Earnings Release • Jul 6, 2017
Earnings Release
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Issy-les-Moulineaux, July 06, 2017 – Sodexo (NYSE Euronext Paris: FR 0000121220 - OTC: SDXAY), world leader in Quality of Life Services, today reported its non-audited revenues for the first nine months of Fiscal 2017, which ended on May 31, 2017.
This reflects a lower than expected Q3 performance, at +1.3%, with
Strong growth in Europe, and in Incentive & Recognition
An improving underlying trend in Latin America in Q3 masked by the effect of the Venezuelan bolivar devaluation.
1 Organic growth is defined as growth at constant exchange rates (converting 9M Fiscal 2017 figures at Fiscal 2016 rates) and consolidation scope, except for Benefits & Rewards in Venezuelan Bolivar. All Fiscal 2017 and Fiscal 2016 figures in VEF have been converted at the exchange rate of USD 1 = VEF 2010 vs. VEF 645 for FY 2016.
| Revenues (in millions of euro) |
9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth | Published growth |
|---|---|---|---|---|
| Business & Administrations | 7,883 | 7,869 | -0.5% | +0.2% |
| Health Care & Seniors | 3,759 | 3,647 | +1.9% | +3.1% |
| Education | 3,673 | 3,622 | +0.2% | +1.4% |
| Total On-site Services | 15,314 | 15,137 | +0.3% | +1.2% |
| Total Benefits & Rewards Services | 673 | 576 | +6.1% | +16.9% |
| Elimination of intra-group revenues | (3) | (4) | ||
| TOTAL GROUP | 15,984 | 15,709 | +0.5% | +1.7% |
"The Q3 revenue performance was in line with Q2 but disappointing, particularly in Health Care and Universities in North America and Business & Administrations in Europe.
On the other hand in other areas, the recovery is coming through. Energy & Resources has turned positive in Q3. France is improving and Asia and Latin America, and in particular Brazil, continue to be strong.
We are confident in the acceleration of revenue growth in Q4, given the recent contract start-ups and a significant calendar effect in North America.
As a result, whereas revenue growth will be softer than expected this year, we maintain our objective of growth in operating profit of between +8% to +9% for this fiscal year, excluding currencies and before exceptional expenses."
The strong trend in Health Care & Seniors in the first half was offset somewhat by organic growth turning negative in Q3 in North America resulting in an organic growth at +1.9% for the period. This was due to lower comparable unit sales linked to scope and services changes in a few large contracts and the impact of phasing difference in new business. Development in Asia and Brazil remained strong. In Europe, bidding opportunities remain highly competitive in Hospitals; however Seniors development has been better in Q3.
Education organic growth was positive at +0.2%. Schools activity is benefiting from strong retention and development in all regions. The Universities activity is more challenging, particularly in North America where growth was suffering from the lack of prior year signatures. In Q3, same site sales growth reflected a positive calendar shift from Q2, lower than expected student spend and the accelerated exit of a large contract in Q2.
Revenue growth in Q3 was disappointing due to lower than expected activity in Health Care and Universities in North America and continued weakness in Corporate services in Europe. However, Energy & Resources has turned positive, the trend in France is improving and developing economies are growing well.
The expected acceleration in Q4 is also still on track with:
As a result, while revenue growth may be softer than previously anticipated, between +1.5% and +2%, operating profit growth before currencies and exceptional items should still be between +8% to +9%.
Long-term trends remain positive with further significant opportunity in outsourcing and contract consolidation, growth in developing economies, strong potential of the new segment organization and increased contribution from acquisitions. The Group confirms its mid-term objectives of:
Sodexo will hold a conference call (in English) today at 9:00 a.m. (Paris time), to comment on its revenues for the first nine months of fiscal 2017. Those who wish to connect from UK may dial + 44(0)20 3427 1905 or from France +33(0)1 76 77 22 30 following by the pass code 34 49 694. The presentation can be followed via live webcast on the Group website, www.sodexo.com.
The press release, presentation and webcast will be available on the Group website www.sodexo.com in both the "Latest News" section and the "Finance - Financial Results" section.
| Annual results, Fiscal 2017 | November 16, 2017 |
|---|---|
| st quarter revenues, Fiscal 2018 1 |
January 11, 2018 |
| Annual Shareholders' Meeting 2018 | January 23, 2018 |
Founded in Marseille in 1966 by Pierre Bellon, Sodexo is the global leader in services that improve Quality of Life, an essential factor in individual and organizational performance. Operating in 80 countries, Sodexo serves 75 million consumers each day through its unique combination of On-site Services, Benefits and Rewards Services and Personal and Home Services. Through its more than 100 services, Sodexo provides clients an integrated offering developed over 50 years of experience: from foodservices, reception, maintenance and cleaning, to facilities and equipment management; from Meal Pass, Gift Pass and Mobility Pass benefits for employees to in-home assistance, child care centers and concierge services. Sodexo's success and performance are founded on its independence, its sustainable business model and its ability to continuously develop and engage its 425,000 employees throughout the world.
Sodexo is included in the CAC 40 and DJSI indices.
Key figures (as of August 31, 2016)
20.2 billion euro in consolidated revenues
425,000 employees
19th largest employer worldwide
80 countries
75 million consumers served daily
17.1 billion euro in market capitalization (as of July 5, 2017)
This press release contains statements that may be considered as forward-looking statements and as such may not relate strictly to historical or current facts. These statements represent management's views as of the date they are made and Sodexo assumes no obligation to update them. The reader is cautioned not to place undue reliance on these forwardlooking statements. Figures have been prepared in thousands of euro and published in millions of euro.
| Analysts and Investors | Media |
|---|---|
| Virginia Jeanson | Laura Schalk |
| Tel: +33 1 57 75 80 56 | Tel: +33 1 57 75 85 69 |
| [email protected] | [email protected] |
Due to a slow start to contract signatures in the First Half, Q3 was a busy quarter for start-ups which should therefore contribute to the acceleration in growth in revenue in Q4.
Further recent significant signatures in On-site Services include:
Consolidated revenues for the First Nine Months Fiscal 2017 totaled 16 billion euro, up +1.7%. The currency effect contributed +0.8% to reported growth for the period, with the strength in the US dollar and the Brazilian real more than offsetting the decline in Pound Sterling. Acquisitions net of disposals provided growth of +0.4%. As a result, organic growth was +0.5%.
| Revenues (in millions of euro) |
9M Fiscal 2017 |
9M Fiscal 2016 |
Published growth |
Scope changes |
Currency effect |
Organic growth |
|---|---|---|---|---|---|---|
| Business & Administrations | 7,883 | 7,869 | +0.2% | +0.5% | +0.2% | -0.5% |
| Health Care & Seniors | 3,759 | 3,647 | +3.1% | +0.3% | +0.8% | +1.9% |
| Education | 3,673 | 3,622 | +1.4% | - | +1.2% | +0.2% |
| Total On-site Services | 15,314 | 15,137 | +1.2% | +0.3% | +0.6% | +0.3% |
| Total Benefits & Rewards Services | 673 | 576 | +16.9% | +4.6% | +6.1% | +6.1% |
| Elimination of intra-group revenues | (3) | (4) | ||||
| TOTAL GROUP | 15,984 | 15,709 | +1.7% | +0.4% | +0.8% | +0.5% |
Revenues by activity
9M Fiscal 2017 On-site Services organic growth was +0.3%, and +1.1% excluding the RWC impact.
| (in millions of euro) | 9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth |
|---|---|---|---|
| North America | 1,848 | 1,729 | +3.6% |
| Europe | 3,928 | 4,274 | -5.4% |
| Africa, Asia, Australia, Latin America, Middle East | 2,107 | 1,866 | +7.0% |
| Total Business & Administrations | 7,883 | 7,869 | -0.5% |
9M Fiscal 2017 On-site Services revenues in Business & Administrations totaled 7.9 billion euro, down organically by -0.5% compared with 9M Fiscal 2016 which benefited from the RWC, or +1.1% excluding the RWC.
Organic growth in North America was +3.6% due to high single digit growth in Corporate Services, supported by development of Facilities management services and a return to growth in Government & Agencies in Q3.
Europe was down -5.4%. Half of the decline was due to the RWC effect. With no signs of improvement in the North Sea oil and gas segment Energy & Resources continued to decline 16%. Corporate services remains lackluster throughout the region, with weak comparable unit sales. On the other hand, the French activities are benefitting from an easier comparable base. In the Justice segment the impact of the loss of a large contract in January 2016 is now over. The tourism activities are better than previous year, even though they are not yet back up to 2015 levels.
In Africa, Asia, Australia, Latin America and the Middle East, organic growth of +7.0% reflects continued strong growth in Corporate Services thanks to new contracts in all the regions, and a return to growth in Energy & Resources due principally to contract start-ups and some improvement in the mining and onshore activities. The offshore activity remains difficult.
| (in millions of euro) | 9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth |
|---|---|---|---|
| North America | 2,479 | 2,363 | +2.7% |
| Europe | 1,103 | 1,143 | -1.0% |
| Africa, Asia, Australia, Latin America, Middle East | 177 | 141 | +12.7% |
| Total Health Care & Seniors | 3,759 | 3,647 | +1.9% |
In Health Care & Seniors, revenues totaled 3.8 billion euro, with organic growth at +1.9%.
Organic growth in North America was +2.7%, reflecting a significant slowdown in Q3 due to lower comparable unit sales linked to scope and service changes in a few large contracts and phasing differences in new business.
The -1.0% decline in Europe reflects the lack of net new business in hospitals in France and the UK due to much greater selectivity in bidding. On the other hand, there has been some good new development in Seniors in Q3 and the focus on developing Facilities Management services is creating more opportunities for cross-selling.
In Africa, Asia, Australia, Latin America and the Middle East, growth in the segment is strong at +12.7% boosted by strong growth in Latin America and particularly in Brazil due to multiple contract wins and increased same site sales.
| (in millions of euro) | 9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth |
|---|---|---|---|
| North America | 2,871 | 2,809 | +0.1% |
| Europe | 744 | 761 | -0.3% |
| Africa, Asia, Australia, Latin America, Middle East | 58 | 51 | +10.9% |
| Total Education | 3,673 | 3,622 | +0.2% |
In Education, revenues for the first nine months Fiscal 2017 amounted to 3.7 billion euro, up organically by +0.2%.
North America organic growth was +0.1%. On the one hand, Schools generated solid growth with the extension of the Chicago Public Schools contract, the ramp-up of the new Washington DC Schools contract and solid retention. On the other hand, in Universities, growth is suffering from the lack of prior year signatures. In Q3, despite a positive calendar shift from Q2, growth was weaker than anticipated due to lower than expected same site sales and the accelerated exit of a large contract in Q2.
In Europe, organic growth of -0.3% was impacted by a lower number of working days in France, and low prior year development in the UK, compensated in part by high retention in the region.
In Africa, Asia, Australia, Latin America, and the Middle East, organic growth was +10.9% resulting from very strong growth in new Schools contracts in China, Singapore and India.
| Revenues (in millions of euro) |
9M Fiscal 2017 | 9M Fiscal 2016 | Published growth | Organic growth |
|---|---|---|---|---|
| North America | 7,199 | 6,901 | +4.3% | +1.9% |
| Europe | 5,774 | 6,179 | -6.5% | -4.0% |
| Africa, Asia, Australia, Latin America, Middle East | 2,341 | 2,057 | +13.8% | +7.5% |
| Total On-site Services | 15,314 | 15,137 | +1.2% | +0.3% |
By region
Note: it is important to note that with the new segment reporting, all Energy & Resources business is now spread across the different regions, whereas previously remote sites was included in Rest of the World. As a result, North America and Europe now have a share of Energy & Resources which weighs on their growth this period, particularly in Europe where Energy & Resources revenues is still down 16%.
In North America organic growth of +1.9% was supported by high single digit growth in Corporate Services and a return to positive growth in Government & Agencies. On the other hand, lower than expected same site sales in both Health Care and Universities in Q3 severely muted the year to date performance. Energy & Resources declined slightly.
The organic reduction of -4.0% in Europe reflects a more diluted Rugby World Cup effect, a 16% fall in North Sea Energy & Resources activity and weak Corporate activity. However, the comparable base in France is improving and government and agencies has turned positive in Q3.
Africa, Asia, Australia, Latam and Middle East achieved +7.5% organic growth. This was a combination of solid new Corporate business in all regions, strong growth in hospitals, particularly in Latin America, and Schools, particularly in Asia, and growth in Energy & Resources helped by substantial contract start-ups. Africa and Middle East remain impacted by the difficult context in the Oil and Gas industry.
Benefits & Rewards Services revenue amounted to 673 million euro in 9M Fiscal 2017, up +16.9%. Currencies contributed +6.1% to this growth, resulting in particular from the recovery of the Brazilian real. The acquisitions of Inspirus, Xpenditure and iAlbatros contributed a further +4.6% to growth. Organic growth1 was therefore +6.1%, compared to growth in issue volume2 also strong at +5.9%.
Issue volume
| (in millions of euro) | 9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth |
|---|---|---|---|
| Latin America | 5,888 | 4,860 | +6.4% |
| Europe, Asia and USA | 7,659 | 7,336 | +5.6% |
| Total Issue volume | 13,547 | 12,196 | +5.9% |
| (in millions of euro) | 9M Fiscal 2017 | 9M Fiscal 2016 | Organic growth |
|---|---|---|---|
| Latin America | 321 | 274 | +2.1% |
| Europe, Asia and USA | 352 | 302 | +9.8% |
| Total revenues | 673 | 576 | +6.1% |
Organic growth in Latin America is at +6.4% for Issue volume and +2.1% for revenues. Strong growth in issue volume across the region reflected strong demand in most countries, except in Brazil, and increasing face values. Revenue growth remains more subdued due to a highly competitive environment in Brazil. However, in Q3, there were signs of stabilization in Brazil as well as continued growth in the rest of the region. This improvement was masked by the impact of the devaluation of the VEF at the end of May, representing 240 basis points of growth.
In Europe, Asia and USA, organic growth in Issue volume and revenues has been strong during the first nine months of the year at +5.6% and +9.8% respectively. This is due to solid face value increases in Belgium (fully in the comparable base from Q3 Fiscal 2017), strong volume growth in Italy and Central Europe and good momentum in the Incentive and Recognition activity in the USA and the UK (revenues without Issue Volume).
1 Organic growth is defined as growth at constant exchange rates (converting 9M Fiscal 2017 figures at Fiscal 2016 rates) and consolidation scope, except for Benefits & Rewards in Venezuelan Bolivar. All Fiscal 2017 and Fiscal 2016 figures in VEF have been converted at the exchange rate of USD 1 = VEF 2,010 vs. VEF 645 for FY 2016.
2 Issue volume corresponds to the total face value of service vouchers, cards and digitally-delivered services issued by the Group (Benefits & Rewards Services activity) for beneficiaries on behalf of clients.
Exceptional expenses are the costs of implementation of the Adaptation and Simplification program (€137m in H1 Fiscal 2017 and €108m in Full year Fiscal 2016).
Change excluding currency effect calculated converting 9M 2017 figures at FY 2016 rates, except for countries with hyperinflationary economies. As a result, for Venezuelan Bolivar, 9M Fiscal 2017 and 9M Fiscal 2016 figures in VEF have been converted at the exchange rate of USD 1 = VEF 2,010 vs. VEF 645 for Fiscal 2016.
Issue volume corresponds to the total face value of service vouchers, cards and digitally-delivered services issued by the Group (Benefits and Rewards Services activity) for beneficiaries on behalf of clients.
Reported Operating Profit excluding exceptional expenses (€137m in H1 Fiscal 2017 and €108m in Full year Fiscal 2016).
Organic growth corresponds to the increase in revenue for a given period (the "current period") compared to the revenue reported for the same period of the prior fiscal year, calculated using the exchange rate for the prior fiscal year; and excluding the impact of business acquisitions and divestments, as follows:
For countries with hyperinflationary economies all figures are converted at the latest closing rate for both periods.
As a result, for the calculation of organic growth, Benefits & Rewards figures for 9M 2017 and 9M 2016 in Venezuelan Bolivar, have been converted at the exchange rate of USD 1 = VEF 2,010 vs. VEF 645 for FY 2016.
Sodexo operates in 80 countries. The percentage of total revenues denominated in the main currencies are as follows:
| (9M 17) | % of revenues |
|---|---|
| U.S. dollar | 43% |
| Euro | 25% |
| UK pound sterling | 8% |
| Brazilian real | 5% |
The currency effect is determined by applying the previous year's average exchange rates to the current year figures except for Benefits & Rewards services in Venezuelan Bolivar.
Exchange rate fluctuations do not generate operational risks, because each subsidiary bills its revenues and incurs its expenses in the same currency.
During 9M Fiscal 2017, the U.S. dollar has strengthened by 2.3% relative to the euro. The Brazilian real has strengthened by 17.3%, boosting in particular the contribution of the Benefits & Rewards activity to revenue. The 10.8% decline in UK sterling against the euro from June 2016, after the Brexit referendum, impacts revenues of the onsite business.
In terms of the Venezuelan Bolivar, the Group considers that the best estimate of the exchange rate at which funds from its activities in Venezuela could be repatriated is the DICOM rate. All 9M Fiscal 2017 and 9M Fiscal 2016 figures in VEF have been converted at the exchange rate of USD 1 = VEF 2,010 vs. VEF 645 for FY Fiscal 2016.
| 1€ = | Average rate 9M Fiscal 17 |
Average rate 9M Fiscal 16 |
Reference rate FY Fiscal 16 |
Change 9M Fiscal 17 vs. Reference Fiscal 16 |
Closing rate 31/05 2017 |
Closing rates: change 31/05 2017 vs. 2016 |
|---|---|---|---|---|---|---|
| U.S. Dollar | 1.082 | 1.105 | 1.106 | +2.3% | 1.117 | -0.3% |
| Pound Sterling | 0.860 | 0.750 | 0.767 | -10.8% | 0.868 | -12.3% |
| Brazilian Real | 3.469 | 4.219 | 4.069 | +17.3% | 3.651 | +10.0% |
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