Sodexo: First Half Fiscal 2017 in line with expectations, strong growth in operating profit
(Thomson Reuters ONE) -
* Revenues up +0.4% and organic growth[1] of +1.4% excluding Rugby World Cup
and Energy & Resources
* On-site Services organic growth was -0.3%, excluding the Rugby World Cup
and the Energy & Resources decline, organic growth was +1.2%
* Solid growth in Corporate North America, Health Care and developing
markets.
* This momentum was somewhat offset by a challenging environment in
Europe due to continued weakness in Energy & Ressources activity in
the North Sea and more generally, in France.
* Benefits & Rewards Services organic growth reached +7.4%,
* Strong activity in Europe, Asia and the USA
* Latin America was more subdued.
* Operating profit before exceptional expenses[2] and currency effect was up
7.7% and the margin increased 50 basis points, at constant exchange rates
* Net profit increased 14.7% before non-recurring items[3], at constant
exchange rates
* Fiscal 2017 guidance:
* Revenue organic growth of around 2.5%
* Growth in operating profit confirmed at between 8% and 9% (excluding
currency effect and exceptional expenses linked to the Adaptation and
Simplification program)
* Medium-term objectives confirmed.
Issy-les-Moulineaux, April 13, 2017 - Sodexo (NYSE Euronext Paris FR 0000121220-
OTC: SDXAY). At the Board of Directors' meeting chaired by Sophie Bellon on
April 11, 2017, Chief Executive Officer Michel Landel presented the Group's
performance for the First Half of Fiscal 2017, which ended on February 28, 2017.
[1] Organic growth is defined as growth at constant exchange rates (converting
Fiscal 2017 figures at Fiscal 2016 rates) and consolidation scope, except for
Benefits & Rewards in Venezuelan Bolivar. All Fiscal 2017 and Fiscal 2016
figures in VEF have been converted at the exchange rate of USD 1 = VEF 700 vs.
VEF 645 for FY 2016.
[2] Exceptional expenses are the costs of implementation of the Adaptation and
Simplification program (?137m in H1 2017 and ?37m in H1 2016).
[3] Non-recurring items: in H1'17, 137 million euro of exceptional expenses and
11 million euro of early debt reimbursement indemnity, both net of taxes
(99 million euro) and in H1'16 exceptional expenses of ?37m (or ?24m net of
taxes).
Financial performance for First Half Fiscal 2017:
First-Half First-Half
Fiscal 2017 Fiscal 2016 Change Change
(ended (ended at current excluding
(in millions of February February exchange currency
euro) 28, 2017) 29, 2016) rates effect
Revenue 10,634 10,596 +0.4% +0.3%
Organic growth +0.0% +3.7%
Operating profit
before
exceptional
expenses[1] 723 658 +9.7% +7.7%
Operating margin
before
exceptional
expenses 6.8% 6.2% +60 bps +50 bps
Exceptional
expenses (137) (37)
Operating profit 586 621
Net financial
expense[2] (56) (49)
Effective tax
rate 32.6% 35.5%
Group net profit
before non-
recurring items 447 383 +16.6% +14.7%
Group net profit 348 359 -3.1%
Earnings per
share before non-
recurring items
(basic) 2.98 2.52 +18.3%
Net debt ratio[3] 0.9 0.6
Commenting on these figures, Sodexo CEO Michel Landel said:
We have delivered a First Half in line with our expectations.
Revenue growth accelerated in the second quarter as expected, we have signed
significant new contracts and the pipeline remains strong.
Our Savings plan is well on track and delivered 60 million euro in the First
Half of the fiscal year, helping us to achieve a 50bps improvement in operating
margins while we continue to make investments that will contribute to future
growth.
In the second half of the year, the comparative base will become easier and
contract signatures will convert into revenues progressively. As a result, we
expect organic growth of around 2.5% for the full year. Our efforts to control
costs and adapt our organization will continue to deliver and so we confirm our
objective of growth in operating profit of between 8 to 9% for this fiscal year
(excluding currencies and before exceptional expenses).
[1] Costs of implementation of the Adaptation and Simplification program (?137m
in H1 2017 and ?37m in H1 2016)
[2] Including indemnity for early debt reimbursement of ?11 m in H1 2017
[3] Net debt ratio = Net debt / EBITDA for last 12 months including exceptional
expenses
Highlights of the period
* First Half Fiscal 2017 Revenues amounted to 10.6 billion euro, up +0.4% on
the previous year period. Currencies contributed +0.1% and net acquisitions
+0.3%. Organic growth was +1.4% excluding the Rugby World Cup effect and the
decline in Energy & Resources.
* Organic growth for the On-site Services activity was -0.3%, or 1.2%
excluding the Rugby World Cup impact and the Energy & Resources activity:
* Business & Administrations organic growth of -2.1%, or +0.7% excluding
the Rugby World Cup and Energy & Resources impacts, reflects a return to
positive growth in the second quarter. Energy & Resources is improving
regularly quarter by quarter, even if activity in the North Sea is still
down by 16% in both quarters. Elsewhere, while Government Services
activity remained difficult during the quarter, Corporate Services
activity was solid with high single digit growth in North America and
the developing economies more than offsetting continued weakness in
Europe.
* Health Care & Seniors organic growth is +3.1%, benefiting from same site
growth in Hospitals in North America and strong development in Asia and
Brazil. Bidding opportunities in France and the United Kingdom remain
highly competitive.
* Education organic growth remained modestly positive at +0.3%. While
Schools activity benefits from new business in all regions, the lack of
new business last year in Universities in North America is weighing on
performance this year. However, the level of signings has picked up in
the last few months with three major contract signatures in North
America.
* First Half Fiscal 2017 organic revenue growth in the Benefits & Rewards
Services activity was +7.4%. Growth in Europe, Asia and the USA at +11.5%
reflected solid growth in both the number of beneficiaries and face values
and exceptionally strong Incentive and Recognition activity in the USA and
the UK. In Latin America, organic growth was +2.9% for the period. Brazil
remained weak. The rest of Latin America continued to grow strongly.
* Operating profit before exceptional expenses rose to 723 million euro, up
+9.7%, or +7.7% excluding the currency effect. As a result, the operating
margin before exceptional expenses was up +60 basis points to 6.8%, or +50
basis points excluding the currency effect. Numerous initiatives, as part of
the Adaptation and Simplification program, to improve productivity and
reduce SG&A have contributed to building the margin. The program delivered
60 million euro of savings for the period, enhancing the Group's capacity to
invest in growth.
* Exceptional expenses related to the Adaptation and Simplification measures
amounted to 137 million euro in First Half Fiscal 2017, bringing the program
up to a total of 245 million euro as it closed at the end of the First Half.
Annual savings are expected to ramp-up to about 220 million euro for Fiscal
2018.
* Group net profit before non-recurring items net of taxes totaled 447 million
euro, up +16.6% or +14.7% excluding currency effect. After deducting
exceptional expenses and an indemnity on the debt restructuring, (amounting
to 99 million euro in First Half Fiscal 2017 and 24 million euro in First
Half Fiscal 2016, both net of taxes), reported net profit was 348 million
euro, down -3.1%.
* Free cash flow generation was 30 million euro in the First Half. During the
period, the Group financed the 300 million euro share buy-back, the full
year dividend and a much higher level of acquisitions at a net amount of
165 million euro. Despite this, the financial position remained strong, with
net debt[1] at 1,234 million euro, gearing[2] at 34% and the net debt ratio
at 0.9.
* The Group's corporate responsibility engagement is recognized with the
highest score for the sector in Robeco SAM's 2017 Sustainability Yearbook
for the 10(th) consecutive year.
* Changes to the Board Committees
Several changes have been made to the three Board committees, effective March
8, 2017.
* Mr. Emmanuel Babeau, Independent Director, was appointed Chairman of the
Audit committee and Ms. Cathy Martin, Director representing employees, is
now a member of the committee.
* Ms. Françoise Brougher Independent Director, has been appointed Chairwoman
of the Nominating committee and Ms. Cécile Tandeau de Marsac, appointed at
the AGM in January 2017, has joined the committee.
* Ms. Tandeau de Marsac, Independent Director, has joined and become
Chairwoman of the Compensation committee. Ms Brougher has also joined the
Committee.
As a result all three committees are now chaired by Independent Directors as
defined by the Afep-Medef French corporate governance code.
[1] Net debt: Group borrowings less operating cash
[2] Gearing: Net Debt / Shareholders equity
Outlook
The First Half Fiscal 2017 is in line with expectations.
For the second half, the Board and Executive Committee remain confident in the
Group's capacity to accelerate growth based on the contribution from new
business signed in the last quarters, the quarter by quarter improvement in
Energy & Resources, an easier comparative base in France, and the positive
accounting calendar adjustment in North America in the fourth quarter.
Given a softer than expected environment in Europe and Africa, and the longer
lead times from signature to ramp-up of some contracts, organic revenue growth
is expected to be around 2.5%.
The Adaptation and Simplification program is perfectly on track to deliver
substantial cost savings this year and therefore the Group confirms its
objective for Fiscal 2017 of 8% to 9% growth in operating profit excluding the
currency effect and exceptional expenses related to the Adaptation and
Simplification program.
Confident in the future, with further significant outsourcing potential and
opportunity in developing economies, strong potential of the new segment
organization and M&A contribution the Group confirms its medium-term objectives
of:
* Average annual revenue growth, excluding currency effect, of between 4% and
7%;
* Average annual growth in operating profit, excluding currency effect, of
between 8% and 10%.
Conference call
Sodexo will hold a conference call (in English) today at 9:00 a.m. (Paris time),
to comment on its results
for First-Half Fiscal 2017. Those who wish to connect from UK may dial +
44(0)20 3427 0503
or from France +33(0)1 70 48 01 66 following by the pass code 43 90 978.
The presentation can be followed via live webcast on the Group website,
www.sodexo.com.
The press release, presentation and webcast will be available on the Group
website www.sodexo.com
in both the "Latest News" section and the "Finance - Financial Results" section.
Financial calendar
----------------------------------------------------------
Nine month revenues, Fiscal 2017 July 6, 2017
----------------------------------------------------------
Annual results, Fiscal 2017 November 16, 2017
1(st) quarter revenues, Fiscal 2018 January 11, 2018
Annual Shareholders' Meeting 2018 January 23, 2018
About Sodexo
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 75 million
consumers each day through its unique combination of On-site Services, Benefits
and Rewards Services and Personal and Home Services. Through its more than
100 services, Sodexo provides clients an integrated offering developed over 50
years of experience: from foodservices, reception, maintenance and cleaning, to
facilities and equipment management; from Meal Pass, Gift Pass and Mobility Pass
benefits for employees 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 425,000 employees throughout the world.
Sodexo is included in the CAC 40 and DJSI indices.
Key figures (as of August 31, 2016)
20.2 billion euro in consolidated revenues
425,000 employees
19(th) largest employer worldwide
80 countries
75 million consumers served daily
17.3 billion euro in market capitalization (as of April 12, 2017)
Forward-looking statements
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.
Contacts
+-------------------------------------------------------+
| Analysts and Investors Media |
| |
| Virginia Jeanson Laura Schalk |
| Tel: +33 1 57 75 80 56 Tel: +33 1 57 75 85 69 |
| virginia.jeanson(at)sodexo.com laura.schalk(at)sodexo.com |
+-------------------------------------------------------+
ACTIVITY REPORT FOR FIRST HALF FISCAL 2017
First Half performance in line with expectations,
strong growth in operating profit
As expected, organic growth in the second quarter compensated for the negative
growth in the first quarter, which was impacted by a high comparable base due to
the Rugby World Cup and the ongoing environment in the mining and oil & gas
industries. As a result, revenue organic growth for the First Half 2017 was up
1.4 % excluding these two elements.
Operating profit before exceptional expenses was up 9.7% or +7.7%, excluding the
currency effect. The operating margin improved by 50 basis points, excluding the
currency effect and exceptional expenses. Numerous initiatives, as part of the
Adaptation and Simplification program, to improve productivity and reduce SG&A
have contributed to building the margin. The program delivered 60 million euro
of savings during the period. A total of 137 million euros of exceptional
expenses were incurred during the period to support this program.
Net financial expense increased somewhat due mainly to an indemnity on the early
reimbursement of the second tranche of the debt restructuring program in
September 2016. The tax charge was lower at 32.6%. As a result, net profit
before these non-recurring items was up +16.6% or 14.7% excluding currencies,
and after the non-recurring items, down 3.1%.
Free cash flow amounted to 30 million euro, impacted by the decline in operating
profit due to the exceptional expenses. As usual, the First Half cash flow is
impacted by a seasonal deterioration in working capital. Due to the share buy-
back program, the full payment of the dividend, in February, and much higher
acquisition spend, net debt at the end of the period increased 827 million euro
to 1,234 million euro. Nevertheless, the balance sheet remained strong with
gearing[1] at 34% and a net debt ratio[2] of 0.9.
[1] Gearing: Net Debt/Shareholders equity.
[2] Net Debt ratio: Net Debt/EBITDA.
Contract wins
New signatures picked up slowly during the First Half but have accelerated in
the last months of the period.
Recent significant signatures in On-site Services include:
* In Corporate Services, Sodexo signed a major new integrated services
contract with Citibanamex (Citigroup's Mexican operations) to provide a
range of Hard and Soft Facilities Management services.
* In the Energy &Resources segment, Rio Tinto Aluminium awarded an integrated
facilities management services contract to Sodexo to supply camp management
services to the Amrun bauxite project in Australia.
* In Health Care, Sodexo started operations for an important contract with
Saint Joseph in Texas, USA, providing food and nutrition services for 5
hospitals.
Cross-selling continues to be a driver for growth:
* For Toyota, which is already a client in 25 countries, Sodexo significantly
extended the relationship with Sodexo Magic in the US, to include their US
headquarters and 3 other branches.
* For Colgate, Sodexo's geographical scope has now been expanded to include
Argentina, Colombia, Czech Republic, Italy, Netherlands, South Africa and
Turkey. The Group already delivers soft and hard FM services, as well as
food, for their manufacturing facilities and corporate offices in Latin
America, Europe, Middle East, Africa, Australia and the US.
A pick-up in Universities in North America is emerging with major new signatures
including a 10-year dining services agreement with Florida State University and
a significant food services contract with Simon Fraser University in Canada.
The strong development in the Schools segment in Asia is continuing, with the
signature of a large contract for the opening of the KangChiao International
School in Shanghai, China, as well as a 4-year contract with the American
International School in Guanghzou, China.
In Benefits & Rewards Services, there have been noteworthy developments around
the world including:
* For Nestle in the Philippines, Sodexo is running a nationwide product
promotion campaign for their Maggi line, including roadshows and sampling.
* For employees of Mexico's Public Prosecutor, Sodexo has developed a
comprehensive food and mobility service offer.
Growth investment
In the First Half of the year, the Group has accelerated its acquisitions and
investment activity, to position Sodexo strongly for future growth, having spent
a net amount 165 million euro. Given transactions closed in March 2017, and
current ongoing discussions, Sodexo has visibility for at least 300 million euro
of M&A spend.
To expand Sodexo's offer, during this First half, the Group acquired Inspirus, a
US-based specialist in employee recognition; as well as PSL in the UK, a leading
fresh-food procurement company, and Peyton & Byrne, which holds prestigious
hospitality contracts for the top museums in London.
Sodexo Benefits & Rewards Services entered the Mobility and Expense management
business by acquiring iAlbatros, a digital business travel reservations
platform, and Xpenditure, a digital expense management system, both in March
2017.
The Group has also strengthened its Technical Facilities Management capacity and
expertise with the acquisition of FM specialist Tadal in Israel, and by taking,
in March 2017, a minority stake in Mentor Technical Group in Puerto Rico,
specialized in technical and FM services for the pharmaceutical industry.
Sodexo consolidated its positions in various markets, by buying out the Doyon
and FAW partners in Alaska and China, and acquiring Prestige Nursing + Care, a
leading UK in-home senior care private-pay provider.
In addition, Sodexo Ventures, the Group's strategic venture capital fund, has
continued to invest in dynamic and innovative start-ups linked to the Group's
operations.
Commitments and Recognition
Sodexo has continued to be recognized for its commitments as a responsible
corporate citizen.
* For the tenth year in a row, Sodexo was ranked as the top-scoring company in
its sector in RobecoSAM's "Sustainability Yearbook", earning Gold Class
distinction that recognizes companies that are "strongly positioned to
create long-term shareholder value" through their Corporate Responsibility
efforts.
* Sodexo CEO Michel Landel joined "Champions 12.3," a coalition of executives
from government, business, research institutions, farmer groups, and civil
society working to achieve the UN's Sustainable Development Targets related
to reducing food loss and waste.
* For the 7(th) year in a row, Sodexo is among the FORTUNE World's Most
Admired Companies. In its industry the Group is ranked No. 1 in 3
categories: Social Responsibility, Innovation and Global Competitiveness.
* These global recognitions reflect the many actions and commitments Sodexo
carries out in countries around the world within the framework of its group
wide Corporate Responsibility roadmap. For example, in Colombia, Sodexo has
implemented the Partner Inclusion Program which helps develop SMEs and
women-owned businesses. As a result, Sodexo Columbia was named Corporation
of the Year in 2017 by WEConnect international (a network connecting women
business owners to multinational corporate supply chains).
Research and thought leadership
As a 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.
* The Group recently issued its first Global Workplace Trends report, a far-
reaching look at the most critical factors affecting the world's workers and
employers. As a top global employer providing quality of life services to
10,000 companies around the world, Sodexo has a direct vision and
understanding of the factors that will shape the workplace of the future.
* In January 2017, in partnership with Harvard University, Sodexo was awarded
a four-year grant to study the needs of front-line workers in terms of
health, safety, and wellbeing. Sodexo hopes to use the findings from this
research to make industry recommendations and changes that will improve not
only the quality of life of our employees, but that of a broad spectrum of
employees throughout the sector.
* The Group has also published a study looking into the drivers of
productivity, employee engagement and talent retention for knowledge workers
in the UK (the fastest-growing segment in the labor force in the UK).
Insights from the study will help Sodexo improve workplace design and
employee satisfaction and productivity for its clients.
FIRST-HALF FISCAL 2017 PERFORMANCE
Revenues
Consolidated revenues for the First Half of Fiscal 2017 totaled 10.6 billion
euro up +0.4%. The currency effect contributed +0.1% to reported growth for the
period, with favorable changes in the US dollar (+2.3% vs. Fiscal 2016) and the
Brazilian real (+16.7%) offsetting the decline in the Pound Sterling (-11.1%).
Acquisitions and disposals of subsidiaries had a net positive impact of +0.3%.
This leaves organic revenue growth at +0.0%.
Revenues by activity
First- First-
Revenues Half Half
(in millions of Fiscal Fiscal Published Scope Currency Organic
euro) 2017 2016 growth changes effect growth
Business & 5,196 5,322 -2.4% +0.2% -0.5% -2.1%
Administrations
Health Care & 2,500 2,419 +3.3% +0.1% +0.1% +3.1%
Seniors
Education 2,483 2,465 +0.7% - +0.4% +0.3%
Total On-site 10,179 10,206 -0.3% +0.1% -0.1% -0.3%
Services
Total Benefits & 457 393 +16.4% +4.0% +5.0% +7.4%
Rewards Services
Elimination of
intra-group (2) (3)
revenues
TOTAL GROUP 10,634 10,596 +0.4% +0.3% +0.1% +0.0%
Analysis of organic growth in On-site Services
First Half Fiscal 2017 On-site Services organic growth was -0.3%, and +1.2%
excluding the Rugby World Cup and the impact of Energy & Resources.
Business & Administrations
Revenues
(in millions of euro) First-Half Fiscal First-Half Fiscal Organic growth
2017 2016
North America 1,211 1,148 +3.7%
Europe 2,611 2,930 -7.6%
Africa, Asia, Australia, 1,374 1,243 +5.6%
Latin America, Middle East
Total Business & 5,196 5,322 -2.1%
Administrations
First Half Fiscal 2017 On-site Services revenues in Business & Administrations
totaled 5.2 billion euro, down organically by -2.1% compared with First Half
Fiscal 2016 which benefited from the Rugby World Cup, or +0.7% excluding the
Rugby World Cup and Energy & Resources. This performance reflects strong growth
in Corporate Services in North America and developing economies, generally weak
activity in France, and slow new business in the UK. The trend in Energy &
Resources is improving progressively, albeit still down by -2.7% in the
semester, helped by an easier comparable base and new contract start-ups.
Organic growth in North America was +3.7%. High single digit growth in Corporate
Services, supported by Airline lounge activity, was somewhat offset by the
continued weakness in Energy & Resources and Government services.
Europe was down -7.6%, combining all the difficulties of the period with a high
comparable base to contend with more than half of the decline was due to the
Rugby World Cup in the First quarter Fiscal 2016. The rest was a combination of
a 16% decline in North Sea oil & gas activities, and, in France, slow economic
growth and the loss of a prison contract in January 2016, even though the
tourism activity picked up in the last two months of the semester.
In Africa, Asia, Australia, Latin America and the Middle East, organic growth of
+5.6% reflects continued strong growth in Corporate services thanks to new
contracts in all the regions and stabilization of Energy & Resources due to a
recovery in the mining and onshore activities, and some contract start-ups.
However, the offshore activity remains tough in all regions.
Health Care & Seniors
Revenues
First-Half Fiscal First-Half Fiscal
(in millions of euro) 2017 2016 Organic growth
North America 1,657 1,568 +4.4%
Europe 729 762 -0.7%
Africa, Asia,
Australia, Latin 114 90 +13.3%
America, Middle East
Total Health Care & 2,500 2,419 +3.1%
Seniors
In Health Care & Seniors, revenues totaled 2.5 billion euro, with organic growth
at +3.1%.
Organic growth in North America was +4.4%, due to solid growth in same site
sales, as a result of the development of facilities management services and the
contribution from new contracts.
The -0.7% decline in Europe reflects the lack of net new business in hospitals
in France and the UK due to much greater selectivity in bidding. This is
compensated by some same site sales growth and the Korian Seniors contract ramp-
up.
In Africa, Asia, Australia, Latin America and the Middle East, growth in the
segment is strong at +13.3% boosted by strong growth in Brazil due to multiple
contract wins and increased same site sales. Sales were up double digit in Chile
and high single digit in Asia.
Education
Revenues
(in millions of euro) First-Half Fiscal First-Half Fiscal
2017 2016 Organic growth
North America 1,952 1,924 +0.2%
Europe 494 508 -0.3%
Africa, Asia,
Australia, Latin 37 33 +10.5%
America, Middle East
Total Education 2,483 2,465 +0.3%
In Education, revenues for First Half Fiscal 2017 amounted to 2.5 billion euro,
up organically by +0.3% despite being impacted by 3 working days less in the
First Half in North America and France.
North America organic growth was +0.2%, the result of solid growth in Schools,
with the extension of the Chicago Public Schools contract and the ramp-up of the
new Washington DC Schools contract. This was offset by the impact of three
working days having shifted from the First Half to the Second Half. In a strong
positive sign, during the Second quarter, contracts were signed with three
important universities: Florida State University, Simon Fraser University in
Canada, and Citadel in South Carolina.
In Europe, organic growth of -0.3% was also impacted by the lower number of
working days, particularly in France and low development in France and the UK.
Growth remained robust in Italy.
In Africa, Asia, Australia, Latin America, and the Middle East, organic growth
was +10.5% resulting from very strong growth in new Schools contracts in China,
Singapore and India.
On-site Services revenues by region
Revenues
(in millions of First-Half First-Half
euro) Fiscal 2017 Fiscal 2016 Published growth Organic growth
North America 4,821 4,640 +3.9% +2.5%
Europe 3,833 4,200 -8.7% -5.5%
Africa, Asia, 1,525 +11.6% +6.2%
Australia, Latin 1,366
America, Middle
East
Total On-site 10,179 10,206 -0.3% -0.3%
Services
Note: it is important to bear in mind that with the new segment reporting, all
Energy & Ressources business is now spread across the different regions, whereas
previously remote sites was included in Rest of the World. As a result, North
America and Europe now have a share of Energy & Resources which weighs on their
growth this semester, particularly in Europe where Energy & Resources revenues
is still down 16%.
North America revenue organic growth of +2.5% is supported by strong Corporate
services, solid cross-selling in hospitals muted by modest growth in Education,
impacted by fewer days, and the continued decline in Energy & Resources,
particularly in Canada.
The organic decline of -5.5% in Europe reflects the concentration of all the
major issues of the quarter with the full Rugby World Cup effect, a 16% fall in
North Sea Energy & Resources activity, and general weakness in France. Excluding
the Rugby World Cup sources, organic growth would have been -2.6%.
Africa, Asia, Australia, Latam and Middle East achieved +6.2% organic growth.
This was a combination of solid new Corporate business in all regions, strong
growth in hospitals, particularly in Latin America and the stabilization of the
Energy & Resources activities helped by the new business start-ups.
Benefits & Rewards Services
Benefits & Rewards Services revenue amounted to 457 million euro, up 16.4%.
Currencies contributed +5.0% to this growth, resulting in particular from the
recovery of the Brazilian real. The acquisition of Inspirus in Incentive and
Recognition in the US, net of disposals, contributed a further 4.0% to growth.
Organic growth was therefore +7.4%, compared to growth in issue volume[1] also
strong at +6.8%.
[1] Issue volume corresponds to the total face value of service vouchers, cards
and digitally-delivered services issued by the Group (Benefits & Rewards
Services activity) for beneficiaries on behalf of clients.
Issue volume
First-Half Fiscal First-Half Fiscal
(in millions of euro) 2017 2016 Organic growth
Latin America 3,972 3,287 +7,5%
Europe, Asia and USA 5,142 4,914 +6.3%
Total Issue volume 9,114 8,201 +6.8%
Revenues
First-Half Fiscal First-Half Fiscal
(in millions of euro) 2017 2016 Organic growth
Latin America 216 186 +2.9%
Europe, Asia and USA 241 207 +11.5%
Total revenues 457 393 +7.4%
Organic growth in Latin America is at +7.5% for Issue volume and +2.9% for
revenues. Strong growth in issue volume across the region reflected strong
demand in most countries, except in Brazil, where a decline in the number of
beneficiaries was more than offset by increasing face values. However, there was
a marked slowdown in revenue growth due to a highly competitive environment in
Brazil.
In Europe, Asia and USA, organic growth in Issue volume and revenues was
particularly strong this half year at +6.3% and +11.5% respectively. This
performance is due to solid face value increases in Belgium, introduced from
January 2016, and strong growth in Italy and Central Europe during the semester.
The First Half Fiscal 2017 also benefited from strong Incentive and Recognition
activity in the USA and the UK (revenues without Issue Volume).
Operating profit
First Half Fiscal 2017 operating profit before exceptional expenses amounted to
723 million euro, up 9.7%, or +7.7% excluding the currency effect. The operating
margin before exceptional expenses was 6.8%, up +60 basis points relative to the
previous year, or +50 basis points excluding the currency effect.
Numerous initiatives, as part of the Adaptation and Simplification program, to
improve productivity and reduce SG&A have been implemented over the last 18
months in all segments and in all regions. These projects are contributing
progressively to build the margin. The program delivered 60 million euro of
savings for the period and is expected to ramp-up to deliver around 140 million
euro in Fiscal 2017 and 220 million euro of annual savings in Fiscal 2018. This
is enhancing the Group's capacity to invest in growth.
After deducting 137 million euro in exceptional expenses related to these
Adaptation and Simplification measures, compared to 37 million euro in First
Half Fiscal 2016, operating profit amounted to 586 million euro against 621
million euro in First Half Fiscal 2016.
All operating profit amounts in the rest of this report are stated excluding
exceptional expenses.
Operating profit by activity[1]
+---------------------------------------------------------------------------------------
| Change
| in
| Operating Operating Change in Operating operating
| profit profit Operating margin margin
| First- First- profit First- (excluding
| Half Half Change in (excluding Half currency Change in
|(in millions of Fiscal Fiscal Operating currency Fiscal mix operating
|euro) 2017 2016 profit effect) 2017 effect) margin
+---------------------------------------------------------------------------------------
Business &
Administrations 217 222 -3.0% -1.4% 4.2% = =
Health Care &
Seniors 157 132 +18.8% +19.2% 6.3% +80 bps +80 bps
Education 251 233 +7.7% +6.7% 10.1% +70 bps +70 bps
On-site
Services 625 587 +6.1% +6.4% 6.1% +30 bps +30 bps
Benefits
& Rewards
Services 149 133 +12.9% +1.7% 32.7% -300 bps -110 bps
Corporate
expenses &
Intragroup
eliminations (51) (62)
|
|OPERATING
|PROFIT BEFORE
|EXCEPTIONAL
|EXPENSES 723 658 +9.7% +7.7% 6.8% +50 bps +60 bps
+----------------
[1] Before 137 million euro in exceptional expenses related to the Adaptation
and Simplification program in First Half Fiscal 2017 and 37 million euro in
First Half Fiscal 2016.
On-site Services margins grew 30 basis points led by productivity gains,
enhanced operating efficiency and more efficient purchasing. Much of these
improvements were linked to the numerous projects included in the Adaptation and
Simplification program. The performance by segment is as follows:
* Business & Administrations operating profit decreased by -1.4% excluding the
currency effect and the operating margin was flat. This stability was
achieved despite the decline in revenues and the Rio Tinto ramp-up this year
thanks to rigorous control of SG&A and numerous initiatives linked to the
Adaptation and Simplification program.
* In Health Care & Seniors the +19.2 % growth in operating profit and +80
basis points increase in operating margin, excluding currency effects were
attributable to growth in revenues, reduction in SG&A, improved onsite
efficiency, the benefits of strong cross-selling in the UK and North America
and favorable comparable base.
* In Education, operating profit rose by +6.7% excluding the currency effect
and the margin increased +70 basis points. This strong performance despite
the lack of organic growth was due to strict control of SG&A, labor
productivity and the full year effect of operational performance improvement
of a few key contracts.
In Benefits & Rewards Services, the operating profit was up 12.9% boosted by a
very significant recovery in the Brazilian Real. Excluding this currency
contribution, operating profit was up 1.7%. As a result, margins were down 110
basis points on a published basis and 300 basis points on a constant currency
basis. About two thirds of the decline in the margin is due to a mix effect
linked to the exceptionally strong Incentive and Recognition growth in the USA
and UK during the First Half Fiscal 2017, as well as the first time
consolidation of Inspirus. The rest is linked to accelerated card migration
investments and the cost of developing the new Mobility and Expense management
business. For the traditional meal and food business, margins remain solid at
their current high levels.
Group net profit
Operating Profit (after exceptional expenses of 137 million euros) was 586
million euros against 621 million euro (after 37 million euro of exceptional
expenses) in the same period last year.
Net financial expense increased by 7 million euro to 56 million euro for the
First Half Fiscal 2017.
On the one hand, net borrowing costs fell 4 million euro to 41 million euro,
resulting from a lower average cost of debt at 2.1% in First Half Fiscal 2017.
This reduction is due to the positive effect of the negative interest rates on
the commercial paper, and the benefits of the August to September 2016 debt
restructuring. Excluding the commercial paper, the average cost of long term
debt is 2.6% (vs. 3.2% at August 31, 2016).
On the other hand, an 11 million euro indemnity was included in other financial
charges for the early redemption of the last portion of the US private placement
debt.
The effective tax rate fell to 32.6% from 35.5% in First Half Fiscal 2016 due to
the one-off recognition of a tax rebate on past European subsidiary dividend
taxes, booking of deferred tax assets and some reversal of tax provisions.
The share of profit of other companies consolidated by the equity method was
2 million euro against 5 million euro the previous year. Profit attributed to
non-controlling interests was at 12 million euro against 16 million euro the
previous year.
As a result, Group net profit was 348 million euro, down -3.1%. Group net profit
before non-recurring items (net of taxes) amounted to 447 million euro, an
increase of 16.6% at current rates or +14.7% excluding the currency effect. Non-
recurring items consisted of the exceptional expenses of 137 million euro and
the debt reimbursement indemnity of 11 million euro, together 99 million euro
net of tax.
Earnings per share before non-recurring items amounted to 2.98 euro, up +18.3%
relative to the previous year.
After non-recurring items, EPS was 2.32 euro, down -1.7%. The small accretion
relative to the change in net profit (-3.1%) is due to the reduction of the
average share count by 1.4% to 149.9 million shares from First Half 2016 to
First Half Fiscal 2017. This is the result of the share buy-back programs in
Fiscal 2016 and Fiscal 2017 somewhat offset by a small reduction in treasury
share held for the employee free share plans.
Consolidated financial position
Cash flows
Cash flows for the period were as follows:
First-Half Fiscal First-Half Fiscal
(in millions of euro) 2017 2016
Operating cash flow 523 587
Change in working capital
excluding change
in BRS financial assets* (388) (357)
Net capital expenditure (105) (176)
Free cash flow 30 54
Net acquisitions (165) (39)
Share buy-backs (to end February) (316) (193)
Dividends paid to shareholders (359) (335)
Other changes in shareholders'
equity (including change
in financial assets[1], scope and
exchange rates) (17) (70)
(Increase)/decrease in net debt (827) (583)
* Excluding change in financial assets in Benefits & Rewards of ?(38)m in H1'17
and ?43m in H1'16. Total Change in working capital as reported in Consolidated
accounts: H1'17 of ?(426)m = ?(388)m + ?(38)m and H1'16 of ?(314)m = ?(357)m +
?43m
[1] Including Sodexo Ventures investments in Wynd, Neo-Nomade and Life-Dojo
The decrease in Operating cash flow reflects the decline in the operating profit
due to the high level of exceptional expenses during the period. The
deterioration in working capital is principally due to a seasonal impact and
some slowness in client payments. Net capital expenditure and client
investments, at 105 million euro, was significantly down on the previous year
which had been impacted by the payment of the same Rugby World Cup event
license. As a result, operating free cash flow amounted to 30 million euro,
slightly down on the 54 million euro generated in First Half Fiscal 2016.
M&A activity increased significantly during the period resulting in a net amount
spent of 165 million euro. Full detail of these acquisitions is provided in the
"Growth investment" section. The combination of the investments, the 300 million
euro share buy-back program, announced in November 2016 and completed in
February 2017, and the annual dividend payment of 359 million euro, resulted in
an increase in net debt of 827 million euro.
Acquisitions for the period
During First Half Fiscal 2017, the Group accelerated its M&A activity with
acquisitions in several regions and activities. The revenue contribution of
these acquisitions during the First Half was 35 million euro. The total net
spend during the period was 165 million euro.
Sodexo Ventures also purchased minority stakes in three start-ups as part of the
Sodexo Ventures fund.
Share buy-back programs
On November 19, 2016, Sodexo announced a 300 million euro share buy-back
program, for the second consecutive year, reflecting the particularly strong
balance sheet at Fiscal 2016 year-end and the Board's confidence in the future
of the Group. The share buy-backs were completed in February 2017 with the
purchase of 2,910,690 shares, or 1.9% of the capital, at an average share price
of 103.07?. As a result, the average share count for First Half Fiscal 2017 is
149,936,978 shares, down 1.4% relative to the First Half Fiscal 2016.
Condensed financial position
Condensed consolidated statement of financial position
at February 28, 2017
+-------------+-----------+-----------+-+----------------+----------+----------+
|(in millions | February| February| | | February| February|
|of euro) | 28, 2017| 29, 2016| | | 28, 2017| 29, 2016|
+-------------+-----------+-----------+-+----------------+----------+----------+
|Non-current | 7,916| 7,357| |Shareholders' | 3,574| 3,562|
|assets | | | |equity | | |
+-------------+-----------+-----------+-+----------------+----------+----------+
|Current | | | | | | |
|assets | 5,532| 4,855| |Non-controlling | 39| 45|
|excluding | | | |interests | | |
|cash | | | | | | |
+-------------+-----------+-----------+-+----------------+----------+----------+
|Restricted | | | |Non-current | | |
|cash Benefits| 486| 448| |liabilities | 4,227| 3,698|
|& Rewards | | | | | | |
+-------------+-----------+-----------+-+----------------+----------+----------+
|Financial | | | | | | |
|assets | 376| 241| |Current | 8,168| 6,820|
|Benefits & | | | |liabilities | | |
|Rewards | | | | | | |
+-------------+-----------+-----------+-+----------------+----------+----------+
|Cash | 1,698| 1,224| | | | |
+-------------+-----------+-----------+-+----------------+----------+----------+
Total |
Total assets 16,008 14,125 liabilities and 16,008 14,125|
shareholders' |
equity |
| | +----------+
|Gross borrowings| 3,758| 2,800|
--+----------------+----------+----------+
|Net debt | 1,234| 923|
--+----------------+----------+----------+
|Gearing ratio | 34%| 26%|
--+----------------+----------+----------+
|Net debt Ratio | 0.9| 0.6|
--+----------------+----------+----------+
As of February 28, 2017, net debt was 1,234 million euro, representing 34% of
shareholders' equity, compared to 11% at the end of Fiscal 2016 and to 26% as of
February 29, 2016. Despite the seasonally high level of debt at the end of the
first half of the year, the Group's financial position remains very strong. At
the end of the First Half Fiscal 2017, the Group had unused lines of credit
totaling 1.2 billion euro.
The increase in gross borrowings was due to the effects of the August to
September 2016 debt restructuring with the early redemption of some US private
placement debt at high interest rates and the issue of a 600 million euro-bond
issue at a coupon of 0.75%.
The operating cash position (which includes Benefits & Rewards Services cash
investments and restricted cash) totaled ?2,524 million, of which ?1,847 million
related to Benefits & Rewards Services, including 486 million euro of restricted
cash and 376 million euro of financial assets (of more than 3 months).
Subsequent events
Beside the acquisitions following the First Half Fiscal 2017 closing as
mentioned in the section "Growth investment", no other significant event has
been identified since the closing of the interim accounts.
Related party transactions
The main related party transactions are presented in Notes 6.4.7 and 6.4.8 to
the consolidated financial statements.
Main risks and uncertainties
The main risks and uncertainties are not materially different from those
described in the "Risk Factors" section of the Fiscal 2016 Registration
Document, filed with the Autorité des Marchés Financiers (AMF) on November
21, 2016, except for the tax litigation in Brazil mentioned in the section
6.4.8 "Other disclosures" of the First Half Fiscal 2017 consolidated financial
statement.
Alternative Performance Measures Definitions
Exceptional expenses
Exceptional expenses are the costs of implementation of the Adaptation and
Simplification program and Operational Efficiency Program (?137m in H1 2017,
?37m in H1 2016 and ?108m in Fiscal 2016).
Free cash flow
Please refer to Consolidated Financial position.
Growth excluding currency effect
Change excluding currency effect calculated converting H1 2017 figures at FY
2016 rates, except for countries with hyperinflationary economies. As a result
for Venezuelan Bolivar, H1 2017 and H1 2016 figures in VEF have been converted
at the exchange rate of USD 1 = VEF 700 vs. VEF 645 for FY 2016.
Issue volume
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.
Net debt
Group gross borrowings at the balance sheet less operating cash.
Net profit before non-recurring items
Reported Net Profit excluding non-recurring items net of taxes (respectively
?92m for exceptional expenses and ?7m for early debt reimbursement indemnity in
H1 2017, and ?24m for exceptional expenses in H1 2016).
Non-recurring items
For H1 2017: exceptional expenses of ?137m related to the Adaptation and
Simplification program in operating profit and ?11m of early debt reimbursement
indemnity in financial expense, both net of taxes (respectively ?92m and ?7m).
For H1 2016 it concerns exceptional expenses of ?37m (or ?24m net of taxes)
related to the Adaptation and Simplification program.
Operating margin
Operating profit divided by Revenues
Operating margin before exceptional expenses
Operating profit before exceptional expenses divided by Revenues
Operating margin at constant rate
Margin calculated converting H1 2017 figures at FY 2016 rates, except for
countries with hyperinflationary economies.
As a result for Venezuelan Bolivar, H1 2017 and H1 2016 figures in VEF have been
converted at the exchange rate of USD 1 = VEF 700 vs. VEF 645 for FY 2016.
Operating profit before exceptional expenses
Reported Operating Profit excluding exceptional expenses (?137m in H1 2017, ?37m
in H1 2016 and ?108m in Fiscal 2016).
Organic growth
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 and divestments, as follows:
* for businesses acquired during the current period, revenue generated since
the acquisition date is excluded from the organic growth calculation;
* for businesses acquired during the prior fiscal year, revenue generated
during the current period up until the first anniversary date of the
acquisition is excluded;
* for businesses divested during the prior fiscal year, revenue generated in
the comparative period of the prior fiscal year until the divestment date is
excluded;
* for businesses divested during the current fiscal year, revenue generated in
the period commencing 12 months before the divestment date up to the end of
the comparative period of the prior fiscal year is excluded.
For countries with hyperinflationary economies all figures are converted at the
latest closing rate for both periods.
As a result, for the calculation of organic growth, Benefits & Rewards figures
for H1 2017 and H1 2016 in Venezuelan Bolivar, have been converted at the
exchange rate of USD 1 = VEF 700 vs. VEF 645 for FY 2016.
Financial Ratios Definitions
H1 2017 H1 2016
Gross borrowings(1) - operating cash(2)
Gearing ratio 34% 26%
Shareholders' equity
and non-controlling interests
Gross borrowings(1) - operating cash(2)
Net debt ratio 0.9 0.6
Earnings before Interest, Taxes, Depreciation
and Amortization (EBITDA)(3)
Financial Ratios Reconciliation:
H1 2017 H1 2016
| | | | |
| |Non-current borrowings | 3,079| 2,753|
| +------------------------------+-------+-------+
| |+ current borrowings excluding| | |
| |overdrafts | 685| 51|
|(1) Gross borrowings +------------------------------+-------+-------+
| |- derivative financial | | |
| |instruments | | |
| |recognized as assets | (6)| (4)|
| +------------------------------+-------+-------+
| | | 3,758| 2,800|
+-------------------------------+------------------------------+-------+-------+
| |Cash and cash equivalents | 1,698| 1,224|
| +------------------------------+-------+-------+
| |+ financial assets related to | | |
| |the | | |
|(2) Operating cash |Benefits and Rewards Services | | |
| |activity | 862| 689|
| +------------------------------+-------+-------+
| |- bank overdrafts | (36)| (36)|
| +------------------------------+-------+-------+
| | | 2,524| 1,877|
+-------------------------------+------------------------------+-------+-------+
| |Operating profit (last 12 | | |
| |months) | 1,060| 1,144|
|(3) Earnings before Interest, +------------------------------+-------+-------+
|Taxes, Depreciation and |+ depreciation and | | |
|Amortization (EBITDA)* |amortization (last 12 months) | 272| 324|
| +------------------------------+-------+-------+
| | | 1,332| 1,468|
+-------------------------------+------------------------------+-------+-------+
* EBITDA including exceptional expenses (?37 million in H1'16, ?71 million in
H2'16 and ?137 million in H1'17)
Currency effect
Sodexo operates in 80 countries. The percentage of total revenues and operating
profit denominated in the main currencies are as follows:
% of Operating profit before exceptional
(H1'17) % of revenues expenses
U.S. dollar 44% 54%
Euro 25% 10%
UK pound sterling 8% 6%
Brazilian real 5% 16%
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.
Exchange rate fluctuations do not generate operational risks, because each
subsidiary bills its revenues and incurs its expenses in the same currency.
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