Earnings Call: H1 2019

Apr 11, 2019

Good morning, and welcome to the sodexo First Half Fiscal 2019 Results Conference Call. Today's conference is being recorded. At this time, I'd now like to hand the conference over to the Sodexo team. Please go ahead. Thank you, Tracy. Good morning, everyone. Welcome to our half fiscal twenty nineteen results call. On the call today, we have Benny Machuel, CEO and Marc Rolland, CFO. As usual, the slides and press release can be downloaded from the website and the webcast will remain available on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without our consent. I remind you that this presentation contains statements that may not that may be considered as forward looking statements and as such, may not relate strictly historical or current facts. These statements represent management's views as of the date they are made, and we assume no obligation to update them. You are cautioned not to place undue reliance on our forward looking statements. I now turn the call over to Denis. Thank you, Virginia. And Good morning, everyone. Thank you for being with us for this first half fiscal year twenty nineteen call. Let's go straight to Slide number 5 when, as I'm sure you will have seen, At 3.1%, our first half organic growth was pretty good. The uplift in Q2 was very satisfying, However, it was probably our easiest comparative base this year. On-site organic growth in the first half was 2.8%, the U. S. Up 1.2% and outside North America, up 4.1%. In Q2, North America was up 2.4%, which is a sharp improvement on the 0.2% in Q1. Business in administrations was also up in H1 growth is still impacted by lower revenues in government and agencies due to the U. S. Marine Corps renewal at lower pricing levels. However, growth in Q2 compensated the weak was impacted by the high comparative phase in energy and resources last year linked to a 1 off hurricanes related project. Benefits and rewards had a good first half at 10.1% with strong recovery in Brazil and solid growth in Europe. On Slide 6, we on Slide 6, we can see an encouraging evolution of on side growth indicators. I'm really encouraged by the steady progress of all our growth indicators in on-site services. But just a quick point of clarification here as it's the first time that we present these indicators at half year. These indicators represent 6 months of wins and losses and not a rolling 12 months measurement. What matters then is the evolution of the indicator versus the previous half year. So on this base, Client retention in H1 is up 40 basis points. Regarding health care and seniors in North America, we had had a good H1, but we still have retention risks. Our teams are working really hard to resolve any potential issues with their clients, I'm convinced that we are on the right path for education also in North America. It's too early to say anything as the selling season hasn't really started yet. On existing sites, our comparable unit growth has also improved by 20 basis points, The U. S. Marine Corps contract this year and a 1 off energy and resources contract last year have impacted the cougar by 20 basis points each. However, this has been more than compensated for by inflation pass through and good volume growth in many areas. Business development is also much better, up 70 basis points, and it's better in all segments, except in energy and resources, where there have been few bidding opportunities and virtually no new projects. The good news is that the Energy And Resources pipeline does appear to be filling up progressively. On Slide 7, we can see that at constant rate, underlying operating profit was up 3.3%. However, as expected, the margins were down slightly by 20 basis points. In on-site, the margin was down 30 basis points excluding currency impacts. This is principally due to the timing differences between the investments in growth that are being made and the planned efficiency gains coming through. There was also the impact of the U. S. Marine contract renewal in September. This is a big contract that dates back to 2001, and each renewal year, we know that we are going to be negatively impacted. Then over the many years of the contract, we progressively rebuild the revenues and the margins. Benefits and Wealth margin was up 30 basis points, excluding currencies. We have turned a corner helped by stronger Korean Brazil and also lower spend on migration this year after a big year last year in which India and the Czech Republic moved away from paper. If we move to Slide 8, the improvement in retention and education last year and the excellent performance on Centerplate's retention this year has led to an increase in CapEx of 1,000,000 in this first half. To 1,000,000, representing 1.9% of revenues. 70% of the increase is due to these two segments. On the other hand, net acquisitions are much lower than this time last year. We've spent 1,000,000 in the first half, with some excellent bolt ons. With Novae, we've entered the high end food services market in Switzerland, We have consolidated our position in schools, food services in the UK with Alliance in partnership. We've doubled our presence in child care in France with Cres De France, and we've also made a strategic move into the Brazilian home care markets with ProNet. And in the last couple of days, we've doubled our size in home care in the UK with the Good Care Group. During this first half, we benefited from a contribution to growth from acquisitions of 3.7 percent with Central Plate being a large part of this through to January. At this stage, we expect the full M and A contribution to be between 2% 2.5%. As a result of all this, we have a solid balance sheet. We are with our net debt ratio at 1.3 and our gearing at 45%. I now hand you over to Mark for the details of the first half figures, and I'll come back later on action plans and outlook. Thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning. Please note that, as usual, we have defined all alternative performance measures in the appendix. If we now move to the P and L on Slide 10 Revenues at EUR 11,000,000,000 were up 7.3%. This is 3.6% excluding the currency and 3.1% of organic growth. As you can see, the currency impact was limited this period and coming principally from the reais and the dollar. We had a 3.7% impact from scope change, which is mainly the of Centerplate from September to December. The underlying operating profit reached $647,000,000, up 3.3% excluding currencies. However, given the strong growth in revenues, the margin was down 20 bps, whether at constant or current rates. This slight decline in margin is linked to timing differences between the efficiency improvements coming out of the business and the investments going into the growth of the business. I shall come back to this by segment in a moment. Other income and expense amounted to 1,000,000, more or less stable than last year, and I shall cover this in the next slide. As a result, operating profit was $578,000,000, up 4.1% excluding the currency impact. Net financial expenses increased by 1,000,000 to 1,000,000 in the first half relative to the previous year. This is due to the exceptional interest payments of EUR 7,000,000 in France related to the reimbursement of past dividend taxes, cash seen last year. And it's also due to new debt raised in H2 last year to refinance the Centerplate acquisition and the share buyback. The blended interest rate at the end of the period was 2.3%, slightly up versus 2.2% for the same period last year. The effective tax rate has moved back up to a more sustainable rate of 28.8 percent relative to the exceptionally low 25.9 percent in the first half last year, which was helped by some net positive one offs. This year, the major elements in other income and expense are firstly EUR 19,000,000 of restructuring costs in the first half. This seems to be a good run rate each half for your modeling. Last year, we spent 1,000,000 in 12 months. Acquisition related costs were done substantially as the size of our acquisition this year are much lower. Amortization and impairment of client relationships and trademarks was $43,000,000 this first half, up on the previous year due to further brand impairment of EUR 24,000,000. Turning to cash flow on Slide 12. Operating cash flow was more or less stable due to higher cash taxes and net interest paid. I'll remind you that last year, we benefited from the EUR 43,000,000 exceptional dividend tax reimbursement and the 1,000,000 associated interest payment. This year, cash taxes amounted to 1,000,000 versus 1,000,000 last year. The traditional negative working capital variation is principally due to the difference in activity levels between August 31, and February 28. As Denis has already explained, net CapEx increased substantially to 1,000,000 percent of revenue in the first half last year. More than twothree of this EUR 82,000,000 increase in CapEx is attributable to the Education And Sports And Leisure segments. Free cash flow was EUR 14,000,000, Given the substantial increase in CapEx of 82,000,000 and the absence of the exceptional element last year for 50,000,000, this represents a solid performance. Net acquisition and disposal of subsidiaries amounted to $234,000,000, down from the higher levels of the prior year linked to the acquisition Centerplate. The dividend was down a bit. This is due to the fact that the dividend was held stable on the smaller number of share following the share buyback. As a result of all this, consolidated net debt rose during the period by circa EUR600 million to billion at February 28, 2019. We have provided a little bit of history to put the CapEx free cash flow performance into perspective. CapEx has moved back up more in line prior year levels in the first half, post in millions of euro and in percentage of revenues. In this chart, You can also clearly see the extent of the exceptional performance by the dividend tax reimbursement and related interest payment, but also by low CapEx. Moving on to the balance sheet. Net debt has increased to 1,000,000,000 at the end of the period from 1,300,000,000 at the end of the prior call your hand and compares to 1,700,000,000 at the end of the first half last year. Operating cash also increased since year end and last year standing at 1,000,000,000 at the end of the period, of which 1,000,000,000 is related to the benefit and rewards activities. Despite the seasonally high level of debt at the end of the first half, The group's financial position remains strong with a net debt ratio of 1.3x and a gearing of 45%. You will note that the gearing has actually fallen 4 points despite the higher debt. This is due to the significant increase in shareholders' equity, which is linked to the application of IFRS 9 since September 1. The first application of IFRS 9 and the subsequent update through OCI in the first half have had a 1,000,000 impact on shareholders' equity. Mainly due to the revaluation of some financial assets. A major part of this revaluation is linked to the stake that the group holds in Palon Having been accounted for at its historical cost of EUR 32,000,000 until now, to date stands in the balance sheet at 1,000,000 and is therefore one of the significant component of the increase in non current assets. More information on IFRS 9 is available in appendix and in the notes to the financial statements. Slide 16 shows a significant M and A impact on revenue. This is due to Centerplate, but this quarter has seen the last impact We expect the full year M and A impact to be between 2.5%. The modest currency impact is due in particular to strengths of the dollar more than offsetting the impact of the weakness in the Brazilian reais and to a much lesser extent from sterling. Organic growth was therefore 3.1%. This splits out as on-site services, up 0.8% and benefits and rewards up 10.1%. As you can see on Slide 18, North America is doing much better, well out of the red and up 1.2% with a mark rebound in Q2 at +2.4 percent. Europe is steady at +3 percent. The Africa, Asia, Australia LatAm and Middle East business are still growing fast at plus 6.9% on an ever growing comparative pace. On Slide 19, business and administration, representing 56% of our on-site services revenue. B and A organic growth was up 2.8% when restated for intersegment reclassifications. It is now positive in all regions. North America was up 0.8%, turning positive in Q2, after a 1.3% decline in Q1 due to a major one off energy and resources contract in Q1 last year. The underlying activity in E and R remains challenging due to the impact of site closures over the last 18 months and the lack of new signings. The U. S. Marine Corps contract has put considerable pressure on comparable unit sales growth in government and agencies. In sports and leisure, Centerplate is currently going through a significant renewal process. Most contracts have been successfully renewed and often extended. Some less profitable ones have been exited, which of course will weigh on short term organic growth. All this is compensated by strong growth in corporate services due to solid growth in same site sales and new contracts. In Europe, which represents 48 percent of B And A revenues, sales were up 2.1%. After a strong Q1, tourism in Paris slowed down in the second quarter. Corporate services continued to generate solid growth due to cross selling in all countries. Governments and agencies stabilized in the second quarter as the British Army contract losses last year came out of the comparable base. Energy And Resources Performance is North Sea is stabilizing too. Also, growth has come off slightly, Africa, Asia, Australia, Latin America and Middle East, was still up plus 5.9% against last year base, which was up more than 12%. This growth reflects on the one hand strong new business and same site sales growth in corporate services and on the other hand, the end of several large construction projects and a low level of contract signatures in energy and resources. Moving on to Healthcare And seniors in Slide 20, organic growth was 2.2% for the first half. In North America, which represents 63% of the business, growth was plus 1.3%, moving gently up from quarter to quarter with solid same store sales and inflation pass through. While senior has lost a large contract at the beginning of the period, Healthcare retention has been solid to date and development has been trending upwards. The teams are totally focused on resolving retention issues going forward. In Europe, organic growth was +.7 strong same site sales wins are now in the comparable base. Growth in Africa, Asia, Australia, Latin America and Middle East remains very strong at plus 16.9%, reflecting many new contract startups in Brazil, India, in China. Note that these regions now account for 6% of the segment's revenues. Looking now at Slide 21 and education. Revenues for the first half rose 3.6% on an organic basis. In North America, which accounts for 75% of the education segment, revenues were up 1.4%, accelerating in the second quarter from only 0.6% in Q1. Net new business from last year is neutral, However, on the positive side, same site sales growth has been solid, helped by inflation pass through. One less working day was more than compensated by strong retail sales in universities and good project work in schools. In Europe, organic growth was plus 10.4%. This performance is supported during Q2 by the startup in January of the new schools contract in the Evelyn department. This is a great contract but it is a tough one, and it's taking a bit of time to settle down. But we have also benefited from solid prior year contract wins in the UK, 2 additional days in Italy. On the negative side, we've also suffered some strikes and 1 less working day in Q2 in France. In Africa, Asia, Australia, Latin America and the Middle East, organic growth was plus 10.5%, resulting from the opening of several new school and university contracts in China, Singapore and India. In the Slide 22, you can see that the on-site services underlying operating profit was up 1.2% at constant rate. The margin was actually down 30 basis points at 5.5%. So excluding currencies, Underlying operating profit was up 1.3% in business and administration, but the margin was down 30 bps. The principal reason for this is the weight of the rebasing of the U. S. Marine Corps contract following its renewal. We are confident that we should get the revenues and the margins up, but it will take a bit of time. And as we had earlier end between the efficiency improvement and the efforts made to accelerate growth. Healthcare And Senior had a good semester. UOP was up 5.8% and margins were up 20 bps, excluding currencies. This is a result of tight management by the new team in the U. S, solid same site sales growth and inflation that is also being passed through. Education has been more difficult. There is a combination of factors. We've had lots of renewals with margin investment in schools. We also have the dilutive impact on the large startup of the Evin School contract in France in January. Again, in France, in a difficult social environment, we've had strikes in some central kitchens. In North America, university margins were broadly stable in one versus last year, but not yet back up. There is still more work required to reestablish the discipline. Turning to benefits and rewards. Organic growth was up 10.1%. I just wanted to point out that in BRS, we had a significant currency effect of minus 6.3% due to the weakness of the Brazilian reais and the Turkish lira. You can see this impact, particularly in the chart and employee benefits. Going back to organic growth, employee benefits revenues were up 11.4% compared to total issue volume up plus 8.1%. Diversification services were up 5% with strong double digit growth in mobility and expense and in corporate health and wellness, offsetting a small decline in incentive and recognition, which had been particularly strong last year. On Slide 26, organic revenue growth in Latin America is +12.5 percent. In line with previous quarters and reflecting the improved economic environment in Brazil. We have in growth in volumes with solid new business wins, a slightly more moderate competitive environment and stable interest rates. Growth in Mexico remains strong. In Europe, Asia and trendly solid at 8.2%. We are, for instance, continuing to see double digit growth in Eastern And Southern Europe, particularly in the traditional benefits. The newer mobility and health and wellness activities are more than compensating visibility during this period. Raidu is doing exceptionally well and is already ranked in the top 3 expense management solutions in the world. Financial revenue growth is aligned with operating revenue growth, but it's mainly due to the high interest rates in Turkey an exceptionally high float in Romania since Q4 last year. It is important to note though that interest rates have been stable in Brazil for a few quarters now. Now turning to underlying operating profit. The benefits and rewards underlying operating profit in the 1st class was 1,000,000, up by 11.8% at constant rate and up 1% at current rates. It's due to the very weak reais in the first half relative to the same period last year. The underlying operating margin was 29.1 percent down 90 bps as published, but up 30 basis points when adjusted for the currency mix effect. The first half benefited from the strong recovery in Brazil with good volume growth and stabilization of interest rate. Processing costs are increasing more slowly as recent migration in India and the Czech Republic are now behind us. Thank you for your attention. I now pass you back to Denis for the rest of the presentation. Thank you very much, Mark. And, let's now focus on our growth strategic agenda. And I'd like to give you an update up some elements of the things that we do. And particularly, so if we start with the client and consumer centric pillar, I'd like to talk about the work that we're doing on synergies. This is something I feel very strongly about, and I wanted to highlight some examples of what is being achieved by the French team at the moment. 2 great client examples. 1st, Zurich Insurance has been a client of Benefits Air Watts France for 10 years. Zurich HR teams wanted to be able to offer their employees in their Paris offices, access to a wide variety of nutrition Nutritionally balanced menus. And, our benefits and rewards and on-site teams, they work together to propose an integrated offer to located near their offices, using for payments, either the Sodexo Pass card or the company badge, which integrates the employer subsidy. Pierre Fabre has been a client of our food services for almost 50 years. Actually, we initiated our 1st contract in 1970. In 2018, we renewed our contract with this long term client, extending it with one additional site in the South France, serving more than 1500 meals daily. Very soon after this successful renewal, We were consulted by our clients who wanted to provide some food solutions for their employees who do not have a restaurant on their side. The on-site team joined forces with our benefits and rewards teams and capitalized on our deep understanding of the needs of both our client and our consumers. And we were chosen by Pierre Fabre to provide mid pass and Seju says you are subsidies for employing people at home and to provide these to 2500 employees. Work is also on the way with our client to propose concierge services as well. So as you can see, our teams are working together to prove our offer and better meet our client expectations. The work on enhanced operational efficiency is also progressing. The step team is currently building the tools to simplify access to the STEP dashboard, 6 countries are now engaged in following at least 20 standard operational KPIs. And here, with the figures that we show on the slide, we show you how corporate services in North America and France compensated for wage increases with productivity increasing faster As part of our program to nurture our talent and in preparation for step full deployment, We have launched the Unleash program to reinforce the Factor Basic principles by reassessing the manager role at the center of everything we do. The program was launched in March and more than 500 modules have already been completed in the UK and North America. Full rollouts of this program in all the different languages will be in Maine. And finally, in terms of end career anchoring corporate responsibility. During the quarter, we built momentum in our quest to bring healthy and sustainable diets to a wider audience, especially in key segments like College And Universities in the UK and Ireland and in North America. And we do this by partnering with innovative and disruptive brands. In UK and Ireland, we opened our first First, CRUSH Outlets At City University of London. CRUSH is London's our original fresh juice, smoothie, and healthy fast food retailer. Our partnership with CRUSH will see 35 franchises opening across Sodexo sites in universities, hospitals, major events and corporate workplaces. In North America, with 20% of college students following some form of special diet, ranging from semi vegetarian to vegan. This is a key priority for the segment. Building on our recently deployed 200 plant based menu recipes, we have announced during this quarter, 2 partnerships to accelerate and grow our offer on college and university campuses in the U. S, one with Veggie Grill, the leading U. S. Plant based premium fast casual concepts, and one with saladworks, the leading salad centric franchise in the U. S. Our goal is to continue to grow and expand our offer by partnering with innovative, like minded brands when it comes to advocating and promoting health, nutrition and sustainability and use our unique position and ability to scale to bring these On Slide 30, we felt important to provide you with an update on Healthcare in North America. When I talk here about Healthcare, let me highlight the fact that this is just the hospital part of the business. This business is progressing on its turnaround plan, which I remind you was based on driving the growth agenda, anchored on renewed commercial, operational and functional excellence. We have revamped the Healthcare North America executive leadership team now with 14 executives selected for their respective operations, commercial and functional expertise in the health care industry. This is critical as health care providers in the U. S. Expect to work with partners who understand their industry. In all combined, The executive leadership team has a unique depth and breadth of health care industry experience. The team is reestablishing operational excellence, investing in subject matter expertise to support operators at client sites, with consistent deployment and execution of core Sodexo programs in the U. S, which is critical to guarantee repeatability, reliability, and predictability of the outcomes health care providers expect from us. Commercial Excellence is also being rebooted. With the new U. S. Sales leadership, we've onboarded the commercial skills and expertise required. We're also investing in subject matter expertise, specifically key account and GPO relationship management to develop stronger partnerships and increased value for members, and technical sales support across all service lines we provide beyond nutrition, to advise clients in their outsourcing decision journey. We clearly see improvements in contract wins and retention. Phoenix children's and the city hospital at White Rock are proofs of this. We've won a 5 year agreement to provide multiple support services at City Hospital at White Rock in Texas. The services include patient dining, retail dining, and vending, part of the food and nutrition program as well as cleaning services for the hospital campus. We've also recently extended our partnership with Phoenix Children's Hospital in Arizona, which we have had since 2001. Solexo will provide clinical nutrition services, patient food services, retail food services, clinical technology management services, and environmental services. We are also providing our new actual request food offer, which ensures that similar to a hotel room service, patients can request freshly prepared meals when desired. How did it work? 1st, our nurses work with our food and nutrition department to define each patient's appropriate diet. Then the patient can order from his or her customized menu. Patient can order what they want, what they want during our hours of operation, as long as it is within their personal dietary restrictions. Individual meals are then prepared fresh and deliver to the So it's a great offer for our clients and consumers. The team is also delivering results in the first half, Organic growth reached 2.1%, labor productivity was up 48 basis points, which generated significant underlying operating margin improvement. All the growth KPIs are improving too. Business development is up 30 basis points, comparable unit sales up 2 30 basis points and client retention up 2 40 basis points. On this, however, I want to be quite clear. There are some good signs, but we remain very cautious because we know that we still have a lot of retention challenges to come. And so we may not be able to maintain this performance in the second half. Let's move now to Slide 33 and the fiscal 2019 objectives. We saw a good start of the year in terms of growth, slightly better than expected. Some of this growth is not yet generating the margin that it should do, particularly because of the U. S. Marine contracts that Mark mentioned earlier. And to a lesser extent, the Evelyn Department Schools contract, but I can assure you that we are actively working on our margins. Now looking at the second half, First, we remain prudent on North America. It is improving quarter by quarter, but there are still a lot of execution issues to resolve in both healthcare and seniors and in education. So we still have retention risks going forward. This is unlikely to impact H2 significantly, but it makes us cautious. In education in North America, we also had a very strong Q4 last year, which makes our comparable base high. We still have a lot of more work to do in terms of the management teams and we are searching the discipline in the organization. Secondly, we also have lost or exited or not renewed some contracts that will impact H2 organic growth, particularly in corporate services and sports and leisure. This will not necessarily be bad for margins going forward. Because in many cases, these accounts were not as profitable as they should have been. Thirdly, The regions of Africa, Asia, Australia, Latin America and the Middle East is continuing to grow, but the comparable base is becoming higher and higher. And energy and resources has not won much this year, as I said earlier, even though the pipeline of opportunities improving. So while I am confident that organic revenue growth should be in the upper end of the range between 2% and 3%. Do not expect more. The action plans are being executed with a clear focus on growth also on margin protection. As a result, we maintain our objectives, to achieve an underlying operating margin for the year in the range of 5.5 percent to 5.7 percent. Excluding the currency impact, but more likely at the lower end of the range. Our strategic agenda is aimed at delivering market leading growth The first steps to return to this performance are to achieve an organic revenue growth of more than 3% from early of 2020. Margin improvement will come with the right levels of growth. The objective being a return to an underlying operating margin over 6% sustainably. Thank you again for being with us. And I now open Operator? Your first question comes from the line of Simon Sverd of MainFirst. Please go ahead. Good morning. I would have three questions, please. First of all, in terms of your margin performance, you mentioned your intention to accelerate growth while protecting margin. But looking to the performance in on-site services in H1, so indeed, you have been able to accelerate organic growth, but margin was done. And I know this is due to partly due to timing effect, but just was interested to know if you think you will be able to recover this loss in H2 or if we'll take longer than that? 2nd question, in terms of the improvement in North America, in terms of organic growth, just would like to understand in which extent it has been helped by the pass through of inflation compared to any underlying improvements. And my last question, you mentioned the senior retention has been weak in North America, so I would like to know if it's worse or in line with what you expected when you highlighted this risk back in January. And also if you have any KPIs to share on this segment as you did for its care? Thank you for your question. Yes, when we spoke earlier about investment in growth, it's also mean, investments in retention, and signing new contracts and so on. And obviously, I mean, building up a higher growth I mean, there are moments where you have to invest. And this is, for instance, what's happening with the U. S. Marine Corps We clearly wanted to retain it and we made the effort necessary to retain it. It has an impact in the margin short term. The U. S. Marine Corps had a very good margin for many of its previous tenure and but there is a reinvestment to be made. We made also a reinvestment in, in, for instance, the school in Marseille by winning a larger contract than the one we had before. But obviously, at the beginning, you have to make an effort for renewal. So and we to put the CapEx and you have to put the resources. So what we are saying is that we to grow, we have to make those investments, and we are making it building up, the margins will build up. Some will build up faster than others, but this is why we are maintaining the guidance for the year. I mean, we we the margin will improve. But we have to make those investments if we want to grow sustainably And retention is very, very important as we explained before, and retention requires investment. On your second question on the USA and whether inflation is playing a role in the growth, yes, it does. It does play a role in the growth. You know, when we analyze the cougar, the sulfide sales store in the U. S, we had 2 negative impacts is the reduction in price of the U. S. Marine Corps and one was that big project in E and R in Q1 last year. But we have a very significant positive impact, which is the inflation pass through. And we are passing inflation, and I can confirm we are passing inflation in the U. S. So it helps. The development, the new sales in the U. S. Are still a little weak, and we are working on it, but better than the but better than last year. What we really want to focus in the U. S. Is retention. And it takes me to your last question on seniors. What we wanted to illustrate with the page that Denis presented on Healthcare NorAM is that when we apply our mind to fixing a business, it works. It takes time, but it works. And so in seniors, the recession, we lost a significant contract at the beginning of the fiscal year in seniors, we haven't lost much since then because the team is now really focused on week by week on maintaining the retention at a good level. But maybe one day, we'll give you more details on seniors right now. We just wanted you to give an example of what we can do and Healthcare Noram was a good way to We have a new leader leading the senior sub segment and is he focuses a lot of effort, of course, in North America. And we're confident that well, we're all strong on the retention moving forward. Thank you. Your next question comes from the line of Jamie Rollo of Morgan Stanley. Please go ahead. Thanks. Good morning, everyone. 3 questions again, please. 1st, on the organic sales guidance, you'll say it would nearly be 3% this year, so a year early compared to your sort of target. How do you feel about that target for next year? Any chance of that rising into maybe 4% some point? And also could you please quantify those contract exits for the second half of the year? Secondly, on the margin guidance, you said lower end, but that still implies at least 20 basis points of growth in the second half. Is there any risk to that number, particularly as you mentioned, those big contract wins, or renewals diluting the margin. And finally, could you please give us an update on the Dining Alliance contract transfer and any sort of impacts on margins for this year or next? Thank you. Hello, Jamie. Thank you. 1st, we we're satisfied with our first half, as you can see in terms of organic growth. We won't we said that next year will be, likely to be above 3%. We don't give any guidance for next year as of today. We'll give it in time when we present the full year fiscal year 2019 results. However, as you can see, we are we see a good momentum on our growth We focus on profitable growth, which leads me to the 2nd part of first question, which is on contract exits, we are doing a portfolio management But to a very reasonable extent, of course, we focus a lot for the contracts that do not perform at the level of margin that we expect. We do the hard work to bring them back to the level of profitability that, that we expect. On, in some cases, we might exit some. And, but it's not, it's it's on a case by case basis. So here and there, we could have those decision made, but there's nothing massive. We've, we've lost some contracts that we knew would have lost also from Centerplate. We knew that, from, at the moment, we made the acquisition. So nothing new here, but, as organic growth from Centerplate start, from this second half, it has an impact, but it's, this was anticipated. So there's nothing major, but it's, it's, we focus our teams very much profitability, and profitable growth. Growth is back. We have a lot of, now focus on our, the right level of profitability for our contracts. Regarding margins, Mark? Yes. We obviously, I mean, we have to do better in the 2nd house than we did year and to be within the range. We have a plan. I think the team has been mobilized executing a GP plan, which is well articulated and well focused. There are no more every individual in the organization has no more than 3 priorities on on GP. There are a number of things which needs to happen. We obviously, as we mentioned, we opened the Yveline contract. We opened the U. S. Marine Corps. We opened a number of contracts. Not all of them are performing at the right level. So now we've got to get them to a higher level in Q3 and Q4. And we have, I would say, a very strong control on SG And A. And so all of this together helps us making a plan to deliver those margin improvement in H2 versus last year. Yes. So this is where we are. Yes. Regarding Dining Alliance, I must say that this comes, it's a progressive transfer of the portfolio. I can say that this is moving quite smoothly, and we don't anticipate any major impact on margins. Thank you. Your next question comes from the line of Julian Risher of Kepler. Please go ahead. Yes, good morning, everyone. Two questions for me, please. The first one on Europe, could you please give us a little bit of details of performance in your key European countries and thinking about France, especially on the on-site activity, how is performance in France? And if we the second question, if we remain on France, when you approach the summer season, what is the risk of the yellow jacket in impact on leisure demand during the summer season and how do you take that into account in your guidance? Thank you. Thank you, Julienne. So we talked the main countries. So, of course, France is the 2nd largest country of the group. I must say that, we have a pretty encouraging growth in France. It's now several quarters that we've enjoyed, a progressive growth, so that's pretty good. Definitely, the social climate in France is still sense. And, even though the impact of the yellow jackets is not very significant in the first half, we are worried, of the impact that it can have on the summer season, still difficult to evaluate. We know that, typically, hotel booking is a bit lower than last year. That's what we see. So we expect, definitely an impact, but it's difficult really to quantify as of today. But on the mid long term, things will come down. The crisis seems a little bit behind us. For the rest, I think we see, we see still some good momentum in the segments. And And regarding, another regarding the UK, which is also an important country, we see also growth picking up, despite the uncertainty of the Brexit. Thank you. Our next question comes from the line of Harry Martin of Bernstein. Please go ahead. Morning. Yes, Harry Martin here. The first question is on cost inflation. In Q1, you said you mitigated the cost inflation and U. S. Education specifically, by those improvements in work productivity, but now it sounds like this is being more passed on to clients. Have there been any changes in the month since? And could you just say how much, if anything, there's been a drag on the margins there? Secondly, it's a little bit surprising to hear you talk about contract churn and education in the first half of this year. Given that the selling season hasn't started yet. So could you give a little bit more color on what's happening there? And then finally, we've seen some recent contract losses in the U. S. Going back in house at Ithaca College and the University of Tennessee. So Is this a trend that you've been recognizing and what do you think is leading to this shift back? Yes, on cost inflation, you know, we pass when especially in the U. S, I mean, we are passing inflation. As I said, we are passing it in health care very well. We are passing it in, in universities and in schools. The more difficulty, the difficulty we had in margin in universities and schools, it's not so much in universities because in schools, there was a lot of a churn and new contract. But in universities, for instance, we had productivity gain in Q1 and we didn't sustain this productivity gain in Q2. So, we've got to go back and work harder on this because We had difficulty to maintain those productivity gains over a long period of time. But we are passing inflation as today, the hourly labor inflation we see is about 3.4percent,3.5percent. The food inflation is reasonable, but there is sometimes a little disconnect between how much you pass to a client and what you suffer as inflation But overall, and the business is passing inflation pretty well. And productivity may be unstable, but we are working on it. And regarding the, this churn in schools, the churn was, was not this year was last year. It's true that we had also some renewal, but not necessarily churn, some renewals. And as Mark was saying earlier, when you renew, sometimes you adjust your pricing. And of course, you get the profitability back, month after month. But so there's nothing major to highlight on a one. Regarding the last question, we see here and there, some clients returning, shipping back to in house, but this is absolutely marginal. This is not at all a trend. At least we don't see that at all. On the contrary, we are we have several, interesting contacts, particularly in universities that do, that today itself operates. Are interested in, in outsourcing. So we still believe that there's a lot of opportunities of turning self help universities into clients, particularly linked to the complex of managing food at large scale, where a lot of, these new trends coming up and bringing complexity in our business, which is good for us with the added value that we can bring to our clients. So don't see it as a trend. Your next question comes from the line of Vicki Stern of Barclays. Please go ahead. Good morning. 3 questions. Just firstly on the investment program. Can you just comment a bit how happy you are with the nature of the investments you've been making? Obviously, you're a little deeper into the business now. Are there any areas you think, will now require incremental investments? Anything else else to comment on there? Second one is around just the CapEx outlook. Obviously, you outlined already the guidance to hopefully get up to 2.5%. We've seen a step up already in H1, but are you still feeling 2.5% is the right level? And I suppose, how quickly do you think you'll get to that level? Then just finally on the acquisitions pipeline for the full year, what's that looking like? And just more broadly, how you're thinking about use of cash going forward? Okay. Hello, Vicky. Thank you. Well, Well, I'd say, we were so far, we're pretty happy with the investment that we've made, particularly, investment that we've made in the business and particularly in the, in the, in Sports And Leisure, some investments university as well. So they are supporting our development. So, particularly in sports scenarios, we have here about this. That's what we wanted because we know that this CapEx is bringing, the margins, as we move forward. So that's good. The other investments that we make in developing the business, we talked about marketing, sales, still have more to do there. Digital data. All this is promising for the future. Believe that the investments in people also that we've made the changes, that we've made is bringing results see it in health care in North America, you see that all indicators are now back to green, not full green, but encouraging green, And, so yeah, we'll continue to do so. We still have a lot to do. Digital and data well, update you as we move on is bringing good things. We have some interesting pilots on the predictability of our business, the predictability of what's happening on the site. And so that's good. Not late yet at scale, but interesting. We're getting CapEx, Mark. Yes, the we said that we will invest more in education and sports and leisure. We were under scale in sports and leisure now with the Centerplate acquisition. We have a broader scope and And so, we invest more in sports and leisure, and we want to do that. In education, as we said, we are investing in retentions. We are investing in development. The CapEx we spend this year was more linked to the development of last year of than the development of this year because the development of this year is going forward. So depending on the selling season and if we have a good selling season in universities and schools, we'll have more next year. But yes, we are happy. We also recognize that we have internal CapEx to do in ISN And as I said earlier, we are making investments step by step, but we are making good progress on our IT CapEx. So today, we are at 1.9%. So we're very close to 2%. Yeah, we the 2.5, we we maintain, we maintain the guidance we gave at the Capital Market Day, yes. And, regarding the last question on acquisitions. We have, we have an interesting pipeline. It's always difficult to to know, if we will conclude on some of the acquisitions, as we said, acquisitions are bolt on, not disruptive to all the efforts that we have to do to get our business back on track we concentrate a lot on our operations, on the efficiency, on our margins, top line, so all this We're very happy with the acquisitions that we've made so far. We don't expect any massive one we could have a few coming up, but I wouldn't call any I wouldn't anticipate anything massive for the second half. And in terms of a cash allocation model? There is no reason why at this stage, which will change the cash allocation. You know, we've had a very steady guidance on this today, I mean, there is no element allowing us to say that it would change. Thank you. Your next question comes from the line of Jarrod Castle of UBS. Please go ahead. Good morning, gentlemen. 3 if I may as well. 2 on balance sheet, one just on P and L. I'm just on the balance sheet. Firstly, does it make sense to still hold the bear on stake given the amount of value there? Sorry. And then secondly, just your thinking on net debt I think you've got the 1 to 2 times range. Are we going to get towards 2? And then just secondly, thirdly, on restructuring charges, I mean, how long do you think these are going to continue? Should we expect further charges in 2020 or 2021? Thanks. But on the Belo and C stake, there is no plan today. You know, and so they could generate enough cash to financing investments, and it's we are not very leveraged. So there is no immediate need in cash. So right now, the answer is not in the foreseeable future, but we I can also comment on that. In terms of the net debt ratio, 1 to 2 range. Yes, it depends on the M and A because the right now, right now, We have a little bit more CapEx, but the free cash flow is still steady as we showed you in November. I mean, our cash conversion is above 100% we do not intend to change a dividend policy for at that stage. So today, we are generating cash. Now what's going to happen with the 1 to 2 range is, as we said, there is IFRS 16 also coming into the picture and we will give you more information later on in the year. But getting to 2, I mean, I think we are setting up gently. So it will take us maybe a couple of years or a few years to get to 2, but it will really depend on M and A and the quality of M and A we can do and the quantity of it. So, very M and A related. The restructuring charge going forward. So I explained at the Capital Market Day that before we were doing big plans, but it was getting, diluted after a while. So we prefer now to be more charategical and do it at the right time. So we do less, but more regularly, this first 6 months within 19,000,000 last year, we did 42. So I will say for maybe a year or 2, I mean, you could be modeling at around 40,000,000, I think will be the right number. Be careful that in our other income and expense, there is this line, there is the M and A line there is also the amortization of client investment and trademarks and so forth. So you really need to have the tree to get the comprehensive numbers But I will say on the restructuring, a rough number of 1,000,000 a year is looks right to me for a couple of years, not forever. I'm couple of years. I think once we will be through, it will come down. Your next question comes from the line of Jeffrey Daloon of Bank of America. Please go ahead. Hey, good morning. This is Geoffrey Deliance speaking from Bank of America Merrill Lynch. Three questions, please. The first one is regarding your school contracts. In the Evelyn. So you've said, Education's organic revenue goals was up 10% in the first half, just for like to understand how much was linked to the school contracts in the evening. Secondly, would you mind to give us your thoughts on benefits of rewards business and what's easy outlook for this business in the second half of the year, especially with much more positive effects, especially in Q4 this year? And thirdly, would you mind to comment on food delivery? And do you see any impact on your business from the food delivery? Thank you. Hello, Geoffrey. Thank you for your question. So Regarding the first one, school contracts, definitely we're, 1st, we're proud to have won that. It's a very innovative one. It represents a significant part of that growth, but I must say that, as we're saying earlier, regarding the UK, education in the UK is also, developing well. So I would say, significant part coming from the school contracts in England, but also of a good base, good development in the UK. Regarding benefits and rewards, I must say that the fundamentals are good in, in all the big regions and the big countries where we operate. We said that Brazil is really back on track. So we're positive. France is doing well. Central Europe is doing well. So the big geography is Turkey, Czech Rep, all those big geographies, India, after some some quarters of difficulty due to the migration, yeah, it's back on track. So we have really very some very good fundamentals. So we have a higher comparable base, definitely. But I'm confident in what we will do in H2. I think there we have some strong muscle there. And, yeah, confident on the year. Regarding the food delivery impact, I wouldn't call it massive. It's a trend. As you know, we have embarked into, into that, that trend, as you know, with the acquisition of Food Cherry with what we've, eat club in the, the participation that we took in eat club in the U. S. We're also very actively delivering, starting pilots of local food delivery with some partners We're also associating more and more what we do in Benefits Airlines with on-site to deliver, additional services that help on that food delivery concept. And we believe it's promising. So we're active it has it has an impact, but I wouldn't call it massive at this moment, but we have to watch out because and keep our offers really up to speed with consumer expectations. So, all the things that we do also in click and collect everything that facilitates for our consumers, the immediate delivery of their food and the choice, is very high in our agenda. I believe we should take the the last question now, right? Thank you. Your last question comes from the line of Daria Fomina of Goldman Sachs. Please go ahead. Thank you so much. Thank you. I will probably rephrase Vicki's questions. Obviously, you had a strong organic growth that you reported But looking at your cash generation, you provided the slide showing the first half free cash flow generation over the past few years, but some of those in 2017 were also affected by negative 1 off like working capital and high exceptionals. So it looks like you are retaining more contract, which is a great success, but there was a reset of cash returns down as now even retaining the contracts requires more CapEx. So my question is, can you give a bit more color on what are your expectations as you renew the contract putting in more money in terms of the returns versus where the business was, let's say, last year and the returns profile, that would be very helpful. And my second question is on your brand positioning do you feel like your the brand offering is in the right place for you now across your operations? Thank you so much. On the cash generation, not surprisingly, there is more CapEx to go in education and in sports and leisure. As I said, we were very small in sports and leisure and mostly in France. Now we have a big presence in the U. S. We have concessions and convention centers. And yes, we have to put more CapEx in those. I don't think, the Centerplate team is right. They're not telling us there is more CapEx than in the past. Maybe a little bit more, but not more. In education, I mean, in education, when you are playing in large schools, in large colleges or contract, you have to put some CapEx in universities too. Yes, I mean, I won't say it's it's massively more than before. In the corporate services, we have some CapEx, but not reasonable. For instance, in government and agencies, when you renew the U. S. Marine Corps, I mean, we don't have a huge amount of CapEx. The investments we make is more in the offer and and the pricing and the productivity we will deliver. We recognize that we have more CapEx to do in IT and digital tools and forth. And yes, this will be consuming CapEx and we are aware of it. And I mentioned it's at the capital market there. I mean, this is probably the 3rd pillar of growth of CapEx in the future after education, sports, and leisure will be everything we have to do to become more digital insight sodexo and invest in IT tools. I'm still maintaining that the guidance 2.5% is, is reasonable. Right now, we are at 1.9%. We'll see why this will be at the end of the year. And I think it will be more meaningful with full year of CapEx and with the semester. But we just wanted to illustrate here the direction is going towards that Cash generation, as you've seen, our free cash flow generation and our cash conversion has been strong. And we expect 100 cash conversion for this year too. I mean, probably too early to say whether it will have an impact on cash generation, but, but I don't see it in the immediate future. And regarding brand positioning, we still have some work to do. We've said in previous calls that, we are we are moving away from the absolute single brand positioning. We've kept some of the brands of the company we acquired recently. The good evening company is a great brand, And of course, we keep it and we'll expand it. Center plates would get the brand in Spirers, Novae in Switzerland. We keep the brand, of course. So we have some very strong brands that have been joining the group. We might leverage some other ones. We definitely have more work to do there. We also have offers that are branded, particularly in North America, local activism has helped us win a very interesting tech contract on the West Coast, modern recipe has helped us also, won some contracts on the East Coast at that time. So we have, but we have to be stronger on that, be more, explicit And, so we are currently reviewing and actively repositioning our brands. So more to come on that, it's progressive, of course, but it's, it's an avenue that we are deeply exploring. Thank you. Thank you, Daria. Thank you very much for having been with us. Maybe a few words of conclusion just to tell you that, of course, we are we're really happy with the growth that we had on the first half. We still have a lot of focus on North America, of course, in health care, which is promising in the future. Education is, of still an area of attention. We are actively working on portfolio management. All hands on deck, I can assure you, discipline is being rolled across the whole organization, profitable growth as the motto of the moment, talent is a constant effort across the group And, we are positive on the outlook of the second half cautious about areas where we have to work, but, we maintain our guidance and look forward to exchanging with you as we move on, particularly in Q3, of course, So thank you very much to all of you. Have a great day, and talk to you later. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.