Good morning. Thank you for standing by, and welcome to Sodexo's Q3 Fiscal 2025 Revenues Presentation. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. I advise you that the conference is being recorded today on July 1, 2025. At this time, I would like to hand the conference over to the Sodexo team. Please go ahead.
Good morning, everyone, and thank you for joining us today. I'm Juliette Klein, Head of Investor Relations, and I'm pleased to welcome you to our Q3 Fiscal 2025 revenues call. On the call today is CFO Sébastien de Tramasure to take us through the presentation. After Sébastien's remarks, we will open the line to take your questions. We ask you to please limit yourselves to two questions and one follow-up. The slides and the press release are available on Sodexo.com, and you'll be able to access this call on our website for the next 12 months. The call is being recorded but may not be shared without our consent. Please get back to the IR team if you have any further questions after the call. With that, I'll now hand over to Sébastien.
Thank you, Juliette, and good morning, everyone. Welcome to our Q3 Fiscal 2025 revenue presentation. Let me start by saying that our third-quarter performance is in line with our expectations. Back in April, when we presented our first half result, we shared a detailed view of the underlying dynamics, notably the softer performance in some areas of North America, contrasting with better trends in others. Our third-quarter performance reflects a continuation of these dynamics. We also began to see early contributions from key contracts won in H1 while experiencing a softer selling season in education in North America. Now, let's begin with the headline figures on slide three. Group revenues for the third quarter reached EUR 6.1 billion, up 0.8% reported. Currency effects remain negative at -2.1%, largely due to the depreciation of the US dollar and some Latin American currencies. Scope effects were limited at -0.2%.
Organic growth came in at +3%, in line with expectations. Just for reference, organic growth for the first nine months of the year stands at +3.4%. Now, let's look at some operational trends by geographies. In North America, third-quarter organic growth was 1.2%, slightly above Q2, as expected. Pricing momentum remains healthy, and new business is contributing. However, prior-payer contract losses continue to weigh on growth, mainly the major global facility management contract loss last year and, to a lesser extent, some losses in education. Business and administration are benefiting from the ramp-up of new business, even if this is partially offset by the impact from contract exits linked to prior-payer losses. Sodexo has continued to perform well, with growth supported by higher passenger volumes in airline lounges.
Education shows a slight improvement, held by favorable calendar days and extra campus activity, but it's still affected by past contract exits. Healthcare and seniors are solid in healthcare in the U.S., thanks to pricing and scope gains, but impacted by site losses in Canada and in seniors. Overall, we are seeing some contribution for new business and healthy pricing while continuing to absorb the impact of prior-payer exits. That said, our recent sales and retention season in universities was below our expectation. A few large client decisions went against us, which will have an impact on Q4 and on our organic growth trajectory into fiscal year 2026. We have taken an outlook at what happened. It comes down mainly to two things: market dynamics, including some competitive pressure on bids, and turnover within client organizations, which have disrupted long-standing relationships.
In parallel, we are still working hard on internal initiatives, and we are pushing to accelerate the outcome on this area. Looking ahead, fiscal 2026 will require disciplined execution and focused leadership as the university segment continues to face a more complex operating environment. We have a renewed leadership team in place, and we remain committed to investing and growing in this important market. In Europe, organic growth of +3.3% improved compared to the previous quarter, with clear momentum in healthcare and seniors across the board and solid activity in Sodexo Live, which benefited from strong volume in the U.K. airport lounges and stadiums, as well as robust tourism activities in France. In business and administration, growth was driven by pricing and new site openings. However, this was partly offset by softer volumes, reflecting broader macro headwinds and the impact of contract exits.
Education remained slightly positive overall, thanks to pricing, but continued to reflect the impact of low-performing contract exits from prior years. While the external environment remained mixed, we are seeing encouraging signs in several segments and remain focused on execution and commercial delivery. We have successfully renewed several contracts in France and in the U.K., and our mobilization of our mid-size contract opening in April is progressing well. Rest of the world continued to deliver a solid organic growth of +7.5% this quarter, driven by strong performances across key geographies. India, Brazil, and Australia all contributed meaningfully. In Australia, the successful mobilization of the Santos contract during the spring was a clear alliance with excellent client feedback regarding service quality, professionalism, and execution under challenging conditions. Altogether, a solid quarter for the rest of the world, with balanced growth across segments and regions.
As a reminder, in April, we guided for full-year organic growth between 3% and 4% and underlying operating margin improvement of 10-20 basis points. With two months to go and given the improved visibility on recent business trends, including retention dynamics in the U.S., as mentioned earlier, our current expectation is to land at the lower end of the range for both organic growth and margin. Please keep in mind that fiscal 2025 includes a base effect of around 50 basis points from the non-recurring positive item in the prior year. For Q4 alone, the year-on-year comparison would be affected by 120 basis points contribution from last year's Paris Olympics. As usual, you will find our assumptions for items below underlying operating profit in the modeling slide in Appendix 4. Please note a slight change compared to last quarter.
Other income and expenses are now expected at around EUR 160 million. Overall, we continue to navigate a more complex environment, and we are working with our teams with discipline and agility to monitor closely our operation and to implement the right changes where needed, with a clear focus on execution and client development. Thank you for your attention. I'm now ready to take your questions.
Thank you, sir. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. To remove your question, press star and two. In the interest of time, we remind you to please limit yourself to two questions per caller. The first question is from Julien Richer of Keppler.
Yes, good morning, everyone. Two questions so far, please. The first one, if you could give us a little bit more detail on your Q4 implicit growth, because you initially expected Q4 to be above Q3, so now it seems that it's going to be below. If I take the low end of the 3-4% range, it means that Q4 might be below 2%. Can you please give us the impact of retention and the impact of development in Q4? The second question on 2026, any guidance you can give at this stage or any color you can give at this stage in terms of the evolution of retention rate and the evolution of the like-for-like, so the net-to-business and like-for-like for next year, please. Thank you.
Thank you, Julien, for your questions. First, regarding Q4 organic growth, again, keep in mind that we'll have a negative impact from the Olympics for around 120 basis points at the group level. Excluding this Olympics impact, we're expecting to have Q4 underlying organic growth being slightly above Q3, as expected, with a higher impact coming from the net-to-contribution. To your second question, as you know, we will not guide on fiscal year 2026 at this stage, and the full fiscal year 2026 guidance would be given when we report full-year results at the end of October. I can share some color about expectations for 2026. Based on our current visibility, in-year net contribution from fiscal year 2025 will be relatively modest.
As a reminder, this will be impacted by the loss of the large global facility management contract and recent losses in education, as I said earlier. The good news is that the commercial momentum remains strong, and we have a very strong pipeline, but the conversion into revenue will be progressively during the year, as usual. The overall fiscal year 2026 will depend, obviously, on inflation trends and on the broader macro environment, and both will play a key role in shaping the year. Again, as I said at the beginning, we'll be in a much better position to share the full-year guidance for 2026 at the end of October.
Regarding Q4, when you are looking at your ramp-up of recently signed contracts, is it in line? Santos, that was expected to mobilize in Q3, the captive contract, is it in line with what you had in mind, or is it maybe softer than what you initially expected?
As the ramp-up of the major, I would say, major contract be open in Q3, that's really in line with expectations. We are talking about the justice contract in France, SNF in the U.K., and as you said, Santos in Australia, and this will have an impact in the Q4 organic growth. Captive is not expected to really contribute in fiscal year 2025. It will be really in fiscal year 2026, even if we sign two contracts within the captive member. Again, the ramp-up and the contribution in terms of organic growth will be progressive in fiscal year 2026.
Okay. Thank you very much.
The next question is from Jamie Roland of Morgan Stanley.
Thanks. Morning, everyone. My first question is just, are you seeing in North America any weakness in underlying volumes in either business and administrations or sports and leisure from the sort of more uncertain economic and political environment in the U.S.? The other one, just again, if I can go back to 2026, I know you're not guiding yet, but consensus has got margin growth of 20 basis points. Obviously, this year, we're going to be more like 10 basis points. You just talked a bit about reinvestment on the call then. Just really wondering, early days, how are you sort of feeling about margin progression next year? Thank you.
Thank you, Jamie. To your first question, when we look at our number for North America in Q3, we do not see any weakness in underlying volume at this stage, neither in BNI or in Sodexo Live. Regarding your second question on margin, our ambition is clearly to improve margins, but over time. We know our key levers to improve margin are procurement, supply, and better labor management. In parallel, we continue to streamline both operations and our back-office function. We continue to deliver this in the coming years. At the same time, we know that we also need to invest in the business. We will have to invest in sales, especially in North America. We will continue to invest in our brand, in our tech data, and digital initiative. This will be needed to obviously accelerate our organic growth.
It is really a balance of leveraging our key initiative, middle-of-the-page and back-office function to improve profitability and invest at the same time in key capabilities. Again, we will share a more detailed view of our margin trajectory in October with the full-year results.
Thanks. And just for clarity, that October results outlook, is that just going to be a one-year guidance, or will you be giving a multi-year target framework again?
We'll focus on fiscal year 2026 guidance at the end of October. We'll give some color as well on the mid-term guidance.
Thank you very much.
The next question comes from Praveen Gondahl of Barclays.
Hi, morning. Thanks for taking my questions. Firstly, can you give a bit more color on details of net new and volume performance in Q3 and if there has been any change in signing momentum compared to what you mentioned during your H1 call? Secondly, I know you don't give retention figures with quarterly results, but can you share some more color on how this has trended since now it's trended in Q3? Is there any lumpiness over the next few months in terms of contract renewals? Thank you.
Regarding the driver of the organic growth for Q3, the main driver is pricing being close to 3%. The remaining is really small positive with volume and net contribution. In terms of development, as we said, we have a pretty strong momentum in terms of development. If we look at new contract plus cross-sell, we should end the year around 8%, and we have a very strong pipeline. Overall, we are very happy with our level of development.
Thank you.
Yeah, repeat your third question, your last question, sorry.
Yeah, if there's any lumpiness over the next few months in terms of contract renewals.
As I said, in terms of retention, we are slightly disappointed by the result in education in North America, but we are not expecting any major rebate and renewal by the end of the year.
Thank you. Thank you very much.
The next question is from Eva Bilsock Kelly of UBS.
Thank you very much for taking the questions. Can you please give us a breakdown of the growth between food services and facilities management? At 2Q, you did highlight that FM was weak in part because of lower project work. Are you hearing from any clients that this could effectively be phasing with a backlog of work that needs to be done that can provide support for future quarters, or should we actually see that as just a lost growth that will not be recovered in the future? Secondly, on the pricing, you mentioned 3%, but if I look at the inflation indexes in America, it seems that food away from home inflation is trending closer to 4%. What is it that means that your pricing is not actually able to keep up?
Could we actually expect that you should try and recover this to an extent next year? Thank you.
Okay. To your first question, in terms of dynamics between food and facility management, when we look at the year to date, we are around 4% for food, and we are around 2% for facility management. The trend in food remains better than in facility management. It's the same trend for Q3. We have a higher organic growth in food versus facility management as expected. In terms of inflation, what we need to look at is the CPU, food away from home for North America. When we look overall at the trend in terms of pricing for North America, it's very similar to what we have at the group level. I mean, it's a pricing impact close to 3%.
Thank you. Just to follow up on the first question, specifically around project work, because I understand that that was one of the key drivers why FM is weak. Is that expected to recover at any point? Could you see tailwinds from recovery of a backlog that was missed?
Yes. We are not expecting a major recovery in Q4 regarding project work. There is no material change in the environment at this stage. Funds remain quite cautious on their budget.
Understood. Thank you.
The next question is from Simon Lechipre of Jefferies.
Yes, good morning. Two questions. First of all, are you able to confirm the retention target of above 94% for the end of this year, given the outcome of the ceiling season in U.S. education? Secondly, you followed up on margins. Your updated guidance seems to imply flat margin year over year in H2. I mean, given the kind of lower growth trajectory for next year and the reinvestment you were talking about, I mean, is it realistic to assume some year-on-year margin improvement next year, or should we be a bit more cautious given the slower growth from PEP and reinvestment and so on? Thank you.
Okay. First question on retention. On retention, there are two elements to keep in mind. First, as I mentioned earlier, the recent education losses exit that would weigh on the figure overall. In addition to that, the scope of the large FM facility management loss we flagged in March is still under discussion. Both effects will have, obviously, an impact on the retention rate for the year. With current visibility and, again, better visibility, especially in North America, our expectation now is to be a little below 94%, including the FM loss, or above 94% if you exclude the large FM loss for the year. In terms of margin so far, I think that for fiscal year 2026, I already answered the question.
For fiscal year 2025, as I said, we expect to be at the lower range of our guidance between 10 and 20 basis points.
Okay. Thank you.
The next question is from Estelle Winegrod of JP Morgan.
Hi, good morning. Three questions on my side. The first one, what changed between March when you downgraded the guidance and today? Second one, North America, what is the organic growth run rate within education, excluding the impact of favorable calendar and these additional campus events? When will you start lapping contractors? Is there? The last one, very quick one, what's driving the higher other income and expense increase today? Thanks.
Okay. To your first question, when we talked to you in April about the new guidance for the year, we believe that we took at what we have in terms of assumption. We believe that it was a reasonable assumption, again, based on the pipeline, based on the client feedback, and the momentum we were seeing at that time. Now our visibility, it's better. Our visibility is stronger. We are already embedding more discipline in planning when we look at our forecast. We will do that, obviously, also when we come to plan our fiscal year 2026 outlook. This is really the main differences between March and today. We just have better visibility on the sales activity and on our underlying assumption.
On your second question on North America run rate, excluding calendar and event, it is true that Q3 is held by favorable calendar impact and some specific event. If you exclude that, organic growth is negative because we are still absorbing negative impact from the net new from prior losses. I am talking, obviously, about North America organic growth for education. On the higher OIE, there is more program in terms of transformation and in terms of restructuring across countries and regions.
Okay. Thank you.
The next question is from Jaafar Mestari of BNP Paribas.
Hi, good morning. I have two questions, please. Firstly, on the U.S. education selling season, you mentioned that you had a number of new losses in U.S. education since March. It's very unusual for the U.S. education selling season to come this early in the year while universities are effectively still open. Do you think it's now over? It was all much earlier than usual this year for some reason, or did we just have a handful of early RFPs? As we move into July and August, we still have, as every year, a large number of universities that are still to award their contracts for the next fall semester. On the margins, if I calculate what the updated guidance means for H2, it means flat margins up a couple of basis points in H2.
You had some planned ramp-up from cost efficiencies, the shared services centers, etc. Is there a very rough bridge to explain that? Is the underlying trend slightly negative, but then you have efficiencies, or is the underlying trend flattish, and then the efficiencies are taking a bit more time or are reinvested?
Thank you, Jaafar, for your question. To your first question, I would not say that it's unusual. I mean, yeah, we had some RFP. We got the answer very recently. Again, as I said, we are not expecting now any major decision in our case when we look at our portfolio for the remaining weeks until the end of the fiscal year. Regarding margin, again, different driver to explain the evolution of our margin for the second half of the year. We are expecting a slight improvement in terms of margin for the second half versus last year. There is a combination of different effects. Yeah, we are working on efficiency. I mentioned last time our global business services program. We get efficiency and margin improvement with this overall program. There is some reinvestment as well.
There is a mobilization cost because when you look at the opening end of Q3, Q4, really at the beginning of the ramp-up of the contract, this triggers, obviously, some opening costs that have an impact in our margin.
Thank you.
The next question comes from Neil Tyler of Rothschild & Company.
Good morning. Thank you. Just two left for me, please. Similarly, on the education business in North America, do the current selling season experiences reflect probably a negative net new?
Excuse me, Mr. Tyler. I'm sorry, sir. We can't hear you very well. Could you speak closer to the microphone?
Apologies. Is that better? Can you hear me better now?
Yes, sir.
Yes, it is better. Yeah.
Yeah. Thanks. Yeah. Sorry. Back to the selling season in education in North America, does this limit your optimism that you can deliver positive net new for North America education in FY2026? Is that more likely to be a sort of neutral to negative net new in that business? Second question on healthcare in North America, the slower ramp-up, are you still confident that this is a sort of slower progression to the same point, or do you think it might reflect a lower absolute level of revenue opportunity at those sites? Thank you.
Okay. To your first question regarding fiscal year 2026, I would say organic growth trend for education in the U.S., again, we'll have different drivers. Yes, we'll have the impact of the new contribution in fiscal year 2026 coming from the selling season from 2019 coming from the selling season of 2025. Yeah, based on what I said, it will not be positive. We will also have the impact of pricing, and we will have the impact of volume as being overall the organic growth for education in North America. Regarding your question on healthcare, we are happy with our performance in healthcare in the U.S. overall. We have a very strong momentum in terms of retention and sales. There is a negative impact, mainly coming from the losses, prior losses in the senior segment and in Canada.
Overall, the underlying trend for healthcare in the U.S. are really positive.
Okay. Thank you. That's helpful.
The next question is from Sabrina Blanc of Bernstein.
Yes. Good morning, everybody. I have two questions for my part. The first one is regarding the potential impact of currency on a full-year basis. It looks like that you have a negative impact in Q3, which looks like to deteriorate at the end of the year. Can we assume, let's say, minus 1.3% currency impact plus a negative 0.3% scope impact for the full year? My second question is regarding the development of GPOs in Europe. You have mentioned an acquisition in France, but can we have more color globally in Europe and specifically in France?
Okay. Thank you, Sabrina, for your question. On the first one, yeah, we are estimating at this stage a negative impact around -1.5% for the full year coming from the currencies. To your second question on the GPO in Europe, clearly, the development of the GPO Integra in Europe is really part of our strategy. We really want to accelerate the growth of our GPO activity in Europe. The acquisition of Agapo, we mentioned recently, is really fitting within this strategy. We are now in around 10 countries. We are growing and developing pretty well. We have a pipeline of small and mid-sized acquisition in Integra also for the coming period as well.
Thank you. Just for coming back on the question on change and on the scope effect, shall we assume 0.3 or something like that?
Yeah. We maintain around.
Scope impact?
Yeah. The scope impact would be around minus 0.5%, slightly below 0.5%.
Thank you very much.
The next question is from Andre Julard of Deutsche Bank.
Good morning. Two follow-up questions, if I may. First one about reinvestment that you mentioned. Could you give us some more color about the split between CAPEX and OPEX? Second one about the labor in North America. Do you see any tension regarding the actual environment and the politics of the actual government? What is your forecast for the next few months in terms of wages and if you see some tension on volume? Thank you.
Okay. When I spoke earlier about investment, I was mainly talking about OPEX investment at this stage. I mean, it's investment, again, in sales, in marketing to support our brand and in the transformation. In terms of CAPEX, the objective should be around 2.5%. This will help also the transformation in terms of IS&T. It will help also to strengthen the development and retention. On labor, the labor situation in North America is always, I would say, a challenge. There is some pressure on the labor market. It's not new. Since the change, the recent change in the politics, again, there is some pressure, but we can manage at this stage not creating really operational challenges. We are closely monitoring the situation.
Okay. Thank you.
As a reminder, please press star and one on your telephone for questions. Management, there are no more questions registered at this time. Excuse me. We do have a follow-up from Simon Lechipre of Jefferies.
Yes. Very quick follow-up on margin and the effects impact. Do you expect any negative effects impact on margin given the mixed effect and the recent move of the US dollar, or it should be more or less neutral?
It's very minor.
Okay. Thank you.
One minute. Okay. Thank you all for being with us this morning. Looking forward to talking with all of you for the year-end result on the 23rd of October. Thank you, and have a good day.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.