In Line with Expectations
The latest results from the world's second largest food services and facilities management company suggest a bold new strategic growth plan introduced in September 2018 by Sodexo Chairwoman, Sophie Bellon and CEO, Denis Machuela, is working.
2018 was a tumultuous year for the French group which saw its value plummet by 14 per cent in March on the back of falling revenue from the U.S. market.
Sodexo responded by making €697 million of fire-sale acquisitions which included Centerplate, a leading supplier of food, beverages, merchandising and hospitality services to sports and events venues in the United States, and the acquisition of companies in Singapore as well as a large Brazilian care-home provider.
- Fiscal 2019 first quarter revenues totaled 5.7 billion euro, up +6.8% compared to the same period in the previous fiscal year. Currency effects were limited during the period at -0.6%, with the U.S. dollar strength offsetting the Brazilian real weakness and net acquisitions contributing +4.8% to growth. Organic growth reached +2.6%.
- Organic growth for On-site Services was +2.3%, reflecting:
- Growth in Business & Administrations was +2.5% . The tourism activities continued to perform particularly well. Corporate Services remained strong in North America, Latin America, Brazil and Asia. However, the Energy & Resources year-on-year performance was impacted by comparison with a significant project in North America in the first quarter Fiscal 2018. The mining and onshore activities which are predominantly in developing economies continue to grow, although the offshore activities in the North Sea remain challenging.
- Growth in Health Care & Seniors was +1.9%1. Activity in North America was up slightly. Growth remained modest in Europe due to a lack of any significant new business and double digit in the rest of the world due to the ongoing contribution of the robust development in Asia and Latin America.
- The trend in Education has improved at +2.5% with positive growth in North America, strong growth in Europe with good new business in Schools and continued double digit growth in the rest of the world.
- Organic revenue growth in Benefits & Rewards Services continued to improve in the first quarter at +9.5%.
- Growth in Europe, Asia and the United States remained strong at +7.6%.
- Latin America was up +11.8%, due to the recovery in Brazil, with a combination of face value increases, some new business, growth in the number of beneficiaries at existing clients and the stabilization of interest rates.
- On March 1, 2019, Sarosh Mistry will become Region Chair, North America replacing Lorna Donatone who will retire. He joins the Group Executive Committee effective immediately.
- Since 2016, Sarosh Mistry has been Chief Executive Officer of Sodexo Home Care Worldwide. Sarosh joined Sodexo in 2011 in the On-site activities and in 2012 became Chief Executive Officer of Comfort Keepers, North America.
- Prior to joining Sodexo, Sarosh was Chief Executive Officer of Eurest, a division of Compass Group North America, providing services in the corporate environment; Vice President of Retail Sales for Starbucks North America; and President of Aramark Healthcare Support Services in the USA. Earlier in his career, he held numerous positions with Pepsi and Yum! Brands.
Growth in Q1 was in line with expectations, with stable growth in Europe, continued solid growth in developing economies and progressive improvement in North America. The action plans are delivering and the productivity is being reinvested in growth initiatives. In this process of reinvestment, we expect some timing differences between productivity gains and investments which will weigh slightly on the first half underlying operating profit margin. However, the Group maintains the following objectives for the full year Fiscal 2019:
- Organic revenue growth between +2% and +3%;
- Underlying operating profit margin between 5.5% and 5.7%, excluding the currency impact.
- The strategic agenda is aimed at delivering market leading growth. The first steps to return to this performance are to achieve organic growth of more than 3% from Fiscal 2020 and then improve margins back up over 6% sustainably. As explained during the Capital Markets Day, margin improvement will come with the right levels of growth.