Full Year 2024 Sodexo SA Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jamie Rollo - Morgan Stanley - Analyst : Thank you. Good morning, everyone. Three questions, please. First of all, in North America, the fourth quarter organic sales growth slowed quite a lot to around 5%. It was more like, I think, 9%, 10% in the first three quarters, and you talked about some lost university contracts. Could you please quantify those losses, and are there any factors causing that slowdown? Or is it simply just normalization. Secondly, on retention, 90 basis points hit from the FM and E&R contract losses in just a few months, plus maybe something in US. It feels like this could be the start of a trend. I'm just wondering what your confidence level is in the 95% retention target this year. And just on the guidance of 30 to 40 basis points, that's clearly quite a good figure for 2025, given the higher base and slowing sales. Is that very much driven by internal act on cost rather than operating leverage on higher revenues? And also, which regions do you see most sort of margin upside in 2025? Thank you.

Question: Jamie Rollo - Morgan Stanley - Analyst : Thank you. Do you mind just quantifying the US university losses in terms of full-year revenue, please? And also, if you -- so what was your confidence level on 95%? I mean, there is no more big contracts you think you could lose in the next 12 months? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 7:00AM, EXHO.PA - Full Year 2024 Sodexo SA Earnings Call

Question: Jamie Rollo - Morgan Stanley - Analyst : Okay. Thank you very much. That's very helpful.

Question: Simona Sarli - Bank of America - Analyst : Yes. Good morning, thanks for taking my questions. Just a couple of them, please. So your fiscal year 2025 guidance assumes quite some contribution from like-for-like volume growth. So what gives you visibility that you can achieve that and also how much visibility you have? Second question is on the Q4. Again, you have achieved an organic growth of plus 5% on an underlying basis and are guiding for 6% to 7% in fiscal year '25, which is quite a sizable step-up. So how can you please reconcile that? Thank you.

Question: Simona Sarli - Bank of America - Analyst : Thank you.

Question: Vicki Stern - Barclays - Analyst : Yeah, morning. Just firstly wanted to talk about the medium term, how you're thinking now sort of beyond '25 in terms of medium-term organic growth and margin. So the organic growth, I think, Sophie, you laid out 3% net new would obviously be the target. But in terms of the other levers and particularly volume, do you think you can sustain that 1% to 2% beyond next year? Second one is just on the higher restructuring charges. I didn't quite follow this transversal global business services model. So just a little bit more color on what exactly that is. And should we expect those higher restructuring charges to be a sort of one-year thing next year? Or could those continue beyond next year? And then the last one, just back on the balance sheet. You've obviously mentioned there that you're happy to repay some debt through the year, perhaps do some more small bolt-ons. But if you could just talk about the group's appetite for any larger M&A or if bolt-on is really the desire right now. And to the extent that there's not sort of plenty of opportunities out there, your appetite going forward for any cash returns or additional cash returns to shareholders? Or is really bolt-on M&A the main focus? Thanks.

Question: Vicki Stern - Barclays - Analyst : Thank you. And sorry, just to follow back on that first question, thank you for the color on the medium-term organic growth. The medium-term margin growth, should we still be thinking about 30 to 40 bps beyond next year?

Question: Vicki Stern - Barclays - Analyst : Great. Thanks very much.

Question: Jaafar Mestari - BNP Paribas - Analyst : Hi. Good morning. I have three, if that's okay. Firstly, just on the free cash flow, EUR661 million for full year '24. Can you update us, please, on where reverse factoring was at the end of the year? I think in H1, the increase in reverse factoring was a EUR150 million benefits? Is it the same for the full year? Did it increase further? Did you take it down since, please? And then following up on US education, I appreciate you cannot necessarily quantify everything. If I calculate the implied Q4 organic growth by segment, US education is down minus 4.5% in Q4. I think it has plus 5% for next year. Is there anything in terms of calendar effects or any other one-offs to keep in mind in this Q4? Or is it just the size closures, the current losses? They are pronounced; we can model minus 4% for a couple of quarters. And lastly, more conceptually, really, most years, we're standing here in October, and we're looking at your net new business forward-looking KPIs, retention as you define it, minus gross signings as you define them. And most years, the discussion is that's where you can get and how close will you get to that if we start factoring in ramp-up of the stuff you signed. This year, it's 1.6%. And you're guiding to 2%. You made some points on -- I'm not sure I get them by the way, like the H2 phasing. Yeah, some of that stuff was signed late in H2, so it's taking some time. You expect a strong H1. What actions -- I guess, my point is what actions are you putting in place to ensure that this year, the ramp up is very fast, that you sign more very soon, you ramp up as fast as possible? Because you're already two months into your fiscal year and the exit rate is 1.6% you want to do, too.

Question: Jaafar Mestari - BNP Paribas - Analyst : Super. Very clear. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 7:00AM, EXHO.PA - Full Year 2024 Sodexo SA Earnings Call

Question: Jaafar Mestari - BNP Paribas - Analyst : Thank you very much.

Question: Leo Carrington - Citi - Analyst : Good morning. Thank you. Three for me as well, please. Firstly, on the margins. This margin progression guidance for FY25, is it to be spread across your three regions relatively equally? Or will the US see some catch-up to break back above 2019 levels? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 7:00AM, EXHO.PA - Full Year 2024 Sodexo SA Earnings Call And then within margins, the central cost line, is this the new levels that grow with the business going forward or further efficiencies possible, do you think, in absolute terms, just given the restructuring and central services investment? Secondly, the food and FM mix in the new development is running at 65%, but with some foods within integrated. Can you just break out what proportion of those IFM sales are food? And then lastly, on the branded food office, can you just elaborate more on the strategy here? Does this eventually go to 100% essentially? Or are there still outlets or subsectors where you think the Sodexo brand itself is the right one? Thank you.

Question: Leo Carrington - Citi - Analyst : Sure. Just in terms of these branded food offers, do you see the Sodexo brand as itself to consumers are still remaining? Would you intend to take these branded food offers across the whole portfolio? If it's 37% of food revenues now, and I think going above 50% next year?

Question: Leo Carrington - Citi - Analyst : Okay. Thank you, Sophie.

Question: Simon Lechipre - Jefferies - Analyst : Yes, morning. I've got three, please. First of all, in North America, you mentioned the strong growth from Entegra. So could you please give us the organic growth, excluding Entegra, please? Secondly, on the net new wins could you give us the actual contribution to Q4? And I mean, I'm sorry if you gave it already. And lastly, as a follow-up on the medium-term targets. I mean based on your comments, does that mean that you expect to be at 3% plus net new wins as soon as 2026? Thank you.

Question: Simon Lechipre - Jefferies - Analyst : Okay. Thank you. And a quick follow-up on the Q4, I think it was organic growth bridge. So I mean it seems that volumes were actually kind of flat in Q4. So I mean what gives you confidence on kind of low single-digit growth for 2025 from volumes? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 7:00AM, EXHO.PA - Full Year 2024 Sodexo SA Earnings Call

Question: Simon Lechipre - Jefferies - Analyst : Okay, thank you.

Question: Neil Tyler - Redburn Atlantic - Analyst : Good morning. Thank you. A few left from me, sorry. Margin, first of all, I just like to tackle that outlook question from a different perspective. This year, you've had quite strong pricing catch up, also healthy like-for-like volume growth, a big drop in central costs, and some strong contribution presumably from the Entegra growth. So can you outline what the negatives were pressuring margin this year? Because you're expecting next year to be similar with presumably much reduced effects from all of those that are just listed. The second question, just more broadly on the retention. Just could you give us a picture as to how above or below average '25 should be in terms of rebids? Then the point on CapEx being a bit lower in '24, can you quantify how much that was lower by? Sorry if I missed that. And then the Entegra compliance, I think you said catalogue compliance was up 400 basis points. Are you able to share what level it is at on an absolute basis, please? Thank you.

Question: Neil Tyler - Redburn Atlantic - Analyst : Okay, that's great. Thank you very much for the answers.