Sodexo S/Adr

Good morning. Thank you for standing by and welcome to Sodexo's first half fiscal 2025 results conference call. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. I advise that this conference is being recorded today, Friday, on the 4th of April, 2025. I would now like to hand the conference over to the Sodexo team. Please go ahead.

Good morning, everyone. Thank you for joining us today. I'm Juliette Klein, Head of Investor Relations, and I'm pleased to welcome you on our H1 Fiscal 2025 Results Call. On the call today is Chairwoman and CEO Sophie Bellon and CFO Sébastien Dutra-Mazur to take us through the presentation. After their remarks, we'll open the line for questions. We'll ask you to please limit yourselves to two questions and one follow-up. The press release is available on FedExo.com. Please note that this call is being recorded and may not be shared without our consent. Just a reminder that our next announcement will be the Q3 figures on July 1st. Please reach out to the IR team if you have any questions after the call. With that, I now hand over to Sophie.

Thank you very much, Juliette. Thank you for joining us today. Just two weeks ago, we shared our preliminary H1 results and revised our full year guidance. We recognize them and reiterate today that some of our initial assumptions have not played out as expected. Today, we want to provide further clarity on what has changed and why we remain confident in our strategy. When we started the year, we believed there was a clear path to achieving our targets. This was based on strong commercial momentum, expected volume growth, and the wrap-up of key contracts. Several factors, however, did not materialize as we anticipated. Upon receiving particularly weak February results, we immediately started to review and analyze our data and assumptions in granular detail. We concluded that our FY25 guidance was too optimistic regarding the pace of volume acceleration and new contract openings. Sébastien will provide you with more details just after. The challenges we are facing are in a few specific areas, and we are addressing them head-on. In North America, education remains the key focus. We have a new leader in place since February. His roadmap is clear. Refine the portfolio mix, strengthen our offer, and accelerate innovation to improve growth and performance. The impact of this initiative should become visible throughout fiscal year 26. Another significant challenge this year is a negative net new contribution in North America. While our 24 signings were strong, two large contracts will only start contributing in financial year 26 and beyond. This means the underlying financial year 24 net new contribution was effectively neutral. At the same time, net signing in the first half of fiscal year 25 were weaker than expected. We are having to deal also with the timing challenges. Some of the new contracts are ramping up gradually, while some losses take full effect immediately, which means net new contribution is a headwind for this year in North America. Our plan to address this challenge is based on two key pillars. First, we are intensifying our focus on sales and retention, building on the initiative we have implemented over the past year, and this includes the effective deployment of branded offers, the complete review of incentive schemes for our sales team done this year, and extensive training programs. These efforts are already showing encouraging signs. Our North American pipeline remains strong, and we have secured notable contract wins in recent weeks. While these will have a limited impact on this year's results, mainly starting in Q4, they lay the foundation for growth in fiscal year 26 and beyond. Second, we are tightening our approach and criteria to assessing contract ramps up and scrutinizing volume assumptions more closely. This will help improve predictability and ensure a more disciplined execution of our growth strategy. Finally, in Europe, While microeconomic conditions continue to impact facility management, we are focused on execution and operational efficiency to mitigate the effects. Despite these challenges, our confidence in our strategy remains unchanged. Our teams are highly engaged and committed to execution, restoring performance in these key areas and tightening predictability. Looking ahead, our priorities are clear. We are executing with discipline, adapting when necessary, and staying focused on long-term value creation. With that, I will hand it over to Sébastien, who will take you through the details of what led to the guidance revision and provide clarity on how we view the second half of the year.

Good morning, everyone. As Sophie just outlined, we revised our full-year guidance two weeks ago to reflect a lower-than-expected pace of growth. And today, I would like to go through the key drivers behind this revision. So looking at the bridge on the slide, you can see that we initially guided towards organic growth between 5.5% and 6.5% for fiscal year 2025. And with the updated outlook, we now expect organic growth of between 3% to 4%. And the shortfall is essentially concentrated in North America which accounts for 80% of the revision. Breaking it down further, the largest impact comes from healthcare, which represents a 90 basis points drag on growth, mainly due to delays in the ramp-up of new contracts that Sophie just mentioned. Our initial assumption on the timing of this new ramp-up were too optimistic. And this lower realization rate also alone explains more than half of the shortfall in this segment. Additionally, our partnership with a major healthcare organization, CATIS, which we signed last year, was expected to contribute significantly in the second half, but it will only start in fiscal year 26. And this accounts for another 30% of the healthcare shortfall. The rest come from lower lag-for-lag volume, with retail initiatives ramping up more slowly than anticipated. In education, sorry, the shortfall represents a 60 basis points impact, as you can see in the slide. We had expected a boost in volume driven by several retail initiatives and increased student enrollment in the spring semester. However, this initiative fell short of expectation and did not generate the incremental revenue we had planned. The shortfall here accounts for approximately 40 basis points. Additionally, weather-related school closure and lower attendance contributed a further 20 basis points. The remaining 50 basis points from North America come from other parts of the business, in particular lower than expected retention in corporate services. Outside of North America, facilities management in Europe has also been softer than expected, reflecting ongoing macroeconomic pressures. This represents a 40 basis points impact. We have seen fewer facilities management projects which are sensitive to budget constraints. So, in summary, the downward revision is essentially due to delays in healthcare ramp-up, lower growth in volume in education, and retention pressure in corporate services, all concentrated in North America. While this headwinds impact fiscal year 25, we remain focused on executing and positioning ourselves for a return to stronger growth. Now that we have explained the gap versus our initial expectation, let's move on to our performance and the fiscal year 25 outlook. After delivering 4.6% organic growth in Q1, Q2 came in at a much lower 2.4%, with an expected week February driven in the main by North America. The key factors behind this decline were calendar effect and one-off, the drive from net new contribution, including losses in corporate services, such as a large facilities management contract we lost last year and we demobilized in January, and lower volume due to higher convertible base. Looking ahead to H2, we expect organic growth between 2.5% and 4.5%, bringing our full-year outlook to between 3% and 4%. And in terms of phasing, Q3 is likely to look more similar to Q2 than Q1, and Q4 is expected to be stronger despite a minus 1.3 drag from last year's Olympics game. Q4 will benefit from the ramp-up of several large new contracts, including the prison contract in France, ESNEST in the UK, Santos in Australia, which are already mentioned in January, but also from for instance, University of Cincinnati Health in the U.S. In addition to the fading impact of five-year contract losses, this will give us a boost of net new contribution of circa 100 basis points between Q4, Q3, and Q4 with limited risk of slippage. And a more favorable mix from civility in education as well as positive calendar impact will also contribute support growth in Q4. Moving on to cost management and our continued strong cash flow. On cost management, we are making progress. Our global business services project is delivering results, bringing around 10 million euros of savings this year as expected. We are also streamlining the organization in key regions while maintaining strict monitoring and control over HQ costs. On cash flow, our underlying free cash flow in H1 remains robust, excluding the exceptional tax outflow related to the tax reassessment in France. We have also continued to improve working capital, reinforcing our financial position. Looking ahead, we are on track to achieve a leverage ratio between our targeted range of between 1 and 2 by the end of the fiscal year. I will now hand over to Sophie, who will take us through the key highlights of our H1 performance.

Thank you, Sébastien. Let's now turn to the group's performance in H1. H1 revenue reached €12.5 billion, up 3.1%, with organic revenue growth of 3.5%. Food services continued to outperform, delivering 4.5% organic growth, while SM services grew at 1.7%. Underlying operating profit rose plus 6.4% with a 10 basis point margin improvement. And underlying net profit also grew by 5.4% at 450 million euros. I want to highlight the strong business development momentum in H1. We secured over 1 billion euros in new contract, including cross-sell opportunities. On this slide, You'll find our usual last 12-month KPIs as of H1 with a retention rate of 93.9%, as you can see in the middle block, and a development rate at 7.3% on the right block. These figures are influenced by the specific dynamics of last year's H2, where we saw both particularly high losses and strong wins still embedded in these rolling indicators. Looking at our full-year target, starting with retention, and to repeat what we said two weeks ago, financial year 24 and financial year 25 have been unusually dense in global accounts renewal, with 80% of our 1.6 billion euros portfolio coming up for renewal over these two years, including 0.9 billion in financial year 25 alone. Among the six major contracts expiring this year, we have successfully retained five of them. As a result, we are targeting a retention rate between 94 and 94.5 for the full year, factoring in the one non-renewal. Without this, our retention would be above 94.5, demonstrating solid underlying performance. On the development side, Momentum remains strong. In H1, we signed 1 billion euro in new contract, including cross-selling, representing a 20% increase compared to last year. And of that, 30% to 40% is expected to contribute to financial 25 revenue. Further strengthening our outlook, our pipeline is larger and more advanced than usual, reinforcing our confidence in delivering a 7% to 8% development for the full year. On the next slide, you'll see a selection of contracts we either signed, renewed, or extended during the first half. I won't go through them in detail, but I encourage you to take a look. And I would like to just highlight the good momentum in healthcare in the U.S., where we recently secured several significant contracts, including Atlantic Atlantic Care, the largest healthcare system in southeastern New Jersey, and UC Health, which is set to mobilize in Q4. We also signed significant contracts with Canada National Bank Open in Montreal, BNP Paribas in London, and Uber in India. Over the next three slides, we have outlined key milestones and business highlights from the first half across our region. In North America, Codexo Life delivered world-class hospitality at the Super Bowl in New Orleans this year, and the Taylor Swift Era Store proving our ability to enhance major events. We're also expanding in the fast-growing U.S. convenience market with the acquisition of CRH Catering, strengthening our in-reach offering and accelerating our growth. In education, we're reshaping campus experiences with food hive convenience stores, and our new resident dining experience, one and all, improving accessibility, speed, and community engagement for students. In Europe, we are proud to demonstrate the added values Sodexo is able to share through the talent of chefs. Some examples. In Marseille, we partnered with a three-star Michelin chef, Alexandre Maglia, to redefine the culinary experience at the MISA Museum. In Sweden, Jesse Sommarström, executive chef at Sodexo Sweden, has composed the Nobel Prize Banquet menu. And at the beginning of this week, the Michelin-starred Frédéric Anton saw his six stars renewed. Our transformation, boosted by branded offers extended across multiple sectors. For example, the rapid expansion of Keymark in Sweden highlights our investment in sustainable high-quality corporate dining, and in the UK, we launched the KitchenWork MicroKitchen, transforming military dining with digital-first efficiency, delivering increased sales, margin, and customer satisfaction. Dodexo also continues to develop its DPO, Antegra. Serving clients in nine countries in Europe, Antegra has grown significantly in recent years through both organic organic growth and also acquisition in France and in the Netherlands with the recent acquisition of Orinco and Highland Purchasing to complement the previous one of ProSant in the Netherlands. For the rest of the world, we had a strong commercial momentum in Australia as well as in India. We continue to develop innovative food service like our autonomous micro-markets Nopunto in Brazil with a planned expansion to 190 locations by the end of fiscal year 2025, driving a projected 20% growth in retail sales. And we also launched our country's first autonomous retail store in Australia in a mining village, offering workers a seamless AI-powered shopping experience. We have just opened our new global business service center in Bogota after successful opening of our shared service centers in Porto in 2018 and Mumbai in 2019. The objective? To promote standardized practices, innovation, efficiency, and better controls and cost management within the organization. This DBS will progressively mutualize expertise for HR, finance, supply management, tech and innovation. These highlights illustrate the strong momentum and strategic progress we've made across our geographies. Finally, everywhere we are continuing the implementation of our strategy to positively impact people and planet. And as you can see on the slide, we have been recognized by major organizations for our leadership in sustainability and responsible business conduct. Now, I will hand it over to Sébastien to take you through our financial performance for the first half.

Thank you, Sophie. So, as discussed already, our performance in the first half reflects the challenge we have been navigating. Nevertheless, there is some solid underlying progress. Operating profit increased by 6.4%, driven by revenue growth of 3.1%, and operating margin of 5.2%, up 10 basis points. Moving on to other income and expenses, this amounted to minus 71 million euros, driven by higher restructuring costs related to the global business service project compared to gains from home care disposal last year. For fiscal year 25, we now expect total other income and expenses to be around 150 million euros. And as usual, the modeling slide is available in the appendix. Net financial expenses were 40 million, down 6 million, mainly due to lower interest rates on the U.S. floating debt and the reimbursement of two bonds during the first half of fiscal year 24. For fiscal year 25, we expect the financial result to be around 100 million euros. The effective tax rate for the first half of the year was 19.5%. mainly impacted by the finalization of the Sodexo SA tax audit. In comparison, the prior year's tax rate was 16.6% due to non-taxable gains from the home care disposal. The projected tax rate for the year is now around 20% to 24%. Group-led profit was $434 million, down minus 12.5% compared to last year. mainly due to the change in other income and expense I explained earlier. The underlying net profit adjusted from other operating income and expenses and net of tax and exceptional tax item reached €450 million, up 5.4%. Moving on to our cash performance. Operating cash flows for the first half was €600 million. Excluding the exceptional tax outflow from the tax reassessment in France, it increased compared to last year. The change in working capital in the first half was seasonal negative 491 million euros, an improvement on the negative 513 million euros in the same period last year. Net capex, including new client investment, was slightly up at 256 million euros, or 2.1% of revenue. And we still maintain a target level of around 2.5% of revenue for the full year. This brings us to a free cash flow of negative 234 million euros, which is due to three factors. One, seasonality of cash flow with a dividend payment in the first half. Two, seasonal working capital requirements. And three, the exceptional tax outflow. Continuing down to the table, acquisitions net of disposal amounted to an outflow of 72 million euros, mainly from the acquisition of CRH Catering in the US on January 2025. On the dividend, we maintain our 50% payout ratio, and the dividend pay during the year amounted to 388 million euros, lower than the previous year's figure, which still included Plexi's contribution. All in all, consolidated net debt is increased by 815 million euros in the first half to reach 3.4 billion euros at the end of February 25th. Let's move to the next slide. So with rolling 12-month EBITDA up 6% year-on-year, Net debt to EBITDA ratio stands at 2.3 times, which is unchanged from H1 fiscal year 24. We remain committed to holding our strong investment-grade credit rating and expect to be back within our target range of 1 to 2 times by year end. Moody's recently upgraded our outlook from negative to stable, acknowledging our disciplined management of our balance sheet. And looking ahead, we plan to repay our 700 million euro bond maturing in April 25 in full from existing cash resources, while maintaining flexibility to pursue targeted bolt-on acquisitions. So as you can see, whilst we have to revise our guidance, our cash position and balance sheet remains strong. Let's now turn to the review of operations. First half fiscal year 25, revenues were $12.5 billion, up 3.1%. Current impact was minimal, and scope effects reduced revenue by 0.3%. As a result, organic growth was up 3.5%. Organic growth in North America was 3.5%, Europe was 2.1%. and the rest of the world, plus 6.6%. And in a moment, I will come back to the detailed geographic performance of each region. Food services performed better at 4.5% organic growth. Facilities management services activity was impacted by lower volumes and contract demobilization, and was therefore only up 1.7%. Now, starting with North America, revenue reached $6 billion, up 3.5% organically. Business and administration continued to grow, supported by strong food services, while Q2 was impacted by some contract transition and fewer working days. So DexoLive maintained strong momentum with a standout Q1, while Q2 was influenced by even timing. Education faced negative net new contribution and weeds from fewer working days and weather impacts. And finally, healthcare and seniors remained resilient, balancing strong early performance with some contract phasing. Next, Europe. Revenues in Europe reached 4.3 billion euros, up 2.1 organically. Business and administration saw modest growth, supported by pricing and new openings, but tempered by lower activity and site closure. Excluding the impact of major sporting events, Sodexo Live's growth was driven by strong performance of UK airports, lounges, and stadiums. Education grew steadily, with price increase balancing last year's contract exits. And healthcare and senior deliver strong growth, benefiting from higher volumes, price adjustment, and new business in France and Belgium. In the rest of the world, first-half revenue reached 2.2 billion euros, up 6.6% organically. We saw strong performance in India and Australia, but Chile and Peru were impacted by prior year site losses. And China continues to see sign of recovery. And finally, let's look at our margins. Our underlying operating profit margin increased by 10 basis points to 5.2%, driven by operational efficiency and effective cost management. In North America, despite the low organic growth, the margin still rose by 10 basis points to 7.1%, supported by better purchasing efficiencies and overhead cost control. In Europe, profitability increased by 10 basis points to 4.3%, with positive operational improvement and price revision. In the rest of the world, in spite of some operational challenges in Latin America, the margin increased by 20 basis points to 3.9%, driven by improvement in Australia and China. In conclusion, we are confident in our ability to deliver sustainable and profitable growth as we focus on maintaining financial discipline, executing our operational priorities, and transforming the organization. I will now hand back to Sophie for the concluding remarks.

Thank you, Sébastien. we acknowledge that our initial expectation for financial year 25 were too optimistic, and we have moved quickly to restore performance and tighten predictability. At the same time, our business fundamentals remain strong. We're making progress, demonstrating that our structure and model are resilient in the face of challenges, and we're well positioned to navigate different scenarios. We are confident that our 3% to 4% organic growth and margin progression by 10 to 20% is deliverable. We will provide more detailed guidance beyond 25 at our financial year result in October. Our priorities are clear. We are driving sustainable growth, managing costs closely, investing in our future, and thus positioning ourselves for recovery in fiscal year 26. With that, I would like to open the line for your questions.

Thank you. This is the conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove your staff from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Ivar Belfort Kelly at UPS. Please go ahead.

Good morning, everyone, and thank you for the presentation. I think the first thing on everyone's mind is, of course, the potential impact that we might see from American tariffs now that we have more visibility on the absolute magnitude that we have. Could you please walk us through your expectations, both in terms of first-order effects that you could expect and maybe even second-order effects? And there I mean, for example, could there be impact on the Australian contract that you just won, given the dependence on the Australian economy on the Chinese market, which could suffer in the future? And secondly, looking at your CapEx plans, I mean, you mentioned CapEx is sales at 2.1%. but you still expect it to be 2.5% for the full year. What is it that's actually going to lead to that acceleration? Because that is a pretty big step up compared to where you've been historically.

So thank you, Eva, for your questions. So I think the first one is the impact on tariffs. And can you precise expectation on first and second order? What do you mean by that?

Well, I suppose, I mean, for first order, I mean, direct impact within a given country. But the second order, as I mentioned, Australia, their dependence on the Chinese economy, which could suffer. You just want a big contract there in the offshore and remote services. Could that actually see lower volumes than you previously expected?

Okay. Well, first, let me answer you on the tariff and, you know, and the impacts of the tariff. of the measures in the U.S., and then Sébastien will answer you on the CAPEX. So, first, you know, on the tariff, and let's start with the U.S., the increase of tariff, you know, we are a service business. In the U.S., our teams are American. We recruit locally, and most of our sourcing for food especially is in the country, 90% of the sourcing. So it's a way of de-risking our position. Of course, on certain products, you know, maybe coming from Mexico and Canada, like fruits and vegetables, especially during the winter, it could have an impact. But we have to stay vigilant on the announcement because we saw nothing on Canada and Mexico in the last announcement. Of course, it can create inflationary pressure in our supply in our supply especially in food but first we don't see anything coming up now and inflation is really something that we can adapt, because as you know, part of inflation can be passed to our contracts, and also depending on the product, we can also change products, and it's exactly what we did when we had the increase in inflation during the Ukraine war. And for the impact on Australian contracts, I can tell you that there are two big contracts in Australia, one that we retain, Rio Tinto, and we see no impact. It has not started. The new contract has not started. We are getting ready for the new contract for next year, but the reinforcing of the partnership on the opposite shows that we are identifying opportunities more cross-sell or new service that we could support our Rio Tinto client. So we don't forecast any decrease in volume for that contract. And for the Santos contract, which is a new contract, and this contract is going to be mobilized in Q3, We don't see also, for now, we don't see any impact on the contract.

And to your question on capex, so as you know, the evolution of this capex and the fading of the capex depends on the timing of retention and timing of development, obviously. So, as you know, we are expecting a ramp-up of the in-year contribution and the opening mobilization during the second part of the year, especially with the opening of a large new contract. And those openings are linked with additional capex. So, the fading of capex H1, H2 is quite consistent with our underlying assumption regarding the evolution of the development during the year.

Perfect. Thank you very much.

The next question is from Simone Le Chiffre at Jefferies. Please go ahead.

Yes, good morning. My first question is on the phasing and on your expectation of 3Q when it was similar to 2Q. I mean, I think you had an 80-bit leap here in Q2, so why Q3 should not be higher than Q2? Is it just like getting weaker quarter to quarter? And second question is more like I mean, on medium term, obviously you did not provide any update this morning, but I mean, I think in the current context, investors would appreciate some sort of visibility. So is there anything at this stage you could share on the growth algorithm for next year? Could 2026 be similar to 2025, given some large losses coming up next year in terms of the global account? Thank you.

Okay, thank you. Thank you very much, Simon. So, Sébastien will answer your first question, and I will take the second question.

So, to your first question on the fading and the acceleration of the organic growth between Q2, Q3, and then Q4, there is, yes, you are right, there is the impact of leap year and calendar year in Q2. We are expecting favorable opportunities and favorable calendar year impact in Q3 that will help the organic growth. And then we start, as we mentioned earlier, we start the mobilization of new contracts at the end of Q3. So, again, this will help the organic growth in Q3, and we'll have the full quarter impact from those mobilizations in Q4.

Okay, and then for the long-term, it's much earlier to give a long-term or next year guidance. What I can tell you, we said that the dynamic on new contracts is good because we are over a billion for new contracts plus cross-sells. in H1 and we expect to be beyond the achievement of 1.9 billion at the end of the year also for a new contract and cross-sell and as I said for retention we plan to be between 94 and 94.5 including site closure and But part of that is also the effect of the FM contract that we lost, and it will start to have an effect in Q2 and Q3 of next year. So the underlying retention also should be above, between 94.5 and 95. So those are the... the key lever to drive our growth in 26. And as Sebastian said, you know, our growth, our exit rate in Q4 for the growth is going to be better. It's going to be better. And also in Q4, we will have to look at the underlying growth organic growth, because I remind you that in Q4 last year, we had the Olympic Games, and so we will also have to look at the underlying Q4 organic growth in Q4 to have a better visibility of how we start financial year 26.

Okay, just on retention rate, I'm getting a little bit confused because on slide 9, you mentioned Sun 25 retention rate, above 94% excluding the loss of the global content. You just said like it would be 94% including the loss of this account. So could you just clarify?

No, no. No, the 94% is including the loss of the GSA contract.

Okay, so slide nine is wrong?

Okay. Slide nine, can we see slide nine?

No, we said that excluding it would be above 94.5. So there is... There is a 0.5 missing.

So basically underlying retention rate all in all would be 94%?

The underlying retention rate without that big GSA contract would be above 94.5%. Okay.

Thank you.

The next question is from Leo Carrington, City. Please go ahead.

Good morning. Could I firstly ask on the renewals? You mentioned the 80% of contracts being up for renewal this year and last. What's the average contract duration here? Is there a risk that we face this profile in a few years, or is there efforts that you can... deploy to try and work on extensions to try and smooth this renewal cycle in future. And then secondly, in terms of education, just taking into all of the factors mentioned earlier on this call, to what extent are the Q2 issues a forecasting issue or more of a performance issue versus expectations in terms of volumes and net new? Thank you.

So on the renewal of those contracts, you know, it depends of the contract, but usually it's three plus one plus one, or it can be four years, or it can be five years. Well, it happened that last year and this year, you know, there was a big part of the portfolio out for bid. So, of course, you know, we are trying to minimize the effect for the future year. Also, but, you know, it's a contractual term, so it's also difficult, you know, to change. What we can do to minimize is being very proactive and do preemptive bid to anticipate some of the contractual terms with those clients.

And to your second question regarding the variance between the Q2 expectation and actual organic growth, I would say it's a mix of different topics. Obviously, it was lower volume than expected, and then It's true that when we look at the detailed assumption behind that, it probably embedded some optimism. We are probably a bit too optimistic in terms of increase of volume. So it's an adjustment. So again, it's a combination of both. Okay, thank you.

The next question is from André Julliard at Deutsche Bank. Please go ahead.

Good morning. Thank you for taking my question. First one is about the US. Regarding the actual environment and the fact that Donald Trump is pushing for America first, don't you have any fear about having a preference for US player rather than you in the new renegotiation contract? First question. Second question about retention. If we look at a more mid-term view, what is your target? Is to come back rapidly on above 95% or do you still consider that 94% to 95% is a normal rate? And last question, very short, about tax rate. I just wanted to revalidate what you've been saying for 25 and for the midterm target you are expecting for the tax rate on a yearly basis.

Thank you. Okay, thank you for your question. So on the U.S. environment, as I said in the beginning, for me, you know, In the U.S., we are American. We employ more than 120,000 people in the U.S. We buy locally. We pay our taxes locally. And I don't know if you remember, but at the time when we first signed the U.S. Marine Corps, there were some challenges on that, but we kept the contract. And then on the impact of Our government portfolio is small, and, you know, the contract with the federal government in the U.S. only represents 4% of our revenue, with the U.S. Marine Corps contract representing half of that, so 2%. So, but of course, you know, and it's, so we don't think that being, you know, a French company, and we also have a lot of French American investors. So we are an international company with a big footprint in the U.S. On the retention, we want to come back rapidly to 95 and as close as possible to 95 without this big GSA contract this year. But then, you know, it's not the final target. We want to grow and we want to keep the target to be above 95 in the midterms. On the tax rate, maybe, Sebastien, you can answer the question.

On the tax rate, the initial guidance for the year was around 27%. For this year, the revised guidance between 23 and 24, and this is mainly because of the positive effect of the risk update associated with the tax audit of Sodexo SA. And the midterm is still, we are back to the initial guidance of around 27% effective tax rate.

Okay, thank you very much.

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

Hi, good morning. First question on retention, please. Your target to reach an underlying 94.5. I'm just curious why you're so ambitious in the context of everything else you've said, which includes you have a particularly busy organization renewal season in education at the end of the year. Since you last spoke, I think some of the bridges you mentioned now include weaker than expected retention in corporate. So I appreciate it's the right medium-term target, but in the short term, what's something that allows you to have that confidence given a particularly difficult remainder of the year? Secondly, just on U.S. healthcare, obviously when you describe the delay in opening one major new contract, of course it sounds very, very specific to that client and to you and it doesn't sound like an industry issue. But I guess, could we just maybe take a step back and how much more can you tell us about the underlying reasons there? Is the client just not ready in terms of IT, in terms of invoicing, or is there more going on? Is your client restructuring, closing down sites, reviewing wards at certain of these hospitals, etc.? And then lastly, I assume you have received a letter from the U.S. Embassy last Friday, like many French companies operating in the U.S. I think you had five days to reply. So do you expect to be stating that the Sodexo Group does not operate any diversity and inclusion policies anywhere in the world, or are you effectively prepared to have your principles in balance with your business with U.S. federal agencies and with the U.S. military?

Okay, thank you very much, Jafar, for your question. So I will start with the third question, and we will go backward. And then I will answer the second question and let Sébastien... reply to you on the first one. So, third question, no, we did not receive the letter from the U.S. Embassy about D&I. So, we are very, you know, very cautious on the topic. We are a people company and we have been operating and we have strong values and But, of course, we are very concerned and very cautious about what's happening. We already have taken measures. There are some words that we are not using anymore, and we are also careful about what is going to be published externally concerning that topic, because we don't want to make ourselves vulnerable by BNI topic. So we are adjusting to a new situation because we don't want to put a risk. We are not changing our values, but we are very pragmatic and we don't want to put a risk on business. Second, on the healthcare contract. Yes, you're right. It's a very specific contract. and it's not very linked to the industry, so I should go into a little more detail with that contract. So we have been awarded an exclusive partnership with CAPTIS for its members for food and nutrition services and environmental services. So CAPTIS, what is CAPTIS? It's a collaborative healthcare organization delivering savings and value for members through aggregation and committed spend. So CAPTIS has proven longstanding history of driving contract compliance and savings across its portfolio for its members. So CAPTIS has various healthcare organizations across the United States, more than 100 health systems with 1,400 hospitals in 29 states in the U.S. And we have an exclusive contract of 10 years with them with over 100 million booked revenue commitments in the first two years. And it's true that when we say delay, it's a delay of implementing this partnership and embarking the members of CAPTIS in the new contractual terms with us. So that's why you don't hear similar comments for other contracts, and we don't see it, you know, we don't have the same issue for other contracts, but for this very specific contract, it's true that we have been too optimistic in the ramping up, especially for this year. So it's going to take longer than we thought. And we have a very small impact this year. It's going to grow next year, but we won't have the full impact next year either. And it's going to be much better in 26. So thank you, because I think it was important for us to clarify the situation on this CAPTCS contract.

I don't think I've heard your, did you say the initial agreement was all the members would contribute at least 100 million of revenue? I didn't quite catch if that was in the first year, in the first year is plural.

No, no, all the members, they represent more than 1.5 billion business in our services. So the initial commitment is over two years, and in the first two years, we should have had more than 100 million.

Okay, in the first two years. Thank you very much.

And on retention, sorry, on retention, just to answer the first question, so we said that the target for this year, it's above 94, it's 94 to 94.5%. Then if you restate the loss of the global accounts, Again, it's 70, 80 basis points, even we are still discussing the scope. Then you are above the 95%. And we need to keep in mind also.

No, we are above 94.5.

And then, as you know, it was quite dense here in some segments, especially in schools, in 24 and in 25. So it's a reason why we expect, again, to be back above 95% in the coming years.

Thank you. My question was, I think that definition in two different processes is very clear. My question was, you have some particularly busy renewals in education, I think you said, and then you also had some more recent pressures on specifically retention in corporate. So I'm just curious how H2 can be expected to improve year-on-year in the context of you've got a lot on your plate in H2?

Well, you know we're trying to be ambitious and it's true that we know that that VSA contract will have a full year impact and because I remind you that our definition we take the full year impact of the loss so so So we are saying we hope to be between 94 and 94.5. And so without that GSA, it could be above that. That's the only thing we're saying. And, yes, we want to be ambitious because retention, as I said, you know, for me it's the first lever of our growth, and we want to continue to progress. But as you said, you know, there are still – it's not yet the end of the year, and sometimes you also have some surprise, like we had one in corporate services in North America at the beginning of the year. But what I'm saying is that we are also making some progress, and we are pushing, we are continuing to push on the topic. That's what I'm saying.

Thank you.

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Okay, no more questions? Okay. So if there is no more questions, we will end the call now. Thank you very much for taking the time to listen to this call and have a good day.

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