Earnings Call: Q3 2018

Jul 5, 2018

Good morning, and welcome to the Sodexo 9 months fiscal 2018 Revenues Conference Call. Today's conference is being recorded on Thursday, 5th July 2018. At this time, I would now like to hand the conference over to the Sodexo team. Please go ahead. Thank you very much. Good morning, everyone. Welcome to this 9 months fiscal 2018 revenues conference call. On the call today are CEO, Denis Machuel and CFO, Marc Rolland. As usual, the slides and press release can be downloaded from this website and you'll be able to access the call on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without consent, I remind you that this presentation contains statements that may be considered as a forward looking statement and as such may not relate strictly to historical or current facts. These statements represent management's view as of the date they're made and we assume no obligation to update them. You're cautioned not to place undue reliance on our forward looking statements. I remind you that the next announcement will be the full year figures on Thursday, 8th November. And don't hesitate to get back to the IR team if you have any further questions after the call. I now turn you over to Denis Machuel. Denis? Thank you, Virginia, and good morning, everyone. Thanks for being with us for this 1st 9 months, fiscal 'eighteen call. I'll go straight to slide number 5 when we announced that the Q3 is in line with the revised expectations. Q3 was soft actually, but in line with our revised expectations that we set on March 29th. The revenues for the 1st 9 months was at a plus 1.6%. And as expected, on-site services were slightly slower in Q3, and they were up 1.5% for the 1st 9 months. And benefiting awards accelerated a bit to reach plus 4.2% for the 1st 9 months as well. Versus +2.9percent@theendofthefirsthalf. The momentum in business and administration was maintained in Q3 with a good trend in Energy And Resources, despite a much higher comparative base as some of the larger contract mobilization last year were in Q3, actually. The developing economies are continuing to provide strong growth opportunities through The growth in health care and seniors has also remained very strong in Brazil and China in particular, but remained slow in North America with retention being more difficult in Q3. Education was impacted by 5 less university board days in May in North America. So of course, as expected, it impacted growth in Q3. Benefits awards benefited from an improvement in Brazil, with a growth rate of +6.9 percent in Q3. No. If we move to, slide 6 on the contract wins and extensions, we have seen a good development in new food services contracts. And I'll give you some examples here. In May, we started a new contract with, ALD Airport launch developments in the U. S. Which confirms our strong record in the airline business worldwide. We are managing all their launches in the U. S. It's currently 12 and it's growing. And we are working also closely with them with ALD on their future international business development efforts, you know, targeting key strategic locations together. This, these, our global capabilities to help ALD grow Internationally and also our stronger track record in launches were really key success factors for this win. We also, recorded some encouraging signs in education as you can see on the slide. So Sodexo was selected as a food services partner for the insead Asia Compass in Singapore. It's really a prestigious client from who, for whom high end executive dining and even are key. And we've, we're very pleased to have won this business. And I just remind you that we also managed the campus of insead in Fontainebleau in France. We also won, a contract with Tyne Coast College Group, across six sites in the UK, and we will be serving 15,000 students. It's an 8 year contract and we will provide a combination of, capturing and student accommodation services. These offers were developed, following focus group with students at the college doing which they express their preference for convenience, speed, good value, healthy choices and updated dining. So we are very proud of this win. And of course, I would cite 1 more recent contract win with the renewal of our existing contract with the schools of Marseille in France, where we provide 50,000 meals daily over 3 20 primary schools of the city. Now I'd like to also speak about some contract extensions, which continue to be an important driver. We've recently extended contract with Microsoft to now 80 new countries in Europe, including the UK, Finland, Sweden, Denmark, Norway, Spain, Italy, Switzerland and South Africa. In addition to our existing sites, that we have in China and the Middle East. With these new contracts, we will provide full integrated facilities management services that food and FM in Microsoft sites. So we really continue to expand our relationship with Microsoft, which started in 2008, so 10 years back. We also signed a 5 year agreement with Tetra Pak, which you guess, you know, is the world's leading food processing and packaging solutions company. And for them, we provide integrated facilities management services on a global scale in 30 countries and 4 continents. And finally, we are very proud to expand our 12 year relationship with the International School of Beijing for over a 4 year term with cash ring being added to the FM services Sodexo already supplies to the school. Today with a 160 person on-site team. We're very proud of that. So from August onwards, the International School of Beijing students. We're talking, you know, 1700 students we're talking 350 staff. They all will enjoy a range of dining options in the newly designed school cafeterias, the Chinese contain, the staff launch, and also dedicated coffee bars and, even catering. So we're very, very proud of that relationship. So now if we move to slide 7 and the board changes, you've probably seen recently that we announced some changes to, you know, the Board of Directors, Paticia Belanger and Michel Lundale resigned on July 1st 2018 and Sophie Stabil joined the board on July 1, 2018. Her nomination will be submitted to shareholders for confirmation at the next AGM on January 22, 2018, 2019, sorry. And with these changes, Sodexo's board is now made up of 13 administrators including 2 employee representatives. 5 directors are independent, are defined by the FFFAP Medas Code of Corporate Governance for listed companies. The board continues to be gender balanced with 7 female directors and 6 male directors and 4 different nationalities are represented. If we move to slide number 8 now, you'll see that I also announced last week the new executive committee With this evolution, I aim to ensure alignment throughout the business. I aim to also strengthen clients and consumer focus and maximize our efficiency in local execution. This is an enlarged executive committee with 7 new members. And this executive committee will ensure a broader representation of the business with all segments and activities represented. We'll also reinforce the regional representation as we now have the region shares for France, for Asia Pac, together with UK and Ireland and North America directly in the comics. The new executive committee will also bring key expertise to the table to leverage technology and consumer insights for developing and selling offers. That's why the Chief Digital Innovation Officer and the Chief Marketing Officer joining the comics. I'm very confident and I'm absolutely keen to work with this new team. And together, we're committed to improve the performance culture across the group. Now if we move to the next slide, let me update you a little bit on our action plan since April. I've already commented lastly on the people part with a strengthened management team with new executive committee, and we want to mention also that we are progressively strengthening the management team, particularly in North America, but not only. Regarding, the improvement of food cost management, the improvement in SKU management are visible in health care, Noram, quarter after quarter. It's been a slow process to launch and closing the catalog as significantly enhanced adherence to the program. We've now stabilized the number of SKUs in healthcare Moran. We also see a reduction in the cost of transport due to better optimization of the drops. Now if we look at the, the way we optimize SG and A out of unit, we've we launched fit for the future. It's fit for the future is the way we call our 0 based redesign program. It was launched and, we have a 3 months x-ray program, which is advancing well. With the goal to identify enough cost savings to allow us to redeploy more resources on digital, on marketing, on sales. At the moment, we have focused our efforts on the UK, on France, in North America and on central structures. And this globally represents twothree of our global SG And A cost base for on-site services. We are on track to have preliminary results at the end of July. So we hope to be able to give you a bit more detail in September when we meet for the Capital Market Day. The labor management program, is also advancing in education in North America. Q3 alone shows temp labor costs down by more than 20% and over time, down by more than 10%. Let me just remind you that these impacts only the variable cost, the viable path of our labor cost. But it's, it's trending positively. We still have a lot to do, but we're confident in the opportunity that we can see from this program, which is being tested today and will be rolled out to all segments in North America. And of course, we will talk more about this as a Capital Markets Day. Now with regard to some of our large contracts, we've put a lot of efforts and we've also significantly enhance our claim management with several important negotiations going on at the moment. It's too early to give any indications at this stage, but I'm confident that our teams are more determined than ever to get these contracts back up to the right trajectories in terms of the ramp up in profitability. Now let me hand over to Mark for the details for the 1st 9 months revenue, and I'll come back later on the outlook. Well, thank you, Denis, and good morning, everyone. So let us turn to Slide 11. Revenues came in at 1,000,000,000 for the 1st 9 months, which is down 2.9%. Currencies accounted for a 6.6% decline due to the weakness of most currency related to the euro, but in particular of the dollar and the Brazilian reais and to a much stricter extent sterling. This was partially of set by growing contribution from acquisition net of disposal at 2.2%. I'll remind you that in Q3, Not only did we have the contribution from Centerplate for a full quarter for the first time, but we are now also benefiting from an easier comparative base as we started de consolidation some of our African activities from Q3 last year. We expect the scope change impact to reach 2.5 percent for the full year. As a result, organic growth was 1.6 percent for the period with on-site services at plus 1.5% and benefits and rewards at plus 4.2%. Specifically, in Q3, the currencies deteriorated a bit more than in the first half, but this was compensated by an increase in the M and A contribution. Q3 organic growth was 1.4% in line with our revised guidance. On-site services slowed down slightly 1.1%, but there was an acceleration in benefits and rewards, up 6.9% in the quarter. Turning to Slide 12, business and administration's organic growth was up plus 4.2%, strongly influenced by a solid momentum in Asia and Latin America. In North America, organic growth was +2 percent, If you remember, closure in the onshore activities. This has offset strong new business in airline launches. In Europe, France remains solid despite the strikes in the last The government and agency business has been progressively affected since January by the exits of the British Army accounts. As we said in the last quarter, this is expected to impact the second half by about 1,000,000. We are also feeling the impact of some contract losses in Benelux. And energy and resources, although slight better relative to previous quarters is still very negative at minus 10% in Q3. In Africa, Asia, Australia, Latin America and the Middle East, organic growth remained strong at +11.7 percent. This performance has been achieved despite the comparative base, which was much stronger from Q3 as it includes many of the large startups last year. The trend in health care and seniors is slightly better in Q3 as the comparative base became easier. So growth is now back to positive at plus0.7 percent fueled by strong developments in China, India and Brazil, and despite ongoing weakness in North America and Europe. Year to date organic growth in North America was minus 0.8%. Despite the lack of new signatures and some contract losses in March, third quarter sales trended positively due to a lower comparative pace. However, the level of new signatures remain weak and contract losses are still too high. So we do not expect any short term improvements in sales growth. European sales were flat. With organic growth at plus 0.2%. However, in the third quarter, the trend was much better in the UK, helped by the startup of several contracts and as well in seniors in France. In Africa, Asia Australia, Latin America and the Middle East, organic growth remained strong at 16.9 percent, helped by a significant number of contract startups in Brazil and strong same site sales in China and India. Education was down organically by 3.5% impacted by the weakness in universities in North America product organic growth in North America was minus 4.9%. Of course, this is impacted by the negative net new business in the beginning of the year, But on top of this, Q3 also suffered from 5 fewer university board days due to the change in calendar to monthly reporting. I remind you that the board days are there in which meals are provided to students as part of the annual meal package. But we will have in Q4 similar board days compared to last year, which in effect means that the impact of the 50 3rd week adjustment in universities was felt in Q3 and not in Q4. Retention in universities has improved this year and the indication are also slightly more positive on new signatures. So at this stage, we are expecting to enter fiscal 2019 with a more neutral net new business than for fiscal year 2018. European sales generated organic growth at +2 percent. France was impacted by the bank holiday calendar in the 3rd quarter compensated by strong growth in schools in Italy and Spain. In Africa, Asia, Australia, Latin America and the Middle East organic growth remained strong at +14.7 percent due to strong sales growth in Asia, particularly in China and Singapore. On slide 15, overall, North America remains disappointing at -1.7per However, Europe is plus 1.1% and Africa, Asia, Australia, LatAm and Middle East achieved 12.5%. As a result, on-site, excluding North America, is up 4.3%. Now let's move on to benefits and reward services. During the period, currencies had a significant negative impact due to the weakness in the Brazilian reaish, more than 6% on issue volumes and 7% on revenues. Organic revenue growth in revenues was 4 point Organic growth in Europe, Asia and USA remained strong at plus 7.6%, even accelerating in Q3, due to robust growth in France, Italy, but also Turkey. Growth has been particularly strong too in the incentive and recognition, but also in the mobility activities where organic growth of our new travel platforms and our fuel and fleet activities are also contributing. We launched the new end to end platform renamed Rydoo last month in line with expectations. On Slide 18, Revenue growth has issue volume growth remains very solid at 6.6% and this acceleration in Q3 is due to an improvement in Brazil with an increase in Q3 of the number of beneficiaries as well as an increase in face value and some slight improvement in client commissions. As in previous quarters, Mexico remains a strong growth market. Thanks for your attention. I now hand you back to Denis for the outlook. Thank you, Mark. And very simply, you know, as, in line with our revision of guidance on March 29th, we maintain our organic revenue growth objective of between +1 percent and +1.5 percent excluding the 50 third week impact in North America and our underlying operating profit margin of around 5 for, having listened to us. And I now open the call for your questions. Thank you. I'll now take our first question, Julian Rishi from Kepler. Please go ahead. Your line is open. Good morning, everyone. 3 questions for me, please. The first one on France, you're talking about new business that is performing quite not bad, let's say. And Edgar is talking about price discipline going forward. Do you see this in the recent tender you signed in France? And how do you think this will positively impact your business in France going forward? The second question is on North America And the Education segment and about the recent tender you participated to Is the period totally over now? Or maybe we might have some positive surprise going forward depending on the those standards? And the last one is on the recent if we look to Q3 organic growth at the group level, it was 1.4%. You maintain your guidance, I. E. Q4 will be slightly below Q3. Do we have to expect that trend to continue in H1 next year and potential improvement in 2019 to be more back back end loaded maybe? How do you see 2019 evolving in fact at this stage? Thank you. Thank you, Julien. And, so regarding the first part of your question, the first question, sorry, Yes, we've regarding EDUAR, we've, we've seen their comment and like you, I guess. And we've yet to see the impact on pricing So in any case, this will take time, but it's good to hear that familiar. I think, I'm quite confident in France, but we will see what I can tell you is the We mentioned the school's contract that we renewed in Marseille. I can say that we renewed it. We're very happy to have renewed it in conditions that we are absolutely acceptable to us. Regarding the second question regarding education, there's a lot done now in tenders We still have still are waiting for a few answers, but I must say that, we more or less know what what we land for next year. And as Mark said earlier, Regarding education in North America, we are expecting to enter this new fiscal year with a, more or less neutral net new business, which is better than last year, but not at the level of growth that we would expect from that segments. Now regarding Q3 and Q4, we have to realize that Q3 was a little bit slowing down in on-site. We also have in Q4, we will be impacted by the, particularly by the hestia loss in the UK defense contract loss that we mentioned earlier in our H1 comments. So this will impact Q4. And, you know, we will give more update on the growth guidance for next year when we meet in September. I remain prudent And we still have to, a lot to do to get back to the growth rate that that we think we can deliver in the future. We will now take our next question, Jamie Rollo from Morgan Stanley. Please go ahead. Your line is open. Thanks. Good morning. Two questions, please. First, could you just please elaborate a little more on BRS and the significant turnaround in Latin America from, as you said, minus 2 in the first half to plus 5 in the third quarter and whether that's the sort of sustainable growth rate now? And secondly, just on the guidance, your margin guidance 5.7%. You're being very clear now that excluding currency effects, I think the currency effect was negative 10 basis points in the first half, but given the real is a lot weaker now, what is your full year sort of mix impact, if you like? From currency or margin, please? Regarding BRS, as Mark said, we I think we have a solid growth with a little bit of acceleration in Europe Asia and the U. S. We're positive about it. We're confident The impact also came from Brazil. Brazil is I wouldn't call it a massive turnaround, but we see positive sign on the economy. So we see net development slightly more positive. We see also more beneficiaries, bringing more volume We also see a slight improvement on time commission. So we see some positive signs Interest rates also are at the bottom. So that's on the comparative pace that's helped So, I would say that we see Brazil as maybe becoming more positive as we move on, but we still have to be careful. I think the recovery is, the economic recovery there is fragile. We have elections coming in, and that brings a little bit of uncertainty. So, I would say that we have very solid activity in PRS, particularly, as we mentioned, Europe and Asia, I think it's solid. Latin America, apart from the Brazilian studies as well. Mark mentioned Mexico as being a strong growth market and I would say positive sign in Brazil yet to be confirmed in the months to come. Now regarding the, the currency backed on margin guidance, Mark? Yes. We convert and we recalculate every at average rates. So now being 9 months, I'm not expecting the major currency rates to evolve a lot. On average from now onward. And as you can see on our slide 24, the Brazilian real impact is almost 11% And the U. S. Dollar impact is almost 9%. So I'm not expecting the impact to detail, you're right, further than that. But I think this is a good base on which you can evaluate the currency impact on our results. I was talking about the impact on your margins actually. So you've obviously got a much weaker third quarter currency impact than first half. So will the full year currency hit to margins be more than the 10 base points. In other words, the margin guidance would actually come in below one point. It's going to be more than the impact we had in H1, because of our we have a lot of results in Brazil and the re age deteriorated a little further. So you can expect a larger impact for the full year and in each way. Our next question comes from Lia Sakar from HSBC. Thanks. Good morning, everyone. And three questions, please, if I may. Firstly, could I just go back to that French contract catering topic and especially BNI? You sort of sound relatively relaxed about that. Do you feel that the market has been damaged by this apparent price war and increase in CapEx? And do you feel that there is a sort of desperate need for this to be adjusted or is it relatively small in your view? Secondly, sticking to France and overall contract catering, Could you just give us a sense of where your margins are in this area? And even if not precise number, perhaps just to sort of feel of whether it's a drag on group margins of 5.7. And then finally, you talk about addressing the low performing contracts in your action plan. Is that more about the new contracts going forward? Or is there actually any scope to improve the terms of the existing contracts? Thanks for your question. So first, regarding the business administration in France, and the food services, definitely, it's, it's been some, not so easy years, recently, I wouldn't call it a full damage, but we've been impacted by some aggressiveness of competitors I wouldn't mention CapEx as being an issue, but definitely, we've seen some very, very tough competition on price in French food services. And hopefully, as mentioned earlier, if your statement will help as we move on. Regarding the margin in France, I think they are in line overall with a slight slightly above, but more or less in line with group margins. Now talking about low performing contracts, we are there are 2 things. 1st, overall, I want to highlight that our large contracts deliver, we time deliver profitability that is expected and that are in line with group margins. I remind you that 90% of our business is local, 10% of our business is composed of these large contracts. And they, because they are large, they are complex. And they take 1 or 2 years to really ramp up to the expected level of stability. We know those low performing contracts, we're talking about a handful of them, they when this happens that they don't reach the profitability that we expect, we are we engage into discussions with a contract, we, we do some claim management. Of course, we do some renegotiations with the client. We could change scope in some cases. So it's, it's precisely, it's a handful of contract that we have currently, that, that we're working on. We will be, of course, very cautious in the new, last contract that we win. We, we're careful but I want to say that we have a very good track record when you look on the midterm perspective, have a very good track record on managing these large contracts. And we have to fix and we are very focused We have an action plan for each of these low performing contracts at the moment. Thank Our next question comes from Jarrod Castle from UBS. Good morning, gentlemen. 3 for me, please. You've obviously shuffled the, I guess, senior management deck. I just want to get an understanding if now we should expect stability or are there more changes? And, also just how the regional heads tie into the segment heads, the industry segment heads, or is it the other way around? Secondly, can you give some color just on retention rates per region, how that's developing? And then thirdly, can you just explain, just give a bit more color on why the revenue growth in VR B and R is different to the issue value growth in each region? Right. So regarding the new executive committee, this this team is, of course, stable, brought onboard all the segments and activities to have direct view and ensure alignment across all elements of the business. And I brought also the 4 main regions onboard, to ensure that we have this, this local voice being very present in the comics. The P and Ls, the P and L remain by segments. I think it's very important. That's the transformation that we did, if we started 3 years back. The P and Ls remain in segments, but the if the local, the regional governance is important to ensure a good synchronization across the segments to ensure that we maximize the synergies, particularly in support functions, in the regions, to optimize our cost and optimize the way we deliver our services. So that's why having the voice of the 3 main regions plus the highest growth and the highest potential of growth region, is important. And I'm very happy with this, with this new com x and I'm, they are all very motivated reignite growth, in the future. Regarding, retention, I would say, I mean, we usually don't pay retention indications by region, but I would say that the retention is trending higher than last year. And specifically in North America, we are seeing a better trend than last year. So we at least we are gently encouraged that the retention will be better. The last quarter obviously is key and especially in education and so forth. But right now, it's going into the right direction. On your last question, you know, in Europe, we now have 2 activities which are taking more space, even they are still relatively small, but incentive and recognition and mobility and expense. And both of them are actually generating a much higher or they have very, very limited issue volume. So I think both of them together are responsible for 1 or 2 points of growth without issue volume. So if I were to correct in Europe, Asia and North America, the these non volume revenue growth, I think the revenue and the volume growth are very similar, because what we see in terms of mix revenue and in pricing in Europe is very stable. Okay. Thanks very much. In Brazil and LatAm, the difference is between issue volume and revenue was mainly due to the drop in financial revenue as we commented. In Brazil, it costed us $15,000,000 alone. So that's created a small gap between issue volume and revenue growth. Thanks very much. Our next question comes from Richard Clark from Bernstein. Good morning. 3 questions if I may. Just starting with your organic growth guidance, the bottom end of that range is still at 1% your you're at 1.6%. You're going to lose the education calendar effect in Q4. You're going to lose the French strike effect in Q4. So that will be pointing to a pretty bad Q4, if you were to get towards the bottom of that range. Can you kind of indicate whether that's possible or whether we're really kind of looking towards the top end? 2nd question, you've highlighted you're winning some food contracts again. But also still winning multi service contracts. What would you expect your kind of mix movements to be over the rest of the year? Are you still going to be around sort of 34% support services. And then the 3rd question, we've seen a Bell on SA, buying some shares in Sodexo. There was a note out yesterday, there's some restrictions and how much they can buy. Is there any chance they might look to buy the cross holding out? Has that been talked about to unwind that sort of 8% stake that you own it, that you effectively own in yourself? Hi, Richard. Regarding our Q4, I would like you to remain prudent on Q4. As I said, Q3 in on-site was, was slowing down. We have yeah, defense losses. The impact, you mentioned the impact on strikes, but this impact was not a major, this year. So as we, and we've lost some contracts in health care that have an impact in Q4 So I want you to remain prudent on Q4. Which is why we revised and we are comfortable with the guidance that we give between 101.5. So in terms of mix, as we move on, I think, yes, today, we're roughly 70%, 30%, 70% food, 30% FM. We've said that we would of course, reinforce our appetite for single service food contracts. And win a lot in these ones. I wouldn't expect though that a major change in that mix, because when we are we're also very happy with what we deliver, particularly with integrated services. So you could imagine that this mix remains within the same range as we move on. We've seen a very good growth in the past years on FM I would say that we have to reignite growth in food, which hasn't been lately at the speed of growth that we would have expected. So, yeah, I'd like to keep the momentum in FM and greek night protein food. That's, I think, that's what I see. So I wouldn't expect a major change in the mix. And regarding Benoit sauce, Mark? The situation here has not changed. The key question is, is the taxation of the capital gain. And so far, they are no solution to avoid a heavy taxation. So I don't think it's on the agenda right now more than it was 6 months or a year ago. One day it will come on the agenda. But right now, we have no visibility on that. Our next question comes Good morning. Tim, I'm still here. So three questions for me, please. Firstly, could you just clarify in terms of the British Army contract you've obviously given explicit guidance on the second half impact, around the 1,000,000. Was there any impact from that in Q3 just to give us a sense because within within the segment in Europe for business and administrations, there seems to be much of a change of the growth trajectory in the third quarter. The second question is around CapEx kind of more of a medium term view. I obviously don't expect you to preview the the Capital Markets Day, but Compass has clearly guided to higher CapEx. Elliott expects CapEx to sales and contract catering of 3%, which is significantly north of where you've been historically. So I wonder if you just take the opportunity to comment on that and whether you think your industry anyway is changing in terms of the capital requirements? And then the final question, again, just sort of thinking ahead to the Capital Markets Day, I'm just interested to sort of get a sense for, clearly, you're very focused on getting back to growth. What are your overall thoughts on the ability to deliver on at absolute levels of margin improvement in an environment where you are, as I say, striving to improve the growth trajectory of the business? Mark, on this. Yes, Tim, so the impacts we have in Q3 for what we call the STI contract, is a negative impact of 1,000,000 We are expecting slightly more in Q4. And there will be a further impact in Q1 next year and much less in Q2. So the as we said, the impact was for us, mainly in H2, and in H1 next year. So $22,000,000 this year, I will say $28,000,000 in Q4 and probably another $25,000,000 in Q1 next year. That's the impact of the HCR losses. And regarding CapEx, we've said previously that we had no problem in in giving CapEx, good CapEx, I would say, that helps us win contract. Because this CapEx is generated in turn, retention with clients, good profitability, and we give we have no problem to give good CapEx when we have a good business model with the clients. It's true that we've been we've been a little bit, I would say, under investing in CapEx more because we don't have the sales pipeline and we haven't converted enough of our sales into projects to give CapEx. So we have no problem to raise the bar in CapEx. I want to highlight one thing. Our business remains a strong cash generator. I think it's important. And even if we move to a north of 2% in CapEx, we will still be generating cash it's very, very important. So I would say, relatively, it could become a bit more capital intensive, but it's to generate good revenue and also a good bottom line. So, and it's also particular to some segments. It's mainly education, sports and leisure, center plates, we'll spend more we spend more CapEx on the when we win new contracts, and we, we, you know, those are the things that, that will We will also make some investments in AS and T. I think it's important for you to have this in mind. We've mentioned Unwill we will describe a little more in the Capital Market Day, the ICT roadmap that we have in mind. We believe that ISMT can be a strong enabler to our future growth and our future efficiencies. So there'll be a little bit of CapEx there. But most of it will also be, spent on contracts. And I hope that the sales pipeline will transform positively And in the relevant segment that requires some CapEx that this will help us boost our goals. Regarding, you got this, you know, the getting back to growth is very important for us We will expand our perspective on that in the Capital Markets Day. As we've said earlier, particularly in, when we did the H1 announcement, we believe that, margin improvement will come when growth is back. Our business is a needs growth our markets are we'll accept growth because they are they are growth markets And we see, 1st, our efforts to be put on reigniting growth strengthening our sales team, strengthening our relationship with our clients, focusing on retention, all those fundamentals that we put in place to reignite growth and then inter, we believe that margin improvement will come. Great. Can I just have a couple of very, very quick follow ups? Just on the point around CapEx, obviously, you talked about the disciplines around that. But do you get any sense that the industry overall is kind of needing to spend more to perhaps grow at similar rates to the to the past? And then just finally, as regards to the Capital Markets Day, have you got any thoughts about improving or expanding on the disclosure of benefits and rewards. Clearly, it's been obviously a very number, significant number of years since and Feedham Road was spun out of Atkore, but the disclosure difference between the 2 organizations is very significant. I mean, I just wonder whether now there's an opportunity to tackle that. So regarding the CapEx, again, I think it's we see in some segments, I'm thinking particularly universities in North America. And as we mentioned earlier, sports and leisure, we see that there's need for capital investment is, yes, is there. It's probably increasing a bit. But again, increasing with good business models behind, okay? But it's true that we see it increasing a bit, but not an overall trend on across all our segments, not at all. Some segments have absolutely no CapEx requirements. I think it's important to have this in mind. Regarding BRS, yeah, we have, we will we have a more in-depth description of what we're doing in the Capital Markets Day. So the, I think, we will explain, as we see, the drivers of growth in the future, Aurelia and Sonae, the CEO, Benite San Juan, will present more in detail what we do. We still believe that it's a very, very important activity to have onboard. We believe that There are also more synergies to come in the future with on-site. And, yes, we'll give you more details about that in the Capital Markets Day. Okay, excellent. Thank you very much. Our next question comes from Najet Alkacer from Berenberg. Good morning, everyone. Just two questions for me, please. The first one is regarding Centerplate. It seems like you have lost 200,000,000 dollars worth of contract just post closing the deal. Could you please confirm that? If is that the case, what would be what are the driver behind this, please? And my second question is could you provide a little bit more color on the pipeline in the different segment as well? Thank you. Okay. Regarding the Centerplate lost we knew when we were signing, that was, by the way, part of the negotiation, the price negotiation, we knew that they had lost 1 or 2 significant contract. I won't mention about the, I won't give details about the amounts. That is true that they the day, but we knew that when we, when we finalized the negotiation. So it's not a surprise. Since then, we've retained the key clients. We've been very happy about that. We've actually, we're very happy with the Centerplate acquisition. It's going well. Synergies are kicking in quite efficiently, as planned, And it's actually a reverse merger because we are now integrating the sports and leisure team that we had in North America into Center Place. It goes well. Seems are working together well. And, yes, we're very happy with the synergies. Now regarding the second part of your question or the second question, we are well, the pipeline differs very much depending upon the segments. I would say that I'm not sure. Is it, are you talking about the M and A pipeline or the business pipeline? No, the business pipeline in the kitchen, please. Yes, right. I think it's I cannot say that I'm fully satisfied yet. Otherwise, we would envisage strong growth coming. I think we are heavily working in different segments on that. It's still weak, particularly in North America. But again, I mentioned that we have a 4.3% growth outside of North America. I think we have a very solid pipeline, in Asia and Latin America. I wouldn't say that I'm fully satisfied yet with the pipeline that we have, which is which is why we remain prudent on Q4 and the remaining quarters. Sorry, can I just follow-up regarding Centerplate? I understand you don't want to mention an amount, but could you please explain the driver of this loss? Nigel, what's the situation which happened before we were in. So I think it depends on the capital structure and what the private equity wanted to do before So when we closed the deal, we knew that there were some losses and we didn't buy those losses. I mean, they were happening before we moved in. I think private equity have different threshold criteria to asset deals And so when we move since we moved in, we retained what we wanted to retain. I think we won new contract and we are very happy with the sales pipeline the efforts made by the Centerplate team to retain and gain new clients. I cannot comment from what happened before. And why they were lost before. Our next question comes from Jafar Mestari from Exane. Hi, good morning. I just had one question on fit for the future to plan to optimize SG And A. So it's about 16% of your revenue that is neither food costs or labor costs, but could you maybe just help us understand a bit better what's included in this generic SG and A figure? How much is rents, subcontracting costs What else is there? How fragmented is it? And how easy is it going to be to redo this part of the cost base? Yes. In our cost by nature, where you must have seen this in our annual port. It's actually a mix of things because, I don't think in that table, there is the fleet between GP and SG and A, and I'll go back to it to make sure. But the 16% will be all the things we buy, whether they are for sites services, services or whatever things subcontracting, which is neither food nor staff costs, And in an IFM world, we buy more and more of different services and supplies and so forth. So And there will be also the non salary part of our SG and A. And in some pockets, I mean, we use consultants. We use partners. There is rent. There is travel and all of those things. If we are using the table, we is in the document restaurant, I don't think that table is actually very helpful to analyze our cost by nature. But the fundamental elements is we want to first simplify our organization. This is something that is important and fit for the future will help us prioritize and simplify We also want to reduce to the maximum wherever we need to be, absolutely cost efficient and, and typically on reporting, typically on things that do not create value for the clients. And the idea is to identify all these costs And we have some good insights, you know, after this X-ray program that's going on and reallocate these costs into investments, reallocate that into, into marketing, into digital, into offers, I think that's something which is very important. It's not a across the board cost cutting exercise a bit like what we've done with the competitiveness plan that we've done in the past. It's more, going really into the details of of where we have inefficiencies, where we have initiatives or processes or things that don't create value that are too internal focused. To reallocate that into, business driving initiatives. All right. Thank you very much. Our next question. So maybe we take the last question, yes. Our next question comes from Joanna Jordain from ODDO. So the first one, could you please quantify the impact, the negative impact in Q3 in the university U. S. Segment from the 53rd week in terms of organic growth? My second question is in the EBIT. Could you also please quantify the impact that you can expect in terms of cost savings from the immediate cost measure that you're taking in 2018 and in 2019? And last question. Could you elaborate please on the main actions that you have taken so far in the education and in the health care segment to recover some organic growth? So I'll start with the main actions that we've done on education and health care. First, we've, those are, and we're talking here in North America. I remind you that we have good momentum in education and health care outside of of North America. So when we focus on Noran, just want to say that this is very much my focus. It's, those are 2 very important market for us. And where we have very strong positions, leadership positions, We've done some management changes, new CEO, new CFOs, and that they are both So both teams are paid in North America. We've put these action plans around of course, first ensuring that we operate efficiently. So that's the growth can be also, triggered by pay by being cost efficient because then you can bid at the best possible level. So the work that we do on labor productivity, the work that we do with food cost will I think help us, be competitive in the future and, of course, help different sales. We've, we've done some management changes, also below the, the global positions. We have a new CEO in North America for Healthcare. And we do full HR review, performance review also for our sales team. We've started with our sales academy. We've started to reengineer some of our sales team and train them and look at good performance, but also underperformers and make decisions on that. We've won some good contracts, in health care. We've won some good contracts in education. So we see some positive signs, but yet We, you have to, have in mind that the turnaround will be long, of course, the action we see the action plans are that they are happening. We see the impact, but, we're still not fully consistent across all the segments across all the country. Those are our big businesses. So we see we see some impacts of our action plans, but to get the full results, we take time. Regarding the quantification mark? Yes, when you lose 5 board days in a quarter, it's actually a significant quarter is 90 days. So we expect actually the impact, those 5 board days in universities in Q3 to be something between 4% 5% just for the quarter. But that's it. I mean, there will not be such an impact in Q4. Okay. All right. And sorry, and the questions regarding the impact from the cost measure that you can expect on in terms of cost savings? The action plans? I think, yes, we know the action plans are delivering as we said we've maintained our guidance. So it's part of that. It's included the guidance that we gave in on March 29th of being around 5.7 percent, underlying operating profit was, including these action plans. We maintain our guidance. So that means we see these savings coming in and we expect them to continue of course, next year. We will not defocus, next year on what we've started to do. I can ensure that It's very, very high in my agenda and in the agenda of the executive committee. So, we don't lose the, we keep the eye on the ball. But again, as I mentioned earlier, we want to reignite growth first And then, of course, we can, move up on margins, but the main focus is to really boost growth recover efficiency in sales, keep the very good momentum that we have in the developing economies. We're very positive about that and recover growth where we're weak at the moment. Thank you very much. Thank you, everyone. Have a good day. Thank you. I hope you had your answers and look forward to seeing you in September for our Capital Markets Day. Thank you very much. This concludes today's call. Thank you for your participation.