ISS (ISS) Q2 2024 earnings summary

Executive summary

• Organic growth reached 5.9% in H1 2024, driven by price increases and volume growth, though below last year's 11.4%, with margin improvement to 4.0% (excluding hyperinflation), up from 3.6% year-over-year.

• Major contract wins include a 7-year DWP contract in the UK (DKK 1.2 billion) and a 5-year Barclays extension (over DKK 2 billion annual revenue), both supporting future growth.

• Share buyback program increased by DKK 250 million to DKK 1.25 billion, with S&P credit rating upgraded from BBB- to BBB.

• Retention remains strong at above 94%, despite some contract losses in the Americas, and the commercial pipeline is robust with significant opportunities in late-stage negotiations.

• Free cash flow was negative DKK 1.1 billion in H1, impacted by seasonality, working capital, and withheld payments from Deutsche Telekom.

Financial highlights

• Revenue rose to DKK 40,681 million in H1 2024, up 6.1% year-over-year.

• Operating margin improved to 4.0% (excluding hyperinflation), up from 3.6% in H1 2023, reflecting operational efficiencies.

• Net profit was DKK 869 million, reversing a loss of DKK 555 million in H1 2023; basic EPS was DKK 4.7.

• Price increases contributed 6.5% to organic growth, with Türkiye accounting for about half; volume growth added 1 percentage point.

• Free cash flow (excl. IAS 29): DKK -1,100 million, impacted by working capital and payment delays.

Outlook and guidance

• Full-year organic growth guidance narrowed to 5%-6% (from 4%-6%), with operating margin expected above 5% and free cash flow above DKK 1.8 billion.

• Margin expected to exceed 6% in H2, benefiting from operational improvements.

• Cash conversion target above 60% and continued focus on cost efficiencies.

• Negative, low double-digit organic growth expected in Americas in H2 due to contract losses.

• All financial targets for 2024 and beyond reiterated: organic growth 4-6%, operating margin >5%, cash conversion >60%.