post-results note iss buy 2013 2014 2015e 2016e 2017e · *price as at 11:45 cet 27 august 2015 †...

1 | ISS Buy www.danskemarketsequities.com

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Equity Research

Investment Research

27 August 2015

ISS Buy

(Previous: Hold)

Building momentum – but FX headwind ahead

Support Services, Denmark

Key data

Price performance

1M 3M 12M 5Y

Source: FactSet

Estimate changes 15E 16E 17E

Source: Danske Bank Markets estimates

*Price as at 11:45 CET 27 August 2015

† Includes dividends

Another solid ISS report. Strong organic sales growth (4.8%), raised FY

guidance (3.5-4.5% from 2-4%) and a flow of IFS/GCC contracts into 2016 are

encouraging. The main negative is a recent FX headwind that means we trim

estimates by c.2%. We continue to see a growing yield case offering good

returns with potential share buy backs from H2 16. Rating lifted to Buy.

Implications for investment case. ISS continue to build credibility. Q2 15

showed improvements in sales, profitability and cash flow - again. FY guidance

has been raised more than we expected following good growth in major markets

led by IFS (+10%) and GCC (+13%) contracts. Organic revenue growth was 4.8%

vs. cons of 3.1%. More contracts should ramp up throughout the rest of 2015.

Estimate changes. ISS now expect organic sales growth of 3.5-4.5% (up from 2-

4%) for 2015 and an EBIT margin above 5.6% (unchanged). We lift our organic

growth estimate to 4.1% from 3.6% and we expect the current 3.2% consensus

estimate to rise. Our FY15E EBIT margin is unchanged at 5.7%. Although we

raise slightly our underlying estimates, FX movements over the past two weeks

lead us to cut our EPS estimates by c.2% for the coming years.

Yield case intact. We see a net debt to EBITDA of 2.2x at end-2015, declining to

1.9x at end-2016. We believe that ISS, assuming no excessive acquisitions, could

initiate share buy backs from 2017 at the latest (potentially in H2 2016) – implying

a potential total yield from 2017 of some 5%.

Valuation. Our 12-month TP is unchanged DKK260. At our target price, ISS

would trade broadly at a slight discount to its peers.

Key financials

Important disclosures and certifications are contained from page 12 of this report.

Post-results note

Price (DKK) * 233

Target price, 12 mth (DKK) † 260

Market cap (DKKm) 43,261

Market cap (EURm) 5,796

Reuters ISS.CO

Bloomberg ISS DC

No. of shares (m) 185.7

Net debt (current Y/E) (m) 11,051

Free float 100.0%

Avg. daily vol, 12M (000) 763.7

150160170180190200210220230240250

Aug 14 Nov 14 Feb 15 May 15 Aug 15

ISS.CO FTSE EU 300/Support Services rebased

Absolute -0% -2% 32% n.a.

Rel. local market 9% 6% 12% n.a.

Rel. EU Sector 10% 9% 14% n.a.

Sales -0.3% -1.8% -1.8%

EBITDA -0.4% -2.0% -2.0%

EBIT (adj.) 0.1% -1.9% -1.9%

EPS (adj.) 0.1% -2.1% -2.2%

Next event

Q3 18-NovYear-end Dec (DKK) 2013 2014 2015E 2016E 2017E

Revenues (m) 78,459 74,105 79,231 80,550 83,619

Revenues growth -1.3% -5.5% 6.9% 1.7% 3.8%

EBITDA (m) 5,002 4,722 5,114 5,230 5,457

EBIT, adj. (m) 4,315 4,150 4,490 4,560 4,757

EBIT growth -2.2% -3.8% 8.2% 1.6% 4.3%

Pre-tax profit (m) 293 1,658 2,931 3,096 3,295

EPS (adj.) 8.30 12.3 14.3 14.9 15.6

DPS 0.00 4.90 6.73 7.04 7.41

Dividend yield 2.8% 2.9% 3.0% 3.2%

FCF yield 4.7% 5.6% 5.6% 6.0%

EBIT margin (adj.) 5.5% 5.6% 5.7% 5.7% 5.7%

Net debt/EBITDA (x) 4.2 2.6 2.2 1.9 1.6

ROIC 9.9% 10.4% 11.4% 11.7% 12.4%

EV/sales (x) 0.6 0.7 0.7 0.6

EV/EBITDA (x) 9.3 10.3 9.9 9.2

EV/EBIT (adj.) (x) 10.9 12.1 11.7 10.9

P/E (adj.) (x) 14.5 16.3 15.7 14.9

P/BV (x) 2.6 3.1 2.9 2.7

Source: Company data, Danske Bank Markets estimates

Analyst(s)

Poul Ernst Jessen

+45 45 12 80 48

[email protected]


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Table 1. ISS: Deviation table (DKKm)

DEVIATION: ACTUAL VS EXPECTED

Q2 15 Q2 15E Deviation Cons. Deviation Q2 14

Net sales 20206 20042 1% 19787 2% 18397

Personnel 13214 13520 -2% 12416

Other Opex 5736 5273 9% 4842

EBITDA adj 1256 1248 1% 1238 1% 1139

Depreciation 356 360 -1% 0 334

PPA adj EBIT 1067 1052 1% 1043 2% 956

Non-recurring items -44 -30 -36 -29

EBIT 856 858 0% 798

Ass. Income 0 0 0 0

Net financial items -164 -170 -178 -218

Pre-tax profit 692 688 1% 354

Taxes 213 206 0 180

Minorities 2 0 0 0

Net earnings 479 482 -1% 459 4% 378

PPA adj. net income 601 627 -4% 582 3% 558

Sales growth (y/y) 9.8 % 8.9 % 7.6% -3.8 %

Organic growth (y/y) 4.8 % 3.4 % 3.1% 2.0%

EBITDA adj. 6.2 % 6.2 % 6.3 % 6.2 %

EBIT PPA adj. margin % 5.3 % 5.3 % 5.3 % 5.2 %

Source: Company data, company-collected consensus, Danske Bank Markets estimates

Q2 headlines

An organic growth of 4.8% y/y is the highest since Q4 2013, and beat expectations

of 3.4% (DME) and 3.1% (consensus). In our view the outperformance was a

consequence of the ramp up of new contracts like Vattenfall, Bankia and

Swisscom which had a larger than expected impact. Versus our model Western

Europe (+5% y/y) and Asia (+10%) were the positive surprises. In general, ISS still

lacks macroeconomic tailwind especially in the European markets. We expect

some tailwind throughout 2015 and into 2016.

ISS has signed some larger contracts to ramp up throughout 2015. These include

Danske Bank (from Q4), UBS and Huawei (both in from H1). The loss of Statoil in

Q2 2014 should also support organic growth in H2 in the Nordics.

The EBIT margin improved 10bp y/y to 5.3% in line with guidance for FY.

The operating cash flow before NWC changes improved 28% to DKK861m while

the free cash flow before M&A improved 52% to DKK617m. Cash flow is typically

strongest in Q4.


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Chart 1. NWC changes – 2011-2015E (DKKm) Chart 2. FCF excl M&A – 2011-2015E (DKKm)

Source: Danske Bank Markets estimates and the company

Net interest bearing debt at Q2 15 was down DKK0.7bn y/y to DKK14.0bn.

Including pension liabilities there was an increase of DKK0.1bn. Net debt to

EBITDA is down 0.1x to 3.1x including pensions but down 0.2x to 2.8x excluding

pensions.

Chart 3. Net debt to EBITDA (incl. pension liabilities)

Source: Company data, Danske Bank Markets

2015 financial guidance increased slightly

Table 2. ISS: financial guidance

2014 2015

Mar-15 May-15 Aug-15

DBM

estimate

(median)

Consensus

Sales - organic growth 2.5% 2-4% 2-4% 3-5-4.5% 4.1% 3.2%

Sales – reported growth -5.6% 5-7% 5-8% 6.5%-8.5% 7.6% 6.3%

EBIT margin 5.6% >5.6% >5.6% >5.6% 5.7% 5.7%

Source: Company data, Danske Bank Markets (post Q1), SME Direkt collected consensus estimates (pre Q2)

ISS increased its FY15 organic sales growth guidance slightly and left its EBIT margin

guidance unchanged.

Valuation

We leave our DKK260 12-month TP unchanged – no major changes to our model. At

our target price the gap to peers would be reduced to 5-10% by most measures. Our

target price reflects an upside of c.12%. We see potential for the initiation of share

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

2011 2012 2013 2014 2015

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013 2014 2015

6.1 6.1 6.1 5.9 6.0 6.1

5.4 5.2 5.0 4.94.6 4.6

3.1 3.2 3.32.9

3.1 3.1

0

1

2

3

4

5

6

7

Q1 1

1

Q2 1

1

Q3 1

1

Q4 1

1

Q1 1

2

Q2 1

2

Q3 1

2

Q4 1

2

Q1 1

3

Q2 1

3

Q3 1

3

Q4 1

3

Q1 1

4

Q2 1

4

Q3 1

4

Q4 1

4

Q1 1

5

Q2 1

5


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buybacks from H2 2016 which would increase the total cash return to a little more

than 5%.

Table 3. Peer multiple valuation

Ticker Price

Market

cap

(DKKm) Dividend Yield Cash flow yield EV/EBIT P/E EV/NOPLAT Ebit Margin % Sales

2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E CAGR

Primary multi service peers

Aramark ARMK US 31.1 45,586 1.1% 1.3% 1.4% 3.4% 5.1% 5.8% 16.1 14.3 13.4 20.2 17.9 16.2 24.0 22.2 5.7% 6.0% 6.0% 1.5%

Compass CPG LN 10.2 147,251 2.8% 3.0% 3.3% 7.3% 7.8% 8.7% 15.0 14.4 13.2 18.9 17.9 16.3 20.2 19.1 17.5 7.3% 7.3% 7.5% 4.4%

Coor COOR SS 30.2 2,490 4.6% 6.3% 6.9% 4.1% 14.3% 13.8% 18.3 14.3 11.9 10.3 8.8 8.5 23.8 18.6 16.4 2.9% 3.4% 3.8% 5.0%

Elior ELIOR FP 17.7 22,724 4.3% 5.7% 6.5% 13.8 12.2 11.0 20.0 17.2 15.0 24.8 20.9 18.5 5.7% 6.0% 6.3% 6.5%

Sodexo SW FP 78.7 92,274 2.7% 3.0% 3.3% 5.7% 6.3% 6.9% 11.5 10.1 9.2 19.3 17.3 16.0 18.4 16.2 14.7 5.7% 5.9% 6.0% 6.0%

Average 2.8% 3.4% 3.7% 5.0% 7.8% 8.3% 14.9 13.1 11.8 17.7 15.8 14.4 21.8 19.6 16.9 5.4% 5.7% 5.9% 4.7%

Median 2.8% 3.0% 3.3% 4.3% 6.3% 6.9% 15.0 14.3 11.9 19.3 17.3 16.0 22.1 20.0 17.5 5.7% 6.0% 6.0% 5.0%

Security companies

G4S GFS LN 26.0 40,097 4.0% 4.3% 4.5% 4.9% 6.0% 6.7% 12.7 11.9 10.9 16.2 14.6 13.2 23.8 18.6 16.4 6.3% 6.4% 6.5% 6.5%

Prosegur PSG SM 4.3 19,791 2.9% 3.1% 3.4% 7.0% 7.5% 8.9% 9.4 8.3 7.3 13.3 12.0 10.3 14.6 13.1 11.6 8.5% 9.0% 9.2% 5.7%

Securitas SECUB SS 108.4 34,055 3.2% 3.4% 3.8% 6.3% 6.9% 7.5% 13.4 12.3 11.1 14.5 13.8 13.0 19.2 17.6 15.8 4.7% 4.8% 5.1% 7.7%

Average 3.4% 3.6% 3.9% 6.1% 6.8% 7.7% 11.8 10.8 9.7 14.7 13.4 12.1 19.2 16.4 14.6 6.5% 6.7% 6.9% 6.6%

Service companies

MITIE MTO LN 2.9 9,317 4.2% 4.4% 4.7% 7.5% 8.1% 9.2 8.3 7.6 11.5 10.7 10.1 12.6 11.0 5.5% 5.7% 5.8%

Rentokil RTO LN 1.5 23,531 1.9% 2.0% 2.3% 5.3% 5.9% 14.7 13.9 12.6 17.9 16.3 15.0 19.1 18.3 16.7 13.3% 13.4% 13.8% 0.2%

Serco SRP LN 1.1 9,291 0.0% 0.1% 0.0% 17.7 20.1 17.0 44.7 44.6 32.4 39.5 48.4 23.5 2.6% 2.6% 3.0% -7.3%

Average 2.0% 2.2% 2.3% 7.5% 6.7% 5.9% 13.9 14.1 12.4 24.7 23.9 19.2 23.7 25.9 20.1 7.1% 7.2% 7.5% -3.6%

ISS 233 43,298 2.9% 3.0% 3.2% 6.0% 5.9% 6.3% 12.1 11.7 10.9 16.3 15.7 14.9 15.7 15.1 14.2 5.7% 5.7% 5.7% 4.1%

Dev to multi-service -4% -1% 3% -29% 6% 9% -19% -18% -8% -15% -9% -7% -29% -24% -19%

Source: Danske Bank Markets. Factset (ISS price as at 11:45 CET, 27 August, remainder price as at close 26 August)

Our DCF model indicates a value per share of DKK280 (current value) using a WACC

of 5.7% and a sales growth of 4% p.a. An increase in the WACC of 1pp would reduce

the DCF value to DKK232.

Risks

The main risks to our model and 12M TP include the general macroeconomic

conditions, the management’s ability to secure organic growth through, for example,

more IFS and GCC contracts and to improve profitability. Larger acquisitions could

affect market sentiment negatively.


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Table 4. ISS : Key financials (DKKm)

Profit & Loss

DKKm 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Revenue 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619 86,710

Staff costs 47,990 50,089 52,071 51,234 48,849 51,753 52,645 54,635 56,650

Cost of sales 6,359 6,751 7,009 6,949 6,413 6,901 7,020 7,286 7,554

Other operating expenses 14,607 15,561 15,110 15,174 13,961 15,300 15,505 16,091 16,684

EBITDA 5,117 5,243 5,264 5,102 4,882 5,277 5,380 5,607 5,822

Depreciation and amortisation 850 855 853 787 732 787 820 851 882

Operating profit before other items 4,267 4,388 4,411 4,315 4,150 4,490 4,560 4,757 4,939

Non-recurring items -118 -223 -308 -100 -160 -163 -150 -150 -150

Operating profit 4,149 4,165 4,103 4,215 3,990 4,327 4,410 4,607 4,789

Share of result from associates 10 0 4 6 0 0 0 0 0

Net finance costs -2,368 -2,802 -2,726 -2,276 -1,296 -734 -659 -656 -653

Profit before tax 1,791 1,363 1,381 1,945 2,694 3,593 3,752 3,951 4,137

Tax 760 888 960 919 878 1,096 1,138 1,197 1,253

Minorities -20 -7 -3 -2 -3 -2 0 0 0

Net profit 1,011 468 418 1,024 1,813 2,496 2,614 2,753 2,884

Adj for non-recurring items 160 163 150 150 150

Adj for normalised net finance 562 0 0 0 0

Tax -235 -50 -45 -45 -45

Adj net profit 2,300 2,609 2,718 2,858 2,988

Special items

Goodwill impairment and write-down 938 501 385 985 448 6 0 0 0

PPA related amortisation 869 708 679 667 588 656 656 656 656

Tax impact 244 231 193 229 234 166 164 164 164

Total 1,563 978 871 1,423 802 497 492 492 492

Reported net profit -552 -510 -453 -399 1,011 1,999 2,122 2,261 2,392

Revenue breakdown

Nordic 17,301 18,085 17,736 16,853 15,449 14,715 14,821 15,266 15,724

Western Europe 39,121 39,321 39,414 39,704 37,318 40,716 41,322 42,768 44,265

Eastern Europe 1,602 1,641 1,605 1,657 1,597 1,589 1,572 1,586 1,600

Asia 5,401 6,090 7,367 8,019 8,221 9,827 10,497 11,213 11,867

Pacific 5,018 5,525 6,007 5,105 4,444 4,517 4,304 4,476 4,655

North America 2,625 3,369 3,539 3,459 3,477 4,197 4,328 4,544 4,771

Latin America 3,070 3,648 3,820 3,708 3,597 3,652 3,747 3,808 3,871

Group 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619 86,710

Organic growth

Nordic 4.0% 4.0% -1.0% 0.5% 2.0% 2.4% 3.0% 3.0% 3.0%

Western Europe 1.0% 4.0% 1.0% 4.7% 0.3% 3.5% 3.5% 3.5% 3.5%

Eastern Europe 0.0% 2.0% -1.0% 4.6% -0.5% 1.6% 2.0% 4.0% 4.0%

Asia 12.8% 11.5% 15.3% 15.1% 8.3% 8.5% 9.0% 9.0% 8.0%

Pacific 8.0% 3.0% 0.0% -0.6% 9.8% 6.5% 3.0% 4.0% 4.0%

North America -0.6% 34.7% -2.9% 1.7% 1.3% 1.8% 5.0% 5.0% 5.0%

Latin America 28.8% 20.7% 7.1% 6.7% 9.8% 5.8% 8.0% 7.0% 7.0%

Group 3.5% 6.3% 1.7% 4.3% 2.5% 4.1% 4.3% 4.4% 4.3%

EBITA breakdown

Nordic 1,228 1,268 1,190 1,246 1,153 1,127 1,134 1,168 1,203

Western Europe 2,278 2,268 2,407 2,388 2,310 2,613 2,603 2,694 2,789

Eastern Europe 113 112 102 109 109 108 102 103 104

Asia 407 486 564 608 603 713 808 863 914

Pacific 333 358 311 253 220 241 219 224 233

North America 132 116 151 101 125 158 164 186 196

Latin America 178 215 91 145 173 170 180 190 194

Corporate -402 -434 -404 -534 -542 -650 -670 -690 -711

Group 4,267 4,389 4,412 4,316 4,151 4,479 4,542 4,739 4,921

EBITA margin

Nordic 7.1% 7.0% 6.7% 7.4% 7.5% 7.7% 7.7% 7.7% 7.7%

Western Europe 5.8% 5.8% 6.1% 6.0% 6.2% 6.4% 6.3% 6.3% 6.3%

Eastern Europe 7.1% 6.8% 6.4% 6.6% 6.8% 6.8% 6.5% 6.5% 6.5%

Asia 7.5% 8.0% 7.7% 7.6% 7.3% 7.3% 7.7% 7.7% 7.7%

Pacific 6.6% 6.5% 5.2% 5.0% 5.0% 5.3% 5.1% 5.0% 5.0%

North America 5.0% 3.4% 4.3% 2.9% 3.6% 3.8% 3.8% 4.1% 4.1%

Latin America 5.8% 5.9% 2.4% 3.9% 4.8% 4.6% 4.8% 5.0% 5.0%

Corporate (as % of revenue) -0.5% -0.6% -0.5% -0.7% -0.7% -0.8% -0.8% -0.8% -0.8%

Group 5.8% 5.7% 5.6% 5.5% 5.6% 5.7% 5.6% 5.7% 5.7%

Deviations to the front page and key financials relate to ISS’s use of PPA adjusted numbers



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Table 5. ISS - key financials

Source: Danske Bank Markets estimates and the company

P ro f it & Lo ss

D KKm Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E

Revenue 19,545 20,097 19,143 19,674 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076

Staff costs 13,114 13,357 12,384 12,379 12,342 12,416 11,688 12,403 12,917 13,214 12,568 13,054

Cost o f sales 1,692 1,838 1,687 1,732 1,583 1,593 1,558 1,679 1,686 1,773 1,675 1,767

Other operating expenses 3,684 3,678 3,659 4,153 3,361 3,249 3,804 3,547 3,513 3,963 4,090 3,733

EBITDA 1,055 1,224 1,413 1,410 965 1,139 1,360 1,418 1,034 1,256 1,466 1,522

Depreciation and amortisation 200 196 199 192 194 209 199 51 197 189 195 212

Operating profit before other items 855 1,028 1,214 1,218 771 930 1,161 1,367 837 1,067 1,271 1,310

Special items -57 94 48 -185 -104 -29 20 -47 -19 -44 -50 -50

Operating profit 798 1,122 1,262 1,033 667 901 1,181 1,320 818 1,023 1,221 1,260

Share of result from associates 0 2 4 0 1 0 0 -1 0 0 0 0

Net finance costs -444 -713 -543 -576 -558 -218 -248 -272 -216 -164 -170 -184

Profit before tax 354 411 723 457 110 683 933 1,047 602 859 1,051 1,076

Tax 120 245 397 157 51 223 299 380 182 254 306 352

M inorities -1 0 0 -1 -1 0 -1 -1 -1 -2 -1 2

Net profit 233 166 326 299 58 460 633 666 419 603 743 726

Special items

Goodwill impairment and write-down 63 25 347 550 0 0 0 448 0 0 0 0

PPA related amortisation 136 125 130 276 136 125 130 276 164 167 167 158

Tax impact 36 44 32 117 44 43 41 181 41 41 41 41

Total 163 106 445 709 92 82 89 543 123 126 126 117

Net profit 70 60 -119 -410 -34 378 544 123 296 477 617 609

D KKm

R evenue breakdo wn Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E

Nordic 4,314 4,363 4,058 4,118 3,835 3,996 3,750 3,868 3,578 3,751 3,558 3,817

Western Europe 9,696 10,156 9,704 10,148 9,290 9,258 9,259 9,511 9,759 10,376 10,214 10,351

Eastern Europe 399 415 421 422 373 401 408 415 357 404 404 409

Asia 1,913 2,051 2,028 2,027 1,937 1,979 2,069 2,236 2,392 2,518 2,464 2,434

Pacific 1,423 1,311 1,168 1,203 1,142 1,045 1,118 1,139 1,129 1,167 1,122 1,070

North America 871 859 882 847 833 828 878 938 990 1,036 1,096 1,071

Latin America 941 956 896 915 853 900 926 918 946 949 951 934

Group 19,545 20,097 19,143 19,674 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076

Organic Gro wth

Nordic -1.0% 0.0% 1.0% 2.0% 1.0% 3.0% 1.0% 3.0% 1.0% 1.0% 3.0% 4.5%

Western Europe 3.0% 5.0% 6.0% 5.0% 1.0% -1.0% 1.0% 0.0% 2.0% 5.0% 3.0% 4.0%

Eastern Europe 0.0% 5.0% 7.0% 6.0% -3.0% -1.0% -1.0% 3.0% 1.0% 4.0% 1.0% 0.5%

Asia 13.0% 15.0% 16.0% 15.0% 13.0% 8.0% 5.0% 7.0% 8.0% 10.0% 8.0% 8.0%

Pacific -2.0% -3.0% 0.0% 3.0% 6.0% 9.0% 11.0% 13.0% 10.0% 8.0% 5.0% 3.0%

North America 7.0% 1.0% 2.0% -3.0% 1.0% 2.0% 0.0% 2.0% -2.0% 1.0% 4.0% 4.0%

Latin America 7.0% 5.0% 5.0% 9.0% 10.0% 12.0% 11.0% 6.0% 6.0% 4.0% 7.0% 6.0%

Group 2.8% 4.4% 5.2% 5.0% 2.8% 2.0% 2.4% 2.6% 3.1% 4.8% 3.9% 4.5%

EB IT A breakdo wn

Nordic 211 285 408 342 193 265 384 311 188 252 366 321

Western Europe 442 560 590 796 427 527 620 736 500 611 695 807

Eastern Europe 15 29 31 34 15 29 31 34 18 26 31 33

Asia 139 153 160 156 137 139 156 171 162 176 190 185

Pacific 67 58 53 75 50 43 62 65 58 57 62 64

North America 25 12 36 28 19 27 30 49 26 43 41 48

Latin America 35 40 36 34 43 42 42 46 38 46 41 45

Corporate -79 -108 -100 -247 -98 -115 -147 -182 -147 -144 -148 -211

Group 855 1,028 1,214 1,218 785 956 1,178 1,231 843 1,067 1,277 1,293

EB IT A margin

Nordic 4.9% 6.5% 10.1% 8.3% 5.0% 6.6% 10.2% 8.0% 5.3% 6.7% 10.3% 8.4%

Western Europe 4.6% 5.5% 6.1% 7.8% 4.6% 5.7% 6.7% 7.7% 5.1% 5.9% 6.8% 7.8%

Eastern Europe 3.8% 7.0% 7.4% 8.1% 4.0% 7.2% 7.6% 8.2% 5.0% 6.4% 7.7% 8.0%

Asia 7.3% 7.5% 7.9% 7.7% 7.1% 7.0% 7.5% 7.6% 6.8% 7.0% 7.7% 7.6%

Pacific 4.7% 4.4% 4.5% 6.2% 4.4% 4.1% 5.5% 5.7% 5.1% 4.9% 5.5% 6.0%

North America 2.9% 1.4% 4.1% 3.3% 2.3% 3.3% 3.4% 5.2% 2.6% 4.2% 3.7% 4.5%

Latin America 3.7% 4.2% 4.0% 3.7% 5.0% 4.7% 4.5% 5.0% 4.0% 4.8% 4.3% 4.8%

Corporate (as % of revenue) -0.4% -0.5% -0.5% -1.3% -0.5% -0.6% -0.8% -1.0% -0.8% -0.7% -0.8% -1.1%

Group 4.4% 5.1% 6.3% 6.2% 4.3% 5.2% 6.4% 6.5% 4.4% 5.3% 6.4% 6.4%

2013 2014 2015E

2013 2014 2015E


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Chart 4. Regional performance

Source: Danske Bank Markets and the company

Nordic: Sales (DKKm) and organic growth (% p.a.) Nordic: EBIT (DKKm) and EBIT margin (%)

Western Europe: Sales (DKKm) and organic growth (% p.a.) Western Europe: EBIT (DKKm) and EBIT margin (%)

Eastern Europe: Sales (DKKm) and organic growth (% p.a.) Eastern Europe: EBIT (DKKm) and EBIT margin (%)

Asia: Sales (DKKm) and organic growth (% p.a.) Asia: EBIT (DKKm) and EBIT margin (%)

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Chart 5. Regional performance

Source: Danske Bank Markets and the company

Pacific: Sales (DKKm) and organic growth (% p.a.) Pacific: EBIT (DKKm) and EBIT margin (%)

Latin America: Sales (DKKm) and organic growth (% p.a.) Latin America: EBIT (DKKm) and EBIT margin (%)

North America: Sales (DKKm) and organic growth (% p.a.) North America: EBIT (DKKm) and EBIT margin (%)

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Company summary

Sales breakdown, geographical areas Sales breakdown, divisions

Company description

Main shareholders

Company information

Management

Net sales and EBITDA margin (DKKm)

EBIT and EBIT margin (DKKm)

P/E - 12 months forward (x)

P/BV - 12 months forward (x)

Source: Company data, FactSet, Danske Bank Markets estimates [all charts and tables]

Western Europe, 71%

Eastern Europe, 2%

North America, 5%

APAC, 17%

Latin America, 5%

Western Europe., 56%

Nordic., 23%

Eastern Europe., 2%

Asia., 12%

Pacific., 7%

ISS A/S engages in the provision of cleaning, security, property, catering, support

and facility management services. It offers its services to the information

technology, manufacturing, public administration, healthcare, transportation and

infrastructure, retail and wholesale, energy and resources, hotels, leisure and

entertainment, food and beverage and pharmaceuticals sectors. The firm also

provides security services comprising manned guarding, access control and

patrolling of customer facilities. The company was founded in 1901 and is

headquartered in Copenhagen, Denmark.

Name Votes (%) Capital (%)

Ontario Teachers' Pension Partnership 12.0% 12.0%

Artisan Partners Limited Partnership 11.0% 11.0%

Kirkbi Invest 10.3% 10.0%

ISS

Søborg

Denmark

www.issworld.com

CEO: Jeff Gravenhorst

CFO: Heine Dalsgaard

IR: Nicholas Ward

6%

6%

7%

7%

65,000

70,000

75,000

80,000

85,000

10 11 12 13 14 15E 16E 17E

Net sales EBITDA margin

0%

2%

4%

6%

0

2,000

4,000

6,000

10 11 12 13 14 15E 16E 17E

EBIT EBIT margin

11

12

13

14

15

16

17

18

14 152.0

2.2

2.4

2.6

2.8

3.0

3.2

14 15


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Summary tables


INCOME STATEMENT

Year end Dec, DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Net sales 74,073 77,644 79,454 78,459 74,105 79,231 80,550 83,619

Cost of sales & operating costs -69,074 -72,624 -74,498 -73,457 -69,383 -74,117 -75,320 -78,162

EBITDA 4,999 5,020 4,956 5,002 4,722 5,114 5,230 5,457

Depreciation -850 -855 -853 -787 -732 -787 -820 -851

EBITA 4,149 4,165 4,103 4,215 3,990 4,327 4,410 4,607

Amortisation -1,807 -1,209 -1,064 -1,652 -1,036 -662 -656 -656

Impairment charges 0 0 0 0 0 0 0 0

EBIT 2,342 2,956 3,039 2,563 2,954 3,665 3,754 3,951

- of which non-recurring items -1,925 -1,432 -1,372 -1,752 -1,196 -825 -806 -806

EBIT before non-recurring items 4,267 4,388 4,411 4,315 4,150 4,490 4,560 4,757

Financial items, net -2,368 -2,802 -2,726 -2,276 -1,296 -734 -659 -656

Associated companies 10 0 4 6 0 0 0 0

Pre-tax profit -16 154 317 293 1,658 2,931 3,096 3,295

Taxes -516 -657 -767 -690 -644 -930 -974 -1,033

Minorities -20 -7 -3 -2 -3 -2 0 0

Discontinued operations 0 0 0 0 0 0 0 0

Net profit -552 -510 -453 -399 1,011 1,999 2,122 2,261

Net profit (adj.) 1,129 691 726 1,124 1,973 2,659 2,764 2,903

CASH FLOW

DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

EBITDA 4,999 5,020 4,956 5,002 4,722 5,114 5,230 5,457

Change in working capital 0 -317 116 80 -71 87 -126 -93

Net interest paid 0 -2,224 -2,236 -1,599 -782 -734 -659 -656

Taxes paid 0 -749 -885 -933 -1,082 -977 -1,022 -1,085

Other operating cash items -4,999 -278 -332 -434 -392 -150 -100 -100

Cash flow from operations 0 1,452 1,619 2,116 2,395 3,291 3,327 3,520

Capex 0 -1,010 -762 -803 -848 -872 -886 -920

Disposals/(acquisitions) 0 678 15 2,134 1,335 -364 0 0

Free cash flow 0 442 857 1,313 1,547 2,419 2,441 2,600

Incr./(decr.) in equity 0 0 3,696 0 8,036 0 0 0

Incr./(decr.) in debt 0 -285 -4,341 -3,554 -9,839 -1,725 0 0

Dividend paid 0 0 0 0 0 -910 -1,249 -1,307

Minorities and other financing CF 4,449 -1,065 1,367 -479 -2,277 0 0 0

Cash flow from financing 4,449 -1,350 722 -4,033 -4,080 -2,635 -1,249 -1,307

Disc. ops and other 0 0 0 0 0 0 0 0

Incr./(decr.) in cash 4,449 -230 1,594 -586 -1,198 -580 1,193 1,293

BALANCE SHEET

DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Cash and cash equivalents 4,449 4,219 5,813 5,227 4,029 3,449 4,642 5,935

Other current assets 12,619 13,745 13,231 12,354 12,416 13,289 13,510 14,025

Fixed tangible assets 2,055 2,077 1,887 1,715 1,638 1,773 1,839 1,908

Intangible assets (incl. goodwill) 35,358 34,097 31,969 28,346 27,465 27,117 26,461 25,805

Other non-current assets 954 842 988 934 1,186 1,236 1,231 1,235

Total assets 55,435 54,980 53,888 48,576 46,734 46,864 47,683 48,908

Trade payables 2,830 3,466 3,669 3,436 3,562 3,645 3,705 3,846

Short-term debt 5,212 5,778 5,607 5,648 1,338 2,500 2,500 2,500

Other current liabilities 11,991 11,928 11,954 11,932 10,849 11,726 11,760 12,041

Long-term debt 29,032 28,181 24,011 20,416 14,887 12,000 12,000 12,000

Other long-term liabilities 3,719 3,488 3,540 2,898 3,178 2,981 2,833 2,681

Total liabilities 52,784 52,841 48,781 44,330 33,814 32,852 32,798 33,069

Shareholders' equity (incl. min.) 2,651 2,139 5,107 4,246 12,920 14,012 14,884 15,839

Total liabilities and equity 55,435 54,980 53,888 48,576 46,734 46,864 47,683 48,908

Net debt 29,795 29,740 23,805 20,837 12,196 11,051 9,858 8,565

Working capital -2,202 -1,649 -2,392 -3,014 -1,995 -2,082 -1,955 -1,863


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Summary tables


PER SHARE DATA 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E No. of shares, fully diluted (y.e.) (m) 100.0 135.4 135.4 185.7 185.7 185.7 185.7 No. of shares, fully diluted (avg.) (m) 100.0 117.7 135.4 160.6 185.7 185.7 185.7 EPS (reported) (DKK) -5.10 -3.85 -2.95 6.30 10.8 11.4 12.2 EPS (adj.) (DKK) 6.91 6.17 8.30 12.3 14.3 14.9 15.6 DPS (DKK) 0.00 0.00 0.00 4.90 6.73 7.04 7.41 CFFO/share (DKK) 16.4 16.0 16.3 15.7 18.6 18.5 19.6 Book value/share (DKK) 21.3 37.6 31.3 69.5 75.4 80.1 85.2

MARGINS AND GROWTH 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E EBITDA margin 6.7% 6.5% 6.2% 6.4% 6.4% 6.5% 6.5% 6.5% EBITA margin 5.6% 5.4% 5.2% 5.4% 5.4% 5.5% 5.5% 5.5% EBIT margin 3.2% 3.8% 3.8% 3.3% 4.0% 4.6% 4.7% 4.7% EBIT margin (adj) 5.8% 5.7% 5.6% 5.5% 5.6% 5.7% 5.7% 5.7% Sales growth 4.8% 2.3% -1.3% -5.5% 6.9% 1.7% 3.8% EBITDA growth 0.4% -1.3% 0.9% -5.6% 8.3% 2.3% 4.3% EBITA growth 0.4% -1.5% 2.7% -5.3% 8.4% 1.9% 4.5% EPS (adj.) growth -10.8% 34.6% 48.1% 16.5% 4.0% 5.1%

PROFITABILITY 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E ROIC (after tax, incl. GW, adj.) 18.2% 9.0% 9.1% 9.9% 10.4% 11.4% 11.7% 12.4% ROIC (after tax, excl. GW, adj.) 78.3% 33.5% 30.9% 36.2% 39.6% 45.5% 49.9% 55.8% ROE (adj.) 85.2% 28.9% 20.0% 24.0% 23.0% 19.7% 19.1% 18.9% ROIC (adj.) - WACC 12.5% 3.3% 3.4% 4.2% 4.7% 5.7% 6.0% 6.7%

MARKET VALUE 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Share price (DKK) 178 233 233 233 Outstanding number of shares (m) 100.0 135.4 135.4 185.7 185.7 185.7 185.7 Market capitalisation (m) 33,067 43,261 43,261 43,261 Net debt, year-end (m) 29,795 29,740 23,805 20,837 12,196 11,051 9,858 8,565 MV of min. and ass. comp. (m) 16 5 -1 4 10 12 12 12 Enterprise value (m) 45,273 54,323 53,131 51,838

VALUATION 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E EV/sales (x) 0.6 0.7 0.7 0.6 EV/EBITDA (x) 9.3 10.3 9.9 9.2 EV/EBITA (x) 10.9 12.1 11.7 10.9 EV/EBIT (x) 10.9 12.1 11.7 10.9 P/E (reported) (x) 28.3 21.6 20.4 19.1 P/E (adj.) (x) 14.5 16.3 15.7 14.9 P/BV (x) 2.56 3.09 2.91 2.73 EV/invested capital (x) 5.7 7.5 7.8 8.2 Dividend yield 2.75% 2.89% 3.02% 3.18% Total yield (incl. buybacks) 2.75% 2.89% 3.02% 3.18% Free cash flow yield 4.67% 5.59% 5.64% 6.01%

FINANCIAL RATIOS 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Net debt/EBITDA (x) 6.0 5.9 4.8 4.2 2.6 2.2 1.9 1.6 Net debt/equity (x), year-end 11.2 13.9 4.7 4.9 0.9 0.8 0.7 0.5 Dividend payout ratio 0.0% 0.0% 0.0% 77.8% 62.5% 61.6% 60.9% Interest coverage (x) 1.2 1.3 1.4 1.3 2.3 5.0 5.7 6.0 Cash conversion (FCF/net profit) n.m. n.m. n.m. n.m. 153.0% 121.0% 115.1% 115.0% Capex/sales 0.0% 1.3% 1.0% 1.0% 1.1% 1.1% 1.1% 1.1% NWC/sales -3.0% -2.1% -3.0% -3.8% -2.7% -2.6% -2.4% -2.2%

QUARTERLY P&L Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15E Q4 15E Sales (m) 18,251 18,397 18,410 19,047 19,150 20,206 19,799 20,076 EBITDA (m) 861 1,110 1,380 1,371 1,015 1,212 1,416 1,472 EBIT before non-recurring items (m) 782 956 1,178 1,234 843 1,050 1,268 1,330 Net profit (adj.) (m) 217 558 671 527 438 623 778 821 EPS (adj.) (DKK) 1.60 3.48 3.61 2.84 2.36 3.35 4.19 4.42 EBITDA margin 4.7% 6.0% 7.5% 7.2% 5.3% 6.0% 7.1% 7.3% EBIT margin (adj.) 4.3% 5.2% 6.4% 6.5% 4.4% 5.2% 6.4% 6.6%


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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S ( ‘Danske Bank’). The author of the research report is Poul Ernst Jessen.

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stock.


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As at 27 August 2015, Danske Bank Markets had investment recommendations on 242

securities. The distribution of recommendations is represented in the Securities ratings

breakdown diagram below.

The proportion of issuers corresponding to each of the recommendation categories

above to which Danske Bank provided investment banking services in the past

12 months is shown below.

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Buy55%

Hold33%

Sell12%

Rating Investment banking relationships

Buy 63%

Hold 27%

Sell 6%

Changes to recommendation in the past 12 months:

Date Old rec. New rec.

New Hold Buy

6 May 2015 Buy Hold

post-results note iss buy 2013 2014 2015e 2016e 2017e · *price as at 11:45 cet 27 august 2015 †...

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