Sodexo S/Adr

Good morning. Thank you for standing by and welcome to Sodexo H1 Fiscal Year 2026 Results Conference Call. After the presentation, there will be an opportunity to ask questions by pressing star 1 at any time. I advise you that this conference is being recorded today on Friday, April 10, 2026. At this time, I would like to hand the conference over to the Sodexo team. Please go ahead.

Good morning, everyone, and thank you for joining us for our H1 Fiscal 2026 Results Call. I'm Juliette Klein, Head of Investor Relations. With me on the call today are Thierry Delaporte, our CEO, and Sébastien Detramadieu, our CFO. Thierry will start by sharing his assessment and key messages, followed by Sébastien, who will cover the financials. After that, we will open the line for questions. As usual, we ask you to please limit yourselves to two questions and one follow-up. If you have additional questions after the call, please don't hesitate to reach out to the IR team. With that, I'll now hand over to Thierry.

Merci. Thank you, Juliette. Good morning, everyone, and thank you for joining the call. This is my first earnings call as CEO of Sodexo. I'm very pleased to be speaking with you today. What I'll do is I'll share my perspective on where the company stands today, what we are already doing, but also the priorities we are setting. We are preparing a more comprehensive update for July 16. Based on our current assessment of the business and the actions we are implementing, there are also some near-term financial considerations. So I want to provide context on how this shapes our outlook for 2026. Over the last five months, I've spent most of my time in the field with clients, with teams in operations, and with our partners. I've been traveling across the U.S., where I'm spending half of my time, but also in Asia, in Europe. I joined Sodexo because I'm genuinely attracted to this business. I know B2B, people-intensive services well. I know how much value can be created when execution, discipline, and client focus come together. Sodexo, let me tell you, is a special company. The quality of our people... The pride they take in serving clients every day and the expertise on the ground absolutely stands out. We often operate in environments where reliability, quality, continuity are critical. So delivering this consistently every day and at our scale is no mean feat. The group was built by Pierre Bellon on a clear entrepreneurial ambition and a strong client mindset. I fully adhere to these foundations. Our priority now is to bring them back to life everywhere. At the same time, this business is different from what I have known before. It's complex in a different way. It's operational, physical, highly decentralized, and diversified by nature. We have thousands of sites running every day in real time. Discipline, execution, and attention to every single detail make the difference. The real challenge, therefore, is driving rigor, discipline, and consistent performance at scale. It's about how we lead, organize, and execute. Too often, great people are held back by layers, processes, and administration instead of being fully focused on clients. So my conviction is clear. Growth is the solution. And growth comes from an obsession with clients on the ground every single day. It's earned contract by contract, side by side, by building trusted relationships and creating value at the client level. In our model, growth is not just an outcome. It's a catalyst. It drives operating leverage to support profitability enhancement. It basically fuels the organization with energy, talent, and confidence. So let me start with a balanced picture of Solexo today, our strengths and the realities we need to address. We operate in resilient and growing markets with strong long-term growth drivers. Demand for outsourced services in both food and facility management continues to expand. We also have a global and highly diversified client portfolio, as I said, across geographies, segments, services. In many cases, we are the best partner to self-deliver an integrated proposition with one governance across multiple geographies. This strengthens client relationships and gives us additional levers to grow alongside them. Another key strength, These are people-led service culture, teams who care, who show up for clients every day, and we take pride in delivering. In a people-intensive business like ours, this is fundamental. It's a foundation we will build on as we restore execution and growth. But we also have to face the facts. And the facts are we have consistently underperformed our market and our peers. We underinvested in key capabilities that are critical to run well this business at scale and build a repeatable model. We have not been consistent enough in deploying a best-in-class offer, in execution, and in the predictability of our delivery and guidance. So what has held us back? The root causes go back a long time, and there is no single fix. First, commercial intensity. We have not shown enough appetite to win, not enough hunger to fight for clients, to stay close to them, to truly understand their expectations, to anticipate and even surprise them. We have not been consistent enough in the way we drive growth and retention, winning, defending, Expanding key accounts, always with discipline and cadence. Being a service business, you just can't review sales momentum once in a while and expect intensity to magically appear. It requires systematic follow-up and accountability and sharper engagement with clients. That is changing. Second, empowerment and decisiveness. Decision rights, accountability, have become diluted across layers. A heavy structure slows you down, creates interference, and reduces the permission to act close to the clients and the operations. And so, the prioritization and focus past organizational choices and too many parallel initiatives wasted attention and resources. We were not Consistently putting our people and capital towards the highest value priorities. Sometimes, short-term trade-offs prevail over long-term value creation. As a consequence, we have not invested enough in the capabilities that make execution predictable. Sales effectiveness, account management, processes, systems, and tools. Now, let me move to what we are doing differently starting now and with a clear focus. We are turning the entire organization towards growth, restoring execution discipline, and creating a real sense of accountability and urgency across the board. The first decision I made was to take direct leadership of North America. I wanted to go deep into the business, understand what works and what doesn't, and make the necessary changes at the right pace. Over the past month, we have changed around two services. of the leadership team in North America. This is about bringing the right mix of experience, energy, accountability. We combine internal talent with external hires to better serve our clients and execute more consistently across America. In parallel, we simplified the global leadership structure and we shaped the executive committee to be more execution focused. We removed the zone layer with regional CEOs now reporting directly to me. This inevitably shortens decision paths, strengthens accountability, and brings leadership much closer to clients and operations. The executive committee now brings together the business leaders and a very limited number of global factions. and it has a clear mandate, enable execution across the group with discipline and urgency. We also re-anchored incentives on growth to reinforce focus and accountability across the organization. In parallel, we are reinforcing self-capabilities, not only in the U.S., but everywhere. Beyond resources, we are strengthening our commercial engine by tightening discipline, and governance. We're now consistently running a monthly review of commercial performance, which was not the case, clarifying account ownership, and reinforcing the role of account managers. They are key leaders in the organization, fully accountable for client development and retention. We are also accelerating investments in technology. This work had already started, you know that, but it's clear we need to move faster. The focus is on strengthening our core systems, notably finance and HR, and scaling client-facing digital solutions. To me, these are no option. They are required to improve productivity, speed, and overall performance for our teams and for our clients. Finally, we have reinforced the disciplined and systematic reassessment of contracts and assets. taking into account changes in the environment, but also the strategic choices we make. Sebastian will explain how this has translated into the numbers. These measures, for sure, have a short-term impact on margin. This is deliberate. We are choosing to fix the engine properly rather than optimize around the ages. That allows us to raise execution startups immediately. Then, over time, to re-accelerate growth in a sustainable way. Now, looking forward, our next priorities are also very clear. First, we are aligning the organization around a single execution agenda. One set of priorities and clear choices on where we play, how we operate, and where we invest. Our choices are grounded in our strengths, our clients' needs, and market trends. We call this program Shift and Grow because that is what it is about, shifting the business to grow faster. Second, we are changing how we run the company. Decision-making is being pushed closer to the client. Operational teams are being empowered. Headquarters are refocused on supporting execution rather than adding layers. At the same time, We are restoring competitiveness across the model, starting with labor. In my view, while a lot has already been done on supply, workforce management is where we see the biggest opportunity. Actively managing the workforce pyramid, improving on-site utilization, better matching staffing to client demand. That's what I've done for years. We're going to do it here. All of this supported by stronger processes and tools. And that's because these actions are already in motion. Finally, we are reinforcing a strong client focus. Every day, I'm talking to some of our clients. I make it a priority. In all our leadership meetings, we start with client cases. We're keeping this focus front and center. And I want every leader to personally own the client relationship and performance. We're also strengthening our performance culture. We are developing internal talent, bringing in external capabilities where needed, and raising the bar on delivery. This is about empowerment and accountability. All of this has clear implications for how we invest, allocate capital, and approach the Eurohead. That brings me to the recalibrating baseline we are setting for the fiscal year 26. Turning to H1. The numbers reflect both ongoing execution challenges and deliberate management actions to establish a more disciplined baseline. Organic growth was plus 1.7%, consistent with what we laid out in January, but, frankly, below what this business should be delivering. Looking at our conversion indicators, retention over the last 12 months was 93.4%, and development 5.3%. That's leading to negative net new business levels that are not where they should be, reflecting both execution issues and an insufficient quality of pipeline and win rates. The underlying operating profit margin was 3.7%, which is down 140 basis points year-on-year. This reflects operational challenges in specific areas, for sure, and the impact of the deep review of contracts and assets we have conducted in the last few weeks and days. As we look to the full year, weaker than net-year business in the first half will obviously weigh on organic growth in the second half, as well as lower volumes in an uncertain external environment. Lower operating leverage, execution issues in H1, and the actions we are taking are reflected in our outlook. Taken together, this leads to a recalibrated starting point for FY26, with now an organic growth expected between plus 0.5% and 1%, and an underlying operating profit margin between 3.2% and 3.4%. So before I hand over to Sebastian, I want to say I'm confident in the directions we are taking. The work is well underway. We clearly see where the levers are for improvements. We are buried in markets that are fundamentally attractive, and we are convinced of the relevance of our model. We are already seeing tangible changes in how teams work together, how decisions are made, and how we go to markets. With that, I'll now hand over to Sebastien to walk you through the H1 performance in more details, and we'll talk later. Thank you.

Thank you. Thank you, Thierry, and good morning, everyone. So I will now walk you through our first half financial performance in more detail, and let me start with revenue and organic growth at group level. So reported revenue growth in the first half was significantly impacted by foreign exchange. with a negative impact of 5.3%, mainly driven by the US dollar depreciation. M&A had no material impact in the first half, as the acquisition of Mediterranea was completed at the very end of February. Organic growth for the group was plus 1.7%. Pricing contributed around 2.4%. Like-for-like volume growth was around 0.2%. supported by cross-selling, especially in healthcare, offset by a strong comparable in Sodexo Live in the first half of last year, which benefited from an exceptional level of events. Net new business was negative at around minus 0.6%, reflecting prior year contract losses, mainly in education and business and administration. And finally, we had an impact of around minus 0.3% from a contract reclassification in North America business and administration. And this followed the renewal of a contract where the economics and contracts of terms evolved, leading to revenue being recognized on the net basis rather than on the growth basis, fully in line with IFRS requirements. And as a reminder, The annualized impact of this requalification is around 100 basis points at group level and will therefore weigh more in the second half of the year. Turning now to underlying operating profit margins, which stood at 3.7%. Year-on-year, the group's underlying profit margin declined by approximately 150 basis points in the first half, including a negative foreign exchange impact of six basis points. And this evolution can be explained by three main factors. First, operations mix and leverage, representing around minus 50 basis points. This reflects mobilization costs and new contracts, underperformance on a limited number of contracts, an unfavorable portfolio mix, and softer organic growth in the first half. At the same time, we are actively addressing these execution challenges and continuing to drive efficiency and productivity across the group, especially through share service and efficiency initiatives. Second, the acceleration of investment for around minus 20 basis points. These are deliberate investments, notably in technology, systems, supply, and commercial capabilities, fully aligned with the execution priorities Thierry outlined earlier. And finally, the review of contract and asset that Thierry mentioned had an impact of around minus 70 basis points. And depending on their nature, the outcome of this review affect either underlying operating profit or other operating income and expenses. The impact at underlying operating profit level mainly reflects contract-specific provision following a detailed assessment of actual contract performance, credit risk exposure, and litigation matters based on an updated assumption in the current market environment where appropriate. This review was also about improving visibility, reducing future volatility, reflecting clear management choices to address risk earlier and establish a more robust and predictable baseline going forward. Now that we have covered the group picture on both growth and margin, let me turn to the regional view. Starting with North America. Organic growth was down 1.8%, mainly due to contract losses in education and business and administration, changes in scope on certain business and administration contracts, and the one-off reclassification effect. S-Care continued to deliver strong growth driven by new contracts, while SunXLI was softer due to a 10th prior year comparison. In Europe, organic growth was 2.8%, supported by health care in senior, as well as strong activity in study-survive across airport lounges and events, while education remained softer. Rest of the world delivered organic growth of 9.2%, driven by new contract ramp-ups and strong underlying dynamic across markets, especially in India, Australia, and Brazil. From a margin perspective, the decline was more pronounced in North America, where the underlying operating margin decreased by around 200 basis points year-on-year, and this largely reflects the execution challenges, the accelerated investment, and the action referenced earlier. In Europe and the rest of the world, margins also declined year-on-year, mainly reflecting the impact of management action related to the review of contracts and assets, while underlying operational performance remained broadly stable. Now, moving to the income statement. So, having covered revenue and underlying profit, and before coming back to the other operating income and expenses in the next slide, Let me complete the picture with financial results, tax, and net profit. Net financial expense increased by 24 million euros year on year, mainly reflecting a higher gross cost of debt following the issuance of the US dollar bonds in May 2025 at higher coupons. As a reminder, These loans were issued in anticipation of the April and June 2026 debt maturities, which we intend to repay from cash reserves. The effective tax rate was 25.9% compared to 19.5% last year. Last year was impacted by one of positive items, including the update of tax risk related to the Sodexo estate tax audit. And net profit for the first half was 188 million euros. And on an underlying basis, net profit was 285 million euros down 37 year-on-year, reflecting lower underlying operating profit and adverse currency effect currencies. Turning to other operating income and expenses. The increase versus last year mainly reflects higher restructuring and rationalization costs linked to organizational changes, leadership adjustment, and transformation projects. Amortization of purchased intangible assets was stable year on year, and other items mainly reflect some assets and footprint rationalization decisions including the write-off of certain production and operational assets, for example, following the rationalization of central production units, where capacity has been consolidated into fewer, more efficient sites. They also include pension-related items driven by legislative change in labor law in India, as well as the recognition of one-off costs related to multi-employer pension plans in the U.S. Turning now to cash flow. Operating cash flow was 616 million euros, up 16 million year-on-year, and this reflects the fact that last year included an exceptional tax outflow related to the Sodexo SA tax audit, partly offset this year by lower operating profit. The change in working capital was negative, 490 million euros, And as a reminder, the first half is seasonal low point for our cash generation, and we expect working capital to normalize by the end of the year. Net capital expenditure increase year-on-year may lead you to one-off time investment in the context of contract renewals. Free cash flow has therefore broadly sat year-on-year at negative 243 million euros. Net acquisition amounted to 256 million euros, mainly reflecting the acquisition of Mediterranea alongside smaller Bolton acquisition in Europe. As a result, a net debt increased to 3.6 billion euros, corresponding to a net debt to EBITDA ratio of 2.7 times. This reflects the usual seasonality of cash flow in the first half, but also lower EBITDA base than last year. And as always, we expect a seasonal improvement in net debt in the second half. That said, based on the revised full-year fiscal 2026 guidance and the recalibrated baseline, it implies we now expect to end the year with a net debt to EBITDA ratio above our target range of 1 to 2 times. Let me close by coming back to our guidance for the year and giving you a bit of additional color. So as Thierry has outlined, this is the guidance we are providing today, reflecting our current assumption and the action we are taking. We now expect fiscal year 2026 organic growth to be between 0.5% and 1%. So this reflects weaker than expected commercial performance, and in particular in retention. impacting the second half as well as lower volume in a certain external environment. Underlying operating profit margin is now expected to be between 3.2% and 3.4%. This reflects reduced operating leverage from a softer top line, ongoing operational execution challenges, the continued impact of our review of contract and asset over the full year, and the accelerated investment we are making to strengthen execution. Let me also share a few key modeling assumptions for clarity. So based on current spot rates, we assume a full year 2026 currency impact of around minus 3% on reported revenue. We also assume a positive M&A impact of around 0.5% on revenue, mainly from the acquisition of Mediterranea offset by few small disposal. On other operating income and expenses, reflecting the level already recorded in the first half, we now expect the full year amount in fiscal 2026 to be around minus 300 million euros, of which roughly half is restructuring. Net financial expenses are still expected to be around minus 140 million euros, and our effective tax rates to be around 26%. So to conclude, the first half reflects a demanding environment, but also clear and decisive management action on contracts, assets, organization, and investment, now reflected in today's guidance. As Thierry outlined earlier, these actions weigh on the near term, but are necessary to reset a realistic baseline, and strengthen execution, competitiveness, and sustainable performance over the time. With that, Thierry and I will be happy to take your questions.

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on their touchtone telephone. To remove yourself from the question queue, please press star N2. Please pick up the receiver when asking questions. Anyone who has a question, please press star 1 at this time. First question is from Jamie Rollo, Morgan Stanley.

Thanks. Good morning, everyone. Good morning, Terry. Thank you very much for that frank appraisal. There are two questions. The first one is just on the margin guidance, 3.2% to 3.4%. That's obviously a very helpful, clear answer. but there's a lot of numbers in that, and you've given us a helpful bridge for the first half. It would be quite helpful to get that bridge for the full-year margin, particularly to quantify the contract asset write-down, because obviously that's one-off, and that suggests that 2027 margins should increase naturally. But then again, Thierry, maybe your July review will lead to another step up in investment options. So any sort of flavor for what the real underlying base margin might be would be very helpful. And the second question was just on the leverage, as you say, well above the target. I appreciate you've got no covenants. You're pretty well all fixed debt. But what sort of constraints might this have on CapEx spend or Bolton M&A going forward? Thank you.

Jamie, thank you. So what I'll do is I'll take the first part of your question and give a bit of context, and then I'll take the second one on the leverage, and then I'll ask Sébastien to, you know, add a lot more details and, you know, probably on the bridge you're asking for, for H2. What we've done, Jamie, is clear. You know, we've done, as we said – Clearly the objective, and that's, you know, why it's my ask for Sebastian and the team, is do a comprehensive review of contracts, assets, risk, by the end of the quarter. So literally in the last, and you know that we do at Solix, so things are going to change, but until now, there's one single process or forecast per quarter. This is changing to a monthly process now. So what we've done is a very deep reviews of the risks in the contracts and really assess the situation and provision where appropriate. This is not a kitchen thinking. This is really looking at, you know, the existence of risk that we have and the level of provision we have against that. For sure, given this, you know, there's a Discipline risk review embedded into our processes going forward at each closing. But, you know, this review we've done is a pretty extensive one, for sure. Objective, simple. Improve visibility, reduce the volatility, and limit the surprise, which has been the issue of Sodexo for the last quarters. Okay? So let's be honest, what we've done is create a more solid earnings floor and a stronger base for growth. So that's the philosophy. Now, to your point on the guidance and the bridge for H2, you want to cover it, and then I'll come back on the leverage target question, okay?

So thank you, Timmy. So if you look at the bridge, we start with you for H1, three drivers, so When we look at the full year of reach, drivers are broadly the same as the one in the first half. I would say that the impact of the operation mix and leverage, we are not expecting any change between H1 and H2. Then we will accelerate the investment, so it means that the investment rate will be a little bit more on the full year and in H2, and the review of the contract and asset will be lower in the second half of the year.

You asked for 27 as well, Jimmy. So for sure, we're not guiding for 27. All I can say is I think you can consider 26 guidance as a floor. Now, to your second point, leverage, right? You're absolutely right. The capital allocation framework is a result of the strategy. It's not, you know, And right now, the strategy is to regain performance, let's be clear, okay? So it's a spatial year. You can see that. And it wouldn't make much sense to, I would say, give detailed capital allocation messages without first setting a clear direction of travel. So that's what we will do in July. So if you can hold on this one for two months, three months, we'll tell more. Until then, priority is execution and performance recovery. Everything else follows from that. The leverage, fully aware, maybe temporarily above our historical range, is, you know, that reflecting lower margins during the reset phase. And the investments we are making to stabilize the execution but also rebuild the business. But this, and that's an important point as well, to me, this does not limit our flexibility or block any of our actions.

And if I may, just we remain a strong cash-generated business, and we will keep and retain a good access to funding. And again, these temporary effects on leverage are clearly not structural.

Okay, thank you. So just to clarify then, we'll hear more about the capital allocation in July, and also in July you're going to be giving, I assume, some medium-term targets. and framework. Anything else we should be expecting in July?

So, the investor update in July will give, for sure, greater visibility on FY27, and indeed, yes, medium-term financial ambition. What we'll do there, Jimmy, is we will articulate where we want to position the group versus the best-in-class benchmarks. That's our ambition, for sure, including a clear ambition to narrow the growth gap, okay, versus the strongest players in the market. We will also for sure present a detailed action plan underpinning that ambition with you will see clear strategy priorities and financial levers over the medium term, right? So that's what you should expect.

Thank you very much.

You're welcome.

Next question is from Jafar Mestari, BNP Paribas Exxon.

Hi, good morning. I have two questions, please. The first one is just an open-ended question on the review of contracts and assets. Can you give us more concrete examples of what you're reviewing and changes you're making? It was interesting you mentioned some central kitchens. are being consolidated into a smaller number of sites, for example. Just keen to hear more on those, what sort of measures you're taking. It seems pretty broad-ranging, and I'm really mostly interested in the ones that fall into adjusted profits. None of those stuff that is exceptional, please. And then, secondly, on management compensation, there was an undisclosed margin target for full year 26 in your cash bonus for this year. You never said what it was because it was commercially sensitive. Can I ask you if you're basically accepting that you're not getting paid on this part of the targets because you ended up lower or would you expect the board to adjust these compensation targets because of the voluntary nature of some of the measures And related to that, can you remind us factually what's the policy on stock option awards? If I'm correct, Mr. de la Porte, you still have not been awarded your performance shares for this year. And I understand why the board did this after disappointing for the results. But if you were awarded them immediately after today's announcement, it would also look perhaps like you're not exactly in the same boat as investors yet. Thank you very much.

So, Jeff, I'll try to take the points, and I hope – you tell me if I don't cover well all the points, okay, or the first one about the contracts and assets. What's for sure is that when we look at contracts, the operational performance on contracts, you know, fortunately the most of them are, you know, performing well and delivering, you know, results for the client and for ourselves. In cases there are delivery issues, how do we provide for it? How do we make sure that we are investing into, you know, addressing those concerns? And therefore, how does it change the financial profile of this deal? When we are, you know, in financial distress on an account, how do we handle it? Are we renegotiating with clients? Are we improving the way we are operating? delivering, or are we exiting the contracts? All these questions have been addressed and covered in the way we were looking at the contracts. And your rights regarding assets, I'll let Sébastien, but the point was, again, to look at the assets we have and, you know, are they long-term investments for us or not? Does it require decisions to be made?

Over to you, Sébastien. So on the impact of the review of the contract and asset, the impact on underlying operating profit, so one part is really the assessment and the reassessment of the credit risk, around 25%. Then when we look at also contract and contract litigation, reliquid claims, so we have also covered part of that. It's, again, around 25% of the impact in terms of UOP. And then also we have looked in this in the performance of the contract, and that impacted also for additional provision. And then on the write-off of assets, this is really the part impacting the other income and expenses below the line. And here, yes, we look at the footprint of our off-site production, and we took, in some geographies, a very deliberate decision to consolidate part of that. And this implies some write-offs and impairment in our balance sheet.

Okay, thanks. On the second point, management compensation, if you're talking about leadership compensation or mine, so let's cover both if you want. So what I've done is for the leadership team is we have made sure that while they are committed to delivering the forecast, the budget of the year, we are refocusing in H2 more part of their incentive on the growth because this is what we need now to get ready for FY27. And so I didn't want us to waste another six months and really push on the accelerator now. As for my compensation, I think, you know, honestly, this is not me to comment on. It's a board decision that will have to be approved by the General Assembly. All I can tell you is that it includes certainly financial KPIs about growth and profitability, so I'm not immune for sure. As for LTI plan, the LTI plan will be launched in the next weeks. It's not related with, you know, the communication today. I think last year was the same timing in the year, so I think it's just follow the same logic. but also we are changing the scheme for our people to make it more a performance-based LTI as opposed to presence-based LTI. So that's the philosophy.

Thank you. And just on the contract reviews, and just to be very clear, should we expect that you formalize a revenue figure for contracts that you'll be accessing, or is it less explicit than that?

Again, at that time, when we look at this review of contracts and assets, it's really linked to case-by-case, and it's not linked to exiting a large portfolio of activities or even any specific contract. We have booked some provisions for onerous contracts in that case because the contract was not performing at the right level.

And let's be clear, we have done what we had to do. It's just normal practice. Probably I'm injecting my way of drive a certain level of prudence in the way we are looking at risk, for sure. Thank you.

Next question is from Estelle Wengrod, JP Morgan.

Good morning, and thanks for taking my question. You mentioned lower retention and volumes impacting the remainder of the year. Can you just provide – I may have missed it, but can you provide details on the new contractor season, who you lost them to, and what volumes you are budgeting for H2? Are they going to be in negative territory? Thank you.

Thank you, Esther. So, yes, when you look at our – annual guidance between 0.5 and 1%. If you take the midpoint, it implies a negative organic growth in the second half of the year. If we look at the different drivers, pricing was 2.4% in H1. We are expecting something very similar for the second half of the year. Then you have the net new contribution, minus 0.6% in H1, and same here. We're expecting something very similar for the second half of the year. Then we need to keep in mind that we also have the impact of the contract reclassification, and then we will have a full semester impact on organic growth for around 100 basis points. And then the remaining part is linked to volume. And it's true that we are taking a more cautious stance regarding volume. This is clearly linked to the overall environment, macro geopolitics as well. And we know also that we have some volatility in our revenues linked to volume, what we decided to include.

And your more cautious stance on volume, is it driven by a specific region, like North America, or is it broad-based?

It's broad-based.

Okay, thank you.

Next question is from .

Yes, good morning. Three questions, please. First of all, a follow-up on the margin bridge for H2. Could you be a bit more specific in terms of the investment? I mean, should we expect this going to double in H2 relative to H1? And should we expect some incremental investment in 27 as well? Second thing is in terms of top line going forward and looking at the last 12 months, net new, it was minus 1.3%. You expect net new at minus 0.5 in H2. Should we expect net new to still be negative in the first part of 2007? And more broadly speaking, How do you think about the path in terms of top line acceleration and when do you expect to see the benefits of the actions you have taken and you are currently implementing? And lastly, in terms of the U.S. and the management team, I mean, what's the roadmap here? Are you actively looking for someone? Do you intend to still remain CEO for the region as of now? Thank you. Yep.

So, Simon, thank you. So, taking your questions in no particular order, if you don't mind. The first one on the U.S. management team. So, I joined them over the 10. Literally, Thursdays, it appeared to me that I needed to make some change in America. America is our greatest market, biggest, and it's a, you know, strategic market for us. I was coming from a different industry. It was critical for me to dive into the operations. America was my priority. I dove into it. I took it over. It's basically what I decided, and I'm very pleased with that because it allows me to really spend time in America. As I said, 50% of it. I've spent 20 years in America, so I know well this market. And, you know, shaping the team is absolutely key. We have great talent in America. We have great accounts, great team as well. And I have wonderful leaders. We have significant weaknesses as well. And so we have to fix it. I've been working on it. I've made a lot of changes in the leadership team over the last weeks and months. And we're injecting energy and ambition. in America. The team is great, is well mobilized. In the meantime, I'm looking for talent to, you know, take over the North American role for me. And, you know, I'm not supposed to do not consider that I stay in this role forever. But, you know, I'm not in a hurry because I feel that being very close to the operations is a great leader for me and for the operations. But, you know, yes, for sure, there will be a leader for America at some point in time. On the point number one, that is the margin, so margin bridge for H2O, I will let you say it, but one thing I can tell you, because you were questioned around the investment for FY27. So for sure we are doing investments now. We couldn't wait in the situation where we need to inject, accelerate fuel, if you like, into our growth, it's the time to grow, to invest. And so we have started to invest now, and we know damn well that this is impacting our, you know, margin in H2. And for sure, you know, we will not stop the investment on August 31st. So for sure it will continue in FY27. The objective for sure is that, you know, as we progress steadily, you know, the growth will come back and pick up to, you know, supported by the investment we are making now. That's the whole logic. You'll know more about, you know, the sequence in the next interactions. Over to you, Sébastien.

So on the margin, as I said, and if you look again at the bridge, H1, H2 for the year, the path related to operation and nuclear bridge remains the same, around minus 50 basis points. And you will have more impact of investment, of the acceleration of the investment in the second half of the year. So we can have a higher rate of that on the bridge, and we will have lower impact coming from the review of contracts and assets for the second half of the year.

Thank you.

Next question is from Kate Xiao, Bank of America.

Good morning. Thank you very much for taking my questions. First, I want to follow up on, I still want to ask a couple questions on contract assessment and provisions. Has this process affected your retention rate and development numbers? Because both of these two numbers are down compared to, you know, FY25 and as of last quarter. And would there be – I understand that this is an ongoing process. Hence, would there be a scope for reversal for some of the provisions if contracts actually turn out to be better than expected? And my second question – sorry. And my second question is around, you know, just like a simple one. When you mentioned, Terry, that there's early positive signals, can you talk to us a little bit more about these signals? Thank you.

Yes, correct, correct. Okay. So, Kate, on the first one, contract assessment, You know, it has been occasionally that indeed, you know, but I don't think it's a huge impact on the retention, honestly. So, those are two different things. For the scope for potential reversal of provision, for sure, that's the objective. I mean, we are covering the risk, but we are not giving up on it. We are But we are in a logic where when there is risk, we provide for it, and then we try to mitigate the risk, as opposed to we have a risk, and we hope it doesn't materialize, and when it materializes, it blows up, and we are surprised. So that's the change in philosophy. Last early positive signals are sales performance, intensity in the market, There are several deals, I know for a fact, several deals that we were about to lose that we haven't lost. And the energy in the system, the mobilization from the team is really great. So a lot of good signals, honestly. Okay, still early. I'm not going to tell you other than that.

Can I just quickly follow up on retention rate if, you know, there's not a big impact from the reassessment of contracts? What has led to the lower rate at 93.4% now versus 94? Was there more contract losses that you can kind of tell us a bit more about? And would you see this as a trough?

Well, let me tell you one thing first, Kate, on the assessment of retention rate. For us, where it stands is a signal, for sure. I consider that every time we lose a contract, it's dramatic. Okay, so we have to stop accepting the fact that we are losing contracts. So it's in us, and we are very active on that. Now, it's, you know, in a given quarter, you might have more or less contract to retain. And so just looking at this ratio just for one quarter or two is not necessarily, you know – enough to draw a conclusion, except that, you know, our ambition is to be closer to 95, 96. I think today it is 95, but, you know, the objective is to continue to improve, and we have some work to do. And that's, you know, that's what we are working on at the moment. Sebastian, do you want to say more? All right. Thank you, Kate. Thank you.

Next question is from Pravin Gondhal, Barclays.

Hello. Good morning. Thanks for taking my questions. Firstly, on the incentives aligned to growth that you talked about, sorry if I'm being nuanced, but could you please clarify are these incentives linked to cross-growth or net growth, i.e., incentives for both cross-development and retention or just the cross-development here? and then secondly on the review of contracts. Is this all done and then fully captured in your H2 guide, analyzing in H1 next year, or is there any time left to review further down the line? Thank you.

So, Praveen, thanks. I'll take the first one. On the incentives, first, you know, KPIs have been reset for my direct report in H2 to really get the target, the growth target for H2, and that's revised growth target. What does it entail? It's what we call commercial growth, net commercial growth, which basically takes net development, I mean new development, plus retention, plus cross-sell. So that's the combination of all. And then after, when you look at the organization, it depends. Those who are focused on retention, those who are working on, you know, closing new deals. For sure, they have different set of KPIs. The objective here is to set clear accountability, but also drive, you know, focus across the organization. Okay? Now, just to be clear, even if you haven't asked, growth incentives do not mean volume at any cost. We continue to keep an eye for sure. on, you know, the level of profitability expected from the deals, for sure. Review of contract, is it all done? You know, first of all, we've done a very good job, I think, to review the contract in a very short timeframe, and I think the team has done a great job. So I'm pleased about that. Will it be a continuation? I mean, the fact that we will review contract and assess the risk is a discipline. We will do it every single quarter. So this will not change. Are we expecting, you know, further impact going forward? I mean, our objective is precisely to have done the job.

Thank you. This is clear. Thank you. Thank you.

Next question is from Neil Tyler, Rothschild & Co, Redburn.

Yeah, good morning. Thank you. Two questions, please. Firstly, on the contract review, I wonder if you could share any sort of insights that you drew from those contracts that you've had to provide against, whether there's any commonalities emerging from the contracts, either in terms of regions, duration or sort of start point, you know, those that needed to be reassessed. And then secondly, back to the incentive program, have the altered incentives been or will they reach further into the organization than they have done? in the past in order to alter the selling behavior sort of deeper into the organization rather than just at the management level? Thank you.

So you tell me if I do not address – maybe I do not fully understand the question, Neil, on incentives. But my point is we have implemented a new set of KPIs across the organizations. It's not only for managers. It's across organizations for H2, okay? On the contract reviews, insights.

You want to take this? I can tell. Yeah, I can take this one. So in terms of framework, I can tell you that we apply this framework across all regions, okay, all segments. Around 50% of the adjustments are aimed to the reviewer. related to Europe. One-third is North America and the remaining part is the rest of the world. And when we look at the framework, again, it was done really case by case, contract by contract, asset by asset. And now the commonalities, again, as I mentioned, it was linked to the credit risk, credit exposure, again, across a portfolio of contracts. It was also linked linked to legal risk litigation, again, across all regions. And then we look at the performance of some of the contracts, as I said, and we apply, again, a new calculation, again, on the potential adjustment needed in terms of onerous provision. So it's really the same framework across the globe on the contract basis. and the case-by-case basis approach.

Thank you. That's helpful. And can I just ask, within that, was there any difference between food service and facilities management contracts, you know, in terms of how those materialized?

The type of risk may differ, but again, the methodology and the framework was exactly the same. Okay. Thank you very much.

Next question is from André Jouillard, Deutsche Bank.

Good morning and thank you for taking my question. First one is about CapEx. Could you give us some more color about what you plan to do considering that Historically, Sodexo had a lower level compared to its main peers, and I wanted to understand if you have a clear view on what we could expect on that side. Second one, about dividend. We know that historically the dividend has been important for Sodexo and for its main shareholder, so do you have a view on what you could do on that side? Thank you.

Thank you for the two questions. My answer is going to be quite similar on both. We'll meet at the capital market. CapEx considered that, you know, as I said, I covered it, you know, for me right now, strategies to regain performance, focus on the performance. We'll discuss that. the capital allocation messages when we are together in July, July 15th. On dividend, you know, same thing, too early to tell. We are very aware of this. We will certainly discuss at the board as well. So we'll get back to you, not now.

Okay, thank you.

Next question is from Julien Richard Kepler-Chabret.

Yes, good morning. A quick follow-up on growth and strategy. We recently had some comments from the French government about a structural decline in the number of kids at school due to the demographic situation in the country, and this is not only the case of France, I suppose. How do you see your education division going forward? Any view on this point? Thank you.

So for sure, you know, this is a – we are obviously, as you can imagine, as we are working on our strategy and refining it, there are – and we spend more time on it at the Capital Market Day – there are times focused on looking at, you know, for each of the segments we operate in where there is more growth to expect. Sometimes, you know, you have different – elements that have an implication. There's the market, you know, growth itself. There's the level of outsourced, right? So in some cases, you may have markets where the growth is not necessarily significant, but there's a wave of outsourcing that we can trigger to drive new type of clients. And they are, for sure, a prioritization on those investments. So without being specific, we are very aware of those decline, headcount or population decline in schools in France over, you know, in the next few years. It's elements that we are considering for the way we are investing into our segments. And, again, we do it by country. And within segments, we look at the services that are more relevant, the ones that are even less. But to be clear, education is one of our big segments, and we'll continue to invest in education for sure. Thank you.

Next question is from Sabrina Blank-Bernstein.

Good morning, everybody. I have two questions from my part. The first one is regarding the review of the contract and just to understand if you have a schedule potentially to exit some contract or potentially to exit some assets. For example, we know already that the number of countries has been reduced, but do you intend to go further? And my second question, I can perhaps answer directly that I should expect a capital market day, but could we have visibility on free cash flow and potentially on conversion rate?

Okay. So, thank you, Sabrina. First question, so the review of contracts. So, again, we are taking decisions. We have taken decisions on some situations when, you know, there is, you know, if you do not, if you are in a situation where, you know, you do not foresee opportunities to be profitable, you know, this exit is one scenario. So, you know, I keep this freedom going forward. It may happen at times that, you know, and good decision sometimes is to recognize the fact that it's just not working. So we feel we have done the job, but we keep an eye on it and make sure that when we are signing contracts, we are signing good contracts, and that it doesn't end up being an issue for the client or for ourselves. Exiting countries, no, we have no plans of exiting more countries. In fact, if I can tell you, I believe it's a strength of Sodexo to offer to a lot of our global clients a global presence, and we want to build on this. As for free cash flow, over to you, Sébastien.

Thank you. So on the free cash flow, as I said, we remain a cash-generated business, so we keep a strong focus on that, and we are expecting, again, to have an underlying conversion rate for this year that will be very in line with and consistent with prior years on the underlying part. And on the future, as you said, Sabrina, we'll come back to that during the Capital Market Day.

Final, Eva.

Do we have someone?

Next question is from Eva Beautiful Kelly. UBS.

Good morning, everyone. Thank you for the presentation, and welcome to the company, I suppose. I want to talk a little bit more about the market as a whole. I mean, you mentioned commercial momentum being slightly weaker than expected, but is that an indication of any slowdown in the market itself, or is it simply your execution? So, in other words, are we still seeing the amount of new business in the market as a whole being strong, or have recent developments had an impact on that? And secondly, and this might be slightly minutiae to a certain extent, but you mentioned your refinancing costs associated with debt this year isn't going to be an issue, but you still have an awful lot of debt to refinance over coming years, which was issued at very, very low coupons. So as and when that gets refinanced, how is that actually going to be able to impact your ability to compete with peers who might not have the same level of pressure on that front?

Thank you. On the first question, The commercial momentum, it's a good question. And I've spent time to review that with the team. The condition we have is that the market is actually a rather good market, okay? So we are not taking this on the back of, you know, any kind of slowdown. Yeah, for sure, you know, moments like, you know, what you see happening in Middle East, you know, are elements of potential slowdown, although it has limited impact for us in terms of size. But the market continues to be good. I'm convinced that, you know, the answer is with us. So addressing our own structural and operational challenges will just make us stronger and, you know, able to win more. Argument for that, supporting this, is the fact that, you know, the pipeline is not going down, actually. If we look at the pipeline, it's actually going slightly up. Still not big enough, okay, but, again, it's the same point, going back to the same point, our intensity in the market and to grab opportunities and go after it.

And on the cost of the financing, it's true that if we look at where we are today, the average interest rate on the bond is around 2.7. I told you about the cost, the financial cost for fiscal year 26 would be circa 140 million. And then it's true that for the coming years, We are expecting also an increase of the financial cost linked to the renewal and the refinancing of the bond in 2027. So, yeah, the cost of financing will increase again in the next three, four years around 30 million. We would be around 170 million, 180 million in terms of annual cost in three, four years. And this will be a net risk cost that has 4%, 4.5%. That's great. Thank you so much. It will depend, obviously, on the market rate. That's great. All right.

So, Dexter, Tim, we have no more questions registered at this time.

All right. Thank you for your questions. Thank you for the conversation today and for the time. We are very aware of where we need to improve, and we're fully focused on execution and getting the basics right again. So we'll have the opportunity, as we discussed, to go into our plan and ambitions in July, and I'm looking forward to continuing the dialogue with you. Thank you very much for joining us today.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.