Earnings Call: H2 2019

Nov 7, 2019

And press releases are available on sodexo.com, and you'll be able to access this call on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without our consent. Don't hesitate to get back to Sarah and I at the IR team if you have any further questions after the call. I remind you that the next announcement will be the 1st quarter figures on January 9, 2020. And I now turn the call over to Denis Nashrel. Denis? Thank you, Virginia, and good morning to all of you. Welcome to our fiscal 2019 results announcements. And the first thing that I want to tell you is that Sodexo is in better shape today. The good news is that organic growth has picked up and our cash flow has been better than expected. We've also advanced on our responsibility agenda with the launch of our battle against waste and we are progressing very fast with providing healthier and more biodiverse menu options. And I'm confident that renewed discipline is progressively coming back into the organization, which in turn is raising internal confidence even though we still have some challenges. So now for the highlights of the year, on Slide 4, you'll see that our revenues grew 7.6%. This was helped by positive currency effects and the ongoing impact of the Centerplate acquisition. The really good news is that organic growth came out at 3.6%. The first time we are over 3% since 2012. While this is not yet a level that I consider satisfactory, it's encouraging, and demonstrates that our action plan is delivering results. This is driven by on-site services, up 3.3%. With all segments improving. Most notably, the recovery is coming through in North America, which is at plus 1.8% of organic growth. And excluding North America, organic growth came out at 4.6%. Benefits and rewards is up 8.5% with strong growth in all regions, despite a slowdown in Brazil in Q4. Now on Slide 5, as I said earlier, we're still not where we want to be. Because net new business was only neutral this year. During fiscal 2019, retention was down 50 basis points at 93.3%. This was impacted by our decision to exit a large health care contract in Norham, which has always been difficult and was not going to be renewed at the right level of profitability. Excluding this one last contract, retention would have been up 10 basis points. All segments and regions were up or stable, except Healthcare and North America. In terms of retention. Business development is down 50 basis points at 6.3% because much stricter discipline on the bidding process is being implemented so that when contract approvals come up to Mark and myself, there are generally much more solid opportunities. We are absolutely determined to improve the quality of what we sign, even if it may have a short term effect on signings as we rebuild the pipeline in a more targeted and disciplined manner. On the other hand, comparable unit growth was very solid at 3.1% against 2.6% last year. Excluding the negative overall impacts of 20 basis points from first time IFRS 15 implementation, the underlying trend was 3.3%. This represents some solid cross selling and wage inflation pass through particularly in North America. The good news is that on top of a very successful Rugby World Cup last month, We've also been awarded the 2020 Summer Olympics Old Invitality contract which means that with these 2 major sports events in Japan, our comparable unit growth in fiscal 2020 will be boosted by 100 you will see that enhanced discipline is visible in both the way we sell and the way we operate. NTIR, the lost time incident rate, is a good indicator of our operations. It has fallen by a further 11.1% fiscal year 2019 to 0.86 for the group as a whole. We know we can still do much better going forward because our best segment energy and resources is at 0.1 There is no doubt that lowering LTR represents everyday discipline to ensure that teams are working in an ever safer environment, understanding what they have to do and having the right equipment to do the job. As far as our sales are concerned, it's interesting to note that the gross profit retention is at 95% versus the sales retention at 93.3 percent and that our margins are 20 basis points higher on the new contract signed than in previous years, which reflects the enhanced discipline through the organization. In corporate services, a lot of work has been done to rebalance the portfolio of the pipeline by boosting smaller local contracts which tend to ramp up quickly and profitably. They currently stand at 80% of the pipeline. On Slide 7, you'll see that underlying operating profit came out stable at 5.5%. And this is in line with expectations at the lower end of the are stable, and that's on Slide 8. As all the productivity generated by the business, has been used to invest in actions to boost We see positive signs in several segments and regions. However, further work is required to ensure consistency in labor management across the company. On the supply management side, we are also benefiting from better take up of drive our internet food management system, which is now being used on more than a quarter of all our sites around the world. This helps to deliver our menu strategy with menu development standards for improved quality, consistency, costing and speak to market. This is helping us to grow the proportion of healthier dishes in our menus and ensuring fast rollout of our new group retail offers and systems. So this is for on-site productivity. Now let me talk about fit for the future. Our program focused on reducing SG And A, and this program is progressing. It's helping us to enhance efficiency of our organization and results are coming through into the figures Thanks too, for example, more streamlined back offices with our European Accounting Center in portal generating savings in the UK and the Netherlands and soon in Germany. We are also simplifying some of our organizations in certain smaller countries in Asia and Eastern Europe by taking out excess segmentation or just existing countries We'll talk more about this later. We've also done a substantial review of all our real estate, around the group and adjustments are being made. And this efficiency is then being re injected back into growth. Some of the projects are long term, like the work we're doing on our brand strategy. Some of it has immediate impact by reducing our prices in certain with investments in more innovative and consumer centric food offers or digital marketing or better sales targeting tools. We are continuing to invest in benefits and rewards in the digitalization of the offers and even more importantly in our back office support systems. As an example, the recent investment in Zita will accelerate the transfer of this excellent Indian platform technology into our other markets as a consequence, the margins are stable as all the productivity generated by the business has been used to invest in actions to boost growth in line with our focus on growth objective. And before Mark goes over all these in detail in a few minutes, I'd like I'd just like to say that our financials are respectively at 1000000 and 1000000. And that is despite a much higher level of net CapEx this year, mainly in the education and sports and leisure segments. Net acquisitions amount to 1,000,000. We have acquired 2 food specialists in Switzerland on the high end and in the UK, in the education market. Have also accelerated our investments in home care and child care, and I'll come back to this a bit later in the presentation. And despite this, our net debt ratio has fallen Let me now give a quick perspective on two contracts that we are really proud of as we move to slide 10. First, our contracts with the Inditex Logistics Center in Spain, our partnership with Inditex started a year ago as we build our offer together with a clear focus on healthy and responsible diet. We are improving the well-being of employees. We are reducing the impact on the environment and natural resources, and working with small local producers around the site. We have really built a unique 360 degree dining concept, The restaurants serves more than 1600 meals a day in this logistics center in Northern Spain with 65% of the products coming from local suppliers, including more than 40 organic products. By sourcing local products, we reduced the impact of logistics as well as packaging. The relationships developed with a local are really strong to the point that we now work together on the seasonal planning of their crops, and we design our menus accordingly. We also work to promote native varieties of vegetables. And the fish comes fresh every day from a fish market at the nearby nearby port. We designed a plastic free restaurant, where plastic bottles and soda cans have been removed and filtered water is served from the tap. Edible leftovers are donated to an animal shelter, while the non edible leftovers are converted into compost. And given to a local ecological greenhouse. The packaging used for takeaway is compostable to, and all that remains is transformed into biogas. Our next challenge for this year is to become fully a 0 waste restaurant. As currently only 2.5% of the waste is non recyclable. And in just one year, this restaurant has obtained the lead gold certification for its on-site energy efficiency and integration of renewable energy. And a few months ago, we opened a second restaurant with the same offer for this client. Now Slide 11 is another great example of our work in Lima last August when we supported the organization of the Pan American and Parra Pan American games in Lima, Peru, as the official supplier for food services. This came after the success of our first Panham game contracts in Canada in 2015. For 10 weeks, more than 600 Sodexo employees were mobilized to provide food services for about 10,000 people, including 6700 athletes from 40 one countries of the Americas, out of a huge purpose built tent that you can see on the slide. Our Sodexo teams delivered 6 food services daily 24,000 meals each day, 700,000 meals throw the entire competition, demonstrating the expertise we have in serving and operating to the highest quality standard offering the best of Parisian cuisine while providing for the requirements of an asset diet. During these games, standardized processes were implemented throughout the chain from the evaluation of suppliers controlling distribution of raw materials, processing and tracking to ensure that the food was safe of the right level of quality and met regulatory requirements. Our offer was also designed to be environmentally friendly. More than 3,000,000 biodegradable and compostable paper pulp dishes, plates and bowls. Were used and more than billion recyclable glasses. Our teams in Peru designed an innovative process for the event, the tech defied kitchen to provide our clients with a faster more efficient, safe and not polluting mass service. This service has now been implemented in other kitchens we are really proud of the work. So now I'll show these great examples. Over to you, Mark, for the details of our financial performance. Thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning. As usual, you find the ASEAN native performance leisure's definition in Appendix 16, along with other information to help you with your modeling. I also remind you that this appendices are not translated into French, so please go to the English version for them. So now let's start with the performance in the P and L on Slide 13. This has been a better year for the P and L relative to last year. Currency translation had a positive impact this year and it was also helped by the contribution of acquisition. Revenue growth was therefore 7.6 percent and total revenues reached nearly 1,000,000,000. And dollar and operating profit at 1,000,000,000 was up 6% excluding currencies. The underlying operating profit margin was stable at 5 point This is in line with our adjusted 1000000, 1000000 higher than last year. I shall come back to this in the next slide. Financial expenses increased by 1000000. I remind you that last year, the numbers was helped by 1,000,000 of interest payments on the reimbursement up by 10 basis points at 2.6 percent due to new long term financing during the year and a reduction in use of the euro treasury bill finance seeing at negative rates. The effective tax rate was 29%. This rate now reflects the full effect of the lower rates in the UAC. Because of all of this, the underlying net profit was 1,000,000, up 7.8% excluding the currency impact. The earnings per share benefited from a lower average share count due to the share buyback the previous year. As a result, underlying EPS was up 10.1%. Net profit was 1,000,000, up 2.2% and EPS was up 3.6%. Now I would like to come back on the other income and expenses. Restructuring costs were 1,000,000. As we said, we would, we have continue to simplify our organization. You should continue to model about 1,000,000 to 1,000,000 of restructuring spend for the coming year. Losses related to perimeter closures were Nil. In fact, this year, we generated a small gain on disposal on the closure of some activities. I remind you that over the last couple of years, we have reduced a number of countries in which we are present from around 80 to 67 today. Amortization and impairment of acquired intangible assets was more important than the previous year due to some intangible write offs. We expect this to come back to around 1,000,000 in fiscal 2020. As a result, Other operating income and expenses were 1,000,000 more than in the previous year. Operating cash flow is flat because last year was boosted by the tax reimbursement and interest compensation from the French based on dividend tax. The positive inflow of 1,000,000 in working capital is strong, but lower than the record variation of last year. It benefited from a significant positive working capital inflow due to Sports Evans in Japan. Net CapEx is, as expected, 1,000,000 higher at 1000000 or 1.9 percent of revenues versus only 1.4% of revenues last year. This was mostly due to more investments in education and in sports and relations. So free cash flow reached 1,000,000. M and A spend totaled 1,000,000 versus the particularly high level last year linked to Centerplate acquisition. And there were no share buybacks this year. So with a stable outflow for dividends, the group reduced its debt by EUR 47,000,000. The increase in CapEx is linked to some new or renewed education contract in North America and in Europe, as well as to the substantial sports and laser renewal program, which traditionally requires more CapEx to sell than most other segments. The investments in BRS also continue to be significant at 6.5 percent of revenues to ensure the digital transition of the activity. As a result of the very strong free cash flow, cash conversion reached 136% compared to the record 165% in the previous year and still well above fiscal 2017 at 123%. This performance was supported by the Japan Sports Event and in particular, the early hospitality packages sales of the Rugby World Cup up to the end of August, while the efforts are held in fiscal year 2020. So with net debt declining by EUR 47,000,000 to EUR 1,213,000,000, our net debt to EBITDA ratio is just under our target range of 1% to 2% and gearing has fallen to 27% helped by the revaluation of the shares held in Belon essay. As we mentioned on our assets by revaluing our stake in Belo E. Which was traditionally carried at purchase cost and is currently valued at 1,000,000. You will find more details in Appendix 9, slide 57. As you know, we should also be implementing IFRS 16 as from September 1, 2019. While we do not expect to have any impact on free cash flow and on net cash flow and only a limited impact on the underlying operating profit, I confirmed that our net debt is increasing by 1,000,000,000, which takes our gearing ratio to 54% 27%. And you will find this in detail in appendix 11, slide 5960. At the end of fiscal 2019, the group had an operating cash position of eur 2,866,000,000 of which nearly 2,000,000,000 is linked to the BRs activity, including restricted cash for 1,000,000 and financial assets for 1,000,000. I remind you that we renegotiated our revolving credit facilities this year, which means that we now have a total of 1,000,000,000 of back up financings available. As part of the renewal of this credit facility, we have indexed the margin pay to our performance on weight. So depending on how we perform on weight, the margin paid will vary by plus or minus 2 basis points. In Slide 19, you can see that the dividend to be proposed by the board to shareholders 2.9 up 5.5% on last year compared to the increase in EPS of 3.6% to reflect the strong cash performance and its confidence in the group strategy. As a result, the payout ratio is 55% of underlying EPS and 64% of published EPS. So now let's go on to the review of operations. Let's start with group revenues on Slide 21. This year, revenue was up 7.6% to reach 1,000,000,000. There was a 1.5 percent positive contribution from acquisitions, including the ongoing effect of the consolidation of Centerplate as well as the smaller acquisition done this year. As a result, organic growth is 3.6%, the best rate of growth for 7 years. On-site services were up 3.3% and benefits and rewards was up 8.5%. So let's look firstly at the on-site business. The good news is that all regions are growing. North America is back to growth at 1.8%. Outside North America, Europe is up 3.2% and our activities in the developed developing economies are up 7 9%. As a result, the growth outside North America is 4.6%. Now if we go into the segments, starting with business and administration on Slide 24, Organic growth was up 3.5%. In North America, organic growth was up 1.9%. Corporate services was strong, driven by same site sales growth, new contract and solid retention, compensating weaker organic growth in other segments. Government resin agency, sell side sales growth was impacted negatively by the renewal of the U. S. Marine Corps on right. However, the team has worked hard to improve the offer, increase efficiency and renegotiate with the clients when necessary. And the results are coming through month by month. In sports and leisure, organic growth was negative due to the planned exit of some less profitable contracts. The extent of the substitutional contract renewal program this year mobilized the sales team, resulting in low levels of new development. The pipeline is currently looking better. Energy And Resources remained volatile quarter by quarter, It was particularly impacted in Q1 by the top comparable days due to a large one off project in Q1 fiscal 2018. The trends appear better at the end of the year. In Europe, sales were up 2.5% organically, Corporate Services continued to generate solid growth due to cross selling with an easier comparative base in Benelux and strong growth in 1000 and in Europe. In sports and leisure, the summer season in Paris was better than expected, partially compensating a contract loss in France. Government and agencies improved quarter by quarter during the year, especially in the UK, as the effect of the Army contract losses subsidies progressively. Energy And Resources turned positive in the second half with some new projects being signed up. At 6.8%, organic revenue growth remained strong in Africa, Asia, Australia, LatAm and Middle East despite an ever stronger comparable base. This reflects strong growth in same site sales and new business in corporate services everywhere and progressive improvement quarter by quarter in energy and resources. We also had the impact of the successful Panham games in August in Peru. Moving on to Healthcare in Slide 25, organic growth was 2.1%. In North America, organic growth was 1.5%. The management team is absolutely focused on improving execution and productivity, generating more cross selling on existing contracts, passing strong inflation and putting more discipline into the sales process. This impacted retention with the loss of several health care contracts, including one particular large contract for which profitability has been an issue for a long time. This contract started to fall out of revenues in the fourth quarter, which will continue to do so in the first half of fiscal twenty twenty. Development has also been slow due to a much more selective process. However, the contracts signed are more robust. The pipeline is being rebuilt progressively integrating this more selective process. Seniors organic growth improved progressively quarter by quarter after the loss of a significant contract in the first quarter. In Europe, organic growth was 0.9%. Hospitals and seniors have both been impacted by a lack of development opportunities impairing growth in most markets. On the other hand, same site sales growth was strong, particularly in Northern Europe. The pipeline is showing signs of improvement. Despite an ever more challenging comparable base, Organic growth in Africa, Asia, Australia, LatAm and Middle East has remained strong all year at plus 17.4%. New contract start ups and strong send side sales growth continues in Brazil and Asia as clients are seeking to outsource for first time in order to benefit from the group's expertise. Development rate has slowed on slightly during the year, but remains well over the average for segment. Education was up 4.7% and much better than last year. North America turned around up 2.2% or 3.6% excluding the IFRS 15 impact. And just to be clear on this IFRS impact, the implementation of IFRS 15 in fiscal 2019 has had a negative impact of 20 bps on fiscal 2019 group organic growth. However, this is made up of a significant negative impact in education in North America here 140 basis points and the lesser positive impact disseminated broadly around the other segments and regions. So back to North America Education. While net new business from last year was neutral, same site sales growth has been solid, helped by inflation pass through, solid impact from extra working days and solid summer works. The selling season in fiscal 2019 remained broadly neutral with higher retention but slower development. So we are starting fiscal 2020 with neutral new business again. In Europe, organic growth was +12 percent, driven by solid contract wins in the UK last year and the startup in January of this year of the new school contract in the Evlyn department. The Evlyn contract is the biggest school contract ever signed in France, combining both food and facilities management services. Since it started up in January, it will continue to contribute to growth until December, for the 1st 4 months of fiscal 2020. In Africa, Asia, Australia, Latin America and the Middle East, organic growth remained high at +12.3 percent despite the never higher comparable base. There were several new school and university contracts started up in China, Singapore and India. On-site services underlying operating profit was up 3.9% at constant rates so that the margin was flat at 5% relative to the previous year. Business And Administration's underlying operating profit increased by 7.1% and the operating margin was stable at 4.2%. As expected, the productivity generated by the business during the year was reinjected to accelerate growth. The timing differences between investment and productivity gains visible in the first half figures we are covered as expected, helped by some clients for negotiation to establish better levels of profitability in some of the launch contracts, and in particular for the US Marine Corps margin was respectively plus 6.3 percent and plus 20 basis points, reflecting the enhanced discipline of the new team particularly in North America as well as better management of staffing and food costs and generally more rigorous follow-up of the step operational KPIs. In education, underlying operating sale by 5.7% and the margin by 70 basis points due to previous year churn, particularly in North America, and the startup of many new contracts. The first half was also impacted by strikes in France, North American wage inflation has been passed through. However, wage inflation has continued in fiscal 2019 absorbing most of the productivity achieved during the year. Now let's move on to benefits and rewards performance. Benefits and rewards services revenue amounted to 1,000,000, up 4.9%. Year on year. Excluding the negative currency impact of 3.7 percent due principally to the weakness of the Brazilian reais and the Turkish lira, Organic growth in revenue was strong at 8.5 percent with a very 1st, very strong 1st 9 months and then a slowdown in Q4 at 5.2%, against the higher comparable base in the first quarter of the previous year. Employee Benefits revenues were up 9.4 percent organically compared to an organic growth in issue volume of 7.1 percent. In Brazil, growth was strong in the first half, slowing down in the fourth quarter, particularly due to the strong comparable base the business environment, which became progressively more difficult, growth was strong in Europe. Services diverse indication was up 5% organically or 18.7% excluding some portfolio rationalization in incentive and recognition. Resulting from strong double digit growth in mobility and expand and rapid development in corporate health and wellness offers. In Europe, Asia and USA organic growth in revenues remained strong at 8.6%. This performance is due to a solid performance in Western Europe, double digit growth in Eastern And Southern Europe and Turkey. In the nontraditional business, Raidu, the end to end travel and expense management system is growing very strongly as are in the corporate health and wellness offers. Organic growth in Latin America was 8.3%, reflecting strong growth in activity, particularly in the first half of the year, following on from the strong pickup in Brazil in the third quarter of fiscal 'eighteen. Growth slowed down in the 1st quarter, due to the higher comparable base. Growth in Mexico and Chile remained very solid. Operating revenues were up 8.4% with solid growth in Western Europe, double digit growth in Eastern And Southern Europe and strong growth in Latin America. Financial revenues were up 9.1% as a result of continued volume growth across the region this year and high interest rates in Turkey, Czech Republic and Romania. In Romania, we also had an exceptionally high float due to high insurance at the end of the previous fiscal year. Gross was slower in the 4th quarter due to the decline in Brazilian interest rates. On slide 34, the underlying operating profit of PRS was up 12.7% at constant rate and 5.7% at current rates. As a result, the margin is increased by 20 bps 31% and by 110 basis points, excluding the currency effect. Thank you for your attention. I now hand you back to Denis who's going to cover the new investment in PHS, the strategic agenda and the outlook. Thank you, Mark, and hello again. So let's move to slide 36 because I wanted to touch base with you on our personal and home services. About 10 years ago, encouraged by our care belonging, we identified the childcare in the home care markets as interesting because they provide a quality of life value proposition in the continuum of our activities. And they represent a huge market potential. These markets benefit from several major trends, democratic shifts, demographic shifts, aging populations, the organization, emerging middle class, etcetera. And therefore, they are expected to be able to generate high single digit growth going forward. Home Care is currently in EUR 220,000,000 revenue business for us today, with multiplied sales by 7 in the last five We're currently present in 6 major countries, and the business is accretive in terms of margin We strongly believe that this In Chat Care, we're still starting out on the development path. Our annualized revenue is 1,000,000, and we have tripled that in the last 5 years. We currently have 285 childcare centers in three countries, and the business has reached group margins. We are used to managing caring businesses, knowing how to recruit and retain our employees for the long term. Through training and internal promotion. By widening our scope, we offer more opportunities for our employees to expand their competencies. And in both home care and child care, we've reached a critical mass and the businesses are absolutely aligned with our quality of life purpose and represent strong growth opportunities. On Slide 37, you'll see that we've started to build up our businesses back in 2009, and we have accelerated our developments with the acquisition this year alone of Cres De France, doubling our, childcare capacity and bringing us up to top 3 level in France. Allian Stoffel, with whom we've entered the German childcare market. Also, with the Good Care company, which strengthens our position in the UK Home Care market. Domesil Plus, strengthening our position in the French home care market, PRONAP and PRIMA OSOG with whom we've entered, respectively, the Brazilian and the Nordics region, both of which have enormous potential for the very long term. And finally, active global with whom we've entered the Asian markets, with, in particular, a strong position in Singapore, Shanghai and Hong Kong. We are positioned in both markets principally in the private sector, where a large part of the services is financed by private pay. Either by the individual or the family or the company in which the individual works. We are really excited by this opportunity to grow organically and through acquisitions in these highly fragmented businesses. Now let's turn to our focus on growth strategic agenda on Slide 39, and we'll go on each of the 4 pillars with some examples. First, being client and consumer centric. For this quarter, I wanted to talk about what our benefits and what services activity is doing in India. With Zeta to provide multi channel services. We've been using the Zeta technology for our digital transformation since 2018, And this summer, we signed 2 deals with Zita, firstly, to merge our Indian voucher businesses together, And secondly, Solixo took a stake in the Zeta Holding company to back the Zeta technology. So let me explain the offer. The solid sulfur benefit path a unique solution that works on 2 different networks, Sodexo's proprietary mill network and rupee's open loop network for a multitude of entry benefits. Got to know that Rupay is a leading scheme in India like Mastercard or Visa. The services that we provide include the customized offer for each client for its employees, as well as a merchant locator, multiple payments notes, and a marketplace for selected providers and partners. Select source consumers can check and consume the benefits offered on the Sodexo Zeta app. And currently, Sodexo Benefits in West India offers 12 major benefits. There is definitely strong demand for this product from clients and prospects, especially from the small and medium companies segments. And the model is already live in Vietnam and the Philippines and discussions are already well underway elsewhere around the world. Now slide 40 on enhancing operation efficiency. This year, we have moved forward on several fronts and particularly, we've continued to rationalize our country portfolio. We've now reduced our number of countries from 72 at the end of last year to 67 according to what we had said in the Capital Markets Day. As a reminder, we were present in 80 countries 2 years ago, and the work is ongoing. We've had 2 disposals and 3 closures with very little impact on revenues in bottom line. The important element is to simplify and focus our efforts on areas where we can grow the business profitably, and we will continue to do so. We've also moved forward on our step deployment This performance management framework has now been rolled out more extensively after the pilot phase. The standardized cloud based dashboards are available in 6 countries with 21 KPIs and will be available to 7500 sites by February 2020 and to more than 25,000 users by the summer of 2020. The tool is one lever, but the philosophy is the most important one as we are getting back to managing our business with operational KPIs. Now on Slide 41 and nurturing talent, there are several things that we've done this year, which I'm particularly satisfied with, and particularly around food. Our business is 70% food, and we have 40,000 chefs around the group. Food is at the heart of the quality of life. And good food done well has the power to do good in the world. So we are putting food back into the heart of everything we do. And so here are several key examples. The chef's academy has already engaged 2500 of our chefs with content from best in class practices across Olexo. With global culinary principles and techniques to define minimum presentation standards that have been perfected by chefs at Le Naught The idea is to ensure that all our chefs can be part of a culinary community within Sodexo where they can express their passion for food and acquired the tools to apply this to the business they run. And the Love of Food app is providing the structure for the I can tell you that the benefits in terms of raising food quality lowering operational costs and improving guest satisfaction on a global basis are a problem today. And another program, which I believe is particularly important, is the Ship exchange program, 54 of our executive chefs have created 2500 recipes and have visited 180 client sites in 14 countries to promote them. This is a way of celebrating success. Retaining the best talent and engaging chefs and their teams around the world. Now on Slide 42, I want to highlight the fact that our absolute responsibility as a food services company with a sustainable and inclusive business model is to find food waste. We've substantially stepped up the deployment of our game changing data driven food waste management program, which is called waste watched. Designed in collaboration with the American startup bin Pass. And this is a group wide initiative. We are targeting three thousand sites within this year to then accelerate thereafter the deployment of Westwatch around the group. At October 1, already 40% of the three thousand sites were being deployed, and there are some in every region around the world. The program reduces waste by 50% on average. But how do we do that? We empower people with knowledge and engage with our clients and consumers in the process to change behaviors and drive efficient innovation and accountability. And there are numerous ways to do so with new recipes, new ways of thinking about food, planning and cooking methods like batch cooking or using leftovers, turning bread crumbs into fruit crumbles or salad crunch, you name it. With new collaboration with suppliers also to better plan supply. Or better collaboration with clients to better understand the specific waste patterns. We are committed to publishing the figures from the program to be in a sense of urgency and raise accountability for us, but also for our clients and our consumers. Everyone is playing the game. And, Mark told you that he had just renewed a $1,300,000,000 revolving credit facility with a pricing adjustments mechanism based on Solic flows waste performance. Just to put a figure on this, our collective reach With what we do with our suppliers, our clients and consumers, is potentially reducing 50% of 117,000 metric tons of food. It's a massive endeavor, but we can do it. Let's be clear, preventing food waste is not only good for the planet, but also good for reducing our food costs and increasing client and consumer satisfaction. Now a quick focus on growth for North America, because North America is critical to our business, as you know, and our on-site business there is having a rough time in terms of growth. We've already done a lot, but it's going to take time to fully recover. If we look at the bottom left box, we've now rebuilt the leadership team in virtually all our segments particularly in health care and education. More than 2 thirds of that team of that team in North America has changed through a combination of internal promotions and external recruitments. We still have a lot of work to rebuild fully the talent pool in the different segments. We have also completely redesigned the compensation policy with a focus on individual performance and behaviors. Today, the no personal person in North America would have on 20% of his or her bonus on collective objectives, the remaining 80% being individual and mostly financial. This is a big change from the previous organization where individual objectives had been significantly reduced. Our program to accelerate growth has been focused on enhanced targeting to improve the hit rate and more web based tools which are then being brought together in a new marketing and sales distribution center. This should help the North American teams to improve their ability to engage with both existing clients and prospects. And develop more qualified leads to support the field sales teams to drive growth. We are also focusing the teams on accelerating the deployments of our end to end food management process, drive We are upgrading the labor management tools so as to manage labor more efficiently. We have reinforced the supply chain leadership team in order to better leverage our purchasing power. And the Centerplate synergies have been delivered in full according to the plan. Finally, I wanted to touch base on exciting developments in more healthy foods in North America. Last year, we launched to 100 plant based meals across the country. And this year, in February, we signed a future 50 projects, with WWS in the UK and Unilever to provide more sustainable dishes by massively diversifying the plants we using the kitchens every day, with 50 nutritious foods, such as phono, pumpkin flowers, cactus, and, you know, and many more that are healthy, full of flavor and more affordable than some of the plants we use today. These future 50 projects provide 40 recipes using the new ingredients and they are currently being rolled out in 5000 Sodexoscience, particularly in the U. S. And in August, we launched our new impossible burger, 100% plan based at more than 1500 U. S. Locations, particularly in Colleges, Universities, Healthcare and some corporate service accounts. And last month, we launched an initiative to bring local farmers and artisan food producers into 70 universities in 27 States. Things are moving fast on that front. I am convinced that these steps can have a big impact and we are committed to continue to innovate to be able to offer the best of food to our consumers. With the lightest impact on the environment. Favor of all the work that we're doing to accelerate growth going forward. And now let turn to our guidance this year on slide 45. For fiscal year 2020, where we have the impact, as we mentioned earlier, on the health care losses in North America. We also know that we have neutral net new business in education in North America. This is a bit of a drag on revenue growth. On the other hand, we have continued growth in developing economies and solid momentum in Europe. And we have the advantage of about 100 basis points from the Rugby World Cup and the Olympic Games to boost our Krueger before the North American growth fully takes off. Given all that, we expect organic growth of around 4% including sports events. As the cost reduction will feed the growth initiatives. Again, this year, we are expecting a stable underlying operating profit margin, excluding currency effects and pre IFRS 16 implementation. Midterm, We are aiming to deliver market leading growth. That the investment we are making, our current mix of activities and the strength of our geographic positioning provide us with ample opportunity to capture more than our share of the growth We are with our sustainable and increasing business model, we are convinced that Sodexo is capable of accelerating organic growth over the years to come and as organic growth increases, we will ensure so that the effect of our enhanced discipline and our efficiency gain can feed through Thank you for your attention. And now if you have any questions and I believe you have, Mark and I are here to take them. Thank you. Operator, could you take Your first question comes from the line of Jamie Rojo. Please go ahead. Your line is now open. Thanks. Good morning, everyone. Just had a few questions on the sales guidance. First of all, please. First of all, the retention rates and development, are both about 50 basis points lower than a year ago. I think I might have been saying both there's a measured out to year end. So doesn't that point to a weaker sales performance in 2020? Secondly, that development rates, the new contract wins being 50 basis points lower. That's despite CapEx being up quite sharply. So I'm sort of wondering what returns you're getting on that spend, please. Thirdly, you sound a little bit cautious on North America still. So are there any sort of big losses still to come there? And are you able to give us what you think North America will be within that 4% I guess it was 1.8 last year. So would it be better or worse than that? And if I can have a final one, any way you can break down the 100 basis points between the Rugby and the Olympics. So we can get a feeling for the cadence of sales growth through the year, please. Thanks, Debbie, and hello to you. First, on the retention parts, I think if we exclude, as we said, if we include the big disaster contracts in health care would be 10 basis points up. And I think retention it's not, I think, retention is stable or up in all regions and segments except what we have in North America, Kenya Healthcare. So we have a specific situation. We also highlighted in our Q3 call that we were unsure about retention, for the end of the past year and for the quarters to come. We see, of course, we have, we put all our efforts in redemption, and we see as a good sign the fact that it's up in many parts of the world. Health care is still under pressure. You remember, we talked about these operational efficiencies difficulties that we've had in the past. There's still way a little bit in our retention perspective. I can tell you that the team is all hands on deck on this. We would expect the beginning of the year in Healthcare and North America being a bit difficult, but we still have some of large contracts under bid, but we have a reasonable level of confidence in keeping them. And we see more of the second half of the year being better in health care. That's for the redemption for the development part. And the CapEx related, you want to say a word? Yes. The CapEx increase this year is mostly linked to education and Sports and a little bit on our IT investments and so forth. But, the CapEx in education in sports and leisure was very much driven to improve retention. And even though it doesn't show yet into the overall group numbers, it does show in the education numbers where the retention is better. And this is a long term game because this is good for the margin over time. So it may not be a immediately good in the year. You do the CapEx, but improving retention in North America in education is good for business. So That's why we are committing more CapEx resources towards retention. And as Denis stated, retention was was not very good in the U. S. Because of health care and some work we did on the portfolio of sports and leisure, but retention was actually improving and better and very close to 95% in many regions and many segments across the world. And so we are believing we are moving the needle in tension. This year, it doesn't show because of the U. S. But it will show over time we are confident with this. Regarding the losses, you know, as you said, Mark, this has carried away quite a bit. You have to anticipate, NORAM, well, being not so good in terms of, even possibly negative growth for the first half the second half, we are more positive on the second half of the year. Overall, you know, Naram won't be as good this year than departure, but the we believe that the underlying trends for the second half and ongoing will be much better. Coming to the Japan sports events, so the Rugby World Cup is expected to bring, for the full year, 30 basis points of organic growth. And it's mainly focusing on Q1. So everything will happen in Q1, obviously. And the olamic games, which will be fully in Q4, is 70 bps of annual organic growth. So the 2 together, they represent 100 bps. Thanks for that. Just following up on a couple of those. Just on the last point, so if we look at the 3% sort of underlying guidance excluding the two events, maybe you can give us a feeling on the cadence there. I mean, it sounds like clearly 1st half week in the second half, but by how much? And so it on your retention point. I take your point that underlying retention is up a little bit excluding the U. S. Healthcare Loss, but that U. S. Healthcare Loss is in the 4% sales guidance. So you're still looking for an acceleration in sales and yet the KPIs ingestings are weaker. Well, I'm not sure. I understand your points, Jamie, Sorry. I I just didn't get your point. Sorry. Apologies. I was just just trying to understand that the your 4% sales guidance is despite a loss of that U. S. Healthcare contract. That's clearly more like near a 4.6. Right. So you still got the retention is not much if not really improved on the line up ten basis points developments worse and yet you're looking for quite a big acceleration in organic sales. I'm just trying to work out why sales growth is accelerating despite the fact that retention and development together are worse. Yes. When we look at the KPIs, we had a strong like for like growth at I think it's 3.1 and actually it absorb the 20 bps of IFRS 15. So the trend is clearly the cougar is clearly having trend of above 3%. So what we could say is that, yes, the net new loss globally is not very positive, but but it's relatively neutral and the cougar has been strong and stronger. So we the cougar should be the one fueling the growth in the coming year. Now we have a pipeline, we have opportunities and And so we believe the 3% is the right target, excluding the Japan events. Now when it goes about H1 and H2 moving forward. Obviously, we see H1 softwood man or 2 softer, but we are confident on the overall 4% which is 3% excluding the Japan events. Thank you. Your next question comes from the line of Jeffrey Dalwin. Please go ahead. Your line is now open. Hey, good morning. Geoffrey Dalian from Bank of America Merrill Lynch. Three questions from my side, please. First of all, would you mind to can't see exactly what could be the impact on margins, with the water cap would be contracts and the Olympics So you gave some comments on top line, but how much can we expect in terms of profitability? Secondly, would you mind to continue find you the working capital boost you had last year thanks to the Rugby World Cup contract? And thirdly, you spoke in the past regarding the 6% margins, ideally, we in 2021. Would you mind to comment on this and is it still a guidance which is valid? Thanks. Thank you, Geoff, for the question. So, roughly World Cup and Olympic Games are going to have actually a about the same underlying operating profit and NDR in the group average. I mean, we are still waiting for the Japan results for the rugby because it's coming through, but it was planned to be at group margin. So it will not impact positively or negatively the margin it will stay within the margin. The working capital impact we had, you know, we sell hospitality packages, including access to the stadium and food and beverages during the event. And all those packages are sold, much before the event. So they were sold during the year from January to August. And we've calculated that it had a positive inflow in our current fiscal year 'nineteen lgu of about 1,000,000. So it is significant. And on, I was expecting your question on that one, Jeffrey. And what I would say is, as you know, I'm not going to give midterm objectives because we decided not to, but I can tell you that I have a very clear idea of where I want to be and it's very aligned with the board and the executive committee. So getting back to margins that are above 6 percent is definitely an objective. And, we have this, and, you know, all our efforts are aiming at as I said, 1st reignizing growth and of our revenue and then increasing the margins, I'm not going to give any timing on this. But, what I can tell you is, we're doing everything that we can to achieve that. And I expect the UP margin to improve from next year onwards. Okay. Thank you. Question. Your next question comes from the line of Vicki Stern. Please go ahead. Your line is now open. Good morning. And just firstly around the Q4 growth, When you spoke back in July, I think you were clearly quite cautious about Q4, and clearly, things got quite a bit better, I guess, in the second part of the So just I know you've touched on some of the points. So just if you could just flesh out the biggest drivers of surprise for you, seems more from like for like than anything else and perhaps a bit less in terms of contract losses, but yes, just keen for a bit more color and indeed then the sustainability of that into next year. Secondly, on Slide 8, you gave that pretty helpful bridge between savings and investments for 2019. Not expecting you to flesh that out fully for 2020, but can you just give us a sense around those different buckets? Does that look pretty similar as you see it for 2020 between savings and investments or are any of those going to be particularly bigger or smaller. And then just finally on food inflation, so particularly African swine fever, is that having much of an impact you expect it to? And is that some of the reasons for the, like for like being best there is as a pass through? Thanks, Vicki. On the Q4 growth actually, yes, we were we had a better Q4 that we had expected, which was good news. Overall, I think all geographies and segments were a bit better than we had expected. We had a slightly better than expected tourism in France, We had, good project work in education in North America. We had also last year was good, but this year was even a bit better. So it's encouraging. And we've been, I think went good in successfully renegotiating some of our last contracts and that went through in Q4. So, a lot of work, this contract renegotiation is part of this new discipline and rigor that we are already establishing and, it will support us, moving forward. Yes. And, Vicki, on the slide 8 question, this is the picture for 2019 that the picture for 'twenty will be broadly similar, but maybe the buckets will become larger because Fitel future is taking momentum. Productivity too. So the size of those buckets for 'twenty is slightly higher than the size for 'nineteen. With regards to food inflation, in Europe, we've been doing, we've been managing food in efficient pretty well in most countries. In the U. S, we see a food inflation of about 2%. We've had also a food inflation, quite a bit of volatility in Brazil for instance and passing it through clients and and created some distortion on the quarter by quarter margins. But overall, we've had inflation pretty well. And if I look at the U. S, We still experienced the labor inflation about 3.4% and the food inflation is about 2%. So we have a blended inflation in the U. S. Of 2.8%. But this is what we pass to clients on average. So I think inflation in the U. S. Is pretty covered. Just one follow-up on the investment piece. So bucket of investments is slightly going to pick up a little bit. Just where's the extra emphasis going? Would that be around, incremental brand additions? Just a bit more color on that, please? This year we'll also, in fiscal year 2020, we are reinforcing our investments in supply management. With new tools, more people, IT systems. We have more work to do an infrastructure We are also pushing harder on marketing and branding. So there will be more work done there. And then, you know, we've decided to give more resources to our GPU activity for instance and so forth. So, it's very much investments, which are driven to either bring growth or when it's supply management in IT, enhanced margins and the way we operate. So, it's I believe it's good investment for the future. It's quite balanced. I think across all these for this year. Yes, we will continue to invest in BRS, also significantly because we have to move faster in the digital transformation. I highlighted during the presentation that our CapEx to revenue NPR is 6.5%. It will probably be higher And then that in fiscal year 2020, we have to keep on pushing. This is important. We need to invest more in BRs in that transformation. So Your next question comes from the line of Jafar Tari. Please go ahead. Your line is now open. I've got 3 questions, please. First one is very quick. I don't think I've seen the a percentage of group revenue that was in facilities management in 2019, the comparable number is something 32.5 for 2018. And if you have that number handy, please. And then on your 20 revenue guidance. The Olympics, if it's 70 bps, it's about 1,000,000 of expected contribution from Japan. Olympics, which is what's the London Olympics delivered? It's actually higher with the fall in sterling, I guess. So how will Japan end up being a larger event than a wider contract scope or just very high visitor expectations, please? And lastly, on North America, grows, you talk about, targeting, you say 80 of your sales people are now, sectorized I understand correctly, targeting specific markets and verticals. Can you just help us understand how material this is? What's the total sales force in the U. S? And how exactly it's organized today with the pitch sub brands? They just pitch a specific BNI offer, health care offer, please? Sure. Hello, Jafar. The first question is simple. Today, the SM parts of is represent 34% of the volume in France. Thank you very much. And regarding I'll take the your third question, on the salespeople, you know, with this represents about, depending upon what we call sales, but between, let's say, half or one third of what we have, else. They're, you know, the idea is to really reinforce, the targeting So we already had sales people that were, sectorized, that were organized by the segments. But what the work that we've done is, has been, focused on, more targeting the the prospects and the clients that we wanted to, to win And so, so it's much more advanced thinking, much more pre sales work to ensure that we maximize the heat rates. We're still not at the levels that we would like in the heat rates but better targeting, better presales work, better digital sales and marketing around that will help us, I think, deliver results We see the first signs of it that, with your overall Noram picture, we still have work to do. So it's it's promising, but it's more of a midterm thing until it fully delivers the full power. Thank you. And on the Olympics, you're right. 70 basis points is about 1,000,000 To be honest, I don't remember the number for the UK. The UK, yes, it looks like it was 1,000,000 I don't believe the scope is wider, but the hospitality package and the traveling, the mix is different. So this is what we have in our plan and in the model it's about 150. So we'll dig more into this and we'll give you a feedback on the comparison as to why it's bigger. Established our offer with a very strong partner, local partner, JTB, and, that will gives us a lot of confidence in the way we will commercialize our offers. So, that is part of the explanation of a bigger revenue. Okay, thanks. Because for 12, you said 200,000,000 in total for New Zealand and London Olympics. So yes, it looks like it's big issue. Thank you. Your next question comes from the line of Kean Martin. Please go ahead. Your line is now open. Thank you. Good morning all. I've got a few questions as well, if I may. Just starting your form on the Cisseire and the French subsidy regime changes. Mark, I wonder if you can just help summarize the headwinds profitability in fiscal 2019 and then some of the potential tailwinds that come through once the fee on subsidy and the December subsidy payment is reengaged over the next 12 months. And then secondly, on the FM business, If we go back to, sort of your initial review of the business and the intention to review your activities in FM and potentially introduce more third party provision, particularly in areas like cleaning. Where do we sit with that at the moment? What actions have you taken and also mindful of profit warnings elsewhere in the FM sector over the last week or 2 where margin expectations have continued to come down. Yeah, we noticed some of the profit warnings you were mentioning. The AFM business is currently under review. It's, you don't turn the ship into, in 3 months, FM represents, as I said, 34% of our on-site business. So, it's going to take time. We are at this very moment reviewing what our capabilities are, what services we are currently delivering with what profitability in what regions, in what segments. So there's a whole mapping of our capabilities, business opportunities and profitability. So this is actually ongoing, we are already taking some decisions here and there to outsource more subcontract more of DFM. And well, over this next calendar year, we'll give much more visibility on what we do, but you know, we have to be cautious because it's complex to, to, to, to operate as a change in direction, not a massive change, put an adjustment into the direction we take. The other thing that I want to tell you is that we are, and I think Mark said that as well. We are very cautious on what we signed. So in the FM, we ensure that we remain competitive, but won't sign things at any cost. We've said no to some of the bids because we thought that was too low. That's at that expense a little bit of the drop in the development. So we're very cautious, in FM and boosting food at the same time. So it's work, it's ongoing work. And, it's, I think we'll give more visit to that, in the coming year. And with regards to the safety, the impact on fiscal year 2019 is at net income level, we estimate it's about 1,000,000. There is a small impact negative impact on our European about $3,000,000 and the most of the impact is on tax at $9,000,000. And for fiscal year 'twenty, we do expect those impact neutralize that UOP level and that net income and becomes much less significant from going forward. But the fiscal year 'nineteen impact was minus 1,000,000 of net income. Great. That's very helpful. And one quick follow-up, Mark, forgive me, when you mentioned the working capital benefits, from the Rugby World Cup, was that 1,000,000 or 1,000,000? 1,000,000, yes, 1,000,000, yes. Thank you. Your next question comes from the line of James Amy. Please go ahead. Your line is now open. Yes. Good morning, everybody. And three questions from me, please. First, I wanted to come back to this medium term margin guidance, which has been removed. In the absence of of a clear guidance. Could you maybe help us with some kind of framework as to how to think about the scope for margin potential I mean, sort of what level of organic revenue growth do we need to see before margins can improve? And, Cindy, if you talk to someone like Compass, they'll say above a certain level, it's actually harder to drive margin improvement, as new contract tend to be deleted initially. So could you give us some kind of some scope or some range about where you might of organic revenue growth that where you might see margin expansion? That's the first question. Second question, I think you referenced in your earlier remarks that some of the cost savings were being reinvest in price to drive competitiveness. So is that reflective of any change in the competitive environment and why the need to reinvest in price and in which markets, please? And then the third question, is could you give us some sense of underlying volume trends in North America and across the key European markets? Okay. What did you mean by volume trends, James? Like for like. Okay. So on your first question, Yes, you know, you understand why we, I guess, we didn't want to give a mid term guidance that because we hadn't reached the guidance in the past. So I reiterate the fact that, being above 6% is definitely an objective, and we have room for that. We have room for that. And what you said about Compass is we are in a different situation because we are below them in terms of margins. So, we have room for margin improvement. But I don't want to to jeopardize the good growth, organic growth in revenue that we have created by pushing margins up too quickly. That's why I said I see this year flat and next year, UP margins starting to, to improve. And, you know, and then reaching the 6% in the future, all over above 6%. What we want is sustainably. And that's what I said in the capital market day, we want to be sustainably above 3%. And ideally, in the range of 4% and 4% plus, that's what we feel. We are, we don't need to get 5% to improve the margins, but we want to be sustainably above 3%. That's really our goal and to reach you know, best in class in terms of organic growth and improve the margin. So no guidance given, but margin improvement for next year. And of course, it's objective of 6% and above 6 really as a target. And sustainably then, the idea is to be sustainably above 6%. Now on the cost savings reinvesting in pricing, we've always reinvested some of our savings into our competitiveness, that this is the name of the game. I haven't seen major changes in the competitive environment. It has always been competitive. And I wouldn't say that this is a change in pattern for us or for others. We are reinvested in also, in a value that we create in our offers, And in several cases, we are also able to price a premium because of the quality of what we do, when typically we introduce some of our very trendy offers, we are able to in several cases to price them with a premium or at least to really win with these offers. So no particularly more competitive environment. And, yes. And on volume trends, our performance region by region is more the reflection of our internal issues or strengths than actually the market itself. The U. S. We see the market as still being strong. And yes, we've grown 1.8% and we cannot be satisfied with 1.8% in such a market, which should be growing faster. So the market, we still see the market as being, as being floated in the U. S. In Europe, we are doing better. The market has been slightly better for us. So we believe in the past year than it was maybe 3 years back. I mean, the price is better, but we also see it in Medicarena, and we have still some issues in Benelux, but again, I think this is more internal issue than actually the market itself. We've done well in Central Europe last year, well in med. We've done well in the UK and France. So For us, the trend is very good in for us. It's good in Europe. I mean, it's not flamboyant, but it's there. Okay, that's helpful. Thank you. Questions. Please continue. Okay. Well, If we have no further questions, I just want to again thank you for being with us this morning. I just want to reiterate the strong confidence that we And, you know, with this consolidation of the growth that we see moving forward, then, you know, margin increase will come up I'm very, we have a very solid team. We've, we have very good perspective and extremely confident for the future of Sodexo. Thank you for being with us today and, looking forward to our last next, this next interaction. Thank you. Have a good day.