Sodexo S/Adr

Good morning, everyone. Happy New Year to you all. Welcome to our Q1 fiscal 2024 revenues call. On the call today, we have Mark Holland to take us through the numbers and ask your questions. If you haven't already downloaded them, the slides and press releases are now available on Sodexo.com, and you'll be able to access this call on our website for the next 12 months. The call is being recorded but may not be reproduced or transmitted without our consent. I now turn the call over to Mark.

Thank you, Virginia, and good morning, everyone. I wish you all a very happy, healthy, and successful 2024. And welcome to this fiscal 2024 Q1 revenues presentation. On slide two, I wanted to highlight several contextual points. We shall focus on Sodexo continuing activities only, as Plexi has been classified since our year-end last year as a discontinued operation, which means that we only consolidate Plexi at the net income level. Plexi's Q1 will be announced at its capital market day on January 10, 2024. In this presentation, Sodexo refers to Sodexo's continuing activities only. The expected impact of the Plexi deconsolidation has been added to the modeling assumptions for fiscal year 2024. Please do look at Appendix 1, slide 15. So, let's go through the numbers in slide 5. Revenue were €6.3 billion, up 3.1%. You can see that we had a negative contribution from scope and currencies. The minus 4.8% currency impact is linked to the strength of the euro against most currencies from the beginning of calendar year 2023. As a result, at current rates for the rest of the year, this negative impact is expected to subside progressively over the year. Organic growth came out at 8.2%. only slightly lower than the fourth quarter exit rate. In that 8.2%, there is the impact of the accounting change in energy and resources of minus 0.6%, which will impact the first three quarters of the year and then reverse out in the fourth quarter. In this fiscal quarter, it was actually compensated by the positive contribution from the Rugby World Cup, which was more or less equivalent at plus 0.6%. By region, North America was up 8.7%, Europe 9.2%, and the rest of the world 4.7%. But if you strip out the Rugby World Cup and the accounting change, Europe was up 7.6% and the rest of the world 8.1%. As you can also see, the food sales recovery continued with sales up 10% organically and FM services growth was solid at 4.7%. This quarter, we've had our share of good news in terms of new business, renewals, and extensions. In North America, we retained for a further 10 years our Tufts Medicine contract and doubled the contract with additional locations. We manage food and FM services there. In particular, we have implemented our room service model to enhance patient experience. In the U.K., We have successfully extended six public sector contracts for a combined value of £34 million to provide catering services for employees of the London Underground, the British Transport Police, the Metropolitan Police, and London Bus Drivers for a further two years. For London Underground, we are also introducing the Kitchen Works brand. We have also extended our contract with His Majesty Revenue and Customs for FM services on 48 sites, including 10 of their 14 regional centers, and also for our long-standing clients, Haven and Somerset Police, providing essential services, including catering and hospitality services, cleaning services for over 3,000 police officers and personnel at 54 police stations and sites. In Australia, we have signed a new contract for Glencore's marine-marine operation, one of the largest nickel and cobalt producers in the world. The five-year contract went live on the 16th of December for the provision of village and plant services for a total of 1,200 rooms, including village management, catering services, wellness, tavern and retail, industrial cleaning, and many other FM services. The Sodexo food offering includes a village resident app for order-away and cook-to-order operations scan-and-go retail, and premium grab-and-go offers. Pricing is in line with expectation at circa 4.5% in the first quarter, coming up from more than 5% in Q4 fiscal 23. This is in line with our expectation for an annual pricing contribution of between 3% and 4%. Food inflation is coming down substantially in most regions, currently at low to mid single digit, but with Europe still at high single digit. On the other hand, employee costs are still rising in all regions, running at about 5% in Q1. So let's start with North America. In North America, first quarter fiscal 2024 revenues were just over 3 billion euros, up 8.7% organically. Organic growth in business and administration was up 12.1%, helped by a favorable impact of new business. Volume growth also remained solid, with higher attendance in the convention center's activity and increased passenger count in airport lounges, as well as continued increase in the return to the workplace. Pricing was around plus 4%. In healthcare and seniors, organic growth was 6.3%, due to the combination of price increases, retail growth, and favorable net new contribution. On the other hand, lost sites in seniors are offsetting some of this performance. In education, organic revenue growth was 7.5%, boosted in particular by price increases and ongoing growth in meal count, increased retail, and more event catering. Europe revenues amounted to 2.2 billion euros, up 9.2% organically, and up a healthy 7.6% without the Rugby World Cup event. In business and administration, the 10.1% organic growth was boosted by the Rugby World Cup food sales in our stadiums and package sales to some of the national rugby organizations. There were also price increases across the board, But on the other hand, French tourism was affected in November by the deterioration of the security environment and relative to a record activity in the previous year. In healthcare and seniors, organic growth was solid at 8.9%, resulting from strong new business in Spain, strong pricing in the UK, and better activity and price revisions in seniors in France. In education, organic revenue growth was 6.2% due to higher pricing, somewhat offset by net contract losses, in particular in France. First quarter fiscal 2020 for revenues in the rest of the world were 1.1 billion euros, up 4.7% organically, impacted by the accounting change made in Q4-23, retroactively for the full year. Excluding this change, zone organic growth would have been 8.1%. Activity in most regions is strong, except in China, where the weaker economy is affecting all our activities. Business and administration was up 8.9%, excluding the accounting change. There was a solid performance in India, Australia, and Latin America. However, activity stalled in China due to the post-COVID economic slowdown and quite a lot of restructuring at some of our clients, particularly in the tech sector. And to be noted, the Middle East was impacted by account losses too. Healthcare and seniors was up 2.6%. Strong growth in India and Latin America was offset by slower growth in China and last year exit of low-performing contracts in Brazil. In education, organic growth was 3.3% due to a decline in China, offset by double-digit growth in Brazil and India, boosted by new business and ramp-up of existing sites. Now let's turn to our guidance for Sodexo Standalone on slide 12. The first quarter is in line with expectations. Volume are increasing progressively. New business is ramping up. Net new signings are also in line with expectations. We are on track with our fiscal 2024 and 2025 plan. So we confirm our guidance of 6% to 8% organic growth in fiscal 2024 and 2025, and a margin improvement of 30 to 40 BIPs points in each of the two years. I thank you for your attention, and I'm now ready to answer your questions.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question is from Julianne Reacher with Kepler. Please go ahead.