Turismo
Sodexo: Fiscal 2018 annual results in line with revised guidance
To be proposed at the Annual General Meeting on January 22, 2019.
Sodexo (NYSE Euronext Paris FR 0000121220-OTC: SDXAY). At the Board of Directors meeting held on November 6, 2018 and chaired by Sophie Bellon, the Board closed the Consolidated and Company accounts for the fiscal year ended August 31, 2018.
For Fiscal Year 2019, with neutral net new business in Education in North America, signs of a pick-up in sales in Health Care and continued solid growth in developing economies,
All the savings that will be achieved through the different productivity and fit for the future programs will be reinvested in growth initiatives.
The strategic agenda is aimed at delivering market leading growth. The first steps to return to this performance are to achieve organic growth of more than 3% from Fiscal 2020 and then improve margins back up over 6% sustainably (at Fiscal 2017 exchange rates).
(Paris time), to comment on its results for Fiscal 2018. Those who wish to connect from the UK may dial +44 330 336 9128 or from France + 33 1 76 77 22 74, or from the USA +1 646-828-8143, followed by the passcode .
The www.sodexo.com in both the "Latest News" section and the "Finance - Financial Results" section.
Founded in Marseille in 1966 by Pierre Bellon, Sodexo is the global leader in services that improve Quality of Life, an essential factor in individual and organizational performance. Operating in 80 countries, Sodexo serves 100 million consumers each day through its unique combination of On-site Services, Benefits and Rewards Services and Personal and Home Services. Sodexo provides clients an integrated offering developed over more than 50 years of experience: from foodservices, reception, maintenance and cleaning, to facilities and equipment management; from services and programs fostering employees' engagement to solutions that simplify and optimize their mobility and expenses management, to in-home assistance, child care centers and concierge services. Sodexo's success and performance are founded on its independence, its sustainable business model and its ability to continuously develop and engage its 460,000 employees throughout the world.
Sodexo is included in the CAC 40, FTSE 4 Good and DJSI indices.
This press release contains statements that may be considered as forward-looking statements and as such may not relate strictly to historical or current facts. These statements represent management's views as of the date they are made and Sodexo assumes no obligation to update them. The reader is cautioned not to place undue reliance on these forward-looking statements.
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In Fiscal 2018, new business reached 6.8% and retention 93.8%, both up by 30 bps. Same site sales growth improved by 110 bps to 2.6% (excluding 53 week impact). These improvements are due to:
As a recognized leader in Quality of Life Services, Sodexo continues to explore the frontiers of research into the link between Quality of Life and performance in today's rapidly-changing work environment.
In September 2018, Sodexo signed a global partnership agreement with Microsoft. The Group will use an integrated information platform developed in partnership with Microsoft Consulting Services. The platform combines different productivity solutions from Microsoft, including Dynamics 365 and Azure as well as Microsoft's Artificial Intelligence and object intelligence capabilities.
In addition to improving Sodexo's own facilities management processes, the efficiency gains unleashed by the initiative will help its clients achieve significant savings. For Microsoft, the partnership provides a key opportunity to bring the most value to its technologies in becoming part of the Sodexo ecosystem.
Michel Landel announced his intention to retire in May 2017 and stepped down after the Annual General Shareholders' Meeting on January 23, 2018. To ensure a smooth transition, Denis Machuel became Deputy Chief Executive Officer of Sodexo as of September 1, 2017, and then Chief Executive Officer on January 23, 2018. Michel Landel remained on the Board of Directors until July 2018, until the transition was fully completed.
The Executive Committee was substantially changed during the year, with an increase in the number of members from 14 to 19, bringing to the table more geographical representation, the segments and activities not already represented and new functions including Marketing, Digital and Innovation.
With these changes, more than one third of the members of the Executive Committee are women and seven nationalities are represented.
During the board meeting on June 20, the Board:
With these changes, as of August 31, the Board comprised 13 Directors of which six are independent, and two are employee representatives. The Board continues to be diverse with seven women, six men and four different nationalities.
FISCAL 2018 PERFORMANCE
Consolidated income statement
Currency effect
Sodexo operates in 72 countries. The percentage of total revenues and underlying operating profit denominated in the main currencies are as follows:
Exchange rate fluctuations do not generate operational risks, because each subsidiary bills its revenues and incurs its expenses in the same currency. However, given the weight of the Benefit & Rewards business in Brazil, and the high level of the margins relative to the Group, when the Brazilian real declines against the euro, it has a negative effect on the underlying operating margin due to a change in the mix of margins. Conversely, when the Brazilian real improves, Group margins increase.
The currency effect is determined by applying the previous year's average exchange rates to the current year figures except for Benefits & Rewards in Venezuelan Bolivar.
In terms of the Venezuelan Bolivar, the Group considers that the best estimate of the exchange rate at which funds from its activities in Venezuela could be repatriated is the DICOM rate. The exchange rate used for the year ended August 31, 2018 is therefore 1 U.S. dollar = 6,112,000 bolivars (1 euro = 7,121,091.20 bolivars) relative to the Fiscal 2017 rate of 1 U.S. dollar = 3,250 bolivars. The effect of this depreciation is no longer material at Group level, as the Group's operations in Venezuela now represent a negligible share of consolidated revenues and underlying operating profit.
During Fiscal 2018, the euro was strong against all currencies, particularly in the second half against both the U.S. dollar and the Brazilian real, the two most important currencies for the Group. On the other hand, UK Sterling was stable during the year.
Revenues
Fiscal 2018 consolidated revenues totaled 20.4 billion euro, down -1.4% year-on-year due to the currency movements exposed above. The contribution from acquisitions net of disposals of subsidiaries amounted to +2.9%. As a result, organic revenue growth was +1.6%. Excluding the effect of the 53 week, organic growth was +2.0%.
The 53 week adjustment is linked to the change from weekly to monthly accounting as from September 2017 in North America. Weekly accounting has the side effect of losing one or two days per year, depending upon whether there is a leap year or not. These lost days were usually recovered in the accounts in a one-off every 5 to 6 years. In Fiscal 2017, this 53 week effect was the equivalent of six more days of trading. From Fiscal 2019 onwards, the monthly accounting will be normalized.
On-site Services
organic revenue growth was +1.4%, or +1.9% excluding the 53 Week. This performance reflects weakness in the performance of the Education and Healthcare segments. However, the fourth quarter was better than expected at +3.3% excluding the 53 week, benefiting from a better performance in Education, offsetting the particularly weak third quarter, a good summer season in Europe and solid growth in the Rest of the World.
During Fiscal 2018, the Key Performance indicators improved:
Again, in Fiscal 2018, organic growth was driven by continued high single digit growth in facilities management services, while food services were stable reflecting the weak performance in Universities in North America, which are predominantly food services. Non-food services represent 33% of On-site Services sales.
Organic growth outside North America, representing 55% of On-site revenue, was +4.5%.
Business & Administrations
Fiscal 2018 revenues totaled , representing organic growth of +4.1% excluding the impact of the 53 week in North America.
In , organic growth was , reflecting progress in Airline lounges and Corporate Services with further development of Facilities management services. Energy & Resources remains challenging due to a significant site closure. Government & Agencies was flat due to generally weak demand in some contracts, mess closures in the Marine Corps and a lot of work being done on successfully retaining some big contracts.
sales were . Summer tourism in Paris returned to the record levels not seen since 2015. Corporate services were stable impacted by several large losses in the Benelux region compensated by improved performance in France and the UK and strong growth in southern and eastern Europe. Government & Agencies has been impacted by the progressive exit of three army contracts with the British Army. Energy & Resources performance in the North Sea remains negative for the year, but there were signs of stabilization in the second half.
In organic revenue growth remains strong at reflecting double digit growth in most segments due to strong new business and same site sales in Corporate services and favorable momentum in Energy & Resources, particularly in mining.
Health Care & Seniors
amounted to , up +1.0% organically excluding the impact of the 53 week.
In organic growth was excluding the impact of the 53 week, impacted by slow new business and weak retention throughout this year. The second half activity was better than the first due to an easier comparable base. The sales teams have now been significantly reorganized and there were a series of signatures during the summer.
In organic growth was While net new business was slightly negative in the year, due to a lack of significant development opportunities, same site sales were solid, particularly in the UK. There was an improved trend in Seniors in France and hospitals in Belgium and the Nordics.
In organic revenue growth has remained strong all year, at reflecting many new contract startups in Brazil and particularly strong same site sales growth in Asia. Many of these contracts have involved transferring expertise from other sites around the world or extending services into new facilities management offers.
Education
Revenues in were 3.9 billion euro, down -2.5% organically, excluding the 53 week impact.
was down , excluding the 53 week contribution. While Schools generated solid growth due to new business and strong same site sales growth, this was offset by the negative net new business contribution from Universities, impacted by particularly weak retention during the previous year selling season, and much lower same site sales growth. Fiscal 2018 retention has improved so that net new business going into Fiscal 2019 is neutral.
In , organic growth was This was driven by solid prior year contract wins, same site sales growth in the UK and Spain, and two additional days in Italy. France was flat due to weak prior year development.
In , organic growth was resulting from strong growth in new Schools contracts and same site sales in China, Singapore and India.
Benefits and Rewards Services
revenue amounted to 850 million euro, down -6.1%. The currency effect of -7.9% resulted in particular from the weakness of the Brazilian real in the second half. The scope change of -3.4% also weighed on revenues, principally due to the sale of at the end of Fiscal 2017. Organic growth in revenues was +5.1%, on issue volume growth of +6.8%.
In organic growth in revenues and issue volume has been strong throughout the year at and respectively. This strong performance reflects solid face value increases in most countries, and more specifically double digit organic growth in Central Europe. The significant digital migration in India has been managed successfully, and growth bounced back in the last quarter of the year. Good momentum in the Incentive and Recognition activity in the USA and the UK (revenues without issue volume) continued. The launch of , the new end-to-end Travel and Expense management system, was completed in June and the business development since is in line with expectations.
Organic revenue growth in was for the full year, reflecting an improvement in the trend in the second half as recovery started to come through in Brazil even though interest rates have remained much lower than last year. Issue volume growth also improved in the second half, ending the year up helped by increases in face value and the number of beneficiaries. From the third quarter, inflation and interest rates in Brazil have been progressively stabilizing and the comparable base has become easier.
Fiscal 2018 Underlying operating profit amounted to 1,128 million euro, down -15.8%, or -8.6% excluding the currency effect. As a result, the Underlying operating margin was 5.5%, down -100 basis points relative to the previous year. Excluding the currency impact, principally linked to the weakness of the Brazilian real against the euro, the margin was 5.7%, down -80 basis points, in line with the revised guidance provided on March 29, 2018.
The 80 basis points decline in Underlying operating profit margin excluding currencies is explained by:
The performance by segment, excluding the currency effect, is as follows:
In , the Underlying operating profit and margin were down respectively -3.7% and -180 basis points excluding currency impacts. The first half was down -320 basis points due to the costs of digital migration, particularly in India and the Czech Republic, lower interest rates in Brazil and investments in the Mobility & Expense activities. However, the second half was better, down only -60 basis points, benefiting from the strong recovery in volumes and progressive stabilization of the interest rate impact in Brazil.
were 131 million euro versus 151 million euro in the previous year. Restructuring costs fell very significantly to 42 million euro from 137 million euro in the previous year linked to the Adaptation and Simplification program. However, acquisition costs and amortization and depreciation of client relationships, linked principally to the Centerplate acquisition, and brands, were up and there were some provisions resulting from scope changes in the Middle East.
As a result, the was 997 million euro down from 1,189 million euro.
fell by 15 million euro essentially due to two factors: an early redemption indemnity of 10 million euro last year and interest on the dividend tax reimbursement this year of 7 million euro. Otherwise, despite the significant increase in debt during the year, due to, in particular, the acquisition of Centerplate in January 2018, the cost of debt was stable with a blended cost of debt at 2.5% as at August 31, 2018 versus 2.4% a year earlier. During the year, the Group issued a bond of 300 million euro in May at 1.125% and a US private placement of 400 million dollars in June at 3.7%.
The fell to 27.1% in Fiscal Year 2018, compared to 31.7% in Fiscal Year 2017. The rate benefits from a positive one-off in France from the reimbursement of the 3% contribution on distributed dividends over the period 2013-2017. The reduction in the income tax rate in the USA (from 35% to a blended 25.7%) is partly offset by the realignment of deferred taxes and the deemed repatriation tax. The tax rate for Fiscal Year 2019 is expected to be around 29 % as the Group will benefit fully from the tax rate reduction in the USA.
The share of was 2 million euro. Profit attributed to non-controlling interests was 13 million euro against 22 million euro in the previous year due principally to the disposal of subsidiaries.
As a result, was 651 million euro, down -9.9%, or -4.0% excluding the negative currency impact. amounted to 706 million euro, down -14.0% at current rates or-8.6% excluding the currency effect, adjusted for Other operating income and expenses at a normalized tax rate.
amounted to 4.77 euro, down -13.6%.
Published EPS was 4.40 euro, down -9.4%. The 50-basis point accretion relative to the change in net profit is due to the effect of the 300-million-euro share buy-back during the year resulting in a lower weighted average number of shares of 148,077,776 relative to 148,998,961 shares for Fiscal 2017.
At the annual Shareholder's Meeting to be held on January 22, 2019, the Board of Directors will recommend a dividend of 2.75 euro per share for Fiscal 2018, stable relative to the prior year. This proposal reflects the Board's confidence in the Group's strategy. As a result, the pay-out ratio will be 58% on Underlying net profit and 63% on published net profit.
Cash flows for the period were as follows:
Operating cash flow totaled 1,140 million euro up +5.9%, due to much lower cash taxes, and to a lesser extent, the reduction in net interest paid. The positive inflow of Working capital of 221 million euro was due to improved operational cash management throughout the Group.
Net capital expenditure, including client investments amounted to 286 million euro, representing 1.4% of revenues compared to 1.5% last year. This reflects the poor retention in Education in the previous year as Education, with Sports & Leisure, is the most capital-intensive segment. As previously announced, this rate is expected to increase over the next few years, as investments in IT and digital increase by 30 to 50 million euro annually, Education retention and development improve and Centerplate ramps-up its new business wins.
Free cash flow reached 1,076 million euro. This represented a substantial improvement on Fiscal 2017 free cash flow, at 887 million euro. As a result, cash conversion reached 165% compared to 123% in Fiscal 2017.
Net acquisitions and disposals of subsidiaries increased significantly to 697 million euro from 268 million euro in the previous year, reflecting, in particular, the acquisition of Centerplate for a total of 610 million euro. After taking into account share buy-backs of 300 million euro, dividend payments of 411 million euro, and Other changes, principally linked to currency impacts and perimeter changes, consolidated net debt rose during the year by 648 million euro to 1,260 million euro at August 31, 2018.
During Fiscal 2018, Sodexo substantially increased the size of its acquisition spend.
The Group made a strategic move with in the USA, providing the Group with the size and credibility in Sports & Leisure in North America to complement its strong positions in Europe. The size of the stadiums and conference centers are much bigger in the USA than in Europe.
During the year, the Group's offer was also enriched with the acquisition of the digital food company, in France. Benefits & Rewards has also strengthened its offer in the area of health and sports services with the acquisition of in France and in Spain.
Technical expertise was extended in Singapore with the acquisition of .
The Group has consolidated its positions in the mining market in Australia with the acquisition of .
On April 12, 2018, Sodexo announced a 300-million-euro share buy-back program reflecting the Board's confidence in the future of the Group despite the disappointing first half figures and revised guidance. The share buy-back program was completed on August 13, 2018 with the purchase of 3,356,732 shares, representing 2.2% of the capital, at an average price of 88.92€. A total of 3,375,562 shares were cancelled in the August Board meeting. As a result, at August 31, 2018, the total number of shares was 147,454,887 down from 150,830,449 as at year end Fiscal 2017.
As of August 31, 2018, net debt was 1,260 million euro, representing a gearing of 38%, compared to 17% as of August 31, 2017, and a net debt ratio of 1.0, back into the Group's target range of 1 to 2.
The Group's financial position remains strong with cash flow covering investments, acquisitions and the dividend and despite a particularly significant acquisition spend in the year. Gearing and net debt ratio have increased due to the share buy-back. During Fiscal 2018, the Group issued a 7-year bond for an amount of 300 million euro out to May 2025 with a coupon of 1.125% and a 5-year US dollar placement of 400 million dollars at 3.7% which has extended the average maturity to 5.6 years. The blended cost of debt as of August 31, 2018 was 2.5% stable against 2.4% in the previous year.
At the end of Fiscal 2018, the Group had an operating cash position of 2,680 million euro and unused lines of credit totaling 1,589 million euro. As a reminder, the cash position includes 1,987 million euro for Benefits and Rewards Services (including restricted cash for 615 million euro, financial assets for 427 million euro and 28 million euro of bank overdrafts).
Since the beginning of Fiscal 2019, two further acquisitions have been closed:
During the Capital Markets Day on September 6, 2018, Denis Machuel, Group CEO, presented his strategic agenda to return the Group to market-leading growth.
In the series of presentations, Sodexo's managers highlighted:
STEP = Sodexo Targets for Enhanced Performance
More specifically for Fiscal 2019, the management team is rolling out the action plans to ensure that enhanced productivity will free up the capacity to invest in sales, marketing, Information Systems & Technology, and digital to accelerate revenue growth.
In Onsite Services in North America, the Education selling season in Fiscal 2018 resulted in improved retention and stable new development. As a result, Fiscal 2019 growth in Education should be neutral. There are signs that Health Care signatures are also picking up progressively.
The Africa, Asia, Australia, Latin America and Middle East region now accounts for 16% of total sales, and should continue to generate solid growth.
In Europe, while the UK public sector remains highly competitive, and Northern Europe is suffering from large contract losses and low development, the Energy & Resources activities in the North Sea are stabilizing, France is continuing to progress regularly and Southern and Eastern Europe should continue to generate good growth in all segments.
Benefits & Rewards is expected to generate growth of between 5 and 10% due to the progressive recovery in Brazil, the return to growth in India and steady progress in Europe in both the traditional benefits business as well as the Incentive & Recognition and mobility activities.
Progress in productivity and simplification will be reinjected into the organization to support sales growth, with more innovation, new offers, digital apps and reinvigorated sales and marketing efforts, aimed at retaining existing clients, boosting new sales and being more competitive.
Therefore, for Fiscal 2019, the Group expects to deliver:
The strategic agenda is aimed at delivering market leading growth. The first steps to return to this performance are to achieve organic growth of more than 3% from Fiscal 2020 and then improve margins back up over 6% sustainably (at Fiscal 2017 exchange rates).
Financial ratios have been computed based on the following key indicators:
The blended cost of debt is calculated at period end and is the weighted blended financing rate on borrowings (including derivative financial instruments and commercial papers) and cash pooling balances at period end.
Please refer to section Consolidated financial position.
Change excluding currency effect calculated converting Fiscal 2018 figures at Fiscal 2017 rates, except for countries with hyperinflationary economies. As a result, for Venezuelan Bolivar, Fiscal 2018 and Fiscal 2017 figures in VEF have been converted at the exchange rate of USD 1 = VEF 6,112,000 vs. VEF 3,250 respectively.
Issue volume corresponds to the total face value of service vouchers, cards and digitally-delivered services issued by the Group (Benefits and Rewards Services activity) for beneficiaries on behalf of clients.
Group borrowing at the balance sheet date, less operating cash.
Operating profit divided by Revenues.
Organic growth corresponds to the increase in revenue for a given period (the "current period") compared to the revenue reported for the same period of the prior fiscal year, calculated using the exchange rate for the prior fiscal year; and excluding the impact of business acquisitions (or gain of control) and divestments, as follows:
Underlying Net profit presents a net income excluding significant unusual and/or infrequent elements. Therefore, it corresponds to the Net Income Group share excluding Other Income and Expense and significant non-recurring elements in both Net Financial Expense and Income Tax Expense.
In Fiscal 2018, the Underlying net profit excludes the following items and the related tax impact where applicable from Net Income Group share:
Underlying Net profit per share presents the Underlying net profit divided by the average number of shares.
Underlying operating profit divided by revenues
Underlying operating profit divided by revenues, calculated by converting Fiscal 2018 figures at FY 2017 rates, except for countries with hyperinflationary economies.
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