Sodexo S/Adr

Good morning, everyone. Welcome to our fiscal 2024 results call. I'm here with Sophie Belland and Sébastien de Tramadur. They'll go through the presentation and then take your questions, as usual. The slides and the press releases are available on Sodexo.com, and you'll be able to access this webcast on our website for the next 12 months. The call is being recorded but may not be reproduced or transmitted without our consent. Please get back to the IR team if you have any further questions after the call. I remind you that the Q1 fiscal 2024 revenues announcement will be on Tuesday, 7th of January. I now hand you over to Sophie.

Thank you very much, Virginia. Good morning, everyone, and thank you for joining us today. Fiscal year 2024 has been a transformative year marked by two very major and decisive steps to further focus and simplify the group. As you all know, we spent off Plexi in February and sold our stake in Bénin Essai, distributing a special interim dividend from the proceeds at the end of August. With our simplified structure reorganized by geography, we are positioned as a pure player in food and targeted FM services in 45 countries. Collectively, we are all mobilized to enhance our operational execution in food and FM services to drive profitable growth for the long term. And before I go into the numbers, although as a rule we do not comment market rumors, I want to confirm that there are no discussions with Aramark and I will not comment any further on this subject. Let's now turn to the strong financial delivery in fiscal year 2024 at the top end of the guidance. Organic growth was 7.9%, driven by the strong performance in food services at plus 9.3%, which now accounts for 66% of total revenues. The underlying operating margin improved by 40 basis points to 4.7% and the underlying net income from continuing activities by 17.6%. We have also delivered on our commitment to reduce the net debt ratio to below two times following the spin-off and a year earlier than we thought. Thanks to strong cash generation during the year, We have lowered financial leverage to 1.7 times, well within our target range of 1 to 2. We have a strong balance sheet and are ready to do more bought-on acquisition where there is a strategic rationale and potential to create value. Now let's turn our attention to the strategic advances we've made this year to strengthen our position in food services and target our growth in facility management. We are transforming our offers and ways of working, particularly with our branded offers, as well as innovative off-site production facilities and new distribution options to provide more attractive choices for our consumers, flexibility and better consumer engagement for our clients. The deployment of our branded offers is moving fast, with kitchen work revenues up 45% and modern recipes up 30%. Our branded offerings are on target to reach about 50% of food revenues next year. In addition, we are scaling new models of production and distributions. Our first culinary workshop was launched in Chile seven years ago to meet the specific issues of running food services at very high altitudes. The workshop prepares components for a wide range of dishes for local finalization at the remote camps. We standardized our menu, optimized our purchasing, reduced energy and water consumption, simplified logistics, and reduced accidents. With this successful experience, we are now developing the concept in France, where we have a dense client base in the Paris region, and our first workshop started in 2022, and we are targeting 100 client sites by the end of this year, served by this workshop. We are also just beginning the development of a similar concept of centralized food production in Hyderabad and Bangalore in India. On the distribution side, our convenience brand Enrich in the U.S. is growing fast through acquisition, sales synergies, and strong consumer buy-in. Our No Panto convenience brand in Brazil opened 140 micro-markets in just six months after a few pilot launches. We are also rolling out our frictionless stores in the US and French stadiums. Finally, in our FM activities, we are also investing in our expertise and digital tools to support our large integrated clients who are seeking to enhance their consumer engagement, attract their employees back to the office, invest in smart buildings with reduced floor space and upgraded holistic services, and progress on their sustainable journeys. We are integrating IoT, AI, and data analytics to enhance asset management, predictive maintenance, and decision-making, which in turn is driving efficiency. This is why in fiscal year 2024, we renewed more than 500 million euros of revenues with four large global clients, such as Microsoft and AstraZeneca. And none of this could be done without our focus on our strategic enablers. We have spent over 600 million in tech, data, and digital in financial year 24, which is nearly 100 million euros more than a couple of years ago. Our move to cloud initiative is not just a technology upgrade, it's transforming how we operate, accelerating efficiency and mutualizing resources, and strengthening our ability to acquire customers. We have also seen a 25% increase in active app users, indicating that our digital transformation efforts are resonating with consumers. Furthermore, we are embedding AI into our core operation, anchoring it as a critical component of our business processes to enhance decision-making, automate workflows, and drive smarter data-driven strategies. Moving on to commercial excellence, we have established strong processes and tools that enable systematic targeting and prioritization, allowing us to be more strategic in our approach, and our targeted sales pipeline has grown by 25%. A key initiative has been to strengthen our Clients for Life program with a new training for account leaders. This initiative is designed to help them take proactive measures on contracts due for renewal over the next three years by tracking them as rigorously as we would a sales pipeline and equipping our team with specialized training. At the same time, we are actively promoting our upgraded offerings and bringing innovation to the table, ensuring that our clients see the added value in staying with us. Finally, on supply chain power, we have made significant progress around the world in reducing our SKUs by 25% in financial year 24 and improving Catalan compliance by 400 basis points. Our investments in talent and digital tools is helping us to further optimize our supply chain. Integra achieved an impressive 17% organic growth and our addressable spend has now reached $38 billion. All these achievements represent a collective step forward in building a stronger, more agile, and future-ready organization. Let me also share key updates on our People and Planets initiatives. Safety remains our top priority. With a further improvement in HAC performance in 2024, 0.47, the SDIR was down 14.5%, helped by the training of 15,000 managers. We also made real progress in near-miss reporting, which will in turn help us to continue to reduce the number of accidents, though even one is too many for me. In well-being and development, we reached 60% coverage of our VITA program, and we have increased average employee training by 5.4%, with a strong focus this year on sustainable culinary skills. We continue to reduce emissions, achieving a 2.5% year-on-year decrease in scope 1, 2, and 3 emissions, and 73% of electricity in our own building now comes from renewable sources. Our food waste reduction program is also on track, cutting waste by 40.7% across sites. I'm proud of these achievements. They reflect our total commitment to creating a safer, more inclusive, and sustainable future for our employees, consumers, clients, and all our other stakeholders. Now, let's turn to the commercial momentum for fiscal 2024. Net new signings reached 1.6% for the year. Retention at 92% was disappointing after a strong performance last year at 95.2%. This year, as you know, was impacted by the loss of a global FM contract for 60 basis points. Adjusted for that, retention would have been close to 95%. On the other hand, we had a record year for new signings, exceeding 1.6 billion at above average margin. I remind you that these indicators are forward-looking, assessing the commercial performance during the year, regardless of the actual date of site closure or opening. Now, let's take a closer look at this. As shown on the previous slide, our development rate was 7.54%, and when we include new business generated from cross-selling, Total new wins hit a record of 1.9 billion, up from 1.7 billion last year. And importantly, our pipeline at the beginning of this new year is higher than it has ever been, more targeted, and also more advanced than usual, which means that our signing in the first half should be better than they were last year. If you remember, in fiscal year 24, we signed much more in H2 than in H1. Moving to the right of the slide, you can see that the share of food service within these new sales has increased to 65%, reflecting our strategic focus on food service. Moreover, in North America, The first-time outsourcing trend continues, accounting now for 43% of new sales in 2024. On our retention performance, the global FM account had an impact of 0.6%. We also faced specific one-time challenges in energy and resource in Latin America, where we lost two contracts due to aggressive pricing in a changing competitive environment, accounting for another 0.3% of the losses. Without these three contracts, our retention would have been over 95%. On the remaining 4.9% losses, 0.4% were due to site closures, and the rest were losses to competitors mainly, and some contracts reverting to in-house management. especially in Healthcare Canada, where political decisions played a role. I would also like to highlight that education was particularly impacted this year, as we were disciplined on pricing in a context where we had a lot of contracts up for renewal, particularly in U.S. schools, reflating a change in regulation five years ago. I highlight the fact that, more generally, net new business margins are creative. And one of the positives is that we have made very good progress in regions where we previously had lower retention, such as Brazil and France. However, I'm not happy with the overall retention in fiscal year 24. We have made several changes in terms of people and processes to rapidly increase retention back to up to 95. And We still aim for 96 client retention in the midterms, even though, as we have seen in fiscal year 24, these targets can be impacted by the loss of one of our large accounts. And while such losses can occur occasionally, they don't undermine the overall solid underlying performance of our retention efforts. That being said, with retention at 95 to 96%, and a 7% to 8% development rate. This should allow us to achieve a net new development rate of above plus 3% annually midterm. I would like now to highlight examples of some interesting accounts won this quarter. In North America, Sodexo Live has signed a multi-year agreement to be the exclusive hospitality partner for the new 60,000-seat Titans Nashville Stadium, opening in 2027. This venue, featuring a 12,000 square foot community center, expands our NFL portfolio to four stadiums, including iconic locations like the Caesars Superdome in New Orleans and Hard Rock Stadium in Miami. In Europe, we have signed a four-year contract with Fontainebleau Hospital Center in France, covering three main sites. This partnership marks a key step in co-creating a customized food service for patients, residents, and staff with fresh on-site cooking in line with the EGALIM law. In the rest of the world, we have signed a significant food service partnership with Airbus, for 2,000 consumers daily in their sites in India, with two branded offers, Warmly Yours and Global Cuisine, for both its local and foreign employees, as well as a gourmet offer supplied from Master Kitchen, our off-site culinary workshop in Mangalore, for workplaces where there is no kitchen. I can't finish without mentioning the Olympics. I've already mentioned the key figures in previous presentations, These games presented significant challenges for our group in terms of logistics and culinary choices. I'm proud of the teams for their amazing resourcefulness, flexibility, and innovative spirit, and which will help us improve our offers going forward. We have set a new standard for large-scale events. Let's now turn it over to Sébastien to present the results.

Thank you, Sophie, and good morning, everyone. So I'm very pleased to be here with you today to present a strong set of results for this fiscal year 24. I will present just the continuing operations. The Plexi contribution for the first five months of fiscal year 24 is detailed in the appendices and in the management report. And to state the obvious, it has not changed since the first half. So now let's start with the P&L. As I said, we delivered strong financial results this year, with underlying net profit up 17.6%. Revenue grew by 5.1%, or 7% at constant currency, and as Sophie said, organic growth was plus 7.9%. Underlying operating profit reached 1.1 billion, up 13.7%, and up 16% at constant currency with a margin of 4.7% up 40 basis points and this is at the top of our guidance between 30 and 40 basis points and I will come back to the margin a bit later in the presentation. Operating profit was up 24.1% to over 1 billion euros helped by the reduction in other operating income and expenses. And again, we'll come back to this on the next slide. Net financial expenses total 63 million euros, and this is lower than both last year and our expectation. Net borrowing costs were more or less stable, and this is partly due to the decision not to refinance the 800 million euros reimbursed during the first half of the year. which were at an average rate of less than 1%. Had we refinanced it, it would have been at a much higher rate. And as a result, our blended cost of net at the end of fiscal year 24 was only 10 basis points higher than last year at 1.8%, and this despite higher U.S. dollar floating rates. In other financial expenses, we knew that we no longer had the 14 million exceptional costs related to the bond consent process from last year, related to the spin-off of Plexi. But we also had a favorable currency impact and some good news. Thirdly, on our equity investment. And secondly, we had compensatory interest income linked to a social security claim in Brazil. For fiscal year 25, we accept the financial result to go back to a more normal level of around 100 million euros. The effective tax rate of 25.4% is higher than the 22% we had put into our modeling slide in the recent quarters. As expected, it was positively impacted by the home care sales capital gain and some tax asset recognition. However, in Q4, ongoing discussion with the French tax authorities on the past tax audit led to an update of our French tax exposure partly mitigated by the use of our unrecognized tax asset thanks to the sale of Sofinsod. And the projected tax rate for fiscal year 24 is around 27%, and this does include an estimated impact from the French government's plan for an exceptional corporate tax contribution that would be partly mitigated by the use of different tax assets in France. Now back to the group net profit from continuing activities, we deliver a nearly 32% increase. Then adjusted for other operating income and expenses net of tax and for exceptional tax items, the underlying net profit from continuing activities reached 775 million euros, up 17.6%. So now for this fiscal year, other operating income and expense reached minus 58 million euros, and this was positively impacted by the net gain of 90 million euros from scope change, mainly from the sale of the home care business during the first half of the year. Then we increased our restructuring cost by 20 million euros due to the higher above-site restructuring, We continued the simplification and the streamlining of our organization during the year. And in addition to that, we are moving forward on the transformation of our transversal function at central level and at the regional levels toward the global business service model. And this will drive efficiency in the next few years. And this transformation will accelerate in fiscal year 25. And in total, we expect to spend around 130 million in other income and expense in fiscal year 25, including around 80 million of restructuring cost. And you will find the modeling slide in the appendix as usual. So now let's move on to our strong cash flow performance. Operating cash flow was 1.3 billion for the year. It was up, but not as much as the increase in operating profit due to higher cash tax. However, we have made very good progress on the working capital outflow, which was just over 40 million euros, showing a strong improvement from last year, which had been affected by unfavorable payroll timing effect in the US and changes in regulation impacting European payment delays. CAPEX was 2% of revenue. It was below last year's, 2.2. And the CAPEX level depends on the type of the signature each year and on the timing of the openings. And we maintain a target level of 2.5% of revenues. And the team knows that we have the capacity to finance the right opportunities, providing that we get the right returns. Looking back to the slide, this brings us to a very positive free cash flow of 661 million euros, nearly 290 million better than last year, or a cash conversion relative to net income of 90%. We don't accept to replicate this strong performance next year because capex was slightly below, lower than normal, and we expect an exceptional tax cash payment this year linked to the discussion with the French tax authorities I mentioned earlier. And on a normalized basis, cash conversion should be between 70% and 80%. Now, if we continue down the cash flow, net disposal was a positive 986 million euros due to the sale of surfacet for 980 million euros and the sale of the home care business. And this was partially offset by several bolt-on acquisitions in the North American convenience sector and by expansion in China on the food service market. Dividends paid to shareholders were exceptional in fiscal year 24 at 1.3 billion euros because of the special dividend paid in August of 980 million euros reflecting the return to shareholders of the surf and surf sale alongside with the usual ordinary dividend from December 2023. So, all in all, consolidated debt net decreased by 380 million euros And as a result, as you can see in this slide, total net debt reached 2.6 billion euros. And this net debt reduction coupled with euro on euro EBITDA increase of 11.5% has resulted in a net debt to EBITDA ratio of 1.7, well below the fiscal year 23 level of 2.2, and firmly back within our target range of 1 to 2 times. And this has come earlier than we had initially expected. And there are a few areas I want to comment on the balance sheet. First of all, non-current assets have decreased as a result of the sale of Sofinsod. Shareholder equity is lower as a result of the special interim dividend pay in August 24, following the sale of Sofinsod. And I also want to highlight the significant reduction of gross borrowing as we repay two bonds without reissuing any new debt, as mentioned earlier. Now, looking ahead to fiscal year 2025, we plan to use our excess cash to continue to reduce gross debt and intend to repay at least part of the €700 million bond maturing in April 2025. from cash resources, and this will depend upon the level of M&A. And of course, this will not stop us from being more active in our bolt-on M&A strategy. Now moving on to EBITDA and return on capital. As you can see, the increase in both underlying EBITDA margin and the roadshed thanks to our improved operational performance and effective capital utilization. As already said, EBITDA was up 11.5% at close to 1.5 billion euros, and the margin at 6.3% up 40 basis points versus last year. And Roche is also up strongly at 12.9% compared to 11.3% in fiscal year 23. I also wanted to highlight the shareholder return of the year. I remind you that our shareholders have enjoyed a very strong total shareholder return in Fiscal Year 24, after already very good performances in Fiscal Year 23 and Fiscal Year 22. Of course, a large part of this comes from the exceptional dividend linked to the sale of Surf and Sud, which brings our TCR to 29% for Fiscal Year 24. So now let's turn to the review of operation. I said earlier fiscal year 24 group revenue reached 23.8 billion of 5.1%. This figure was impacted on the one end by the negative currency impact of 1.8%, largely due to significant year-on-year fluctuation in the euro, especially at the start of the year of last year. And on the other end, by the scope change of minus 1%, mainly from the sale of the home care business. Organic growth was a robust 7.9%, 7.5% excluding the Rugby World Cup and the Olympics. I will delve into the detailed geographic performance in the next slide, but overall, growth was strong across all regions. driven by food services up 9.3%, reaching 66% of total sales. And our FM service also continues to grow, even if more modestly, by 5.5%. So now let's look at the impacts of inflation and pricing on our performance. So in Q4, we observed a further easing of food inflation in Europe, but a slight uptick in the Americas. Meanwhile, labor inflation has decreased slightly to around 4.5% globally. And in this volatile context for inflation, I would like to highlight the very, very good performance of our supply management team. They have done a great job in controlling food costs, driving saving, and optimizing the supply chain. Pricing trends are now averaging approximately 3.5% in Q4 and 4% for the entire fiscal year, and this is in line with our expectation at the beginning of the year. Inflation trends appear to be less volatile, stabilizing at this level, and so we anticipate that pricing will continue to sustain top-line growth by around 3% for the fiscal year 2025. Now let's turn to the detail by geography. On slide 23, starting with North America. So North America revenue reached 11.1 billion euros, up 8.7% organically, driven by strong volume growth in most segments and pricing of around 3.5%. And this result is despite the slowdown that we observe in Q4, and this was due to the combination of strong project work and convention center activity in last year Q4, and the fading of net new wins, especially in education. Now let's look at the performance segment by segment. In business and administration, organic growth of 11.8% was driven by four factors. new business, pricing effect, continued return to the office, and Integra's strong performance. Nextolive saw robust growth of 23.4% from stadium and event spending and passenger counts in airport lounges, as well as the mobilization of new contracts and in particular American Airlines. Education grew 4.2% as a result of price hikes and increased meal counts, and despite some contract reduction and demobilization in Q4. Health care and senior are plus 5.1%, benefited from price increases, strong net new contribution and retail growth in hospitals, partially offset by some senior side closure. In Europe, Revenue reached 8.5 billion and organic growth was 7.2%. And this was boosted by the Rugby World Cup in Q1 and the Olympics in Q4, as well as increased food volume and pricing of just below 5%. Second half growth was impacted by the sequential slowdown in pricing and the collateral effect of the Olympics. which for a few months diverted regular peak season tourism and some corporate activities in and around Paris. In business and administration organic growth was 5.3% driven by price increases, higher office attendance and new business. Sodexo Live grew by 25.5% boosted by the Olympics and the Rugby World Cup Underlying activity was also up at 6.6%, with strong performance in French sports venues, slightly offset by the collateral effect of the Olympics in the second half. In education, growth reached 6.9%, boosted by price revision, offset slightly by the exit of low-performing contracts in France. Healthcare and senior reached 6.1% organic growth, benefiting from inflation pass-through and new business in Spain and in Belgium. Rest of the world revenue were €4.2 billion, up 7.3% organically, driven by double-digit growth in APAC, especially in Australia and in India. For the last five quarters, rest of the world organic growth has been impacted by an accounting change on a large energy and resources contract, For last year, the full-year impact was actually taken retroactively in Q4, and the forecourter of this fiscal year 24 was boosted by 8 points due to the base effect from the prior year retroactive impact. Full-year organic growth for the year is 7.3%, and this, therefore, is like for like. Growth in business and administration was 6.9%, with a double-digit organic growth in India and Australia, while Latin America saw a deceleration, particularly in the mining sector, due to some contract closures and losses. So the XLI revenue doubled due to strong airport launch activity, but of a very low pace. Education, 11.2% strong growth was driven by new business and volume increases, particularly in Brazil, India, and a stronger Q4 in China. In healthcare and senior, growth was 3.6%, driven by contract ramp-up in India. On the other end, China remained weak, and there was the impact of the contract exit in Brazil last year as well. And finally, let's look at our margin. Our European margin increased by 40 basis points to 4.7%, driven by operational efficiencies and HQ cost reduction. In North America, the 30 basis points increase in profitability was supported by revenue growth, labor efficiency, purchasing optimization, including the good performance of Integra, while continuing to invest in sales, marketing, supply management, and tech to support the growth. In Europe, profitability improved 30 basis points too, through inflation mitigation, SKU reduction, and enhanced supplier compliance, combined with the ongoing price revision, especially in education and in France, where catch-up was still required. In the rest of the world, European margins were up 20 basis points, held by successful price negotiation and the turnaround of underperforming contracts, somewhat offset by demobilization costs in Latin America. HQ costs were also well controlled, down 11% versus last year. So in summary, we deliver our margin guidance at the top of the range, This performance was driven by three key factors, operating leverage from higher revenue, enhanced site productivity and supply efficiency, and rigorous cost control. And we continue to execute our strategy, and we are well positioned for the future profitable growth. With that, I will now hand over to Sophie to share our guidance for Fiscal Year 2025.

Thank you very much, Sébastien. Looking ahead to fiscal year 2025, we are projecting organic revenue growth in the range of 5.5% to 6.5%, which is, in effect, plus six to plus seven, excluding the base effect from the Olympics, the Rugby World Cup, and the leap year in fiscal year 24. We expect pricing to average around plus 3%, supporting our growth outlook. And in addition, we anticipate like-for-like volume growth driven by increased demand for new or upgraded services and higher attendance in corporate services. We also foresee a positive net new contribution of approximately plus 2%, with growth expected to be more modest in the first half and picking up in the second half due to the timing of mobilization and demobilization. On the margin front, we anticipate an improvement in the underlying operating profit margin of 30 to 40 basis points at constant currency, and this will be achieved through a disciplined commercial approach and further efficiency gained from the deployment of digital tools, optimization of supply management, rollout of branded offers, and the introduction of new distribution and production models, all underpinned by rigorous cost control and the transformation of our transversal function towards a global business services model. In closing, we are confident in our ability to deliver on these targets And thank you, and I will now open the floor for the Q&A session.

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 touchtone 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 Jamie Rollo with Morgan Stanley. Please go ahead.

Thank you. Good morning, everyone. Three questions, please. First of all, in North America, the fourth quarter organic sales growth slowed quite a lot to around 5%. It was more like, I think, 9%, 10% in the first three quarters. And you talk about some lost university contracts. Could you please quantify that? of those losses, and are there any factors causing that slowdown, or is it simply just normalization? Secondly, on retention, 90 basis points hit from the FM and ENR contract losses in just a few months, plus maybe something in US universities. It feels like this could be the start of a trend. I'm just wondering what your confidence level is in the 95% retention target this year and guidance of 30 to 40 basis points that's clearly quite a good figure for 2025 given the higher base and slowing sales is that very much driven by internal action on costs rather than operating leverage on higher revenues and And also, which regions do you see most sort of margin upside in 2025? Thank you.

Okay. Thank you very much, Jamie. I think Sebastien is going to answer your first question.

I will take the first question. So, thank you, Jamie. So, the slowdown in Q4 in North America, around 5%, as you said, it's a different type of impact. First, we mentioned that last year in Q4, fiscal year 23, We have a very strong quarter with some strong activity in project work and convention center as well, so there is a kind of base effect there. There is also the slowdown in price increase between Q1, Q2, Q3, and Q4. This is also impacting Q4. And then there is a question on the impact from university and mainly from education, It has a minor impact here because, as you know, the Q4 is not a big culture for education. So it has some impact. This is also related to our very disciplined approach in terms of retention. We really want to focus on quality. We want to focus on quality signing, but we want to focus on quality retention as well to protect our margin. So it has an impact slightly in Q4. But again, the main reason was really Baseline from Q4 fiscal year 23 in southern of inflation.

Okay. Jamie, on your second question on the 90 basis point retention impact on retention by FM contract, as you know, we pivot our strategy to refocus on food and be more targeted in FM. And we want to ensure that we work with clients who not only want to drive efficiency, but are also keen to double down on the experience and their employee engagement. So our objective is to retain and grow with such clients by building on our client engagement and bringing value through our services and technology also. I don't want to specifically comment on this loss, but on the FM loss. On the ENR, as I said, it was also due to a very specific competitive environment this year, you know, in Natam. And so it is rare that we lose a very large contract like the one, you know, that has an impact on 0.6% that are global, complex, and we are often a key strategic partner. And as I said, you know, we have renewed with the same type of contracts more than 500 million this year with four contracts of which Microsoft and AstraZeneca. So in this highly competitive market, we successfully continue to proactively retain many global clients across sectors like pharma, FMCG, tech, and we want to continue to do so.

And regarding your third question and the further improvement in margin for Fiscal Year 2024-2025 between 30 and 40 basic funds, here we have different drivers. The first one is growth. I mean, increase and we increase density. We scale in food procurement. We are able to leverage our overhead as well. So growth, our top-line growth, helps us to improve margin. Then also we are working on enhancing the productivity at the site level. This is not new, but it's an ongoing and continuous effort on labor and on food costs. So we are also deploying new tools for workforce planning, for labor scheduling, and this definitely helps the optimization of the middle of the page. And then also, we work on our overhead and transversal function cost. We already mentioned the simplification of our organization, we mentioned the reduction of our HQ cost, and also mentioned the new transformation of our service function, moving to a global business service model, and this will help to drive also efficiency in the coming years.

Thank you. Do you mind just quantifying the U.S. university losses in terms of full-year revenue, please? And also, Sophie, what was your confidence level on 95%? I mean, there's no more big contracts you think you could lose in the next 12 months?

Well, you know, we are pretty confident on the 95. It is, you know, it is our target. You know, we were there last year. And then, of course, you know, if another very big contract is lost within that period, as you know, it can affect. But we are pretty confident, you know, as a... that in our 95% retention rate for this year. And higher education, well, we're not giving the number. We can't give you the specific number. In education, I remind you that there are universities, and there were a big number of universities, but also we have schools And schools have also been very impacted because, as you remember, in 2019 the Farm Bill law passed and a massive amount of K-12 contracts went into rebid. during that time, around that time, you know, in 2018 and 2019, to get compliant with the change in the Farm Bill. And now we are five years later, so we are in a cycle of re-bidding, and last year for the school business was a big year. So it's not, it's going to slow down. It was a big year for renewals, and... And it is because of the impact of that change of law five years ago. And it is slowing down. There's still some in this year, but it is slowing down this year and next year.

Okay, thank you very much. That's very helpful.

The next question is from Simona Sarli with Bank of America. Please go ahead.

Yes, good morning, and thanks for taking my questions. Just a couple of them, please. So your fiscal year 2025 guidance assumes quite some contribution from like-for-like volume growth. So what gives you visibility that you can achieve that, and also how much visibility you have? Second question is on the Q4. Again, you have achieved an organic growth of plus 5% on underlying basis and are guiding for six to seven in fiscal year 25, which is quite a sizable step up. So how can you please reconcile that? Thank you.

Okay.

So on the like for like, I will start, you know, giving you some qualitative elements and maybe Sébastien can can add some elements to that. So first, we have an ongoing gradual rollback of remote work policies. As you heard, many companies are forcing their employees to get back to work. So we expect a positive impact from that. We also, clients are looking for ways to to make their offices more attractive to their employees to bring them back with better food offers, conscious service, more animation, and sometimes converting desk spaces into meeting rooms and creative space to encourage sharing and group intelligence. So that also is another element that is going to help us in the like for like. Our upselling will also come from our upgraded brand offers and complementary convenience in response to the client demand for flexibility, site attractivity, less environmental impact, and it will have an impact on our volume but also on our prices. We're also counting on some redesign of workplaces, you know, with smart building, city center smaller, more flexible. And we always have some GDP linked growth. That's for the like for like.

And just want to add that you have to be very clear that our cross-selling, in our case, cross-sell is in the like for like and the volume growth. And as Sophie mentioned, we have a lot of levers to boost also cross-selling during fiscal year 25. So it's the reason why really we are very confident on the volume impact being between 1% and 2% normalized for next year.

Q4, second question.

Yeah, and the second question. So first also, Q4, as you know, it's not a big quarter for us because of the seasonality of our activity. exit rate is again around 5%. We know that for the year, and if I come back to the guidance, we are expecting around 3% increase from pricing, 2% from net new, and 1.2% from volume, meaning that we would be at 6% to 7%. And it means that what we are expecting is clearly an acceleration of the net new contribution over the year. We are expecting higher contribution in H2 than in H1. And this also will be based on the very, very strong H2 fiscal year 24 development. And as we said, as Sophie said, we have a very strong pipeline, plus 25% this last year. And we are expecting a very strong H1 in terms of development that will help organic growth during the second half of the year.

Thank you.

The next question is from Vicky Stern with Barclays. Please go ahead.

Yeah, morning. Just firstly, I wanted to talk about the medium term, how you're thinking now beyond 25 in terms of medium term organic growth and margin. For the organic growth, I think, Sophie, you laid out 3% net new would obviously be the target. But in terms of the other levers, and particularly volume, do you think you can sustain that 1% to 2% beyond next year? Second one's just on the higher restructuring charges. I didn't quite follow this transversal global business services model. So just a little bit more color on what exactly that is, and should we expect those higher restructuring charges to be a sort of one-year thing next year, or could those continue beyond next year? And then the last one's just back on the balance sheet. You've obviously mentioned there that you're happy to repay some debt through the year, perhaps do some more small bolt-ons. But if you could just talk about the group's appetite for any larger M&A or if bolt-on is really the desire right now. And to the extent that there's not sort of plenty of opportunities out there, your appetite going forward for any cash returns or additional cash returns to shareholders or is really bolt-on M&A the main focus? Thanks.

Thank you, Vicky. So on the mid-term organic growth, as you said, we expect a net new of around 3%. And I explained how. And along with that, we have used inflation expectation in our model around 3%. Yes, in the mid-term, you know, we want to continue to have a like-for-like between one and two, thanks to the overall growth, thanks to the GDP growth, the upselling, you know, that we just described. So, yes, it is what we want to achieve. We want to be very focused on our growth, in the short term, but also in the mid-term. Maybe on the margin, on the restructuring... Yeah, on the transformation.

So, as I said, Vicky, and we thank you for the question, we are accelerating the transformation of our functional transversal function, sorry, to the GBS model. It's really... The continuing of our journey, even if we are accelerating that, we have already two key share service centers, one in Porto and another one in Mumbai, with more than 300 employees there. It was mainly finance. The objective is really to enlarge the function to other functions in addition to finance like HR, like purchasing, like health and safety, or other types of general services in those centers. And at the same time, what we want to do is to also transform our back office and functional function with more automatization, digitalization, and also the harmonization of our processes. So it's a big transformation. It will take some years to do that, but it will definitely drive efficiencies in the coming years.

On the M&A strategy, As you've seen, you know, we have a strong balance sheet and we are ready to do more Bolton acquisition when there is, you know, the strategic rational and when it will create value. We said that we would spend 300 to 500 million euros per year But it doesn't mean, you know, first to strengthen our position in key markets like in the U.S., some European countries, to expand our new production and distribution model, you know, like convenience and vending in North America. And also to continue, you know, like we did in the U.S. with the acquisition of Accent. And since we did... five additional bottom acquisition. Also, we want to strengthen ourselves in GPO, but it doesn't mean that if we have a mid-size deal that fit our strategy and that is the right target, that is financially creating value, that we will not look at it. We have said it's an average of 300 to 500 a year. If something bigger comes up, we will, of course, look at it.

Thank you. And so just to follow back on that first question, thank you for the color on the medium-term organic growth. The medium-term margin growth, should we still be thinking about 30 to 40 bps beyond next year?

Well, as we said, Fiscal Year 2025 is the last year of the prior three-year plans. We are fully focused on delivering and executing our third plan, and executing and delivering the margin for Fiscal Year 2025. Then we'll continue, obviously, to improve margin in the coming years. with the growth of the top line and the transformation I mentioned also before. But again, today the big focus is really to execute Fiscal Year 2025.

And the mindset, you know, there, I think, Vicky, is really to become more efficient, you know, and to be able to continue to invest in our growth. I think it is exactly what we have done in the U.S., you know. I remind you that before... COVID in the U.S., our organic growth was at 2%. We almost reached 9% this year. And we have invested a lot in the U.S. So that's why also our margin in the U.S. has not still recovered. The margin, it's the only zone where we have not yet recovered for pre-COVID margins. So I think this is really the mindset. And of course, As Sébastien said, we want to continue to improve our margin. That's great. Thanks very much.

The next question is from Jafar Mestari with BNP Paribas. Please go ahead.

Hi, good morning. I have three, if that's okay. firstly just on the pre cash flow 661 million for full year 24 can you update us please on where reverse factoring was at the end of the year nothing in h1 the increase in reverse factoring was a 160 million benefits and it's the same for the full year did it increase further did you take it down since please and and then following up on US education, I appreciate you cannot necessarily quantify everything. If I calculate the implied Q4 organic growth by segments, US education is down minus 4.5% in Q4. I think it's plus 5% for next year. Is there anything in terms of calendar effects or any other one-offs to keep in mind in this Q4, or is it just size closures, the contract losses, they're pronounced, we can model minus 4% for a couple of quarters. And lastly, more conceptually really, most years we're standing here in October and we're looking at your net new business forward-looking KPIs, retention as you define it, minus gross signings as you define them. And most years the discussion is that's that's where you can get and how close will you get to that if we start factoring in the ramp up of the stuff you signed this year it's 1.6% and you're guiding to 2% you know you made some points on I'm not sure I get them by the way like the H2 phasing yeah some of that stuff was signed late in H2 so it's It's taking some time. You expect a strong H1. What actions, my point is, what actions are you putting in place to ensure that this year the ramp up is very fast, that you sign more very soon, you ramp up as fast as possible because we're already two months into your fiscal year and the exit rate is 1.6. You want to do two.

Okay, so I will take the first question. Thank you, Jaffar. So on the first question, this is really seasonal, talking about the reverse factoring. So it has come back now to last year level, okay? Again, the reverse factoring is very seasonal, and we are back to last year level.

Super, very clear. Well, on the second question,

You know, I'm not sure I really, I'm not sure I recognize your number. And because, you know, the education in Q4 is always a slow quarter because universities, you know, universities, they only start, you know, in August. So two months they are off and school also, you know, And sometimes they don't even start in the beginning of August. They start in mid-August. Same thing for the schools. But it's true that, yes, we have had some losses, and those losses, they have an immediate effect at the beginning of the year. We also had some big wins. I was in the Dallas area, and we have signed a huge school district contract I'm not sure if I can mention the name or not. So I can't mention the name, okay? So you won't know the name, but I just visited it a month ago. It's huge. You know, we do elementary and primary and schools, and it's a big contract that is going to ramp up. And we also have some project work in schools and also in universities, so that maybe can help you... do the math with your figures. And in terms before going, Sébastien go into the detail in the net view, I remind you that our definition is it's not the in-year indicator. For example, on this big contract, contract that we lost, we are taking the full amount in our retention at the end of fiscal year 24, but we are going to run this contract until January. It's true that, you know, depending on what happens, and that's what I said, into mobilization and demobilization, and especially with big contracts, whether it's signing, for example, this school district contract that I just told you about in the Dallas area, it's starting soon. On September 1st, it has started. It has already started. And for example, it has a contract that we have lost, and it also has a big impact, where it's going to be open until January. So that's how you know there is a difference between our KPIs, our 12-month KPI, and the in-year effect. You want to add something, Sebastien?

Just maybe to add again on the second question, the Q4 is not really a good proxy for education. It's always very volatile. Again, we don't really recognize your number. I can tell you that school was done, but university was up. And now getting back to the third question, Well, we are very confident. Again, I mentioned it. The second half of last year was very, very strong. So we have a very good visibility of the opening during the year and the ramp-up of the mobilization of this contract. Again, we have a very, very good visibility on our pipeline for Q1 and for Q2. We start the year very strong in terms of development. And again, for those contracts, we know exactly what will be the opening date. So this is the reason why we are We are confident in terms of acceleration of the net new with a higher H2 than H1.

Thank you very much.

The next question is from Leo Barrington with CT. Please go ahead.

Good morning. Thank you. Three for me as well, please. Firstly, on the margins, this margin progression guidance, FY25s, Is it to spread across the three regions relatively equally or will the U.S. see some catch up to break back above 2019 levels? And then within margins, the central cost line, is this the new levels that grows with the business going forward or are further efficiencies possible, do you think, in absolute terms just given the restructuring and central services investments? Secondly, the foods and FM mix in the new development is running at 65%, but with some foods within integrated, can you just break out what proportion of those IFM sales are of food? And then lastly, on the branded food offers, can you just elaborate more on the strategy here? Does this eventually go to 100% essentially, or are there still outlets or subsectors where you think the Sodexo brand itself is the right one. Thank you.

Thank you, Leo. Regarding your first question on the improvement of margin for next year, so we are expecting an improvement in margin across all regions. I would say that we are expecting a higher improvement in Europe because of the starting point. I mean, it's a lower margin, so we know that there is more potential in terms of margin improvement. And then to your second question regarding the central cost and the HQ, on the HQ side, we plan to remain below €90 million for fiscal year 2025, and again, as I said, I will move on this transformation in terms of transversal function, but this will impact region and country level. But this will help also to improve the margin in fiscal year 25 and in the next year as well.

The second one on the H2 contribution.

I mentioned it already.

So on the third one, you said we have signed 65% of food contracts and also some IFM. It's difficult, you know, usually IFM is very often in our business, but it's less, you know, the food contribution is less than the third in those contracts. And I'm not sure I really understood well your last question. Okay, can you repeat it? The second part of the question.

Sure, just in terms of these branded food offers, do you see the Sodexo brand as itself to consumers as still remaining or do you intend to take these branded food offers across the whole portfolio? Okay. If it's 37% of food revenues now and going above 50% next year.

Yeah, you know, you said it's a Sodexo brand, it's branded offers, you know, like a modern recipe, kitchen work in a manufacturing environment, good eating company, more premium, fooditude that we have in the UK for off-site production, very premium for clients that don't have a kitchen, so... So within, you know, it's a portfolio of brand. And yes, going forward, of course we want to increase that number. will it go to 100% eventually? I don't know yet, you know, why not? But I think the objective is to increase, and as I said, you know, we've increased one brand by 45%, the other one by more than 30%, is to increase, is to structure, you know, there is more SKU rationalization, menu common menu, common product. And by doing that, you know, our clients get benefits from all the work and all the insights that have been worked by our marketing and commercial team on that brand and deliver the best service for those specific clients and those specific consumers. So So I think the idea is to improve. And already reaching our 50% target is going to be a good goal. And as we're going to work on our 25-28 plan, we will see what's the plan for the future.

OK. Thank you, Sophie.

The next question is from Simon Le Chiffre with Jefferies. Please go ahead.

Yes, good morning. I've got three, please. First of all, in North America, you mentioned the strong growth from Antegra. So could you please give us the organic growth excluding Antegra, please? Secondly, on the net new wins, could you give us the actual contribution to Q4? And I mean, I'm sorry if you gave it already. And lastly, as a follow-up on the medium-term targets, I mean, based on your comments, does that mean that you expect to be at 3% plus net UINs as soon as 2026? Thank you.

Okay.

On your first question, again, we gave you the performance of Integra in North America to gain very strong performance. We said also in different calls that The objective was double the size of Integra and will be there in fiscal year 25. And then, again, it means that the organic growth excluding Integra remains good, slightly below the 8.7% we gave you, but very slightly because of the weight of Integra in total revenue. On your second question, so the net contribution to Q4, so it was... it was above 2%. Usually, by quarter, we don't give the split between for life volume and net contribution, because you may have some phasing impact. You have some porosity between the different buckets. So it's very relevant on a full year basis is the reason why we gave you clearly that it was more than 2% for fiscal year 24.

And for the third question, you know, 3% on net new, it's an ambition. So, you know, I cannot tell you, and we are not going beyond 25, so I cannot tell you it's an ambition. So I'm not talking specifically about the 26.

Okay, thank you. And a quick follow-up on the Q4 getting gross bridge. So, I mean, it seems that volumes were actually kind of flat in Q4. So, I mean... What gives you confidence on kind of low single-digit growth for 2025 from volumes?

Again, the Q4 is not necessarily a very good proxy because of the seasonality. Then also, we had the favorable impact in Q4 coming, obviously, from the Olympic Games with 66 million euros. And we mentioned it before, and we had them. a kind of collateral impact from the Olympics in France impacting our like-for-like and our volume impact. This explains also the lower impact in terms of volume for Q4.

Thank you. The next question is from Neil Tyler with Redburn Atlantic. Please go ahead.

Good morning, thank you. A few left from me, sorry. Margin, first of all, just like to tackle that outlook question from a different perspective. This year you've had quite strong pricing catch up, also healthy life, light volume growth, a big drop in central costs and some strong contribution presumably from the Integra growth. So can you outline what the negatives are were pressuring margin this year, because you're expecting next year's to be similar with presumably much reduced effects from all of those that I just listed. The second question, just more broadly on the retention, and just can you give us a picture as to how above or below average 25 should be in terms of rebids? Then the point on CapEx being a bit lower in 24, can you quantify how much that was lower by? Sorry if I missed that. And then the Integra compliance, I think you said catalogue compliance was up 400 basis points. Are you able to share what level it is at on an absolute basis, please?

Thank you.

Thank you for your question. If I take your first question on margin outlook. As I mentioned earlier, we have different types of drivers in terms of margin improvement. They remain the same. They can be stronger depending on the year. Clearly, we have been continuing investing in supply. and in Integra, and this will remain a strong driver of the improvement of our margin in fiscal year 2025, especially in the US and with the organic growth It will give us more scale, so more power in terms of purchasing, and this will again help us to improve the margin. I also mentioned the enhanced productivity middle of the page, so this will remain also a key driver for next year. We'll continue to work on our back-office cost, transversal function, as I mentioned as well, and we'll accelerate that, so at the region, country level, this will have a higher impact in fiscal year 25. And then also, it's true that we had some also specific negative one-time impact in Q4, and one of them, and we mentioned it, it's linked to the for retention in Latin America. We have some severance costs, exit costs linked to that, and we took the heat in Q4 for the rest of the world.

So, in terms of retention and our rebind trend levels in 2025, the way we look at it, if we look at two years, three years in advance, we look at the year and we look at the contract ending, you know, contract ending in 25, contract ending in 26, contract ending in 27, and then from that volume we try to anticipate, you know, and avoid the rebid. So in terms of contract ending, what we can say is that the percentage is has been pretty similar, you know, in 23, 24, and also 25. But what we do, and as I said, is try to avoid the rebid by anticipating, and then that's how, you know, you decrease the risk and you improve your retention.

So then on your third question in the capex, well, we said it was around 2%. If you look at fiscal year 23, it was around 2.2%, sorry. So it's 20 basic funds gap, I would say, if you compare to the level of the prior year. And we are expecting to be at 2.5% in fiscal year 25. So it's around 20 bits of revenue if you want to have to factor what could be the impact of the low capex in 24 and the increase of capex in 25.

Okay, and in terms of the 400 basis point improvement in compliance at supply management, what was the baseline? We do not give the baseline, but what we can tell you is that we have improved and we can continue to improve. And that's the objective.

OK, that's great. Thank you very much for the answers.

For any further questions, please press star and 1 on your telephone. Sodexo team, there are no more questions registered at this time.

OK. Well, since there are no more questions, thank you very much for being with us this morning. I remind you that the next announcement will be our Q1 fiscal 25 revenue, and it will be on January 7th. So thank you again, and have a good day.