Solid Sodexo First Half Fiscal 2019 Results

April 11, 2019 01:00 ET

Solid Sodexo First Half Fiscal 2019 Results

Organic growth at +3.1%, slightly above expectations
All growth KPIs improved
Underlying Operating Margin as expected
Guidance maintained

Issy-les-Moulineaux, April 11, 2019 - Sodexo (NYSE Euronext Paris FR 0000121220-OTC: SDXAY). At the Board of Directors meeting held on April 9, 2019 and chaired by Sophie Bellon, the Board closed the Consolidated accounts for the First Half of Fiscal 2019 ended February 28, 2019.

Sodexo CEO Denis Machuel said:

” Growth has been encouraging in the second quarter in both Onsite Services and Benefits & Rewards. Client retention, development and same site sales growth KPIs are all improving. The margin is down slightly in Onsite Services, as expected, and up slightly in Benefits & Rewards. We have accelerated our capital expenditure in the Education and Sports & Leisure segments. These are good signs that our focus on growth agenda is beginning to move the cursor.

I am pleased with the progressive improvement in growth in North America, in Q1 and then in Q2. Steady progress is being made by the new Health Care North America team in reasserting discipline and accountability throughout the organization. We are also achieving strong growth in Brazil both in the Benefits & Rewards business as well as Onsite, helped by an improving economic environment.

We maintain our guidance both in top line organic growth and underlying operating profit margin.”

Highlights of the period

Organic revenue growth for the First Half Fiscal 2019, at +3.1%, was slightly better than expected, resulting from an encouraging second quarter performance at +3.6%, with growth accelerating in all segments, and in Benefits & Rewards Services.
On-site Services organic revenue growth of +2.8% reflects:
- Growth in North America turned positive in the first quarter at +0.2%, and accelerated in the second quarter to +2.4%. Europe was solid at +3% and the region Africa, Asia, Australia, Latin America, Middle East continues to grow at +6.9%, despite the ever higher comparable base.
- All growth Key Performance Indicators are better year on year:
  - Client retention is up +40 bps;
  - New sales development increased + 70 bps;
  - Same site sales growth is +20 bps.
Benefits & Rewards Services organic revenue growth is +10.1%. Organic growth in Europe remains sustained at +8.2% and is strong in Latin America at +12.5%, as the economic environment improves steadily in Brazil.
Underlying operating profit increased +3.1%, resulting in an underlying operating margin of 5.9%, down 20 bps at constant exchange rates, principally due to:
- A 30bps decline in On-site Services margins resulting from timing differences between investments in growth and expected efficiency gains, but also due to the renewal of the major Marine Corps contract in the USA.
- A 30bps improvement in Benefits & Rewards due to strong recovery in Brazil and lower digital migration costs, particularly in India, following the significant investment required last year.
Other operating income and expenses amounted to 69 million euro, down from 73 million euro last year.
Reported net profit of 364 million euro was down -2.3%. Basic EPS was €2.50, down by only -0.4%, due to a lower share count as a result of the share buy-back in the previous fiscal year. Underlying Net profit totaled 413 million euro, up +4.1%.
Free cash flow was 14 million euro, a normal level for the First Half, despite a substantial increase in capital expenditure, which reached 1.9% of revenues for the period. As a result, the net debt ratio at the end of the period was 1.3x against 1.1x at the end of the First Half last year.
Acquisitions, net of disposals, amounted to 234 million euro, in First Half Fiscal 2019 with Crèches de France, doubling the Group’s presence in the child-care market in France, Novae Restauration, significantly enhancing the Group’s presence in the high-end catering market Switzerland, Pronep, with which we have entered the Brazilian home care market and Alliance in Partnership in the UK, a specialist education caterer, reinforcing our focus on high quality, locally sourced and seasonal meals at competitive prices.
Sodexo’s engagement in corporate responsibility continues to be recognized within the investment community, with the highest marks in SAM’s “Sustainability Yearbook”, for the 12^th consecutive year. Sodexo also remains the top-rated company in its sector within the Dow Jones Sustainability Index (DJSI), for the 14^th consecutive year confirming Sodexo’s commitment to Quality of Life.