Earnings Transcript for SW.PA - Q4 Fiscal Year 2021

Virginia Jeanson: Thank you. Good morning everyone. Welcome to our Fiscal 2021 Results Conference Call. On the call today we have Sophie Bellon, our Chairwoman and Interim CEO; and Marc Rolland, our CFO. If you haven't already done so, the slides and press releases are available at 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 reproduced or transmitted without our consent. Please get back to the IR team if you have any further questions after the call. I remind you that we shall be publishing our universal registration document on November 10th. Our next event will be the AGM on December 14th. And the next numbers announcement will be the first quarter figures on January 6th, 2022. I now turn the call over to Sophie.

Sophie Bellon: Good morning and thanks for being with us today for our fiscal 2021 results announcement. So, this is the first time that with Marc I shall presenting the results. As usual with our announcement, I as interim CEO, will introduce the numbers. Marc will go into the detail and then I shall come back to conclude. And then of course, both of us will answer and take your questions. So, the good news is that the results are above our H2 guidance. Organic growth is at 18.1% compared to our guidance of around 15%. The underlying operating profit margin at constant rates is 3.7%, 20 basis points above guidance. And in terms of the cash generation, we are way above our guidance with a cash conversion at about 350%. The other piece of good news is that we can see the recovery in all our segments and activities. You can see that all the On-site segments are improving in Q4 with Healthcare back at to fiscal 2019 levels. Education recovered strongly in the last quarter with the start of the academic year in the United States. While Universities are still below pre-COVID levels Schools were back up to 99%. Business & Administration is lower due to the very progressive return to the office in many countries. And Sports & Leisure really only picked up in July and August ending at 43% of pre-COVID levels in the quarter. You can see the difference between the performance of Food and FM services. While FM is well ahead of pre-COVID levels, Food services is still at 73% in Q4 even if we are seeing a very regular recovery. As far as Benefits & Rewards is concerned, Europe is now back over the fiscal year 2019 levels and you can see the volatility linked to the closing and the opening of restaurants. On the other hand in Latin America, there is still some way to catch up due to the effect on revenues of the very competitive environment in Brazil. Retention is down 40 basis points at 93.1%. But as we pointed out at the end of the first half this is due to the loss of Transforming Rehabilitation contract in the UK. Without this it would have been flat. However, this is not as good as I would like it to be. We lost a very large school contract in North America this summer which accounts for nearly twice the Transforming Rehabilitation contract. As far as business development is concerned, there is real progress year-on-year in percentage and in million of euro and in quality. Finally, comparable unit growth is still negative against this year at about 6%. But we did see a real improvement in the second half even if we still have a way to go. Let's go in the detail of the sales dynamic. You can see the volume of new signing is at a much higher profitability up 80 basis points and 200 basis points better in North America. And also what we're losing is at a lower margin. The good news is that health care development in North America is up 230 basis points and retention is up a further 80% -- sorry 80 basis points after 590 basis points in the previous year. Universities in North America is also doing better with a development rate up 110 basis points and a retention rate up 270 basis points even though there were relatively few renewals this year. I would like to highlight one emblematic contract, which shows how good we can be as a trusted partner bringing our leadership in workplace services to implement global solutions serving the performance of our organization and improving the quality of life of consumers. Initiated in 2018 for 80 corporate sites in 33 countries, NorAm, LatAm, EMEA this contract for a leading pharmaceutical organization was extended in 2021 for the management of 33 additional manufacturing sites in seven countries. The client's main objective is to manage the post-COVID employee experience, creating workplaces that will become strategic advantages for talent attraction, retention and productivity. At the same time, the client wants to promote a sustainable approach with new technology and a seamless experience. Using Vital Spaces, our comprehensive value proposition, the team is working with the client to switch from an FM approach to a holistic hospitality approach starting from the solution design based on the analysis of the consumer journey. The vision is a global work-life solution with a wide range of services, adapted to each site and consumer experience as a focus point. Including in the strategy are food offers on site, so-called digital concierge services, as well as cleaning energy management services and so on. Sodexo will also be supplying a comprehensive suite of technology to support client operational efficiency through business intelligence and reporting, as well as the 12 app implemented in a few sites to improve employee experience. This year has been active for the M&A team. On the acquisition partnership side, activity has been focused on the new digital food model space both in terms of offers and technology solutions, but there was also a lot of activity on disposals, eight more countries were exited. We started a much more aggressive management of our portfolio this summer with the announcement of disposal of Liveli and Rydoo. I wanted to highlight the Wedoogift acquisition. Digitally native note the 4.8 App Store rating and combining this with our gift services we have created the new leader in employee gift solution in France with 50,000 clients and five million consumers. And we're going to learn a lot in terms of seamless and personalized employee experiences in hybrid environments. Despite the loss of €4.5 billion of revenue in two years, our financials remain very solid. Thanks to the teams on the ground, we have had strong free cash flow, and therefore exceptional cash conversion. And yes, this is helped by the fact that some CapEx has been delayed into fiscal year 2022, but this has led to an outstanding liquidity of €6.4 billion at year-end. And at 1.7 our net debt ratio is already back into the target range between one and two. Alongside, our financial performance, I also wanted to share with you in a more complete way, how we are also advancing on most of our 2025 CSR objectives. I remind you they were set up in 2017, and given all the has happened since then, the performance has been variable, but several key things are to be proud of. Firstly, in the top left-hand box, employee engagement in the latest survey was 78.3%. This is a bit below last year when we achieved an amazing 80.1% in the midst of the pandemic. But I think it is still a very good performance, as we come out of the pandemic and remains very close to our 2025 objective of 80%. Plus it is supported by a very high participation rate at 63% versus 59% in 2020. In the box in the middle, you will see that we're also showing our willingness to include more and more local small- and medium-sized enterprises into our value chain. Our business value benefiting SMEs increased significantly in fiscal year 2021 to €6.9 billion, way up on last year and on track to get to €10 billion by 2025. This is mainly due to the implementation of specific monitoring of merchants and affiliates for the Benefits & Rewards Services activity. And this increase is also explained by a sharp increase in the Benefits & Rewards Services activity with SMEs in Brazil. There are two indicators I want to highlight concerning our contribution to fight climate change. On carbon emissions, since 2019, Sodexo was one of the first multinational to adopt a reduction target for its direct and indirect greenhouse gas emissions, Scope 1, 2 and 3, minus 34% by 2025, as compared to 2017. This target has been approved by the Science Based Targets initiative SBTi and is in accordance with the Paris Agreement 1.5-degree scenario. Since 2017, Sodexo has reduced its direct greenhouse gas emissions Scope 1 and 2 by 37.2% in absolute value; and its supply chain emissions Scope 3 by 23.2% in absolute value. In 2020, Sodexo's approach won the company a place on the prestigious climate A List of the CDP and we are definitely going in the right direction. And in the bottom right-hand box, you will find our waste reduction result, which is up on last year and is very much in line with the target reduction of 50%. Controlling production and the processing of resources to avoid any loss in value is one of Sodexo's major challenges. To us, it's not just a question of cost effectiveness, it's a moral obligation. Sodexo is in a unique position to drive the behavioral change we need towards more sustainable consumption. And what is important is that despite the program delay due to a lot of sites being closed or at very low levels of activities, implementation is now picking up fast. We had 878 reporting in fiscal year 2021 versus 291 in fiscal year 2020. And currently, we are getting to 1,300 sites deployed. Finally, let me highlight that we have introduced a new KPI this year about the important topic of nutrition and well-being of our consumers. Today, 73.8% of our sites provide consumers with a healthy lifestyle option. Our option – our mission is to get to 100% by 2025. So still a lot of work to do. On that high note, I hand you over to Marc for the fiscal 2021 detail.

Marc Rolland: Thank you, Sophie and good morning, everyone. I am very pleased to be here with you this morning. As usual, you will find the alternative performance measures definition in the appendices, along with extra information to help you with your modeling. Now let's start with the P&L for fiscal 2021. We continue to be severely impacted in fiscal 2021 by the sanitary crisis. As Sophie pointed out, even though we have been climbing out of the crisis progressively during the year, we lost a further €2 billion of revenue this year on top of the €2.5 billion loss in fiscal 2020. Fiscal 2021 revenues amounted to €17.4 billion, down 9.8% or 5.8% excluding the currency impact and down 5.6% organically. The good news is that the trend reversed in the second half where organic growth was 18.1%, against the COVID impacted comparable base, compared to a decline of 21.7% in the first half. Despite lower revenues underlying profit was up 1.6% or 12.4% excluding the currency impact. And the margin increased 40bps to 3.3% and up 60bps if you exclude the currency impact. The margin stepped up to 3.1% in the first half and then 3.5% in the second half. The last step may seem a small step, but don't forget that usually we have 100bps gap in margins between the first and the second half. So this is a significant step-up. Other operating income and expense were more than halved this year. I shall come back to this in the next slide. Financial expenses also fell substantially back down to a more normal level at €106 million. I remind you that last year we had the make-whole of €150 million on the early reimbursement of the USPP. The year-end blended cost of debt was stable at 1.6% compared to August 2020. The tax charge was stable at €101 million with an effective tax rate of 43.9%. This rate is higher than normal, due to the non-recognition of deferred tax assets in France where like last year we restricted the recognition of deferred tax assets to the amount of the deferred tax liabilities. Excluding this factor, the underlying effective tax rate will have been 28.3%. As a result, in fiscal 2021, we generated a net profit of €139 million versus a net loss last year of €315 million. EPS was €0.95. When you strip out all the other income and expenses net of taxes, the underlying net profit was €346 million, up 13.1% or 30.5% excluding currencies. The underlying EPS was therefore €2.37, up 13%. Let's now go back to the OIE that were more than halved from €503 million last year to €239 million this year. The restructuring cost fell back down to €153 million from €191 million last year of which, €46 million, in H2. We also had €27 million of impairments, well below the €234 million of last year. And this year, we have also been disposing of assets which generated net losses of €32 million. As we've just seen, restructuring costs have been significant in the last two years due to the implementation of our GET program, which reached €312 million by the end of fiscal 2021. By the end of the year, €217 million had been cashed out. The program has already generated €218 million of savings in fiscal 2021. €91 million of these savings are structural reduction in SG&A. The rest is cost avoidance at which we mean that, we have reduced on-site staff where we do not expect revenues to come back fully. We expect to have about €18 million of further GET costs which have slipped from fiscal 2021 to fiscal 2022. And we shall end up slightly better than target on cost and stronger in total cost savings, at 120% of cost versus the 100% planned. As the effect of the pandemic receded progressively during fiscal 2021, cash sales started to come back and feed into operating cash flow and working capital. CapEx was also much lower at only €211 million or 1.2% of sales. The reduction was in the On-site activities and in particular the Sports & Leisure where several contract exits led to some reimbursement of investments. Total reimbursement amounted to €72 million. Stripping this out gross CapEx to sales would have been more like 1.6%, against 2% the prior year. For the rest of On-site, Healthcare was flat and Education was slightly up. BRS CapEx was maintained, along with investments in IT and digital. Given the group's mix of segments and geography I maintain that group CapEx to sales should run at around 2.5% of revenue when things get back to normal. As a result of all this free cash flow was €483 million against €72 million in fiscal 2020. Cash conversion was at 350% well above the objective of 100%. I would just like to point out that this is a great number and our teams worked very hard to achieve this. And it does include some reimbursement of COVID-related delayed payment government support programs, some impact of Tokyo Olympics, but mostly the significant restructuring cash impacts we experienced in 2021. However, for these three items we still have about €300 million more to come out in fiscal 2022. We had light M&A activity in fiscal 2021 with a net spend of €42 million being the net of acquisition and disposals. The absence of the dividend on fiscal 2020 earnings due to the COVID pandemic impacted favorably the level of total cash. As a result, consolidated net debt fell by €390 million year-on-year. In Slide 20, you can see the reduced net debt to just under €1.5 billion. Combined with the revaluation of financial assets this plays favorably into the gearing ratio which fell from 67% in August 2020 to only 47% at year-end. The net debt ratio at 1.7 is back into the target range of between 1 and 2. After all the different financing operations borrowings are now 23% dollar-denominated at an average maturity of 5.2 years and at an average rate of 1.6%. 95% of those borrowings are at fixed rates and 100% is covenant rate. By the end of fiscal 2021 operating cash reached a total of €4.6 billion of which half was Benefits & Rewards Services and therefore the other half for the rest of the group. At year-end, we have a very comfortable liquidity position of €6.4 billion. And yesterday, we earlier redeemed at no extra cost the €600 million bond. The Board has proposed a dividend of €2 to be put to the vote at the AGM on December 14. This includes a recurrent part of €1.2 reflecting a return to a normal dividend payout ratio of 50% of the underlying net profit, plus an exceptional part of €0.8 linked to the disposal program which will raise about €120 million between H2 of last year and H1 of fiscal year '22. Now let's move on to the operations focused on the second half performance compared to a COVID-impacted base last year. You can see that second half group revenues reached €8.8 billion, up 15.8% as published and 18.1% organically. The scope change of minus 0.6% reflects the net of the disposals and the acquisition. I remind you in the first half this was neutral. The currency impact reduced slightly during the semester to only minus 1.7% against the more significant minus 4.8% in the first half. This is due to the relative stabilization of the Brazilian reais and the US dollar in the second half. On-site and Benefits & Rewards Services performed perfectly in line at 18% for one and 18.2% for the other. Let's start with On-site. You see that B&A generated H2 organic growth of 14.6%. The 25% growth in North America is the result on the one hand of solid ongoing growth in G&A and E&R and on the other hand the recovery in Corporate Services even though this remained below our expectations due to the Delta variant. Sports & Leisure also started to pick back up principally in the sports activity and in the last quarter only. North America B&A was in H2 only at 65% of pre-COVID levels. In Europe, while the organic growth was more modest at 11%, Europe is already back up to 75% of pre-COVID levels. A return to office in Continental Europe after the end of the lockdown started earlier than in the US and is continuing to progress. There was some recovery in the Sports & Leisure activities during the summer and in particular in sports events and more surprisingly in tourism. E&R and Government & Agencies segments performed well, due to new business and despite the impact from the loss of the Transforming Rehabilitation contract in the UK during the fourth quarter. In Asia Pacific, LatAm Middle East and Africa activity levels are already 8% of pre-COVID levels in H2. Corporate Services and Energy & Resources account for the vast majority of the activity in the region. The 12.9% organic growth was driven by new business and strong underlying growth in Latin America, which more than offset the ramp down of the extra COVID-related FM services in the Asia Pac region. Now let's turn to Healthcare & Seniors, up 8.7% in the second half. In North America, the 1.9% reflects the progressive increase in elective surgery and strong cross-selling. The retail sales only started to pick up in the fourth quarter. However, senior home occupancy remains impacted by the effects of the pandemic. Healthcare & Seniors in the US is still only at 80% of fiscal 2019 and this is linked to contract losses in fiscal 2019 and 2020 and lower levels still on retail sales. In Europe, organic growth was up 18.7% and activity is now 19% above pre-COVID levels thanks to the very large rapid testing centers contract in the UK. Retail activity remains low. Cross-selling of new COVID-related hygiene services remain strong. Senior activities has also continued to pick up progressively during the second half. In Asia Pac, LatAm, Middle East and Africa organic revenue growth was 22.5% due to strong recovery in volumes and new business wins in China, India and Brazil. Education was up 55.2% in H2, from a very low base last year with all the three major countries US, France and the UK totally confined. North America, was up 47.6% in the second half. The return to school and university was much lower than in Europe in Q2 and Q3. However, in Q4 there were some summer camps activities and project work and most importantly all sites reopened for the start of the new academic year in August. Europe was back up to 90% of pre-COVID levels in the second half. Revenues were up 78% organically. Most schools were opened from April, even if there were some class closures and high absenteeism due to the Delta variant in the last months of the school year particularly in the UK. In Asia Pac, LatAm, Middle East and Africa organic growth was 49.5% reflecting progressive reopening of schools and universities in China but not in India due to the Delta variant. The region only reached 60% of pre-COVID levels in H2. The significant step-up in the underlying operating margin of On-site Services in the second half fiscal 2020 reflects the progressive improvement in activity levels very tight cost control numerous contract renegotiation, more active portfolio management and the contribution from the GET program. In H2, we also absorbed the traditional 100 bps profitability gap between the first and second half linked to Education, which you can see here and the early dry season in many of our markets. Business & Administrations significantly improved margin step by step. Energy & Resources and Government & Agencies segments are both ahead relative to fiscal 2019. Only Sports & Leisure is loss-making due to uncompressible fixed costs and very low volumes. Reflecting the relatively resilient revenues, Healthcare & Seniors margin has remained solid also increasing progressively since the beginning of the pandemic, helped by the positive effect of the net new business and despite lower retail sales. In Education, the second half margin came back up to just positive. The drop in margin from H1 is due to seasonality. The return to higher margins is dependent upon the full reopening of schools and university in all regions from the start of the new academic year, which appears to be the case. Now let's turn, to Benefits & Rewards. You can see that in H2 Employee Benefits were up 18.2% on issue volume growth of 11% demonstrating the catch-up of reimbursement volume as restaurants reopened. Issue volumes are now back over pre-COVID levels. Services Diversification was also up 18.5% organically against very low level last year in Travel & Expense and Incentives & Recognition. Public benefits continued to grow due to ongoing and new government schemes in several countries but more slowly. The growth was very strong in Europe, Asia and USA at 22.9% as restaurants reopened and activity picked back up in all the diversified services. In Latin America, the 10.7% organic growth was boosted by issue volume growth even though the environment in Brazil remained very competitive. Growth in the rest of the region was mixed with strong activity in Mexico thanks to solid development in the fuel card activities. On the other hand growth in the COVID related Public Benefits activity slowed compared to the strong comparative base of the previous year. Thanks to strong recovery in issue volume growth and the catch-up in reimbursement as well as the diversification services, operating revenues were up 19.3%. Financial revenues turned the corner, up 5% as the Brazilian interest rate started to rise from March. BRS margins are very dependent on volumes. The progressive pickup in revenues during the year is clearly visible in the pickup in margin. I'll remind you that the margin in the second half of fiscal 2020 was at 20.8%, picking up to 23.6% in H1 and 26.2% in H2. And importantly during this period we maintained our investments in both CapEx and OpEx to continue the digitalization of the operation. Thank you for your attention. I now hand you back to Sophie for the outlook.

Sophie Bellon: Thank you Marc. Now as you all know, I took over as Interim CEO on October 1st and you will see here my four key priorities for this period of transition. My first priority is to ensure that the team boost the growth in the US with a more efficient geographic governance now that we have brought more of the activities under the regional authority and a pipeline that is getting better too in all segments, more branding focus. We have just launched the Good Eating Company on the East Coast and the acquisition we have made in the last year to develop our new food model. There is still a lot of room for improvement. Also as we're talking about the new food model, we absolutely need to accelerate deployment. We have done some acquisitions. Our first off-site production facility went live in Boston on October 4th and is delivering food runs to 10 client sites in three different segments; Healthcare, Universities and Corporate Services. This is just a start. The labor shortage and the slow return to work is making this convenience and commissary services very attractive. These are flexible, efficient off-site solutions for the client, but we need to go fast to protect our market position. Thirdly, as you've already seen this summer with the child care activities and Rydoo, we are managing our portfolio more actively. The next project is to accelerate the growth and diversification of Benefits & Rewards. And the Board of Directors has decided to explore a number of strategic options to enhance support, focus and the resource of Benefits & Rewards Services while retaining the control. We will keep you informed on the evolution of this project. And lastly, we need to enhance the effectiveness of our organization. I have decided two important moves. First, to improve efficiency in schools activities and Government & Agencies activities. These two segments will now be managed regionally. As a result each region and country share will be responsible for the segment in their region. These two segments are only present in size in North America, the UK, France and especially for schools in China and India. And our clients by nature are very local and with many very local specificities especially in the Government segment. Secondly, a Transition Committee has been created to steer progress on the priorities defined for the transition period and manage business performance and prioritize projects and investments. This 13-person committee is composed of representatives of the activities segments, regions and functions and it will help to accelerate decision-making and deployment. Now let's turn to our fiscal 2022 guidance. As you all know, the massive deployment of the vaccination in many countries has led to reopening or ramping up of sites in all our major markets some segments and activities faster than others. Benefits & Rewards Services has also seen its merchant revenue picking up with the reopening of restaurants. Given the current trends, we are confident in our capacity to continue the recovery to pre-COVID levels with organic growth for 2022 of between 15% and 18% for the full year, which would bring us to about 95% of the pre-COVID levels on revenues. And with this we expect to be able to improve the underlying operating profit margin from 3.3% last year to nearly 5% this year. Looking further out, we expect On-site Services to exceed pre-COVID levels and the performance of Benefits & Rewards Services to accelerate out of the crisis. Our aim is that the group rapidly returns to regular and sustained growth and over the pre-COVID underlying operating margin. The boost in the US growth, the accelerated deployment of the new food model, the active portfolio management and a more effective organization plus the structural reduction in SG&A will all contribute. I thank you for your attention. And now Marc and I are available to answer all your questions. Operator, can you please launch the Q&A session?

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question came from the line of Jamie Rollo from Morgan Stanley. Please go ahead.

Jamie Rollo: Thanks for taking my question. Good morning. I've got three please. First, just on the guidance for 2022 it would be quite helpful if you can give us a feel for the cadence during the year both on margin and sales. So on margin are we still expecting the normal 100 basis point seasonality to return, which might suggest the first half is maybe 5.5%? And on sales you delivered two quarters of 400 basis points sequential improvement. Is that the sort of near-term trajectory do you think for the first quarter? And then secondly, on retention you flagged this US schools loss at the end of the period so we can quantify that. But you also I think mentioned Marc in your CapEx commentaries the Sports & Leisure contract losses. So it would be helpful just to get the sort of run rate of contract losses. And also you sounded a bit nervous when you reported last time about possible further health care US losses. Are those more stable now? And then just finally if I may just on BRS. When the strategic options also means you retain control what does that really mean? Does that mean no partial spin-off no merger with another company that keeps a majority stake? So therefore is it really internal operational turnaround perhaps with some M&A a bit like an Edenred? Is that really what we're talking about here nothing particularly extravagant? Thank you.

Marc Rolland: Thank you, Jamie. We give a yearly guidance so we are off the half year guidance. But what you can expect is a bit more of an impact a bit more of seasonality than in 2021. But I will not expect a full seasonality like we had because we are still ramping up in many activities, but you can expect a bit more seasonality than in 2021. I mean the trend in revenue you mentioned 400 sequential growth, I think the comparative base is very sensitive. Last year I must remind you that we had a very decent start of the year, okay? So we are off to compare to a base which was not a bad start of the year last year. So I mean, growth will be there, and that's why we get the guidance range. We are confident of growth. You mentioned sales and retention. First, I'll speak about Sports & Leisure. Sports & Leisure the – and I mentioned some exits. Yes, we had some CapEx reimbursement for instance in some contracts, we exited in sports. We also had some impact with the Tokyo closing. And so we – yeah, it's more us cleaning up the portfolio or exiting contracts than us losing contracts. In Schools, we – it was on the works for quite a few weeks and months on the CPS, so we knew it was coming. It's a one-off event. It's been very challenging as a contract, and it was a very challenging bidding process. So we've lost CPS. In the Healthcare, yes, we're always a little worried on the Healthcare, because we – retention is key in Healthcare. But as you've seen in our slide, and what Sophie presented, we are doing a lot better in retention. We are doing a lot better and focus in Healthcare. Same in Universities North America, so we are confident the team is on the ball to make it happen and improve the ratios. And maybe on BRS, I'll let Sophie comment.

Sophie Bellon: Yes. Thank you, Marc. So on Benefits & Rewards, we really want to accelerate our growth and our plan diversification plan. Whatever the scenario we – BRS, it's a very strategic business for the group and Sodexo will remain a controlling shareholder. I said it, we are not considering an IPO. And Benefits & Rewards is – and the global and employee benefit market is a fast-growing market, and we want to – even more after the post-COVID crisis. So we really want to mobilize our strengths and time and spend more time on this activity to speed up the growth. And of course, we will communicate on any changes when things happen.

Jamie Rollo: Thank you. So just as one follow-up on the retention, if I may. Just taking your comments on CPS, does that mean that retention is going to mathematically drop in fiscal 2022, or is your calculation essentially a sort of a full run rate as measured at the end of the year? Thank you.

Marc Rolland: No the – Jamie, the way we calculate retention the full impact of the loss of CPS is in 2021 numbers. So, 2022 numbers will improve.

Jamie Rollo: Thank you very much.

Operator: Thank you for your question. The next question is from Bilal Aziz from UBS. Please go ahead. Your line is open.

Bilal Aziz: Good morning, everyone. Thank you for taking my questions. And three for me too please. Firstly, just to follow-up on the exit rate on revenue so far clearly Education is very, very important for you in your Q1 and Q2. So perhaps just an update on what you've seen in US Universities so far into October this year? And secondly, and Sophie you've already highlighted quite a few changes with the Transition Committee, with a clear focus on boosting growth eventually. And perhaps, if you could highlight what do you think the cost of all of this extra focus and investment potentially will be? And should we be thinking about extra investment or restructuring potentially going ahead? And then very finally, on On-site Services, you now see revenues greater than you did before and perhaps if you could walk us through your thought process there as well. Given the subdued signing rate is that FM offsetting some of the decline you're seeing in white collar or something else? Thank you.

Marc Rolland: Yeah. On your first question, so the Q4 versus fiscal year 2019 as we said was 87%. And when I look at P12, we were very close to 87% with some variances obviously. I mean Sports & Leisure is picking up. And we've seen P12 Sports & Leisure being obviously better than Q4, every month which to us is a better month. And the rest of the geographies has been relatively stable between Q4 and P12. So, we see also a lot of schools being opened and universities being opened in August. So, for us, it's a good -- a set of good signs for Q1, but I will not comment further than that.

Sophie Bellon: I will take the question on the Benefits & Rewards and the cost of the extra focus. But, I don't think it's a question of cost. It's a question of looking at a strategic option. When we talk about focus, it's also a question of executing the current plan, but also for the Board taking more time to look at those options and also for Marc and I and some of the members of the Executive Committee to spend more time on that activity to accelerate the growth. So, for the moment it's not a question of cost.

Marc Rolland: And on your last question, we've shown you that there are parts of the business which are already well recovered for instance in Healthcare & Seniors, in geographies also if you look at the rest -- what we qualify the rest of the world and so forth. So we've also shown you that FM is well above fiscal year 2019 levels. So yes, there will be impact from work-from-home. But in the mid-term, we expect to reabsorb this and beyond fiscal year 2019 numbers in revenue.

Bilal Aziz: Great. Very clear. Thank you very much.

Operator: Thank you for your question. The next question is from the line of Tim. Please go ahead. Your line is open. The next question is from James Ainley from Citi. Please go ahead.

James Ainley: Yeah. Good morning, everybody. Can you hear me okay.

Sophie Bellon: Yeah, fine.

James Ainley: Great. So, three questions please. First one -- first couple probably for Sophie please. Could you give us a bit of color about what you're looking for from a new CEO? Do you think there's a need to review the operations more broadly, or is it more about driving growth? Second on BRS, you said it's strategic. Could you talk about why you think it's strategic and what synergies you see between the two operations? And then the third question, perhaps back to Marc, is on labor and labor cost inflation and supply chain issues. Can you talk about what levels of inflation you're seeing in each category and update us on your confidence and your ability to pass on those costs to clients? Thank you.

Sophie Bellon: Well, thank you James for your questions. So first, I will take your first question on the new CEO. So as you can imagine it is a priority. And as I said, we are looking for candidates that have an international experience, a good knowledge of the US market, a solid experience of a company transformation. And yes, we want to accelerate our growth globally. I talked about accelerating in BRS, but we also want to accelerate our growth in On-site. And of course, we want a sustainable growth, so a profitable growth. So I -- did that answer your question?

James Ainley: Yes. Yes. Thank you.

Sophie Bellon: And then on BRS, I think it is a strategic activity for Sodexo. We are in the Quality of Life services and BRS is definitely on that market and fits in that market. And as I said it's a growing market. It's a fast-growing market. And about the synergies, it complements our On-site Food activities, especially in this post-COVID world, where people want any food, anytime, anywhere. But at the same time, we want to develop and accelerate the growth of our Benefits & Rewards activity by themselves too. And that's what we – what has been decided and that's what we're exploring with different strategic options.

James Ainley: And to what extent are you...

Marc Rolland: And on labor – yes?

James Ainley: Yes. So can I just quickly follow up on that last point? To what extent that perhaps are clients buying both services? So what is the – to what extent is there complementarity in your client base between the two businesses?

Marc Rolland: Well, we started to show this to you. I think it was the last publication or at least the last two publications. For instance, in France, where we have the three models the FoodChéri delivery, the BRS, digital and the On-site capabilities, we have more and more clients electing to buy the three or allowing their consumers to navigate between the three offers freely. So it happens. But it's true. I mean in France, we have the three pillars for doing this. We don't necessarily have them in some other countries. So it's a question of building them over time. But we see what we call the convergence of those three offers into a unique response to client and consumer happening. It's early stage but it's happening. And on your last question, yes we are experiencing labor inflation. I would be lying if I was saying the contrary. It's not necessarily on the increase. I mean we felt – in the US for instance, it was sharper a few months ago and it's kind of not dropping but averaging. But we are still having 5%, 6% labor increase in the US. We are experiencing labor increase in some of the markets in France and there is a tension on the minimum salaries. In the UK, I mean there will be increase in contributions. And so we see some tensions on the labor. But at the same time we are – at the moment, where we are working out of the COVID crisis, we know we did a lot of negotiations. Some contracts were cost plus. So it is a proper moment to discuss with clients and change the scope of work or pass cost inflation into clients. And we also are – it's a good moment for us operationally to review our scheduling and route [ph] and restaff differently, so that we can gain in productivity and we've seen a lot of that happening too. So right now we are not seeing it in our numbers. We don't see negative impacts on our numbers. We are monitoring this carefully on a weekly basis. We have the tools. So I'll tell you more in the future. But right now it seems to be under control.

James Ainley: Okay. Very good. Thank you.

Operator: Thank you for your question. The next question is from Richard Clarke from Bernstein. Your line is open.

Richard Clarke: Thank you. Thanks for taking my questions. And three if I may. Sophie, you mentioned in your prepared remarks, you're not very satisfied with 93.5% retention. That's been the level for a few years now. What do you think that can kind of naturally trend towards over time? And maybe the same question on the business development. If you can deliver 6% business development on 1.6% CapEx, can we just scale up to the 2.5% to think about what you should be delivering as you start spending more? Then second question just on capital allocation. You brought in a special dividend on disposals. Is that how we should think about disposals going forward? Any disposal will result in special dividends? And then you still got cash on your balance sheet about €3.5 billion. Obviously, the dividend is coming out. You've done the bond repayment but it's still quite a high level. Any other thoughts on what that cash can be used for? Is there more deleveraging to come? And then the last question just on your Slide 18, you've raised the GP cost avoidance from €175 million to €228 million. When you talked about that Marc you said that was your anticipation of how much labor you could take out for lower volumes. So can we read anything into that extra €50 million that you're actually now more negative on the long-term volume impact within your business?

Sophie Bellon: Okay. So let me answer you on retention. So yeah, absolutely we have had a stable retention, if we do not consider taking -- do not take into account the Transforming Rehabilitation contract. And it is not satisfying because our objective is to be at least at 95% of retention. And the good thing is that in the last years, last couple of years where we've put a strong emphasis on the topic for example in Healthcare in the US or in Universities, we have made significant progress. So I think the message and the message that I will pass on to the team and as soon as today because we're talking to the team for the results in a few hours is that it is not satisfying. And we absolutely need to reinforce. For me retention is the basis. And we cannot -- it's not acceptable to have a retention rate like that. So we need to improve and we need to improve everywhere in all segments and in all geographies. So that's the first point and there will be a strong focus on that. In terms of development, we are at 6%. And I think we are much closer to our current objective to be at least at 7% development. But that has to be sustainable. It has to be sustainable in all geographies. I think currently it's still too low in North America. That's why when I said we need to boost our US growth, it has to come of course from the retention, but also from the development. In other geography, I think in Latin America or in France we had a very good development this year. In Asia, we are above our competitors. So that's a good thing, but it doesn't have enough impact yet. So we absolutely need to accelerate the development in North America. And I think we are making progress, but we will keep the focus on that.

Marc Rolland: And Richard, if they need more CapEx to do that, we'll give it to them. That's the message. That's why we are saying 10.5 is maintained as a normal target for CapEx. And we have as you said we have ample cash to do that. So we need to push the development in the US. In terms of capital allocation, I will not want and I think the Board will not want you to think that any disposal will be paid as dividend. It's a one-off. So it's as we said it's exceptional. But the Board wanted to show the confidence we have by increasing the dividend slightly, but don't make this a habit. I mean it would not happen in the future. The cash to be used for what? The cash to be used for CapEx to its first. And yes, we have cash to do M&A. We want to be a lot more targeted and a lot more focused. I think Sophie has been very clear to the team. It has to be extremely strategic when we do M&A. It has to make sense for the long run. So -- but we have cash for M&A. Deleveraging it's not a priority. We are now between one and two. We have more cash. We are managing the cash actively like reimbursing the €600 million was making sense from a P&L point of view and a cash point of view. So -- but we've got cash for investments in CapEx and M&A. And on Slide 18 don't read the good work of our teams on the field that have restructured more and more the teams that they are worried. It comes from all over the place. Obviously Corporate Services and Sports & Leisure where we're very active in restructuring they really try to lower the cost base and I think they did well. No, it's just that -- and it's actually helping every day because of labor inflation and so forth. If you have restructured your teams and you operate with a leaner structure you can absorb inflation better. So then it's part of the good work. We pushed them hard on that and they responded well and they've done well. But it doesn't read into this that we are worried on the revenue. We said in the long-term outlook that we will recover the full fiscal year 2019 revenues at some point. And so, we are confident in that.

Richard Clarke: Very clear. Thank you very much.

Operator: Thank you for your question. The next question is from Neil Tyler from Redburn. Please go ahead.

Neil Tyler: Yes. Good morning. Just one for me, please. Specifically in Education, you mentioned that the margin recovery there depends on a full reopening of institutions schools and universities. And I wondered that, given the experience of the end of the academic year with fluctuating student numbers, whether you've been able to renegotiate, reshape any of the contracts to protect profitability there in the event that those sorts of fluctuating numbers continue into the next academic year. So, if you just -- is there a chance you can re-attain historic margins in the current sort of uncertain volume environment? Thank you.

Marc Rolland: Yes. But first, the restart of the year at the end of August then was solid, with, as I said, many of the education sites being opened in the U.S. and in Europe. So we are seeing this. You can see in the H2 UOP margin of Education, it was not much, but it was not negative, that actually we benefited from the fact that we have renegotiated during 2020 and 2021 many Education contracts to move them to cost plus, so that we will not suffer when the volumes are low. And I know the European margin was not much in H2 Education, but it's positive. And that's a very good sign, given the lower volume we experienced. And going forward, it really all depends on the attendance. I think we are seeing very good attendance in schools. We are seeing good attendance in universities. It's not perfect, but it's very good. And so, we can move back now from some cost plus to P&L and I think we are confident we've passed the corner in Education. And in Europe -- I mean, in Europe things are almost back to normal.

Neil Tyler: Okay. Thank you. But it would require you to move all of those cost-plus contracts back to P&L in order to achieve margins.

Marc Rolland: They have not yet all moved back to P&L. They have not yet all moved back to P&L. And with regards to the margin level, I don't think we will be at the pre-COVID margin level until we have recovered the full volumes on every services. But we are improving significantly, but we are not yet fully at the margin level of the past.

Neil Tyler: Understand. Thank you very much.

Operator: Thank you for your question. The next question is from Jaafar Mestari from Exane BNP Paribas. Please go ahead. Your line is open.

Jaafar Mestari: Hi. Good morning, everyone. Can I just start with a quick sort of boxing exercise on BRS? And then, if that's okay, I have another one. So just on BRS, I think you said explicitly now you're not considering a majority IPO of over 50% of the business. Can I just mention a couple of other possibilities and you just let me know if they are on the table at all. And so, for example, you could do a minority IPO of smaller than 50% of the business. I'm not going to --

Marc Rolland: We will not get into that exercise. I think, what Sophie said is, we will not do an IPO.

Sophie Bellon: Yes, no IPO.

Marc Rolland: No IPO.

Sophie Bellon: Majority, minority, no IPO.

Marc Rolland: No, IPO. And other options, I mean, other options are available. That's it. So we are considering other options.

Jaafar Mestari: Okay. And so, the spectrum is --

Marc Rolland: We will not comment.

Jaafar Mestari: No comment? Okay, no comment. Thank you. Well --

Sophie Bellon: And we are going to focus on the acceleration of that business. It's very important. We consider that there is a lot of potential and we want to spend more time on that business to accelerate the growth of that business. Very exciting.

Jaafar Mestari: Things like introducing a separate executive Board for just BRS a Board of Directors that are specialists in that business for example more organizational stuff?

Sophie Bellon: Well, we are exploring. No comment.

Jaafar Mestari: Okay. Thank you. Well, okay, that was my go ahead. On the more fundamental questions, on business development if we look at it in absolute terms 6%, if I'm correct means that you signed €1.1 billion of gross new contracts in the full year. And in 2019, it was €1.3 billion. And in comparison with Compass Group just in their fiscal H1, in six months they had signed £1.1 billion. I'm not saying it will be double for the full year, but that was ahead just in six months. So would you still say that there is currently an industry tailwind that is happening from increased outsourcing that you are benefiting from? And if so, what early signs do we have to build confidence, that eventually you will be winning your fair share of what's out there? And then separate question. Your full year 2022 guidance 15% to 18%, as you said it implies you get back to 95% of pre-COVID revenue for the year on average. Now you have businesses like Schools and Healthcare that are already pretty much at 100%. And then, net new business between retention and new business looks like, it's let's say, flat slightly negative right now. So are you saying that just Business & Administration and Universities alone will add €3 billion of like-for-like revenue in one year? Or is there something you expect to change? And for example, by the end of the year, retention will be points better and new business will already have started contributing to get you to your target?

Marc Rolland: Complex questions Jaafar. Thank you for your question. Yes we are expecting to increase the development trend. And to start with it you're right to say that, 6% is on the lower prior year numbers than in fiscal year 2019. So in volume, we still need to increase the net development. And there is no reason why we will not win our fair shares of first-time outsourcing or we have, as we mentioned in July in our Q3 we have a strong pipeline. So yes, we are confident. We can increase the development. And as Sophie said, we want the development to be above 7%. And as the base grows the value of that development in euros will grow. So obviously, I mean, we have to grow the euro number as well as the percentage. Your next question is, you're saying yes, we are about 95% of pre-COVID level. What you need to remember is that, in Food services in Corporate Services we will not fully recover. We still have the work from home to factor in and the ramping up in 2022. And we also have Sports & Leisure. Sports & Leisure is doing better. But as we mentioned in Q4 they were only at 43% of fiscal year 2019. And they have a long way to get to 100%. It's not going to be happening within that year. We also had some disposal and so forth. So yes 95% looks a right number and I think this is where we should be around that, yeah.

Jaafar Mestari: Thanks. And specifically, so if, I end up assuming Schools and Healthcare stay at 100%, net new business is not meaningful for the full year, but then you get such a significant rebound in like-for-like in Business & Administration and Sports & Leisure that can be the single thing that takes you to the guidance. Okay. Thank you.

Marc Rolland: Yeah. We've shown you -- in the KPI page we've shown you the CUGR right? Instead of giving it to you in a percentage we gave it to you in numbers, because we feel it's more meaningful for you to look at our CUGR in value. But yes, the CUGR will be strong.

Jaafar Mestari: Thanks. Thanks.

Operator: Thank you for your question. The next question is from Andre Juillard from Deutsche Bank. Please go ahead, Andre.

Andre Juillard: Yes. Good morning. Thank you for taking my question. Part of my question have already been answered. But I wanted to come back on the cost base. You've put in place last year a strong and aggressive cost saving plan. Could you give us some more detail about the proportion of this saving plan you are expecting to structurally keep on the profitability of the group? And I know that you will probably not give us a mid-term guidance, but could you give us some more color about the structural gain you are expecting from that? On the second question, on the branding side, you have insisted on the fact that you wanted to develop some more branding and some more attractive products. Does that mean that you will have to do some more acquisitions that you will develop your own brand or you could consider some franchise? Thank you.

Marc Rolland : Yes. So we say, we want -- we will get back over the fiscal year 2019 margin. So I think this is the main mid-term outlook margin. So -- and what we've done with GET is one part protecting the business going forward by anticipating on the cost base the impact of reduced volumes. We also had some government support. So we need to make this permanent, because we were supported in many countries by government help. Now we need to replace this by proper savings going forward. On the SG&A, as we said the SG&A savings are the ones that will stick better over time. So we are expecting those SG&A savings to be there. At the same time, we are reinvesting also in value-added operational expenses to bring the growth back. So what I can tell you is that the mid-term guidance is that we will get back over the fiscal year 2019 margin.

Sophie Bellon: And on the brand side, I think, it's a very good question and I think it's a little of everything. First, let me take the example of what we've done. Even though it was a very difficult period for our teams in Sports & Leisure, but they have been working very actively on a specific brand for that activity. And we have launched it a few months ago -- a few weeks ago Sodexo Live! And I can tell you that it has a very positive, very strong impact first for the team, but also for the client. And in this recovery period, it has been a great launch. And we are convinced that it's going to help us accelerate the recovery. In terms of our acquisition, we made some acquisitions. A couple of years ago -- or three years ago we made the Good Eating Company. It was an acquisition in the UK, a very specific brand, very specific offer. And we launched that brand in the US, we have signed a number of contracts. We want to expand it. So I think we have to look at brands differently. We have to look at acquisition that we already made, and keep those brands leverage on the strength of those brands, and it's something -- it's a little new for us. And with the importance of the consumers, we need to accelerate that. And that being said, we did the Good Eating Company a few years ago and then we did recently Fooditude, Nourish and we have FoodChéri in France. So we need to leverage that. And of course, in our transformation of our new food model, if there are other brands that -- or other acquisition that represent that we will definitely do them.

Andre Juillard: And as a follow-up, could you consider as well some franchise, or is it something really too different compared to what you do?

Sophie Bellon: No, I think franchise is not the priority. I think we have a lot of brands internally. When we do acquisition, it enriched our portfolio. And now we really have to scale up this portfolio which is already very, very rich. And I said, we have a very good brand, Good Eating Company that's only in the UK. Well, now, we are scaling it up in the US. So it's a lot of opportunity and it's working well. So we have to do more of that.

Andre Juillard: Okay. Thank you, very much.

Operator: Thank you for your question. The next question came from Matilda Line [ph]. Please go ahead. Your line is open.

Virginia Jeanson: [Foreign Language]

Unidentified Analyst: Thanks a lot. I had two questions. One about Sodexo Live! You recently said, you are thinking of selling Le Lido to Accor. Do you consider a more deeply reshape for those activities? And second question regarding the US, a lot has already been done to improve the results. How do you explain, you still have difficulties compared to your competitors? Why is this market so hard? Thank you, very much.

Marc Rolland: On the Lido, we can just say that there are ongoing discussions, but nothing has been active. So we will not comment further. It's a small activity and we decided to review it. And there is no deeper reshaping to be expected in Sports & Leisure. As I said earlier, it's ramping up. It's doing a lot better. The revenue is coming up. So, we are committed to Sodexo Live!

Sophie Bellon: On the US, yes, I think there are -- a lot has already been done. And there are a lot of things where we feel very satisfied. We talked about Healthcare and Universities retention. We talked about the better margin in development. Business fundamental, back on track. Advancement in new offers, in new food model, in new marketing offers. But -- so I wouldn't say that the situation -- well, the situation remains hard because the competition is hard and that's why we want to boost the growth. But I think it is part of the plan. And I think we've made a lot of progress and we want to continue those progress in North America. And we're still a big player in that geography. And it's a very important market. That's why we're -- it's one of my priority to put a focus on that geography and keep continuing the progress that we have made so far.

Unidentified Analyst: Thank you.

Virginia Jeanson: Can we take now the last question?

Operator: Yes, ma’am. The last question is from Karl Green for RBC. Please go ahead.

Karl Green: Yes, thank you, very much. You've already helpfully discussed the manageability of labor inflation. Could you perhaps talk a little bit more about the other cost buckets, specifically the regional trends you're seeing in food inflation, consumables, cleaning chemicals, packaging et cetera and what you're budgeting for fiscal '22? And then, sort of secondarily, and partly related to that, just in terms of kitchen equipment and the bottlenecks which are appearing, particularly in the commercial oven supply chain. Do you think there's any risk there that that affects your ability to mobilize new contracts and fit-out at all? Thanks very much.

Marc Rolland: Hi. On kitchen equipment so far, I haven't -- it has not come up to me that there was a concern on the lack of availability of equipment, but I'll check. I must say I mean, it's not yet been in my radar. On food inflation, yes, we are seeing food inflation in many places on certain products. For instance, we have food inflation in proteins, in dairy, in seafood in the US. And we also have some delivery shortages, which probably is what worries us the most is the fact that delivery schedules are unperfect as I will say. I mean, they're not complete, so it creates some stress on the delivery. But the teams are managing this and we are passing -- we have a good history of passing these to clients. When it's a cost-plus contract you pass this immediately to clients and we have more cost-plus contracts post-COVID than we have pre-COVID. So that helps. So, right now, as I said, we have not seen any impact in our margins. We are monitoring this carefully on a weekly basis. And we have taken some of it in our projections because the inflation is not a new thing. It didn't happen last week or last month only. We've experienced this at least seriously since spring and the team have had the time to factor it in and so forth. But we are watching this carefully.

Karl Green: Understood. Thanks, very much. And just back on that. So, I mean, do you think that the current situation would lead to perhaps deferring the reconversion of some of the P&L contracts back from cost plus? Do you think until the situation settles down, it might make that...

Marc Rolland: Right. We think that -- let's say that we are less in a hurry and we were thinking about it six months ago. It's true that six months ago, we were thinking, so when are we going back to P&L. First, we wanted to wait visibility on the ramp-up. So we always said, once we have visibility on the ramp-up, if going back to P&L makes sense, we'll push for it. It's true that right now, we are not so keen on pushing for P&L contracts right now. But we've converted some, but we still have a cost-plus contract in segments, but we are less in a hurry.

Karl Green: Thank you, very much. Very helpful.

Sophie Bellon: Well, thank you very much for all your questions, and I wish you all a very good day.