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.