Ladies and gentlemen, welcome to the ISS Q3 2026 Trading Update Conference Call. I am Sandra, the Chorus Call operator. I would like to remind you that all participants will listen only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone.
For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Michael Vitfell-Rasmussen, Group Head of Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone, and welcome to our conference call. We appreciate you taking the time to discuss our Q3 2026 trading update released earlier today. As said, I am Michael Vitfell-Rasmussen, heading up Investor Relations here at ISS. Joining me today in the room is our CEO, Kasper Fangel, our CFO, Mads Holm, and Anne Sophie Riis from the IR team. Before we begin, please take a quick view at the disclaimer, and then I will hand it over to Kasper to start the presentation. Please move to slide number four.
Thank you, Michael, and good morning, everyone. Thank you for joining us for our third quarter trading update. I am pleased to report another quarter with progress against our midterm ambitions, continued commercial momentum, and solid execution across the business. Our Q3 performance also marks another step towards the ambitions we presented at our Capital Markets Day in September.
In the third quarter, revenue growth was 10%, and organic growth ended at 6.8%. Performance was in line with our expectations, supported by a robust like-for-like growth and continued project and above-base volumes. At the same time, margin and cash flow remains on track, which also means that we are well on track for all three KPIs to deliver on our full year 2026 outlook. Commercial momentum remains encouraging.
Year to date, we have announced 17 contract changes, including two in the Americas, where we are seeing early signs of progress following our commercial investments, with wins starting to come through, as well as encouraging developments in the pipeline during Q3. I am also pleased to see a handful of wins and expansions above DKK 100 million, plus several smaller contracts are currently being mobilized and are expected to start during the end of Q4 and in the beginning of next year.
We have also successfully extended all larger contracts up for renewal in 2026, strengthening revenue visibility and reflecting our continued focus on customer retention, which remains at a satisfactory level. The integration of Toma is progressing according to plan, with significant actions executed in Q3, ensuring synergy realizations are in line with expectations. Based on our performance and current expectations, we reconfirm our outlook for 2026.
Organic growth above 6%, an operating margin of around 5.25%, and underlying free cash flow above DKK 3.1 billion. Briefly touching on the tragic fire in Hong Kong. Our thoughts remain with everyone affected. Last week's report confirms that ISS EastPoint, our Hong Kong subsidiary, was not involved in the outbreak or rapid spread of the fire. ISS EastPoint was neither involved in the major renovation works nor responsible for maintaining fire service installations.
The report does not change our assessment that sufficient insurance cover is in place should any responsibility ultimately be attached to ISS EastPoint. Overall, another quarter of strong growth, commercial progress, and disciplined execution, reinforcing our confidence in delivering on our short and long-term commitments. Let me now take you through the business update, including how we are progressing against the priorities outlined at our Capital Markets Day. Next slide, please.
Let me briefly revisit some of the key messages from our Capital Markets Day in September and share how we are progressing against them. At the CMD, we outlined our ambitions towards 2028 and, importantly, how we intend to deliver them. Our priorities remain unchanged, executing our strategy to deliver profitable growth, delivering consistent financial performance, and ensuring strong engagement across the organization. Starting with strategy execution. We continue to see encouraging commercial momentum with a continued high level of underlying growth.
Our focus remains on winning new customers in our selected segments, expanding with existing customers, and strengthening commercial ownership at site level. We are also making progress on the operational initiatives highlighted at the CMD, particular workforce management and productivity. These initiatives are important elements in securing profitable growth and deliver on our new midterm margin ambition of 5.5%-6.0% by 2028.
By leveraging our global scale, benchmarking performance across sites, and sharing best practice, we see significant opportunities to improve productivity and drive margin expansion. In the U.S., we are beginning to see encouraging signs of commercial progress following our investments, and I am pleased to see further positive pipeline development in Q3, following our two contract announcements in the region. This reconfirms our positive view on the future of our business in the U.S.
We are also advancing the integration of Toma and working to realize the expected scale benefits. As mentioned in the introduction, I am very pleased with both the speed and the quality of the execution from our Norwegian team in how they have executed significant cost adjustments in the third quarter that ensures benefits are coming through in line with our plan. Turning to the financial performance. Our focus remains on delivering consistently against our commitments quarter after quarter.
In Q3, we continued to see positive commercial momentum with organic growth, margin, and free cash flow fully on track to meet our full-year expectations. Finally, on employee engagement and social sustainability. Our people remain at the heart of our strategy, and one area I particularly want to highlight is social sustainability. At our Capital Markets Day, we explained how social sustainability is increasingly becoming a competitive differentiator for ISS, and I am very pleased that our work is also receiving external recognition.
Our Barclays team recently won the Social Value award at the 2026 IWFM Impact Awards in the U.K. The award recognizes our partnership with Barclays and the charity Standing Tall, helping people experiencing homelessness into employment and secure accommodation. A number of people have already secured jobs through the initiative, demonstrating how our company can make a real difference to people's lives.
Our UBS team also won the Equity, Diversity and Inclusion Initiative award for its work creating employment opportunities for young adults with disabilities. These are achievements we are genuinely very proud of. Creating opportunities for people and contributing positively to the communities where we operate has always been a part of who we are at ISS, but our strategic initiatives gives us a structure to scale from with speed.
We do not only have a structure, we can now also measure and demonstrate the impact we deliver to our customers. As social value becomes increasingly important in procurement decisions, it gives us a meaningful competitive advantage. To summarize, we continue to make progress across our strategic priorities. Commercial momentum is strengthening, our operational initiatives are supporting our ambitions for profitable growth, and our people remain at the heart of our success.
We have set ambitious targets towards 2028, and our focus is now firmly on executing and delivering against those commitments. Next slide, please. Let me now turn to our contract announcements and the continued commercial momentum we are seeing across the business. At our Capital Markets Day, we highlighted the significant growth opportunities we have within our existing customer portfolio, and this remains a key priority for us.
Growing with existing customers is attractive as it offers lower-risk growth by building on established relationships and our ability to expand across services and geographies. At the same time, we remain focused on winning new business in our four core customer segments, where our value proposition is strongest and can help our customers at a strategic level. Importantly, we continue to see structural trends supporting demand for our services.
One example is the increasing focus among companies on bringing employees back to the office. What we are seeing is that simply introducing return-to-office policies is not necessarily enough. Companies increasingly recognize that they need to create workplaces where employees actually want to spend their time, and that is where ISS has a strong role to play.
Through our integrated service offering, our people, and our understanding of workplace needs, we help customers create environments that support employee engagement, collaboration, and productivity. This is an important part of our value proposition and a clear opportunity to deepen our relationships with existing customers. Looking at our contract announcements, we continue to see encouraging commercial activity across our key segments.
We expect underlying growth to normalize by Q1 2027, supported by contract ramp-ups and growth with. This is consistent with the strategy we outlined at the CMD, growing with existing customers, winning attractive new business, and remaining disciplined in the opportunities we pursue. Overall, we are encouraged by the commercial momentum we are seeing. It reinforces our confidence in our strategy and our ability to deliver more sustainable, profitable growth going forward.
With that, let's move to the next slide. As outlined at our Capital Markets Day, improving the quality of growth remains a key priority, with a greater contribution from like-for-like growth and less reliance on pricing. We continue to see encouraging progress with improvements in both volume growth and net new wins, reflecting stronger commercial execution across the business.
Looking into Q4, we face tougher comparables, particularly from the DWP contract startup last year, which will impact like-for-like growth as communicated earlier. We expect like-for-like growth to return to around 2% in Q1 2027, as new contracts and growth with existing customers ramp up during Q4 2026 and into early 2027. Our expectations for underlying growth remain unchanged and are fully consistent with the growth composition we outlined at our Capital Markets Day.
Overall, we remain confident in the underlying momentum and our ability to deliver a more balanced and sustainable growth mix. Next slide, please. Before I conclude the business update, let me briefly touch on our contract maturity profile. We have made good progress throughout the year and have now successfully extended all larger contracts up for renewal in 2026, reducing our maturity profile to 0% for 2026.
This is a strong achievement and reflects our improved commercial discipline, earlier customer engagement, and more proactive approach to managing contract renewals. Importantly, it also demonstrates how our strategy is translating into execution with stronger commercial ownership, clear accountability, and deeper customer relationships. Looking ahead to our 2027 renewals, we are also in a solid position with customer discussions progressing well. With that, I will now hand over to Mads for an update on our financials.
Thank you, Kasper. In the third quarter, we delivered organic growth of 6.8% with contribution from all four growth levers: pricing, volume, net new, and above-base. Volume growth was impacted by two contract reductions in Northern Europe announced in early 2025 and third quarter 2025, respectively. This was more than offset by the full quarter impact of expansions with Brisbane Airport in Australia, Virgin, and a healthcare and a defense customer in Northern Europe, among other expansions secured in 2025.
Net new wins were also impacted by two contract losses in Northern Europe, both of which will annualize in fourth quarter. This was more than offset by the startup of Tryg, West Sussex, Bank of England, alongside other contract wins announced earlier in the year. Combined net new wins and volume growth delivered a solid like-for-like growth of 2%, marking another quarter of strong underlying growth.
Above-base revenue contributed 1%, supported by broad-based contribution across Europe. Overall, we continue to see a more balanced growth composition with stronger underlying contribution from volume and net new wins, consistent with the priorities outlined at our Capital Markets Day. As you know, we do not provide margin or free cash flow in our trading updates. However, as Kasper mentioned, both KPIs are developing in line with expectation, keeping us on track to deliver on our full-year guidance. Next slide, please.
Overall, all regions delivered organic growth in the third quarter in line with our expectations. This breadth is important. It reinforces the message from the previous slides that our growth mix is becoming more balanced, supported by commercial execution across the group. It is also consistent with the priorities we outlined at our Capital Markets Day: profitable growth, consistent financial performance, and disciplined execution.
Starting with Northern Europe, the region delivered organic growth of 6% in the third quarter. Growth was supported by the mobilization of contracts awarded in 2025 and early 2026, including DWP, Bank of England, West Sussex, COWI, and VELUX, among others. This was partly offset by two previously announced contract losses and two scope reductions. As previously communicated, Northern Europe will face a tougher comparison in fourth quarter as the DWP contract annualizes.
Above-base revenue remained strong, reflecting improved commercial execution and continued demand from existing customers. Turning to Central and Southern Europe, the region delivered another quarter of strong organic growth at 10%. Growth was primarily driven by price increases, particularly in Türkiye. We also saw a positive contribution from net new wins. In Asia and Pacific, organic growth was 6% in the quarter.
Performance was particularly strong in Pacific and India, supported by the Australian defense contract and continued volume growth with existing customers. Finally, in the Americas, performance developed as expected. Net new wins were affected by a number of smaller contract exits in Chile, as we also saw in the second quarter. In the U.S., organic growth was flat, while Mexico delivered another quarter of solid growth.
As mentioned earlier, the two U.S. contract announcements provide encouraging early evidence that our commercial investments are gaining traction, although the benefit is not yet fully visible in reported revenue, as only one of them had impact in third quarter with a few weeks. Taken together, the regional performance shows how we are translating our priorities into execution, strengthening our commercial engine, broadening the sources of growth, and investing selectively in markets with attractive potential.
This supports our confidence in the full-year outlook and in our financial ambitions presented at the Capital Markets Day. Next slide, please. Finally, let me turn to capital allocation and shareholder returns. At our Capital Markets Day, we reinforced our commitment to disciplined capital allocation, balancing investments in the business, selective M&A, and attractive return to shareholders.
Our share buyback program continues to progress as planned, and we are now approximately two-thirds of the way through the program. Combined with our dividend, this represents a total shareholder payout yield of approximately 8%. Turning to M&A. As outlined at our Capital Markets Day, our approach remains selective. We focus on smaller bolt-on acquisitions in markets we know well, where there is a strong strategic fit, clear synergy potential, and attractive financial returns.
We have not completed any new acquisitions during the quarter, with our focus instead on ensuring a successful integration of Toma. I am pleased to report that the integration is progressing according to plan. The leadership structure is now in place, and the financial and operational integration is advancing as expected while maintaining business continuity. Importantly, synergy realization remains in line with expectation, with further opportunities as we progress the operational integration.
This is a good example of the disciplined M&A approach we presented at the Capital Markets Day, acquiring businesses where we see a clear opportunity to strengthen our platform and create long-term value. Overall, our capital allocation priorities remain unchanged. We will continue to invest where we see attractive returns, pursue selective bolt-on opportunities, and return excess capital to shareholders when that represents the best use of funds. With that, I will hand it back to Kasper.
Following another solid quarter, we reconfirm the guidance for 2026. We continue to expect organic growth of above 6% for the full year. Pricing, including the contribution from Türkiye, is still expected to be the largest growth driver. However, as we have shown today, the growth composition is becoming more balanced, with stronger contributions from volume growth and net new wins and above-base activity.
Our focus on expanding with existing customers continues to deliver results, while we are also making progress in winning new customers within our target segments. At the same time, stronger commercial ownership at site level is helping us identify and capture more opportunities closer to our customers, supporting our above-base contribution. On profitability, we remain on track and reconfirm our full-year margin guidance of around 5.25%. Overall, Q3 reinforces the message you have heard throughout today's presentation.
Our strategy is delivering, commercial execution is improving, and the quality of our growth continues to strengthen. Please turn to the next slide. As you know, we keep a relentless focus on cash flow in ISS, and we are on track to deliver a cash conversion of above 60%. This equals above DKK 2.7 billion in underlying cash flow.
Adjusting for the DKK 200 million negative impact from invoices with due dates in 2026 that was paid in 2025, and including the received payment from Deutsche Telekom, we expect free cash flow of above DKK 3.1 billion for the full year. Please turn to the next and final slide. As we conclude today's presentation, let me bring together the key messages. Our equity story remains consistent. ISS is a global leader in an attractive market, with significant opportunities for long-term profitable growth.
As we outlined at our Capital Markets Day in September, we have a clear strategy and ambitious financial targets towards 2028. Our Q3 performance marks another step towards delivering on those ambitions. We continue to see strong commercial momentum, with a more balanced growth composition and improving underlying performance. At the same time, we are making progress on our operational initiatives, strengthening our platform and maintaining a disciplined approach to capital allocation.
Importantly, we continue to deliver consistently against our commitments, building the track record and confidence that underpins our equity story. Looking ahead, our priorities remain clear: driving profitable growth, delivering consistent financial performance, and maintaining strong engagement across the organization. We remain confident in our strategy, our ability to execute, and the opportunities ahead of us.
Finally, I would like to thank you, our Placemakers around the world, for their continued dedication, and our customers for their trust and partnership. With that, we conclude today's presentation, and we are now ready to take your questions.
We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to two questions. Anyone with a question may press star and one at this time. Our first question comes from Thomas Lind Petersen from Nordea. Please go ahead.
Hi, Kasper, Mads, Michael, and Sophie, everyone. Good morning. Two questions from my side, please. The first one regarding the guidance above 6% organic revenue growth for the full year. Given 7.7% organic growth year-to-date, I was just wondering if you could tell us a bit about the main moving parts behind the unchanged revenue guidance for the full year. Is the DWP annualization, is that the main only reason here for expecting a sequential slowdown in Q4, or are there other headwinds?
A second question is regarding the projects and above-base. We've seen around 1%-1.5% underlying all through 2026 in projects and above-base. Just wondering how sustainable is that, both in terms of Q4 and also going into next year, also giving the very strong growth for Northern Europe in above-base revenue? Yeah, so I think that would be my two questions. Thanks.
Good morning also to you, Thomas, and thanks for two good questions. First of all, we're confirming today that we are delivering an organic growth for 2026 above 6%, which is fully in line with what we've communicated previously, and also a growth number that has a very strong quality. Actually, the best quality that ISS has delivered from an organic point of view in many years.
There are two things that you need to be aware of for Q4, and you are mentioning both of them yourself. In Q4, exactly as you were saying and as we all know, we are impacted by the DWP comparison, which is a headwind and is impacting negatively the net new. Then there is a possible scenario with a lower level of above-base and projects in Q4. Let me put a few more words on that.
A few of our large new customers will potentially face their project spend between Q4 2026 and Q1 2027. That means that there could be a scenario where Q4 2026 will be lower on projects, but Q1 2027 will be equally better. Maybe just a little bit more color on that, because the customers I am referring to here are customers that are generating a high level of above-base for us.
They are new customers into the portfolio, and therefore, it is the first annual cycle that we have with those customers, and DWP is by far the biggest of them. They are finishing their financial year at the end of Q1 2027, and therefore, it does not matter so much to the customer if they are spending in Q4 2026 or in Q1 2027.
I will also say, Thomas, and that is not to be arrogant in any way, shape, or form. What matters the most to us is not whether the rounding on decimals on the organic growth in 2026. It is that it is a sustainable growth that we have. We are looking into a very exciting and also positive 2027.
We have the wins and expansions that you know of, greater than DKK 100 million that are starting to go live at the end of Q4 this year and in the beginning of next year. We have a retention rate that is 95%, and there is no reason to believe that we would not be able to maintain that. Then we have a strong pipeline that has developed positively in the third quarter with good conversations in the processes that we are engaged in.
So, no reason to believe that we should not see a strong growth rate for ISS in 2027. On above-base, on your second question, we do not see any structural changes on above-base. We have improved the way that we are getting our arms around the opportunities at our customers' sites, and the budgets are there, so there are no structural changes. What I am talking to about the Q4 comments, we see that as phasing and not a structural issue.
Thank you. Very clear. Just perhaps a small follow-up on the projects and above-base. It seems as if the underlying growth is around 1%, perhaps 1.5% here in 2026. So, is there any reason not to expect the same going into 2027, except the obviously Q1 phasing here?
No. I mean, as we said in the presentation, like-for-like is expected to return back to around 2% in Q1 2027. The level of above-base, we will have to wait and see. I mean, a significant part of the project and above-base is actually being conducted between Christmas and New Year.
Because it is new customers that has entered into the portfolio, we do not have the same level of experience and transparency as we will have it with a customer that we know through many years. Again, our expectation is that if we see a lower project volume in Q4, then there will be a corresponding equally high uptick in the first quarter of 2027.
Thank you. Very clear. Thank you.
Thank you, Thomas.
The next question comes from Annelies Vermeulen from Morgan Stanley. Please go ahead.
Morning, Kasper. Morning, Mads. I have two questions, please. Firstly, on the Americas, can you remind me how long the Chile contract exits will have an impact on the growth? Assuming that rolls off and North America, which I think was stable, continues to stabilize, would we expect to see performance in the Americas steadily continue to improve as we move through 2027? Secondly, just on pricing, I appreciate the priority is volume growth rather than price, but do you have any early thoughts on pricing for 2027 relative to 2026, given the ongoing cost inflation in your end markets? Thank you.
Yes. Thanks, Annelies. In terms of the U.S., I mean, clearly, just as an overall comment, as we're investing into the U.S., and we're doing that for a reason, and that is that we expect a return. There's no reason to believe that we shouldn't get a positive contribution from the U.S. in 2027 on organic growth, for sure. That's our clear expectation, and that's also what forecast and numbers are indicating.
The annualization in Chile from the contract exits is coming to an end in the first quarter of 2027. Overall, around the U.S. growth, you're seeing the two above DKK 100 million contracts that we have announced in Q3 2026, and they will impact us positively already from the first quarter in 2027.
My comment around positive developments in the pipeline is the fact that we have progressed further in the negotiations and the conversations that we are having with customers in our pipeline. Of course, we expect that we will also get some portfolio increases out of that. I don't want to be specific in terms of any timing on that. Overall, on track in the U.S., and we expect a positive growth contribution in 2027 to us as an enterprise from the Americas region, and in particular from the U.S. market.
On pricing, it's a notch too early to be conclusive. It's obviously depending on the biggest part of our cost base, which is our wages to our staff and where the minimum wages are ending up in terms of adjustments for 2027. I can't be specific about that. What I can say is that we have a clear expectation that the level and the contribution from prices in 2027 is going to be higher than what we have seen historically.
Very clear. Thank you, Kasper.
The next question comes from Mads Brinkmann from Berenberg. Please go ahead.
Yeah, thank you very much for taking my questions. Just following up on the last pricing question. I mean, I know it is a little bit early, but I guess indications right now, it seems that the Central Bank in Türkiye is expecting around 28% increase, and I think the increase this year in minimum wages was 29% or 30%.
And in the U.K., similarly, indications are for minimum wages to be down slightly, but quite minimally. Just, I mean, pushing back a little bit, because I know it is early, but if I look at the price or the chart that you have provided on prices and like-for-like growth, I mean, I know you have provided yourself with some leeway here, both on the up and the downside on the pricing.
But, I mean, on average, on what you indicated for Q1 looks more or less the same as what we are seeing now, doesn't it? Given the fact that, yeah, I mean, what we have seen in Q1 over the last two or three years has more or less stuck throughout the year. So isn't it fair to assume, if not a full 4%, then something that is just very close to 4%? That would be my first one, please. Then just the second one.
Interesting to hear on your progress in the U.S., and I am a little bit interested to hear as well. I know you mentioned one big customer that you were talking with, or that was mentioned at the CMD in the U.S. I think it was a media customer. Can you just confirm that talks with that one customer has progressed, or if it's progressed with somebody else? That's all for me. Thank you.
Thank you, Mads. Good to see that you have a strong memory. I knew that already, so I'm not surprised. To your two questions, on the pricing part, it is too early to be precise. As I said, you will not see a significant change compared to the level that we had in 2026.
I don't want to start to give any specific indication of prices for 2027 when there are current negotiations going on between various union authorities in our local markets. I think in Türkiye, let's see where it ends up. I've seen changes in Türkiye before, but what you're alluding to, of course, is an indication, but nothing is confirmed just yet. Overall, where you're getting at, I'm sure, is, are we looking into a strong growth number for 2027?
The answer to that is yes. We see both our comments around like-for-like returning to 2% in the first quarter. That's what our expectations are. That's what our forecast is confirming. Then, no structural issues on above-base , but there is this uncertainty around phasing. Then pricing will also be a strong contributor, but I don't want to give an exact number of that. I would love to if I had it, but it's too early to do that at this point in time.
Then, in terms of the U.S. and commenting on specific talks with certain customers, I don't think that's the right thing to do, Mads. What I can say overall in the third quarter is that we are not disqualified from any processes in the third quarter that we've just gone through. We have progressed positively with the discussions that we're having with, hopefully, the new customers to ISS, but we haven't landed them yet, but good progress in the third quarter.
Thank you very much, Kasper.
The next question comes from Kristian Godiksen from SEB. Please go ahead.
Thank you, and sorry for returning to the same question on like-for-like. Kasper, you mentioned the 2% like-for-like in Q1. If you go back to my favorite slide on slide eight, then the graph seems to show a different picture, with like-for-like set both to potentially accelerate and decelerate further. If you could please put some more context into this, as I cannot see any large impact from new contracts coming in.
Then further, it seems like the downside to the 2% is larger than the upside, at least based on the way I look at the graph from the like-for-like development. Then just a second question on the, if you could please provide an update on the M&A pipeline, how that looks in the various regions. Thank you.
Mads?
Yeah. Thank you very much, Kristian. You have to remember the like-for-like graph is illustrating the last 12 months, and this is an indicative graph that is just showing the development. As Kasper alluded to, we expect like-for-like to be back at the + 2% in the first quarter of 2027. He also went through why we see a strong headwind in the fourth quarter, mainly due to the DWP part.
When it comes to the M&A pipeline, I mean, we have not done anything this quarter. I am super happy with the progress that we are making on Tomagruppen. Actually had a call today, and we are progressing exactly according to plan to take out both synergies and benefit of it. So, that is a really strong testimony that we are able to do larger M&A as well. Looking at the pipeline, there is nothing big in the pipeline at current.
The full focus is on the integration of Toma. As we said at the Capital Markets Day, we will do what we think is most shareholder-creative. If we find strong and good opportunities, we will, of course, take a look at it. There is nothing larger that I can tell you about at current. Thank you.
Okay. Thank you. Just maybe a follow-up on the like-for-like part. I get the communication and your understanding, reasonings. I am just saying that the graph seems to me to show a different picture. If Q3 2026 was the 2% like-for-like, then when I look at the graph, at least, and in Q1, it seems like there is a significantly larger downside than upside to that level. Also, there is a potential that Q1 will decelerate further compared to Q4. That is at least what the graph show, but obviously, you are saying something different, so I am just a bit curious on that.
I mean, it is illustrative, and there is no more downside than upside to the graph on the like-for-like in the first quarter.
Okay. Yeah. Okay. Thank you. I still think that the graph shows something else, but I guess your communication is what I should interpret on, instead of the graph.
Thank you.
The next question comes from Mikkel Løgsted from ABG Sundal Collier. Please go ahead.
Yeah. Good morning, all. You mentioned that the organic growth in the U.S. is flat. Is that a mixture of small losses and wins, or is it just because of limited activity?
The flat growth in the U.S., there hasn't been much movements in the portfolio in the third quarter, to be honest. It has been pretty stable in the third quarter. The activity that I'm alluding to is, of course, that now we're mobilizing the two significant new contracts that are going live and will support the growth in the first quarter of 2027. Hopefully, we will need more resources to mobilize because hopefully, we will see that we have more wins coming from the positive conversations that we are having with potential new customers. Again, referencing my comments around the positive progress in the pipeline.
Okay. Got it, Kasper. Thank you.
Thank you.
The next question comes from Casper Blom from Danske Bank. Please go ahead.
Thank you very much. I have two questions, please, on other subjects than we have discussed so far. First of all, on the capital structure, where you have a target of a net debt to EBITDA between 2x and 2.5x. Given that we have seen interest rates come up and thereby also your interest rate payments, are you still comfortable with the 2x to 2.5x leverage?
Or maybe also if you can give any flavor, if it is maybe now time to look more towards the bottom of that range, given the interest rate environment that we are in. That is the first one. Secondly, on the Hong Kong fire, I can read your statements in the trading statement that it is premature to conclude, but do you have any indication on a timeline for when it will be possible to conclude? Thank you.
Mads, will you start on the capital structure?
Yeah, I can do that. Thank you very much, Casper, for the question. As you know, we are targeting 2x to 2.5 x. A little bit more than a year ago, we actually established a Euro Commercial Paper programme, which is supporting taking our interest rate costs down because we are able to short fund to a larger extent than what we did previously. First of all, we have a funding setup that is cheaper than what we had back in the days, which is, of course, mitigating some of it.
That is one thing. The other point is that still with what we see here, we are following our projection for where our financial items will end for the full year, and we are targeting a leverage not too far from the midpoint of that range. We are comfortable with what we see despite the increase in the interest rate at current.
On Hong Kong, Casper, good morning to you, and also totally understandable that you are raising that question. I mean, I just want to come back to, before I start to comment on anything, and say, this is really an emotional thing, and heartfelt thoughts are with the people in Hong Kong, and such a tragical incident. It is simply awful, I have to say. I just get that out.
We cannot speculate around a timeline for when this whole thing is completed, so that will not be credible. Even though it is almost surreal to talk about, then we have full insurance coverage in any given scenario on different levels, if any responsibility ultimately should be attached to our subsidiary in Hong Kong.
That is very clear. Thank you, Kasper. If I may just follow up to Mads' answer on the capital structure. Would you also say that you are also comfortable with the basically midpoint of the leverage range when looking in towards 2027?
I mean, as we said before, we have a leverage target, and we have been both in the bottom of the target, we also been in the high end of the target. We have been in the mid-range for periods. We have utilized, among other things, our share buyback when we see we've been able to generate good cash and distribute it out. But I think we are quite comfortable also from a 2027 perspective in regards to where we will end on the leverage side.
I agree. I totally agree with Mads. The short answer to that is yes, comfortable with the leverage rates and range, and no reason to believe that wouldn't be the same for 2027. Then, of course, I think what you are circling around here, Casper, is trying to figure out what is the level of share buyback. We don't give any exact number on that, but as Mads said, we don't have anything big in the pipeline in terms of M&A. So, hopefully that gives you a little bit more color on how to look at that.
Thank you very much. Appreciate it.
As a reminder, if you wish to register for a question, please press star followed by one. Our next question comes from Tim Ramskill from Bank of America. Please go ahead.
Thank you. Good morning, both. Two questions from me. One, you've obviously, you've talked about this earlier in the year, but looks like we're pretty clearly going to land on a retention rate that's around 95%. I know you've touched that level before, but just interested in how strategically that helps the teams in terms of the resourcing you can dedicate towards chasing new business, the efforts you've made around proactively driving improvements in retention as well.
How different does that feel within the group relative to where you were a few years ago? Then maybe if we can come back to the Americas, given the pre-prepared comments on the pipeline and new wins, et cetera. The Americas region has been a drag to group organic growth for the last three years. Do you see a scenario into 2027, 2028 where it could actually be trending ahead of group average? Thank you.
Yeah, good morning. Thanks for two good questions. First of all, I think I mentioned in my presentation, we see no reason why we shouldn't be able to maintain the 95% in retention. All significant expansions with customers have been completed for 2026. That's why the pie shows zero. It's very important, crucial to get a strong retention rate because, obviously, the level of opportunities we have with growth with existing customers is increasing accordingly when we're keeping them.
Super important. On your resource question, we have a better structure around how we work with retaining our customers now compared to what we have had before. That's the proactive approach, making sure that we understand early in the process who's actually on the customer side making the decisions.
Making sure that we have that insights and can plan accordingly. It's the proactiveness that I'm really pleased with. The good thing is we can improve even further on that. Even though we have improved, there's still room for improvement on that one. But, short answer is it's crucial to keep the retention rate at a strong level.
On Americas, as I said, I don't want to go any further than saying that we will see a positive growth contribution to the enterprise from the Americas next year. Obviously, I mean, you can add it up yourself. What we have announced is the two expansions with customers with annual volume revenue, incremental revenue of more than DKK 100 million each.
But ultimately, the growth in 2027 for the Americas will depend on the last part of the conversations with the customers that we have in the pipeline, that will be the decisive factor in terms of where we are ending up with growth in Americas in 2027.
Excellent. Thank you.
The next question comes from Allen Wells from Jefferies. Please go ahead.
Hey, good morning, gentlemen. Just a couple from me, please. I guess one of the themes that came out of the CMD recently was the cost opportunity via things like workforce management and efficiency. I guess my question is this more of just a steady progress that we will see gradually over the next one, two, three years, or are there any meaningful catalysts that we should be mindful of, particularly going into next year in terms of systems or process? Just be interested to understand how we should think about that and the margin profile there.
Secondly, just on the Deutsche Telekom contract, obviously we had the catch-up revenue in 2Q, that is normalized, but I am just interested in how progress has been in this quarter and how we expect it to carry on in the rest of the second half versus those original expectations, and how to think about the phasing of margin improvement in that contract into next year. Thank you.
Yeah. Thanks, Allen. So I can take those also. I think really good questions. Thanks for putting it out there. On DTAG, we are on track. It has been a relief on both parties to get the settlement agreed, and we can see that the way that the teams are working together is completely different compared to how it was when the dispute was going on.
Again, performance is on track. Is that the same as saying that everything is perfect on the account? Of course it is not. We need more time to make sure that we have successes together, to make sure that the things that we agreed as a part of the resolution is also coming through. The more time that goes by, the stronger that relationship will be. But really off to a great start.
Also what we alluded to in terms of the financials when we spoke about the settlement and what you saw in the numbers in the first half, that is what is coming through in Q3, and expected to see that coming through, yeah, both for Q4, but also over the course of 2027. No reason to believe that that is not going to be the case.
On the CMD and workforce management, first of all, just a little bit context. The work that the organization has undertaken and done since we started to really focus on this, so in the last one and a half year, is massive, and the reason why our profitability has increased quite significantly compared to where we were two years ago. We are still only tapping into a fraction of the opportunities that sits in this whole area.
Again, it is obviously getting the productivity right at every single site. That gives a small incremental improvement on every single site. When you are such a significant business as we are, then small incremental improvements is adding up to a significant amount. So we expect that to continue to increase margins over the course of 2027. But I think it will always be an activity and a focus that we will have in ISS, both to fuel margins, but also to make sure that we are competitive in the pricing that we are putting forward in commercial processes to customers.
Great. Thank you.
Thank you.
Our last question for today comes from Nicole Manion from UBS. Please go ahead.
Good morning. Thanks for taking my question. Can you talk a bit, please, about the volume piece within like-for-like? You have obviously seen the improvement on net new over the past year or so, but underlying volumes have been quite consistently in the 50 basis points-100 basis points range. How do you think about where that can get to in 2027? Is that something that can accelerate without more support from the B2B spending environment, which still looks, on most measures, I think, quite subdued?
You obviously mentioned retention and proactiveness as things that can help you drive more growth with existing clients, but just sort of trying to drive at how maybe you balance that with your view of the wider environment, basically. Any sort of wider insights on how you see that environment, and if you disagree that it is still subdued, would also be helpful. Thank you.
Thanks, Nicole. Volume growth and growth for the existing customers is a massive opportunity for us, as we said in the Capital Markets Day, and Q3 has not changed that. When I speak to our pipeline, I also include that in the pipeline, the expansions that we can do with existing and current customers. No reason to believe that it should not continue at the levels that we have seen throughout the first three quarters of this year.
Then in the more longer horizon, then we are certainly working hard on improving it further. The opportunities are there with our existing customers, and it is both to add new service lines into the portfolio, but also to grow with our existing customers across other local markets or across geographies.
Great. Thank you.
Okay. I think that was it in terms of questions. Thank you very much for prioritizing the call this morning, Central European Time. Much appreciated. Also, thank you very much for some very good questions. With that, just want to say that we are very much looking forward to meet, hopefully, many of you in the upcoming roadshow that we will start this afternoon.
If there are any questions or comments or reflections, then we have a strong IR department that will also keep their phones open, so you can reach out to them. With that, thank you very much. Have a wonderful rest of your day, and thank you so much for your interest in ISS as a business. Thank you.
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