November 6, 2019 / 9:36 AM / a month ago

UPDATE 2-Danish group ISS's shares plunge after forecast cut

* ISS cuts its 2019 profit outlook

* Shares drop more than 18%

* CEO admits plan to boost sales has been “too ambitious”

* Political unrest in Hong Kong adds further pressure (Adds CEO interview, detail on cost savings, updates shares)

By Andreas Mortensen and Jacob Gronholt-Pedersen

COPENHAGEN, Nov 6 (Reuters) - Danish services company ISS’s shares dropped 18% to a record low on Wednesday after the group cut its annual profitability forecast and launched a cost-cutting plan.

Chief Executive Jeff Gravenhorst said the aim was to save around 400 million crowns and told Reuters that there would be additional staff cuts but declined to provide further detail.

ISS, which has expanded globally with services that include office security and cleaning, catering and call centres, now expects its operating margin to come in above 4.2% for 2019, down from a previous forecast of 5-5.1%.

The company also cut its free cash flow forecast to between 600 million and 1 billion Danish crowns ($89-$148 million) from an earlier range of 1.8 to 2.2 billion crowns.

Last December, ISS had embarked on a plan to boost sales growth by exiting low-margin businesses in several countries and cut staff by a fifth to around 390,000 people from about 490,000.

“While most of our downgrade today is short-term in nature, I will be the first to admit this is disappointing,” CEO Gravenhorst said on a conference call.

“We have been a little too ambitious ... It is of course not good enough ... because we don’t execute as promised,” he told Reuters.

HONG KONG

Gravenhorst pointed to significant operational challenges in Hong Kong and Denmark and said a plan to transform its business in France was behind schedule.

Political unrest in Hong Kong had added to pressures in that market where ISS employs around 10,000 people and has annual sales of around 1 billion crowns, Gravenhorst said.

“People can’t get to work, the trains are not running which means that we have nothing to do,” he said adding that he did not expect to be able to improve operations near-term.

ISS now expects the growth plans announced last December to take three years rather than two, but the company does foresee a strong recovery in margins and cash flow next year.

ISS shares, which have shed nearly half of their value since a May 2017 peak, were down 18.4% at 148.20 Danish crowns by 1116 GMT. In early trading, the shares hit as low as 144.85 crowns, the lowest level since ISS was listed in 2014.

ISS also said organic revenue grew 6.3% in the first nine months of the year, driven by the launch of a large contract with Deutsche Telekom. ($1 = 6.7411 Danish crowns) (Reporting by Jacob Gronholt-Pedersen and Andreas Mortensen, editing by Louise Heavens/Keith Weir/Jane Merriman)

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