts won in recent months, especially within IFS Very modest pick-up in economic growth across our markets expected and believe that conditions in Europe will remain challenging. As such, we remain cautious on the likelihood of a pick-up in non-portfolio services Emerging markets should continue to be a source of healthy growth Under these assumptions we expect organic growth to be 2 4% Impact on total revenue from divestments, acquisition and foreign exchange rates in 2015 In addition we expect a positive impact from development in foreign exchange rates of approximately 4 5% 1) We also expect a negative impact from the divestments and acquisition of approximately 1% 2) Consequently, we expect total revenue growth in 2015 to be positive by 5 8% Operating margin Above the level realised in 2014 (2014: 5.6%) We will maintain our focus on sustainable margin improvement This development will be supported by ongoing strategic initiatives around procurement, customer segmentation, organisational structure and Business Process Outsourcing (BPO) Cash conversion Above 90% (2014:98%) Cash conversion will continue to be a priority in ) The forecasted average exchange rates for the financial year 2015 are calculated using the realised average exchange rates for the first four months of 2015 and the forecasted average exchange rates for the last eight months of ) Divestments and acquisition completed by 30 April 2015 (including in 2014) 14

15 Q&A

16 Appendix

17 Regional Performance 2015 Developed Markets Emerging Markets 1) 74% 43% 26% 57% of Group revenue of Group employees of Group revenue of Group employees 2% 4.9% 7% 6.1% Organic growth (1% Q4 2014) Operating margin 2) (4.5% 2014) Organic growth (7% Q4 2014) Operating margin 2) (6.0% 2014) 1) Emerging Markets comprise Asia, Eastern Europe, Latin America, Israel, South Africa and Turkey 2) Operating profit before other items and corporate costs 17

18 Regional Performance 2015 Western Europe Nordic 2% Organic growth (0% Q4 2014) 5.1% Operating margin 1) (4.6% 2014) 1% Organic growth (3% Q4 2014) 5.3% Operating margin 1) (5.0% 2014) Continued challenging macroeconomic conditions Low demand for non-portfolio services Switzerland (Swisscom), Germany (Vattenfall) and Turkey main organic growth contributors In part driven by strategic initiatives but also positively impacted by FX, net acquisitions/ divestments Year-over-year improvement led by by France, UK, Germany and Turkey Partly offset by operational challenges in the Netherlands Finland and Sweden main contributors Partly offset by contract losses in Norway and annualisation of a sizable contract in Denmark Solid margin supported by strategic initiatives Improvement driven by Norway and Finland 1) Operating profit before other items and corporate costs 18

19 Regional Performance 2015 Asia 8% Organic growth (7% Q4 2014) 6.8% Operating margin 1) (7.1% 2014) Double-digit organic growth in India, Indonesia and China Hong Kong flat Continued strong operating margin Negatively impacted by India as a result of investments in operational improvements as well as the divestment of the margin accretive security activities Latin America 6% Organic growth (6% Q4 2014) 4.0% Operating margin 1) (5.0% 2014) Organic growth strength in Chile, Argentina and Mexico Brazil flat Margins improved across most countries driven by operational efficiencies More than offset by margin decline in Brazil due to contract losses, cost increases and scope reductions 1) Operating profit before other items and corporate costs 19

20 Regional Performance 2015 Pacific North America Eastern Europe 10% Organic growth (13% Q4 2014) 5.1% Operating margin 1) (4.4% 2014) -2% Organic growth (2% Q4 2014) 2.7% Operating margin 1) (2.3% 2014) 1% Organic growth (3% Q4 2014) Double digit growth Driven by the remote site resource segment, other contract wins and higher demand for non-portfolio services within the Aviation segment Solid margin development driven by operational efficiencies across several divisions Positively impacted by the divestment of margin dilutive commercial security activities Positive impact from start-up of Molson Coors and higher non-portfolio demand within GCC Negative impact from higher customer attrition, especially in single service segment Restructuring initiatives have yielded an improved operational performance Margin further supported by improved mix of contract portfolio Double digit growth in Russia and good growth across several other countries Partly offset by contract losses in Hungary and Slovakia 5.0% Operating margin 1) (4.0% 2014) Strong development in Slovenia, Slovakia and Poland 1) Operating profit before other items and corporate costs 20

21 Revenue Bridge 2015 revenue growth of +4.9% DKK million 19,500 Organic 19,000 18,500 Divestments/ Acquisition Currency 3.1% 19,150 18,000 18,251 (4%) 6% 17,500 17,000 16,500 16,000 15,500 15,

22 Operating Profit 1) Operating margin improvement The development was supported by margin progression across several regions Strategic initiatives to improve profitability and competitiveness progressing according to plans DKK million Operating profit 1) Operating margin 1) 4.4% 4.3% +10bps OPERATING MARGIN (LTM) 6.0% 5.9% 5.8% 5.8% Partially offset by higher corporate costs 5.7% 5.6% 5.5% 5.6% 5.5% 5.5% 5.6% 5.4% 5.3% Operating Margin (LTM) 1) Operating profit before other items 22

23 Income Statement DKK million Revenue 19,150 18, Operating expenses (18,307) (17,466) (841) Operating profit before other items Other income and expenses, net (19) (104) +85 Operating profit Financial income and expenses, net (216) (557) +341 Profit before tax and goodwill impairment and amortisation/impairment of brands and customer contracts Income taxes (182) (51) (131) Profit before goodwill impairment and amortisation/impairment of brands and customer contracts Goodwill impairment (6) - (6) Amortisation and impairment of brands and customer contracts (164) (150) (14) Income tax effect (3) Net profit/(loss) for the period 297 (33) +330 Mainly covered DKK 104 million related to the IPO process DKK million 2015 Net interest expense 116 Amortisation of financing fees 9 FX 2) 54 Other 3) 37 Financial income and expenses, net 216 Effective tax rate lowered from 41% in 2014 to 30% in 2015 Adjusted earnings per share, DKK 1) ) Calculated as Profit before goodwill impairment and amortisation/impairment of brands and customer contracts / Average number of diluted shares 2) Financial income and expense, net included a net loss on foreign exchange related to movements on intercompany loans as well as on external loans and borrowings denominated in currencies other than DKK 3) Includes recurring items related e.g. to interest on defined benefit obligations and local banking fees 23

24 Financial Income and Expenses FX Impact Currency risk arises from changes in FX rates that affect the Group s result or value of financial instruments ISS is, to some extent, exposed to loans and borrowings (external) that are denominated in other currencies (now almost exclusively EUR) or intercompany loans The Group s policy is to fully hedge FX exposure towards DKK or EUR to the extent that the net exposure exceeds DKK 5m Where this is not possible, USD proxy-hedges are considered (e.g. IDR, ISK, BRL and TRY) net financial income and expenses were primarily impacted by (i) depreciation of the DKK against the EUR, and (ii) exposure to the BRL (and associated USD proxy hedge) EUR vs DKK EUR DKK +1 STDEV 1 STDEV DKK vs USD and DKK vs BRL (indexed) FX movements were unusually volatile These FX-related charges are noncash ISS BRL intercompany balance is now immaterial USD DKK BRL DKK 24

25 Cash Flow Improved cash flow from operations Cash Flow from investing activities impacted by the acquisition of GS Hall in 2015, while significant proceeds from divestments were received in 2014 Free Cash Flow 1) improved significantly mainly due to lower financial expenses DKK million Operating profit before other items Depreciation and amortisation Share based payments (non-cash) Changes in working capital (1,405) (1,363) (42) Changes in provisions, pensions and similar obligations 64 (42) +106 Other expenses paid (72) (134) +62 Net Interest paid/received (104) (296) +192 Income taxes paid (217) (172) (45) Cash flow from operations (682) (1,040) +358 Cash flow from investing activities (769) 872 (1,641) Cash flow from financing activities 27 (29) +56 Total cash flow (1,424) (197) (1,227) Includes DKK 85m impact from increased pension liability relating to the Vattenfall contract Positively impacted by the reduction of debt and refinancings following the IPO in March 2014 Cash tax rate of 35% due to timing differences Includes divestment of Landscaping (France) in 14 and acquisition of GS Hall in 15 Free Cash Flow 1) (908) (1,235) ) Free Cash Flow defined as cash flow from operating activities minus CAPEX 25

26 The IFS Value Proposition: Nordea case study Nordea and ISS have a long history of collaboration This has developed into a true, strategic IFS partnership 39 multi-user (HQ) buildings in Denmark, Sweden, Norway and Finland 11 main service categories with close to 50 different sub-service components 100% output based service delivery based on a regional open-book model Strong focus on end-user satisfaction in KPI scorecard IFS / Compliance and end-user centricity Multi-service / Key Account Single service / Transactional 26

27 Leveraging five strategic areas to enhance profitability 1. Leadership 2. Customer segmentation 3. Organisational structure 4. IFS 5.Excellence Promoting engagement Countries with both high employee satisfaction and customer satisfaction scores have higher margins Increasing transparency Greater insight into our customer segments and their profitability Establishing optimal organisational structures Material above unit cost reduction opportunity demonstrated Driving high growth IFS IFS margin of 6-7% accretive to the Group margin Extracting cost benefits 3-phase procurement project among others 27

28 Improving margins through strategic initiatives Procurement 2014 Group cost structure Phase 1-2 covering ~DKK 8bn in addressable spend completed with expected savings of DKK million to be realised during Phase 3 to be launched in 2015 While some savings will increase margins, other savings will be reinvested in the business in order to maintain and strengthen competitiveness Customer Segmentation and Organisational Structure addressing staff costs Staff costs DKK 49bn (70%) External expenses DKK 20bn (29%) Procurement addressing other external expenses D&A 1% Customer Segmentation and Organisational Structure Analysis phase finalised in countries representing 56% of Group revenue Customer segmentation reviewed and organisational optimisation implemented in the entire Nordic region as well as in selective countries in Western Europe and Latin America Implementation in a range of additional countries targeted during 2015 In addition to the above, a BPO project covering certain Finance & Accounting processes has been launched in 2014 in the Nordic region targeting improved financial processes and cost savings 2014 customer and revenue split 1% 61% 6% 26% 48% 9% 56% 96% 44% 4% 100% 100% 28

29 < < < < < < Further strengthening IFS through Technical Services Definition of Technical Services The complex aspects of property maintenance and management. Excludes landscaping, hygiene services and damage control. Technical Services Daily operations Basic 1 2 Maintenance of electrical and mechanical systems Maintenance of HVAC systems Maintenance of lifts and escalators Maintenance of security and fire prevention systems Maintenance and engineering of building fabric Rebuilding and refurbishing of space 4 3 Building management systems, e.g., monitoring of conditions Critical environments, e.g., industrial systems 3 3 BMS, e.g., lighting and power 1 Energy and environment Mechanical systems, e.g., HVAC Electrical and 1 mechanical systems, e.g., lifts Data analytics Advanced Operation of building management systems (BMS) Monitoring and management of conditions Control of lighting and power Management and maintenance of critical environments Monitoring and management of conditions Maintenance and engineering Management of energy and environment Consultancy on energy reduction Optimisation of water supply Data hub and helpdesk services Collection, benchmarking and analysis of data Receiving and answering of help requests 1 Electrical systems 2 Building fabric Data hub 6 Helpdesk 1 Electrical systems, e.g., security systems 29

30 Continued trend towards IFS IFS revenue Global Corporate Clients revenue (part of IFS revenue) '06-14 CAGR: 15% 31% '06-14 CAGR: 59% 8.3% 9.2% 24% 26% % 20.7 (DKK bn) (% of Group revenue) 14% % % % % (DKK bn) (% of Group revenue) 0.3% 0.3% % % % % %

31 Strategically positioned ahead of peers Core initial segment of operations Significant expansion into other services Ability to deliver global IFS Cleaning Support Property Catering Security Facility Management Catering Cleaning Support Security Facility Management Property Self-delivery Catering Cleaning Support Catering Support Property Security Facility Management Facility Management Property Security Security Subcontractors Facility Management Property Property Support Facility Management Grey box: Service is ranked top 6 globally White box: Service is part of the portfolio 31