Sodexo S/Adr

Good morning, everyone. Welcome to our first half fiscal 2024 results poll. On the call today, we have Sophie Belland, Chairwoman and CEO, and Marc Rolland, CFO. As usual, we'll start with a presentation and then open up the call for your questions. If you haven't already downloaded them, the slides and press releases are 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. Don't hesitate to get back to the IR team if you have any further questions after the call. Please note that the Q3 revenues will be on the 2nd of July, and I now turn the call over to Sophie.

Thanks, Virginia. Good morning, everyone, and thanks for being with us today. I know that for many of you it is a busy morning with both Plexi and Sodexo. We shall go back to a more normal date for Sodexo's H1 announcement next year. So this has been a busy first half for us at Sodexo. And I'm really proud of the fact that the spin-off and listing of Plexi was effective on February 1st. It has been hard work for the teams, but we have managed to pull it off in record time with no interruption to the underlying businesses and a successful stock market trajectory so far. Sodexo has now become a pure player in food and facility management, and we're excited by the profitable growth opportunities that exist in a market over 600 billion euros. In the meantime, we've had a solid H1 performance on track for our guidance, and we have made steady progress on net new wins with record retention. We have also executed at pace on our strategic development. With a strong increase in branded food volumes, Modern Recipe is now deployed in 12 countries, 400 sites, and organic sales growth is 22% year-on-year. We're also progressing on client adoption of low-carbon meals, and I shall show you a client testimony in a couple of minutes. And finally, we have disposed of the home care activities, freeing up cash and allowing us to refocus our energy on transforming our core food business. Organic growth revenue for the first half was 8.5%, accelerating in Q2 to 8.9%, helped by the leap year boosting volume across the board, but especially in education and Sodexo Live, combining a large number of events, much more travelers in the airport lounges, and strong new business. The strength of the growth in food services at plus 10.7% is across all zones, And FM organic growth has remained solid to a 4.5% or 5.4%, excluding the accounting change, and very similar in all regions. The underlying operating margin was up 40 basis points at 5.1%, a good sign for our fiscal year 24 guidance, even though the inflation sweet spot benefit is short-lived. The last 12 months, client retention hit a new record at 95.5%, up 30 basis points relative to year-end 2023. And as a result, the last 12 months net new is up 20 basis points. Before I start on the detail, I wanted to highlight that we have changed the KPI to last 12 months numbers, and you will find the six months numbers in the appendix if you want to check them. As I already said in the previous slide, client retention is on a good trend at 95.5%. Last 12 months development on the other end is below the range of 7% to 8%, and this is due to phasing. we are confident that we will be in the range for the year, and we are totally focused on our targeting and also on signing better margins than before. Despite this fading issue, we are making steady progress in net new signing, which are at 2.4 on last 12 month basis. To illustrate this commercial dynamic, let me highlight a few contracts which are symbolic for us. Sodexo Live, has just won a significant multi-year contract for 23 American airline lounges in North America. It includes key locations of Charlotte, Miami, Philadelphia, and New York, where circa 500 Sodexo Magic employees will provide complimentary snack, premium food, and beverage to guests each day. This contract is effective since January, with progressive operational transitions since then. Over the past few years, we have developed a solid expertise in airline lounges and a strong airline client portfolio. We have strengthened our European partnership with Clariane by retaining the procurement and advisory food service in France and Spain and with a new contract in Belgium, where Clariane is outsourcing for the first time. The contract covers 550 sites in total. We are proud of the trusting relationship built over the years and the successful collaboration between our companies to enhance food offers to consumers and provide technical assistance to our clients. In this contract, we shall be creating a culinary identity in each country, training staff to deploy hospitality-level standards, and providing digital solutions to enhance services. We shall also be providing Clariane with help in reaching its CSR objective by deploying Westwatch, measuring the menu carbon footprint, promoting low-carbon recipes, implementing initiatives around responsible and inclusive procurement, and developing a health and safety culture. We have also renewed and extended our now integrated food and FM services contract with the Heineken Company in Brazil. We are their single food supplier in Brazil with the Sabor Brazil brand implemented for all of their administrative, factory, and distribution centers. By integrating a large suite of services, We will standardize their site operation and optimize costs across their properties and support them in achieving their CSR targets. For instance, the eco-efficient performance of the Cocina Intelligente, the smart kitchen, will reduce organic waste by 30%, oil use by 60%, and electricity by 32%. On slide 8, you can see how we have accompanied the New York City hospitals in their move towards low-carbon meals. We have been working with them for the last 15 years. In 2019, they started with Meatless Mondays. And then, in 2022, plant-based dishes were provided as the primary and default dishes to all patients. Last month, I was in New York to celebrate the 1.2 million plant-based meals served for our clients. And look at what Kate McKenzie from the New York City office said. We are proud of New York Health and Hospitals for taking on the challenge of creatively developing delicious and culturally relevant plant-forward dishes. Their uptake is proof of their popularity. So we have even published a recipe book to extend good practices outside the hospital. And with a 90% patient satisfaction for food service, a 90% patient acceptance, and a 36% carbon reduction year-on-year, this contract has become a showcase for New York City and also for Sodexo. I would also like to say that our actions on the ground are also recognized by some very prestigious organizations. For the first time, we are one of the world's most ethical companies as per Ethics Fair. There are no other food service companies out of the 125 recognized companies, and we have also reintegrated the CDP Climate A-list, again, the only one in our sector. I'm sincerely very proud of this recognition because we work hard to improve our practices on a permanent basis. It is part of our DNA, and through the discussion I have with our clients, I know that they are taking these subjects more and more seriously and are choosing their suppliers for their values and their capacity to help them achieve their CSR targets. And now, pass you on to Marc for the details of our first half numbers. Marc?

Thank you, Sophie, and good morning, everyone. Before I start, don't forget to look at the appendices. You have the detail of the alternative performance measure definition along with the modeling slide. Let's now have a look at the P&L performance for first half fiscal 24 without Plexi. You will find the Plexi contribution in the appendices and the management report. We have given you all the major details in our Q1 announcement. For those of you who still follow Plexi, I'm sure you have a full grasp of their H1. So in H1, as Sophie has shown, we've made solid progress. Revenues were up 4.5% or 7.8% at constant currencies. The underlying operating profit was up 12.3%, and nearly 17% at constant currencies, resulting in a margin of 5.1% up 40 bps. Thanks to the gain on the sale of the home care activities as of October 23, other operating income and expenses were positive at 30 million euros. I'll come back to this on the next slide. Net financial expenses were 46 million euros up 3 million euros. Gross interest on the bonds was more or less stable Higher dollar floating rates were offset by the reimbursement of two bonds. And just as a reminder, the first one was in November 23 for 300 million, and it was due in 2025, but this was the only bond that refused a spin-off related consent process. The second for 500 million euros was at maturity in January 24. I remind you that these two bonds were at very low interest rates. The first half fiscal 24 effective tax rate was very low at 16.6% due to the capital gain on the sale of the home care activity, compared to 26.2% last year. As a result of all these items, group net income from continuing activities increased by 46.3% to 496 million euros. Adjusted for other operating income and expense after tax, the H1 underlying net profit from continuing activities amounted to €427 million, up 15.4% or plus 21% at constant currency. As I have just said, other operating income and expenses were a net positive of €30 million, including €83 million of net gains from disposal. This was offset slightly by some limited restructuring costs of €15 million and, as usual, the amortization of purchased intangible assets for €17 million. This plus €30 million compares to minus €36 million last year. Please note that we are expecting about €40 million of negative OIE for the full year, including the last of the spin-off costs and a bit more above-side restructuring. Before I turn to the cash flow, I wanted to highlight a few changes that we have made to some of our metrics to bring them more in line with those used by our peers and which we hope will simplify your reading of our accounts. You have already seen with Sophie that we have moved to a last 12 months retention and development. This will help the understanding of the KPI trends. You have also probably seen that by geographic zone, we have split our sports and leisure from BNA. I hope this extra disclosure will also help you to better understand the revenue dynamics. And now, a more technical change. Under IFRS 15, the amortization of client investment is deducted from the revenue. Therefore, it had always impacted negatively the operating cash flow, despite being a non-cash item, and was then corrected through a reduction of capex to balance the free cash flow. From H1 onwards, we treat this as a non-cash item within the operating cash flow, which therefore goes up. As a result, our operating cash flow and our underlying EBITDA are up. The next CAPEX is adjusted up to... We now have alignment of our net CAPEX and our CAPEX guidance, and we believe we are now aligned with our two main competitors. So with all of that in this table, the first column shows you the previous definition. In the second column, you will find the amortization adjustments, and then in the third column, the new definition, which gives us a capex to cells of 2% versus 1.4% previously, an underlying EBITDA margin of 6.7% versus 6.1%, and a net debt to underlying EBITDA of 2.3 turns versus 2.6%. And just to be sure, the new net capex includes normal capex plus new client investment, net of asset disposal. In the last two columns, we've also added the IFRS 16 adjustment. This is for information only. I still do not believe that this adjustment reflects the fair situation for the group. This will improve the EBITDA margin to 7.5%, but also increase the net debt to EBITDA to 2.5 turns. Now let's take a look at the cash flow. This is the free cash flow excluding Plexi. Operating cash flow was 739 million euros. The limited improvement despite the increase in operating profit was linked to the unfavorable variation of income tax paid following significant positive one-offs last year. The seasonal outflow in working capital was reduced by more than 100 million to 513 million euros during first half fiscal 24. Net capital expenditure was stable at 246 million euros, corresponding to 2% of revenue. The capex-to-sales ratio is expected to be higher in the second half due to the timing of investments. We are maintaining our expectation for a net capex-to-sales of 2.5% in fiscal 25. As a result, first half fiscal 24, free cash outflow was minus 102 million euros and better than last year. Acquisition net of disposal were positive at 100 million euros thanks to the disposal of the home care business and despite several small acquisitions in North America inconvenience. On the other hand, the dividend was increased by 100 million euros compared to the previous year. As a result of this, Consolidated net debt increased by only 434 million during the first half to reach 3.4 billion euros at February 29, as we shall see on the next slide. Now on the balance sheet, here you can see that the assets and liabilities held for sale have gone. We are now a pure player. Our balance sheet is smaller. The intercompany loans have disappeared, and we have not replaced the bonds that we reimbursed. As a result, gross borrowings are now down to 4.8 billion euros from 5.6 at year-end and in February last year. Given the higher level of interest rates going forward, we intend to manage our balance sheet more frugally in terms of gross debt and cash balances. Net debt is up against last August as it always is, but down substantially since February last year. So gearing is down to 75.9% from almost 100% last year. The net debt to EBITDA ratio was contained to 2.3 turns, only 0.1 turn more than a year at your hand. Also helped by the improvement in the underlying EBITDA. Let's now turn to the review of operations. On slide 17, you'll find the breakdown of organic growth. First half fiscal 24 revenues were 12.1 billion euros, up 4.5%. Currency impact was minus 3.3%, linked to the significant year-on-year movement of the euro last year in Q1, which led to a very substantial minus 5% in Q1. Since then, the comparison is less negative. If rates remain where they are now, we expect the annual impact to be around minus 2%. The scope effect reduced revenues by 0.7%. This is due to the disposal of the home care business from October. Depending upon the level of acquisition close in the second half, we will probably be running at about minus 1% for the full year. As a result, organic growth was a solid 8.5%. I shall come back to the detailed geographic performance in the next slide. North America achieved double-digit growth. Europe was up 8%, helped a bit by the Rugby World Cup, and the rest of the world was up 5.7% or plus 8.4%, excluding the accounting change, which will be reversed anyway in Q4. Food services continued to perform well, up 10.7%. FM services activity continued to grow, but more modestly, up 4.5%. We are definitely in a more favorable operating environment from an inflationary point of view. Food inflation continues to average out at low to middle single digits with a continued downward trend in Europe. Labor inflation remains stable at around 5%. Pricing was close to 4.5% for the first half. It is decreasing in line with the softening of food inflation. we now expect pricing to be close to 4% for the year, at the top hand of our previous expectation of 3% to 4%. And while this level of inflation is much more comfortable, the supply management teams are monitoring trends very carefully because in certain countries where the fall had been most significant, we are seeing inflation moving back up. Now let's turn to the detail by geography. North America revenues reached 5.8 billion, up 10% organically, driven by new business, some volume growth, and pricing of just under plus 4%. Organic growth in business and administration, now incorporating corporate services, government, and energy and resources, but excluding Sodexo Live, reached 13.2%, driven by the contribution of new business, strong growth in food from the continuing return to office, project works, and strong retail sales growth. Antigua revenue growth was also accretive. The organic growth of Sodexo Live was plus 23.3%, driven by robust activity in all venues, and in particular, strong per capita spend in sports stadiums. Airport lounge also benefited from increased passenger count, added scope on existing contracts, and mobilization of new business. In education, organic revenue growth was plus 7%, benefiting from price and volume increases with meal counts, retail sales, catering events all up strongly. Healthcare and seniors, restated organic growth was 6.3%, with good performance in hospitals through a combination of price increases, volume, retail growth, and favorable net new business. somewhat offset by senior site closure at the end of the prior fiscal year. In Europe, revenue reached €4.2 billion and organic growth was 8%. It was boosted by the Rugby World Cup by 0.8%, as well as increased food volumes and pricing of around 5%. Business and administration, excluding sports and leisure, organic growth was 6.3%, helped by both price increases and higher office attendance, coupled with new business in government in the United Kingdom. Organic growth in Sodexolai was very strong at 25.4% boosted by the Rugby World Cup in Q1. It was still 12.5% excluding the rugby. This was driven by improved attendance and pricing, particularly in the UK in stadiums, strong performance in our restaurants in the Eiffel Tower, and other cultural destinations, as well as recovery in air pump launches, which were only just starting to pick up in early fiscal 23 post-pandemic. Education was up 7.3% organically, reflecting price revision, particularly in France, and a favorable working-day impact. Healthcare and seniors' organic growth was 7.8%, driven by new business in Spain and inflation pass-through in the United Kingdom, as well as favorable volume and price revision in seniors in France. Rest of the world revenues were 2.1 billion euros in H1, up 5.7% organically. As a reminder, this was impacted negatively by the change in revenue recognition of project works in energy and resources. We have already discussed this in the last two quarters. We took the full impact in Q4 last year, so this year you have the negative impact each quarter for the first three quarters, which will then be reversed in Q4. So it is much better to look at the underlying trend, which was plus 8.4%, including a pricing impact of around 4.5%. The organic growth of business and administration with the sports and leisure activities stripped out was 5.1% or 8.3%, excluding the accounting change. We are benefiting from very strong growth in food in India, driven by both new and existing business, and in Australia from a pricing catch-up and new opening in mining. Brazil and Latin America are still growing high single-digit, although with a slight deceleration in the second quarter due to a lower pricing impact and slower demand. This performance was slightly offset by a much more modest improvement in China, impacted by client restructuring and side closures last year, and in the Middle East due to contracts lost last year. So Dixo Live revenue tripled off a very low base. This is principally an airport lounges business, and the performance is linked to the COVID restriction in airlines only being lifted from January 23, as well as the opening of new lounges in Hong Kong. Education is only 2% of rest of the world's sales. It was up 10.5%, fueled by strong growth in China coming off a low base last year due to school closures. and sustained growth in Brazil and India, boosted by both new business and existing site growth. Healthcare and seniors organic growth was 1.4% organically, with regular strong growth in India, a significant pickup in growth in Latin America, offset by slow growth in China, and the impact of the exit of low-performing contracts in Brazil during the second quarter last year. There was a solid increase in the UOP in each zone and a 10% reduction in HQ cost. The margin improvement is 30 bps in each zone, even though rounding helped in North America and for the group as a whole, which was really only up 35 bps at current rates, right in the middle of the 30 to 40 bps range expected for the full year. H1 did benefit from the inflation sweetpot with pricing catching up and inflation coming off. However, mitigation measures are also being reversed in many client sites. Of course, structuring ongoing actions are also contributing with on-site productivity and in particular in supply management, higher retention and better margins in signing, strict above-site cost management and not just at HQ level, and at the same time, we are continuing to invest in sales, marketing, IT, and data to support our future growth. Thanks for listening. As you all know, this is my last presentation. Sébastien and I have been working very closely together over the last four months. I assure you that you will be in good hands. And now, Sophie, back to you.

Thank you very much, Marc. And also, thank you for your more than eight years as our CFO. Just to be clear, we are not letting Marc go. His new role will start on May 1st as General Secretary for the group. He will remain a member of the senior leadership team. He will have responsibility for the group audit for legal and for the transformation of our global business services, and he will continue to provide strategic advice to the group and to me personally. So let's finish with the outlook. As you have seen, the first half has been solid with top-hand of the range pricing and extra leap year date. While activities levels should remain buoyant, helped by the Olympics, and the net new contribution to revenue of just over 2%, the post-COVID volume recovery has now finished, and the comparative base is much higher. Pricing will probably remain close to 4% for the year as a whole, and as a result, for fiscal year 2024, we expect organic revenue growth to be at the top of the 6% to 8% range. And the UOP margin improvement is confirmed at between 30 and 40 basis points at constant rates. Operator, could you please launch the Q&A session?

Thank you. 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 their telephone. To remove yourself from the question queue, please press star. star and two. Please pick up the receiver when asking questions. The first question is from Jamie Roller with Morgan Stanley.

Thank you. Good morning, everyone. Three questions, please. First, you didn't quantify the leap day. Is it fair for us to assume it's about a 1% benefit to the second quarter organic sales? Secondly, You say the development was below target due to phasing. Could you please explain that a little bit more? Because your definition seems to be the value of signings won in the period, not when the contract actually contributes in the P&L. So what makes it phasing rather than simply fewer wins? And also, does it mean that the P&L impact will be weaker in the second half as weaker signings now affect future revenues? And then finally, in terms of the sales guidance upgrade, obviously pricing's a bit of that, but could you quantify what you're now expecting for volume and also net new contract sales? And then any early thoughts on the 6% to 8% target for next year?

Thank you. Yeah.

So the leap day... We estimate that the leap day impact in Q2 is about 50 million euros, which represents 0.8% of growth for Q2 and 0.4% of growth for H1.

So, Jimmy, on your second question about the phasing... So the phasing issue, you're right, we take into account in the percentage the volume of contract that we have signed and the signing of those, but we only take the number into account. Even if we have an approval from a client, we only take the number of sales, the volume of sales into account when the signing has been effective. And some of the signing, you know, we have had some long negotiations and has been a little delayed. So that's why we are not taking them into account. And as you know, we are also very focused on signing quality contracts to improve our margin and avoid retention issues in a few years. But we are very confident to reach the range in financial year 24 because the pipeline is good. And I don't think it should affect the H2 on those signings because usually You know, they start a few months later.

On the sales guidance for full year 24, so the net new we are expecting in H2 is 2.5%, and the like-for-like is a little lower because, first, we have a very strong base from last year. Last year, we had a a fantastic year in Sodexo Life, for instance, in France. But also, even though we are going to have the geo, which will contribute, we believe that there will be disruption in the level of services for us in the Paris region, and we're not completely sure as to what it will mean in terms of volume during the months of July and August. So we believe the like-for-like will be slower in H2 than it was in H1. And when I look at next year, fiscal year 25 and our guidance of 6 to 8, so the math for me are the net new should be above 2.5%. Pricing, we now believe pricing will be around 3%. And then the like-for-like will be between 1% and 2%. And there will be a little headwind coming from the one of the Olympic Games and Rugby World Cup and so forth. But because there will be the Paralympic Games in September, we believe the headwind should be about 0.3%. Thanks.

That's really helpful. Can I just follow up on two quick things? What were the volumes, the like-for-like volumes in the first half? And then also, Sophie, on the phasing of development, that sounds like a negotiation delay. There's nothing affecting the timing of when those contracts actually start and benefit the P&Ls. Is that right?

Yeah, the like-for-like volume in H1, I calculated at 1.4%. And in terms of contracts, for instance, we have a big contract in mind, and Sophie must have the same thing in mind. We have the LOI, but we don't have the contract, and we have the starting date. The starting date is in the future. So once we sign the contract proper, we will declare it as a sale, but it won't change or delay the starting date. And so sometimes it delays the starting date, but on big contracts, usually it doesn't delay the starting date because the starting date is in the future and comfortably in the future. It's not necessarily opening next week or the week after next.

Great. Thank you very much, and good luck in the new role, Mark.

Thank you. Thank you, Jamie.

The next question is from Vicky Stern with Barclays.

Yeah, morning. And yeah, I wanted to add my congratulations for the future, Mark. Just firstly, on the margin, obviously, you came in at the top end of the range for the first half. You're not changing the full year margin guidance from the 30 to 40 basis points. You gave some color there, obviously, as to the sort of tailwind on inflation in the first half. But Just a bit more color, please, on how you're thinking about margin growth in the second half, and then again, the medium-term outlook. Can you continue with the 30 to 40 basis points range going into next year and beyond? The second question is on retention. Obviously, yet another quite impressive jump in retention to 95.5%. Based on what you're seeing so far in the outlook, how confident are you in sustaining that kind of level? And indeed, when do you think you might reach the 96% target you put out there? And then the last one's on like-for-like price growth. Again, that's coming through better than expected, both for the first half and in your guidance for the full year. You also touched on actual cost inflation sort of increasing again in some markets. Just to understand framing the like-for-like price growth, is that coming through higher because of that delta on inflation or it's more commercial discussions, just to understand what's going on on the like-for-like price piece.

On margin, Vicky, in H1, as we said and commented by the IR team, we were in the sweet spot of inflation. We believe it started at the back end of last year, and we were in the middle of it in H1. So I think we had some tailwind. As I alluded to, now we have to moderate our mitigation actions because the mitigation actions were justified because we were suffering from inflation. So now we have to bring the level of services back to normal, so to speak. And I don't believe we will have such a sweet spot impact in H2 for the rest of the year. We still have action on supply chain retention. You know, the fact that we rethink contract is good for margin. I think we've been good in SG&A on the first half. Now, on the less positive side, when you start new contracts and we start more and more new contracts, we have the ramp-up phasing. We are disciplined in margin, but starting a new contract remains starting a new contract. It costs you a bit at the beginning. And we have investments. We mentioned in the past, but we are investing in sales, marketing, IT data. We have a few technology projects, and they will be weighing a little bit on the margin in H2. So that's why for the 30 to 40 bps guidance remains the best option to guide for in terms of margin. Now on retention, I'll let Sophie comment.

So thank you, Vicky, for your question. So on retention, you know, I think the recent crisis has helped us also strengthen our relationship with our clients. You know, we have supported them and navigate through challenges, setting protocols. So I think it's also, it has driven the improvement, but it's also many other things that we've done at the same time. First, an increased focus on the topic, accuracy, discipline, accountability, and I remind you that every single leader has an incentive on organic growth, but also specifically on retention. and also some consequence management, you know, when things are not happening right. We're also, I think, improving in the use of our processes, our tools, We are also leveraging, you know, as Mark said, we are investing in new offers, in convenience, in innovation, and that's helping the retention. We think that there is still room for improvement. I remind you that not everyone is at 95% yet. So, yes, we're targeting the 96%. The sooner, the better. As you can see, we have had quarter after quarter or semester after semester, we have had good improvement. So I'm quite confident on the fact that we are going to continue to improve. And I can tell you, I put a lot of pressure on the team on the topic.

And on your last question, so as I said, we were... guiding for 3% to 4% of pricing this year. We are now more at 4%, and we were 2% to 3% for next year, and I think now we are more at 3% for next year. Part of it is due to the fact that we've seen the inflation going down, for instance, in the U.S. and Brazil, but it's stabilizing and it's not going down actually anymore. It's actually sometimes going up a little bit. So I don't think we are totally out of the inflation mode now. It's true that in Europe it has come down a lot, but it's still remaining relatively high in the U.K. compared to the rest of Europe. So there is a bit of inflation still there. And obviously, client negotiations, we constantly have client negotiations, and some of them are still there. But I would say it's more the trend of inflation than client negotiations, which are keeping the inflation slightly higher than what we were expecting six months ago.

Thank you. And sorry, can I just follow up back on that margin question? That was very clear, Mark, for the second half. But the median term view there, the ability to sustain the 30 to 40 bits going forward?

We believe we have a strong action plan in terms of margin improvement. I mentioned supply chains. I think we are making big progress in retention, and it helps. We keep on reducing our SG&A and streamlining our SG&A, so we have a few programs to reduce SG&A at various levels, especially on both sides. And then there will remain investments, but But I think the way of the investment will be significant in H2, a little bit less maybe next year. So 30 to 40 BIPs is a good guidance for next year.

Great, thanks very much.

The next question is from Jafar Mestari with BNP Paribas.

Hi, good morning. I have two, if that's okay. Just on retention, it's improved, but obviously you still lost a few things. HCA, the biggest hospital chain in the US, I assume is the biggest or one of your biggest healthcare clients, and you've actually lost a handful of hospitals with them, which they strangely chose to take back in-house. Just curious what the story is there and what's the status of the remaining HCA hospitals. Are they also going to be reviewed and you may lose some more, or should we assume what's happened is you've renewed all of the ones you didn't lose? And then on vending, you've now done four, I think, small acquisitions in US vending. Where does that get you in terms of pro forma revenue in this segment and in terms of geographical coverage? Once you're ramped up there, are you going to be a small player or a medium-sized player in that segment, please?

Just, you know, on retention, yes, you know, we have some big systems and HCA is one of them and we've lost a few sites, but I'm not, you know, going to comment. We're not at threat for the whole contract. And yes, in hospitals, but it has always been the case, you know, Some clients want to go back in-house. It has been a specificity of that market. And of course, we have to show them the value that they have when using a supplier like us. And when they do that, usually they take our innovation and then once the work is done, they go back in-house and then a few years later they might also decide to subcontract again. But it's something that we are looking with a lot of attention.

And on convenience, we don't call it vending because it's a bit more than vending. On convenience, we said, I think it was at the Capital Market Day in November 22, that our target was to reach 500 million euros of volume by 25, and I think we are on track. We've been doing build-up. We've been buying assets almost city by city, improving our presence geographically or concentrating our volume on the number of routes. It's an accretive business. Margins are higher than the rest of the business. It's growing also organically at a good pace. So I think we are on track with our plan and we will continue because when we will reach 500 million, we will not be at the peak. We need to catch up and continue catching up.

Thanks. And just to clarify, I think that 500 million number was everything new food models. Have you done more work and should we assume now convenience is the biggest chunk of that and other things like delivery, et cetera, smaller?

I think the target we have internally is 500 million for convenience in 25, including M&A, yeah, in the U.S.

All right. Thank you very much.

The next question is from Julien Richer of Kepler.

Yes, good morning. Two ones also for me, please. First, if you could give us a view on first-time outsourcing, if the first-time outsourcing path has evolved recently in some region maybe or some division, and any update on the GPO in the U.S., the way it has evolved and the contribution of the GPO you have today. Thank you.

Okay, thank you Julien. I will take your first question. In North America, the first time outsourcing remains very strong and North America is the biggest market for us but also as a whole. And today in North America, in our signing in H1, we are at 40% of first-time outsourcing. There are still a lot of opportunities in the market, you know, in self-help, in health care, in seniors, in education. We're also seeing some signs... a first-time outsourcing trend developing in Europe, in senior homes, in hospitals. For example, you know, the contract Clariane that I just discussed earlier. It's reinforcing the partnership, but also it was a renewal of part of the contract, but also extended with Belgium. And with Belgium, it was the first time outsourcing. So, yeah, the trend is strong, and we're still targeting very much the first time outsourcing market in all the geography.

In terms of GPO, so what you need to know is that, let's talk maybe mostly of the US to start with, but it's accretive to the US numbers in terms of growth, in terms of margin, so it's a very healthy business, it's growing. In the U.S., we find it difficult to do M&A because there are not that many targets to acquire. But this is purely organic growth, but we have a strong sales team and they are developing the business. In Europe, we are profitable. In Europe, we can do M&A. So we are active on the M&A front in Europe to consolidate country by country our presence. Now we are in multi-countries. It's also growing organically, double-digit, and it's profitable, as I said. So we believe a lot in this business, and we will continue to grow it and to do M&A in GPO, even though it's in Europe because we don't find targets in Europe.

Okay, thank you.

The next question is from Joanna Juten of Odoo.

Yes, good morning. Two questions from my side. So the first one, you are guiding on the tax rate at 22% for 2024. So could you please help us modeling on the evolution of this tax rate in the medium term? And my second question is on the costs that were reimbursed to Black Sea to the tune of 11 million euros. in H1, so I calculate they have been adding about 10 base points in EBIT margin H1. Is it part of the reason for you to maintain the EBIT margin guidance as those re-invoice costs won't repeat in H2? Thank you.

The tax rate at 22% for the year is completely linked to the fact that we were at 16.6 and we had We had the benefit of a very low tax on the disposal of home care, and we start recognizing also different tax assets on the French perimeter, which now starts being slightly positive. When you look at mid-term, we believe that 25 to 26% as an ETR is a good proxy for your model. When you're referring to Plexi, those were intercompany costs that we were invoicing before, so I think there is not a big difference between the before and after. It's just that before we were allocating it and now we are invoicing it, but I don't see why it has an impact on margin. So it doesn't play a role in our margin guidance.

The next question is from Estelle Van Groot with JP Morgan.

Hi, good morning, everyone. Just two questions on my side. On new development, I mean, still a little bit behind, though I'd like to explain by phasing as you rightly explained. Can you just provide more color on any recent initiatives you're working on to improve the momentum there? And just a second question, may I also ask if corporates are reducing food subsidies now that employees are back in the office, please?

So on new development, you know, we are doing a lot of initiative. We are working on the incentive plan also for our sales team. We have done assessment of the team. We have changed a number of people in the U.S. and also... in the team. We are going to centralize the sales team in the U.S. with a leader, and the sales will report directly to him, and so we can activate some of the best practice that we have had, for example, in healthcare and accelerate that implementation and reinforce the expertise of our team. And we are also doing a growth review with each country and with each segment in the country to improve on our targeting and on the segment and also the sub-segment and the specific clients that we want to target. So there has been a lot that has been done to improve to sustain our growth. What I can tell you is that in terms of volume, the development has been increasing year after year and semester after semester. And we are confident that we will reach, be within our target of seven to 8% for the year. The second question. Your second question around reducing food spend now that people are back in the office. First, not everybody is back in the office. And so I think it's a real challenge for... for organization. Some have been more directive, you know, not giving a choice. But, but I think we really see after the COVID period that our services, whether it's food or, you know, future of work and what, what, what the, the experience at work that company really want to continue to, to, to attract the best talents by leveraging the workplace. And so we don't see, you know, more requirements or different requirements from our clients. I think they really leverage now our services to attract the people back to the office. And I have an example, you know, like a of a big international company in Paris, and they offer brunch on Friday so that people come back, and it works. So I don't see the trend.

Okay, thank you very much.

The next question is from Leo Carinter with Citi.

Good morning. Thank you. If I could just ask to follow up, firstly, on the North America growth, Is it fair to say that the pricing would have been lower than in other regions, and so a much stronger contribution from net development and like-for-likes? Any numbers around that would be helpful. And then, secondly and lastly, just on the headquarter costs, which are progressing nicely, do you see further savings or perhaps investments And would we expect a similar level for 2025, net of any Pluxy changes? Thank you.

So in NORAM, the pricing was 4%. And as you're right, it was lower than the group average because inflation came down faster and sooner than in the rest of the region. Yes, the net new revenue is above the group average of 2.5%, and it was good like-for-like volume. For instance, we've had a very strong like-for-like volume in Sodexo Life. But as I said also in my speech, we could see also food volume going up, retail volume going up. So there was a lot of volume impact in the U.S. HQ costs, so we obviously, I mean, we said we will reduce HQ costs over time because we lost, so to speak, a Plexi, so we have to reduce the SG&E at HQ level. The H1 level is very good. There was some one-offs. H2 is not going to be as good as H1. It's going to be higher. But we still have a target to reduce year on year, and in 25, one of our targets is to reduce HQ costs. So expect a higher H2 than H1, but expect a trend to squeeze SG&E at HQ level in fiscal year 25.

Thank you very much, Mark. Thank you.

So, Dexotin, there are no more questions registered at this time.

I'll turn the conference back to you for any closing remarks.

Well, thank you very much for listening and thank you very much for your questions. And goodbye. Talk to you soon.

Thank you. Bye-bye.