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Sodexo: Strong increase in revenues and profitability in Fiscal 2022
Issy-les-Moulineaux, October 26, 2022 - Sodexo (NYSE Euronext Paris FR 0000121220-OTC: SDXAY).
At the Board of Directors meeting held on October 25, 2022, chaired by Sophie Bellon, the Board closed the Consolidated accounts for Fiscal 2022, ended August 31, 2022.
Financial performance Fiscal 2022
Commenting the performance, Sodexo Chairwoman and CEO Sophie Bellon said:
“All our activities delivered a strong recovery in Fiscal 2022. Growth in Benefits & Rewards Services accelerated and On-site Services margins improved, despite the inflationary backdrop. Net new business was strong, and retention was at an all-time high. Our balance sheet has also been strengthened significantly.
Good progress has been made on the priorities I set out at the beginning of the year: North America generated strong growth, improved profitability and its retention and development improved significantly. We accelerated the transformation of our food models through several organic and external investments while also actively managing our portfolio of activities. The transfer of P&L responsibility to regions and countries, fully effective from October 1, 2022, will simplify the organization.
I warmly thank our teams for their impressive engagement and performance in the field with our clients and our suppliers in these challenging times.
We expect that our financial performance will return to Fiscal 2019 levels this year. I am confident that for Fiscal 2023, we can achieve +8 to +10% organic growth and a margin close to 5.5%.”
Highlights of Fiscal 2022
Outlook
For the Group, given that On-Site activity in the fourth quarter was in line with pre-pandemic levels, we expect revenues and margins for Fiscal 2023 to return to Fiscal 2019 levels.
As a result,
For the first time, we are providing specific guidance for Benefits & Rewards Services:
Conference call
Sodexo will hold a conference call in (English) today at 9:00 a.m. (Paris time), 8:00 a.m. (London time) to comment on its Fiscal 2022 results.
A live audio webcast is also available on 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”
Fiscal 2023 financial calendar
These dates are indicative and may be subject to change without notice.
Regular updates are available in the calendar on our website www.sodexo.com
About Sodexo
Founded in Marseille in 1966 by Pierre Bellon, Sodexo is the global leader in Quality of Life Services, an essential factor in individual and organizational performance. Operating in 53 countries, our 422,000 employees serve 100 million consumers each day. Sodexo Group stands out for its independence and its founding family shareholding, its sustainable business model and its portfolio of activities including Food Services, Facilities Management Services and Employee Benefit Solutions. We provide quality, multichannel and flexible food experiences, but also design attractive and inclusive workplaces and shared spaces, manage and maintain winfrastructure in a safe and environmentally friendly way, offer personalized support for patients or students, or even create programs fostering employee engagement. From Day 1, Sodexo has been focusing on tangible everyday gestures and actions through its services in order to have a positive economic, social and environmental impact over time. For us, growth and social commitment go hand in hand. Creating a better everyday for everyone to build a better life for all is our purpose.
Sodexo is included in the CAC Next 20, CAC 40 ESG, FTSE 4 Good and DJSI indices.
Key figures
Contacts
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Underlying ETR 28.3%
See Alternative Performance Measures definitions
Based on raw material costs
1
1 Fiscal year performance
1.1 Consolidated income statement
* Fiscal 2022 effective tax rate is 27.5%, compared to an ETR of 43.9% or an underlying ETR of 28.3% in Fiscal 2021.
1.2 Currency effect
Exchange rate fluctuations do not generate operational risks, because each subsidiary bills its revenues and incurs its expenses in the same currency. However, given the weight of the Benefit & Rewards activity in Brazil, and the high level of its margins relative to the Group, when the Brazilian real declines against the euro, it has a negative effect on the Underlying operating margin due to a change in the mix of margins. Conversely, when the Brazilian real strengthens Group margins increase.
The +5.5% positive impact of currencies on Fiscal 2022 revenues is linked to the weakness of the euro against most currencies. In particular, the U.S. dollar, which was up +8.7% and the Brazilian real up +11.6%. The impact of currency mix on the Underlying operating margin was negligible.
Sodexo operates in 53 countries. The percentage of total revenues and Underlying operating profit denominated in the main currencies are as follows:
The currency effect is determined by applying the previous year's average exchange rates to the current year figures.
1.3 Revenues
Fiscal 2022 consolidated revenues reached 21.1 billion euros, up +21.2% year-on-year, driven by organic growth of +16.9%, a net contribution from acquisitions and disposals of -1.2% and a strong positive currency impact of +5.5%.
ON-SITE SERVICES
Fiscal 2022 On-site Services organic revenue growth was up +17.0%. The recovery continued throughout the year quarter by quarter. By the fourth quarter, Business & Administrations were back up over 100% of the 2019 level. Corporate Services has substantially recovered in the last two quarters of the year, since the end of the Omicron wave, with a major return to the office. Sports & Leisure also had a significant recovery in the Second half Fiscal 2022 as events and conventions picked up very strongly. Schools was impacted by the sale of the Childcare activities since March 2022 and some contract losses.
The performance of the main segments relative to Fiscal 2019 revenues is as follows:
In Fiscal 2022, Facilities Management services were up +2.9%, having been particularly resilient during the crisis, and well up on Fiscal 2019 levels at 108% in the Fourth quarter. Food services were up strongly at +29.3%, as the recovery came through, reaching 94% of Fiscal 2019 in the Fourth quarter Fiscal 2022.
Key performance indicators improved significantly in Fiscal 2022:
Business & Administrations
Fiscal 2022 Business & Administrations revenues totaled 11.2 billion euros , growing +22.7% organically. This is the result of ongoing growth in Energy & Resources and Government & Agencies, the recovery to pre-Covid levels of Sports & Leisure events and a solid return to office in all countries. The trend in the last two months of the year confirms our WFH estimates made in 2020, even though we are convinced that there is still further improvement to come.
Organic growth in North America was +45.1%, with a progressive return to the office quarter on quarter and a strong recovery in all the Sports & Leisure activities, firstly in the stadiums and then in the convention centers. The Government & Agencies and Energy & Resources segments were both up thanks to new business and a gradual return of office workers on-site, neither having been significantly impacted by the pandemic. Although slower than in other regions, the return to the office gathered pace during the year. Many clients chose to enhance their on-site food services to attract their staff back into the office. The new food offers, providing more flexible, more healthy and sustainable meals grew significantly.
In Europe , revenues were up +20.3% organically, driven by the progressive return to the office, strong recovery in the Sports & Leisure activities, first in the sporting events, and then in corporate entertaining and tourism in the second half. Government & Agencies and Energy & Resources were flat on the year, due to respectively the end of the significant Transforming Rehabilitation contract in the UK and weak activity in the Energy sector.
In Asia-Pacific, Latam, Middle East and Africa , organic revenue growth was +11.6%. Growth in Corporate Services segment remained solid across all regions, particularly in India, where the Covid-related recovery was strong. Energy & Resources continued to achieve very solid growth, against a backdrop of double digit growth in Fiscal 2020 and Fiscal 2021. New business ramp-ups in Latin America, and particularly in the mining sector, more than offset the lack of new oil & gas projects and some contract losses in the Asia-Pacific region.
Healthcare & Seniors
Healthcare & Seniors revenues amounted to 5.5 billion euros , up +4.0% organically.
In North America , organic growth was +6.1%, boosted by cross-selling, progressive recovery in hospital retail sales and Senior occupancy and pricing, particularly in the last two quarters. The contribution of net new business remained slightly negative, as the signings during the year have not yet fed through into revenues.
In Europe , organic growth was +0.7% impacted by the early closure of the Testing Centers in the UK at the end of March. This shortfall was compensated by the combination of pricing, new contracts in Seniors in France and some increase in volumes, especially in retail sales.
In Asia-Pacific, Latam, Middle East and Africa , organic revenue growth was a solid +8.5%, resulting from increased volumes, pricing and some new business.
Education
Fiscal 2022 revenues in Education were 3.6 billion euros , up +22.0% organically.
In North America, organic growth was +27.9%, reflecting the reopening of schools and universities from the beginning of the 2021 academic year. However, events and special catering activities remained restricted due to staff shortages and ongoing fears of the pandemic. In the fourth quarter, summer camp and conference activity was solid and the 2022 start of the academic year was helped by an extra day and higher levels of staffing.
In Europe , revenue was up +6.5% organically. All schools and Universities were fully opened. However, meal volumes were impacted by high levels of absenteeism due to Covid-19 waves.
In Asia-Pacific, Latam, Middle East and Africa , organic growth was +24.0% reflecting reopening of schools and universities in China and India.
BENEFITS & REWARDS SERVICES
Fiscal 2022 Benefits & Rewards Services revenue amounted to 865 million euros , up +16.2%, helped by a +2.6% impact from currencies, offset somewhat by the impact of net disposals of -0.6%. As a result, organic growth was +14.2%.
* Including Incentive & Recognition, Mobility & Expenses and Public Benefits.
Employee Benefits organic growth was +18.7%, accelerating quarter by quarter, and reaching +23.1% in the Fourth quarter. Issue volume amounted to 14.3 billion euros for the year and was up +16.2% organically, boosted by strong net new business leveraging digital products and enhanced sales efficiency, as well as face value increases. Financial revenues were also up strongly supported by rising interest rates, particularly in Latin America and Eastern Europe.
Services Diversification was down -1.3% organically for the year. Public Benefits fell back significantly during the year after a very strong Covid-linked performance, offsetting the solid growth in Mobility solutions in Latin America.
Organic revenue growth was strong across all geographies, respectively +14.4% in Europe, USA and Asia , and +13.8% in Latin America , accelerating quarter by quarter.
This performance was due to strong net new business in all key markets as well as sustained increase in face values. In addition, financial revenues were also up strongly thanks to increasing interest rates.
The increase in Operating revenues of +12.4% reflects strong growth in issue volumes due to face value increases and significant net new business in most countries and in most services, except Public Benefits.
Financial revenues were up +43.7% due to the progressive effect of the increase in interest rates.
1.4 Underlying operating profit
Fiscal 2022 Underlying operating profit was 1,059 million euros, up +83.3%, or +73.5% excluding the currency effect. The Underlying operating profit margin reached 5.0%, up +170 bps. The currency mix effect was negligible.
The traditional seasonal gap between the first and second half Underlying operating profit margin, particularly in Education, has now reasserted itself, with a margin of 4.8% in the Second half Fiscal 2022, versus 5.2% in the First half.
The recovery in the margin is due to the flow-through from the progressive post-Covid recovery in revenues combined with continued tight cost control, contract management to pass-through inflation in the On-site Services activities, including price increases and mitigation actions, more active portfolio management, and the contribution from the GET efficiency program.
On-site Services Underlying operating profit was up +90.4%, or +79.4% excluding the positive impact of currencies. The margin came out at 4.6% up +170 bps or +160 bps excluding currencies, helped by the strong dollar particularly in Healthcare and Education where the weight of North American revenues is the highest. The performance by segment at constant rates is as follows:
Benefits & Rewards Services Underlying operating profit was up +33.2%, or +30.5% excluding the positive impact of currencies. The margin increased to 28.6% up +360 bps or +370 bps excluding currencies, helped by the strong acceleration in volumes and, in particular, the financial revenues from quarter to quarter throughout the year. While processing costs have remained stable relative to revenues, all other cost increases have been contained.
The GET efficiency program has provided a significant improvement in profitability in Fiscal 2021 and Fiscal 2022. Half of the initiatives were aimed at protecting the gross profit margin by adapting on-site costs to the new post-Covid levels of activity and to compensate for the end of government aid. The other half of the program was aimed at structurally reducing SG&A for the long-term by simplifying the structures in the Group, to free up capacity to invest in growth and to enhance margins.
Fiscal 2022 results benefited from the final tranche of cost savings of 164 million euros, of which 98 million euros in cost avoidance and 66 million euros in SG&A. The cash impact for the year was 73 million euros.
Cumulated, the GET program has cost 322 million euros, generated 382 million euros of annual savings, with a cash impact of 290 million euros. As a result, the program exceeded the target cost savings by 32 million euros with a ratio of savings to costs of 119%, also above the target of 100%.
1.5 Group net profit
Other operating income and expenses amounted to 5 million euros compared to 239 million euros in the previous year. This significant reduction is due to the end of the GET program, with only 10 million euros of restructuring costs, a spill-over from Fiscal 2021, compared to 153 million euros in the previous year, and 117 million euros of gains related to the disposals program.
As a result, the Operating Profit recovered to 1,054 million euros compared to 339 million euros in the previous year.
Fiscal 2022 Net financial expenses decreased to 87 million euros against 106 million euros in the previous year. The reduction came from the net effect of the debt reimbursements and issuance in Fiscal 2021 and Fiscal 2022, an increase in interest income related to higher levels of activity and some positive currency impacts. The blended cost of debt at Fiscal 2022 year end was stable at 1.6% relative to year end Fiscal 2021.
The tax charge was up significantly to 264 million euros, reflecting the higher pre-tax profit. However, the Effective tax rate on Pre-tax profit (excluding the share of profit of companies accounted for using the equity method) of 960 million euros was 27.5%, back down to a more normal rate, against 43.9% last year.
The share of profit of other companies accounted for using the equity method was stable at 8 million euros. Profit attributed to non-controlling interests was 9 million euros compared to the previous year amount of -2 million euros.
As a result, Group net income was multiplied by five to reach 695 million euros, compared to 139 million euros in Fiscal 2021. Underlying net profit adjusted for Other operating income and expenses net of tax doubled to reach 699 million euros, compared to 346 million euros in Fiscal 2021.
1.6 Earnings per share
Published EPS was 4.75 euros against 0.95 euro in Fiscal 2021. The weighted average number of shares for Fiscal 2022 was more or less stable at 146,295,576 compared to 146,004,484 shares for Fiscal 2021. As a result of much lower Other income and expenses, Underlying EPS was very close to the published number, amounting to 4.78 euros, double the previous year.
1.7 Proposed dividend
The Board of Directors has proposed a dividend of 2.40€, up +20% compared to Fiscal 2021, in line with our policy of a pay-out ratio of 50% of Underlying net profit.
2 Consolidated financial position
2.1 Cash flows
Cash flows for the period were as follows:
(1) Excluding change in financial assets related to the Benefits & Rewards Services activity of -145 million euros in Fiscal 2022
versus 45 million euros in Fiscal 2021.
Total change in working capital as reported in consolidated accounts:
in Fiscal 2022: -208 million euros = -63 million euros - 145 million euros
and in Fiscal 2021: 216 million euros = 171 million euros + 45 million euros.
(2) The Group does not believe the accounting treatment introduced by IFRS 16 modifies the operating nature of its lease transactions. Accordingly, to ensure the Group's performance measures continue to best reflect its operating performance, the Group considers repayments of lease liabilities as operating items impacting the Free cash flow, which integrates all lease payments (fixed or variable).
To be consistent, the lease liabilities are not included in Net debt (treated as operating items).
Free cash flow, adjusted for IFRS 16, was 631 million euros against 483 million euros in Fiscal 2021.
Operating cash flow of 1,243 million euros improved significantly compared to the previous year at 766 million euros, boosted by the strong recovery in Underlying operating profit and by the Benefits & Rewards Services indemnity from the Hungarian government related to closure of the business for 34 million euros.
The Working capital outflow in Fiscal 2022 of 63 million euros was due to some significant exceptional items such as restructuring costs, a cash contribution to the UK pension found for 71 million euros, the unwinding of government Covid-linked payment delays for 117 million euros, the reimbursement of the Tokyo Olympics hospitality packages for 55 million euros and the Benefits & Rewards fine related to the dispute with the French competition authorities which is being paid monthly.
Net capital expenditure, including client investments, increased to 341 million euros, and 1.6% of revenues, compared to 211 million euros in the preceding year, at 1.2% of revenues. Gross capex was 478 million euros, or 2.3% of revenues. Digital and IT investments accounted for 30% of the gross spend, with the remainder focused on client facing investments.
Benefits & Rewards Services continued to invest heavily, at a rate of 9.1% of revenues, with 93% of its investments in IT and digital. The Business & Administrations gross capital expenditure to revenues ratio was at 1.3%, nearly double last year, linked to the recovery in Sports & Leisure activity. Healthcare was also at 1.5%, the highest level in many years, due to some significant investments in several hospitals in North America and Continental Europe. On the other hand, in Education, capex to sales was down -60 bps this year at 2.7% of revenues even though the euro amount remained stable.
Cash conversion was 91%, below the normal level of 100%, but including 363 million euros of negative non-recurring elements.
M&A activity restarted in Fiscal 2022 with acquisition spend of 70 million euros but was more than offset by disposals of 84 million euros.
After taking into account Other changes, consolidated net debt decreased by 210 million euros ending the year to 1,268 million euros at August 31, 2022.
2.2 Acquisitions and disposals for the period
Fiscal 2022 has been an active year for closing numerous disposals of non-core activities and geographies:
On the other hand, further strategic acquisitions & investments have also been made:
Overall disposals net of acquisitions amounted to 14 million euros.
2.3 Condensed consolidated statement of financial position at August 31, 2022
The increase in shareholders' equity was due to several factors: the currency translation adjustment of some currencies such as US dollar and the Brazilian real, as well as the revaluation of financial assets under IFRS 9.
As of August 31, 2022, net debt fell to 1,268 million euros, representing a gearing of 28.7%, and a net debt ratio of 1x, at the bottom of the target range of between 1x and 2x.
In October 2021, Sodexo reimbursed by anticipation a 600 million euros bond due to mature in January 2022.
At year end, the Group's gross debt of 5.7 billion euros was 71% euro-denominated, 22% dollar-denominated and 6% sterling denominated, with an average maturity of 4.8 years, 96% at fixed rates and 100% covenant-free.
By the end of Fiscal 2022, Operating cash reached a total of 4,474 million euros, including 960 million euros of restricted cash and 297 million euros of financial assets of Benefits & Rewards Services. The Benefits & Rewards Services activity asset to liability coverage is at 121% compared to 113% as at August 31, 2021, with operating cash of 2,764 million euros and client receivables of 1,482 million euros, compared to voucher liabilities of 3,509 million euros. The rest of the Group also had a significant operating cash position of 1,710 million euros.
At the year end, unused credit lines totaled 2.0 billion euros.
2.4 Subsequent events
No major events have occurred since the closing of the accounts.
2.5 Alternative Performance Measure definitions
Blended cost of debt
The blended cost of debt is calculated at period end and is the weighted blended financing rate on borrowings (including derivative financial instruments and commercial papers) and cash pooling balances at period end.
Free cash flow
Please refer to the section entitled Consolidated financial position.
Growth excluding currency effect
The currency effect is determined by applying the previous year's average exchange rates to the current year figures except in hyper-inflationary economies where all figures are converted at the latest closing rate for both periods when the impact is significant.
Issue volume
Issue volume corresponds to the total face value of service vouchers, cards and digitally delivered services issued by Benefits & Rewards Services for beneficiaries on behalf of clients.
Net debt
Net debt is defined as Group borrowing at the balance sheet date, less operating cash.
Organic growth
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 (or gain of control) and divestments, as follows:
Underlying Net profit
Underlying Net profit presents a net income excluding significant unusual and/or infrequent elements. Therefore, it corresponds to the Net Income Group share excluding Other Income and Expense and significant non-recurring elements in both Net Financial Expense and Income Tax Expense where relevant.
Underlying Net profit per share
Underlying Net profit per share presents the Underlying net profit divided by the average number of shares.
Underlying operating profit margin
The underlying operating profit margin corresponds to Underlying operating profit divided by revenues.
Underlying operating profit margin at constant rates
The underlying operating profit margin at constant rates corresponds to Underlying operating profit divided by revenues, calculated by converting 2022 figures at Fiscal 2021 rates, except for countries with hyperinflationary economies.
2
1. Consolidated income statement
2. Consolidated statement of comprehensive income
3. Consolidated statement of financial position
Assets
Shareholders' equity and liabilities
4. Consolidated cash flow statement
(1) Including 208 million euros corresponding to the depreciation of right-of-use assets recognized in Fiscal 2022 pursuant to IFRS 16 (253 million euros recognized in Fiscal 2021).
5. Consolidated statement of changes in shareholders' equity
(1) See note 2.1.2 "New accounting standards and interpretations applied".
6. Financial ratios
Financial ratios have been computed based on the following key indicators:
(1) The Group does not believe the accounting treatment introduced by IFRS 16 modifies the operating nature of its lease transactions. Accordingly, to ensure the Group's performance measures continue to best reflect its operating performance, the Group considers repayments of lease liabilities as operating items impacting the Free cash flow, which integrates all lease payments (fixed or variable). Consistently, the lease liabilities are not included in Net debt.
(2) Average capital employed between the beginning and the end of the period.
(3) Reinstatement of the capital employed of Childcare activity which gave rise to classification in assets and liabilities held for sale.
(4) Below the underlying effective tax rate calculation:
Attachment
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