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In its latest trading update for the period 1 January – 30 June 2023, ISS has reported continued strong execution of its OneISS strategy and a upgraded organic growth outlook.
In a separate announcement, the Group has also stated its intention to divest its French business, except for Global Key Account customers.
Organic growth was 10.4% in Q2 2023 (Q1 2023: 11.3%) and 10.9% in H1 2023 (H1 2022: 6.7%) primarily driven by price increases implemented across the Group and underlying volume growth. In H1 2023, price increases in Turkey contributed around 3%-points, and revenue from projects and above-base work were flat.
As a result of expected higher customer activity and thereby higher underlying volume growth, outlook for organic growth has been upgraded to ‘7 –9%’ (6 – 8%).
Operating margin before other items (excl. IAS 29) was 3.3% in H1 2023 (H1 2022: 2.9%).
The Group also reported that rigorous execution of the OneISS strategy continued and commercial momentum improved, underlined by the win of a new key account IFS contract with Defra in the UK. The strengthened commercial and operating models showed visible results, adds ISS with improved customer engagement and the customer retention rate increasing to 95% (LTM) in Q2 2023.
In Spain, ISS has signed an acquisition of the cleaning provider, Grupo Fissa. This transaction, it says has a strong strategic fit to the OneISS strategy, is financially accretive and adds around 1% to Group revenue.
The strategic direction is confirmed following the appointment of Kasper Fangel as the new Group CEO from 1 September 2023. The strong focus on growth and execution of the OneISS strategy will remain unchanged, with ISS stating it is “well on track” towards reaching the operating margin target of above 5% in 2024.
Commenting on the results, Jacob Aarup-Andersen Group CEO, ISS A/S, said: “The strong execution of the OneISS strategy continued in the first half of 2023, and the investments we have made are showing visible results.
“We have won new key account contracts within our prioritised segments, customer engagement is improving, and retention is the highest in the company’s more than 120-year history. This has been achieved through relentless execution and strict focus on delivering best-in-class service experiences.
“As we continue our journey towards a stronger, simpler and closer ISS, we today also announce a refocusing of our business in France. With this initiative, we ensure that we continue to be a strong partner for our Global Key Accounts and deliver long-term growth at sustainable margins across our business.”
Divestment of ISS’ French business
The global implementation of the OneISS strategy continues to successfully deliver the planned financial outcomes. However, historically financial results in France have not been satisfactory and have been dilutive to Group operating margins and growth. Furthermore, the development in France has not generated the expected financial improvements due to inherent strategic challenges, difficult market conditions, and continued muted commercial development. This has led to recognition of a goodwill impairment of DKK 937 million and write-down of non-monetary assets of DKK 320 million in ISS’ latest trading update.
During the past several years, the ISS Group and local management in ISS France have worked towards restructuring the business and establishing a solid foundation in the French market. However, ISS states building a long-term, sustainable business and a strengthened market position in France, will require “further significant investment and management attention”.
The strategic ambition of ISS is to become the global leader in IFS, requiring investments to be prioritised to support this ambition. ISS therefore intends to strategically reposition itself in the French market, to focus on servicing its Global Key Account customers and intends to divest its other activities.
Kasper Fangel, Group Chief Financial Officer commented: “Our French business has a good and diversified customer portfolio base, as well as experienced and dedicated people. During the search for a buyer, ISS France will continue to service all existing customers in the same way as today. It will be a key priority for us to ensure that we continue to deliver to the same high standards to all our customers
“As for our strategically important Global Key Accounts customers, they are integral to our long-term strategy. We remain fully committed to deliver excellent service to these customers in France, both now and well into the future.”
As a consequence, ISS France will, as of 9 August, be classified as held for sale and discontinued operations in accordance with IFRS. Consequently, in the financial statements for 2023 the results of ISS France will be presented in “Net profit from discontinued operations” in the statement of profit or loss and comparative figures for 2022 will be restated accordingly.
