Good morning, and thank you for standing by, and welcome to the Sodexo Fiscal 2023 Results and Strategy Update conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero. At this time, I would like now to hand the conference over to the Sodexo team. Please go ahead.
Thank you. Good morning, everyone. Welcome to our fiscal 2023 results and strategy update. I'm here with Sophie and Marc. They will go through the presentation and then take your questions. The slides and press releases are available on our site, Sodexo.com, and you'll be able to access this call on our website for the next 12 months. Please get back to the IR team if you have any further questions after the call. I now hand you over to Sophie.
Good morning, and thanks for being with us today for our fiscal 2023 results announcement and strategy update. As I am sure you have already all seen, we are announcing the detail of the Pluxee spin-off. Given the listing is expected early 2024, Pluxee has been accounted for as a discontinued operation. In this presentation, as usual, I will introduce the numbers and the key strategic moves. Marc will then go into the financial, firstly, the group numbers, and then the Sodexo and Pluxee standalone numbers. I shall come back to conclude, and then, of course, both of us will take your questions. So let's start. First message, we outperform guidance. Group organic revenue growth was 11.6%. The group underlying operating profit margin was 5.6%, more than 10 basis points higher than we were aiming for.
Pluxee organic growth accelerated quarter after quarter, resulting in an annual organic growth of 26.9% and an underlying operating margin at 33.1%. Again, significantly above expectation. Second message, as a result of this solid operational performance, group net profit increased by 14% and the underlying net profit by 30%, to give an underlying earnings per share of EUR 6.21. As you all know, our dividend policy is to pay out 50% on our underlying net profit. So the board is proposing a dividend of EUR 3.10 this year, up 29% on last year and over the historic dividend high of EUR 2.90 in 2019. Third message: I'm proud of the strategic progress that we've made in a short period. We've implemented significant change to restore Sodexo's agility and growth capabilities.
We have made strong choices. Over the last two years, we have put an important focus on executing our strategy in North America. Our retention is now comfortably over 95% in NORAM, and we have seen a solid development at over 8% in 2023, including cross sales, fueled by more targeted and more profitable operations. This is a combination of determination, focus, better incentives and more key talent. We will continue to improve in North America. We've also made our organization more simple and effective. The transfer of the end-to-end P&L management to countries to bring decision-making closer to the ground is a success. All regions are aligned on our 15 global KPIs to monitor progress on our strategic pillars. We see concrete example of the added efficiency that our geography-based organization provides.
For example, the focus on consolidating and standardizing processes and technologies in transversal function in our four shared service centers has led to economies of scale, improved efficiency, lower operational costs, and is driving competitiveness. In the U.S., the segment HR teams have collaborated to recruit more efficiently and optimize staff utilization between segments. As a result, we no longer have an issue on staff shortages. I also reduced the Sodexo leadership team to 11 members. One thing I'm very proud of is the progress we have made on our gender balance targets at leadership level. Women represent 42% of group senior leaders, which is our top 1,600 leaders, and we have more women in our operational teams with, for instance, new female CEOs in China, Canada, Brazil, and for Sodexo Live in the U.S. and in the U.K.
Another highlight is our record client retention. This is the KPI for sustainable, profitable growth. In financial year 2023, we broke the record again with a 95.2% retention globally. Now, we need to move the bar to 96%. How did we do this? We have been more proactive with our clients. We have also rigorously implemented our retention tools and processes across the business, resulting in better reporting. We are much more disciplined in tracking and monitoring the KPIs that influence retention, and we will keep challenging ourselves to continue to improve. We are also accelerating on our food services transformation. We are scaling our advanced food models and leveraging enhanced digital experiences. Today, they account for 3.9% of total sales.
We are also being more selective on our FM growth by focusing on value-addings adjacent services that are accretive to our business. This year, we are back to a 64/36 mix for food and FM, helped by the strong post-COVID recovery in food services and the end of the testing centers contract in the U.K. By the way, FM is continuing to grow at 3% organically in fiscal year 2023. I'll come back to this in a minute. We define a holistic approach on people and the planet to reach our goal to be a market maker in sustainability, and I'm going to come back on this because it is important to be clear about what we mean by being a market maker. We also made a very important strategic portfolio decision.
Back in April, we announced our decision to spin off and list Pluxee. The spin-off project is a historic and very positive turning point in the life of our group, which will lead to the creation of two leading pure players in fast-growing markets. Let's go into this. We are now ready to go ahead with a full Pluxee spin-off. The spin-off will be proposed at a dedicated AGM early 2024, and will be followed, subject to Euronext admission decision and market condition, two days later by the listing. Existing voting rights will be maintained through the registration of Pluxee in the Netherlands. All shareholders will be able to opt in for their double voting rights by registering their shares in the Netherlands. Tax residency will remain in France.
From a tax point of view, the spin-off will be tax-free for Sodexo and its shareholders, at least in France and the USA. Pluxee will host its Capital Markets Day early 2024. Their guidance will be provided at this event, but I want to reassure you that organic revenue growth and margin improvement should remain favorable in fiscal year 2024. The governance is currently being finalized. You have seen the announcement of the new chairman, Didier Michaud-Daniel. He will be executive chairman to support Aurélien Sonet through the transition from subsidiary to quoted pure player. The board will be made up of four Bellon family members and five independent board members. There will be an animation contract between Bellon SA and Pluxee, similar to that of Sodexo, including the rebuilding of the executive chairman and the CSO.
Now that we've reviewed progress made over the past few years, I'd like to focus on our strategic plan for the new Sodexo post-spin-off. Our strategy has not changed. It is now organized around two strategic pillars that I will develop in further detail in a moment. Focus on food and be more selective in FM, being a market maker in sustainability. Supported by three key enablers, accelerating our investment in tech and data, reinforcing our supply chain competitiveness, and commercial excellence to fuel our growth strategy, trajectory. Let's start with focus on food. This is our historical growth market.
It is at around EUR 240 billion, in which we have leading position and where we know that consumers are looking for more flexibility, more personalization, more sustainable offers, healthier dishes, better taste, and more digital to help us to do all that. We believe that we can grow the business faster by leveraging our expertise to adapt our traditional food model and complement our existing infrastructure with advanced food models. We are scaling our investment in all geographies and environment to upgrade our offer through new production facilities, new distribution organization, a lot more sustainability in the menus with premium brands, and I'll come back to this later, and more digital. Now, for FM, there is a much more fragmented market, but it is a massive market of EUR 380 billion.
We have recognized expertise and integration capabilities, but the maturity and client buying habits still vary significantly from one geography and one segment to another. This is why our aim is to grow selectively in FM for clients who value our services. On identified playgrounds, where we contribute to enhancement, to the enhancement of the end user experience and where we can bring sustainability, innovation to our clients. For example, in North America, we took several radical decisions in schools and campuses where size, concentration, and margin of the contracts were inadequate. Since the successive crises of COVID, staff shortages and then inflation, many very large clients have appreciated the value of our services and have renewed their contracts with better pricing. Therefore, we shall continue to grow this business on chosen markets with adequate pace and scale.
Within food, we have a growing portfolio of premium brands. These premium brands are a rich source of growth. Each one is designed to address specific sub-segments, whether the client has large or small spaces, a hybrid workspace-workforce, and now they want to use food as an engagement lever for their teams. For clients with on-site kitchen, we have Modern Recipe. It is a flexible, healthy, and plant-based. This is for large corporate, university, or healthcare client that need all-day options. Modern Recipe is starting to scale. We have this brand in 11 countries at almost 400 sites. We introduced Modern Recipe in France a year ago and have already added 65 new sites and targeting 200 by 2025. The Good Eating Company is a niche and sustainable brand that gives on-site dining a taste of the good life.
We are targeting high-tech, financial, and professional services. We started it in the U.K. and have expanded it to the U.S. with a total of 126 sites. We plan to grow the number of sites 1.5x by 2025. For clients without kitchens and smaller spaces, we have Fooditude. Meals delivered fresh, creative, and ingredient-focused. The targeting is very specific for this brand. Fooditude is positioned to work only with clients who want to fully subsidize meals for their employees. We see that as a key trend for tech, media, banking, and other visionary clients who want to attract employees and drive engagement. Fooditude is in the U.K., and we have just added a second central kitchen in London that will double production capabilities. Next year, we will expand it to the U.S.
To complement our premium brands, we have a strong portfolio that includes KitchenWorks. KitchenWorks is accessible, high-quality, convenient food designed to drive our market share. It is a food court experience targeting manufacturing clients who are looking to attract a new generation of workers and inspire healthier eating. Today, we are scaling KitchenWorks in eight countries with more than 2,000 sites. In Brazil, where food makes up 73% of our revenue and 92% of sites use the KitchenWorks brand, expressed locally as Sabor Brasil, driving strong profitability and consumer recognition. In August and September, the Netherlands converted 95 sites to KitchenWorks. It gives clients consistency of delivery, consumers get great experience, and we standardize the menus and recipes and the way we purchase. By financial 2025, we will expand to six more countries.
We had some excellent wins and retention this year in all areas and regions. Let's take a few examples. In Europe, the AXA contract will be an example of advanced food model, where we will offer multiple meal solutions, including Tokla, Fooditude, and Modern Recipe. I would like to highlight the renewal and extension of the Colgate-Palmolive global contract with 12 new sites in North America. We will be providing IFM services to 43 sites across 25 countries, including manufacturing plants, research center, and their new global headquarters for the Hill's Pet Nutrition division. We will continue to bring technology, innovation like dynamic cleaning, and support CSR improvement in energy, waste, water, food, and D&I, as identified by our site engagement sustainability assessment tool. We are also piloting a Modern Recipe solution in the New York office.
In Europe, Sodexo Live has been the official hospitality provider at Ascot Racecourse since 1998, and will continue to do so for another 10 years. We shall be creating the Ascot Hospitality Academy and rendering the menu more planet-friendly and biodiverse. This year, I wanted to call out the massive return of live events after the COVID crisis. Sodexo Live has had a great year. We have brought visitors and fans back with record attendance in stadia and the Parisian boats and in airport lounges, and increased average spend per capita. We have also been winning new clients, 10% of new development, of which 75% is in North America, and the retention rate this year was also very strong at 97%.
As everyone knows, internally and externally, I am incredibly focused on retention, and the efforts are paying off. We achieved our best client retention ever at 95.2%. This is a combination of many different measures that we have been putting in place for the last few years. But I would say that the inclusion of a retention condition in the bonus, the absolute insistence on the use of the reporting tool by all, the consistent following up on all contract clauses, the message has become more firmly entrenched down through the organization. And as I have been saying to the teams, "Profitable growth starts with retention." For business development, it was also good at 7%, within the 7%-8% target range.
The annual development, including cross-sell, improved to EUR 1.7 billion, compared to EUR 1.5 billion last year, and with increased profitability. As a result, net new signing remained firmly positive at 2.2%. The commercial momentum is improving. This year, we had an increase in new signature of 10%. Within this new development, there had been an increasing share of food service at 61% of the total, versus only 55% last year, and FM activity has reduced demonstration of our more selective approach. We have also seen strong demand for more first-time outsourcing in North America, and particularly in the healthcare sector, now representing 50% of our total signature in the zone. Retention is my obsession, and this year, the really good news is that it has increased, but it has become more uniformly good everywhere.
With more than 60% of the countries representing 75% of revenues, generating a retention rate of more than 95%, and we can still continue our progress. The second leg of our strategy is to be a market maker in sustainability. We are a pioneer. We do make more ambitious commitment on both the planet and people, and we deploy these commitments globally and at scale, not just in small pockets of the business. In fiscal year 2023, our global carbon emission reduction has been validated by SBTi. Yes, this is a global ambition, so much beyond the U.K., where it has become obligatory. We have established with the WWF, a low carbon standard, which has also been approved by SBTi.
This year, scope one, two, and three emissions are down 5.4% in the year, and we're also making progress on waste reduction. We are not yet at 50% waste reduction on the site, in which we have introduced WasteWatch. However, the number of sites has increased significantly. The program is now covering 57% of total food raw material cost, up from 46% last year. The aim is to get to 80%, so we still have some way to go to achieve our 2025 objectives, and we are tackling with this with vigor. We are also paving the way in biodiversity with strong global commitment for physical certification, whether it be in palm oil or paper or fish and seafood. For our people, our action to enhance our focus on our people have also been delivered at scale.
This year, we launched an industry-leading common employee benefit standard for our 429,000 people worldwide. It is expected to be implemented in 60% of the countries by the end of 2024. A sure sign that we're getting some things very right, our engagement rate reached a record of 82.5% and on a record response rate. This is 4.5 points better than in the last survey in fiscal year 2021. Safety also improved, with our LTIR down 15.4%. Gender balance is very important, and we have reached between 40% and 60% of women among senior executives. It is a constant point of attention to keep it there.
I could not end without mentioning the iconic Olympic contract, which will boost revenue in fiscal year 2024 by EUR 60 million and a further EUR 30 million in fiscal year 2025. This is also a journey for sustainability. Our teams have put together a program to source responsibly, locally and seasonally. Recipes will be more than 60% plant-based, and we shall be working hard to avoid food waste and plastic packaging, and we shall be optimizing existing infrastructure and equipment where possible. From a people point of view, we need to recruit 60,000 people, of which 15% will come from underprivileged environments. Very importantly, the training that we shall put in place to welcome these employees will be officialized by a certificate. This is an exceptional effort, and we're very excited. The teams are ready to go and break new records.
On that hand, I now hand you over to Marc for the financial of the year.
Thank you, Sophie, and good morning, everyone. It's great to be here with you this morning. Important point, the accounts have been produced under IFRS 5, with Pluxee accounted for as a discontinued business, as this is now the way it should be presented. But today, we've also added a few more slides to show you how the pre-spin of group, as we knew it in the past, has performed. First, let's take the numbers at the group level, including Pluxee, as you were expecting it on slide 22.
The revenues grew strongly during the year, reaching EUR 23.7 billion, up 12.3% as published, and as Sophie pointed out in her first slide, +1 1.6% organically. The underlying operating profit was EUR 1.3 billion, up 26.1%, with a margin of 5.6%, up 60 basis points and 10 basis points above our guidance. This progress was a combination of, among other things, passing through inflation and compensating any lags with mitigation efficiencies, leveraging volume growth, and a strong performance all year round from Pluxee. Other operating income and expense were negative at -EUR 159 million. I'll come back to this on the next slide. Financial expenses were EUR 114 million versus EUR 87 million last year. This is due principally to the one-off cost of the bonds consent process to prepare for the spin-off.
The tax charge was flat at EUR 261 million, reflecting an effective tax rate of 24.8%, well below last year and one of the better ETR ever. As a result, in fiscal 2023, we generated a net profit of EUR 794 million, up 14.2%, and an underlying net profit of EUR 908 million, up 29.9%. The underlying EPS was EUR 6.21, and this is the basis for the calculation of the 50% payout ratio of the dividend policy. Other operating expenses amounted to EUR 159 million, compared to EUR 5 million in the previous year. This year's number is due mostly to one-off, spin-off costs, as well as the restructuring costs related to the change in organization.
I remind you that the prior year benefited from EUR 50 million of net gains related to the sale of the childcare business, and a very positive settlement on our Hungary litigation for EUR 34 million. Group free cash flow was good at EUR 812 million, and despite a significant increase in CapEx. Net CapEx reached EUR 463 million, up 36%. I'll come back to CapEx later. Group net debt, including the Pluxee cash flow, or the Pluxee cash, sorry, of EUR 3.1 billion, fell to EUR 1.1 billion, and a net debt ratio of 0.7x, well below the one-two target range. The lower debt ratio was also helped by a very solid increase in the underlying EBITDA at EUR 1.6 billion or a 6.8% margin.
ROCE was also strong at 20.6%, back up over the 2019 levels. Now, let's focus on Sodexo, which is excluding Pluxee, the new standalone company. On slide 28, you can see quarterly underlying revenue growth. Organic growth was impacted in the first three quarters by the end of the testing centers contract in the U.K. In Q4, we had an adjustment linked to a change in revenue recognition of project works on a large ENR contract in the rest of the world. We now account for those jobs on a net basis, reflecting a more efficient way of operating the account. This 2.3% impact in Q4 is a full year effect of the change, so there will be an impact in Q1, Q2 and Q3 of fiscal 2024 of about half a point.
Taking out this element, the underlying organic growth at over 10% represents a solid exit growth rate. Pricing has been consistently above 5% each quarter. In the last month, the softening of food cost inflation is confirmed. We have seen a significant drop in North America and Brazil, with pricing starting to outpace food cost inflation. It is softening in Europe, too, but was still double digits in Q4. Overall, year-on-year food cost inflation before mitigation actions was just below 10% for the full year, with Q4 being just below 5%. Labor inflation was about 5%-6%. Mitigation measures will continue to ensure that we protect our margins going forward. We are expecting a further 3%-4% price increases in fiscal 2024. Now, let's look geographically at revenues.
We had a good year in North America, with revenues up 13.9%, including the post-COVID recovery in H1, an acceleration in the net development in H2, and 5% of pricing. Business & administration was up 23.4%, boosted by the return to the office and new contracts in corporate services, and as Sophie has already mentioned, very sturdy growth in Sodexo Live. Off a smaller base, convenience solutions and Entegra also contributed to the momentum with strong organic growth. In healthcare and seniors, revenue were up 8.8% organically, driven by cross-selling, retail recovery, and some major mobilization. The 9.1% organic growth in education was driven by universities up 13.4%, with strong attendance levels, price increases, and strong recovery in retail sales and event catering.
Schools were impacted by the reduction of government waiver eligibility for students. Europe was up 7.5% or 10.6%, excluding the impact of the end of the testing centers. Thanks to record tourism levels and ongoing return to work in corporate services, Q4 growth was 9% after Q3 at 6.9%, excluding the testing centers, affected by strikes and bank holidays. In business and administration, organic growth for the year was 12.2%. Healthcare & S eniors were down 2.4%, impacted by the end of the testing centers. The rest of the business was up 9.1%, with a contribution of new openings and solid occupancies in seniors, particularly in France. In education, organic growth was 4.4%.
The French strikes in the third quarter were offset by a positive impact of working days in the fourth quarter. Pricing was lower than in most segments, particularly in France, due to inadequate price indices. Rest of the world, organic growth was 11.5%, or 14.6% without the revenue recognition adjustment. The change was implemented during the fourth quarter, with retroactive impact for the full year. Business & administration's organic growth was up 14.9%, excluding this effect, driven by strong project works, successful price negotiation in energy and resources, new openings in Latin America, and strong performance in India and Southeast Asia, in particular in the tech sector. Healthcare & Seniors revenue was up 6.2% organically, with good development in India and China.
The strong recovery in education continued, up 35.1%, as all schools reopened in China and growth in India remained very strong. On the bottom line, you see the UOP margin was up 30 basis points to 4.3%, only 10 basis points below the 2019 level. This improvement was driven by volume leverage, especially in North America, combined with rigorous inflation management. Supply chain economics also improved, thanks to the robust development of Entegra. HQ costs were down significantly in EUR millions and in percentage, as we move from global segment to geographic governance, with better allocation of resources closer to the field, more discipline, and simplified processes. The 20 basis points decline in margin in Europe was a result of the transitory inflation headwinds, where price adjustments are still lagging food cost inflation in public contracts in France, Italy, and Belgium, mostly in school.
In addition to the high flow-through of the testing centers contract, which was closed at the back end of fiscal 2022. In this slide, you can see that the standalone Sodexo P&L, what will look like. EUR 20.6 billion of revenue, EUR 976 million of UOP, a margin that you've just seen of 4.3%, which includes EUR 97 million of group central cost. I've already talked about the OIE. Financial expenses were EUR 101 million. The major reason for the increase in financial expenses is due to EUR 14 million costs of the bond consent process. The average interest rate, as at August 31st, 2023, was 1.7%, only 10 basis points above where it was a year ago, due to the dollar variable rate borrowings.
The tax charge of 24.6%, one of the lowest rates we've ever had. We expect in the future to be able to maintain this between 26% and 27% going forward. So net profit of the continuing activities was EUR 560 million, and underlying net profit was EUR 659 million, or EUR 4.51 per share. Then you add the net profit of Pluxee, which gives you the same total numbers as in the previous P&L, 794 and 908. In this cash flow, you can see that the standalone Sodexo operating cash flow, change in working capital and net CapEx. Free cash flow was positive at EUR 374 million. As you will note, the net CapEx increase is significant at +EUR 86 million.
The EUR 646 million positive inflow in others is linked to the push down of EUR 0.6 billion of debt to Pluxee. In this slide, you can see the Sodexo balance sheet with Pluxee assets and liabilities held for sale. The EUR 1.2 billion of assets shown in the red box will be settled for cash on the spin-off date and not treated as cash in our ratios. Sodexo net debt, after push down and settlement of the EUR 1.2 billion on closing, is now at EUR 2.9 billion at the end of 2023, resulting in a net debt to EBITDA ratio at 2.4 turns. Our CapEx will remain focused on supporting sustainable growth.
This year, our growth CapEx reached EUR 520 million, or 2.3% of revenue, close to the 2025 target of 2.5%. As you can see, 87% of this CapEx were client-facing, versus 75% last year, due in particular to the Ardent contract in North America. IT and data investment will increase in the coming years. As a summary, in the first set of slides, the group had leverage of 0.7x. Because of the spin-off, Sodexo leverage increased to 2.4x, and our ambition is to get this ratio close to two within 12-18 months of the spin-off, and for the midterm, back down into the one-two range. The sale of the home care business and the positive result of the bond consent process will contribute.
We shall also maintain a balanced capital allocation strategy with a dividend payout of 50% and selective and disciplined M&A. Our objective is to maintain an investment grade rating of BBB+. Now, let's turn to the third set of numbers for Pluxee. In slide 40, you can see the strong finish to the year, with Q4 operating revenue growth at 22.4%, boosted by face value increases and net new development. Financial revenue growth was also very strong at 143%, with further increases in interest rates in the Eurozone, Central Europe and Turkey, and despite the leveling of rates in Brazil. In this slide, you can see the same breakdown for the year. Operating revenues were up 18%. Financial revenues were up 145.6%.
Here you can see the very strong growth in employee benefits, up 28.5% for the year, on issue volume up 14.1%. Service diversification was up 19.8%, thanks to the two major public sector contracts in Austria and Romania. The performance was good everywhere with Europe, Asia and the U.S. up 24.7% and Latin America up 31%. Activity was buoyant in all major European markets, helped by rising interest rates. In Latin America, new business, face value increases and the change in regulation in Brazil contributed. Also, the Selic has started to come off from its highs. Higher rates were also a tailwind for the year.
Despite sustained investment in tech and digital, European EBITDA margins are up 480 and 460 basis points at constant currency, respectively, boosted by volume leverage and the significant flow through from higher interest rates. I highlight that these Pluxee margins are before any central cost allocation. For instance, in fiscal 2023, the group allocated and invoiced EUR 25 million of group HQ costs to Pluxee. This cost, invoiced right above the profit before tax, are not visible yet, but will become visible in the Pluxee standalone income statement, to be published in the prospectus early 2024. From fiscal 2024 onwards, Pluxee will also have its own additional standalone costs, which are currently estimated at circa EUR 45 million per year. I hope that you've been able to follow all these changes.
I thank you for your attention and now hand you back to Sophie for the outlook.
Thank you, Marc. Now let's turn to the outlook. So, as you have seen, the numbers are solid, and we're turning the corner to be a pure player, focused on food and being more selective in FM. From an operational point of view, we have a clear set of strategic priorities by zone. You should recognize this from the Capital Markets Day last year, and please go and listen to our zone leaders' videos on our site, as well as one from Nathalie Bellon-Szabo and Sodexo Live. I remind you that in North America, the aim is to enhance growth to increase market share. In Europe, we are focusing on profitability and cash flow, while maintaining market share. In the rest of the world, the focus is on growth and profitability in a strong, growing market.
For Sodexo Live, they are focused on growing too, to become a global leader in the live events hospitality experience in a focused manner. In France, U.K. and North America, with a priority on convention and conference centers, stadia and arenas, cultural destination, airport lounges and major events. And by driving cross-selling through new capabilities in venue sales and hospitality ticketing for sporting events. For the next two years, we are seeking to sustain 6%-8% organic growth, supported by an underlying exit growth rate in Q3 and Q4 of more than 10%. Continued inflation being passed through, expected to average out at 3%-4% pricing for fiscal year 2024. A contribution from net new business, which should be above 2%, amplified by cross-selling and volume growth of 1%-2%.
On that organic growth, we should be increasing the European margin, including HQ costs, by 30-40 basis points per annum at constant rates. This is coming from further operational efficiency and cost savings, inflation being passed through into pricing, Entegra high growth and high margin business model, offset slightly by continued investment in commercial and operational excellence. I thank you for your attention and now ask the operator to open up for the Q&A session.
Thank you. 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 their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Harry Martin with Bernstein. Please go ahead.
... Oh, hi, good morning, everyone. A question on the revenue KPIs, and then a couple of margins, if I may please. So you talked about the best ever retention, new development as a percentage step back a little bit this year, but was, you know, up to close to record levels as well. So is the, you know, 2%-2.5% net new contribution as good as people can put into their models going forward? Or, you know, do you see further upside as you, you know, as you talk about 96% retention and potential for gross wins to carry on increasing as well? So that's the first question. And then on the margins, in H2, we saw margins step back year-on-year in North America and Europe.
It's tough for us to know exactly where the 2019 equivalent is, given the change in the geographic reporting as well. So how can you give us a little bit of color on how to get comfortable with the improvement guided for next year, given that step back in the second half this year? And then the final one, just in the rest of world, would the accounting change to go from gross net revenues in that contract also boost percentage margins? And so could I just ask what the onsite margin was in rest of world, excluding that accounting change? Thank you very much.
Okay. Thank you very much. I will take the first question on retention. So, just as a reminder, you know, we have been in net new positive since last year. As I said in my speech, you know, as I talked to you a couple of years ago when I first started as a CEO, I've been putting a very strong focus on retention, and I can say that 95.2% is really the best record that I've seen in Sodexo since I've been there, and it's quite a number of years now. So we are very, very happy with this number.
We can, we think that we can continue to progress, and that's why, you know, I said that, now the objective is to reach, at some point, 96%. And concerning our development rate, you know, we are between, we are within the range of seven and eight. And we also want to continue to progress. The pipeline is solid, about the same at the beginning of last year. As I said, you know, we are within the range of 7%-8%. We are confident because the first time outsourcing opportunities, especially in North America, but also in Europe, are increasing.
Yes, you know, if we continue—and that's the objective—to progress both on retention and development and cross-sell, the net new continue to increase. And that's the objective.
On margins in Europe, the main drive on margins in Europe is, as I said in my speech, the testing centers which stopped, I think it was in Q3 last year, we're having a very good flow through in margins. So, this now is not there, so the margin you see is without that. And we've had a difficult year in the school business because the pricing was not happening at the right time. So we had a difficult time in the school business in Europe, mainly in France, Italy, Belgium. But now the pricing is coming through at the beginning of this new fiscal year.
So I think this will be restored into H1. Now, with regard to the U.S., indeed, the margin in H2 this year is lower than the margin last year. It's mainly because we passed some onerous contract provision. As you know, we had COVID, and we had inflation, and at the end of the year, we had a few contracts where the margin was not fully recovered. So we booked those onerous contract provision, and it affected temporarily the margin in H2 of North America. On the rest of the world, the impact of the change in margin is a few basis points.
We're not talking big numbers because we reduced by EUR 110 million, the margin became the revenue. So, but it's not significant.
Okay, thank you.
The next question is from Jarrod Castle with UBS. Please go ahead.
Thank you, and morning, Marc, Sophie. You called out China as an area of some slowdown. Are you seeing any other kind of industry segments or any other countries where you're seeing a slowdown? I guess MENA is in the news at the moment, so I'd be interested in any thoughts there. And then, FM organic growth. Can you just give an update where it was in 4Q23 and within the 6%-8% on-site growth, any kind of range potentially that you could give for how you see FM growth in 2024?
... And then just lastly, obviously, Pluxee getting very close to the demerger. Any update on thoughts around the share cross-holding between Sodexo and the Bellon Foundation in terms of how you're seeing that at the moment? Thanks.
Okay, so I will take the question on slowdown. So the slowdown on China, you know, I mean, there has been some COVID effects last year and also the activity has not completely caught up. But really, in China, it's the only country where we are seeing this slowdown. We have no other country across the different region rest of the world or Europe where we see a slowdown like that. So it's really mainly focused on China.
As a follow-on, you know, first, I want to say that it's a very different operation than the spin-off. It has it has nothing to do, and it is always a topic that, you know, we are looking into, but at this moment, there is no news on this topic.
On the FM organic growth in Q4, it's obviously much lower than the growth in food, huh? I don't have the number in front of me, but I think it's 3%-4% in Q4 for FM.
It's also the effect, you know. It's because we are really accelerating on food and we want to be more targeting, more specific in FM, so that's, you know, why this number is lower.
Can we think about 3%-4% again, then, maybe in 2024? Or should we be thinking lower even?
It's too early to say, but yes, the guidance is 6%-8% overall. The focus is on food, so the FM growth will be a little slower than the food growth. So, probably, yeah.
Okay. Thanks very much.
The next question is from Jamie Rollo with Morgan Stanley. Please go ahead.
Thanks. Morning, everyone. First question is just why are you not giving guidance on Pluxee at this time? Is that simply you want to hold your firepower for the CMD, or is there anything else we need to think about? And perhaps related to that, secondly, if you could please comment on the French antitrust authority recommendations on the vouchers market and any sort of possible read-across for what might be happening in other markets. And then finally, sorry, Marc, just on the revenue recognition in the ENR segment, could you explain just a little bit more exactly what's going on there, and what has caused that accounting change? Thank you.
So on the guidance on Pluxee, the fiscal year 2024 and midterm guidance will be provided at the Pluxee Capital Markets Day, early 2024. In the meantime, we can say that, you know, that the new business remains solid. In Brazil, the change in regulation will continue to be a tailwind and will start to benefit from Santander deal. We are confident that face value inflation and and European interest rate will also continue to be tailwinds, and we are confident for Pluxee going forward. But really, you know, we think that the guidance should come from the Pluxee management team, so that's why, you know, we'll have to wait a little more. On the French antitrust recommendation, well, we have, we are.
There has been the antitrust authority was requested by the Ministry of Finance to give an opinion on the opportunity to cap the issuers' merchant commission. Based on their opinion, the introduction of this potential price cap doesn't constitute the most appropriate response and could lead to uncertain effects. So additionally, the antitrust authority really recommend that the government makes the dematerialization of meal benefits compulsory, and establish appropriate, the right regulation, appropriate regulation of the meal benefit market, in particular, through the approval and accreditation of issuers and exhaustive advertising of approved companies. I think all these recommendations are very aligned with the position Pluxee has been sustaining for a while.
The issuers are now invited by the government to make proposals to make the meal benefit regulation evolve. So such evolution will rely on a lot of, on full digitalization and, and as Sodexo and Pluxee now, we have always been in favor of the digitalization of the meal benefit, because it does create a lot of value for all stakeholders, including the restaurant owners. That's why we have been actively migrating our portfolio of clients over the past five years, and in France, more than 70% of our volume in meal are digital, digitized. And we hope, you know, that the-
... The full digitalization is going to happen fast. The faster, the better. And on your last question, what has caused the accounting change? We had a deep review of the contract with the client, because we were you know renegotiating a large number of terms. And at this occasion, the contract was refined and we had the opportunity to transfer those projects from gross to net.
So what does that mean in practice, please? So you're just-
I give you an example. For instance, we do a project for a client, and basically the only thing we do, we don't choose the supplier, we don't choose the services, we don't negotiate the price. The only thing we do is supervise, and those guys come on time, do the stuff, and report. And when we do very, very simple, basic supervision, there is no reason for us to account for it. When we are involved in the project itself, when we do things, when we take risks, when we have KPIs at stake, then we account for it in gross. But when we do relatively little, we can put it to this.
Thank you.
The next question is from Julian Richer with Kepler. Please go ahead.
Yes, good morning. Three quick ones for me, please. The first one, could you please quantify the contribution of the Olympics next year? The second one you mentioned, and you discussed about the European public contract and the fact that it is now normalizing. Could you please also help us to have a view on this normalization impact on your margin in 2024, so the positive contribution you expect? And last one, on facility management, maybe a little bit more, if possible, granularity on the operating profitability, operating margin, for example, of the facility management division, please. Thank you.
Can you repeat your question on normalizing? Because I'm not sure I captured it.
So the second one on the European public contract-
Yeah.
You said that you have been able to better negotiate prices recently. What do you expect in terms of margin impact in 2024 from those negotiations?
But the Olympics, as I think Sophie said it in her speech, we are expecting in 2024, EUR 60 million of revenue. And there will be some revenues in 2025, because of the cutoff of the Paralympics into September. That's it. On the European public contract in education, yes, we are expecting. We estimate that last year we suffered a 10-15 basis points of margin related to that. So that should normalize and should get back up. That will cancel itself and so it will help the margin in 2024. On FM granularity of operating profitability, we don't comment the operating European profits of FM.
But, the focus on food and being selective in FM means that we are choosing, in the FM services, the one who creates most value. And those FM contracts tend to be, a decent margin, very good margin actually. So they are helping, our margin overall, but we don't give more detail than that.
As a follow-up, does it mean that for the latest contract on the facility management activity, you have something that is not dilutive in terms of margin at the Sodexo activity, Sodexo level?
I will say that, yeah.
The next question is from Leo Carrington with Citi. Please go ahead.
Good morning. If I could ask three, please. Firstly, to follow up on your guidance for margin progression for 2024, can you help break out the drivers for us? Particularly, I'm interested if you could attribute the progression between operating leverage from your growth, an element of pricing catch up versus costs, and lastly, internal cost savings, which Sophie, you did reference. And secondly, on the retention rate, are you able to give some color on how that progression up to 96% progresses over 2024? And if I was to just think about 2024 net development versus 2023, can you give some more color on the contribution from retention and growth development?
Then lastly, the focus on cross-sell in OSS feels more in focus than ever. Can you... In terms of your focus on food and selectivity on FM, can you just give an example of, or a couple of examples of, where the opportunities in cross-sell are, in terms of some practical examples? Thank you.
Okay, I will start with the retention. First, I didn't say that we were going to be at 96% in 2024. I said that the objective is to get there, but I didn't give a date.
But definitely, you know, the objective is to continue to progress. How are we going to continue to progress? For example, you know, there are some activities like first I mentioned a number of topics, you know, how operationally, you know, we are better using our tools, how we are measuring, we are anticipating, we are tracking when contracts are expiring. We are proactively asking our teams to renegotiate contracts in event, especially in business like campus services in the U.S., where we have long contract, we invest a lot.
So if we have a five-year contract, after two years, we go back to the client, and we propose, after two or three years, we go back, we propose a new offer, additional services, and then we extend the contract for another five years. So that's the kind of action, you know, and that will help us. It's something that can happen in campus. It can also happen in Sodexo Live, where we invest a lot in our contracts. And that's the kind of action, but it can happen also in other segments. That's the kind of action that we want to focus more.
It's also, you know, retention, we have tools, but for me, it's a philosophy. And the more and the philosophy is that you don't lose a contract that you don't want to lose. And so, and more and more, that philosophy is going to be a part of the group, and the expectation is going to be there, more we are going to progress. That's why, you know, I'm pretty confident that we still have a leverage on retention. And as I said in the beginning, retention is the basis, is the first pillar for sustainable and profitable growth.
And in terms of margins, and the drivers, the first driver is, you know, we are at the moment where we can pass higher inflation than the one we incur. So I think at the beginning of the year, there will be some margin improvement coming from... coming from the fact that we are now in the right moment of the inflation phenomenon to pass increase on margin. We also have operational efficiencies and cost savings. So I think the bulk will come from inflation and operational efficiency. We have also Entegra convenience, which are uplifting the margin, especially in the U.S.
But at the same time, we will be, on the other hand, there will be some weight coming from the openings, and the openings will weigh a little. And we continue to invest in commercial excellence, in supply chain, in Entegra and convenience. So it, it's a mix, but the bulk of the improvements will come from operational efficiency, leverage, and inflation.
So for the, you know, the-
Yeah.
And for the third question, the selectivity in FM, you know, it's like we still, we never said, you know, that we want to not to be active in FM. We want to be more selective. We want to know where there is value for our customers. For example, in the healthcare business, you know, we want to focus on HTM, which is a technical maintenance of the white rooms and operation of technical maintenance of materials within the hospital. We also have, you know, a number of global strategic accounts. They are very important clients for us.
And as I said, you know, we retain Colgate-Palmolive in 12 countries where we were already operating, but now we're extending to more countries with more services and more revenues. So, it's more a question of better targeting, and it's also something, you know, that we are doing in food to accelerate the food. We are also targeting better, but in FM, we really want to have accretive business and also business that brings increase the value experience of our consumers on a site, and that's what we're doing.
Thank you. And just if I might follow up on the first question on net development, would it be reasonable to expect some small progression in gross development rates for 2024 as well?
Well, the fact is, as you can see, the net new business last year in 2022 was 2%, this year is 2.2%. By improving our retention rate and staying within the range of 7%-8%, mathematically, yes, it will improve. But it's not going to be a leapfrog, it's going to improve steadily.
Thank you. Thank you, Marc. Thank you, Sophie.
Thank you.
The next question is from Neil Tyler with Redburn Atlantic. Please go ahead.
... Yeah, thank you. Good morning, and thank you for the very detailed presentation. Firstly, one quick point of clarification on the pricing catch-up in the EU education. Marc, the 10-15 basis points, is that at a group level, that impact, or was that on the EU margin? I just wanted to clear that as clarification before I move on to my other questions, please.
It's in on the EU margin. Yeah.
Okay.
Europe.
Thank you.
Yeah.
Thank you. And then, so if you mentioned, I mean, going back to this topic of selectivity in FM, are there any sort of meaningful contracts within the current base? You mentioned sort of active contract actions where, you know, where perhaps terms were unsatisfactory, I think, in your prepared remarks. Is there anything in the current base that you're not happy with, that's being actively sort of renegotiated, and is that material, please?
Well, no, there is nothing, you know, when I say selective, it means, you know, the commercial team not going after, you know,
New opportunities.
New opportunities with services that are very different, especially in some countries, from what we do today. So there's nothing very material in our current portfolio, but I think we need to be more disciplined and more selective, especially with the new business.
Understand. Thank you. And then just coming back to the margin outlook, typically, the acceleration in net new creates a, you know, some sort of margin drag as, as a larger contribution of growth comes from early stage contracts. To what extent are you sort of factoring that in, if you're able to, in a, sort of frame, how much margin is, you know, being held back by that, that factor in your 2024 guidance, please?
So I think this is what I tried to explain when I was commenting the components of the margin, that we have quite a bit in operational efficiency and inflation, and there is a little bit of drag in term of openings. But again, the openings went from 2%-2.2% in signing. We are already at 2% in opening in H2 fiscal year 2023, where we'll be above 2% in 2024. So it's not just like... It's not an explosion of impact, it's a gradual. I think this is why also earlier we said, we want to do things gradually. We want to sell more gradually at good margin. We want to mostly re-improve retention, because this is the most accurate.
So the net new will improve, but right now, we said we want to stay in the 7%-8% range of new development. What we want is the retention to go to 96%. That's why we have already part of that impact in our 2023 number. We may have a little more in 2024, but we also have other positive levers. And in the future, yes, it will increase, but the net new component should come more, in our view, from retention than from new openings.
Wonderful. Thank you.
So it-
And then just one.
One way to find the right balance between opening and retention.
Got it. Yeah. So that's, that's very clear. Thank you. And then just one small follow-up on, I just struggled slightly to follow the dynamics in the, in the sort of breaking up of the central overheads between the, the two pieces of the business. So if you just sort of, for the avoidance of doubt, give us an indication of where you think that number will be for the core business for FY 2024, please.
We have a P&L for Pluxee in Appendix. You can have a look at the P&L in Appendix. In this P&L for Pluxee, there is no HQ cost. It's purely the direct Pluxee cost. It's under IFRS 5, it's calculated by difference, so that this is the way it should be shown. What we are saying in the presentation is that in 2023, we, as a group, you know, between business units, between HQ and business units, we allocate and invoice what we call management fee or HQ cost, to make it simple. In 2023, we invoice EUR 25 million to Pluxee as a business unit. In 2024, those EUR 25 million, let's assume they will not be invoiced anymore, but they will be replaced by standalone costs that Pluxee needs to build, and they are building it just now.
You know, they need to be standalone in IT, they need to be standalone in legal, they need to have a consolidation team and so forth. So you see what I mean?
Mm-hmm.
Those costs right now are estimated at EUR 45 million. So those EUR 45 million will replace the 25. It's not in addition. The 25 will go, the group-
Mm-hmm
... will deal with the cost, and the EUR 45 million are the costs that Pluxee needs to be standing on its two feet on its own.
Understood.
When we-
And, and-
When we will send you the prospectus for this 2024, you will then see the EUR 45 million in the P&L. While in the one we have in appendix, those EUR 45 million and EUR 25 million are not there.
... I understand. And in the EUR 97 million, is that netted against the 25, or is that-
The EUR 97 million we have on the Sodexo P&L is the totality of HQ costs before any invoicing.
I see.
It means that on Sodexo standalone, ex Pluxee, whatever you call it, the EUR 97 million are with us. The EUR 97 million is already a reduced number. It used to be more in the past, and it will continue to reduce. We, you know, with Sophie, we are committed to keep on reducing it, so that we become more streamlined. What you need to know also, the reduction in HQ cost is also linked to the regionalization. We didn't stop because of the spin-off. We also started because we moved to a regional model, and we decided that some of the costs which were held centrally had to be transferred to the regions and the zone, and they had to be accountable for it. So we have less centrally as part of that.
That's very helpful. Thank you very much.
The next question is from Vicki Stern with Barclays. Please go ahead.
Good morning. Just coming back again on the guidance for Pluxee. I appreciate you're gonna give full numbers next year, but you gave some helpful commentary there on the top line drivers. Just wanted to circle back on the margin, and I'm doing this before the central cost point you just discussed. Obviously that margin's been very much helped by interest income being so good this year. But I know you've been investing some of that benefit on the other side. So, sort of general direction of travel for the margins for Pluxee, as we look into next year and beyond, when interest rates perhaps stop being such a tailwind. Second question is just on the use of cash. Obviously, that business will have a lot of cash.
I know you've talked about a sort of few step plan, long-term plan being diversification, but any sort of initial comments on M&A strategy for that business and when that might become relevant? And then just finally, follow up to Jamie's question really. I think one of the proposals that came out last week was about the separation of issuance and acceptance of meal vouchers in France. Just specifically on that measure, curious in the long term if you think that could be problematic for you in any way? And I think he also asked on the competition, any other inquiries underway in any other countries. Curious to know if there's anything else going on there.
So first on the guidance. Thank you, Vicki, for your questions, but, on the guidance for Pluxee, I mean, we are not, we're not giving any guidance. You know, it's, as I said, the management is going to the Capital Markets Day early in 2024, and soon after, you know, we will have the spin-off. So until then, we're not giving any guidance. And on the M&A strategy, as you can see, I mean, Pluxee has, will have a significant firepower. They will have a net cash position to start with. But I, I'm not commenting the M&A strategy for Pluxee.
I think it will also be presented to you at the Capital Markets Day. On the separation of insurance and acceptance of meal vouchers, what I understand is that there was some conversation where the card, the service could be used almost anywhere. And I think this is a very complex matter. I don't think it's a very detailed proposal at that stage. And the difficulty I understand, but I'm not sure I grasp everything on that, so we will need to have more information, is that if what we call forgeability was implemented, it will mean that a meal service, meal vouchers, meal cards, will be almost used as cash.
If it was used as cash, then why should it have some social exemptions or whatever? I think it's very early stage on this. It's complex, and there are currently a clarification meeting with the government to understand what they have in mind. But I don't think this is a well-developed thought at that stage.
Thank you. Just the last one was about whether there's any other sort of competition inquiries going on in any other geographies that we should be aware of right now?
There is nothing significant that I remember, so I'll recheck that, but...
Okay, thanks very much.
The next question is from Estelle Weingrod with JPMorgan. Please go ahead.
Hi, good morning, everyone. There is only one left, from me. Will you just provide more color on the net new in-year contribution for, for full year and Q4, as it was actually slightly negative last year for the full year, if I remember correctly, while the reported net new was within 2%? If, yeah, just a bit of color on this, please.
Yeah. I was expecting the question. Yeah, the net new openings and the net new in revenue, and the way it's reflected is at 2% in H2. I think as we had said it will be. And so it's in line with what we had observed in H1 and the ramp up we were expecting. So, a net new of 2% in H2. And if I project myself in 2024, now that we've had two years in a row of net new business at above 2%, then 2.2%, the net new openings in revenue will consolidate at 2%+. So, we will see the 2% contributing to the guidance in revenue.
Okay, thank you.
The next question is from André Juillard with Deutsche Bank, please go ahead.
Good morning, and, congratulations for this, solid result. Most of my questions were already answered, but, I just wanted to have a follow-up on inflation. Considering that inflation on food is slowing down, don't you think that the renegotiation could become tougher in the next few months with your clients? So, would appreciate a feedback on that. Second question on CapEx. We've been seeing that CapEx were improving progressively. You are targeting mid-term 2.5%. Is it a top-ish level for you, or could we consider that the growth on that side is going to continue? Thank you.
Yeah. Inflation on food slowing down, that for us, the fact that the food cost inflation is slowing down is a blessing. We can see already in the U.S., we are well below 5% in food cost inflation, and we see immediately the benefits happening in our margins. And as you know, the indexes we are using are not prospective indexes, they are retroactive indexes. So when we pass inflation, for instance, in October, we pass inflation, which has been calculated from October 2022 to October 2023. So the inflation is contributing, while actually the food cost inflation is lower. So right now, we are in this moment where we are increasing revenue more than the food cost is increasing.
Where it's not yet totally true is in Europe, because in U.K., France, and continental Europe, the food cost is still double digit. It's been slowing down, but it's still at a high level. So right now, in Europe, we are still... But will it become tougher with clients? Yes, it will become tougher with clients, not necessarily on the pricing, but on the mitigation action. At some point, the clients will tell us, "You were mitigating a lot, now you need to mitigate a little less, and for instance, increase the level of services or increase the level of the hours of openings." So the mitigation, we will need to stay firm as long as we can on the mitigation, but I'm expecting pressure on the mitigation at some point.
We are actually spending more CapEx, and as you can see, it's very client-focused, so this is good CapEx, it helps retention, it helps development. We were at 2.3 growth CapEx to revenue. We said 2.5, we will be happy to revisit the CapEx above 2.5 if it helps us consolidate the retention above 96, that's for sure. But right now, we want to keep on progressing, and do good CapEx, so that we can improve retention, and we can improve winnings and net new business. Yeah, but yes, if there is opportunity to go above 2.5, we'll go above 2.5.
Okay, thank you.
Okay.
Ladies and gentlemen, there are no more questions registered at this time. I turn the conference back to the Sodexo team for the closing remarks.
Well, since there is no more question, I want to thank you all for being with us, this morning. So, our next step is the shareholder meeting on December fifteenth, and our Q1 revenues on January fifth. Thank you, thank you all. Have a good day.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.