Sodexo S/Adr

Good morning, everyone, and thank you for joining us for our Q3 fiscal 2026 revenues call. I'm Juliette Klein, head of investor relations. With me on the call today is Sebastien De Tramasure, our CFO, to take us through the presentation. After Sebastien's remarks, we will open the line to take your questions. If you have additional questions after the call, please don't hesitate to reach out to the IR team. Before we start, I would also like to remind you that we will be hosting our investor update on July 16th. With that, I now hand over to Sebastien.

Thank you, Juliette. Good morning, everyone, and thank you for joining us today. So I will start with a brief overview of our third quarter performance and our updated outlook for the year before opening the call for your questions. And as usual, the appendix includes the detailed segment breakdown by geography, as well as the nine-month performance for those of you who would like to see the year-to-date view. In the first quarter of fiscal 2026, Solexo delivered revenue of 6.2 billion euros, with organic revenue growth of 2% above our expectations. Reported revenue growth included a negative currency effect of 2.5%, mainly due to the depreciation of the US dollar, while acquisitions contributed to 1.4%, mainly from Grupo Mediterranea. So now looking at third quarter performance by geography. In North America, organic growth was minus 0.1% or plus 2.2%, excluding the effect of the contract reclassification we discussed at our fiscal H1. Healthcare and seniors continued to perform well. Solexolide exceeded expectations driven by a busy events calendar, and many more. Beyond attendance, we also saw higher spend uplift, reflecting the success of our offerings, innovative concepts, brand partnerships across the portfolio. These positives were partly offset by the impact of Prior contract losses in education. In Europe, organic growth was plus 0.6%, reflecting the impact of a large IFM contract exit in business and administration from prior year and continued softer activity in education. Healthcare and senior remained robust, while there was a particular high comparable for Sodexo Live following a strong prior year activity. In the rest of the world, organic growth was splashed 10.6%, supported mainly by new contract ramp-ups and additional project work, especially in energy and resources, with a strong contribution across multiple geographies. Overall, our third quarter performance was stronger than anticipated, driven mainly by robust activity at Select for Life North America, more projects in the rest of the world, and overall more resilient volumes trend than projected in our guidance. As a result, we are increasing our fiscal 2026 organic revenue growth guidance and now expect growth between 1.2% and 1.5% compared with 0.5% to 1% previously. This updated guidance reflects both our year-to-date performance and our current expectation for the remainder of the year. At the same time, we are mentioning our underlying operating profit margin guidance of between 3.2% and 3.4%. And to reiterate what we said as your results, our focus remains on strengthening the business over the medium term. We continue to invest in commercial capabilities, competitiveness, supply, and Technology, while maintaining a close watch over the external environment and a prudent view of the remainder of the fiscal year. Finally, in two weeks' time, on July 16, we will host our investor update in Paris, where Thierry, I and the team will present our execution roadmap and medium-term ambition. We look forward to seeing many of you there. With that, I'm 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 touch-tone 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 may press star N1 at this time. First question is from Estelle Wayne-Grodd, JP Morgan.

Hi, good morning. I've got three questions, please. In the first one, you found it more constructive on commercial momentum. Could you elaborate a bit more? Net new was sequentially better in Q3. Those turned negative. Could it turn positive as early as in Q4? So that's on net new. Also, more generally, on your new upgraded guidance for organic growth, it does not really imply any growth in Q4 year-on-year. May I ask why you're being so conservative here? I mean, related to that, what drove this good performance within Sodexo Live in North America in Q3? And why would not the World Cup also underpin a solid Sodexo Live in North America in Q4? And maybe the last one. On pricing and change in Q3 versus the first half of the year, how should we think about Q4 next year? Thank you.

Thank you, Estelle. So, first question on commercial momentum. So, what I can tell you that at this stage we are seeing early encouragement signs on commercial, net commercial growth. We have a good pipeline. We have also an improved conversion rate. So overall, when we look at our last 12 months forward looking at net new KPI, it's improving. It has improved when we compare end of Q3 compared to end of Q2. So it's quite positive. And this improvement is expected to come through progressively in the reported in-year net new revenue. And the improvement is really coming from development. I mean, we have seen this good traction on development. Q2 was better than Q1, Q3 is better than Q2. On your second question, on the organic growth for Q4. So, what we need to keep in mind is that Q4 will face tougher comparables Last year, we had a very strong Q4, especially in energy and resources in North America, and this creates a less favorable year-on-year comparison than in Q3. Also, second topic for Q4, we have normal spacing of net new, opening, closing. We mobilized a lot of contracts last year in Q3, so with the fully annualization of those contracts, The incremental contribution, again, year on year, will naturally moderate. And then, overall, we see some uncertainty in the macroeconomics, in the geopolitical environment. And as you said, we believe that it's appropriate to remain present for the remaining part of the year. However, what I can tell you is that we are not seeing any specific deterioration overall in the business. Even based on what we see today, we would currently expect Q4 to be modestly positive. But again, as I said, we believe that it's appropriate to keep a present approach at this stage. Then, I believe that your third question was on Q3, the very strong performance on Sodexo Live. Overall, strong performance across all the activities of Sodexo Live. I mean, convention center, airline lounges, sport venues as well. We had very good sport events. I mean, I can give you some examples. We had the BNP Paribas Open at Indian Wells. It went super well. Miami Open as well. We had a very strong beginning, strong... Beginning of the season in baseball with a good game, good attendance at the Timo Witt Park as well with the Seattle Mariners. So overall attendance was pretty good across all the events. And on top of attendance, also what I said during the speech also, we have been able to catch more revenue. Spend per capita has been increasing quite importantly, and we are quite happy with that. I mean, it's really the way we capture more business, and I mentioned it's really coming from our offer, innovative concept, also brand partnership. So overall, again, a very good success of Sodexo Live. It's more than 15% organic growth in 2-3, so definitely above our expectations.

Yes, on pricing, the last one, sorry.

Yeah, and I believe that you have a last question on pricing and inflation. So, overall, what I said, when we look at the inflation, we are not seeing any meaningful change at this stage in food inflation overall. There is, yes, there is some pressure on energy prices, some pressure on On transportation and logistics costs, but overall, these remain under control. And as you know, managing inflation is really part of what we do. We have different levers also to manage and control our internal inflation. We've been talking about, again, product substitution, working on the new, working with clients, and negotiation with suppliers as well. We are monitoring pretty well the input in session.

Thank you. Next question is from Simon Le Chiffre, Jefferies.

Yes, good morning. I've got three as well, please. First of all, following up on the comment on pricing and based on what you see on cost inflation at the moment, would it be fair to expect pricing for the first part of 2027 to be sort of similar to the 2026 exit rate? Secondly, on the commercial momentum, any sort of regions or sectors driving the early positive signs in terms of commercial momentum? And lastly, anything to flag in terms of retention since you last reported in April and any comments on the US selling season for education please? Thank you.

Okay, so on pricing, pricing inflation, so as I said on the full inflation, internal inflation, We are controlling overall the evolution of that. Then we have seen also a declining trend in terms of labour inflation. You need to keep in mind that it's a bundle between food inflation and labour inflation. So yes, at this stage it's quite fair to expect something quite similar for the beginning of the year, with maybe some small pressure on food inflation, but again, Thank you very much. Thank you. Again, very good momentum on development in the rest of the world, in APAC, APMEA, in Natam as well. Also now in the U.S. as well, the dynamic of development starts to be more encouraging, and especially in corporate services. So just to give you some color, good trends, rest of the world, APAC, APMEA, Noam, especially in corporate services. And the last question on retention. So on retention, based on what we see today overall, we should land broadly in line with last year. I would say around the 94% level. Specifically on retention in the US and on the selling Thank you very much. Thank you very much. working on their own organization where we need to adjust, clear focus on retention, on development, building very clear action plan, account plan, and starting to prepare at the end of the day the next selling season for Fiscalier 27. Thank you very much.

Next question is from Neil, Tyler, Rothschild, and Cole Redburn.

Good morning, thank you. A couple more from me, please. Firstly, in the rest of the world, the business administration's growth that you point to, I think the statement talks about the faster ramp-up of new wins, but I think in your prepared remarks, you also talked about some new projects. and sort of drill into this but I wanted to understand the latter of those. Is that long duration work or is that something that these projects, something that might be relatively short dated in terms of the volumes there? Second question, in terms of the per capita spend that you mentioned in Sodexo Live, can you sort of talk a little bit more about the other Businesses more broadly and geographies more broadly and trends in per capita spend there and what you're seeing. And then finally, small one, the education segment in North America. Last year had a bit of a calendar effect, negative. Was that helping or hindering the year-on-year growth this year? If you could just remind us of that, please. Thank you.

So first, on the very good performance in the rest of the world, so yes, it's mainly coming from business and administration, organic growth 11.9% in Q3, 8.6% in Q2, and the driver, as I said, two drivers, the first one, the underlying one, explaining also the good performance of the prior cultured Israeli new wind, net development, Aurelien Sonet, Alice Guehennec on electricity network, on HVAC. So really depending on, it can be a preventive maintenance work as well. So depending on the nature of the work, it could be one month, six weeks, two months, or longer. So it's really, it varies. But here it was really specific project during the quarter, and we delivered a bit more revenue than expected on that part as well. On the spend per capita, that means the improvement we tried, this improvement is really within the B2C business in Sodexo Live. And when we look at this trend, it's across geographic, especially in North America because of the size of the events, but we see this good dynamic across the globe for Sodexo Live. And the last question on the calendar effect. So yes, we had a small calendar effect impact, a negative one compared to last year. But there is nothing, again, nothing this year. When we look at the culture, the evolution, culture by culture, even in the education, you have also some impact. I know that we don't like to talk about weather, but it explains also sometimes the evolution from one quarter to another quarter. But for me, what is very important when we look at the evolution of the organic growth in North America is really the impact of the making world. So this is a reflect of the last seeding season from last year. I see. That's helpful. Thank you very much.

Next question is from Andre Juillard, Deutsche Bank.

Good morning, thank you for taking my question. If you want, if I may, just to detail the operating trend in North America and in Europe, we see that in North America BNI has been clearing the pressure compared to a light acceleration or strong acceleration in life and healthcare. where in Europe all segments were down. Could you give us some more color about this trend and what we can expect for the rest of the year because as Estelle was mentioning it, it's a bit surprising to see such a conservative assumption for Q4. That's my first question. Regarding the effects that you are planning, you are still maintaining a 3% negative effect on a yearly basis. Do you still feel comfortable with that guidance considering the recent evolution of your dollar especially? Thank you very much.

So to give you a little bit more of color regarding the performance by activity starting with NORAM, We already spoke about 15% organic growth and select-for-life. For BNI, you need to keep in mind that we have the impact in North America, the impact of the reclassification of the large contract. So this is impacting Q3. We started the new contract 1st of January, so you have a full impact in Q3. So, if we restate this impact, the underlying trend in V&I is very close to what we had in Q2. And then, yeah, we mentioned as well that Escan Senior is already trending pretty well in the minutes, 7.8% organic growth for Q3 in line with Q2. So, overall, a good... That should continue. So we have a good trend, we have a good momentum, and we will have, again, the staging impact of new from last year. We will have some annualization in Q4, so we are not expecting a scale in the U.S. to be at close to 8%, but again, the trend is very good and the dynamic is strong. Then if we go to Europe, To give you some colors, on BNI, we have really the impact here in Q3 of the demobilization of a large IFM contract that was fully embedded in our guidance. And this is really the impact of the loss of this contract last year, with the start of the impact this year, beginning of Q3. And then on the other segment, the mean education is quite soft, Q3 very similar to Q2. And as I said on Sodexo Live last year, we had a very strong Q3 in France and the UK. And with much more events, especially in the UK, it's not the case for this year, extending the soft organic growth for pure Q3 in Sodexo Live. Then on the effects, yes, we are comfortable. We keep our overall minus 3% impact. We will have, as you can see, with the evolution of the euro and dollar, we'll have, I would say, a better and favorable impact in Q4 compared to Q3. So we should round around this minus 3% for the full year.

Thank you. Just a follow-up one, if I may, on education in the U.S. You were saying that you were disappointed by the recent operating trend, considering that most of the negotiations must be done six months in advance for beginning of contract, most of the time in September. That means that we should not see significant improvement in the next few quarters.

As I said, on the selling campaign for education, you are right, we have a pretty good visibility now at this stage. It's the reason why I said that it's a little bit disappointing overall, even if it would be, again, slightly better than last year, but still disappointing, exactly what I said before. And you are right, we have at this stage a pretty good view of what should be the final picture on net new for education in the U.S.

Okay, thank you.

Next question is from Ajay Nandao, Citi.

Hi, good morning. This is Ajay on for Leo. Two questions for me, please. First on the operating margin guidance, why was that kept unchanged despite the upgrade to the organic growth guidance? And secondly, if you can give us some color on the bolt-on acquisitions, the rationale behind the deals and the transaction value involved. Thank you.

Okay, thank you for your question. So on the first one, so it's true that the stronger top-line performance is supportive in terms of margin. Now, we have still one quarter to go. We have some moving pieces in the business. You know, we have the speed of our investment. There is also mobilization, demobilization as well. So, yeah, so still a few moving parts here. And it's the reason why at this stage we are not changing our margin guidance. We really remain comfortable with the existing range between 3.2 and 3.4%. And then on your second question on M&A, so again, the large M&A this year, well, large, mid-sized M&A was the Mediterranean in Spain. Now we have this. Very small, targeted Bolton acquisition in food in our existing market. The objective is to get a little bit more scale, leverage also the supply, get some synergies in terms of back office. So here it's pretty, nothing new is fully in line with what we have been doing on the very targeted Bolton acquisition.

Great, thank you.

Next question is from Kate Thiel, Bank of America.

Thank you very much for taking my questions. First one, on volume, obviously, it's improved to half a percent in nine months compared to 0.2, which means pretty good performance in 3Q. I guess can you elaborate a little bit on the underlying trend? Was it mostly driven by projects that are spending, or is there anything else you could potentially share with us The second question, can I please ask about the data center opportunity, which, you know, obviously is a new and large opportunity in the sector more recently. I personally think there's probably, you know, around 70 billion TAM by 2030 in the construction phase and about 20 to 30 billion of the operational data centers by 2030. I guess what's your view there? What activities do you already have? And are you in active kind of conversations about future opportunities? Thank you.

Okay, so I will start with your first question on volume. So yeah, you are right, it improves significantly when you look at the year-to-date compared to H1. And as I said, I mean, the two main reasons for that is first, Sodexo Live, and I mean the very strong performance of Sodexo Live, and it comes from volume. And the second reason, as I said, is the additional project. in the rest of the world, especially in Vienna, and this also is impacting volume. Now on the data center opportunity, so you are right, it's clearly a strong opportunity for us, a fast-growing business. So today we have some business, obviously, in the data center. On those who are already operational, here we deliver mostly food. It's a 24-7 offer. It could be a convenience solution, an infantry, etc. So this is what we have today. Now what is super important is to target opportunities for data center in construction phase. So this is really where we can capture most of the value. We are working on the pipeline on that topic but I can tell as well we have few opportunities ahead of us and also we are quite well positioned here because when you look at what we do in ENR, in energy and resources, we are talking about large camps, remote sites, with thousands of workers and it's exactly basically the same offer that we need to address Thank you.

Next question is from Pravin Grandel, Barclays.

Hi, good morning. Thanks for taking my question. Just one on the margin guidance for the full year. Despite the top line bid and the guidance raised, you have kept the margin guidance unchanged. Is there any change in moving parts of the margin bridge that you explained at H1 results, i.e. the operating leverage or the pace of investments there? which meant you have kept the guidance and change for now. Thank you.

Thank you. I think that's already answered that question. Basically, what we said is that the stronger top line is supportive, definitely. Then we have different moving pieces in the business. There is also mobilization, demobilization. We also have and the speed of the investments. So it's the reason why we are more comfortable in keeping our range of our guidance between 3.2 and 3.4% at this stage.

Yeah, but my question is that is there any change in the moving parts, let's just say the pace of activity, is there one in H1?

If you look at the bridge and the bridge we can mount after H1 publication for the year, It's exactly the same buckets, I would say, the same piece. So no significant change on the different levers of the margin.

Thank you. Thank you.

We have no more questions registered at this time.

So thank you all for joining us today and for all your questions. And we look forward to seeing many of you on the 16th of July. So thank you again and have a great day.