Interim / Quarterly Report • Aug 10, 2022
Interim / Quarterly Report
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"The results in the first half of 2022 mark another important milestone in our financial turnaround. I am pleased to see how this has been executed in volatile markets, while also establishing a new operating model for future performance. This is a testament to all the hard work from every ISS colleague during this important period. As we are emerging well from the pandemic, the foundation of ISS has substantially improved - we have completed the divestment programme, recovered financial performance and reduced financial leverage faster than targeted. This leaves us well positioned to gain further momentum in the marketplace, manage inflation and support our customers in a continued dynamic business environment".
| Q2 2022 H1 2022 H1 2021 1 | |||
|---|---|---|---|
| 18,075 | 18.868 | 36,943 | 34,893 |
| 5.4 | 8.0 | 6.7 | (0.2) |
| 1,061 | 549 | ||
| 1,073 | 549 | ||
| 2.9 | 1.6 | ||
| 2.9 | 1.6 | ||
| 644 | 1.645 | ||
| Financials | H1 2022 | H1 2021 2 ) | 2021 |
|---|---|---|---|
| Results (DKKm) | |||
| Revenue | 36,943 | 34,893 | 71,363 |
| Operating profit before other items, excl. IAS 29 | 1,073 | 549 | 1,776 |
| Operating profit before other items | 1,061 | 549 | 1,776 |
| Operating profit | 1,206 | 509 | 1,701 |
| Pro forma adjusted EBITDA (LTM) | 4,001 | 2,591 | 3,568 |
| Financial expenses, net | (157) | (289) | (656) |
| Net profit from continuing operations | 797 | 119 | 536 |
| Net profit from discontinued operations | 122 | 132 | 101 |
| Net profit | 919 | 251 | 637 |
| Cash flow (DKKm) | |||
| Cash flow from operating activities | 1,354 | 2,195 | 3,221 |
| Acquisition of intangible assets and property, plant | |||
| and equipment, net | (369) | (303) | (586) |
| Free cash flow | 644 | 1,645 | 1,735 |
| Financial position (DKKm) | |||
| Total assets | 46,220 | 44,407 | 43,655 |
| Goodwill | 20,465 | 19,355 | 19,753 |
| Additions to property, plant and equipment | 154 | 145 | 335 |
| Equity | 9,840 | 6,842 | 7,789 |
| Net debt | 12,199 | 13,480 | 13,451 |
| Shares ('000) | |||
| Number of shares issued | 185,668 | 185,668 | 185,668 |
| Number of treasury shares | 939 | 970 | 970 |
| Average number of shares (basic) | 184,730 | 184,698 | 184,698 |
| Average number of shares (diluted) | 185,664 | 185,698 | 186,003 |
| Ratios | H1 2022 | H1 2021 2 ) | 2021 |
| Financial ratios (%, unless otherwise stated) | |||
| Organic growth | 6.7 | (0.2) | 2.0 |
| Acquisitions and divestments, net | (2.0) | (0.5) | (0.5) |
| Currency and other adjustment | 1.2 | (2.3) | (0.6) |
| Total revenue growth | 5.9 | (3.0) | 0.9 |
| Operating margin 1 ), excl. IAS 29 | 2.9 | 1.6 | 2.5 |
| Operating margin 1 ) | 2.9 | 1.6 | 2.5 |
| Equity ratio | 21.3 | 15.4 | 17.8 |
| Net debt / Pro forma adjusted EBITDA | 3.0x | 5.2x | 3.8x |
| Share ratios (DKK) | |||
| Basic earnings per share (EPS) | 4.8 | 1.3 | 3.3 |
| Diluted EPS | 4.8 | 1.3 | 3.3 |
| Basic EPS (continuing operations) | 4.1 | 0.6 | 2.8 |
| Diluted EPS (continuing operations) | 4.1 | 0.6 | 2.8 |
| Non-financials | H1 2022 | H1 2021 2 ) | 2021 |
| Social data | |||
| Full-time employees | 76% | 75% | 76% |
| Employees end of period, number | 354,341 | 363,455 | 354,636 |
Definitions, see Annual Report 2021.
1) Based on Operating profit before other items.
2) Restated due to Chile being reclassified to continuing operations as of 31 December 2021.
The execution of the OneISS strategy continued in the first half of 2022 with solid improvements of processes and performance across the business. The progress on the turnaround plan continued and ISS is on track to achieve the financial targets.
During the first six months, commercial momentum improved as benefits from the segment-focused commercial organisation started to materialise. Improved commercial processes are positively affecting both retention rates and contract wins. In Q2 2022, retention rate was 92% which was a small decline compared to Q1 2022. Adjusted for the exit of the Danish Defence contract, retention was at the highest level seen in the last five years. The award of the 5-year IFS contract with a major retailer in the US was achieved as a result of the improved process, selected bidding and the investments made.
The strategic focus on creating Brilliant Operating Basics progressed during Q2 2022 as a way to become the most efficient operator in the industry. Using the scale and heritage of the ISS business, 10 key operating fundamentals have proven imperative for operational performance and are now constantly validated and monitored across countries and sites.
In the current high inflationary environment, the initiatives around implementing price increases have priority. The pricing mechanisms that have been in place for decades and embedded in the company culture are further developed, and best practices are shared across the Group. The vast majority of cost increases are passed on to customers as per the agreed contractual terms.
The execution of the IT & Digitalisation strategy continued to progress towards becoming a technology leader in the facility management industry. To further enhance inhouse capabilities, ISS will open a new dedicated software development centre in Porto, Portugal. The new centre will be operational by September 2022.
Recovery of the underperforming contracts and countries continued to progress in H1 2022, and the Group's operating margin run-rate improved further compared to Q1 2022.
The UK reached the turnaround target of a low single-digit run-rate margin by the end of Q1 2022, nine months ahead of plan. The positive development continued during Q2, and the margin improved further as a result of the improved organisational structure with a more streamlined and centralised organisation leading to better financial visibility at customer and site level.
The restructuring plan and cost optimisation programme in France continued to progress with run-rate margin improving, but the development is slower than originally planned. Costs have been reduced, but the commercial development is muted, and the organic growth was negative, partly due to industry segment exposure, with a corresponding negative effect on profitability.
The execution of the comprehensive restructuring and gap closing programme for the Deutsche Telekom contract continued to develop as planned. The contract is still structurally challenging, and the run-rate operating margin is negative, but it is on track to reach breakeven by the end of 2022.
As planned, ISS successfully exited the last part of the contract with the Danish Defence by the end of May.
The strategic divestment programme continued the good momentum with three countries being divested in the first half of 2022, i.e. Taiwan, Russia and Portugal. With Brunei being the only country remaining as asset held for sale and discontinued operations, the divestment programme is considered completed by the end of H1 2022. The targeted accumulated net proceeds of DKK 2 billion during 2021 and 2022 have now been secured. The process of divesting Brunei continues, but proceeds are expected to be immaterial.
Group revenue in the first six months of 2022 was DKK 36.9 billion, an increase of 5.9% compared with the same period last year. Organic growth in H1 2022 was 6.7% as the organic growth of 5.4% in Q1 2022 accelerated to 8.0% in Q2 2022. The impact from acquisitions and divestments, net was (2.0)%, and currency effects increased revenue by 1.2% whereof the net impact from hyperinflation restatement in Turkey (IAS 29) was 0.3%.
Organic growth was 6.7% in the first six months of 2022 driven by the continued recovery from Covid-19 as customers returned to offices in large markets leading to generally higher activity levels, especially within Retail, Hotels, Leisure and Transportation. ISS also saw an increase in sales to existing customers related to investments in improving the attractiveness of workplaces.
Portfolio revenue was positively affected by price increases implemented globally. Price increases in Turkey contributed by around 1%-point to Group organic growth.
The revenue from projects and above-base services declined organically by 3%, due to reduced demand for ad-hoc disinfection services. Demand for projects and above-base work was, however, maintained at a high level and still above pre-Covid-19 levels.
Revenue from key accounts continued its strong development and organic growth accelerated to 7.9%, driven by increased activity, return-to-office trends and contract wins. As such, key accounts'
share of revenue increased in line with the OneISS strategy.
During the pandemic, ISS experienced negative organic growth for services dependent on customers being present at workplaces, mainly food services. In the first half of 2022, these services increased significantly, and revenue from food services increased by approximately 35%, primarily driven by the US. Food services accounted for 13% (H1 2021: 10%) of Group revenue in the first half. Organic growth for food services in the US was more than 75% in H1 2022.
All regions contributed to the positive development in H1 2022. In Americas, the organic growth was 29% due to relatively higher exposure to food services. Growth rates in Europe were strong and improved compared to previous periods. Despite the continued negative impact from Covid-19, the Asia & Pacific region also reported positive organic growth.
Operating profit before other items excluding effect from IAS 29 (Turkey hyperinflation) amounted to DKK 1,073 million (H1 2021: DKK 549 million) corresponding to an operating margin of 2.9% (H1 2021: 1.6%). Including the effect from IAS 29, operating profit before other items was DKK 1,061 million and operating margin was 2.9%.
The increase in operating margin in the first half of 2022 was a result of the continued improvement of the underperforming contracts and countries and
| DKK million | 2022 | $2021^{11}$ | Organic growth |
Acg./ div. |
Currency & other adj. |
Growth 2022 |
|---|---|---|---|---|---|---|
| Northern Europe | 14,214 | 13,449 | 5 % | (0)% | 1 % | 6 % |
| Central & Southern Europe | 11,871 | 11,710 | 5 % | $(1)$ % | (3)% | 1 % |
| Central & Southern Europe, excl IAS 29 | 11.743 | 11,710 | 5 % | (1)% | (4)% | 0 % |
| Asia & Pacific | 6.735 | 6.161 | 3 % | $(1)$ % | 7 % | 9 % |
| Americas | 3,873 | 3,310 | 29 % | (16)% | 4 % | 17 % |
| Other countries | 275 | 285 | (5)% | ۰ | 1 % | (4)% |
| Corporate / eliminations | (25) | (22) | ٠ | ۰ | ۰ | 14 % |
| Group 2) | 36,943 | 34,893 | 6.7% | (2.0)% | 1.2% | 5.9% |
leverage from the higher revenue. This was partly offset by additional costs related to higher-thannormal sickness rates. Price increases implemented as a result of increased cost inflation are generally estimated to be margin neutral.
The margin improvement was predominantly attributable to the development in the European regions where the effects from improved profitability on the Deutsche Telekom contract and the UK contributed. The margin in the Americas declined compared to last year due to commercial investments in growth, a lower share of margin enhancing deep cleaning and disinfection services and timing effects. Furthermore, the margin in Chile declined due to depreciations being recognized this year, as the country has been reclassified back to continued operations.
Corporate costs amounted to DKK 472 million (H1 2021: DKK 527 million). The decline was mainly a result of H1 2021 being impacted by initial costs related to increased investments in the new operating model.
Other income and expenses, net was an income of DKK 180 million (H1 2021: 441 million), due to gain on divestments, mainly related to the waste handling business in Hong Kong and the restoration business in the UK.
Financial expenses, net was DKK 157 million (H1 2021: DKK 289 million) including a monetary gain of DKK 102 million relating to hyperinflation restatement in Turkey (IAS 29). Excluding the impact from IAS 29, financial expenses, net was DKK 258 million. The slight decrease was mainly due to the partial redemption of EMTNs in December 2021.
The effective tax rate in H1 2022 was 24.0% (H1 2021: 45.6%) and 23% when adjusted for the impact of IAS 29, positively impacted by non-taxable gains from divestments.
Net profit from discontinued operations was DKK 122 million (H1 2021: DKK 132 million) in the first six months of 2022, including DKK 88 million of gain on divestment of the businesses in Portugal, Taiwan and Russia.
Net profit was DKK 919 million (H1 2021: DKK 251 million). The improvement compared to the same period last year was mainly due to improved operating profit before other items and goodwill impairment of DKK 450 million related to France in H1 2021.
| (DKKm) | 2022 | $2021^{21}$ | ||
|---|---|---|---|---|
| Northern Europe | 631 | 4.4 % | 378 | 2.8% |
| Central & Southern Europe | 366 | 3.1 % | 120 | 1.0% |
| Central & Southern Europe, excl IAS 29 | 378 | 3.2% | 120 | 1.0% |
| Asia & Pacific | 388 | 5.8% | 370 | 6.0% |
| Americas | 137 | 3.5% | 201 | 6.1% |
| Other countries | 11 | 4.0 % | 7 | 2.5% |
| Corporate / eliminations | (472) | (527) | ||
| Total | 1,061 | 2.9% | 549 | 1.6% |
Group revenue in Q2 2022 was DKK 18.9 billion, an increase of 8.2% compared with the same period last year. Organic growth was 8.0% (Q2 2021: 5.4%), acquisitions and divestments, net reduced revenue by 1.9% and currency effects were positive 2.1% whereof the net impact from hyperinflation restatement in Turkey (IAS 29) was 0.7%.
Organic growth was primarily driven by accelerating return-to-office trends, increased customer investments in the attractiveness of the workplace and a positive effect from price increases implemented globally. Portfolio revenue grew organically by 11%, while revenue from projects and above-base work declined organically by 4% but remained at a high level compared to pre-Covid-19.
Growth was most significant in Americas with 30% organic growth, as the region benefitted from strong return-to-office trends especially within food services. The acceleration of growth compared to Q1 2022 was broad-based as all regions saw improving growth rates, except for Central & Southern Europe, where organic growth was unchanged.
Compared to the pre-pandemic activity level in Q2 2019, organic growth was +3%, which was similar to Q1 2022. This was in spite of a lower level of project and above-base revenue. Revenue from the Deutsche Telekom contract had a positive contribution to the growth of 4 percentage points in both Q1 and Q2 compared to 2019. Revenue from food services is still below 2019 but improved to index 82 from index 80 in Q1 2022.
| Revenue and growth QZ ZOZZ | ||||||
|---|---|---|---|---|---|---|
| DKK million | Q2 2022 Q2 2021 11 | Organic growth |
Acg./ div. | Currency & other adj. |
Growth Q 2 20 22 |
|
| Northern Europe | 7,176 | 6,734 | 6 % | (0)% | 1 % | 7 % |
| Central & Southern Europe | 6,057 | 5,832 | 5 % | (0)% | $(1)$ % | 4 % |
| Central & Southern Europe, excl IAS 29 | 5,928 | 5,832 | 5% | (0)% | (3)% | 2 % |
| Asia & Pacific | 3,456 | 3,032 | 5 % | (1)% | 10 % | 14 % |
| Americas | 2,058 | 1.711 | 30 % | (15)% | 5 % | 20 % |
| Other countries | 135 | 140 | (6)% | 2 % | (4)% | |
| Corporate / eliminations | (14) | (10) | $\overline{\phantom{a}}$ | ۰ | ||
| Group 2) | 18,868 | 17,439 | 8.0% | (1.9)% | 2.1 % | 8.2% |
In the first half of 2022, ISS saw improved commercial momentum, which was driven by several factors. First of all, the strict focus on retaining existing customers paid off and adjusted for the exit of the Danish Defence contract, the retention rate in Q2 2022 was at the highest level achieved in the last five years. This is underlined by the successful extensions with global key accounts Hewlett Packard Enterprises, a large undisclosed global pharmaceutical customer and Danske Bank.
In all commercial processes, strong discipline on pricing is enforced, and no uncapped inflation risk is being accepted. During the first half of 2022, ISS has refused a number of potential contracts as terms regarding inflation could not be accepted.
Return-to-office trends across the world accelerated during the period, driving increased activity levels. This development was most pronounced within services, where the development is reliant on people being present in workplaces, especially food services but also cleaning in hotels, airports and retailers. Revenue from food services increased approximately 35%, but it is still 18% below the pre-Covid-19 in Q2 2019, indicating further recovery potential.
Across the portfolio, ISS implemented price increases to offset the rising cost inflation. In the vast majority of contracts, ISS can pass on inflation to customers through contractual terms.
The demand for above-base services remains at a high level as projects and events offset some of the negative effects from lower revenue from deep cleaning and disinfection services. Customers' recognition of establishing the office of the future is driving additional commercial opportunities.
The pipeline of opportunities continues to be strong, and the quality is increasing. The decision process is typically longer than before Covid-19, as the continued global uncertainties delay long-term decisions, and several additional factors are included in the tender processes.
Revenue from key accounts was 72% (H1 2021: 69%) of Group revenue in the first six months of 2022 and grew 7.9% organically. This was 120bp better than the Group's organic growth.
In addition to the extension of a long list of existing contracts, ISS was awarded a new 5-year IFS contract with a major retailer in the US in June 2022. Annual revenue from the contract will account for around 1% of Group revenue, and it will be fully operational during Q4 2022.
| Major key account developments 1) | Countries | Segment | Term | Effective |
|---|---|---|---|---|
| Wins | ||||
| Aviation Customer | Austria | Transportation & Infrastructure | 5.5 years | O 2 2022 |
| Manufacturing Customer | Sweden & Belgium | Industry & Manufacturing | 5 years | Q2 2022 |
| Retail and Wholesale Customer | US & Canada | Retail and Wholesale | 5 years | O3 2022 |
| Extensions/expansions | ||||
| Technology Customer | United Kingdom | Business Services & IT | 1 year | O1 2022 |
| Pharmaceutical Customer | Spain | Pharmaceuticals | 2 years | Q1 2022 |
| Government Customer | United Kingdom | Public Administration | 1.5 years | O 2 2022 |
| Pharmaceutical Customer | Global | Pharmaceuticals | 5 years | Q2 2022 |
| Aviation Customer | Australia | Transportation & Infrastructure | 4 years | O 2 2022 |
| Pharmeceutical Customer | Denmark | Pharmaceuticals | 4 years | Q2 2022 |
| Salling Group | Denmark | Retail and Wholesale | 3 years | Q1 2022 |
| Healthcare Customer | Singapore | Healthcare | 5 years | Q2 2022 |
| South London and Maudsley NHS Foundation Trust | United Kingdom | Healthcare | 2 years | O 2 2022 |
| SingHealth Cluster | Singapore | Healthcare | 3 years | O 2 2022 |
| Victorian Department of Education and Training | Australia | Public Administration | 1.5 years | O3 2022 |
| Danske Bank | Northern Europe (5 countries) Business Services & IT | 5 years | O3 2022 | |
| Mining Service Customer | Australia | Energy & Resources | 2 years | Q3 2022 |
| Professional Services Customer | United Kingdom | Business Services & IT | 1 year | O4 2022 |
| Public Administration Customer | Finland | Public Administration | 5.5 years | Q4 2022 |
| Energy Customer | Germany | Energy & Resources | 5 years | O1 2023 |
| Healthcare Customer | United Kingdom | Healthcare | 2 years | Q1 2023 |
| Exits/losses | ||||
| Aviation Customer | United States | Transportation & Infrastructure | Q1 2022 | |
| Retail and Wholesale Customer (Partly lost) | Chile | Retail and Wholesale | O 2 2022 |
Free cash flow in H1 2022 was DKK 644 million (H1 2021: DKK 1,645 million), a reduction of DKK 1,001 million compared to the same period last year. Free cash flow in H1 2022 was positively impacted by the improvement in operating profit before other items, whereas changes in working capital was less positive. In H1 2021, Covid-19 disrupted and delayed the holiday plans for a large number of staff across the business and thereby created a temporary positive effect on working capital. Generally, the strong focus on working capital management continued during 2022.
Cash flow from operating activities in H1 2022 amounted to 1,354 million (H1 2021: DKK 2,195 million), a decrease of DKK 841 million due to less positive contribution from changes in working capital, and partly offset by improved operating profit before other items.
Changes in working capital in H1 2022 was positive mainly due to an increase in payables following the higher activity levels, primarily within food services with typically longer payment terms, as well as continued strong focus on working capital
management. Receivables increased due to the higher activity levels. Utilisation of factoring of DKK 1.1 billion at 30 June 2022 was unchanged from 31 December 2021.
Cash outflow related to restructurings accounted for in 2020 amounted to DKK 0.4 billion (H1 2021: DKK 0.2 billion).
Cash flow from investing activities in H1 2022 amounted to DKK 196 million (H1 2021: DKK 579 million), a reduction of DKK 383 million, primarily due to lower cash inflow from divestments compared to the same period last year.
Cash flow from divestments of DKK 599 million mainly related to the waste management business in Hong Kong and Portugal. Investments in intangible assets and property, plant and equipment, net, was DKK 390 million (H1 2021: DKK 312 million), which represented 1.1% of Group revenue (H1 2021: 0.9%). The increase was a result of the higher activity level.
Cash flow from financing activities in H1 2022 amounted to DKK (568) million (H1 2021: DKK (1,121) million), a decrease of DKK 553 million.
ISS has strengthened the financial foundation through profitability improvement, strong cash generation and execution of the divestment programme.
At 30 June 2022, net debt was DKK 12.2 billion, a reduction of DKK 1.3 billion compared to 31 December 2021. The reduction was driven by the positive free cash flow and proceeds from divestments. With the lower net debt and improved profitability due to execution of the turnaround as part of the OneISS strategy, leverage was reduced to 3.0x at 30 June 2022 based on pro-forma EBITDA (LTM) compared to 3.8x at year-end 2021.
With the leverage ratio at 3.0x by the end of H1 2022, ISS has almost reached the turnaround target of below 3x by the end of 2022 six months earlier than targeted.
At 30 June 2022, equity was DKK 9,840 million, equivalent to an equity ratio of 21.3% (30 June 2021: 15.4%). The increase from 31 December 2021 was mainly a result of Net profit of DKK 919 million and
hyperinflation (IAS 29) restatement of equity in Turkey at 1 January 2022 of DKK 768 million.
In February 2022, a war in Ukraine broke out following Russia's invasion of the country. ISS is monitoring the developing humanitarian crisis, and the priority is the safety and well-being of people and customers.
ISS has no material activities in Ukraine. Furthermore, the business in Russia, which has been part of the strategic divestment programme since December 2020, was divested in March 2022. Consequently, it is management's assessment that the outbreak of the war will not have a material impact on the results of the Group's operations and financial position in 2022.
Countries, where the cumulative three-year inflation exceeds 100%, are generally considered highly inflationary, and application of IAS 29 "Financial Reporting in Hyperinflationary Economies" must be considered. Based on monthly inflation data from the Turkey Statistical Institute, Turkey exceeded this threshold for the first time in February 2022. For the first six months of 2022, the inflation rate in Turkey was 42%. Consequently, ISS has implemented IAS 29 for the first time in this interim report with effect from 1 January 2022.
The aim of IAS 29 is to ensure that consolidated financial statements reflect the current purchasing power by restating reported numbers based on changes in the general price index and by applying end-of-period exchange rates.
Overall, the implementation of IAS 29 did not have a material impact on the Group's profit or loss and cash flow statements, and consequently the effect on our three key KPIs in H1 2022 was immaterial, i.e. organic growth and free cash flow were unchanged and operating margin decreased 4 bps.
As the restatement for hyperinflation has no direct influence on the underlying operations or financial performance, including cash flow generation, selected accounting figures are presented before restatement to provide the best possible transparency. This also ensures consistency between the external reporting and the internal management reporting and business reviews.
Company announcement no. 15/2022 Copenhagen, 10 August 2022
Throughout this interim report, commentary is provided including and excluding the impact from IAS 29, though for operating profit before other items the development is explained before restatement for hyperinflation. Likewise, our outlook continues to be presented excluding the impact from IAS 29.
Please refer to note 18, Hyperinflation in Turkey, for an overview of the implementation of IAS 29 and impact on the Group's financial statements.
On 7 April 2022 at the Annual General Meeting, Lars Petersson was elected as new member of the Board of Directors and subsequently constituted as Deputy Chair, as Henrik Poulsen, previous Deputy Chair, did not seek re-election.
On 1 June 2022, Sam Hockman took up the position as CEO Global Key Accounts and joined the Executive Group Management.
On 30 June 2022, Valerie Beaulieu stepped down as a member of the Board of Directors.
On 1 July 2022, Joseph Nazareth resigned as an employee elected member of the Board of Directors and was succeeded by alternate, Signe Adamsen, who is Group Workplace Development Director.
On 1 July 2022, Susanne Jorgensen took up the position as CEO Americas and joined the Executive Group Management.
On 31 July 2022, Dan Ryan retired and stepped down as Chief Group Commercial Officer, and member of the Executive Group Management.
Other than as set out elsewhere in this Interim report, we are not aware of events subsequent to 30 June 2022, which are expected to have a material impact on the Group's financial position.
Revenue amounted to DKK 14,214 million in the first six months of 2022, which was an increase of 6% compared with the same period last year. Organic growth was 5% (H1 2021: (1)%). The
effect from acquisitions and divestments, net was neutral, while currency effects impacted growth positively by 1%.
Organic growth was mainly driven by increased activity levels and return-to-office trends. Price increases implemented across the portfolio also contributed positively. Portfolio revenue grew by around 8%, while non-portfolio revenue declined due to lower demand for Covid-19 related deep cleaning and disinfection. Norway saw the strongest growth due to the start-up of the Equinor contract and strong recovery in the Hotels segment. Organic growth in Denmark was negative due to the exit of the contract with the Danish Defence by the end of May 2022. Organic growth in the UK was broadly flat.
Operating profit before other items amounted to DKK 631 million in H1 2022 (H1 2021: DKK 378 million) corresponding to an operating margin of 4.4% (H1 2021: 2.8%). The improvement was primarily driven by the UK, where strong execution of the financial turnaround improved the operating margin, and the turnaround target of a low-single digit run-rate margin was achieved by the end of Q1 2022. All countries in the region, except for Denmark due to lower revenue, improved margins as a result of leverage from higher revenue and solid cost control. Across the region, costs related to a higherthan-normal sickness rate partly offset the positive margin development.
Q2 2022 revenue amounted to DKK 7,176 million driven by organic growth of 6% (Q1 2022: 3%), while acquisitions and divestments, net, were neutral and currency effects increased revenue with 1%. Organic growth was driven by the increased return-to-office trends, contract wins, and price increases implemented across the region. Portfolio revenue grew 11% organically as a result of the increased activity level. Several countries reported double-digit organic growth with the strongest growth seen in Norway. The development in the UK was broadly flat, while organic growth in Denmark was negative, as the contract with the Danish Defence was exited by the end of May 2022.
Revenue amounted to DKK 11,871 million in the first six months of 2022, which was flat compared with the same period last year. Organic growth was 5% (H1
2021: 6%). The effect from acquisitions and divestments, net was negative 1%, while currency effects impacted growth negatively by 4% whereof the net impact from hyperinflation restatement in Turkey (IAS 29) was 1%.
Organic growth development was primarily driven by Turkey where price increases were successfully passed on to customers to offset underlying cost inflation as well as solid growth in the healthcare segment. Austria also delivered double-digit organic growth due to the start-up of the contract with Vienna Airport. In Germany, organic growth improved during the period and was only slightly negative in the first half of the year. In France, organic growth continued to be negative as commercial momentum is still subdued, among others due to ISS' industry segment exposure. Portfolio revenue grew organically by 6% for the region. Except for Turkey, the Central & Southern Europe region has relatively low exposure to food services, and therefore positive benefits from returnto-office trends are not as pronounced.
Operating profit before other items excluding IAS 29 amounted to DKK 378 million in H1 2022 (H1 2021: DKK 120 million) corresponding to an operating margin of 3.2% (H1 2021: 1.0%). The improved margin was primarily a result of the improved profitability on the Deutsche Telekom contract, though run-rate margin remained negative. Most countries in the region reported margin improvement from better operations despite additional costs due to a higher-than-normal sickness rate. Including the effect of IAS 29,
operating profit before other items amounted to DKK 366 million, corresponding to a margin of 3.1%.
Q2 2022 revenue amounted to DKK 6,057 million driven by organic growth of 5% (Q1 2022: 5%), while acquisitions and divestments, net were neutral and currency effects reduced revenue with 3%. Organic growth was primarily driven by Turkey and contract win in Austria. Portfolio revenue showed an improved organic growth compared to the previous quarter and grew by 7%. The net impact from hyperinflation restatement in Turkey (IAS 29) was 2%.
Revenue amounted to DKK 6,735 million in the first six months of 2022, which was an increase of 9% compared to the same period last year. Organic growth was 3% (H1
2021: (1)%). The effect from acquisitions and divestments, net was (1)%, while currency effects were 7%.
Organic growth was driven by increased activity levels from return-to-office trends improving during the period with many countries in the region reopening as Covid-19 restrictions were lifted during Q2. Price increases contributed positively, and portfolio revenue grew organically by 5% in H1 2022, while above-base revenue declined as a result of lower demand for deep cleaning and disinfection. The strongest growth was seen in India and Australia within the transportation and infrastructure segment as flight traffic resumed. Organic growth in Hong Kong was slightly negative due to reinforced restrictions, which was largely offset by additional above-base revenue.
Operating profit before other items amounted to DKK 388 million in H1 2022 (H1 2021: DKK 370 million) corresponding to an operating margin of 5.8% (H1 2021: 6.0%). The stable development reflects the solid underlying growth and cost discipline despite lower demand for higher margin deep cleaning and disinfection services.
Q2 2022 revenue amounted to DKK 3,455 million driven by organic growth of 5% (Q1 2022: 1%), while acquisitions and divestments, net were (1)% and currency effects were 10%. Organic growth was driven by an acceleration in the return-to-office trends and increased activity levels, mainly in Australia and India.
Revenue amounted to DKK 3,873 million in the first six months of 2022, which was an increase of 17% compared to the same period last year. Organic growth was 29% (H1 2021: (15)%). The effect from acquisitions and divestments, net was (16)% due the
divestment of US Specialized Services, while currency effects impacted growth positively by 4%.
Organic growth in the Americas was primarily driven by food services as customers returned to the offices, supported by technology customers on the US West Coast commencing mandatory return-tooffice programmes from the beginning of April. Food services in the US grew organically by more than 75% in H1 2022, and revenue was at index 76 compared to pre-Covid-19 levels in Q2 2019. Growth in the region was further supported by price increases implemented to offset rising cost inflation and both portfolio and above-base revenue showed double-digit organic growth. The ramp-up of contracts had a minor positive effect while the contract awarded with a major retailer will ramp-up during the second half.
Operating profit before other items amounted to DKK 137 million in H1 2022 (H1 2021: DKK 201 million) corresponding to an operating margin of 3.5% (H1 2021: 6.1%). The decline was driven by commercial investments in growth, including strengthening of the organisation and mobilisation of contract wins, a lower share of margin enhancing deep cleaning and disinfection services and timing effects which are expected to reverse in H2 2022. A part of that was due to the margin in Chile being lower as a result of recognition of depreciations this year, as the country was reclassified back to continued operations. The strong revenue recovery in food delivered broadly the same margin
compared to last year as most contracts were renegotiated to cost plus commercial models.
Q2 2022 revenue amounted to DKK 2,058 million driven by organic growth of 30% (Q1 2022: 29%), while acquisitions and divestments, net were (15)%, and currency effects increased revenue with 5%. Organic growth was driven by the US and Chile as increased return-to-office trends almost doubled revenue within Food services.
This section should be read in conjunction with "Forward-looking statements" as shown in the table on page 14. The outlook is excluding any effects of IAS 29.
Based on the financial performance in the first six months, the outlook for 2022 is upgraded for all financial KPIs. The organic growth accelerated in Q2 with stronger than expected return-to-office trends and continued positive effects from the implemented price increases. The execution of the OneISS strategy continued and the operating margin increased as benefits from the turnaround of the underperforming contracts and countries were realised. With the improved operating profit and solid working capital management, free cash flow improved accordingly.
While activity level and financial performance developed positively in H1 2022, global macro uncertainties remain high. In general, Covid-19 restrictions were lifted during the first half, and the outlook for 2022 assumes continued gradual returnto-office, but the pace is subject to uncertainty.
Organic growth is now expected to be above 5% compared to previously "above 4%" (2021: 2.0%), as a result of the increased activity level from accelerating return-to-office trends and customers' increased investments in workplaces. The continued implementation of price increases will affect organic growth positively and projects and above-base revenue is still expected to be slightly lower than in 2021.
Operating margin is now expected to be above 3.75% compared to previously "above 3.5%" (2021: 2.5%). The change of outlook is a result of the continued progress on the turnaround of the underperforming contracts and countries as well as leverage from the higher revenue. Cost inflation is managed tightly through price increases and cost reductions and the operating margin is therefore expected to be unaffected from this.
Free cash flow is now expected to be above DKK 1.5 billion compared to previously "above DKK 1.3 billion" (2021: DKK 1.7 billion). The expected higher operating profit before other items will have a positive effect on free cash flow, and changes in working capital are still expected to have a neutral to slightly positive impact. Payments related to restructuring projects initiated in 2020 are still expected to reduce free cash flow by around DKK 0.5 billion.
| Outlook 2022 | |||
|---|---|---|---|
| Annual Report 2021 |
Trading update Q1 2022 |
Interim report H1 2022 |
|
| Organic growth |
>2% | >4% | >5% |
| Operating margin* |
>3.5% | >3.5% | >3.75% |
| Free cash flow |
>DKK 1.3bn | >DKK 1.3bn | >DKK 1.5bn |
* Based on operating profit before other items
As part of the launch of the OneISS strategy in December 2020, ISS announced turnaround targets to focus on the short-term recovery of the business. The turnaround targets – which are outlining a healthy recovery with a focus on profitability and cash generation – are confirmed. At the end of H1 2022, the run-rate margin was above 3.5% and financial leverage was 3.0x. Thereby the turnaround targets are close to being achieved.
Divestments and acquisitions completed by 31 July 2022 (including in 2021) are expected to have a negative impact on revenue growth in 2022 of around 2%-point. Countries to be divested continue to be reported as discontinued operations and will not impact revenue growth upon divestment.
Based on the relevant exchange rates, a positive impact on revenue growth of around 1%-point is expected in 2022 from the development of foreign exchange rates.
1) The forecasted average exchange rates for the financial year 2022 are calculated using the realised average exchange rates for the first seven months of 2022 and the average forward exchange rates (as of 1 August 2022) for the remaining five months of 2022.
The Board of Directors and the Executive Group Management Board have today discussed and approved the interim report of ISS A/S for the period 1 January – 30 June 2022.
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU and additional requirements of the Danish Financial Statements Act. The interim report has not been reviewed or audited.
In our opinion, the condensed consolidated interim financial statements give a true and fair view of the Group's assets, liabilities and financial position at 30 June 2022 and of the results of the Group's operations and consolidated cash flows for the financial period 1 January – 30 June 2022.
In our opinion, the Management review includes a fair review of the development in the Group's operations and financial conditions, the results for the period, cash flows and financial position as well as a description of the most significant risks and uncertainty factors that the Group face.
Jacob Aarup-Andersen Kasper Fangel Group CEO Group CFO
Board of Directors
Niels Smedegaard Lars Petersson Chair Deputy Chair
Søren Thorup Sørensen Cynthia Mary Trudell
Nada Elboayadi (E) Signe Adamsen (E)
Elsie Yiu (E)
____________________________________________________________________________________________________________
1 January – 30 June
| (DKKm) | Note | YTD 2022 | YTD 2021 |
|---|---|---|---|
| Revenue | 3, 4, 18 | 36,943 | 34,893 |
| Staff costs | 5, 17 | (23,890) | (23,219) |
| Consumables | (3,008) | (2,267) | |
| Other operating expenses | (8,204) | (8,080) | |
| Depreciation and amortisation 1) | 18 | (780) | (778) |
| Operating profit before other items | 18 | 1,061 | 549 |
| Other income and expenses, net | 6 | 180 | 441 |
| Goodwill impairment | 7 | - | (450) |
| Amortisation/impairment of brands and customer contracts | (35) | (31) | |
| Operating profit | 3 | 1,206 | 509 |
| Financial income | 8, 18 | 135 | 14 |
| Financial expenses | 8, 18 | (292) | (303) |
| Profit before tax | 1,049 | 220 | |
| Income tax | 18 | (252) | (101) |
| Net profit from continuing operations | 797 | 119 | |
| Net profit from discontinued operations | 9 | 122 | 132 |
| Net profit | 18 | 919 | 251 |
| Attributable to: | |||
| Owners of ISS A/S | 883 | 245 | |
| Non-controlling interests | 36 | 6 | |
| Net profit | 919 | 251 | |
| Earnings per share, DKK | |||
| Basic earnings per share (EPS) | 4.8 | 1.3 | |
| Diluted earnings per share | 4.8 | 1.3 | |
| Earnings per share for continuing operations, DKK | |||
| Basic earnings per share (EPS) | 4.1 | 0.6 | |
| Diluted earnings per share | 4.1 | 0.6 |
____________________________________________________________________________________________________________
1) Excluding Goodwill impairment and Amortisation/impairment of brands and customer contracts.
1 January – 30 June
| (DKKm) | Note | YTD 2022 1 |
YTD 2021 |
|---|---|---|---|
| Net profit | 919 | 251 | |
| Other comprehensive income | |||
| Remeasurement gain/(loss) on defined benefit plans | 14 | 365 | 650 |
| Impact from asset ceiling | 14 | (210) | (638) |
| Tax | (40) | (3) | |
| Net total, that will not be reclassified to profit or loss in subsequent periods | 115 | 9 | |
| Foreign exchange adjustments of foreign entities | 252 | 108 | |
| Fair value adjustments of net investment hedges | (84) | (83) | |
| Recycling of accumulated foreign exchange adjustments on country exits | (33) | (26) | |
| Hyperinflation restatement of equity at 1 January | 18 | 768 | - |
| Tax | 18 | 18 | |
| Net total, that may be reclassified to profit or loss in subsequent periods | 921 | 17 | |
| Other comprehensive income | 1,036 | 26 | |
| Comprehensive income | 1,955 | 277 | |
| Attributable to: | |||
| Owners of ISS A/S | 1,563 | 274 | |
| Non-controlling interests | 392 | 3 | |
| Comprehensive income | 1,955 | 277 |
1 January – 30 June
| (DKKm) | Note | YTD 2022 | YTD 2021 |
|---|---|---|---|
| Operating profit before other items | 1,061 | 549 | |
| Operating profit before other items from discontinued operations | 9 | 11 | 4 |
| Depreciation and amortisation | 780 | 778 | |
| Non-cash items related to Hyperinflation | 18 | (21) | - |
| Share-based payments | 5 | 44 | 35 |
| Changes in working capital | 10 | 283 | 1,614 |
| Changes in provisions, pensions and similar obligations | (436) | (378) | |
| Other expenses paid | (3) | (32) | |
| Interest received | 35 | 14 | |
| Interest paid | (167) | (165) | |
| Income tax paid | (233) | (224) | |
| Cash flow from operating activities | 18 | 1,354 | 2,195 |
| Acquisition of businesses | (24) | (21) | |
| Divestment of businesses | 12 | 599 | 889 |
| Acquisition of intangible assets and property, plant and equipment | (390) | (312) | |
| Disposal of intangible assets and property, plant and equipment | 21 | 9 | |
| Acquisition of financial assets, net | (10) | 14 | |
| Cash flow from investing activities | 18 | 196 | 579 |
| Other financial payments, net | (128) | (638) | |
| Repayment of lease liabilities | (434) | (468) | |
| Transactions with non-controlling interest | (6) | (15) | |
| Cash flow from financing activities | 18 | (568) | (1,121) |
| Total cash flow | 982 | 1,653 | |
| Cash and cash equivalents at 1 January | 3,428 | 2,742 | |
| Total cash flow | 982 | 1,653 | |
| Foreign exchange adjustments | 96 | 93 | |
| Cash and cash equivalents at 30 June | 4,506 | 4,488 | |
| Free cash flow | 11, 18 | 644 | 1,645 |
| (DKKm) | Note | 30 June 2022 |
30 June 2021 |
31 December 2021 |
|---|---|---|---|---|
| Assets | ||||
| Intangible assets | 18 | 23,696 | 22,189 | 22,739 |
| Property, plant and equipment and leases | 18 | 3,257 | 3,276 | 3,376 |
| Deferred tax assets | 936 | 899 | 790 | |
| Other financial assets | 508 | 323 | 457 | |
| Non-current assets | 28,397 | 26,687 | 27,362 | |
| Inventories | 200 | 167 | 177 | |
| Trade receivables | 11,068 | 9,828 | 10,406 | |
| Tax receivables | 142 | 171 | 185 | |
| Other receivables | 1,875 | 1,694 | 1,582 | |
| Cash and cash equivalents | 4,506 | 4,488 | 3,428 | |
| Assets held for sale | 13 13 |
32 | 1,372 | 515 |
| Current assets | 17,823 | 17,720 | 16,293 | |
| Total assets | 46,220 | 44,407 | 43,655 | |
| Equity and liabilities Equity attributable to owners of ISS A/S Non-controlling interests |
9,185 655 |
6,817 25 |
7,583 206 |
|
| Total equity | 18 | 9,840 | 6,842 | 7,789 |
| Loans and borrowings | 15,959 | 17,194 | 16,094 | |
| Pensions and similar obligations | 14 | 1,214 | 1,467 | 1,351 |
| Deferred tax liabilities | 18 | 1,150 | 975 | 976 |
| Provisions | 15 | 591 | 294 | 755 |
| Non-current liabilities | 18,914 | 19,930 | 19,176 | |
| Loans and borrowings | 853 | 870 | 888 | |
| Trade and other payables | 6,827 | 5,537 | 5,657 | |
| Tax payables | 133 | 124 | 174 | |
| Other liabilities | 8,941 | 9,014 | 8,730 | |
| Provisions | 15 | 700 | 1,507 | 961 |
| Liabilities held for sale | 13 | 12 | 583 | 280 |
| Current liabilities | 17,466 | 17,635 | 16,690 | |
| Total liabilities | 36,380 | 37,565 | 35,866 | |
| Total equity and liabilities | 46,220 | 44,407 | 43,655 |
1 January – 30 June
| Attributable to owners of ISS A/S | |||||||
|---|---|---|---|---|---|---|---|
| Note (DKKm) |
Share capital |
Treasury shares |
Retained earnings |
Trans lation reserve 1) |
Total | Non-con trolling interests |
Total equity |
| 2022 Equity at 1 January |
185 | (191) | 9,035 | (1,446) | 7,583 | 206 | 7,789 |
| Net profit Other comprehensive income |
- - |
- - |
883 115 |
- 565 |
883 680 |
36 356 |
919 1,036 |
| Comprehensive income | - | - | 998 | 565 | 1,563 | 392 | 1,955 |
| Share-based payments 5 Transactions with non-controlling interests ? |
- - |
- - |
44 (5) |
- - |
44 (5) |
- 57 |
44 52 |
| Transactions with owners | - | - | 39 | - | 39 | 57 | 96 |
| Changes in equity | - | - | 1,037 | 565 | 1,602 | 449 | 2,051 |
| Equity at 30 June | 185 | (191) | 10,072 | (881) | 9,185 | 655 | 9,840 |
| Equity at 1 January | 185 | (191) | 8,124 | (1,602) | 6,516 | 29 | 6,545 |
|---|---|---|---|---|---|---|---|
| Net profit | - | - | 245 | - | 245 | 6 | 251 |
| Other comprehensive income | - | - | 9 | 20 | 29 | (3) | 26 |
| Comprehensive income | - | - | 254 | 20 | 274 | 3 | 277 |
| Share-based payments | - | - | 35 | - | 35 | - | 35 |
| Transactions with non-controlling interests | - | - | (8) - |
- | (8) | (7) | (15) |
| Transactions with owners | - | - | 27 | - | 27 | (7) | 20 |
| Changes in equity | - | - | 281 | 20 | 301 | (4) | 297 |
| Equity at 30 June | 185 | (191) | 8,405 | (1,582) | 6,817 | 25 | 6,842 |
1) At 30 June 2022, accumulated foreign exchange losses of DKK 17 million related to discontinued operations (30 June 2021: exchange losses of DKK 17 million). In addition, at 30 June 2022, DKK 381 million under the translation reserve relates to hyperinflation restatement of non-monetary items at 1 January 2022.
The condensed consolidated interim financial statements of ISS A/S for the period 1 January - 30 June 2022 comprise ISS A/S and its subsidiaries (collectively, the Group) and have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU and additional requirements of the Danish Financial Statements Act.
The report does not include all the information and note disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's consolidated financial statements as at 31 December 2021.
The accounting policies adopted are consistent with those applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2021, except for the adoption of IAS 29 "Financial Reporting in Hyperinflation Economies" and a number of new and amended standards, which became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these new and amended standards, except as set out below for IAS 29.
Effective 1 January 2022, the Group has implemented IAS 29 "Financial Reporting in Hyperinflationary Economies", as management has considered Turkey as a hyperinflationary environment. Management has based its assessment on the cumulative inflation, which has exceeded more than 100% over three years. As a result, the financial statements of ISS Turkey for H1 2022 have been restated for hyperinflation before the reported amounts were translated to the Group's functional currency, DKK. Comparative figures have not been restated. The implementation impact and the applied accounting policies are disclosed in note 18, Hyperinflation in Turkey.
The preparation of condensed consolidated interim financial statements requires management to make estimates, judgements and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
In H1 2022, global macroeconomic uncertainties remained at a high level, which among others led to increasing interest rates and rising cost and labour inflation. These developments and uncertainties have impacted certain accounting estimates and judgements, including assumptions made by management, most significantly in relation to:
Except for the above, and the judgements and estimates commented upon in other notes of these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2021, cf. 7.1 to the consolidated financial statements for 2021.
ISS is a leading, global provider of workplace and facility service solutions operating in more than 30 countries. Operations are generally managed based on a geographical structure in which countries are grouped into regions. The regions have been identified based on a key principle of grouping countries that share market conditions and cultures. Countries where we do not have a full country support structure, which are managed by Global Operations, are combined in a separate segment "Other countries".
Effective 1 January 2022, the Group reorganised its European business into the regions Northern Europe and Central & Southern Europe consistent with the Group's internal management and reporting structure. As a result, the Netherlands, Belgium, Poland and Lithuania were moved from Continental Europe to Northern Europe. Asia & Pacific and Americas remained unchanged. Comparative figures for 2021 were restated accordingly.
| (DKKm) | Central & Southern Europe |
Northern Europe |
Asia & Pacific |
Americas | Other countries |
Total segments |
|---|---|---|---|---|---|---|
| YTD 2022 Revenue 1) |
||||||
| Hyperinflation restatement of revenue2) | 11,743 128 |
14,214 - |
6,735 - |
3,873 - |
275 - |
36,840 128 |
| Total revenue | 11,871 | 14,214 | 6,735 | 3,873 | 275 | 36,968 |
| Operating profit before other items Hyperinflation restatement of operating profit |
378 | 631 | 388 | 137 | 11 | 1,545 |
| before other items 2) | (12) | - | - | - | - | (12) |
| Operating profit before other items | 366 | 631 | 388 | 137 | 11 | 1,533 |
| Operating profit | 355 | 659 | 536 | 117 | 11 | 1,678 |
| YTD 2021 Revenue 1) |
11,710 | 13,449 | 6,161 | 3,310 | 285 | 34,915 |
| Operating profit before other items | 120 | 378 | 370 | 201 | 7 | 1,076 |
| Operating profit | 107 | 368 | 365 | 189 | 7 | 1,036 |
1) Including internal revenue which due to the nature of the business is insignificant and therefore not disclosed.
2) ISS Turkey was restated for hyperinflation in accordance with IAS 29, see note 18, Hyperinflation in Turkey.
| Reconciliation of operating profit (DKKm) |
YTD 2022 | YTD 2021 |
|---|---|---|
| Operating profit for reportable segments Unallocated corporate costs |
1,678 (472) |
1,036 (527) |
| Operating profit | 1,206 | 509 |
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Key accounts | 26,381 | 23,899 |
| Large and medium | 8,394 | 8,890 |
| Small and route-based | 2,168 | 2,104 |
| Revenue | 36,943 | 34,893 |
At 30 June 2022, a total of 1,303,211 new performance-based share units (PSUs) were granted to members of the EGM (EGMB and Corporate Senior Officers of the Group) and other senior officers of the Group. The programme is described in the consolidated financial statements for 2021. Like previous grants under the LTIP, the PSUs will vest on the date of the third anniversary of the grant, subject to achievement of certain performance targets and service criteria. Upon vesting, each PSU entitles the holder to receive one share at no cost.
| LTIP 2022 | |
|---|---|
| PSUs and participants (number) | |
| Maximum PSUs under the programme at grant date | 1,509,951 |
| Total PSUs granted | 1,303,211 |
| Participants | 144 |
| Fair value (DKKm) | |
| Grant date fair value of PSUs expected to vest | 107 |
In March 2022, the LTIP 2019 programme vested. Based on the annual EPS and TSR performances for 2019, 2020 and 2021, 0% of the granted PSUs vested. After this vesting, no further PSUs are outstanding under the LTIP 2019 and the programme has lapsed.
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Gain on divestments | 181 | 456 |
| Other income | 181 | 456 |
| Loss on divestments Acquisition costs |
- (1) - |
(10) (5) |
| Other expenses | (1) | (15) |
| Other income and expenses, net | 180 | 441 |
Gain on divestments mainly related to the divestment of waste management in Hong Kong and the damage control business in the UK. In 2021, the gain related mainly to the divestment of Kanal Services in Switzerland.
Loss on divestments in 2021, was mainly related to the divestment of the fruit baskets business in Sweden and the restoration business in the UK.
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Identified in impairment tests | - | 450 |
| Goodwill impairment | - | 450 |
Identified in impairment tests The loss recognised in 2021 related to goodwill impairment in France.
The Group performs impairment tests on intangibles, i.e. goodwill, brands and customer contracts, annually and whenever there is an indication that intangibles may be impaired. The annual impairment test is performed as per 31 December based on financial budgets approved by management covering the following financial year.
At 30 June 2022, the Group performed a review for indications of impairment of the carrying amount of intangibles. The implementation of IAS 29 in Turkey as well as the increasing interest rates and the delayed realisation of business plans in France were considered impairment indications. Consequently, these CGUs have been tested for impairment at 30 June 2022.
Except for Turkey and France, no impairment indications were identified. It is management's opinion that excess values for all other CGUs are fairly resilient to any likely and reasonable deteriorations in the key assumptions applied and presented in note 3.7 in the consolidated financial statements for 2021.
The implementation of IAS 29 resulted in an increase in the carrying amount of goodwill and customer contracts of DKK 0.8 billion. The impairment test at 30 June 2022 based on the updated business plan reflecting the current inflationary environment, did not result in recognition of an impairment loss.
During the first six months of 2022, the restructuring plan continued to progress, though slower than anticipated, in part due to exposure to certain industry segments with slow Covid-19 recovery. At the same time, interest rates and inflation rates increased significantly. As a result, management updated the business plans to reflect the current market development. The impairment test at 30 June 2022 based on the updated business plan did not result in recognition of an impairment loss. However, the excess value continues to be limited.
Applied assumptions, sensitivities and carrying amounts for France are illustrated below.
| Goodwill | Forecasting period Growth |
Margin | 1) | Terminal period Growth |
Margin 1) | Discount rate, net of tax |
|||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying amount (DKKm) |
Applied avg. rate |
Allowed decrease |
Applied avg. rate |
Allowed decrease |
Applied avg. rate |
Allowed decrease |
Applied avg. rate |
Allowed decrease |
Applied avg. rate |
Allowed increase |
|
| 30 June 2022 | 937 | 1.0% | 0.6% | 2.9% | 0.5% | 2.5% | 0.3% | 5.0% | 0.2% | 9.5% | 0.2% |
| 31 Dec 2021 | 936 | 1.4% | 0.2% | 3.3% | 0.2% | 2.0% | 0.1% | 5.0% | 0.1% | 8.9% | 0.1% |
____________________________________________________________________________________________________________
1) Excl. allocated corporate costs
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Interest income on cash and cash equivalents | 33 | 14 |
| Monetary gain on hyperinflation restatement | 102 | - |
| Financial income | 135 | 14 |
| Interest expenses on loans and borrowings | (169) | (179) |
| Interest expenses on lease liabilities | (34) | (36) |
| Amortisation of financing fees (non-cash) | (11) | (11) |
| Bank fees | (25) | (25) |
| Foreign exchange losses | (20) | (12) |
| Net interest on defined benefit obligations | (11) | (9) |
| Forward premiums, currency swaps | (8) | (9) |
| Other | (14) | (22) |
| Financial expenses | (292) | (303) |
Monetary gain on hyperinflation restatement related to restatement of non-monetary items of the financial position and offsetting of the inflation restatement of profit or loss items. See note 18, Hyperinflation in Turkey.
Interest expenses on loans and borrowings decreased slightly in the first six months of 2022 compared with the same period in 2021, mainly due to the partial redemption of EMTNs in December 2021 and lower interest expenses due to an interest rate swap entered into in May 2022, see note 16, Financial instruments. This was partly offset by increased interest expenses in Turkey following the acquisition in 2021.
Foreign exchange gains and losses mainly related to gains and losses on intercompany loans from the parent company.
Forward premiums on currency swaps ISS uses currency swaps to hedge the exposure to currency risk on intercompany loans. The cost of hedging is in line with H1 2021.
Our strategic divestment programme continued the good momentum with three countries being divested in the first half of 2022, i.e. Taiwan, Russia and Portugal. With Brunei being the only country remaining as asset held for sale and discontinued operations, the divestment programme is now considered completed.
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Revenue | 363 | 696 |
| Expenses | (352) | (692) |
| Operating profit before other items | 11 | 4 |
| Other income and expenses, net 1) | 112 | 130 |
| Operating profit | 123 | 134 |
| Financial income/(expenses), net | - - |
1 |
| Net profit before tax | 123 | 135 |
| Income tax | (1) | (3) |
| Net profit from discontinued operations | 122 | 132 |
| Earnings per share from discontinued operations, DKK | ||
| Basic earnings per share (EPS) | 0.7 | 0.7 |
| Diluted earnings per share | 0.7 | 0.7 |
1) Related to net gain from the three divestments in H1 2022, including recycling of accumulated foreign exchange adjustments.
| Cash flow from discontinued operations | ||
|---|---|---|
| (DKKm) | YTD 2022 | YTD 2021 |
| Cash flow from operating activities | 18 | 19 |
| Cash flow from investing activities | (69) | (82) |
| Cash flow from financing activities | 9 | (5) |
| (DKKm) 0 0 0 |
YTD 2022 | YTD 2021 |
|---|---|---|
| Changes in inventories | (24) | 11 |
| Changes in receivables | (935) | (32) |
| Changes in payables | 1,242 | 1,635 |
| Total | 283 | 1,614 |
Free cash flow as defined by management, cf. the 2021 Annual Report p. 108, is summarised below. Free cash flow is not a financial performance measure established by IFRS. Accordingly, the measure and its calculation is solely presented as it is used by management as an alternative performance measure in managing the business.
The free cash flow measure should not be considered a substitute for those measures required by IFRS and may not be calculated by other companies in the same manner. As such, reference is made to the IFRS measures included in the condensed consolidated statement of cash flows on p. 19.
| (DKKm) 0 0 0 |
YTD 2022 | YTD 2021 |
|---|---|---|
| Cash flow from operating activities | 1,354 | 2,195 |
| Acquisition of intangible assets and property, plant and equipment | (390) | (312) |
| Disposal of intangible assets and property, plant and equipment | 21 | 9 |
| Acquisition of financial assets, net 1) | (49) | (4) |
| Addition of right-of-use assets, net | (292) | (243) |
| Total | 644 | 1,645 |
1) Excluding investments in equity-accounted investees of DKK 39 million (positive) (2021: DKK (18) million). The negative investments in 2021 related to dividends and disposals of equity-accounted investees.
The Group completed five divestments during 1 January - 30 June 2022 (eight during 1 January - 30 June 2021):
| Company/activity | Country | Service type | Excluded from profit or loss |
Interest | Annual revenue (DKKm) |
Employees (number) |
|---|---|---|---|---|---|---|
| Waste management business | Hong Kong | Technical | February | 100% | 134 | 232 |
| ISS Russia | Russia | Country exit | April | 100% | 112 | 864 |
| ISS Taiwan | Taiwan | Country exit | April | 100% | 441 | 3,092 |
| Damage control | UK | Technical | May | 100% | 84 | 91 |
| ISS Portugal | Portugal | Country exit | July | 100% | 386 | 3,843 |
| Total | 1,157 | 8,122 |
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Goodwill | 188 | 191 |
| Other non-current assets | 162 | 289 |
| Current assets | 320 | 224 |
| Non-current liabilities | (24) | (36) |
| Loans and borrowings | (23) | (121) |
| Current liabilities | (246) | (153) |
| Net assets disposed | 377 | 394 |
| Gain/(loss) on divestment, net | 261 | 550 |
| Divestment costs | 46 | 71 |
| Consideration received | 684 | 1,015 |
| Cash in divested businesses | (86) | (60) |
| Cash consideration received | 598 | 955 |
| Contingent and deferred consideration | 38 | - |
| Divestment costs paid | (37) | (66) |
| Divestment of businesses (cash flow) | 599 | 889 |
____________________________________________________________________________________________________________
The Group completed no divestments from 1 July to 31 July 2022.
At 31 December 2021, five businesses were classified as held for sale comprising four countries (discontinued operations) and the waste management business in Hong Kong.
In H1 2022, we completed the divestment of three countries (Taiwan, Russia and Portugal) and the waste management business in Hong Kong. As a result, only Brunei remained classified as held for sale at 30 June 2022.
In H1 2022, divestment of businesses classified as held for sale at 31 December 2021 resulted in recognition of a net gain of DKK 293 million in profit or loss. The net gain was recognised in Other income and expenses, net (DKK 181 million (gain)) and Net profit from discontinued operations (DKK 112 million (gain)). Recycling of accumulated foreign exchange adjustments recognised in equity had a positive impact on the net gain of DKK 32 million, mainly related to Taiwan.
For interim periods, the Group's defined benefit obligations are based on valuations from external actuaries carried out at the end of the prior financial year taking into account any subsequent movements in the obligation due to pension costs, contributions etc. up until the reporting date. For interim periods, actuarial calculations are only updated to the extent that significant changes in applied assumptions have occurred. Based on an overall analysis carried out by management, it is determined whether updated actuarial calculations should be obtained for interim periods.
At 30 June 2022, the overall evaluation carried out by management resulted in updated actuarial calculations being obtained for Switzerland, the UK and Germany, due to market fluctuations, which had impacted interest rates, inflation rates and asset values. The updated calculations led to recognition of actuarial gains of DKK 1,233 million, which were largely offset by impact from loss on plan assets of DKK 868 million and asset ceiling of DKK 210 million. The net gain of DKK 155 million was recognised in other comprehensive income with a resulting decrease in the defined benefit obligation.
| (DKKm) | Legal and labour related cases |
Self insurance |
Restruc turings |
Onerous contracts |
Other | YTD 2022 | YTD 2021 |
|---|---|---|---|---|---|---|---|
| Provisions at 1 January | 237 | 261 | 375 | 330 | 513 | 1,716 | 1,926 |
| Foreign exchange adjustments | (3) | 13 | - | 6 | 10 | 26 | 13 |
| Additions | 11 | 74 | - | - | - | 85 | 133 |
| Used during the year | (25) | (79) | (163) | (167) | (49) | (483) | (407) |
| Unused amounts reversed | (10) | (2) | (5) | (19) | (9) | (45) | (90) |
| Reclass (to)/from other liabilities | - | (1) | (7) | - | - | (8) - |
226 - |
| Provisions at 30 June | 210 | 266 | 200 | 150 | 465 | 1,291 | 1,801 |
| Non-current | 36 | 129 | 94 | 71 | 261 | 591 | 294 |
| Current | 174 | 137 | 106 | 79 | 204 | 700 | 1,507 |
Restructurings Execution of restructuring projects initiated following Covid-19 continued in the first six months of 2022 and resulted in payments of DKK 163 million mainly in Germany, France and Spain.
Onerous contracts In H1 2022, the provision decreased DKK 180 million mainly due to the exit from the Danish Defence contract, which was completed by the end of May 2022.
In May 2022, ISS entered into an interest rate swap in order to reduce the fixed/floating split on our gross debt. A principal amount of EUR 300 million has been swapped from a fixed interest rate of 1.25% to a floating rate of currently (0.48)%. At 30 June 2022, fair value of the interest rate swap was DKK 10 million (negative).
The hedge qualifies as a fair value hedge as the risk being hedged is the possible change in the fair value of a recognised liability. The carrying amount of the hedged item is adjusted for fair value changes attributable to the risk being hedged, and those fair value changes are recognised in profit or loss. At 30 June 2022, fair value adjustments of DKK 16 million were recognised in profit or loss.
In the first six months of 2022, the Group received Covid-19 related grants to compensate costs related to e.g. employees on furlough, social security contribution and sick pay compensation mainly in Denmark, Hong Kong and Sweden. As the grants compensate costs already incurred, they are recognised as a reduction of staff costs.
| (DKKm) | YTD 2022 | YTD 2021 |
|---|---|---|
| Wage subvention | 22 | 309 |
| Sick pay compensation | 13 | 9 |
| Social security contribution | - | 5 |
| Other | - | 1 |
| Recognised in Staff costs | 35 | 324 |
| Hereof included in Other receivables as of 30 June | 13 | 56 |
Countries, where the cumulative three-year inflation exceeds 100%, are generally considered highly inflationary, and application of IAS 29 "Financial Reporting in Hyperinflationary Economies" must be considered. Based on monthly inflation data from the Turkey Statistical Institute, Turkey exceeded this threshold for the first time in February 2022. For the first six months of 2022, the inflation rate in Turkey was 42%. Consequently, ISS has implemented IAS 29 for the first time in this interim report with effect from 1 January 2022.
Under IAS 29, ISS is required to restate the accounting figures of the Group's subsidiary in Turkey to reflect the purchasing power at the end of the reporting period. This means that the income statement, equity and non-monetary items of the financial position are restated to reflect the purchasing power as at 30 June 2022. Monetary items such as receivables, payables, loans and borrowings are not subject to restatement as these items already reflect the purchasing power on 30 June 2022.
Furthermore, IAS 29 requires (in combination with IAS 21 "The Effects of Changes in Foreign Exchange Rates") that transactions of the Turkish subsidiary in Turkish lira for the reporting period shall be translated into DKK by using the exchange rate at 30 June 2022.
In accordance with the requirements of IAS 29, comparative figures have not been restated.
The table below shows the accounting impact of the hyperinflation restatements for the period 1 January - 30 June 2022:
| Inflation restatement | ||||||
|---|---|---|---|---|---|---|
| Non | Re | |||||
| YTD 2022 | monetary | translation | Total | YTD 2022 | ||
| (DKKm) | (excl. IAS 29) | items Profit or loss | (end rates) | adjustments | (reported) | |
| Statement of profit or loss | ||||||
| Revenue | 36,815 | - | 223 | (95) | 128 | 36,943 |
| Depreciation and amortisation | (756) | (26) | - | 2 | (24) | (780) |
| Other costs | (34,986) | - | (202) | 86 | (116) | (35,102) |
| Operating profit before other items | 1,073 | (26) | 21 | (7) | (12) | 1,061 |
| Other income and expenses, net | 180 | - | - | - | - | 180 |
| Amortisation of customer contracts | (31) | (4) | - | - | (4) | (35) |
| Operating profit | 1,222 | (30) | 21 | (7) | (16) | 1,206 |
| Financial income | 33 | 115 | (13) | - | 102 | 135 |
| Financial expenses | (291) | - | (7) | 6 | (1) | (292) |
| Profit before tax | 964 | 85 | 1 | (1) | 85 | 1,049 |
| Income tax | (216) | (35) | (1) | - | (36) | (252) |
| Net profit from continuing operations | 748 | 50 | - | (1) | 49 | 797 |
| Net profit from discontinued operations | 122 | - | - | - | - | 122 |
| Net profit | 870 | 50 | - | (1) | 49 | 919 |
| Statement of cash flows | ||||||
| Operating profit before other items | 1,073 | (26) | 21 | (7) | (12) | 1,061 |
| Depreciation and amortisation | 756 | 26 | - | (2) | 24 | 780 |
| Non-cash items related to hyperinflation | - | - | (21) | - | (21) | (21) |
| Other cash flow items | (474) | - | - | 8 | 8 | (466) |
| Cash flow from operating activities | 1,355 | - | - | (1) | (1) | 1,354 |
| Cash flow from investing activities | 194 | - | - | 2 | 2 | 196 |
| Cash flow from financing activities | (568) | - | - | - | - | (568) |
| Free cash flow (non-IFRS) | 643 | - | - | 1 | 1 | 644 |
| Financial ratios (%) | ||||||
| Organic growth (non-IFRS) | 6.72 | - | - | - | - | 6.72 |
| Operating margin | 2.91 | (0.07) | 0.06 | (0.03) | (0.04) | 2.87 |
| Inflation restatement | ||||||
|---|---|---|---|---|---|---|
| Non | Re | |||||
| YTD 2022 | monetary | translation | Total | YTD 2022 | ||
| (DKKm) | (excl. IAS 29) | items Profit or loss | (end rates) | adjustments | (reported) | |
| Statement of financial position | ||||||
| Goodwill | 19,869 | 596 | - | - | 596 | 20,465 |
| Customer contracts | 544 | 194 | - | - | 194 | 738 |
| Capitalised software | 883 | 2 | - | - | 2 | 885 |
| Property, plant and equipment and leases | 3,173 | 84 | - | - | 84 | 3,257 |
| Other assets | 20,875 | - | - | - | - | 20,875 |
| Total assets | 45,344 | 876 | - | - | 876 | 46,220 |
| Other comprehensive income | 268 | 768 | - | - | 768 | 1,036 |
| Other equity elements | 8,755 | 49 | - | - | 49 | 8,804 |
| Total equity | 9,023 | 817 | - | - | 817 | 9,840 |
| Deferred tax liabilities | 1,091 | 59 | - | - | 59 | 1,150 |
| Other liabilities | 35,230 | - | - | - | - | 35,230 |
| Total equity and liabilities | 45,344 | 876 | - | - | 876 | 46,220 |
Overall, the implementation of IAS 29 did not have a material impact on the Group's statement of profit or loss and cash flows, and consequently the effect on our three key KPIs was immaterial, i.e. organic growth (non-IFRS) and free cash flow (non-IFRS) were unchanged and operating margin decreased 4 bps.
On the other hand, the restatement for inflation significantly increased the Group's goodwill (DKK 596 million) and customer contracts (DKK 194 million) due to values carried from the acquisition of Rönesans in 2021 and the original acquisition in Turkey in 2005.
Furthermore, the Group's value of property, plant and equipment and leases increased moderately (DKK 84 million) due to the inflation restatement, which was based on assumed average useful lives of 3-5 years. As a result, depreciation and amortisation were recalculated, which led to higher costs in the profit or loss.
Equity increased DKK 817 million mainly as a result of the opening restatement of non-monetary items of DKK 768 million and the restatement effect from changes in the price index in the first six months of 2022.
The restatement of the Group's revenue had a net positive impact of DKK 128 million due to DKK 223 million stemming from the increase in the price index of 17% in the first six months of 2022, partly offset by the impact from re-translation to exchange rates at 30 June 2022 of DKK (95) million.
Operating profit before other items was negatively affected with DKK 12 million, as the inflation restatement of property, plant and equipment and leases led to higher depreciation and amortisation for the period (DKK 24 million). This more than offset the net positive impact from inflation restatement and re-translation.
Financial expenses, net was positively impacted by DKK 102 million reflecting the restatement of non-monetary items for the inflation development in the first six months and the offset of inflation restatement of profit or loss items in the same period.
Based on the above, and the resulting negative impact on Income tax of DKK 36 million, Net profit increased DKK 49 million for the first six months of 2022 as a result of the implementation of IAS 29.
____________________________________________________________________________________________________________
The impact on the Group's cash flow statement of the restatement for IAS 29 was insignificant.
Non-monetary items, which are carried at historical cost, such as goodwill, customer contracts and property, plant and equipment, including right-of-use assets and deferred tax, have been restated for the effect of inflation based on changes in the price index for the period from initial recognition to 30 June 2022 or to the date of disposal, where relevant. The restatement of non-monetary assets was made effective from the time, the items were initially recognised, which was no earlier than 2005, when ISS first entered Turkey through an acquisition.
When restating the non-monetary items, a monetary gain or loss occurred. The effect relating to the change in the price index for the reporting period has been recognised in the profit or loss under financial income except for the tax effect, which has been recognised under income tax. The effect relating to the period prior to 1 January 2022 has been recognised in other comprehensive income under equity.
Management has assessed whether the restatement of goodwill, customer contracts and property, plant and equipment, including right-of-use assets, represents an indication of impairment to ensure that the restated amounts do not exceed the recoverable amounts of the assets, see note 7, Goodwill impairment.
Monetary items such as receivables, payables, loans and borrowings are not subject to restatement for the effects of inflation as these items already reflect the purchasing power at the reporting date.
Equity includes the opening effect of restating non-monetary items. Further, the Turkish subsidiary has been restated for the effects of inflation based on the changes in the price index for the reporting period and recognised in other comprehensive income with set-off within financial income in the profit or loss.
Profit or loss All transactions in the period have been restated to reflect changes in the price index from the time of transaction to the end of the reporting period, with the exception of depreciation and amortisation. The latter have been recalculated based on the inflation-adjusted costs of intangible assets and property, plant and equipment, including right-of-use assets. The recalculation has been made based on the normal useful lives of the relevant assets based on the Group's accounting policy, cf. note 2.1 in the consolidated financial statements for 2021.
Cash flow statement Operating profit before other items includes a non-cash effect from the inflation restatement, which has been eliminated in the line Non-cash items related to hyperinflation.
Comparative figures Since the Group's functional currency, DKK, is a non-hyperinflationary currency, IAS 29 does not require restatement of comparative figures in the year of implementation. Consequently, comparative figures in this interim report have not been restated.
Restatement for hyperinflation of the accounting figures of the Turkish subsidiary has been based on the development in the consumer price index provided by the Turkish Statistical Institute.
The financial statements of the Turkish subsidiary, including effects of inflation restatement, have been translated into DKK applying the TRY/DKK exchange rate at the reporting date as opposed to the Group's normal practice of translating the profit or loss using the exchange rate at the transaction date or an average exchange rate for the month. The TRY/DKK exchange rate decreased from 50.53 at the beginning of 2022 to 42.95 at 30 June 2022. The average TRY/DKK exchange for the reporting period was 45.99.
Other than set out elsewhere in these condensed consolidated interim financial statements, we are not aware of events subsequent to 30 June 2022, which are expected to have a material impact on the Group's financial position. ____________________________________________________________________________________________________________
A conference call will be held on 11 August 2022 at 10:00 am CEST. Presentation material will be available online prior to the conference call.
DK: +45 7876 8490 SE: +46 4 0682 0620 UK: +44 203 7696 819 US: +1 646 787 0157
PIN Code for all countries: 283234
Link: https://streams.eventcdn.net/iss/interimreport-for-h1-2022/
Jacob Johansen, Head of Group Investor Relations Phone: +45 21 69 35 91 E-mail: [email protected]
Kristian Tankred, Senior Investor Relations Manager Phone: +45 30 67 35 25 E-mail: [email protected]
Kenni Leth, Global Press & Media Relations Phone: +45 38 17 66 21 E-mail: [email protected]
ISS A/S Buddingevej 197 DK-2860 Søborg Tel.: +45 38 17 00 00 Fax.: +45 38 17 00 11 www.issworld.com CVR 28 50 47 99
ISS is a leading, global provider of workplace and facility service solutions. In partnership with customers, ISS drives the engagement and well-being of people, minimises the impact on the environment, and protects and maintains property. ISS brings all of this to life through a unique combination of data, insight and service excellence at offices, factories, airports, hospitals and other locations across the globe. In 2021, Group revenue was DKK 71.4 billion.
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