ISS A/S (QJQ.F) Earnings Call Transcript & Summary

Ladies and gentlemen, my name is Martin Hansen. I'm Head of Investor Relations at ISS, and I'd like to welcome you to our Strategy Refresh Presentation. Please be aware that the announcements and the slides for this call can be found on our website. Presenting today will be Jacob Aarup-Andersen and our new Group CFO, Kasper Fangel. We will also obviously have a Q&A towards the end of the presentation. So with that, I will hand over to Jacob on Slide 2.

Thank you, Martin, and welcome to this call. We will hope to give you insights into the conclusions on our strategy review and the way forward. Let's take Slide 3, please. Before we go into the details on what we are announcing today, I would just like to reflect on my first period with ISS. It's been fantastic to join a company with such a strong foundation. Yes, financial results and execution has not been where it should be in recent years. But during my first 100 days at ISS, I've been truly impressed by many aspects of the business and especially by many hard-working colleagues going above and beyond to deliver every day for our customers. ISS is a unique company in many ways. We are a company of more than 400,000 people across more than 200 nationalities, the definition of diversity and inclusion, all proud to wear the ISS logo on their shirt. Each day, every ISS colleague, on average, touches 10 people's lives. That's more than 4 million people a day. Each and every year, ISS hires around 150,000 new employees. And through this, we often lift people out of poverty. We enable them to build a better future for their families and the societies they're part of. 2020 will never be forgotten. Our frontline heroes have made a real difference across the world, but it hasn't come easy. We've lost 50 colleagues to COVID-19, which has been a huge loss for the ISS family. I therefore want to send my sincere appreciation to all of our employees who make a real difference everywhere. This year has truly underlined that people make places, and places make people. Next slide, please. My absolute priority since I joined ISS has been to conduct a comprehensive and honest and a data-driven review of the market, the business and the competitive position. The conclusions are very clear to me. First of all, ISS is fundamentally in a healthy and attractive market. COVID-19 has presented clear challenges, but it has also helped to underline the benefits to our customers of teaming up with higher quality service providers. Secondly, ISS has a unique business model, which sets us apart from the competition. And third, we have a model that can drive a competitive advantage, especially in the Key Account segment, and the Key Account segment is indeed financially attractive. The deteriorating financial performance in recent years, that's not a result of the Key Account strategy, but rather a lack of proper execution in specific areas. More on that on the next slide. So let me be very honest and clearly state that ISS has not executed well enough on our strategy. We're a global company with significant global scale, but in many ways, we've been operating like a collection of different local companies. We haven't acted and managed the business as one company and one ISS. This has created very obvious challenges on execution on commercial diligence, technology and risk management. The OneISS strategy is launching today to make significant changes to that. We will sharpen our strategic focus further with stronger definitions of customer segments, core services and delivery model, which will lead to additional divestments. We will also accelerate investment into technology. This industry has been relatively slow to embrace the use of technology, but there's a huge untapped potential, both in terms of how we can strengthen our competitive position but also how we drive new cost efficiencies. Finally, we are taking our operating model to a new level, stronger and more aligned to a global operating model. In many ways, why we call this OneISS. To do that, we're doing several things. We are restructuring our country organizations to align across the group; we're strengthening the global functions, not least the commercial function and a very new operations performance function; and finally, a significant culture program and change of incentive structure that will drive the right behaviors and the right priorities. Let's turn to Slide 6. Taking up the role as CEO, I have first and foremost focused on creating a sustainable and financially attractive long-term business. However, we have significant short-term issues that we have to manage and solve while transforming the business. The underlying health of the business has been overshadowed by 2 buckets of challenges. Managing and resolving these challenges will drive our short-term recovery. First of all, we need to bring a few, albeit large key operational issues back to decent profitability. At the same time, we need to successfully manage the recovery post COVID-19, both in revenue and cost. Please turn to Slide 7. Resolving those operational issues is going to be the main driver of our turnaround. And going into 2023, we will start the year with a structurally attractive run rate margin above 4% and a sound leverage below 3x EBITDA without capital raise. That will give us a strong business platform with significant opportunities for growth in revenue and cash flow. And as a consequence, we will emerge as an even stronger company. I see the appropriate long-term margin level to be mid-single digit, and we will announce specific numeric midterm targets in due time. Moving to Slide 8. Wrapping up my overall introduction. ISS will, in the coming years, become stronger, simpler and closer. We will become stronger by building on our unique heritage, doing what we do best and investing in the right areas to help us grow. We will become simpler to manage by making life easier for our people and our customers and by leveraging our global scale for the benefit of everyone. And finally, we're going to become closer within ISS as well as with our customers by embracing the right values, working together in a more aligned way, and with a clearer structure to succeed as OneISS. Our strategy will help us to become the most respected global leader in integrated facility service and it will strengthen our position as global #1 in cleaning. So let's turn to Slide 10 for more details on strategy and market dynamics. So needless to say, COVID-19 provides headwinds for ISS and for the whole industry with some customer segments being particularly hard hit. We see a likely reduction in office space, which we estimate to average 10% to 15% over the next 3 years based on a mix of feedback from clients, our own analysis and industry research. Having said that, we also see quite a number of positive drivers, which we expect to outweigh the negatives in the longer run. First and foremost, with end users working more from home, the importance of the workplace is only said to increase. With employees potentially working from the office somewhat less, the window for using the workplace as a tool to drive corporate culture, employee collaboration and innovation becomes critically important. Further, a continued trend towards reduction of corporate costs has historically driven an increase in outsourcing and we're seeing that as well now. Finally and probably the most important thing, while COVID-19 is a horrible global health crisis, it is also the most significant stress test of the different business models in this industry. It only highlights and vindicates our strategy and value proposition even further. Being the global leader in cleaning and hygiene is a strong fundamental position to be in. The COVID-19 health crisis forces companies to rethink if they have the right setup: should facilities management continue to be managed in-house or should it be outsourced to a professional provider? Should it be subcontracted or self-delivered by that provider? Can you live with sourcing from hundreds of local providers or do you see a benefit in a seamless one-stop shop across countries and services? Our feedback from existing clients throughout this crisis as well as from potential new ones is quite encouraging in that regard. Please turn to Slide 11. While this isn't new information, it's worth noting that around half of all facility service performed on a daily basis are still done in-house by corporates themselves. has already been outsourced to. If we look at the part of the market that has already been outsourced, that's a market estimate of around $1 trillion. The Key Account share makes up around 40% or that is around $400 billion. Of this Global Key Account segment, ISS only holds a market share of around 2% despite being among the leaders, and it's a fragmented market with less than a handful of global integrated players and it's a market that is moving our way. Please go to Slide 12. As I just mentioned in my introduction, our strategic review has fully confirmed that the Key Account strategy is the right one for ISS. Not only does it drive superior organic growth as evidenced by our Key Accounts growing around 4% more than our non-Key Accounts over the last number of years, but it also comes with higher margins when we get it right and a stronger cash flow profile compared to non-Key Accounts as long as you manage inherent risk better than we have done for the last years. In addition, key accounts drive a higher quality of revenue with longer contracts, higher retention and generally better predictability. With key accounts, we also get a better opportunity to support society at large by providing better opportunities for our people, the places we maintain and the people we service and with higher CSR ethics. Please turn to Slide 13. We have shared Key Account stories in the past in connection with our Q3 results last month. I think a lot of you saw that we illustrated how we managed to grow organically with one of our Global Key Accounts while their number of square meters reduced by around 60%. It's an example of how a reduction in office space does not automatically lead to lower revenue. On this slide, we've included a couple of new cases. That's to help you -- to convey you our value proposition and how it converts into solid growth in margins and how many Key Accounts have proven relatively resilient even through COVID-19. I will not go through the 2 cases in detail, but coming forward in this is that customer requirements, and hence, the key drivers for success go far beyond the basic service needs relating to clean sites and food at lunch. Success has been driven through a mix of integration and self-delivery supported by technology, enabling ISS to deliver higher-quality solution that also taps into the agenda of sustainability, CSR and risk management. Let's take Slide 14. In our new strategy, we will sharpen focus with a stronger definition of customer segments, core services and delivery model. We're a global leader in ISS and we will strengthen our position as #1 globally in cleaning. As we have accelerated the buildup of our international Key Account-focused platform, we've somewhat lost a bit of focus on our proud cleaning heritage. Under my leadership, we will accept nothing less than being #1 in cleaning. Our core services are cleaning, technical services, food and workplace including support services. These are the services that are critical for our customers are most typically bundled and where we can deliver the most compelling value proposition to drive business outcomes for our customers. And that's also where there's a true benefit to integration. Please turn to Slide 15. Technology is becoming increasingly significant, both as an enabler for ISS but also as a driver of new products and solutions for our customers. If you look at the FM industry, it's been so far out and quite slow to adopt technology and that's also an opportunity that ISS has not leveraged to any satisfactory extent. This is now changing and we are investing significantly. Having started in 2019, the ambition is to become a technology leader in this industry. We've taken steps in the right direction, including building a proprietary facility management system, which you know as FMS@ISS, as well starting to embrace IoT and sensor technology. However, as we see technology as a source of real competitive advantage in the future, we will be taking another leap. We will be increasing our central IT resources by around 50% by 2022. We will be implementing systems to allow for full operational performance benchmarking of our key accounts. And we will be accelerating the rollout of end-user digital applications in our ISS suite. Please turn to Slide 16. Our refocused strategic direction is culminating today in additional divestments of noncore entities. We're simplifying and standardizing ISS, which will support our journey in delivering on key priorities and strategic targets. We will be divesting Portugal, Russia, Taiwan and a few selected noncore business units in other countries. When you look at our country and business unit divestments, they are based on an assessment of the strategic fit, the risk profile and our ability to reach scale in the service or in the local market. Kasper will be getting back on the financial implications in a moment. With that, I will shift gear and move away from strategy and on to execution and operating model. So let's go to Slide 18, please. Let me start off by addressing what the extensive business review has concluded, has been the fundamental reasons for some of the challenges that we're facing today. First of all, we have lacked standardization and global alignment. We've often been working as multiple local companies, which has not allowed us as a global leader to reap the benefits of our scale. We've also lacked robustness in our commercial bidding process. We've lacked prudent discipline in allocations and underwriting risk management. That has led to a few, but significant issues that you're well aware of. We've also not delivered and developed global best practices, but we've had duplication of work and many countries have defined operations practices on their own. As a fourth point, and as already discussed, we've not been managing IT and technology as a way of winning in the market. There's been good investments, but clearly not to the extent that we want to see in the future. And finally, we have, as a company, not always been pulling in the same direction. And the implementation of our strategy has been too sporadic and insufficiently aligned. Next slide, please. That means we're today implementing 5 key initiatives to address our shortcomings to transform our operating model and to enhance execution. I'm going to cover them individually over the next slides, but in summary, we will be creating an aligned country operating model and will drive the needed standardization to work as OneISS. That is a big thing at ISS. In addition, a revamped commercial function and enhanced commercial process will strengthen our risk management. Thirdly, a new operations performance function will create best practice for all countries and customers, and it's going to enable us to drive excellence across the group. And a new operating model for IT, including a new Chief Information & Digital Officer in the EGM, will be driving the IT agenda and step-changing our capabilities to become a technology leader in the industry. And finally, we're going to be driving a cultural change with new executive management, changed incentive structures and a fully aligned EGM poised to make a difference. Please turn to Slide 20. So let me double-click on these fundamental changes. So today, our ways of working across ISS lacks consistency. There's just too many silos within the organization, and our structure and processes do not allow us to fully leverage our global scale. We will therefore transform our operating model. We will enforce a standardized approach across ISS, build around our delivery to Key Account customers. Investment at the center will be stepped up. We do that to drive higher-quality outcomes for our customers, and those outcomes will ultimately be delivered more efficiently. This new alignment of processes, of accountabilities and infrastructure will create a more robust and efficient global platform as we execute on it in the coming years. Please turn to Slide 21. We will be revamping our commercial function, including the way we are structured, as well as the tools and the processes that underpin our ways of working. We will be driving a stronger and a deeper approach to customer segmentation, supported by more investment in innovation and the creation of standardized service products to strengthen our value proposition for our target customers. We will also be strengthening our central team with senior segment specialists and ensuring a more disciplined allocation of commercial resources towards those opportunities, whether they're local or global, where the value opportunity is most compelling for ISS. And we will drive stronger commercial excellence across ISS. That means more standardized ways of working, more structured approaches to pipeline management and ensuring our strategic choices are fully captured by the actions and the prioritization of our commercial teams. Finally, we are strengthening our risk management by introducing tighter and standardized bid processes, which will underpin our drive for attractive growth that delivers acceptable margins and sustainable cash generation. Please turn to Slide 22. We will also be creating a new Operations Performance function. That function will define and strengthen our standard operating procedures and will ensure they are rigorously deployed across the organization. We will be strengthening our benchmarking and use of consistent KPIs, shining a light on where support and resources needed most to drive improved business outcomes. Moreover, these actions will strengthen our costing analysis to ensure strong commercial bidding processes. We will also set up a strengthened and dedicated transition team that will deliver best practice processes and transformation during the early stages of our larger contracts that will minimize the risks we face and thereby address historic pain points. We will ensure that those service products that are designed and sold by the commercial colleagues and the commercial function I just went through, that they are delivered as intended to yield the maximum value for our customers. And the whole idea of the Operations Performance unit is to enforce a mantra of quality, productivity and compliance across ISS that's going to drive both competitiveness but also financial performance. Please turn to Slide 23. So on the technology side, we're going to be driving a further step change in our IT investment. We're doing that to ensure that we fully capitalize on the strong initiatives for 2020. A new Chief Information & Digital Officer will join the Executive Group Management reporting to me. I'm looking forward to sharing the name with you in January. We will introduce a new operating model for IT and leverage it. And we'll also get a new second hub in Warsaw that will provide group-wide IT support. Our IT infrastructure will be strengthened in a continuation of the work done over the last years, and our business IT applications will be standardized. We're not yet effectively capturing all data and insights. But we fully intend to do so and this is an essential game-changing step for ISS in the coming years. Moving forward, IT must increasingly underpin our innovation for and our execution with customers. Our services will become more and more technology-enabled, and our solutions will become smarter as a consequence of the information at our disposal. This is a journey I know we started in recent years and we are fully committed to seeing through. Let's turn to Slide 24. This is the new executive leadership team to take us through the new journey. I'm incredibly excited about this team. It's a great mix of 3 internal promotions in Kasper, Celia and Scott; and 2 external coming in, both in the Chief Information & Digital Officer role, which I just talked about; and also Head of UK & Ireland, which will be incredibly important as a lighthouse for driving ISS going forward. In addition, we're seeing several big moves within EGM. As an example, Pierre-François taking the important role of running Europe, Dan Ryan taking up the CCO role and Andrew Price focusing on our most strategic commercial situations as Head of Strategic Growth. I'm very excited about this team. It's going to be driving a strong execution. It's going to be driving the leadership, the right values and the culture to make OneISS a success. Let's turn to the next slide. We're not just changing the EGM today, but we have during 2020, including changes announced today, significantly strengthened our countries plus brought on strong external talent as evidenced by this slide. It means that close to 50% of our revenue has seen new country managers in 2020. Slide 26, please. Before handing over to our new Group CFO, Kasper Fangel, let me just stress once again that we are transforming ISS for long-term success while, at the same time, we are addressing the current well-known pain points, which will be key to drive our short-term recovery. The experience from these pain points confirm some of our key takeaways from our business review. The need for a commercial focus on risk management and bid governance is critical. There's a need for stronger links between commercial and operations from bid to transition to launch to delivery. There's a need to accelerate digitalization and IT capabilities. And finally, we need to take our execution to the next level and ensure that we leverage best practice globally. With this, I would like to hand over to Kasper. But before I do that, I would like to thank you, Kasper, for stepping up to the new role. Kasper is an accomplished CFO with a strong background of having been country CFO and heading up our Group Finance. So a CFO that understands both country and group, which is vital for me and vital for ISS. Welcome on board, and over to you, and let's turn to Slide 27.

Thank you very much, Jacob, and good morning, everyone. Let me start out by introducing myself. Some of you know me already, but I'm very much looking forward to close interaction with all of you in the future. As Jacob said, I've been with ISS for more than a decade and I see myself as a commercial CFO. I want our finance function to be close to operations. I want our finance function to help drive the business forward. I've been around the corners of ISS as a Regional CFO, both in North America and for Western Europe, for several years. And I know how the company operates, both locally and at the center. And I can definitely confirm that there is clearly a potential for ISS to operate better as one company globally aligned in an operating model that is created to leverage our global scale, and this goes both for finance, commercial and operations. Let me start by focusing on year 2020, and I would kindly ask you to turn to Slide 28. Like many other companies, ISS has been managing through turbulent times in 2020. But unlike other companies, we entered the COVID-19 crisis in the middle of a serious malware attack, which meant that we had lost control over critical business systems when COVID hit. COVID-19 and malware effects is partly explaining our weak financial performance in a historical perspective. However, and this is important, our choice of strategy and focus has been supportive as illustrated on this slide. Our Key Account business has shown solid performance through good and bad times, and also this year, better organic growth than the rest of the business. The quality of our revenue base has improved and will continue to improve as we focus on Key Accounts. Our Food Services have, of course, been severely impacted by COVID-19 as it's driven by volume. Most other services have remained very resilient and are also expected to recover faster. Finally, we have not faced an overall declining demand for projects and above-base work, which normally is the case in a downturn. We have been supported by our proud cleaning history, enabling ISS to be the world's largest provider of deep cleaning and disinfection services. This has more than offset other spend cuts. Please move to Slide 29. Before I move on, I just want to confirm our 2020 outlook. We still expect to deliver on the outlook set in August despite second wave impacts. Please turn to Slide 30. Of course, more important than 2020 is the future. The detailed strategy review has led us to firmly conclude that ISS will remain an industry leader, and that we will return to solid organic growth with robust margins and strong free cash flow. Our medium-term targets are currently withdrawn to focus on the short-term recovery with a clear sense of urgency. We have 3 specific turnaround targets. We will deliver an operating margin above 4% on a run rate basis as we enter 2023. We will deliver positive free cash flow in 2021 despite significant cash payments related to restructuring and one-offs from 2020. Free cash flow will improve strongly from 2022, simply from being a clean year, but also from continued improvement in profitability. This will, together with divestment proceeds, lead to a significant deleveraging to below 3x by full year 2022 without the need for raising capital. To ensure full internal alignment and focus on the turnaround, we'll adjust short-term incentives. The 3 main changes are: implementing a minimum threshold on operating profit and free cash flow as a prerequisite for payout, performance below an acceptable minimum threshold will be kept on a STIP payout and also include specific targets linked to turnaround milestones. Please turn to Slide 31. We do see a clear path back to both growth and mid-single-digit operating margins. There will be 2 overarching themes driving the normalization and they will contribute broadly equally to our recovery to mid-single-digit margins. We do not have a long list of problematic countries and contracts. We have a very few large ones. Recovering from these underperforming contracts and customers will drive a significant uplift to margins compared to 2020. Some of the recovery will be supported by one-offs taken in 2020, but they will continue to require a lot of hard work and will not be fully resolved in the next 2 years. Secondly, the gradual recovery from COVID-19 will clearly be supportive as well. It will be driven partly by the normalization of revenue and partly by the restructuring of the cost base. However, it's not enough to solve old problems. We need to find a better way to ensure that we do not create new ones, as explained in the bottom of the slide. This is the core of our new strategy, as Jacob mentioned: consistent financial performance supported by a strong operating model. I will pick up on this in a moment as well. Please turn to Slide 32. On the COVID-19 recovery, our margin will improve partly with the normalization of revenue. While our Food Services have been severely impacted, most other services have remained resilient and are expected to ramp up relatively fast as sites fully reopen and end-user utilization increases. We estimate that roughly 10% to 13% of revenue is lost in 2020 due to COVID-19. Our working assumption is that around 1/3 will not recover within the foreseeable future, mainly due to Food Services and specific customer segments. The remaining 2/3 is expected to fully recover within a few years. The cost side of our COVID-19 recovery is driven by the restructuring announced in November where we adjust our platform to be fit-for-purpose for a new level of activity. We are adjusting our cost base to rightsize the business to a lower level of activity and help offset the impact from a lower level of salary compensation schemes. Further, we are closing down a few selected business units, which are deemed structurally unprofitable post COVID-19, and this makes up around 1% of group revenue. We will, over the next years, be able to achieve significant payback on our restructuring initiatives, but including the impact from salary compensation schemes that comes to an end, the net benefit to operating profit is estimated at DKK 700 million to DKK 900 million or around 1% uplift to group margins. I'll kindly ask you to turn to Slide 33. To execute on the new strategy and the 4 key initiatives covered by Jacob, we'll increase our central spend by around DKK 250 million in 2021. This includes certain nonrecurring costs, which will normalize over 2022 and 2023 to take the incremental annual run rate investments going forward to around DKK 150 million compared to 2020. At the same time, we have identified important cost-saving opportunities, and our cost savings program has basically 3 legs. Firstly, the new group-level investments will create opportunities for centralization of key activities, especially within IT and operations. Further, we will optimize our real estate portfolio. With a significant shift of focus to Key Accounts, we simply do not need the same local real estate footprint. What you will notice is that we currently expect the cost-saving program and the investments in the new operating model to roughly equal on a run rate basis. In effect, this cost-saving program will not be seen directly on the cost line because the funds will be used to create a stronger, healthier and more sustainable ISS. The funds will be used to drive sustainable superior performance both on the top line and bottom line long term. In the short term, there'll be a net negative OpEx impact as can be seen in the charts on the right-hand side. On top of this, we'll invest additional DKK 250 million in IT and technology as CapEx. And these costs are, of course, and that's important, included in our guidance and targets. Please turn to Slide 34. As covered by Jacob, we will further simplify and refocus our portfolio through asset disposals by adding 3 countries and a few more noncore business units to the divestment program. We have, over a number of years, put time and resources into developing Taiwan, Portugal and Russia into new Key Account markets for ISS, but we have to admit that it has been with limited success. We reached the conclusion that resources and capital create more value for our shareholders in other parts of the business. We are divesting for pure strategic reasons, not as an exercise to divest underperforming assets. And as such, the overall margin impact is set to be broadly neutral on group level. The combined future net proceeds from our combined divestment program is estimated at up to DKK 2 billion to be realized over 2021 and 2022. The revenue that will be divested from the new divestments amounts to around DKK 4 billion. Around DKK 1 billion will be reclassified to discontinued operations in connection with our annual report for 2020, whereas the remaining DKK 3 billion related to business units will gradually leave the top line as divestment completes. Please turn to Slide 35. Deleveraging is absolutely crucial and central to our turnaround. With initiatives and expectations announced today, we have a clear path towards significant deleveraging to below 3x by the end of 2022, which will bring us broadly in line with our leverage target without the need for raising capital. We'll gradually improve our profitability, and our EBITDA recovery will be the overarching driver behind our deleveraging. In accordance with our capital allocation policy, our capital structure and leverage are critical. And we will over, 2021 and 2022, allocate our positive and improving free cash flow towards reducing net debt. As previously communicated, this also means that we do not expect to pay ordinary dividends in 2021 or in 2022. Lastly, I want to highlight that our liquidity remains strong, around DKK 15 billion of available liquidity, and no debt maturities until 2024. That is indeed a strong position to be in. Please turn to Slide 36. To wrap up the financial section, let me provide a bit of flavor on our preliminary outlook for 2021 and the way forward from here. In 2021, we do expect to return to positive organic growth for the year as a whole. But we need to get through Q1 before we gradually start to recover. Assuming that Q1 2021 will not be too different from Q4 2020, it requires a decent amount of COVID-19 recovery over Q2 to Q4 to get into positive organic growth for the year. We do expect to win and grow key accounts and have a few new large ones in the books already. But as mentioned before, we are also trimming the portfolio post COVID-19 for around 1% of group revenue. Our operating margin before other income and expenses is expected to improve from marginal positive in 2020, excluding restructuring and one-offs, to above 2%. And the recovery in margins will be back end-loaded following the shape of our revenue recovery. We'll also start the journey of catching up on our key operational issues as covered earlier in the presentation. Finally, we will return to slightly positive reported free cash flow even including the significant cash impact from restructuring and one-offs charged to the P&L in 2020. And further, we will continue to work hard on working capital optimization. I have to say I'm extremely humbled and proud to take on this new role as a Group CFO in the next leg of our journey. But more than that, I'm so proud to see how the ISS finance community as well as the rest of our colleagues are really coming together in the early days of Jacob's leadership. Together, we will ensure that in all parts of our organization, this company will be managed with a focus on sustainable financial results for the long run, never prioritizing the here and now at the consequences of long-term performance. With that, I would like to hand back to Jacob for final remarks and kindly ask you to turn -- to flip to Page 38.

Thank you, Kasper. Fundamentally, ISS is a purpose-driven organization. We're built on a proud heritage based upon a deep respect for people, and it's a strong customer focus that drives everything we do. Ever since the first 20 night watchmen in inner Copenhagen in 1901, this company has been about extraordinary people. ISS originated in Denmark based on Nordic values, which has been a cornerstone of this company for so many years. That has also been successfully exported around the globe and it's part of the core reason why we've been so successful. Those values are embedded in the company DNA and they center around fairness, equality and inclusion. And it's vital to understand that this is the starting point for our value proposition. Let's go to Slide 39. We firmly believe that our strategy will help us become the most respected global leader in integrated facility services, and it will strengthen our position as the undisputed leader in cleaning. OneISS will ensure we can live up to our purpose, and that purpose: connecting people and places to make the world work better. Our 2025 ambition towards key stakeholders is to achieve industry-leading employee engagement and industry-leading customer engagement and towards investors an ambition to achieve a top quartile total shareholder return relative to our peers, of course, driven by profitable growth and cash flow generation. Finally, ISS will remain a sustainability leader in the industry, actually exemplified by remaining a leader in the Dow Jones Europe Sustainability Index. Please turn to Slide 40. Those were the remarks. And with that, I think we should open up for Q&A.

[Operator Instructions] And the first question is from the line of Il-al Idid (sic) [ Bilal Aziz ].

It's Bilal Aziz from UBS. I'll let limit it for 3 from my side, please. Firstly, you talked about the new group commercial function to drive greater risk management. Can you perhaps talk a bit about the incentivization of that team, i.e., what KPIs they are measured on? And how are you going to balance growing the business versus more commercial discipline going forward? And secondly, on the disposal process, is this likely to be an ongoing process where there's a review of the portfolio? Or after today, are we done with the majority of the cleanup? I'm particularly referring to some food service exposure that was referred to in the third quarter. And then perhaps one for Kasper as well. You talked about requirement of a commercial CFO. I guess, under the new operating model, what sort of visibility does that give you on underperforming regions and contracts before they become a problem on a group-wide basis?

Thank you, Bilal. Let me take the 2 first ones and then let Kasper comment on the third one. So first one, you asked about the new commercial process and incentivization around that. So let me just maybe take a step back on the commercial process. I think there's rightfully been a lot of focus on our commercial processes and risk management as we've been, over the last couple of years, not been satisfied with a couple of key contracts that we've been discussing at length with you. That's why it's been such a big focus area for us to focus on strengthening the risk management side. And when you look at what we've done here is that it's a strengthened bid process and it's only based on the -- and it's very much based on the learnings from the prior issues that we've been discussing. I think it can be divided into a number of buckets. First of all, we're implementing new and stronger risk controls in the bid process and that's with a redefined commercial bid process that has further defined stage gates. Stage gates and involvement of -- and mandatory sign-off from finance, from IT, from legal, from operations. That also includes 2 very specific efforts in terms of getting the bidding right. That is a move towards more outcome-based contracts and it's also around specific focus on the clauses in terms of creating flexibility in the clauses around commercial outcomes. Secondly, we're establishing a group function that is going to be specialized purely in understanding the inherent obligations of all types of contracts, and therefore, ensuring a more diligent approach to the factors that are material. The incentive structure is important to me. The overall incentive structure is changed towards a larger focus on long-term profitability and cash flow. And for our commercial function, specifically, we're working on changing the incentives towards a more long-term outcome-based incentive structure where it is less based on winning the contract and more based on the financial performance of the contract in the years to come. That means that you have, we say, skin in the game as a commercial leader throughout the delivery of the contract to ensure that you have the right incentives and the right commercial focus as you enter it. But the other element I would just pause on is an element that we don't talk a lot about. We talk a lot about the commercial bidding process, and here, I'm very comfortable with the strengthened risk process. But an element when you look back at -- you do postmortem on commercial processes that haven't panned out the way we had hoped for, it's around the transition process. And we've created a quite enhanced transition process, including dedicated SWOT teams that will ensure proper handover between the functions and earlier identification of the risks. That's especially in the handover from commercial to operations where, in this industry, you very often see the commercial issues occur as we hand over from a commercial team to an operations team that needs to lead the bidding -- sorry, lead the contract execution. And then finally, we have at ISS introduced a further layer of increased focus from internal audit on the adherence to the processes to ensure we have that third line of defense as well. You asked a second question with regards to whether we are done on the cleanup. There's no doubt that what we've been through over the last couple of months is a very comprehensive review where we've also looked at the initial 2018 announcement, we've looked at our footprint, we've looked at our strategy around focusing and accelerating the focus on Key Accounts, but obviously also taking the external developments into account as we've been doing this analysis. And as Kasper alluded to earlier, there are specific reasons why we believe the 3 countries that we announced today are no longer core to the overall strategic focus of ISS. We have tried over the last 2 years to make them 2 Key Account-based organizations with the right risk profile and the right fit within the strategic frame, but we have decided and concluded that it's time to let go. The same thing around these business units that we are progressing towards a sale process on, it is the same. It is units that are noncore to our Key Account strategy, and we feel it's the right thing right now to create a sharpened portfolio. That also means that we are setting -- putting 2 lines under the fact that we've done a very thorough review. You should not expect us to drip feed news on disposals on an ongoing basis. We are fully aware, as a team, that our focus as well is on ISS being a firmly growing business going forward. This is a -- we can never, as a management team, rule out that we will deem businesses to be noncore or that we think that certain businesses or countries have better owners than ISS over time. But you shouldn't expect after such a big review we've just been through that we will continue to announce things like this. This business is -- sorry, this strategy is around sharpening the focus, doing this final cleanup and then it's around driving a sustainable growth agenda going forward. We firmly believe that we have significant growth opportunities in the coming years, a scalable platform and with -- especially with the new OneISS aligned business model, country model, platform and structures and processes, we also set ourselves up to achieve true scalability on a global scale, and that's why we also need to come back to growing. On the third element, I'll pass that on to you, Kasper.

Thank you, Jacob. And Bilal, thanks for your question. I think, certainly, that's a good one and very valid. I mean we are shifting gears in terms of transparency and in terms of be proactive on spotting issues before it becomes an issue and can jump on it early. We're doing 2 things concretely. One thing is that we have a dedicated team. So we've added additional resources with people that are working in collaboration with the countries to gain transparency all the way down to site level. So we can be proactive and identifying if we have an issue and jump on it before it becomes a fire. And the other thing that we have done as a part of this strategy process is that we have changed the reporting lines from the country CFOs. So they are, going forward, they will have a solid reporting line into group finance whereas it was to the country CEO. And of course, we're doing that to become one united entity where we are much closer the center, closer to the country. So that makes me very confident that we have a strong setup where we will avoid surprises and we will gain transparency all the way down to site level.

And the next question is from the line of Paul Sullivan from Barclays. And the next question is from the line of James Winckler.

Just wondering if you could provide a bit more context on the margin targets, one above 2% for fiscal year '21. Wondering if that's clean of all exceptionals, I believe it is, want to double check. And then the run rate, 4%, for fiscal year '23. Does that mean you expect sort of, for that year, to be below, but as you ramp through the year to reach sort of pro forma so for fiscal year '24 more like above 4%? And then I think you mentioned that any of the cost savings, wondering if those are going to be reinvested given the amount of talk about investing -- increased investment in technology, specifically?

Thank you very much, James. Thanks. Very valid questions, indeed. So just in terms of 2021 and the above 2%, let me try to give you the building blocks on that one. I mean, you know that for 2020, we are expecting slightly positive operating margins excluding one-offs and restructurings. Then we are certainly expecting a significant uptick in margins from the underperforming areas, so the 4 hot spots that Jacob also mentioned. And the other one, which is going to help margins in 2021 is the payback on restructurings, as also mentioned in the presentation. Then, of course, you are indeed right that the savings, the DKK 250 million, that is going to kick in, in 2021 is going to impact margins negatively in 2021 with around [ 3/10 ]. So in summary, if you add these elements up, that takes you to above 2% for 2021. In terms of how we get from the 2% to an exit position in 2022 of 4%, I think there are a few building blocks that you need to have in mind there. First of all, we expect -- we don't expect to be done with the turnaround during the course of 2021. So we should see a further uptick from the 4 operational hot spots kicking in during the course of 2022. And then we will also see a margin uptick from the expected recovery from COVID-19 volume coming back into the revenue line. And lastly, of course, everything that we are doing with this operating model, we are certain that, that's going to yield some benefits to the bottom line as well. We're working very hard on that, and it's -- we're not in a position to give any concrete guidance on that. But definitely, it has to come through on the bottom line as well.

And the next question is from the line of Paul Sullivan from Barclays.

That's better. Can you hear me now?

Yes. We can.

Just a few for me. What -- I mean, just from a big picture perspective, what should we take from the lack of medium-term organic growth targets? That's the first question. And then just sort of tied to that, the proportion of group revenue that you believe is still arguably structurally impaired. And how should we assume that washes through the group over the next 2 or 3 years? And what sort of organic headwind does that represent? And then, finally, when it comes to those 4 problem areas, what is your vision and the timing of the turnaround here? I mean what do we -- what needs to change for margins to recover or for organic to recover there? And is that realistic?

Thanks, Paul. Why don't I start out? So your first question was around the lack of the medium-term target and what that implies in terms of longer-term growth. I think the -- we obviously knew that the moment you remove targets, people will still ask about what our medium-term targets are. So I appreciate that. But I guess, just -- let me just take you one step back and explain what we're doing here and why we're doing it. So the reason why we're removing the medium-term target is that we think the right statement from us right now is to say, what is our focus for the next 24 months as a team. And how do we deliver an organization and a franchise that is back to reasonable profitability, growth rates, free cash flow generation, et cetera, before we start talking about what the medium-term and long-term targets are. We're making it very clear today from the different statements that nothing is broken and structurally we see is strong opportunity set at ISS. And that's also why I'm doing the statement around mid-single-digit margin in the release. But until we have been further through the turnaround, I'm going to refrain from having specific midterm targets. But I think you can also take from the comments we made around how we see the market, the opportunity set that we see, the structurally attractive opportunity set that is being created by the events around COVID-19 and our very global leading position within cleaning that you're not hearing a management team that sees a diminished growth opportunity going forward. Probably on the contrary. But I'm not going to be drawn into what that number reflects. But I will be drawn into the fact that we think nothing is broken, and we're structurally very excited about where we're heading. But we would like to be further into the turnaround situation before we start talking about medium-term targets. I'll just do the problem areas one as well, and Kasper can talk about the revenue trajectory in the coming years. But on the problem areas, you can say there are -- there's 4 different stories around those 4 different cases that we are highlighting. The overarching message is that we clearly have a very firm plan that we're executing on all 4 cases but they are at different levels, et cetera. The Danish Defence case, we already on Q3 were pretty firm that we had taken -- we took charges in Q3 to reflect the different outcomes we see in that case. We are in good dialogue that may mean a change to the current contract or an exit of the contract, but we made it clear that we don't see that impacting negatively on -- with a negative result no matter the outcome. It's not suddenly going to turn into a very profitable contract, let me make that very clear, but it won't have a negative contribution. Then when we look at the 3 other cases, Deutsche Telekom, we do think that's a great long-term contract. We made that very clear. But we've had execution issues in the first couple of years of that contract and we are not where we want to be. But we're executing hard on our plan, and so far, we are on the revised restructuring plan on that. And we do think we will end up delivering strong customer outcomes and good results from that. We are not going to be drawn into how that phases in the coming years. But that, including the U.K. and France developments, all 3 of those major areas, we will see an improvement next year and a further improvement in '22. I guess what Kasper was also indicating is that we do believe that we need to go beyond '22 until we are at the full level of margin potential in those 3 cases. Kasper, do you want to make a comment around revenue in the coming years?

Yes, sure. Thanks for that question. I mean, just real quick on 2021 to make sure that you understand our indication around the positive organic growth in 2021 and the high level helicopter overview of that. I think it's important on the COVID-19 that we all understand that, in totality, we expect for 2020 that we have reduced -- so we've had a hit from COVID-19 of between negative 10% to 13% reductions on volume as a consequence of COVID-19. And we do not expect to see a recovery of that in Q1 2021. So we also expect for Q1 2021 negative double-digit growth. And then we expect that the recovery is starting to come over Q2 to Q4 with approximately positive 3% in each of these quarters. So if I add that up for 2021, then it's actually neutral to the top line in 2021. Then we do expect some underlying growth to the portfolio. You know that we mentioned on the back of Q3 the win that we've had in Americas, which is kicking in on January 1 and we also expect other positive movements to the underlying portfolio over the course of 2021. And then you do need to deduct the 1%, which is the volume impact from the exercise that I mentioned where we have trimmed a number of contracts, and in total, that adds up to around negative 1%. So if you add all of that up, in summary, then we do expect to be in the positive territory for growth in 2021. There is another thing in terms of -- that I want to say in terms of the longer-term expectations on growth, and that is that we do see that the commercial activity, in general, has slowed down as a consequence of COVID-19. So it very much depends on how quickly we're recovering from COVID-19 in terms of giving some longer-term projections for growth.