11 December 2018 | Herpreet Kaur Grewal
ISS has announced that it aims to increase organic growth to 4-6 per cent a year by accelerating its transition towards key account customers.
The global support services firm plans to strengthen its position further through a two-year programme of expedited investment, encompassing services (e.g. workplace, technical, catering) and platform (e.g. technology, data and innovation), to "materially enhance ISS's delivery capabilities".
The investment will include project-related operating expenditure, capital expenditure and selected M&A.
It aims to "strengthen ISS's ability to protect and care for customers' property, people and environment" and "capital will be reallocated from areas that are not core to the key account strategy to help fund this transformation".
As a consequence of this:
Operations in 13 countries will be divested - Thailand, Philippines, Malaysia, Brunei, Brazil, Chile, Israel, Estonia, Czech Republic, Hungary, Slovakia, Slovenia and Romania. The exit from non-core services will be concluded by divesting a number of business units across the group - entirely consistent with ISS's strategy of recent years.
In 2017, these planned country and business unit divestments generated a revenue of DKK 9,685 million (12 per cent of the group) and operating profit before other items of DKK 373 million (8 per cent of the group). The process of divesting countries and business units is expected to conclude during 2020.
These divestments will significantly simplify the business, reducing complexity and risk. Upon completion, the number of customers is expected to reduce by 50 per cent (from 125,300 to about 62,700) and the number of employees is expected to fall by 20 per cent (from 490,000 to about 390,000).
The two-year programme of expedited investment will strengthen ISS's delivery capability to key accounts (including global and regional) and is expected to yield attractive financial returns.
ISS intends to return at least 25 per cent of net divestment proceeds to shareholders by way of a share buy-back or extraordinary dividend.
Jeff Gravenhorst, group CEO, ISS A/S, said: "These bold decisions reflect our strong conviction in the growth opportunity afforded by key account customers. When the time comes, it will be tough to part ways with many outstanding colleagues and high-quality businesses. However, we must focus our capital and resource on those customers, services and geographies that can truly benefit from our future investment in processes, technology and innovation. This acceleration of our strategy will improve our offering for key account customers and deliver a stronger and more consistent financial performance for our shareholders."