Sodexo S/Adr

Good morning. Thank you for standing by, and welcome to the Sodexo Third Quarter Fiscal 2024 Revenues Conference Call. After the presentation, there will be an opportunity to ask questions by pressing star and 1 at any time. I advise you that this conference is being recorded today on Tuesday, July 2, 2024. At this time, I would like to hand the conference over to the Sodexo team. Please go ahead.

Thank you. Good morning, everyone. Welcome to our Q3 Fiscal 2024 Revenues Call. Sébastien de Tramadur, our new CFO, will host the call. He'll start with the presentation and then open up the call to your questions. The call, the slides, and the press release are all available on sovexo.com. Specifically, the call will be available for the next 12 months and may not be reproduced or transmitted without our consent. Don't hesitate to get back to the IR team if you have any questions after the call. And I remind you that the fiscal 2024 results will be announced on Thursday, 24th of October. So I now hand over to Sébastien.

Thank you, Virginia. Good morning. Very pleased to be here with you today. So I propose going through the presentation and then taking your questions. So let's start with slide four. Here you can see that Q3 revenues were $6.1 billion, up 5.6%. The currency effect has fallen to only minus 0.2% after minus 3.3% in the first half. The dollar has now stabilized year on year, but there have been fluctuations in other currencies, with the strength of sterling offsetting the weakness of the Turkish lira and the Chilean peso. Netscope is also negative at minus 1% due to the sale of the home care activities they consolidated from November, more than offsetting the acquisitions inconvenience in North America and the partial contribution from the Chinese acquisition consolidated from April. Organic growth came out at a solid 6.8%, in line with our expectations, and lower than in Q2 at 8.9%, which was boosted by the extra day from the leap year. In addition, in Q3, the price increases were lower, and we also had a base effect due to the strong growth in H2 last year. Excluding the impact of the change in revenue recognition on project activity in energy and resources, organic growth was 7.2%. I will come back to the detail by region in the next few slides, but here are the numbers. North America was up 9%. Europe was up 5.4%. and the rest of the world plus 3.6% or plus 5.9% excluding the accounting change I mentioned earlier. Food organic growth remained very dynamic at 8.6% while FM sales were up 3.5% organically or 4.7% excluding the impact of the accounting change. I would like to highlight some interesting accounts from this quarter. So in North America, Solexo Campus and Solexo Live have been working together to win and extend existing contracts in universities that have strong sporting teams and facilities. And Cincinnati University is a good example of this. We have also teamed up for the hospitality contract for the University of Texas. In Europe, we have renewed our 60-year partnership with Wellington College for domestic and food services. We are introducing carbon labeling to help the children understand and adopt a more sustainable diet, and we will deploy our waste watch program for reduced food waste. In the rest of the world, we are very proud to be back serving Mozaik Group in Brazil with the Sabor Brazil offer in their 18 sites for more than 6,600 consumers and providing our digital solutions to enhance consumer interaction, promote healthy eating, and improve services. We will also be supporting MoDAIC's institute through food donations and joint actions focused on food, water, education, and local development. So as you can see, the commercial momentum remains positive. Of course, as usual, the next few weeks are key for the education segment, which is currently in full selling season. with many ongoing negotiations with existing and potential clients underway. We are on track for development in the range of 7% to 8% for the year end. In food services, the momentum on net new is solid, running ahead of last year. However, in FM, we recently lost one large global FM contract. which will impact our fiscal year 24 retention rate circa by circa 60 basic funds. And just to be clear, this will have no impact on revenue for fiscal year 24. And this doesn't change our ambition to reach 96% retention rate in the year to come. Now let's move to slide six to talk about the deceleration in inflation. Food inflation is now averaging low single digits due to further deceleration in Europe. However, in contrast, we are seeing a pickup in North America and in Brazil. Labor inflation is decelerating slightly, now below 5%, with softening in most countries except the UK, where the increase in the living wage is still very strong. We have seen a deceleration in the price increase from close to 4.5% in H1 to below 4% in Q3 as expected. The deceleration is everywhere, but more significant in Europe and in Latin America. And we are still expecting pricing for the full year to be up close to 4%. So now let's take zone by zone, starting with North America on slide 8. So Q3 revenues were 2.9 billion euros, up 9% organically. In business and administrations, which I remind you no longer includes Sodexo Live, organic growth was 12.1%. This reflects a favorable impact of new business, a continued trickle of consumers returning to the office, some cross-selling, and strong retail sales. The 30.7% organic growth in Sodexo Live was due to the combination of strong per capita spend in stadiums, high attendance level at conference centers and cultural destinations, and increased passenger counts in airline lounges, as well as the mobilization of new lounge contracts. In education, organic revenue growth was 2.4%. impacted by an earlier than usual closure of universities in May, offsetting the extra leap year day we had in Q2. And the performance was also impacted by the reduction in the number of sites of a large school contract from the month of March. In healthcare and senior, organic growth was 5.6%, driven by a solid trend in healthcare, with a combination of price increase retail sales growth, and the net new contribution. However, this was partially offset by the impact of contract losses last year in Senio. Europe revenues amounted to 2.1 billion euros, up 5.4% organically. It's a bit slower than in H1 due to the sequential slowdown in pricing and a major event for our ticketing business last year. However, activity levels remain very solid. In business and administration, organic growth was 5.9%, boosted by price increases, higher volume, and new government business in the UK. We also saw strong growth in Turkey, driven by inflation and pricing bathroom. Sodexo Live was down 0.4%, impacted by last year's ticketing contract for the World Baseball Classic. Excluding this event, Sodexo Live would have been up 6.2%, with strong growth in France across the board. In education, organic growth was 7.7%, reflecting the positive impact of price increases, especially in the UK and France, from the start of the school year. In healthcare and seniors, organic growth was 4.4% due to a combination of inflation pass-through in the UK, new openings in Spain, and new business in seniors and hospitals in France. So Q3 revenues in the rest of the world were 1.1 billion euros, up 3.6% organically. For the third consecutive quarter, as you will all remember, we have the impact of the change in revenue recognition on project activity in energy and resources from last year. I remind you that as we took the full effect in Q4 last year, this year's Q4 will benefit from the reversal of the year-to-date correction, thereby boosting Q4 growth in the rest of the world by 8%. Excluding this accounting change, growth would have been 5.9%. The slowdown from 8.4% in the first half is due to deceleration in price increase and a slowdown in China and Chile. Business and administration was up 2.7%, 5.3% excluding the accounting change. Growth continues to be very strong in India, driven by new business and strong volume growth, and in Australia due to the new contracts and price renegotiation. On the other hand, Chile is currently being impacted by the end of several fixed-term energy and resources contracts and lower price increases, while China continues to be impacted especially by downsizing in the tech sector. Sodexo Live almost doubled due to the opening of new lounges in Hong Kong, but I remind you that it's still a very small business there. In education, organic growth was 10.8%, with sustained growth in Brazil and India. Finally, health care and senior revenue was up 3.9% organically. Strong growth in India and Latin America was somewhat offset by lower activity in China and Brazil. And finally, on slide 11, so we confirm our fiscal year 2024 guidance. So for organic growth, organic revenue growth at the top of the range of the 6% to 8%, and a 30% to 40% basis fund improvement in the EOP margin at constant currencies. So thank you for your attention. And now it's time to answer your questions. So operator, you can please launch the Q&A.