ISS — Investor Presentation 2020

Aug 12, 2020

INVESTOR PRESENTATION

H1 2020 Results 12th August 2020

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 2019 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 2019 of ISS A/S is available at the Group's website, www.issworld.com.

H1 2020 RESULTS

Summary

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Business update - summary

H1 2020 has been one of the toughest periods in our 119 year history

The number one priority is the safety and wellbeing of people

Our decision to increase focus on key accounts has been further vindicated during COVID-19... … and the strength of our value proposition has become even more apparent

We have been widely recognised for our invaluable contribution. As such, we are confident that ISS will emerge from this crisis stronger than before

We remain a leading player in a large but highly fragmented industry with significant further opportunity to gain market share, deliver attractive growth and create sustained value for all our stakeholders

H1 2020 results - summary

Organic growth of -2.9% in H1 2020 (Q1: +4.1% / Q2: -9.9%) – sequential monthly improvement from April to June

Key Account organic growth of +2.2% in H1 2020 (Q1: +9.1% / Q2: -4.5%)

Negative impact from lock-downs partly offset by the demand for deep-cleaning and disinfection, resulting in low double digit organic growth in projects and above-base work (c. 15% of Group revenue in 2019)

Reported operating margin of -2.2% in H1 2020 (around 0% excl. restructuring and one-offs), impacted by:

• 1. Operating profit drop-through (around 25%) from lost revenue as a result of COVID-19
• 1. Operating performance and delays to key priorities driven by a significant redirection of resources as a result of COVID-19 and the IT malware attack.
• 1. Restructuring and one-offs of around DKK 0.8 billion
• FCF improved DKK 916 million year-over-year (H1 2019: DKK -2,646 million / H1 2020: DKK -1,730 million)
• FCF of DKK -1,730 million in H1 2020:
• 1. Working capital seasonality
• 1. Weak operating performance as a result of COVID-19 and the IT malware attack
• 1. Cash impact from reduced factoring utilisation of DKK 664 million
• 1. Partly offset by DKK 1.6 bn. in short-term benefits from postponed payment of VAT and social contributions offered under government support schemes
• Strong and improving liquidity. No financial covenants. No unaddressed debt until 2024
• Resolving the malware attack is progressing according to plan. We have regained control and relaunched business-critical systems across most operations
• Strategic divestment programme slowly regaining momentum following effectively being halted in H1 2020 due to COVID-19. Divestments covering remaining expected proceeds of DKK 1.1-1.6 bn. (out of the total DKK 2.0-2.5 bn.) expected to complete by 2021
• Commercial environment slowly reopening following a freeze during large parts of H1 2020 due to COVID-19. Increasing activity and solid pipeline
• Management change: Group CEO, Jeff Gravenhorst will retire and be succeeded by Jacob Aarup-Andersen effective 1 September 2020

Operating

margin

Resilient revenue through unprecedented turbulent times

Our strategic focus on Key Account customers (66% of revenue in H1 2020) has increased the quality of our revenue base, as evidenced by superior organic growth through both good and bad times

• While food services (15% of revenue in 2019) and Support Services (7% of revenue in 2019) have been severely impacted by COVID-19 as they are significantly volume driven….

• … most other services have remained resilient and are expected to be faster to ramp up as site reopen

• Contrary to any other historical economic downturn, projects and above base work has not declined – but rather increased

• While this part of the business has also been significantly impacted by lockdowns, it has been more than outweighed by the demand for deepcleaning and disinfection

Regional performance H1 2020

e p o r p u u o E r G al		+1% organic growth Q1 2020: +10% Q2 2020: -7%	• Growth driven by Deutsche Telekom and contract launches and price increases in Turkey… • …. as well as projects and above-base work (10% growth) due to deep-cleaning and disinfection • From Q2, this was offset by negative growth in the majority of countries as a result of COVID 19 lock downs, most significantly in France and Iberia… • … as well as the loss of a significant part of services delivered to Novartis as of 1 January 2020
f t o n % e n 9 ti 3 n o C		-2.6% operating margin(1) (H1 2019: 4.5%)	• Margins in all countries were impacted by COVID-19 – particularly Iberia, Germany and France • Reorganisation of France progressing but continues to be a drag on margins • Partly as a result of the significant redirection of resources on the back of COVID-19 and the malware attack, we have faced negative profitability impacts on Deutsche Telekom
e p o p u r u o r E G n f		-7% organic growth Q1 2020: -1% Q2 2020: -12%	• All countries to varying extents impacted by lock-downs – in particular Norway due to a high exposure to food services, hotels and airports • Norway and Denmark further impacted by a reduction in projects and above-base work as a result of system down-time following the IT malware attack • In the UK, negative COVID-19 impacts were partly offset by continued high demand for projects and above-base works – deep cleaning and disinfection in particular
r o e % h 2 rt 3 o N		-4.7% operating margin(1) (H1 2019: 4.0%)	• Margins in all countries were impacted by COVID-19 • Turnaround plan for the large loss-making contract in Denmark delayed due to COVID-19 and the IT malware attack • One-off costs in the UK related to risks identified in 2019, some of which had not been fully provided for in prior years

(1) Operating profit before corporate costs and 'other income and expenses' (but including restructuring)

Regional performance H1 2020

p c u fi o ci r G a f P o a % si 9 A 1		0% organic growth Q1 2020: +3% Q2 2020: -2%	• Growth in the demand for projects and above-base works (of around 30% organic growth) mainly as a result of the demand for deep-cleaning and disinfection • Additionally, Australia benefitted from solid commercial momentum with Key Accounts • This was offset by COVID-19 lock-downs across most countries which notably impacted Hong Kong and India
		3.8% operating margin(1) (H1 2019: 5.1%)	• All countries, except China, contributed to the decline in operating margins with COVID-19 being the main driver; especially within the Aviation and Food Services segments • In addition, the margin in China improvement as a result of the demand for deep-cleaning and disinfection… • … while Hong Kong was negatively impacted by an additional provision for the loss-making contract due to an expected extension by the client
p u s o a r c G ri f e o m % A 0 1		-11% organic growth Q1 2020: +2% Q2 2020: -24%	• Negative growth was principally driven by COVID-19 impacts through exposure to Aviation… • … as well as high exposure to Food Services (40% of regional revenue in 2019) • This was partly offset by the demand for project and above-base works related to deep cleaning and disinfection (around 45% growth)
		3.1% operating margin(1) (H1 2019: 3.9%)	• The margin decrease was driven by COVID-19 and it's significant impact on Food Services… • … which was partly offset by successful turnaround initiatives implemented over 2018-2019, including the exit of small legacy contracts and increased focus on Key Accounts as well as organisational efficiencies in general

(1) Operating profit before corporate costs and 'other income and expenses' (but including restructuring)

Commercial environment slowly reopening following COVID-19 freeze

⁽¹⁾ Key Accounts generating revenue above DKK 200m annually

H1 2020 RESULTS

Business Update

"As one of the world's largest private employers we will, as a responsible company, remain committed to high social standards" •

"

Our focus has put us in a good position to manage COVID-19

• With focus on Key Accounts and C-suite access, ISS currently takes on a central role in the business continuity plans of thousands of clients around the world
• Our unmatched self-delivery of services by more than 400,000 employees across the world enables us to help clients react swiftly and consistently across services, sites and countries
• We have a resilient customer mix with limited exposure to segments particularly hard hit by COVID-19…
• … and a balanced service portfolio focused predominantly on services where the level of activity is linked mainly the facility (e.g. property services and cleaning) and less to the number of end-users (e.g. food services)

(1) Share of Group revenue in H1 2020

Adapting to support clients through challenging times

PURE SPACE Taking cleaning standards to new levels BACK TO WORK

Contamination fears have created insecurities and health risks for our clients. To further support clients, ISS has developed PURE SPACE

Users at the core: processes and procedures designed from the end users perspective and verified by a third party

Highest hygiene standards: processes are carried out by certified ISS professional which are designed to reduce infection by focus on hightouch surfaces

Disinfection: infection sources are reduced using carefully selected tools and chemicals

Confidence: ATP technology1 scientifically measures disinfection quality providing transparency to the user

Global impact: PURE SPACE has been implemented globally ensuring consistency and unifying users experiences

BACK TO WORK Helping manage clients' safe workplace return

While most of the world is still in lock-down, we are planning and supporting clients in their safe return to the workplace

Workplace:

• Revisit workplace design and layout
• Monitor and support end-user health and well-being
• Building access management from a health and safety perspective

Cleaning:

• Deep-cleaning prior to reopening of the workplace
• Switch from "night OR day cleaning" to "night AND day cleaning"
• Recurring disinfection of high-touch areas (handrails, door handles, buttons etc.)
• Ensure end-user visibility of cleaning/ hygiene services

Food services:

• Change of lunch setup (e.g. portion-by-portion serving vs. buffet)
• Implementation of individual end-user designated lunch slots

The workplace has changed over many years – and so has ISS

The role of the workplace has been changing for many years

From a place to 'store employees'…

• Inefficient use of space
• Demotivating environment
• Inflexible seating
• Basic facility services needs

… to a place that drives culture, motivation and efficient teams

• Modern workplace
• Dynamic and flexible layout
• Increased flexible/remote working arrangements
• Increased focus on health and well-being
• Collaboration areas and informal break-out zones
• Increased FM capability and scope requirements

Acquisition of SIGNAL in 2017

• Existing workplace management capabilities strengthened further with the acquisition of Signal in 2017
• Global workplace management centres of excellence located in London, Copenhagen and Oslo
• Workplace Management Executives today take part in e.g. customer bids, proactive consultations with clients and performing workplace management projects across the world

Perceived benefits and challenges of remote working (survey results)

ISS is benefitting from key trends in the workplace

• Transportation & Infrastructure
• Pharmaceuticals
• Energy and Resources
• Food and beverage production

Estimated share of Group revenue

• Public Administration (excl. Schools and Defence etc.)
• Limited administrative buildings for certain other customer segments

Well positioned to capitalise on opportunities

While we face challenges, we also see opportunities on the back of COVID-19

• Improved awareness of the role of facility services in business continuity plans when the unforeseen happens

• Further evidence of the value in integration, self-delivery and global reach in effectively managing large key account customers' risks across services, sites and countries

• Acceleration in the trend for holistic Workplace Management as a service – including focus on health, safety and wellbeing

• Changing perception and increased demand for cleaning services provisioning employee safety

Awareness Perception Penetration

Gradually increasing outsourcing penetration supported further by:

• Further professionalisation of customer needs
• Incremental customer demand for outsourcing to help drive efficiencies
• Further drive for integration of self-delivered facility services

Proven agility, flexibility and responsiveness… …to effect changes in operational demands by our key clients and ensure business continuity

H1 2020 RESULTS

Financials

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Revenue growth in H1 2020

(1) Launch of Deutsche Telekom (Jul 2019) and the loss of Novartis (Jan 2020)

Operating profit

H1 2019	Key drivers	H1 2020
Reported Margin	1. Reduction in revenue • Total revenue growth -5.2% • Organic growth of -2.9% including a COVID-19 impact of around -8%	Reported Margin -2.2%
3.7% Operating profit DKK 1.4 bn.	2. Operating profit drop-through (around 25%) from lost revenue as a result of COVID-19 (estimated at around DKK -0.8 bn)	Operating profit DKK -0.8 bn.
	3. Operating performance and delays to a number of key operating priorities driven by a significant redirection of resources as a result of COVID-19 and the IT malware attack (estimated at around DKK -0.6 bn)	Adjusted1) Margin 0%
	4. Restructuring and one-offs of around DKK -0.8 bn covering among others restructuring and provisions, as well as full coverage of identified risks in the UK	Operating profit DKK 0 bn.

(1) Excl. restructuring and one-offs

Income statement

				DKK million	H1 2020	H1 2019
DKK million	H1 2020	H1 2019	Δ	Gain on divestments	19	-
Revenue	35,927	37,886	(1,959)	Other Income	19	-
				IT security incident	(779)	-
Operating expenses	(36,712)	(36,468)	(244)	Winding up of businesses	(18)	-
Operating profit before other items	(785)	1,418	(2,203)	Loss on divestments	(16)	(48)
Other income and expenses, net	(795)	(53)	(742)	Acquisition and integration costs	(1)	(5)
Operating profit	(1,580)	1,365	(2,945)	Other expenses	(814)	(53)
Financial income and expenses, net	(288)	(327)	39	Other income and expenses, net	(795)	(53)
Profit before tax	(1,868)	1,038	(2,906)
Income taxes	(233)	(260)	27	•	Financial income and expenses decreased DKK 40m as a result of reduced interest rate spreads and lower EUR/USD swaps during H1 2020
Net profit (adjusted) from continuing operations	(2,101)	778	(2,879)
Goodwill impairment(1)	(416)	(144)	(272)	•	Effective tax rate of -12.5% (H1 2019: 25%) negatively impacted by significant valuation allowances on deferred tax assets, interest limitations
Amortisation and impairment of brands and customer contracts	(48)	(168)	120	and other non-deductible costs
Income tax effect	7	36	(29)
Net profit from continuing operations	(2,558)	502	(3,060)		• Goodwill impairment related to France (DKK 400m) resulting from the reassessment of business plans following COVID-19
	(119)	(100)	(19)
Net loss from discontinued operations

Net profit (adjusted)	(2,220)	822	(3,042)
Adjusted EPS, DKK(2)	(12.0)	4.4	(16.4)
Net profit (adjusted) from continuing operations	(2,558)	502	(3,060)
Adjusted EPS from continuing operations, DKK(3)	(11.3)	4.2	(15.5)

(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)

Free Cash Flow in H1 2020

1) Definition post IFRS16 implementation: Cash flow from operations + cash flow from investments – cash flow from acquisitions/divestments, net – additions/disposals from leased assets

2) Other contains other expenses paid and share-based payments

3) CAPEX and Additions to leased assets, net

Free Cash Flow development year-over-year

1) Definition post IFRS16 implementation: Cash flow from operations + cash flow from investments – cash flow from acquisitions/divestments, net – additions/disposals from leased assets

2) Other contains other expenses paid and share-based payments

3) CAPEX and Additions to leased assets, net

Capital structure and allocation

Higher leverage driven by short-term reduction in EBITDA

Capital allocation update

• Our clear objective remains to maintain an investment grade financial profile with a financial leverage below 2.8x pro forma adjusted EBITDA
• ISS has no financial covenants
• While net debt has been reduced y/y, leverage is currently significantly impacted by lower operating performance. As such, leverage is expected to peak in 2020, but is also expected to reduce sharply during 2021 as operating performance normalises and divestments complete
• According to our ordinary dividend pay-out ratio of 'approximately 50% of Net profit (adjusted)2 we are unlikely to pay a dividend in 2021 on the back of results for 2020

• Given the current turbulent situation, we will not consider potential extraordinary returns until our leverage target is within reach

• 1) EBITDA adjusted for one-offs and restructuring

• 2) Net profit from continuing operations excl. Goodwill impairments and Amortisation/impairment of brands and customer contracts

4.3x

H1 2020 RESULTS

Outlook 2020

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Uncertainty remains high as we reinitiate the outlook for 2020

All ISS countries to varying extends impacted by workplace restrictions in H1 2020

Uncertainty remains high with >90% of revenue generated from countries still impacted by workplace restrictions1)

1) University of Oxford COVID-19 Government Response Tracker

Outlook 2020

	e g n a d-r Mi		High-case of -2%: Strong recovery incl. catch-up on new sales. Continued high demand for projects and above-base work throughout H2 2020.
Organic Growth		-6% to –8%	 Contribution from Deutsche Telekom (+4% in H1 2020) lapsed at 30 June 2020 (launched 1 July 2019)  Organic growth momentum from June 2020 at around -10% excl. Deutsche Telekom is assumed broadly similar on average throughout H2 2020. While further customer sites are expected to reopen, we also remain cautious with regards to potential local second wave impacts as well as the sustainability of the strong demand for projects and above-base work in H1 2020
			Low-case of -10%: Global COVID-19 second wave scenario incl. impacts from clients initiating larger scope adjustments
Operating Margin1)	e g n a d-r Mi (	"Marginally positive excl restructuring and one-offs" (H1 2020: 'Around 0%')	 H2 2020 is expected to improve compared to H1 2020 (H1 2020: 'Around 0%' excl. restructuring and one-offs)…  … supported by seasonal margin improvement…  … as well as gradual freeing up of resources allowing us to slowly start catching up on operational delays and challenges  Broadly stable drop-rate at around 25% Outlook excludes restructuring and non-cash one-offs 2020: 'around 0 8 bn) , which are likely in H2 2020 but uncertain (H1 DKK too , forecast this point to at
			High-case of DKK –0.5 bn.: 'High-case organic growth scenario' including stronger performance on collections. Margin above our base-case.
Free Cash Flow	e g n a d-r Mi	"Around DKK -2 bn." (H1 2020: DKK -1.7 bn)	 Reduction in operating performance mainly as a result of COVID-19  No postponed VAT and social contribution by the end of the year (30 June 2020: DKK 1.6 bn. postponed)  Strict supplier payment discipline in order to support a healthy payment environment in the midst of COVID-19  Slight reduction in factoring reflecting especially the loss of Novartis
			Low-case of DKK –3.5 bn.: 'Low-case organic growth scenario' leading to increasing delays in collections. Margin below our base-case.

(1) 'Operating profit before other income and expenses'

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Q&A

H1 2020 RESULTS

INVESTOR PRESENTATION

Appendix

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IT malware cost phasing

Profit & Loss
DKKm	H1 2020	H2 2020	FY 2020	FY 2021	Total
Operational costs	436	50-100	Around 500	-	Around 500
Write-downs	343	-	343	-	343
Total P&L expenses	779	50-100	Around 850	-	Around 850

DKKm	H1 2020	H2 2020	FY 2020	FY 2021	Total
Other expenses paid + CAPEX	Around 150	Around 250-450	Around 400-600	Around 150-350	Around 750