Good morning, welcome to the Sodexo Nine Months Fiscal 2018 Revenues conference call. Today's conference is being recorded on Thursday, the 5th of 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 nine-month 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, you'll be able to access the call on our website for the next 12 months. The call is being recorded, may not be reproduced or transmitted without our consent. I remind you that this presentation contains statements that may be considered as a forward-looking statement, as such, may not relate strictly to historical or current facts. These statements represent management's view 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. I remind you that the next announcement will be the full-year figures on Thursday, the 8th of November.
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. Good morning, everyone. Thanks for being with us for this first nine months fiscal 2018 call. I'll go straight to slide number 5, when we announce that the Q3 is in line with the revised expectations. Q3 was soft, actually, in line with our revised expectations that we set on March 29th. The revenues for the first nine months was at +1.6%, as expected, On-site Services were slightly slower in Q3, they were up +1.5% for the first nine months. Benefits & Rewards accelerated a bit to reach +4.2% for the first nine months as well, versus +2.9% at the end of the first half.
The momentum in Business & Administrations was maintained in Q3 with a good trend in Energy & 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 new business, through cross-selling, and also volume growth. The growth in Healthcare & Seniors has also remained very strong in Brazil and China in particular, but remains slow in North America, with retention being more difficult in Q3. Education was impacted by five less university board days in May in North America. Of course, as expected, it impacted growth in Q3. Benefits & Rewards benefited from an improvement in Brazil with a growth rate of +6.9% in Q3. Now, if we move to slide six on the contract wins and extensions.
We have seen a good development in new food services contracts, and I will give you some examples here. In May, we started a new contract with ALD, Airport Lounge Development, in the U.S. which confirms our strong record in the airline business worldwide. We are managing all their lounges in the U.S. It is currently 12, and it is growing. We are working also closely with them, with ALD, on their future international business development efforts, targeting key strategic locations together. Our global capabilities to help ALD grow internationally and also our strong track record in lounges were really key success factors for this win. We also recorded some encouraging signs in education, as you can see on the slide. Sodexo was selected as a food services partner for the INSEAD Asia campus in Singapore. It is really a prestigious client for whom high-end executive dining and event catering are key.
We are very pleased to have won this business, and I just remind you that we also manage the campus of INSEAD in Fontainebleau, in France. We also won a contract with Tyne Coast College Group across six sites in the U.K., and we will be serving 15,000 students. It is an 8-year contract, and we will provide a combination of catering and student accommodation services. These offers were developed following focus groups with students at the college, during which they expressed their preference for convenience, speed, good value, healthy choices, and updated dining. We are very proud of this win. I would cite one 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 320 primary schools of the city.
I would like to also speak about some contract extensions, which continue to be an important driver. We have recently extended our contract with Microsoft to now 18 new countries in Europe, including the U.K., 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 this new contract, we will provide fully integrated facilities management services, that is food and FM, in Microsoft sites. 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. For them, we provide integrated facilities management services on a global scale in 30 countries and four continents.
Finally, we are very proud to expand our 12-year relationship with the International School of Beijing for over a four-year term, with catering 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. From August onwards, the International School of Beijing students, we're talking 1,700 students, we're talking 350 staff. They all will enjoy a range of dining options in the newly designed school cafeterias, the Chinese canteen, the staff lounge, and also dedicated coffee bars and even catering. We're very proud of that relationship. Now if we move to slide seven and the board changes, you've probably seen recently that we announced some changes to the board of directors. Patricia Bellinger and Michel Landel resigned on July 1st, 2018, and Sophie Stabile joined the board on July 1st, 2018.
Her nomination will be submitted to shareholders for confirmation at the next AGM on January 22nd, 2019. With these changes, Sodexo's board is now made up of 13 administrators, including two employee representatives. Five directors are independent, as defined by the AFEP-MEDEF Code of Corporate Governance for listed companies. The board continues to be gender balanced with seven female directors and six male directors, and four different nationalities are represented. We move to slide number eight 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 client and consumer focus and maximize our efficiency in local execution.
This is a large Executive Committee with seven new members. This Executive Committee will ensure a broader representation of the business with all segments and activities represented, will also reinforce the regional representation as we now have the region chairs for France, for Asia-Pac, together with U.K. and Ireland and North America directly in the ComEx. 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 and Innovation Officer and the Chief Marketing Officer are joining the ComEx. I'm very confident. I'm absolutely keen to work with this new team. Together we're committed to improve the performance culture across the group. We move to the next slide, let me update you a little bit on our action plan since April.
I've already commented largely on the people part with a strengthened management team, with new Executive Committee. I 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 the Healthcare program quarter after quarter. It's been a slow process to launch. Closing the catalog has significantly enhanced adherence to the program. We've now stabilized the number of SKUs in Healthcare and around. We also see a reduction in the cost of transport due to better optimization of the drops. We look at the way we optimize SG&A out of units, we launched Fit for the Future. Fit for the Future is the way we call our zero-based redesign program.
It was launched, we have a 3-month 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 U.K., on France, in North America, and on central structures, this globally represents two-thirds of our global SG&A cost base for On-site Services. We are on track to have preliminary results at the end of July. We hope to be able to give you a bit more detail in September when we meet for the Capital Markets Day. The labor management program is also advancing in education in North America. Q3 alone shows temp labor cost down by more than 20% and overtime down by more than 10%.
Let me just remind you that this impacts only the variable cost, the variable part of our labor cost. It's trending positively. We still have a lot to do, 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. Of course, we will talk more about this at the Capital Markets Day. With regard to some of our large contracts, we've put a lot of efforts, we've also significantly enhanced 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.
Let me hand over to Marc for the details for the first nine months revenue, and I'll come back later on the outlook.
Well, thank you, Denis, good morning, everyone. Let us turn to slide 11. Revenues came in at EUR 15.5 billion for the first nine months, which is down 2.9%. Currencies accounted for a 6.6% decline due to the weakness of most currency relative to the euro, but in particular of the dollar and the Brazilian real, and to a much lesser extent, sterling. This was partially offset by a 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 deconsolidating some of our African activities from Q3 last year. We expect the scope change impact to reach 2.5% for the full year.
As a result, organic growth was 1.6% for the period, with On-site Services at +1.5% and Benefits & Rewards at +4.2%. Specifically, in Q3, the currencies deteriorated a bit more than in the first half, this was compensated by an increase in the M&A contribution. Q3 organic growth was 1.4%, in line with our revised guidance. On-site Services slowed down slightly at 1.1%, there was an acceleration in Benefits & Rewards, up 6.9% in the quarter. Turning to slide 12, Business & Administrations' organic growth was up +4.2%, strongly influenced by a solid momentum in Asia and Latin America. In North America, organic growth was +2%. If you remember, the first quarter was boosted by significant project work. Since then, the second and third quarters have been impacted by a site 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 quarter, helped by the recovery in tourism and some improvement in net new business. The government and agency business has been progressively affected since January by the exit of the British Army account. As we said in the last quarter, this is expected to impact the second half by about EUR 50 million. We are also feeling the impact of some contract losses in Benelux. Energy & Resources, although slightly better relative to previous quarters, is still very negative at -10% in Q3. In Africa, Asia, Australia, Latin America, and the Middle East, organic growth remains strong at +11.7%. This performance has been achieved despite a comparative base which was much stronger from Q3, as it includes many of the large startups last year.
The trend in Healthcare & Seniors is slightly better in Q3 as the comparative base became easier. Growth is now back to positive at +0.7%, fueled by strong development in China, India, and Brazil, and despite ongoing weakness in North America and Europe. Year-to-date organic growth in North America was -0.8%. Despite the lack of new signatures and some contract losses in March, third quarter sales trended positively due to a lower comparative base. The level of new signatures remain weak and contract losses are still too high. We do not expect any short-term improvement in sales growth. European sales were flat, with organic growth at +0.2%. In the third quarter, the trend was much better in the U.K., 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%, 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. Organic growth in North America was -4.9%. This is impacted by the negative net new business since the beginning of the year. On top of this, Q3 also suffered from five fewer university board days due to the change in calendar to monthly reporting. I remind you that the board days are day in which meals are provided to students as part of the annual meal package.
We will have in Q4 similar board days compared to last year, which in effect means that the impact of the 53rd week adjustment in universities was felt in Q3 and not in Q4. Retention in universities has improved this year, and the indications are also slightly more positive on new signatures. 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%. France was impacted by the bank holiday calendar in the third 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% due to strong sales growth in Asia, particularly in China and Singapore. On slide 15, overall North America remains disappointing at -1.7%.
Europe is +1.1% in Africa, Asia, Australia, LatAm, and Middle East achieved 12.5%. As a result, On-site, excluding North America, is up 4.3%. Let's move on to Benefits and Rewards Services. During the period, currencies had a significant negative impact due to weakness in the Brazilian real. More than 6% on issue volumes and 7% on revenues. Organic revenue growth in revenues was 4.2% relative to the issue volume growth of 6%. Organic growth in Europe, Asia, and U.S.A. remains strong at +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 we named Rydoo last month, in line with expectations.
On slide 18, revenue growth has turned positive for the nine months in Latin America after a first half, which was down 2%. 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, Marc. Very simply, as in line with our revision of guidance on March 29th, we maintain our organic revenue growth objective of between +1% and +1.5%, excluding the 53rd week impact in North America, and our underlying operating profit margin of around 5.7%, excluding the currency effect. Thanks for having listened to us, and I now open the call for your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you wish to ask a question. I will now take our first question. Julien Richer from Kepler. Please go ahead. Your line is open.
Good morning, everyone. Three questions for me, please. The first one on France. You're talking about new business that is performing quite not bad, let's say. Elior is talking about price discipline going forward. Do you see this in the recent tender you signed in France? 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 tenders you participated too. Is the period totally over now, or maybe we might have some positive surprise, going forward, depending on those tenders? The last one is on the recent trend. 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-end loaded, maybe? How do you see 2019 evolving, in fact, at this stage? Thank you.
Thank you, Julien. Regarding the first question. Regarding Elior, we've seen their comments, and like you, I guess, and we've yet to see the impact on pricing. In any case, this will take time. It's good to hear that from Elior. I think I'm quite confident in France that we will see. What I can tell you is 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 were absolutely acceptable to us. Regarding the second question regarding education, there's a lot done now in tenders. We still are waiting for a few answers, but I must say that we more or less know what we lent for next year.
As Marc 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 course, that we would expect from that segment. Regarding Q3 and Q4, you have to realize that Q3 was a little bit slowing down on site. We also have, in Q4, we will be impacted particularly by the Hestia loss, the U.K. defense contract loss, that we mentioned earlier in our H1 comments. This will impact Q4, and we will give more update on the growth guidance for next year when we meet in September. I remain prudent, and we still have a lot to do to get back to the growth rate that we think we can deliver in the future.
Okay. Thank you.
Thank you.
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, -2% in the first half to +5% in the third quarter, and whether that's a sort of sustainable growth rate now? Secondly, just on the guidance, your margin guidance of 5.7%, you're being very clear now that's excluding currency effects. I think the currency effect was -10 basis points in the first half. Given the real's a lot weaker now, what is your full year sort of mix impact, if you like, from currency on margin, please?
Hi, Jamie. Thank you for your question. Regarding BRS, as Marc said, 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. We see net development slightly more positive. We see also more beneficiaries bringing more volume. We also see a slight improvement on bank commission. We see some positive signs. Interest rates also are at the bottom. That's on a comparative basis, that helps. 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 economic recovery there is fragile.
We have elections coming in, and that brings a little bit of uncertainty. I would say that we have very solid activity in BRS, particularly as we mentioned, Europe and Asia, I think it's solid. Latin America, apart from Brazil, is solid as well. Marc mentioned Mexico as being a strong growth market. I would say positive sign in Brazil, yet to be confirmed in the months to come. Now, regarding the currency impact on margin guidance, Marc?
Yeah. We convert and we recalculate everything at average rate. Now being nine months, I'm not expecting the major currency rate to evolve a lot on average from now onward. As you can see on our slide 24, the Brazilian real impact is almost 11%, and the U.S. dollar impact is almost 9%. I'm not expecting the impact to deteriorate 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. You've obviously got
Yeah
a much weaker third quarter currency impact than the first half. Will the full year currency hit to margins be more than the 10 basis points? In other words, the margin guidance would actually come in below 5.7.
I think we can expect it's going to be more than the impact we had in H1, because We have a lot of results in Brazil, and the real has deteriorated a little further. You can expect a larger impact for the full year than in H1.
Okay, thank you.
Our next question comes from [Elena Thacker] from HSBC.
Thanks. Morning, everyone. Three questions, please, if I may. Firstly, could I just go back to that French contract catering topic, and especially B&I. 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? 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? Even if not a precise number, perhaps just a sort of feel of whether it's a drag on group margins of 5.7%. 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? Thank you.
Thanks for your question. First, regarding the Business & Administrations in France and the food services, definitely 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. Definitely, we've seen some very, very tough competition on price in French food services and hopefully, as mentioned earlier, maybe your statement will help as we move on. Regarding the margin in France, I think they are in line overall with slightly above, but more or less in line with group margins. Talking about low-performing contracts, there are two things. First, overall, I want to highlight that our large contracts, with time, they 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. Because they are large, they are complex, and they take one or two years to really ramp up to the expected level of profitability. Those low-performing contracts, we're talking about a handful of them, when this happens, that they don't reach the profitability that we expect, we engage into discussions with the contract. We do some claim management. Of course, we do some renegotiations with the client. We could change scope in some cases. It's a handful of contracts that we have currently, that we're working on. We'll be, of course, very cautious in the new large contract that we win. We're careful. I want to say that we have a very good track record.
When you look on the midterm perspective, we have a very good track record on managing these large contracts. We have to fix, and we are very focused. We have an action plan for each of these low-performing contracts at the moment.
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. Our next question comes from Jarrod Castle from UBS.
Good morning, gentlemen. Three from 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? 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? Thirdly, can you just explain, just give a bit more color on why the revenue growth in B&R is different to the issue value growth in each region? Thanks.
Right. Regarding the new Executive Committee, this team is of course stable, brought on board all the segments and activities to have direct view and ensure alignment across all elements of the business. I brought also the four main regions on board to ensure that we have this local voice being very present in the ComEx. The P&Ls remain by segments. I think it's very important. That's the transformation that we did as we started three years back. The P&Ls remain in segments, 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. That's why having the voice of the three main regions plus the highest growth and the highest potential of growth region is important.
I would say, we usually don't give retention indications by region, I will say the retention is trending higher than last year specifically in North America, we are seeing a better trend than last year. At least we are gently encouraged that the retention will be better. The last quarter obviously is key.
Yeah
especially in education and so forth, right now it's going into the right direction. On your last question, in Europe we now have two activities which are taking more space, even they are still relatively small, in incentive and recognition and mobility and expense. Both of them are actually generating a much higher growth than the average growth of BRS, and they have very limited issue volume. I think both of them together are responsible for one or two points of growth without issue volume. If I were to correct in Europe, Asia and North America, this non-volume revenue growth, I think the revenue and the volume growth are very similar. What we see in term of mixed revenue and in pricing in Europe is very stable.
Okay. Thanks very much.
In Brazil and LATAM, the differences between issue volume and revenue was mainly due to the drop in financial revenue as we commented. In Brazil, it costed us EUR 15 million alone, that created a small gap between issue volume and the revenue growth.
Thanks very much.
Our next question comes from Richard Clarke from Bernstein.
Good morning. Three questions, if I may. Just starting with your organic growth guidance. The bottom end of that range is still at 1%. 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. That would 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? Second question, you've highlighted you're winning some food contracts again. 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? The third question, we've seen Bellon SA buying some shares in Sodexo.
There was a note out yesterday that there's some restrictions in 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 effectively own in yourself?
All right. Hi, Richard. Regarding our Q4, I would like you to remain prudent on Q4. As I said, Q3 in On-site was slowing down. We have some defense losses. You mentioned the impact on strikes, but this impact was not major this year. We've lost some contracts in healthcare that will have an impact in Q4. I want you to remain prudent on Q4, which is why we revised, and we are comfortable with the guidance that we give between one and 1.5. 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, win a lot in these ones.
I wouldn't expect, though, that a major change in that mix because we're also very happy with what we deliver, particularly with integrated services. 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. I would like to keep the momentum in FM and reignite growth in food. I think that's what I see. I wouldn't expect a major change in the mix. Regarding Bellon SA, anything, Marc?
The situation here has not changed. The key question is the taxation of the capital gain. So far, there are no solution to avoid a heavy taxation. I don't think it's on the agenda right now more than it was six months or a year ago. One day it will come on the agenda, right now we have no visibility on that.
Thank you.
Our next question comes from Tim Ramskill from Credit Suisse.
Morning, Tim Ramsden here. Three questions from 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 €50 million. Was there any impact from that in Q3, just to give us a sense? Within the segment in Europe for Business & Administrations, there didn't seem to be much of a change of the growth trajectory in the third quarter. The second question is around CapEx, more of a medium-term view. I obviously don't expect you to preview the Capital Markets Day, Compass has clearly guided to higher CapEx. Elior expects CapEx to sales in contract catering of 3%, which is significantly north of where you've been historically.
I wonder if you just take the opportunity to comment on that and whether you think the industry in any way is changing in terms of the capital requirements. The final question, again, just thinking ahead to the Capital Markets Day, I'm just interested to get a sense. Clearly, you're very focused on getting back to growth. What are your overall thoughts on the ability to deliver on absolute levels of margin improvement in an environment where you are, as I say, striving to improve the growth trajectory of the business? Thank you.
Marc on this one?
Yeah, Tim. The impact we have in Q3 for what we call the STR contract, is a negative impact of €22 million. We are expecting slightly more in Q4, and there will be a further effect in Q1 next year and much less in Q2. As we said, the impact was for us mainly in H2 and in H1 next year. EUR 22 million this year, I will say EUR 28 million in Q4, and probably another EUR 25 million in Q1 next year. That's the impact of the STR losses.
Regarding CapEx, we've said previously that we had no problem 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. We have no problem to give good CapEx when we have a good business model with the client. It's true that 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. 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. Even if we move to a north of 2% in CapEx, we will still be generating cash. It's very important.
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. It's also particular to some segments. It's mainly education, sports and leisure, Centerplate. We'll spend more CapEx when we win new contracts. Those are the things that we will also make some investment in IS&T. I think it's important for you to have this in mind. We've mentioned and we will describe a little more in the Capital Markets Day, the IS&T roadmap that we have in mind. We believe that IS&T can be a strong enabler to our future growth and our future efficiencies. There'll be a little bit of CapEx there. Most of it will also be spent on contracts.
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 growth. Regarding, you got this, the getting back to growth is very important for us. We will expand our perspective on that in the Capital Markets Day. As we said earlier, particularly when we did the H1 announcement, we believe that margin improvement will come when growth is back. Our business needs growth. Our markets will accept growth because they are growth markets. We see first 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. Then in turn, we believe that margin improvement will come.
Great. Can I just have a couple of 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 past? 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 significant number of years since Edenred was spun out of Accor, but the disclosure difference between the two organizations is very significant, and I just wonder whether now is an opportunity to tackle that.
Regarding the CapEx, again, I think 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 there. It's probably even increasing a bit. Again, increasing with good business models behind. Okay? It's true that we see it increasing a bit, but it's not an overall trend 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, we have a more in-depth description of what we're doing in the Capital Markets Day. I think we will explain the drivers of growth in the future. Aurélien Sonet, the CEO of Benefits & Rewards Services will present more in detail what we do. We still believe that it's a very important activity to have on board.
We believe that there also are synergies to come in the future with On-site. Yeah, 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 El Kassir from Berenberg.
Good morning, everyone. Just two questions for me, please. The first one is regarding Centerplate. It seems like you have lost EUR 200 million worth of contract just post-closing the deal. Could you please confirm that? If that is the case, what would be the driver behind this, please? 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 one or two significant contract. I won't give details about the amounts. That is true. We knew that when we finalized the negotiation. It's not a surprise. Since then We've retained the key clients. We're very happy about that. Actually, we're very happy with the Centerplate acquisition. It's going well. Synergies are kicking in quite efficiently, as planned. It's actually a reverse merger because we are now integrating the sports and leisure team that we had in North America into Centerplate. It goes well. Teams are working together well. Yeah, we are very happy with the synergies.
Now regarding the second part of your question, of the second question, well, the pipeline differs very much depending upon the segments. I must say that I'm not sure. Are you talking about the M&A pipeline or the business pipeline? I'm not sure.
No, the business pipeline and the catering, please.
Yeah. Right. I think I cannot say that I'm fully satisfied yet. Otherwise, we would envisage a strong growth coming. I think we're heavily working in different segments on that. It's still weak, particularly in North America. 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 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. Could you please explain the driver of this loss?
Najet, it was a situation which happened before we were in. I think it depends on the capital structure and what the private equity wanted to do before. When we closed the deal, we knew that they would have some losses. We didn't buy those losses. They were happening before we moved in. I think private equity have different threshold criteria to assess deals. Since we moved in, we retained what we wanted to retain. I think we won new contract.
Yeah.
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.
Okay. Thank you very much.
Our next question comes from Jaafar Mestari from Exane.
Hi. Good morning. I just had one question on Fit for the Future, the plan to optimize SG&A. 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&A figure? How much is rent, subcontracting costs? What else is there? How fragmented is it? How easy is it going to be to review this part of the cost base?
Yeah. In our cost by nature, where you must have seen this in our annual report, it's actually a mix of things because I don't think in that table there is the split between GP and SG&A, I'll go back to it to make sure. The 16% will be all the things we buy, whether they are for site services or whatever things, subcontracting, which is neither food nor staff cost. In an IFM world, we buy more and more of different services and supplies and so forth. There will be also the non-salary part of our SG&A. In some pockets, we use consultants, we use partners, there is rent, there is travel, and all of those things.
If we are using the table, which is in the Document de référence, I don't think that table is actually very helpful to analyze our cost by nature.
The fundamental element is we want to first simplify our organization. This is something that is important, and the 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 typically on reporting, typically on things that do not create value for the clients. The idea is to identify all these costs, and we have some good insights, have this X-ray program that's going on, and reallocate these costs into investments, reallocate that into marketing, into digital, into offers. I think that's something which is very important. It's not an 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 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-
Maybe we take the last question, yeah.
Our next question comes from Johanna Jourdain from Oddo.
Good morning, everyone. Three questions for me, please. The first one, could you please quantify 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 are taking in 2018 and in 2019? Last question, could you elaborate, please, on the main actions that you have taken so far in the education and the healthcare segment to recover some organic growth? Thank you.
I'll start with the main actions that we've done on education and healthcare. First, we're talking here North America. I remind you that we have good momentum in education and healthcare outside of North America. When we focus on NORAM, just want to say that this is very much my focus. Those are two very important market for us, and where we have very strong leadership positions. We've done some management changes, new CEO, new CFOs, and that both teams are based in North America. We've put these action plans around, of course, first ensuring that we operate efficiently. The growth can be also triggered by being cost-efficient, because then you can bid at the best possible level.
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 develop sales. We've done some management changes, also below the global positions. We have a new CEO in North America for healthcare. We do a 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 the good performers, but also underperformers and make decisions on that. We've won some good contracts in healthcare. We've won some good contracts in education. We see some positive signs, but yet you have to have in mind that the turnaround will be long, of course. We see the action plans, they are happening. We see the impact.
We're still not fully consistent across all the segments, across all the other country. Those are big businesses. We see some impact of our action plans. To get the full result will take time. Regarding the quantification Marc?
Yeah. When you lose five board days in a quarter, it's actually significant. A quarter is 90 days. We expect actually the impact, those five board days in universities in Q3 to be something between 4% and 5% just for the quarter. That's it. There will not be such an impact in Q4.
Okay. All right.
Sorry, and the questions regarding the impact from the cost measure that you can expect in terms of cost savings. The action plan.
The action plans are delivering as we said. We've maintained our guidance.
It's part of it.
It's part of that. It's included the guidance that we gave on March 29th, of being around 5.7%. Underlying operating profit was including these action plans. We maintain our guidance. 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 assure that. It's very high in my agenda and in the agenda of the executive committee. We keep the eye on the ball. Again, as I mentioned earlier, we want to reignite growth first, and then, of course, we can move up on margins. The main focus is to really boost growth, recover our efficiency in sales, keep the very good momentum that we have in the developing economies. We're very positive about that. Recover growth where we squeak at the moment.