Double digit growth in emerging markets fuelled ISS’ first half year (ended 30 June) financial results. The company also reported that ‘recent strategic initiatives such as customer segmentation and central procurement are progressing well and have had a positive impact on our margin.’
One of the world’s leading facility services companies, its notable achievements in what has been a flat European marketplace include a resilient profitable organic revenue growth of 2.4% in H1 (2013: 3.6%) and 2.0% in Q2 (2013: 4.4%).
ISS also had a strong operating margin of 4.8% in H1 (2013: 4.8%) and 5.2% in Q2 (2013: 5.1%). Adjusted for the impact of the divested pest control activities in 2013, the operating margin increased from 4.6% in H1 2013 to 4.8% in H1 2014.
Profit before goodwill impairment and amortisation/impairment of brands and customer contracts increased to AUD$107 million (DKK 559 million) in H1 (2013: AUD$77 million or DKK 400 million).
The strategic initiatives within customer segmentation and central procurement are said to be progressing according to plans and are supporting margin progression.
Emerging markets now represent 23% of the Group’s total revenue (2013: 22%) and delivered 10% organic growth (2013: 10%) and 6.0% operating margin in H1 (2013: 6.0%). Western Europe delivered flat organic growth against a backdrop of difficult market conditions in H1 (2013:4%).
Revenue generated from ‘integrated facility services’ contracts amounted to AUD$2.1 billion (DKK 10.8 billion) representing 29% of overall revenue (2013: 26%). Significant contract wins included BASF, Swisscom and a European based international bank.
The company now expects organic revenue growth in 2014 to be about the level realised for the first six months of 2014 (from 3% to 4% previously). Operating margin (above 5.5%) and cash conversion (above 90%) expectations are unchanged.
“Our first half results show we continue to build a strong global platform in the USD 1 trillion facility services market, enabling our worldwide clients to focus on their core businesses,” stated ISS Group CEO Jeff Gravenhorst.
“We expect that ISS will continue to benefit from the increased outsourcing trends by global clients, especially in emerging markets where we saw double digit growth in the first half of the year.
“Our recent strategic initiatives such as customer segmentation and central procurement are progressing well and have had a positive impact on our margin.
“Together, this gives us confidence in the continued delivery of resilient organic growth, strong and improving operating margins with excellent cash conversion.
“While organic growth for Q2 was impacted by weaker economic conditions in Europe, we continue to grow in both emerging and developed markets. We are satisfied with our increasing margin in Q2, our strong cash conversion and our significantly improved net result for the first half of 2014. We have further optimised our business through successful divestments of non-core activities allowing us to focus on the activities we are best at.
“When we set guidance for 2014, we did so against a backdrop of an improving macroeconomic outlook in Europe. The recent economic data has shown significant weakening in Europe. This has had an effect on some of our customers’ decision-making and leads us to change our organic growth expectations for the full year to be around the level of the first half of 2014. Our operating margin and cash conversion targets are unchanged.”