Q2 2018 Roadshow Presentation - Investor Relations | ISS A/S
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Q2 2018 Roadshow Presentation
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 forward-looking 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 2017 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 2017 of ISS A/S is available at the Group’s website, www.issworld.com.
2
ISS at a glance
Industry leadership Resilient organic growth Robust margins Strong Cash Generation
Strong cash flow
Leading and enabling solid
differentiated global 10-year average 10-year range of returns as well as
facility services provider organic growth of 3.2% 40 bps reinvestments in
the business
3
Creating value for shareholders remains our priority
1) Maximise growth and sustainability of
Shareholder cash flow
Returns
2) Selective and value-accretive
investment
Cash Flow • service enhancements
Growth
• restructuring/ efficiency initiatives
• acquisitions
3) Shareholder returns
Investment • targeted payout (50%)
Margin in the
• extraordinary dividends and/ or
business share buy-backs
People
Organic Growth Processes
Technology
4
We will ensure capital allocation is optimal
Objective Comment
Maintain a strong and efficient balance sheet with an
1. Capital structure
investment grade financial profile and leverage < 2.5x
Meet the modest, ongoing capital needs of the
2. Capital expenditure/net working capital
business
Targeted payout ratio of approximately 50% of net
3. Ordinary dividend
income (adjusted)
Further portfolio optimisation and highly selective
4. Acquisitions and divestments
acquisitions
5. Additional shareholder returns Extraordinary dividends or share buy-backs
5
Revenue split (1/2) Total revenue DKK 80bn
Customer type Delivery type Revenue type
Key Accounts Portfolio revenue
Intergrated facility services (IFS)
Local and regional Key Accounts Non-portfolio revenue*
Global Corporate Clients Multi services/Single services
15-20%
40% 38%
62%
12%
Intergrated Facility Services: 10 years CAGR of 12%
Note: Figures as of end-2017 *Above base and project work
6
Revenue split (2/2) Total revenue DKK 80bn
Geography Service lines Customer segment
Continential Europe Cleaning Property
Total Europe 70% Bus. Services & IT Industry & Manufac.
Northern Europe Catering Support Public Administration Healthcare
Asia & Pacific Security Faciliy Managment Other
Americas
3%
12% 7%
7%
31%
35%
39%
18%
14% 49%
13%
20% 10%
31% 11%
Diversified revenue base
Note: Figures as of end-2017
7
Key industry trends
Evolution of the
Facility Services Input-driven Output-driven Outcome-driven
industry
What customers
Compliance Transparency Consistency Efficiency Purpose
increasingly want
8
Our strategy – The ISS Way – has choice-making at its core
• A growing focus on Key Accounts within our target industry segments
• Business Services & IT
• Industry & Manufacturing
Customers • Public Adminsitration
• Healthcare
52% of 2017 revenue generated by Key Account customers
Strategic choices…
2017 group revenue by customer segment Key needs of our target customers include…
Global Key
Accounts (GCC) • Compliance Consistent best
• Transparency practice and
service excellence,
Regional/Local Key • Service efficiency delivered across a
Accounts
• Innovation national, regional or
global real estate
Other • Workplace experience portfolio
The ISS Way has underpinned our financial performance since its launch in 2008
9
Our strategy – The ISS Way – has choice-making at its core
• People-intensive, capex-light
• Of a recurring nature
• Predominantly site-based
• Suitable for integration into IFS
• Can be performance-based (output)…
• …with an end-user focus (outcome)
Strategic choices…
Services
The ISS Way has underpinned our financial performance since its launch in 2008
10Our strategy – The ISS Way – has choice-making at its core
• We want to follow our target customers…
• …covering a high proportion of global GDP
• We are present in the major markets and in the vast majority of future mega-cities
ISS self-delivers in 32 of the top 40 global GDP countries
Strategic choices…
ISS self-delivery capability
5,000
2016 country GDP (USD bn)
4,000
3,000
2,000
1,000
Geographies 0
Hong Kong
Spain
China
Japan
France
Australia
Thailand
Austria
Norway
Malaysia
India
Brazil
Russia
Indonesia
Switzerland
Saudi Arabia
Sweden
Nigeria
Taiwan
UAE
Venezuela
Ireland
Denmark
Singapore
USA
Germany
UK
Mexico
Poland
Argentina
Italy
Canada
South Korea
Netherlands
Turkey
Belgium
Israel
Philippines
South Africa
Iran
The ISS Way has underpinned our financial performance since its launch in 2008
11The ISS Way strategy has transformed our business…
2009 2017 Long-term aspiration
(for illustrative purpose only)
Non-core
Non-core
Services
(e.g. site-based, not route-
based) Core
Core Core
Strategic choices…
Geographies
48 Countries 44 Countries(1)
Our presence will
continue to match the
needs of our international
48 Operating clusters 32 Operating clusters(1) Key Accounts
IFS
Customers IFS Key
Other
(e.g. focus on Key Other Accounts
Accounts) Other Other Key
Accounts
Our transformation increases quality of revenue and will enable us to capture higher organic growth and robust margins
1) Excluding discontinued operations (Argentina and Uruguay)
12..and we continue to shape our portfolio accordingly
Recent key strategic decisions Key objective Status
Strategic exit of non-core activities in order to sharpen our focus on
Brazil/China (contract trimming)
Key Account customers
Turnaround initiatives and contract trimming in the specialised service
Customers Specialised Services, US (contract trimming)
division to strengthen focus on Key Accounts and IFS offering
In progress
Strategic divestment of non-core activities in order to sharpen our
Non-core activities, NL (divestment) In progress
focus on Key Account customers
Strategic choices
Landscaping UK & Hygiène et Prévention1) FR
Strategic shift of focus from non-core to core services
(divestments)
Acquisition of Evantec (DE) and GS Hall (UK) as well as other
Services Technical Services (acquisitions / investments)
investments in building out our Technical Services capabilities
In progress
Closing of self-delivery white spot within Catering and improvement of
Guckenheimer, US (acquisition)
IFS capabilities in North America
Strategic divestment to allow focus on markets with importance for
Greece (divestment)
Global Key Account and a demand for IFS
Geographies
Strategic divestment to allow focus on markets with importance for
Argentina/Uruguay (divestment) In progress
Global Key Account and a demand for IFS
(1) In exclusive discussions with Ortec Group with a view to divest Hygiène et Prévention in France
13Our transformation has had a material impact on revenue…
Revenue development Organic growth (%)
10
2.5% - 1.3%
3.6% ann. 1.9% ann. -2.0% 2.4%
8 2
0.5% ann. 6.3
3 -2 2
21 6
4.3 4.4
15
4 3.5 3.4 3.6 avg.
80
0.2% ann. 3.1
1
69 2 2.5 2.4
-2.4% ann.
0.2% 1.7
0
2010 2011 2012 2013 2014 2015 2016 2017
2009 Acquisitions Divestment FX Organic 2017 Organic growth Average Organic growth adj.1)
growth
• Strategic divestment of non-core activities (c. 20% of 2009
revenues)… • Resilient organic growth, through the cycle
• … to sharpen our focus on target customers, services and • 2017 impacted by strategic structural adjustments in Brazil and
geographies China (2.4% reported / 3.1% adjusted)
1) Adjusted for strategic structural adjustments in Brazil and China
14… yet margins have remained robust …
Long-term track record of margin stability... … despite headwinds
7.0
• Combined margin improvement of 15 bps.1) since IPO
(March 2014) despite:
6.5 • Currency translation effects (-6 bps.2)
• Strategic divestments and acquisition (-10 bps.3)
6.0
• Underlying margin continues to be supported among
5.5 others by:
• Key Account focus
5.0 • Roll-out of GREAT
• Procurement savings
4.5 • Ongoing operational efficiencies
2009 2010 2011 2012 2013 2014 2015 2016 2017
Margin Average +1 std dev -1 std dev
ISS’ margin will remain robust
1) Margin development since FY2013 (5.50%)
2) Accumulated annual impact from currency translation effects
3) Accumulated annual impact from acquisitions and divestments
15… and cash flow generation strong
Conversion of EBITDA (Adjusted) to Operating Cash
Free Cash Flow(1)
Flow(2)(%)
3,000 100
Average, 2010-17 (97.0%)
2,500
95
2,000
90
1,500
85
1,000
500 80
0
2010 2011 2012 2013 2014 2015 2016 2017 75
2010 2011 2012 2013 2014 2015 2016 2017
Earnings quality illustrated by a consistently strong conversion of EBITDA into Operating Cash Flow
(1) Cash flow from operating activities + (Cash flow from investing activities less acquisition/divestment of businesses, net)
(2) EBITDA before other items – Share based payments – Changed in provisions, pensions and similar obligations
16ISS is becoming a stronger and more focused organisation
GREAT implementation
Countries covering 81% of revenue Key countries on the agenda for 2018 include…
in progress or complete
UK & Ireland
Switzerland • Leverage growth momentum to develop our Key Account organisation…
America
• During 2018-2020, we expect to
North
France • … while addressing the legacy business of smaller accounts
USA & Canada
• Continue to utilise our acquired catering platform to drive cross-selling... invest DKK 400-450 million in our
Iberia
• … and investigating options to add Technical Services capabilities GREAT implementation in France
Norway
and Sweden…
Australia & NZ
Finland • … with a healthy pay-back on our
Sweden investment
Denmark • Continuing to address the central cost base
Sweden • 2018 P&L impact of around DKK
Turkey • Reorganising the business to shift focus further towards Key
Belgium & Lux Accounts…
300 million heavily weighted
Germany • … and leveraging the new pan-Northern Europe Cleaning Excellence
Hong Kong team to drive best practice and productivity
towards Q1 2018…
Singapore • … with the cash impact phased
Israel towards H2 2018
Austria
Indonesia • Significant operational improvements delivered within the current • Investments will lead to significant
Netherlands organisational structuring over the last 5 years (Phase 1)…
France
permanent improvements for the
Thailand Substantially • … but to unleash the full potential we need to accelerate the GREAT
India complete
implementation, including a strengthening of our Key Account focus, an benefit of both growth and
China In progress
adjustment of our service offering and a simplification of the business margins
Brazil Not addressed (Phase 2)
Following implementation in these countries our GREAT transformation will be largely complete
17Our Key Account focus will drive our organic growth…
2017 retention rates (%) 2017 ‘above base’ revenue(1) (%) Organic growth (%)
2016 2017
100 20
5
15 4
90
3
10
2
80
5
1
90.3 93.7 14.3 17.8 3.4 5.1 2.4 4.2
70 0 0
ISS Group Key Account Segments
(1) Above base includes revenue generated from portfolio customers that falls outside the scope of the ‘base’ contract and relates to services provided for less than 6 months.
18…underpinned by engaged employees and satisfied customers
Employee Net Promoter Score Customer Net Promoter Score
(eNPS) (cNPS)
62.1 44.0
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2014 2015 2016 2017 2014 2015 2016 2017
We have an intense focus on employee engagement and customer satisfaction across ISS
19IFS is where we can provide greatest value for our customers
Customers want… ISS delivers via…
Compliance
Technology
STRATEGIC PARTNERSHIPS
Transparency
SELF-DELIVERY
INTEGRATION
Consistency Processes
Efficiency
People
Purpose
20Continued trend towards IFS
IFS revenue Global Key Accounts revenue
CAGR: 12%
CAGR: 47%
(DKK bn) (% of Group revenue)
(DKK bn) (% of Group revenue)
21...and we continue to see strong demand for large international IFS contracts
Number of contracts1)
FM2) & Support Cleaning Property Catering Security North. Europe Cont. Europe APAC Americas
Global Key Accounts Northern
19 out of 20 All 19 out of 20 16 out of 20 15 out of 20 14Europe
out of 20 16 out of 20 13 out of 20 12 out of 20
(20 customers)
Northern
Latest 10 Global Key Northern
All All All All 7 out of 10 Europe
All All 4 out of 10 6 out of 10
Account RFP’s3) Europe
49
44
22 20
21 14
10 7 7 5
Revenue split by service lines (%)4)
Group Global Key Accounts
(1) Illustrates services in scope - but not necessarily across the entire customer portfolio
(2) Facility Management
(3) Request For Proposal (RFP)
(4) Revenue split based on FY2017
22Global Key Accounts(1,2)
We currently have 20 Global Key Accounts which we split into 4 sub-segments…
Banking Pharma IT Other
(1) Also referred to as Global Key Clients
(2) Includes five additional, undisclosed customers
23Prospective Global Key Accounts offer huge potential
200 existing or potential customers of ISS where we see a strong opportunity to drive growth
• Customers with global real estate portfolios…
The ISS
• …within our focus sectors…
‘G200’ • …with a stated wish wish to increase outsourcing in a manner that aligns with our value
proposition
G200 FM spend by country
G200 FM spend– ISS share
G200 FM spend by sector
Rest of
World
Business Services & IT Pharmaceuticals
Industry & Manufacturing Other USA UK Germany France
ISS share of G200 FM wallet (2%)
Food & Beverage Spain NL China Australia
Our analysis suggests total annual FM spend of DKK 336 billion across our G200 customers – our current share is less than 2%
24ISS’s competitive positioning within Global Facility Management
Clients’ real estate priorities will influence which operating model is best suited
• A service-led
• A real estate operating model
advisory led Owner occupier or with high self-
Multi-tenant Occupancy
model… single tenant delivery…
• …focused on • …facilitating
assets and not strict recruitment
services (which processes,
are largely sub- investment in
contracted)… training, health &
• …with a heavy Service efficiency, safety, workforce
emphasis on Asset optimisation Outsourcing Priorities compliance, user optimisation
procurement experience and…
• …great user
experiences
A settled property
A property portfolio in
portfolio that meets the
need of change (size, Property Portfolio
client’s foreseeable
location, type, etc.)
needs
25Technology is enhancing our integrated, self-delivery model
• Our integrated business intelligence platform
• Provides customers with a single, global portal
• Enables users to make and track Helpdesk requests…
FMS • …and to deliver work order / asset management
• Now based on IBM’s TRIRIGA platform – an engine upgrade
with enhanced functionality
• Our account management tool to optimise the workforce,
enhance planning capabilities, drive integration of services,
Integration develop our employees and strengthen our commercial
position
• Our platform for integrating a broad range of sensor
technology, improving service delivery, optimising building
IoT usage and enhancing user experience
• Integrated with FMS
• A reporting engine affording customers real-time
Insight transparency
• Integrated with FMS
26North America remains our single biggest growth opportunity
Size ISS market share G200(2) presence
% of global, outsourced FM market(1) ISS % market share of outsourced FM market(1) Estimated North American FM wallet of the G200(2)
(DKK bn)
North America 27 Northern Europe 4.3 Financial Services 24
Western Europe 21 Asia 1.7
Other Business
18
Services & IT
Central Europe 17 Latin America 1.4
Industry &
Asia 10 Pacific 1.3 15
Manufacturing
Northern Europe 10 Central Europe 1.3
Pharmaceutical 6
Pacific 5 Western Europe 1.0
Other 15
Latin America 4 Eastern Europe 0.8
Eastern Europe 4 North America 0.3 Total 78
Africa & Middle East 2 Africa & Middle East N/A
North America is the world’s biggest FM market and presents a significant growth opportunity for ISS
(1) Various sources and ISS analysis
(2) Based on ISS analysis of annual FM spend at 200 of the world’s leading corporations
27ISS North America: Timeline
Revenue(1) and organic growth Revenue breakdown by service type
2010 2017 pro forma(1)
ISS enters North
America via 3
acquisitions:
• Sanitors Inc (2007) GREAT
• BGM Industries (2008) strategy
• CPS (2009) launched
Cleaning Support Property
Catering Security FM
We are transitioning ISS North America towards a Key Account focused business
(1) 2017 pro forma (PF) adjusted to include a full year of Guckenheimer’s revenue
28Corporate Responsibility
ISS widely recognised for its focus on ESG Selected metrics
Net Promoter Score (NPS) Lost Time Injury Frequency Diversity
Male Female
• Awarded Bronze Class status
Series1 Series2
• 79th percentile ranking for the industry
• Industry best score in “Operational Eco-Efficiency”
8.3
62.1 7.2
59
• Top quartile rank with an AA rating vs. industry at BBB 56
• Named “Global Best In Class” on Corporate Governance 49 5.8
43 44 5.4
• Industry best score on “Health & Safety”
37 4.7 50%
31
50%
• Named “Leader” in overall performance and “Leader” in 3.5
both Environment and Governance separately
• Ranked 1st among industry peers of similar market cap
• Ranked 2nd out of 91 industry peers (99th percentile) 1).
2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Among just ~100 companies globally included in all three key ESG indices 2) Other proof points
• Signatory and founding member of the UN Global Compact
• Chairs the UK Living Wage Service Providers Leadership Group
• Holds top score at Institutional Shareholder Services Inc. (ISS)
for Corporate Governance
1) SUSTAINALYTIC’S ASSESSMENT OF ISS’S ESG PERFORMANCE AS OF NOVEMBER 2016
2) THE INCLUSION OF ISS A/S IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A
SPONSORSHIP, ENDORSEMENT OR PROMOTION OF ISS A/S BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI
INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES.
29Ownership1)
KIRKBI Invest A/S
13%
Artisan Partners Limited Partnership
Mondrian Investment Partners Limited
10% Others
5%
(1) Latest major shareholder holdings reported by investors to ISS
30Solid investment grade capital structure
Issued bonds and bank loans Maturity profile (EUR m) Leverage
• EUR 700m RCF
EMTN • 1.125% senior unsecured
EMTN
• Maturing 2020 18 3.5
1,000
16
3.0
• EUR 500m 2.6
EMTN • 1.125% senior unsecured 14
• Maturing 2021 2.2 2.5
12 2.1 2.1
700
10 2.0
• EUR 500m 600
EMTN • 2.125% senior unsecured 8 1.5
• Maturing 2024 500 500
6
1.0
4
• EUR 600m
0.5
EMTN • 1.500% senior unsecured 2
• Maturing 2027
0 0.0
Q114
Q214
Q314
Q414
Q115
Q215
Q415
Q116
Q216
Q316
Q416
Q117
Q217
Q317
Q417
Q315
Revolving • EUR 1,000m
Credit • Libor + 0.45%
Net debt (DKK bn) Leverage (%), rhs
Facility (1) • Maturing 2022
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
ISS continually reviews its financing and will remain pro-active in exploiting opportunities when relevant
(1)
The facility includes a margin grid where the margin is dependent on the Group's leverage. The current margin of 0.45% will decrease to 0.35% if leverage is below 2.0x and increase to 0.60% if leverage is above 2.5x. At 31
December 2017, leverage was 2.2x. In addition to the margin, an utilisation fee applies depending on the utilisation of the facility. For utilisation up to 33% the fee is 0.10%, for utilisation between 33% and 66% the fee is and 0.20%,
and for utilisation above 66% the fee is 0.30%
31Q2 2018 Highlights
Highlights Q2 2018
• Total revenue growth of -1.6% (Q1 2018: -0.4%)
• Organic revenue growth of 3.2% (Q1 2018: 3.1%)
• Operating margin of 4.8% (Q2 2017: 5.4%)
Financial • Last twelve months (LTM) cash conversion of 97% (Q1 2018: 102%)
Highlights • Net profit (adjusted) of DKK 407 million (Q2 2017: DKK 510 million)
• Financial leverage of 2.9x (Q2 2017: 2.8x)
• We are committed to maintaining the nominal ordinary 2018 dividend (paid in 2019) at least equal to 2017 (DKK 7.70 per share)
• Total Key Accounts now represents 53% of Group revenue (Q1 2018: 52%)
• Revenue from Global Key Accounts increased 1% in the first half of 2018 in local currency corresponding to 12% of Group
revenue (Q1 2018: 13%)
Commercial • Revenue from Integrated Facility Services (IFS) increased 9% in the first half of 2018 in local currency corresponding to 39% of
Highlights Group revenue (Q1 2018: 38%)
• Continued strong commercial momentum. Recent contract wins include Aviva (UK), Kayseri Entegre Hospital (Turkey), Elazığ
Hospital (Turkey), Ernst & Young (Netherlands) and Victoria Schools (Australia)
• Transition and mobilisation of Deutsche Telekom on track
• Launch of further consolidation, centralisation and automation initiatives targeting overhead costs, enabled by the
standardisation and simplification of country organisations through GREAT. Benefits expected especially from Q4 2018
Strategic • Further expansion within strategic workplace management and design with the opening of SIGNAL in the UK
Highlights • Implementation of GREAT in France progressing according to plan
• Active negotiations concerning the divestment of non-core activities in France and the Netherlands
33Regional performance Q2 2018
Continental Europe
5% •
•
Strong growth in Turkey driven by the Healthcare segment…
… as well as Germany and Austria driven by contract launches and non-portfolio
39% of Group
organic growth
• Partly offset by revenue reduction from DXC Technology and an international bank in EMEA
(vs. 3% in Q1 2018)
• Continued strong margin performance across most countries in the region…
5.8% •
•
… was more than offset by large key account contracts phasing in and out…
… as well a deteriorating performance in non-core activities in the Netherlands
operating margin(1)
(vs. 6.2% in Q2 2017) • H1 2018: 5.1% (H1 2017: 5.5%)
• Strong growth in Denmark driven by contract launches and non-portfolio demand…
0%
Northern Europe
• … as well as growth in Norway…
31% of Group
organic growth • … offset by revenue reduction from DXC Technology, HP Inc, the EMEA region with an
(vs. 1% in Q1 2018) international bank and the UK Ministry of Defence
• Decrease mainly due to large key account contracts phasing in and out…
5.6% • … and our investments in building-out Technical Services credentials
operating margin(1) • The margin remains impacted by operational challenges in Sweden
(vs. 6.6% in Q2 2017) • H1 2018: 5.3% (H1 2017: 6.1%)
(1) Operating profit before other items and corporate costs
34Regional performance Q2 2018
• Growth mainly driven by contract launches and non-portfolio demand in Australia…
5% •
•
… as well as contract launches in Hong Kong, India and Indonesia
Partly offset by revenue reduction from DXC Technology and HP Inc…
Asia Pacific
18% of Group
organic growth
• … as well as expected negative organic growth in China as a result of our strategic structural
(vs. 5% in Q1 2018)
adjustments to our operating model
• Development driven mainly by large key account contracts phasing in and out…
6.3% •
•
… as well as performance in Indonesia, an expected normalisation of margins in Singapore…
… and strategic structural adjustments in China…
operating margin(1)
• Partly offset by solid performance in especially Hong Kong
(vs. 7.1% in Q2 2017)
• H1 2018: 6.1% (H1 2017: 7.4%)
• Solid organic growth driven by Guckenheimer and key account contract launches in the US…
5% • … as well as continued strong growth in Chile
12% of Group
organic growth • Partly offset by revenue reduction from DXC Technology and HP Inc…
Americas
(vs. 4% in Q1 2018) • … as well as contract losses and limited new wins in Brazil
• Margin supported by Guckenheimer integration synergies and IFS performance in the US…
• … offset by large key account contracts phasing in and out…
2.6% • … as well as operating performance and one-off impacts in Brazil (one-off income in Q2 2017)
operating margin(1) • As expected, the margin remains impacted by operational challenges in the Specialised
(vs. 3.6% in Q2 2017) Services division in the US, where turnaround initiatives are on track
• H1 2018: 2.5% (H1 2017: 3.1%)
(1) Operating profit before other items and corporate costs
35Commercial momentum remains solid…
Key Contract Wins during Q2 2018
Schools, Australia EY, Netherlands Hospitals,Turkey Aviva, UK
• ISS has won a 5-year contract with • ISS has won a 5-year IFS contract • ISS has won a two separate 5-year • ISS has extended and expanded a 7-
the Victorian State Government to with EY in the Netherlands IFS contracts with Kayseri Hospital year contract with Aviva in the UK
provide cleaning services to 214 and Elazığ Hospital in Turkey • The contract covers the delivery of
• The contract includes catering,
public schools cleaning and property services
property, security, reception and • The contracts add to an already well-
• ISS was selected for its track record cleaning services and will focus on established portfolio of healthcare across 37 offices
in education, its ethical employment innovations in workplace experience, contracts and will fully leverage on • ISS was among others selected for its
practices, and its self-delivery model helping EY achieve a “best-in-class” the skills and expertise built within innovativeness and use of technology
position in the market the industry • Following launch in June 2018
• The growing education portfolio in
Australia now includes more than 12 • The contract commenced on 1 July • Both contracts cover a fully approximately 250 ISS employees
major universities, 56 technical and 2018 and covers 15 EY office integrated portfolio of services, will be employed on site
further education institutions, and locations and approx. 150 ISS including catering, technical services,
over 1,100 schools employees waste management, cleaning, and
security
• The contract commences 1 July 2018 • ISS already provides services to EY
and once fully operational, approx. in other countries, including in • The contracts will ramp up from May
500 ISS employees will be employed Denmark and the United Kingdom to November 2018 and once fully
at site operational, approximately 3,000 ISS
employees will be employed on site
Combined new annual portfolio value of approximately DKK 500 million
36Resilient organic growth – through the cycle
Organic growth, % Average, %
10
8
6
4 3.2
3.2
2
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
37Q2 2018 organic growth drivers (DKK m)
+3.2%
4.2%
20,086 -854
-87
1.4% 19,784
19,145
-2.3%
Q2 2017 reported FX Acquisitions, Q2 2017 adjusted HP-I, DXC & Non-portfolio revenue Other portfolio Q2 2018 reported
divestmensts, net1) EMEA region of revenue
International Bank
(1) Any acquisitions or divestments completed after 1 April 2017 are included within the Q2 2017 adjusted revenue but only for the equivalent period of time that they impact the Q2 2018 reported result..
38Long-term track record of margin stability
Average (%) Operating margin 1), %
8
7
6
5
4
3
2
1
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 LTM H1
2018
1) Operating profit before other items
39Q2 2018 operating profit drivers1) (DKK m)
5.37%
-52 bps
-52 5.32%
-9 -2
1,080
35 4.80%
-60
1,019
-20
-22 950
Q2 2017 reported FX Acquisitions, Q2 2017 adjusted Continental Northern Europe Asia & Pacific Americas Corporate Costs Q2 2018 reported
divestmensts, Europe
net 2)
(1) Operating profit before other items
(2) Any acquisitions or divestments completed after 1 April 2017 are included within the Q2 2017 adjusted operating profit but only for the equivalent period of time that they impact the Q2 2018 reported result.
40Shape of margin recovery during H2 2018
• The benefits from the turnaround plan in Sweden are behind schedule…
We are confident • … and underperformance in the non-core business unit classified as held for sale in the Netherlands
H1 2018 that headwinds will continue to impact results until the divestment completes (expected during Q4 2018)
peaked in H1 2018
• However, during H2 2018 the operating margin will gradually benefit from:
o Impact from large contracts phasing in and out which peaked in H1 2018 and now start to
ease
Q3 2018 will be o Turnaround in North America being executed according to plan with visible improvements from
the last quarter of Q4 2018
Q3 2018 declining margins o Continued underlying operational improvements driven by procurement and implementation of
(less than H1 2018) GREAT
o Launch of further consolidation, centralisation and automation initiatives targeting overhead
costs, enabled by the standardisation and simplification of country organisations through
GREAT. Benefits expected from Q4 2018
Reported margins o Margin impact from FX and M&A set to turn positive during H2 2018 (H1 2018: -6 bps. / FY2018:
will show a strong ‘broadly neutral’)
Q4 2018 recovery in
Q4 2018 • In addition to these run-rate improvements, 2018 is also impacted by phasing (negative phasing H1
2018, positive phasing in H2 2018)
41Income Statement
Q2 Q2 H1 H1
DKK million Δ Δ
2018 2017 2018 2017
Revenue 19,767 20,086 (319) 39,070 39,468 (398)
Operating expenses (18,818) (19,007) 189 (37,358) (37,514) 156 • DKK 63m in restructuring projects mainly related to the
implementation of GREATpredominantly in France
Operating profit before other items 949 1,079 (130) 1,712 1,954 (242) • DKK 7m related to loss on divestments
Other income and expenses, net (70) (207) 137 (269) (211) (58)
DKK million Q2 2018 Q2 2017
Operating profit 879 872 7 1,443 1,743 (300) Net interest expense (127) (110)
Financial income and expenses, net (159) (138) (21) (309) (249) (60) Amortisation of financing fees (5) (8)
Profit before tax 720 734 (14) 1,134 1,494 (360) Other(4) (16) (14)
FX (11) (6)
Income taxes (187) (180) (7) (295) (381) 86
Financial income and expenses, net (159) (138)
Net profit (adjusted) from continuing operations 533 554 (21) 839 1,113 (274)
• Effective tax rate of 26% (Q2 2017: 24.5%)
Net profit/(loss) (adjusted) from discontinued operations (126) (44) (82) (136) (57) (79)
• Underlying effective tax rate of 25% (previousely 26%)
Net profit (adjusted) 407 510 (103) 703 1,056 (353)
(1)
(638) - (638) (662) - (662) • Loss of DKK 126m mainly due to a fair value remeasurement
Goodwill impairment
Amortisation and impairment of brands and customer contracts (115) (132) 17 (235) (262) 27 • Goodwill impairment mainly due to remeasurement of businesses
classified as held for sale in the Netherlands and France
Income tax effect 31 17 14 64 45 19
Net profit (reported) (315) 395 (710) (130) 839 (969)
(2)
Adjusted EPS, DKK 2.2 2.7 (0.6) 3.8 5.7 (1.9)
(3)
Adjusted EPS from continuing operations, DKK 2.9 3.0 (0.1) 4.5 6.0 (1.5)
(1) Including goodwill impairment from discontinued operations
(2) Calculated as Net profit (adjusted) divided by the average number of shares (diluted)
(3) Calculated as Net profit from continuing operations (adjusted) divided by the average number of shares (diluted)
(4) Includes recurring items – for example interest on defined benefit obligations and local banking fees
42Cash Flow
Q2 Q2 H1 H1
DKK million Δ Δ
2018 2017 2018 2017
Operating profit before other items 949 1,079 (130) 1,712 1,954 (242)
Operating profit from discontinued operations (5) 4 (9) (5) 3 (8)
Depreciation and amortisation 165 178 (13) 328 354 (26)
Changes in provisions, pensions and similar obligations (81) (132) 51 (106) (137) 31
Cash flow from Operations 1,028 1,129 (101) 1,929 2,174 (245)
Share based payments (3) 21 (24) 17 22 (5) • LTM Cash conversion of 97% - in line with guidance
• Outflow of DKK 36m (Q2 2017: DKK 0m) related to the transition and
Changes in working capital (626) (417) (209) (2,072) (1,795) (277) migration of Deutsche Telekom
Other expenses paid (71) (104) 33 (141) (157) 16
Net interest paid/received (43) (48) 5 (196) (188) (8)
Income taxes paid (186) (221) 35 (464) (477) 13
Cash flow from operating activities 99 360 (261) (927) (421) (506) • CAPEX of DKK 268m (Q2 2017: DKK 245m) due quarterly timing
differences and slightly higher investments in technology
Cash flow from investing activities (193) (1,764) 1,571 (375) (1,869) 1,494 • Q2 2017 included the acquisition of Guckenheimer in May 2017
Cash flow from financing activities (639) 408 (1,047) (531) 908 (1,439)
Total cash flow (733) (996) 263 (1,833) (1,382) (451)
(1)
Free Cash Flow (151) 111 (262) (1,401) (865) (536) • Reduction driven mainly by Changes in Working Capital as well as Cash
- of which relates to Deutsche Telekom transition and mob ilisation flow from Operations as a result of currency and operating performance
(36) - (36) (63) - (63)
cost
(1) Cash flow from operating activities + (Cash flow from investing activities less acquisition/divestment of businesses, net)
43Contract maturity update
Key contract maturity profile Update
Group revenue, 2017 (DKK 80 bn) Expiry 2018
Expiry 2019 • Successful extension of 6 out of 7
1%
6%
Expiry 2020 large Key Accounts with maturity in
3% Expiry 2021 2018
5% Expiry 2022+
• Heads of Terms to extend the last
20% remaining large Key Account with
4%
(DKK 16 bn)
maturity in 2018 signed
• Dialogue around contracts maturing
48%
in 2019 is slowly starting up
32%
81%
Large Key Accounts(1) Other Key Accounts Non-Key Accounts
(1) Existing Global Corporate Clients and Key Accounts with revenue above DKK 200m in 2017 (excl. confirmed losses by year-end 2017)
44Outlook 2018
• In most of our major countries, current macroeconomic conditions appear broadly supportive, with the
exception of the UK where BREXIT-related uncertainty persists
• As such, we expect continued strong growth from key accounts, driven by both expansion of existing
Organic Growth customer relationships and new customer wins
‘1.5 - 3.5%’ • The negative effect from lost revenue with DXC, HP Inc. and the EMEA operations of one other global key
account will impact most of the year and will partially offset progress elsewhere
(2017: 2.4%) • We see continued healthy growth coming from our Emerging Market countries
Impact on total revenue from divestments, acquisitions and foreign exchange rates in 2018
• We expect a negative impact on revenue growth from development in foreign exchange rates of approx. 3.0-4.0%1)
• We expect divestments and acquisitions to have immaterial net impact on the revenue growth in 20182)
Operating Margin
‘Around 5.6% excl.
acquisitions, divestments • We expect the loss of mature and sizable contracts to have a dilutive impact which will be partially
mitigated by our ongoing focus on cost and efficiency initiatives.
and FX’
(2017: 5.65%)
Cash Conversion
• Cash conversion will continue to be a priority in 2018
‘Above 90%’
(2017: 104%)
1) The forecasted average exchange rates for the financial year 2018 are calculated using the realised average exchange rates for the first seven months of
2018 and the average forward exchange rates (as of 1 August 2018) for the last five months of 2018.
2) Includes divestments and acquisitions completed by 31 July 2018 (including in 2017).
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