Sodexo reports fiscal 2009 financial results

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Nov 10 2009Sodexo

Sodexo’s (PARIS:SW) (OTCBB:SDXAY) Board of Directors met on November 6, 2009 under the chairmanship of Pierre Bellon to close the accounts for the year ended August 31, 2009. Michel Landel, Chief Executive Officer, presented the financial results for Fiscal 2009.

Key financial performance indicators for Fiscal 2009

Commenting on these results, Sodexo CEO Michel Landel, said:

"In a particularly difficult environment, Sodexo again increased revenues and profits in Fiscal 2009 to a level in line with its objectives. Sodexo remains a growth company. Firmly focused on the future and the long term, we have continued during Fiscal 2009 to invest in the implementation of our strategy, including in our comprehensive offer, in training our teams, in recruiting new talents, in creating platforms of expertise in Facilities Management, and also in four acquisitions in France, Germany, India and the U.S. As we anticipated last year, the crisis has slowed our new business development and weighed on comparable unit growth on existing sites. These impacts will continue during Fiscal 2010 such that, for the coming year, consolidated revenues are likely to remain at the same level as in Fiscal 2009 (at constant scope and exchange rates). Also, our Fiscal 2010 operating profit objective is to achieve between 750 and 770 million euro (at constant rates). Beyond this horizon, and given the considerable potential of our worldwide markets, our unique strategic positioning and our solid financial structure, we are fully confident of our ability to achieve the medium term objectives we have set: i.e., annual average revenue growth of 7% and an operating margin of 6%.”

Revenue growth of 7.9%

The + 7.9% growth in revenues comprises the following:

organic growth: + 2.5%;
currency impact: + 1.5%;
changes in scope of consolidation: + 3.9%.

In On-site Service Solutions, the year was marked by:

continued robust organic growth in Health Care and Seniors¹ (+ 5.2%), reflecting Sodexo’s market leadership, especially in North America;
solid performance in Education, with + 4.6% organic growth, including satisfactory growth in North America;
reduced activity across all regions of the world in Corporate (- 0.8%).

By geography, organic growth in On-site Service Solutions resulted from:

a moderate increase (+ 1.8%) in North America, driven mainly by the fast-growing Health Care, Seniors and Education segments, which offset the downturn experienced in Corporate;
maintained revenues (+ 0.1%) in Continental Europe, despite revenue declines in Corporate and Sports and Leisure;
solid activity in the UK and Ireland, with + 6.7% growth excluding the impact of the 2007 Rugby World Cup hospitality contract;
continued strong activity in the Rest of the World (+ 11.9%) resulting particularly from double-digit growth in Remote Sites and in Latin America.

In total, Facilities Management services also contributed strongly to this organic growth, reaching 23.9% of Group consolidated revenues in Fiscal 2009, compared to 21.6% the previous year.

Finally, organic growth in Motivation Solutions¹ remained excellent, up 14%.

Issue volume grew from 10.4 billion euro in Fiscal 2008 to 12.1 billion euro for Fiscal 2009, an increase of 16.7% at current rates.

Underlying this performance, Sodexo’s key performance indicators evolved as follows during the year:

the client retention rate was 93.5%, comparable to the prior year rate;
less than 3% comparable unit growth on existing sites, reflecting a sharp drop in volumes in the Corporate segment in the United States and Europe;
the business development rate (i.e., new contract wins) was approximately 6%.

¹ To reflect its strategic positioning, Sodexo has decided to modify the names of its activities as follows :

« Food and Facilities Management Services » is now « On-site Service Solutions »
« Service Vouchers and Cards » is now « Motivation Solutions ».

Operating profit up 8.1%

Operating profit increased by 8.1% to 746 million euro in Fiscal 2009, an increase of 6.7% at constant currency exchange rates.

This robust growth in operating profit results from:

significant issue volume increases in Motivation Solutions;
improved profitability in North America, where operating margins rose from 4.8% to 5.2%;
a more significant contribution from the Rest of the World (Latin America, Middle East, Africa, Asia and Australia).

This solid performance more than offset the negative impacts of the consequences of the economic crisis seen in both the Corporate and Sports and Leisure segments in Continental Europe and in the UK and Ireland.

During the year, the Group also achieved efficiency savings of more than 50 million euro in its administrative and support costs, in line with the objectives set by the Executive Committee at the start of Fiscal 2009.

The resulting consolidated operating margin was 5.1%, comparable to the prior year.

Growth in Net income of 4.5% and earnings per share of 5%

While operating profit grew 8.1 %, Group net income grew by only 4.5 % after taking into account increased interest expense from the financing of acquisitions undertaken during the last twelve months.

Dividend

Despite the economic crisis, the Sodexo Board of Directors will propose to the January 25, 2010 General Shareholders’ Meeting a dividend maintained at 1.27 euro per share.

A cash-generating financial model

Net cash provided by operating activities totaled 577 million euro, demonstrating once again the quality of Sodexo’s financial model, a major strength in this crisis environment.

Net cash provided by operating activities was used to finance:

net operational investments of 223 million euro (1.5% of revenues);
acquisitions (net of divestments and of cash held by acquired companies) of 526 million euro.

Sodexo issued three new debt instruments in Fiscal 2009, thereby securing the reimbursement of the two bond issues due March 2009 and also extending the maturity of its borrowings.

As of August 31, 2009, net debt was 889 million euro, representing only 38% of Group consolidated equity. Gross debt represented less than four years of operating cash flow at the same date.

Four strategic acquisitions

During Fiscal 2009, Sodexo made a number of targeted acquisitions, enabling it to reinforce its global leadership positions in high potential markets:

Score Group, the fourth-largest provider of foodservices in France, consolidating Sodexo’s position in the French market, especially in the Corporate segment in the Paris region;
Zehnacker in Germany, a specialist in Facilities Management services in the Health Care segment. This acquisition enhances the Group’s ability to provide comprehensive services to major international clients in the high potential German market.
Radhakrishna Hospitality Services Group (RKHS), in India, enabling Sodexo to establish a clear position as the leader in comprehensive services solutions in one of Asia’s largest markets.
Comfort Keepers, one of the leading providers in the North American market of non-medical in-home services for seniors and persons in need of support. This Seniors market has significant worldwide potential for Sodexo.

Outlook

Fiscal 2010 objectives

Michel Landel underlined to the Sodexo Board of Directors that despite overall satisfactory performance for Fiscal 2009, the full initial effects of the economic crisis were only first felt in all of the Group’s activities and countries beginning from the second quarter of Fiscal 2009.

Hence, considering current uncertainties and the fact that the global economic recovery is likely to be slow, Fiscal 2010 should likely see revenues (at constant scope and exchange rates) remain at the same level as Fiscal 2009. The Group targets as a consequence for Fiscal 2010 an operating profit objective of between 750 and 770 million euro (at constant rates).

Sodexo has won several recent prestigious contracts but the crisis has seen delay in certain decisions by clients and new prospects. Growth in sales on existing sites has also slowed. As a consequence, the rate of new business development at the start of the year has been inferior to that of past years and a modest decrease in revenues for the first half of Fiscal 2010 is anticipated.

In Fiscal 2009, Sodexo achieved 50 million euro in savings and productivity gains in its administrative and support costs; For Fiscal 2010, Sodexo targets improving organizational efficiency by a further 60 million euro in Fiscal 2010, (thereby achieving nearly 10% in these costs over two years). These gains will permit reinvestment for continued investment for the long term.

Medium term

Sodexo confirms its medium term objectives: i.e., to achieve annual average revenue growth of 7% and an operating margin of 6%.

With a significant potential market estimated at 780 billion euro, particularly in segments in which the Group is a world leader - Health Care, Seniors, Education and Defense – Sodexo benefits from major competitive advantages:

strong values, ethical principles and a motivated workforce;
a unique strategic positioning: Sodexo’s worldwide teams are the only ones with an offer as comprehensive and integrated that combines On-site Service Solutions and Motivation Solutions;
a unique global network, operating in 80 countries, which cover over 80% of the world’s population and more than 92% of global GDP;
a financial model that has proved its strength and effectiveness, allowing Sodexo to finance its future development;
Sodexo’s independence, which enables the Group to pursue a long-term strategy.

Analysts meeting

SODEXO will hold a briefing on its Fiscal 2009 results today at 9:00 a.m. at the Centre de Conférences, Capital 8 (32, rue Monceau, Paris 8ème). It will also be available via webcast, at www.sodexo.com.

Future financial communications dates: