LmkMorning. Thank you for standing by, welcome to Sodexo's Fiscal 2018 Results Conference Call. I advise you that this conference is being recorded today on Thursday, November 8th, 2018. At this time, I'd like to hand the conference over to the Sodexo team. Please go ahead.
Thank you. Good morning, everyone. I'm very sorry, because I gather some of you have had some delays in connecting. We're starting a little bit late. Very sorry to those who are on time. Welcome to our full year fiscal 2018 results call. On the call today are Chief Executive Officer, Denis Machuel, and Chief Financial Officer, Marc Rolland. As usual, if you haven't already done so, the slides and press releases are available at sodexo.com, 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. I remind you that this presentation contains statements that may be considered as forward-looking statements, as such, may not relate strictly to historical or current facts. These statements represent management's views as of the date they're made, we assume no obligation to update them.
You are cautioned not to place undue reliance on our forward-looking statements. Please get back to the IR team if you have any further questions after the call, I remind you that the next announcement will be the first quarter figures on January the 10th, 2019. I now hand you over to Denis Machuel. Thank you.
Good morning to all of you, thanks for being with us this morning. Since it's been only two months since our Capital Markets Day, we thought we would keep this call short, given that we communicated extensively with you at that time. Of course, we are very open to all your questions. Let's now get into the figures. Firstly, we have published figures that are in line with the revised guidance that we issued on March 29th. Organic growth was 2%, excluding the 53rd week in North America, the underlying operating profit margin was 5.7% on 2017 currencies. On the slide six, you will see the breakdown of this 2% growth. In On-site Services, we have achieved 1.9%, with North America down 1.1%, outside of North America, we are up 4.5%.
In Benefits and Rewards Services, our growth was 5.1%, with Latin America positive at 2.4%, and excluding Latin America, strong growth of 7.5%. What is interesting is that Q4 was strong in both Benefits and Rewards and On-site Services, with a good summer season in France and the expected board date shifts from Q3 to Q4 in education. This was also helped by the really strong pickup in Benefits and Rewards in Brazil in the second half, but much more strongly in Q4. India Benefits and Rewards activity also bounced back now that the card migration is over.
In this context, on slide seven, you can see that although profits are strongly impacted by the underperformance in education and healthcare in North America and in a few large accounts, our financials are very much under control, with a strong free cash flow, a solid balance sheet, despite EUR 697 million of M&A and EUR 300 million of share buybacks. As a result, the board has decided to maintain the dividend at EUR 2.75, which implies a payout ratio on underlying net profit of 58%, slightly above the historic norm, and this confirms the board's confidence in our strategy. On slide eight, you can see that I'm really confident that in the second half of the year, we put in place the necessary measures to get Sodexo back on track.
The acceleration in growth in Q4 is good news, but not necessarily sustainable at the same levels going into the first quarter of fiscal 2019. I'm very proud of our teams, particularly the finance teams, who have strictly controlled our cash, delivering a record free cash flow. All the action plans that we announced over the past year, whether they were for accelerating growth or improving productivity, are strongly on the way. My number one priority, as you know, is to get North America back into sustainable growth. We know that the full turnaround will take time. Overall, we're confident that we are going in the right direction, and we have the right teams to take us there. The board shares this confidence and decided to propose to maintain the dividend, which would be voted at the AGM in January.
I'll now pass you over to Marc Rolland to go through the financials, and I'll come back later to talk about the business. Thanks a lot.
Well, thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning.
As usual, you will find the alternative performance measures definition in the appendix. Let's start with the performance in the P&L on next slide. This has been a tough year for our P&L. It's been impacted by a severe currency translation all the way down to the P&L due to the strengths of the euro relative to most of our major other currencies. Revenues at EUR 20.4 billion was down 1.4% or up 4.4%, excluding the currency effect. The underlying operating profit at EUR 1.128 billion was down 15.8% or 8.6%, excluding currencies. The underlying operating profit margin at 5.5% was down 100 basis points, but 80 basis points excluding the currency impact. This is in line with our revised guidance of 5.7% at constant exchange rates.
I would like to remind you that currencies have a translational effect on our P&L, as all our costs are in the same currencies as our revenues. There is also a mixed effect from the Brazilian Real because of the very high profitability of Benefits & Rewards Services in Brazil. When the BRL falls, the weight of this highly profitable business decline and the margin rate decline. The opposite is true when the BRL goes up. The average BRL euro rate fell by 13.5% on average in fiscal 2018 versus fiscal 2017. Other operating income and expenses were at EUR 131 million, EUR 20 million better than last year, and I shall come back to this in the next slide. Financial expenses improved by EUR 15 million.
Last year, we had paid an exceptional indemnity of EUR 10 million due to the early redemption of some debt, and this year we cashed in late interest for EUR 7 million related to the prior year dividend tax refund in France. The effective tax rate was significantly down at 27.1%. This was due to the reimbursement of past dividend taxes in France for EUR 43 million, which we got back in January. We had a lower rate in the U.S.A. with a blended tax rate of 25.7% for our fiscal year 2018. We've had some negative one-offs in the U.S.A. with the impact of the deemed repatriation tax and the deferred tax adjustments. Because of all of this, the underlying net profit was EUR 706 million, down 8.6%, excluding currencies. Net profit was EUR 651 million, down 4%, excluding currencies.
The earnings per share benefited from a lower share count due to the ongoing share buybacks. I would like to come back on the other income and expenses. Restructuring costs were EUR 42 million. As expected, they were substantially below the previous year's EUR 137 million of exceptional cost. However, they were up relative to the first half of the year, where it was EUR 7 million. After the disappointing result in H1, we have taken a number of measures and made some changes in Europe and in the U.S. linked to performance but also to start simplifying the organization. We will do what is necessary in the coming quarters to continue to manage performance and simplify our organization. In line with the Capital Markets Day messages, you should model about EUR 40 million of ongoing restructuring spend in the two coming years.
The M&A cost and perimeter changes are not much different than H1. We have also written down the value of some intangibles, but they were already there in the first half. Moving on to cash. The good news in our figure is that cash generation was very strong in fiscal year 2018. Operating cash flow was up 5.9%, helped by much improved cash tax, thanks principally to the reimbursement of the dividend tax and the positive impact of the tax reform in the U.S. The positive inflow of working capital of EUR 221 million was due to improvements of the components of the working capital throughout the group, with a particularly strong contribution, although not recurrent, in Benefits and Rewards. Capital expenditure, including the net impact of client investment, amounted to EUR 286 million, representing 1.4% of revenues compared to 1.5% last year.
As you know, we have not been signing enough business, especially in education. Free cash flow reached EUR 1,076 million, up EUR 189 million versus last year. This is a great year, and please do not count on such a high cash conversion every year. As you already saw in H1, net acquisition and disposal of subsidiaries increased significantly to EUR 697 million from EUR 268 million last year. The big one was Centerplate for a total of EUR 610 million.
After taking into account the share buyback of EUR 300 million, the dividend payment of EUR 411 million and other changes principally linked to currency impacts and perimeter changes, net debt rose by EUR 648 million. As a result of the very strong increase in free cash flow, cash conversion reached 165% compared to 123% in fiscal 2017. For fiscal 2019, we aim to be above 100%, but not a lot above it.
With net debt increasing by EUR 648 million to EUR 1,260 million. Our gearing has increased to 38%, and the net debt to EBITDA ratio is just now into our targeted 1 to 2 range. During fiscal year 2018, we issued a five-year U.S. private placement for $400 million at 3.7% to finance Centerplate, and we also issued a seven-year bond for EUR 300 million at 1.125% to finance the share buyback. Despite this increased debt level, the average rate at the end of the year on our gross debt was 2.5%, against 2.4% last year, and we have an average maturity of 5.6 years. At the end of fiscal 2018, the group had an operating cash position of EUR 2.7 billion.
This cash position includes almost EUR 2 billion from BRS, including restricted cash for EUR 615 million, financial assets for EUR 427 million, and EUR 28 million of bank overdraft. Next slide, you can see that the dividend proposed by the board is EUR 2.75, stable on last year. Despite the decline in profits, the board felt that given the good performance on cash and its confidence in group strategy, that the dividend should be maintained. As a result, the payout will be a bit higher than usual at 58% on underlying net profit and 63% on published net profit. Let's go on to the review of the operations. Let's start with revenue growth on slide 17. This year, revenue was down 1.4%, impacted by a 5.9% negative currency effect due to the strength of the euro against our main currencies.
Net acquisitions contributed +2.9%, more significant than in the last few years due to the size of the Centerplate acquisition. Its contribution from January to August amounted to almost EUR 500 million or 2.4% to this growth. On the other hand, there were also negative effects, among which the disposal of Vivabox. As a result, organic growth is 1.6% or 2% excluding the 53rd week, slightly above our revised guidance of 1%-1.5%. We effectively finished the year with a fourth quarter that was up 3.5% and 3.3% just for On-site Services, excluding the 53rd week. On-site Services were up 1.9% excluding 53rd week, and Benefits and Rewards was up 5.1%. Let's look at the key performance indicators. In fiscal year 2018, new business reached 6.8% and retention 93.8%, both up by 30 basis points. Same-site sales growth improved by 110 basis points to 2.6%.
We've had strong momentum in contract extension, and in the release, you can see a lot of good examples. The really good news is that we've seen a significantly better retention in universities in North America, driving an improvement of 300 basis points for education globally and some better developments, too, especially in schools. We start the fiscal year 2019 with a neutral net new business impact from prior year in education. We have also seen some sign of improvement in healthcare wins in the last quarter, but we remain prudent because retention has not been particularly good in fiscal year 2018. There were no significant changes in the performance of Business and Administration overall in fiscal year 2018 versus fiscal year 2017 in terms of retention and development.
On this slide, you see the underperformance of activities in North America down 1.1%, due mainly to the significant downturn in education. Outside North America, Europe is up 1.5%, and our activities in all other regions are up double digits at 11.7%. The growth outside North America amounts to 4.5%, in line with past quarters performance. Starting with Business and Administration on slide 21, you will note that all these organic growth figures in green are excluding the 53rd week impact. Organic growth was +4.1%. In North America, organic growth was 1.7% excluding the 53rd week. The airline lounges and corporate services continued to generate solid growth with further development of facility management services. However, Energy and Resources remain challenging due a significant site closure in Canada. Government and agency was flat due to generally weak demand in some contracts and mass closures in the Marine Corps.
As you may have noted, we were successful in retaining the U.S. Marine Corps contract. In Europe, sales were up 1.5% organically. The tourists were back in Paris, which boosted our sports and leisure activities. Corporate services has done well with new business and particularly strong growth in same-site sales in Southern and Eastern Europe, and this has helped to compensate for several losses in the Benelux region. Government and agency was impacted. The British Army losses in the U.K. Energy and resources are stabilized in the second half, but was still negative for the year. In Africa, Asia, Australia, Latin America, and Middle East, organic revenue growth remains strong at 11.2%, reflecting strong new business and same-site sales in corporate services in all regions, and a better environment in energy and resources, particularly in mining. Moving on to healthcare. Excluding the 53rd week, organic growth was +1%.
In North America, organic growth was -0.5%, excluding the impact of the 53rd week, due to slow new business and weak retention this year. The second half activities, though, was better than the first due to an easier comparable base. The management team and new sales organization are now well in place. New business signatures started to pick up this summer. The 0.6% in Europe is due to solid progress on existing sites, particularly in the U.K. On the other hand, net new business in Europe was slightly negative in the year, due to a lack of significant development opportunities. There was an improved trend in seniors and France, in hospitals in Belgium, and the Nordics. In Africa, Asia, Australia, Latin America, and Middle East, the +17.2% organic growth reflects many new contract startups in Brazil, and particularly strong same-site sales growth in Asia.
We do expect the rhythm of openings to calm down a little bit going forward, especially in Brazil, although we still expect above-average growth. The 2.5% decline, excluding the 53rd week impact in education on slide 23, was due to poor performance in North America, which still accounts for 75% of the segment's revenue. North America was down 3.9%, excluding the 53rd week impact. Schools were up due to new business and strong same-site sales growth. Universities suffered from the high level of contract losses of the previous year, which was not offset by enough new business or growth in same-site sales in fiscal year 2018. As I said earlier, the good news is that retention has increased by 300 basis points in the recent selling season, so that for education overall, net new business going into fiscal 2019 is neutral.
In Europe, organic growth was +3%, driven by prior contract wins, same-site sales growth in the U.K. and Spain, and additional days in Italy. France was flat due to weak prior year development. In the rest of the world, education is principally focused in Asia, where organic growth was almost 15%, thanks to strong contract wins, better retention, and contract extension and same-site sales growth, particularly in China, Singapore, and India. Now, let's move on to Benefits and Rewards performance, where we are introducing some new disclosure. First, let's go through our traditional figures. Issue volume organic growth was +6.8% and revenue growth of 5.1%. On slide 26, in Europe, Asia, and the USA, you will see the very sustained growth in revenue of 7.5%. On issue volume up 6.7%.
We've seen robust growth from solid face value increases in the traditional meal and food activities across Western Europe, rising to double-digit growth in Eastern Europe and around the Mediterranean. The weakness in India, due to the massive digital migration at the beginning of 2018, is now behind us, and we saw a good acceleration in Q4. Incentive and recognition and the mobility and expenses activities are also continuing to generate good growth. In Latin America, on slide 27, the year started with a very competitive Brazilian market due to the lack of recovery in employment and much lower interest rate. However, there was a much improved environment in the second half, accelerating in the fourth quarter.
As a result, organic revenue growth in Latin America was +2.4% for the full year, on issue volume growth ending the year up 7%, and this was helped by increases in face value and the number of beneficiaries in the second half. From the third quarter, inflation and interest rate in Brazil have been progressively stabilizing, and the comparative base has become easier. To meet some of your requests on additional disclosure for benefits and rewards services, we shall now break down the revenue in three ways. On slide 29, firstly, the split by service line between employee benefits and the service diversification, including incentive and recognition, mobility and expenses activities, and the public benefits.
On slide 30, you will see that revenues for the employee benefits grew by 4.9%, while the new services grew by 5.9% due to the development of incentive and recognition and the mobility and expenses offers, which are widening as we speak. We should continue to give you the issue volume for employee benefits, which you can see was up 7.2% and represented a total of EUR 13.1 billion. We do not believe the information is useful anymore. We should no longer provide you the issue volume of the other activities going forward. On slide 31, you will find our traditional geographical breakdown, which I have already commented. On slide 32, we shall now also provide the breakdown between operating revenues and financial revenues.
You can see operating revenues were up by 7%, while the financial revenues were down 11%, which is mainly due to the fall in interest rate in Brazil in recent quarters. We shall now provide all this on quarterly basis. On slide 34 now, I would like to finish up with the Underlying Operating Profit. Our Underlying Operating Profit was down 8.6%, excluding the currency effect. As a result, the underlying operating margin was 5.5%, down 100 basis points relative to the previous year. Excluding the currency impact, the margin was 5.7%, down 80 basis points, in line with the revised guidance provided on March 29th. We had explained at the start of the year that B&RS margins will be down due to lower interest rates in Brazil, higher costs linked to digital migration, and the investment in Rydoo's travel and expense offer launch.
The recovery observed in H2 in Brazil has helped mitigate somewhat the annual decline. In On-site Services, the positive news is that there was an improvement in the margin in healthcare and seniors and in Business and Administration in the second half versus first half. This is a result of the many operational action plans put in place. However, the second half comparative base from last year was very high. The issues for the first half have not fully gone away, but we've made some improvements and keep on working at it. With regard to the ramp-up of profitability of some of our large contracts, we have resolved some of those issues, and it has led to improvement in the second half. We must not stop our efforts on all of these contracts.
Even though the plans are now in place, there remain a shortfall in education and healthcare and seniors, particularly in North America, due to the slow start in execution during the first half. Corporate expenses are up due to the announced investment in marketing, digital and innovation. Now let's go into the detail by segment in slide 35. In Business and Administration, the Underlying Operating Profit margin fell to 4.2% by 70 basis points due to execution issues in some of our larger accounts, as well as investments in sales, marketing, and new offers that are being launched in order to boost our growth. I think you saw some of these initiatives at the Capital Markets Day. In healthcare and senior, the margin declined by 30 basis points to 6.4%.
This reflects the weakness in the top line, particularly in North America, and delays in the delivery of efficiencies from the productivity program. Productivity is improving now and should accelerate into fiscal 2019. As we said earlier, the new global segment management team and the North American team, as well as the sales structures, are now all in place. In education, the Underlying Operating margin fell by 90 basis points. This was directly linked to the much lower retention in North America, while the labor scheduling and stock keeping unit management programs are starting to come through. Their impact in H2 was limited due to low level of activities in the second half, linked to the high seasonality of this business. Inflation in labor costs, which affected us seriously in H1, was covered by productivity measures, and we've seen pricing adjustments confirming that labor inflation has been passed through recently.
In Benefits and Rewards Services, the Underlying Operating Profit margin was severely impacted by currencies for 110 basis points. Excluding the currency impact, the margin was down 180 basis points for the full year. After a first half which was down 320 basis points due to the cost of digital migration, particularly in India and Czech Republic, the lower interest rates in Brazil, and investment in the mobility and expenses. The second half was better, down only 60 basis points, benefiting from the strong recovery in volumes and progressive stabilization of the interest rate impact both in Brazil. I thank you for your attention, and I now hand you to Denis, who's going to cover the outlook.
Thank you, Marc. In the following slides, I want to give you a first update on the Focus on Growth strategic agenda that I presented during our Capital Markets Day, and some of the different initiatives that we launched to better position our business to take advantage of growth opportunities, to get back to excellent execution, and thereby accelerate our growth rates back up to best in class. Out of the several initiatives that we've have on our strategic agenda, I will only highlight a few examples today, and we will update you regularly on other initiatives. Let's focus on new food offers that are there to meet the latest consumer trends on the top left corner of the slide. Over the past few years and months, we have invested to drive innovative change, enhance our offers, and meet the latest consumer and food trends.
We've started to use a multi-brand approach, which goes back to the heart of being client and consumer centric. I'm typically talking here about urban professionals who expect the same top-quality, seasonal food at their company restaurants as at their favorite trendy bistro. Busy people on the go who need the convenience of anywhere, anytime food delivery. And there is also a growing demand across the board for locally sourced, sustainable ingredients, and more vegan and vegetarian options. Let's talk first about the Good Eating Company. It really carries a sophisticated urban offer in the U.K. We acquired the Good Eating Company in 2017. And with that company, we can compete in the high street in London with a very sophisticated food offer.
Since the acquisition, the Good Eating Company has operated as a standalone business, keeping its own brand, and with distinctive culinary propositions that are there to capture the premium end of the market in workplace dining. In only a year, we have achieved strong results, together with 100% client retention, 100% managementship, 20,000 daily consumers, and new clients like MSC Cruises. You probably know, it's the world's largest privately held cruise company, and also Nomura Bank. And with Nomura, we are particularly proud of this win because the Good Eating Company will manage the restaurants for the 4,200 employees at their London head office, as well as their fine dining, hospitality, conferencing, and events business, and the onsite convenience store. In fact, we have grown the Good Eating Company business now by over 20%.
When we look at optimizing overhead cost, and it's the top right corner, I just want to highlight that since the Capital Markets Day, we have moved into execution mode in North America, in France, and in the U.K., in terms of our Fit for the Future program. We have identified EUR 100 million run rate of costs that can be taken out to redeploy on boosting sales. In the accounting program that Marc has presented at the CMD, the new Porto center is live, and the U.K. accounting has been transferred. The next country to transition will be the Netherlands. On our nurturing talent, the bottom left corner. We shared with you on the Capital Markets Day that nurturing talent is a fundamental pillar of our strategic agenda. In this pillar, we have used an agile approach to develop the Digital Passport program.
We started with an initial test-and-learn phase with 1,500 users. It's now ready to be deployed across the organization, targeting connected employees and covering digital topics that are impacting the world we live in and Sodexo's business. Among them, of course, consumer experience, big data, innovation mindset, data analytics, Internet of Things, robotics, virtual reality, digital food and facilities management, design thinking. A lot of topics. It's a very impressive virtual learning program, which aims at supporting our employees on the deployment of digital solutions in their countries, in their regions or segments.
Now, on the anchoring corporate responsibility pillar on the bottom right corner, I'd like to highlight the recent launch of 200 new plant-based menus across hundreds of universities, healthcare, and corporate services accounts in the U.S., with, I have to highlight that, delicious and trendy dishes like typically, carrot osso buco, tiramisu made with cashew nut cream, et cetera, and the likes. Very well received. These offers, they respond both to consumer trends and environmental concerns. You may know that food production accounts for a quarter of all greenhouse gas emissions. Helping people increase the share of plant-based foods and reduce meat in their diets is a critical step in reducing those emissions. Let's now turn to the outlook and the fiscal 2019 objectives.
While the growth rates of the fourth quarter is not immediately sustainable at particularly that rate going forward, we are convinced that growth in Europe should be maintainable at between 1% and 2%. We expect to see continued solid growth in developing economies, even if it may not be double digit. We certainly expect to see some improvements in North America. The education selling season was better in terms of retention. Even if the business doesn't grow in fiscal 2019, it certainly shouldn't be down. However, I repeat that the full turnaround in North America is going to take time.
All this leads to an expected organic revenue growth of between 2% and 3% for fiscal 2019. Our action plans are delivering the efficiency gains that the teams are driving across the group with the Fit for the Future project and many other initiatives will be reinvested in growth initiatives. We expect to generate an underlying operating profit margin of between 5.5% and 5.7%, excluding currency effects. I remind you that our strategic agenda is aimed at delivering market-leading growth. The first steps to return to this performance are to achieve organic growth of more than 3% from fiscal year 2020, and then improve margins back up over 6% sustainably. As we explained during the Capital Markets Day, margin improvement will come with the right levels of growth. Thank you for your attention, and I now open up the call to your questions. Thank you.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will take the first question from Simon Leopold from Raymond James. Please go ahead.
Good morning. I would have three questions, if I may. First of all, regarding Q4, if you could please give us the level of contribution to organic growth of the shift in the timing of board days in university in the U.S. Also, just would like to know if you did benefit from any other exceptional factors during the quarter? My second question regarding organic growth for next year, is it fair to assume that it will be back-end loaded with organic growth at the low end of your target in the first half and then accelerating in the second half? Finally, if you could also give us some additional color on your performance in Benefits and Rewards in Brazil in Q4, especially in terms of the evolution of the level of commission, please? Thank you.
Well, thank you for your question. Yeah, in Q4, there was a few elements. We estimate that the recurrent parts in our Q4 results is more around 2%. The gap to 3.3% or the difference to 3.3% comes from various items, one of which are the transfer of dates from Q3 to Q4 in universities. There was also a number of projects during the summer in education, whether it's in schools or in universities, which contribute punctually to Q4. We also had a very strong sports and leisure activity in Q4 in France. We also saw some very good attendance in our corporate sites in France in Q4, which was actually more than what we had expected or experienced in the previous quarters. We don't want to capitalize on this as becoming recurrent.
Then there were some technical issues because we did a lot of claims with a number of clients, and some of those claims turned out as extra billing, retroactive billing, and so forth, and they were booked in Q4 as revenue. When we had forecasted, we were not too sure that this will go through revenues or whether it will go through improvement of outcome, but some of those went into revenue. We do expect for H1 to be, I will say, at the bottom of the range of 2%-3%, and then with H2, to increase gradually. Now, if I want to speak about BRS, if I may.
BRS Brazil actually saw some high single-digit growth in Q4, which was very strong, much stronger than what we had seen in Q3, where it was more low, small, single-digit growth, and where it was very neutral at the end of H1. We see a momentum building in Brazil. It's hard to project it into the next year, but we expect that Brazil will grow in revenues next year. Maybe not at the same rhythm than Q4 for the entire year, but we see solid growth in Brazil next year.
Yeah. Thank you very much.
Our next question comes from Jamie Rollo from Morgan Stanley. Please go ahead. Your line is open.
Thanks. Good morning, everyone. The first question is just on slide 19. You've helpfully given us the breakdown of sales in the year. I think I'm right in saying that implies about 3.2% organic sales in 2018. Obviously, you delivered something below that in on-site services. I think also some of your business development numbers and retention figures are sort of a year-end number rather than in the year numbers. Could you just help us understand the sort of mathematical mechanics of those numbers? Because they do imply a nice acceleration to come, but that's not sort of what you're talking about for next year. Secondly, on margins, for U.S. labor costs, you're saying for education, that's been passed through for 2019.
How about in the other parts of the market in North America, please? Finally, on the balance sheet, you talk about IFRS 16 adding 0.7x leverage. You are obviously doing more acquisitions. How much balance sheet upside do you have for more acquisition spend or indeed buybacks, please? Thank you.
Hi, Jamie. Thanks for your question. When you look at our indicators on slide 19, they are full year indicators, okay? Definitely, I would say we are reasonably pleased with the 30 basis improvements both in retention and in business development. I would say that we are still not satisfied with the level of retention that we have currently. You know that we target to be above 95 as a more midterm target. It is true that we have improved our retention, particularly in the universities, because we entered this year with a neutral net new loss in education, which is much better than last year. We are still cautious about retention in healthcare in the U.S., particularly. Business development, we have a 30% increase, and I would say that we would ideally target as a 7%. We would like to be above 7% this year.
To be clear, I do not want to sign contracts for the sole sake of top-line growth without the margin potentials that goes with it. We will be, of course, boosting sales, but we will be careful about ensuring that what we sell is sold at the right level of margins. Regarding what we call the comparable unit growth, we are at 2.6%, and it is pretty much a good level. Being in the same range would be satisfactory to us. That is how you could look at those three KPIs for the year to come.
Yeah.
For your second question, I will say the dynamic in business and administration, as I said in my comments, we have seen very steady development rates and retention rates in the corporate world. I think we can expect a similar type of growth that what we have experienced in fiscal year 2018 into fiscal year 2019, which was a decent growth. The balance between regions might be slightly different because we are expecting more growth in North America and maybe not such a dynamic growth in Asia, where it was very strong. We are expecting broadly the same type of growth in business and administration. In healthcare and seniors, I would say the difficulty we have is that retention has not been too good in healthcare in North America, and the picture in fiscal year 2019 will depend on how we can control that retention going forward.
Yep.
We've seen better wins, this is very encouraging because it means that the new sales organization we put in place seems to be producing better results than what we had experienced the year before. The good news on the sales. On the retention, we've got a lot of work to do, but the team is focused on this, so it will depend on the quality and the results of our work on retention. In education, as we said, schools had a very strong selling year last year. Retention was much improved. We expect education, especially in North America, not to be dragging the North American results, but to be very neutral in the coming year. As you may have seen in France, we had a number of wins or retention successes in education.
We retained Marseille, we extended the CD78, which is the Yvelines department. Now we got all the schools. It will only start in January, but it's a big win for us. We also retained one of the districts in Paris, we should have a very decent year in education in France next year. On the balance sheet, we discussed with the board recently about buybacks, right now we decided to pause on the buybacks. We have a decent envelope for M&A. We were discussing with the board to be spending another EUR 500 million potentially on M&A this year. The leverage should increase gently. We are currently at one. I think it will probably increase gently above one, but I don't expect a massive jump to two immediately. I think it's going to be a gentle increase of our leverage.
Thank you. Can I please just clarify my question on North America? The second question was about margins and passing on U.S. labor costs. You say that's passed on in education in 2019, but how about in B&A and healthcare? On the question about organic sales breakdown, that slide 19, if they are in the year numbers, implies 3.2% organic sales growth, and you reported 1.4% excluding the extra week. I was wondering what the difference is.
Yeah. On margin, I think I had explained that the very sensitive issues we had last year was in education because we started having the hourly labor inflation impact in Q1 while most of the anniversary of our contracts are during the summer.
This was really where the most acute squeeze was in terms of inflation. What we see is that during the summer and recently, we passed inflation very nicely to our clients. At least we've rebalanced the past year impact. Now, if inflation carries on in an explosive way, we'll still have another squeeze, but what is very reassuring is that even though there is a lag, we pass it on. In the other segments in North America, because the contract starts in every period, the passing on the inflation is more linear, so to speak. We felt some impact, but there was more passing on quickly. In general, we are experiencing and we experienced an inflation in labor last year about 2.8%, and we are passing it on.
The risk we have is that inflation comes back or maintains in North America for education. There are still this lag to pass it on, so far so good.
Regarding your questions on KPIs, CUG comparable unit growth is in year, retention and development are not. These KPIs will impact revenue as when the deals really start up. That's where you have [crosstalk] i t's difficult to extrapolate.
On this one, it's because when we calculate development rate, we calculate the pro forma one-year revenue, but the contract. Let's take CD78. We won it in August. It will only start in January with the ramp-up. We will not see the full effect of that significant contract before H2. Well, actually, it's actually booked in development in fiscal year 2018. Retention is the same. In retention, we book it full year when it happens, but it happens when it happens. It can be three months later or six months later. What is important, and your calculation is right, is if we keep on having a sum of KPIs above 3%, it's an advanced sign that we should be able to reach 3% in the future.
I think you're right, that the signs are telling us that reaching 3%, if we maintain KPIs like this, should be in our reach.
Okay, that's very clear. Thank you very much.
Thank you. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We will now take our next question from Jarrod Castle from UBS, London. Please go ahead. Your line is open.
Thank you, good morning, everyone. Three from me as well. You've spoken about M&A, could you give a bit of color on your thoughts in terms of disposals and country exits first? Secondly, you've also spoken about phasing of EUR 100 million redeployable costs. Maybe you could just talk a little bit about where you see that being redeployed? Lastly, the Brexit question, just in terms of how you feel about your own preparation going into next year in the U.K. for a Brexit, and also if you've seen any change in client behavior in the U.K. related to next year. Thanks.
Hi, Jarrod, thanks for your question. Regarding disposals and country exits, we are active in terms of identifying pieces of the business, not massive ones, but that we could dispose of. You've seen that last year we've done some. Regarding country exits, you know that this is sensitive, we have four countries identified. Two, actively, we've launched the exit process. Two more are being finalized in terms of how we would exit. This is the first phase. Marc said that we would be around 50+ countries permanently and probably a dozen more into project mode, where we go there only for a project and exit afterwards. This is in process. As I said, four countries identified, two processes launched, two more finalizing how we will do it. We will continue.
I cannot promise that all of them would be done by this year, because we're talking about people, we're talking about client contracts. There's a sensitivity about that. There's of course a people issue, we put rhythm into it, and we'll update you as we move on. For the moment, we don't communicate, of course, on the name of the countries because it's sensitive. You can imagine that. We're doing good progress here, and we will keep the momentum. Yeah, that's it.
In term of the redeployable cost, what we explained at the Capital Markets Day is that we focused first on France, U.K., and North America. This is where we identified EUR 100 million of redeployable cost. What we are trying to do is, because those are deep transformation. Most of the savings are relying to investment in Information Services and Technology being significant and being deployed. We do expect some impact in term of redeployment in fiscal year 2019, but it will not be more than EUR 20 million. We have a number of things in term of transformation of our systems to do, and we expect the bulk of the redeployment to be in 2020 and 2021. Those are relatively very deep transformation that we need to do, but we will do them.
Regarding Brexit, I'd say that we don't see particular signs or changes in our client behavior for the moment. I think there is a big question mark into what's going to happen. No one knows actually, where we will land. I'd say, yeah, we are as prepared as we can. I remind you that our business is very local. The impact that we have in a country remains local. As I said, we are as ready as we can. So far, no changes in any client behavior.
Thanks very much, gentlemen.
Thank you. Our next question comes from Jaafar Mestari from Exane BNP Paribas. Please go ahead. Your line is open.
Hi, good morning, everyone. I've got two questions, please, if that's okay. I'd like to ask them one after the other. Just on margins, I'm slightly confused by the outlook and the order of priority for the next three, four years, because there are many statements, where you reiterate that the margins will come after the top line is fixed, will only come at the right level of growth, that the productivity benefits will be reinvested in growth, et cetera. Separately, you seem to be guiding on a constant currency basis, for actually a slight year-over-year improvement in 2019. To clarify this for 2019, 2020, the short term, are you promising any sort of margin improvements before your explicit guidance of 6% in 2021?
Right. We've guided a 5.5%-5.7% underlying operating profit for this coming year. It's a range which we are confident about. What we said in the Capital Markets Day, our objective is to reach 6%. I think our fundamental objective is to deliver more than 6% margin sustainably. We said, at Capital Markets Day, ideally by 2021. Okay? Definitely, we had an exchange rate impact on our margins. I think you noticed that. The impact of the currency shouldn't be more than 20 basis points overall, given the split of our revenue portfolio. Of course, 2017 was our reference when we mentioned that, but I want to say that our objective is to deliver more than 6% margin sustainably whatever the rates. Of course, there's a little bit of swing on that linked to currencies. Fundamentally, our objective is to sustainably deliver more than 6%.
Thank you very much for that. Just to clarify, in the full year 2019 margin outlook, 5.5%-5.7% is constant currency.
Yes. Constant rate of fiscal year 2018.
When you mentioned at no more than 20 basis points currency impact, it's the potential negative currency impact in full year 2019.
Yeah. When we model, the currency impact we've seen this year is due to the severe drop in the BRL, but also the severe drop in the average rate of the USD. The U.S. and Brazil are our two highest margin country. Having a 13%-12% drop in both currencies, giving 20 basis points, this is what we see as the worst it can get. It can go the other way. What we say is that the currency impact should not be more than ±20 basis points on a yearly basis. That's why Denis says, look, the 6% we alluded to is a 6% whatever what on the currency, because we need to be more than 6% anyway, so.
Okay. It could go both ways. Obviously, at current exchange rates, is it a negative or a positive?
Yeah.
Yeah.
Currently, when we look at the exchange rate right now, after two months, we still see a slight deterioration in the BRL, probably 4%-5%, but we see an improvement in the USD by another 4%-5%. One is minus, one is plus, but it's very early. We calculate the rates as an average of every month for a year. It will depend. What's happening in Brazil from a political point of view and a currency point of view will have a great influence, obviously, on the BRL average rate, but it's too early to say.
Yeah.
The USD is getting better.
Yeah.
Okay. Thank you for clarifying that.
At the moment, we know it's in Brazil. Yes.
My second question is on the brand strategy. As you mentioned, for the last year or so now, you seem to have explored the idea of having dedicated business-to-business brands for certain sectors. You did spend a bit of time on the Good Eating Company on this presentation. If I remember correctly, when you acquired it, though, it was a GBP 20 million business. If I take the Good Eating Company and Novae, and even if I consider Sodexo in France to be new-ish, because you've relaunched it, and Centerplate, all together, it's less than 10% of group revenue. My question is, where do we go from here? You've tested it on a small scale. Do you keep buying small brands?
Do you start launching sub-brands of a bigger scale organically, or do you aim for the same results without the brands, a different salesforce organization, a different segmentation, et cetera?
I think it's a very good question. Yes, definitely, you understood that we are shifting our brand strategy. We keep the brands, of course, when they are relevant. We will keep the Novae brand in Switzerland. We've kept the Centerplate brand and the Good Eating Company. We plan to develop further the Good Eating Company and export that brand into new markets because this brand carries an offer, as I said, that is very relevant for typically urban clients and employees. Typically, if we do that, we will do it with different sales teams because it's quite specific. We will enter into that. It's too early to give you an order of magnitude of that development, but it's very precisely something that we have in mind. It's true also, of course, for Centerplate. Particularly, wherever the consumer centricity is important, the brand is important.
Typically in corporate services, we've won recently, and it's still not to be fully published, but we won a very important account on the West Coast in the tech sector with our brand, which is called Local Artisan. We will deploy Local Artisan at a greater scale in the U.S. We're moving ahead on that.
Okay. Thank you very much.
Thank you. We will now take our next question from Kean Marden from Jefferies. Please go ahead. Your line is open.
Morning. May I return again to Brazil, I just wonder if you can give us background on whether the improvement in revenue momentum that you've seen, is that due to your market share changing in competitive dynamics, or is that the economy picking up? Secondly, a quick question for Marc. If my calculation's correct, the change in the French subsidy regime that we've seen proposed, would that lead to about a EUR 10 million headwind to your EBIT in the fiscal 2019 year?
Regarding Brazil, I think we definitely see a pickup into the economy. We've suffered from a lot of our clients laying off staff, and of course, that has an impact on the number of beneficiaries that we serve. We see that. We see also a good dynamic coming from our sales team. We've put typically in place a strong digital marketing and sales machine that helps us capture small and medium companies in a very efficient way. That helps. It helps also on the margins, because of course, margins are better, commissions are better with smaller companies than big ones, where the fight can be sometimes a bit tough. I think those two elements are explaining this, I would say, promising pickup of our results in Brazil.
Now on the French CICE, as you said, we've actually already suffered in fiscal year 2018, a negative impact at UOP level, about EUR 4.5 million, and we are expecting a further impact next year by EUR 8 million, which is factored in our guidance. There is also a secondary impact that is tricky, is that it also affects our effective tax rate, and it's costing us actually also an extra EUR 9 million of tax because now the CICE being a social charges reduction, it's actually increasing our profit base taxable, while before it was a tax credit, so it was not taxed. This is why also we guided for an ETR of 29%, because without this, we will have been at 28, but it cost us 100 basis points of ETR as well. EUR 8 million on UOP and one full percentage point in ETR.
Yeah. Agreed. Sorry, just to follow up on that, Marc. Do you feel now that that's the end to the change in the subsidy regime in France? We've had a degree of disruption over the last 18 months or so. Is that it now? Can we look forward to something a little bit more stable for a while?
I wish I could tell you it's the end. On the tax side, it's not the end because there will be a further impact because of our split years and so forth. We will have another 50 basis points impact on the ETR the following year. In terms of reforms, now the government is reforming left, right, and center, you can expect more, I cannot tell you where it's going to come from. It could also be positive, I'm hopeful. Right now, on this one, the EBIT impact, I think we should almost see the full of it in 2019. The ETR impact, there is a further impact in 2020.
Correct. Thank you. Thank you, gentlemen.
We will now take our next question from James Ainley from Citigroup. Please go ahead.
Yeah, morning everybody. Two questions remaining from me, please. First is on the margin outlook. You've given us clear guidance for the full year, could you talk about the phasing of the margin improvement between the first and second half of the year? In other words, should we expect margins to dip in the first half? Secondly, moving on to the recent GPO wins in the U.S., is that going to be a driver of margin improvement as we go into 2019? Secondly, are you finding that helping to drive new business at this stage, or is it too early to make that call? Thank you.
Thanks, James. Regarding your first question, we give a guidance on the margins for the full year. We don't particularly give any outlook in terms of the phasing between the halves. I think, we still have the margin factors in many different criteria and I wouldn't take any risk or anything in giving any information on phasing. I think we are clear on where we aim to be at the end of the year, and that's it. Marc?
On the GPO. You've seen, we announced it in August. We signed a partnership with Dining Alliance. This partnership is progressively starting from October. It's going to be a ramp-up. We have to onboard all their merchants, which will take time. We do expect a revenue uplift from that partnership. We expect this uplift to be EUR 30 million- EUR 40 million in this year. As you know, because of IFRS 15 and the fact that it's not a gross revenue recognition, but a net revenue recognition, this is not a lot of revenue. From a margin point of view, it's going to be positive, but not highly positive in the first year. What is important is that it adds a lot of billions of potential purchasing to our current volume, and this is a long game.
We have to work the catalog, we have to renegotiate with suppliers, we will improve purchasing income because we are buying more now. Now, in this current fiscal year, the impact will be there, positive, but it's not going to be a great impact. This is more a long-term strategic move that we wanted to do to increase our volume and our purchasing power in North America.
What's good, though, in this win, is that it demonstrates that our current GPO was competitive. That's, I think, that was a good sign to be able to win Dining Alliance, demonstrate that even though our volumes typically compared to Foodbuy were lower, that we could be competitive on pricing. I think it's a positive sign of our competitiveness. Which will be improved, as Marc said, as we move on, thanks to the volumes.
Very good. Thank you.
We will now take our next question from Tim Ramskill from Credit Suisse. Please go ahead.
Thank you. Good morning. I've got three questions, please. The first is just back to slide 19, which Jamie asked about earlier. The improvement in comparable unit growth, can you just talk a little bit about whether that's driven by volume or pricing? Second question is, I know we've had lots of discussion and debate about the margin guidance and the impact of FX. Just to make it really simple, your comments about getting back to 6% margins when you account for current exchange rates, does that leave that at 5.8%? Is that a kind of some simple sort of yes or no?
Finally, just in terms of cash tax, which was low in the first half and low for the whole of this year, do you expect the difference between cash tax and P&L tax to come into a much more sort of similar band going forwards into 2019? Thank you.
Thanks, Tim. Regarding the CUG, it's driven by a compound effect of many parameters. It's a multi-criteria indicator. Inflation, of course, comes in, but also cross-selling, consumer trends, employment growth on the sites, et cetera. It's really a mixed bag of things. What I can say is, roughly, inflation is more or less around two-thirds of that, and the rest being all the other parameters that I mentioned. Regarding our margin guidance, we reduced 20 basis points. We landed at 5.7%, published is 5.5%. If we were strictly sensible to say, we communicated on 6%. 6% mathematically means with the new exchange rate, 5.8%. Okay? That's mathematically. What I just said was 6% sustainably as our target was to be understood, whatever the rates.
Of course, it can fluctuate, but what we want is to be sustainably over 6%, whatever the exchange rates. Okay? That means then, with a plus or minus around these 20 basis points. That's our target. We're not there. We clearly stated that we have to do two things. We have to reignite top-line growth because top-line growth helps the margins. We also have to do all the work on our efficiencies, reducing admin costs and investing in sales, and marketing, and digital and everything, and systems. That's the Fit for Future program. It's all that that will help us be sustainably at 6% again, whatever the rates. That's our objective.
On the cash tax, yes, there is a massive difference this year. I think it's about EUR 140 million between the P&L tax and the cash tax. I would say, no, you cannot expect this to reproduce itself in the coming year. There could be a positive difference still, because of the timing of the improvement on the tax rates and so forth, but this was really an exceptional year in fiscal year 2018. Do not expect such an impact in the future.
Okay, great. Just one last clarification. The phasing of those FX impacts on margins was a little bit greater in the second half of the year than it was in the first half of the year.
Yeah.
I suppose what I'm trying to get to is your guidance for next year on margins. You talk about it in terms of constant currency. Do you still expect, again, based on what we're seeing at the moment in terms of FX rates, there to be a further pressure stemming from FX or not?
When we were at S1, the BRL had dropped by 8.7%, and at the end of the year, it's 13.5%. The 13.5% applied to the full year, the 8.7% applied to six months. You have a 13.5% on H2, and then you have a gap between 13.5% and 8.7% on H1. The difference in margin in S1 was 10 basis points, but it turned out to become 20 basis points because of that. The same applies to the U.S., where the gap at S1 was much lower than the gap for the full year. The dramatic effect in S2 was very strong because the deterioration of the currency accelerated. Now, when we are simulating the impact for fiscal year 2019 based on what we know today, and we are very early in the year because we took the rate at the end of October.
What I said is that the impact of the U.S. dollar today on average, if I reproduce the current rate I see till the end of the year, the impact is +5% on the U.S. dollar, -5% on the BRL. This should have a neutral impact in margin. Again, it's by reproducing for the rest of the year the rates I observe today, and I will not dare projecting currency in the future. Not my job. What I can tell you is right now the trend is -5%, +5%, each will be relatively neutral.
Okay. Excellent. Thanks for that, Marc. Cheers.
We will now take our next question from Harry Martin from Bernstein. Please go ahead. Your line is open.
Yeah, good morning. Two questions on free cash flow, please. Firstly, how much of the EUR 100 million improvement in working capital is underlying versus some one-off? A bit more color on that would be useful. Sort of onto CapEx. Presumably going into next year, an acceleration in organic growth probably comes with a bit more CapEx. Could you just talk a bit about the sort of longer-term run rate of CapEx to sales and also guidance into next year? Thanks.
On the working capital, I alluded to the fact that our teams did pretty well. I think we did a good work on the basic components of the working capital, collecting the cash, increasing supplier payment terms and so forth. I will say it accounts for probably half of what you see. The other half comes from a fantastic BRS working capital improvement, but some of it is linked to the cutoff of issue volume and reimbursement for a few services. I'll give you an example. In Romania, we issued a holiday pass and we collected a lot, but it was not reimbursed before the new year. This is a one-off and it's actually going to reverse a year after. I am not expecting a very strong working capital improvement next year because we will have some of those balancing effects.
What I can tell you is that the basics of collecting cash and managing our payment terms is well under control and it contributed positively. For next year, it's going to be a bit more challenging because of those cutoff issues. When I look at CapEx, this year was a very low year. You will see also we created an appendix to show you how to take our net CapEx to sales into growth CapEx to sales. I think it's appendix 10. We'll let you look into it, and if you have any questions, you can get back to Virginia and I on that. What we are seeing is that we will have more CapEx next year. This was really a low point. We have a few CapEx to pay in education. We've won contracts. We know we committed CapEx in education.
We committed CapEx in sports and leisure with Centerplate because of some wins. We've encouraged our corporate team to also spend more CapEx for retention, so there will be more CapEx in fiscal year 2019. It's now difficult to tell you exactly how much, but I expect this to be significantly higher in fiscal year 2019 than in fiscal year 2018.
Just to follow up on that, you say you're encouraging your teams to spend a bit more CapEx to win contracts. Are you seeing the higher CapEx put in upfront, allowing you to win sort of higher quality and longer-term contracts? Or is it sort of a fairly similar mix to what you would have had before?
I think what we see is, if we had low CapEx, it was because we had low sales activity and low wins. We have no problem to put CapEx if we have good pro forma proposals with good margins coming up. That's for us in terms of wins. As Marc said, we are really encouraging our teams to come up with It's specifically in universities, a little bit in corporate services, but universities and sports and leisure. CapEx can also be used for retention purposes. When we innovate with our clients ahead of any tender, that helps retain the client. Sometimes, putting a little bit CapEx is interesting. Those are good practices when we have good contract, good margins. It's something which is really good CapEx, I would say.
We hope as sales pick up in the segments that I mentioned, that we'll have more CapEx.
Very clear. Thank you.
We will now take the next question from David Harrington from Bank of America. Please go ahead.
Morning, guys. Earlier in the year, you called out a handful of large contracts as contributing to your margin declines. I just wanted to get an update on how those specific large contracts are developing into next year.
Yeah. I can tell you, we've put quite significant efforts on that. I would say, given the complexity of those large contracts, it's a permanent focus. I think we've solved some of our critical underperforming large contracts. As I said, it's a constant focus, and always we have to be cautious every day. What we've done is, for some of them, we've renegotiated with the clients, we've renegotiated contract terms. We've renegotiated scopes sometimes. We've turned around some of them. That's the first action that we took. With a few of them, we've exited because we thought that there was no possible negotiation, there was no possible outcome, so we exited. For a very few, we've put the necessary provisions on those ones, but we are talking very few contracts.
Our main goal is to roll up our sleeves, get into constructive talks with the clients, adjust the scope if necessary, adjust contract terms. In the vast majority of the cases, the clients want us to be successful because it is also his interest. With the right level of conversations, provided, of course, we deliver the service that is expected, we are able to turn them around.
Thank you very much.
Once again, as a reminder, if you wish to ask a question, please signal by pressing the star followed by the digit one. We will now take the next question from Johanna Jourdain from Oddo BHF. Please go ahead.
Good morning. Two questions from me, please. First one regarding the margin outlook for 2019 and the mix effect. Given the fact that you are reinvesting in growth in the On-site Services division in particular, should we expect some margin improvement in this division or should margin improvement come mostly from the Benefits and Rewards division? My second question is regarding France. Could you revert on the pricing situation there and as well your organic growth in 2018 and also in Q4 in particular, please?
Thanks, Johanna, for your question. In terms of margins outlook, I would say that we don't expect significant margin improvements in Onsite. We are focusing in really having them under control. As I said, operational efficiency actions are critical. We are seeing positive things on, typically, in healthcare in North America, which, as you know, was an issue in the past year. You shouldn't expect marginal mixed improvement on the margins in Onsite, but it's true that BRS can contribute with its development. Regarding France, I would say that the French market has been very challenging. It still remains, even though maybe the situation has calmed down a little bit on the pricing, but it's still one of the challenging market. We have to improve, particularly on retention, I think we can improve. We have a better overall growth, still not at the level that we expect.
In terms of splits.
Q4 in France, as I mentioned, contributing to our strong Q4 at the group level because of good sports and leisure activity and good attendance in corporate services. Overall, when we look at France, the last four quarters have all been positive. I won't say the momentum is strongly picking up, Q4 was good for the reason I described. We are expecting next year to be gently positive and as the market soften a bit on the pricing, we will expect growth to pick up. It's too early to really see a very strong momentum in France, but it is positive. It's growing quarter after quarter, so it's steady.
France is back to, let's say, reasonable growth after several years of decrease. We see that as a positive sign.
Thank you very much.
Sure.
Our next question comes from James Rowland Clark from Barclays. Please go ahead. Your line is open.
Hi. Good morning. Just a couple of quick questions, please. Are you sticking with your effective tax rate guidance of between 28%-30% after the 27.1% you had this year? Secondly, on the comparable unit growth that you saw, I think you said it was two-thirds pricing and the rest volume. Could you just remind us of how that compares to last year? If possible, how that two-thirds, one-third in FY 2018, how that phased throughout the year, if that's possible.
The ETR. Actually, we will need to sit down and I need to do you a little graph because the U.S. tax rate is going to go down further for us because this year was what we call a blended rate. We were four months in fiscal year 2017 and eight months in fiscal year 2018. For calendar year 2017, it's eight months. Last year was 25.7%, and it will become 21 next year. At the same time, we had EUR 43 million of dividend tax credit, and that EUR 43 million alone is about 400 basis points of ETR. We have the safe seal being factored in next year, which is costing us 1%. When you factor all of this, the range of 28%-30% is actually what we see currently.
I think we should be around 29, without the safe seal, we will have been at 28. I'm aiming for 29. If we can do better, we'll do better, this is what I'm aiming for at the moment.
Regarding the CUG, the 2/3 of pricing and inflation-related increase, it's more or less something that we see.
Average.
As an average. This year was helped by several project work on some sites. This has helped. We particularly had the Federal Emergency Management Agency project in energy and resources that helped CUG, the special project work. For this coming year, I think you should estimate that this would be more or less in that range.
Okay.
I think this should be the last question, please.
Yes, it appears that there are no further questions in the queue. I'd like to hand the call back to the Sodexo team for any additional or closing remarks.
Thank you very much for your questions. We just want to reiterate the confidence that we have in the action plans that we put, both on consolidating the way we deliver our business, doing all the consequence management decisions that we have to take into ensuring that we have all the right people at the right place. We see, let's say, a positive trend on H2 that makes us confident for this year to come. Still, as I said, North America turnaround will take some time. We see positive signs. North America is a big business. We put all the necessary efforts, and I think we're doing all the right things. The Executive Committee is absolutely aligned, absolutely focused on executing our plans, looking forward to this year and, of course, to exchanging with you in a couple of months, actually.
Thank you very much to all of you. Thank you for your questions.
Thank you. Bye-bye.
Ladies and gentlemen.
Bye-bye
This concludes today's conference call. Thank you all for your participation. You may now disconnect.