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.
Financial performance for First Half Fiscal
2019:
(in millions of euro) |
FIRST-HALF FISCAL 2019 (ENDED
FEBRUARY 28, 2019) |
FIRST-HALF FISCAL 2018
(ENDED FEBRUARY 28, 2018) |
DIFFERENCE |
DIFFERENCE CONSTANT
RATES |
Revenue |
11,045 |
10,293 |
+7.3% |
+6.8% |
Organic growth |
+3.1% |
+1.7% |
|
|
UNDERLYING OPERATING PROFIT |
647 |
627 |
+3.1% |
+3.3% |
UNDERLYING OPERATING PROFIT MARGIN |
5.9% |
6.1% |
-20bps |
-20bps |
Other operating expenses |
(69) |
(73) |
|
|
OPERATING PROFIT |
578 |
554 |
+4.2% |
+4.1% |
Net financial expense |
(54) |
(44) |
|
|
Effective tax rate |
28.8% |
25.9% |
|
|
GROUP NET PROFIT |
364 |
372 |
-2.3% |
-2.6% |
EPS (in euro) |
2.50 |
2.51 |
-0.4% |
|
UNDERLYING NET PROFIT |
413 |
397 |
+4.1% |
+4.3% |
UNDERLYING EPS (in euro) |
2.84 |
2.67 |
+6.2% |
|
Net Capital expenditure |
205 |
123 |
|
|
Free cash flow |
14 |
125 |
|
|
Debt Ratio |
1.3 |
1.1 |
|
|
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 12th consecutive year. Sodexo also
remains the top-rated company in its sector within the Dow
Jones Sustainability Index (DJSI), for the 14th consecutive
year confirming Sodexo’s commitment to Quality of
Life.
Board composition
The following changes to the board have been
approved by the Board of Directors since the Annual General Meeting
of the shareholders on January 22, 2019.
- Sophie Stabile has replaced Emmanuel Babeau as Chair of the
Audit committee and has joined the Compensation Committee;
- Emmanuel Babeau has resigned from the Compensation
Committee;
- Robert Baconnier has resigned from the Audit Committee;
- Cécile Tandeau de Marsac has replaced Françoise Brougher as
Chair of the Nominating Committee.
As a result, the composition of the board
committees is now as follows:
- Audit Committee:
- Sophie Stabile, Committee Chair, Independent Director
- Emmanuel Babeau, Independent Director
- François-Xavier Bellon
- Soumitra Dutta, Independent Director
- Cathy Martin, Director representing employees
- Nominating Committee:
- Cécile Tandeau de Marsac, Committee Chair, Independent
Director
- Sophie Bellon
- Nathalie Bellon-Szabo
- Françoise Brougher, Independent Director
- Compensation Committee:
- Cécile Tandeau de Marsac, Committee Chair, Independent
Director
- Sophie Stabile, Independent Director
- Françoise Brougher, Independent Director
- Philippe Besson, Director representing employees
- Following the recommendation of the Nominating Committee, the
Board will propose, at the next Shareholders meeting, the
appointment of Luc Messier as an independent Director of the
company. Mr. Messier holds both Canadian and American citizenship,
and will bring significant international operational experience,
notably in the oil and gas sector, through executive management
positions held with large French and American multinational
companies (ConocoPhilips, Technip, Bouygues, Pomerlau). He has
lived and worked in Asia, Africa, Europe, and North America, most
recently for several years in the United States, where he currently
resides.
Sodexo Chairwoman, Sophie Bellon said:
” I am very pleased to propose Luc Messier as a
new Board Member. He will bring valuable operational experience
garnered from the different companies and countries in which he has
worked, notably the United States.
Board renewal continues to be an important
priority. Fostering new momentum, open discussions and best
practice within the Boardroom are key to support and accelerate the
execution of our strategy and the achievement of our
objectives.”
Outlook
Growth in the First Half Fiscal 2019 of +3.1%
was slightly above expectations. For the Second Half, we see
continued growth in developing economies, although the comparable
base is high, some contracts being exited and improvement in North
America remaining challenging. Therefore, the Group
maintains its objective of organic revenue growth of between 2 and
3%.
The action plans are being executed with a clear
focus on growth and on margin protection to ensure that the
underlying operating margin for the year should be 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. Margin improvement will come with the right levels of
growth, the objective being a return to an underlying
operating margin sustainably over 6%.
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 results
of First Half Fiscal 2019. Those who wish to connect from the UK
may dial +44 (0) 207 192 8000 or from France
+33 (0)1 76 70 07 94, or from the USA +1 866 966 1396, followed by
the passcode 1764637.
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.
Fiscal 2019 financial
calendar
Nine-month revenues |
July 8, 2019 |
Annual results |
November 8, 2019 |
Annual Shareholders’ Meeting |
January 21, 2020 |
About Sodexo
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 72 countries, Sodexo
serves 100 million consumers each day through its unique
combination of On-site Services, Benefits and Rewards Services and
Personal and Home Services. Sodexo provides clients an integrated
offering developed over more than 50 years of experience: from
foodservices, reception, maintenance and cleaning, to facilities
and equipment management; from services and programs fostering
employees’ engagement to solutions that simplify and optimize their
mobility and expenses management, 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
460,000 employees throughout the world.
Sodexo is included in the CAC 40, FTSE 4 Good and DJSI
indices.
Key figures (as of August 31,
2018) 20.4 billion euro in consolidated revenues
460,000 employees 19th largest
employer worldwide 72 countries 100
million consumers served daily 15.0
billion euro in market capitalization (as of April 10,
2019) |
Forward-looking statements
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 forward-looking
statements.
Contacts
Analysts and
Investors |
Press |
Virginia JeansonTel : +33
1 57 75 80 56virginia.jeanson@sodexo.com |
Mathieu ScaravettiTel: +33
1 57 75 81 28Mathieu.scaravetti@sodexo.com |
1
|
|
|
|
ACTIVITY REPORT FOR FIRST
HALF FISCAL 2019 |
|
FISCAL 2019 FIRST HALF ACTIVITY
REPORT
(September 1, 2018 to February 28, 2019)
Revenue Analysis
REVENUES BY SEGMENT (In millions of
euro) |
H1 FY19 |
H1 FY18 |
RESTATED ORGANIC
GROWTH |
|
ORGANIC GROWTH |
EXTERNAL GROWTH |
CURRENCY EFFECT |
TOTAL GROWTH |
Business & Administrations |
5,645 |
5,295 |
+2.8%1 |
|
+1.2% |
+6.3% |
-0.9% |
+6.6% |
Health Care & Seniors |
2,552 |
2,359 |
+2.2%1 |
|
+5.6% |
+0.4% |
+2.1% |
+8.2% |
Education |
2,420 |
2,228 |
+3.6% |
|
+3.6% |
+1.8% |
+3.2% |
+8.6% |
On-site Services |
10,617 |
9,882 |
+2.8% |
|
+2.8% |
+3.9% |
+0.7% |
+7.4% |
Benefits & Rewards
Services |
430 |
413 |
+10.1% |
|
+10.1% |
+0.2% |
-6.3% |
+4.1% |
Elimination |
-2 |
-2 |
|
|
|
|
|
|
TOTAL GROUPE |
11,045 |
10,293 |
+3.1% |
|
+3.1% |
+3.7% |
+0.5% |
+7.3% |
First-half fiscal 2019 consolidated revenues
totaled 11 billion euro, up +7.3% year-on-year. Currency effects
during the period were limited to +0.5%, due to the strength of the
dollar compensating the decline in the Brazilian Real. The
contribution from acquisitions net of disposal of subsidiaries was
+3.7%, with the impact of Centerplate for the first 4 months of the
period and the smaller acquisitions since the beginning of the
year. As a result, organic revenue growth was +3.1%, with a
significant acceleration in the second quarter which was up
+3.6%.
Brexit:
In June 2016, the United Kingdom voted to leave
the European Union. Sodexo has been present in the country since
1988 and has around 35,000 employees there today. The Group’s
business should not be materially impacted by the United Kingdom
leaving the European Union. The Group is a local player, working
with local suppliers and employees, and very often for Government
authorities and Government services. Action plans have been put in
place to limit the impact of a hard Brexit on food prices and
availability. We have noticed a slowdown in new business
opportunities. However, same site sales growth remains solid.
Analysis of organic revenue growth in On-site
Services
On-site Services organic
revenue growth of +2.8% reflects:
- Growth in North America turned positive in Q1 at +0.2%, and
accelerated in Q2 to +2.4%. Europe was solid at +3% and the Rest of
the World 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 97.8%, up by +40 bps;
- New sales development is 3%, an increase of +70 bps
- Same site sales growth is 2.5%, +20 bps.
Business & Administrations
REVENUES BY REGION (In
millions of euro) |
H1 FY19 |
H1 FY18 |
RESTATED ORGANIC
GROWTH |
North America |
1,571 |
1,258 |
+0.8% |
Europe |
2,657 |
2,638 |
+2.1% |
Africa, Asia, Australia, LatAm, Middle East |
1,418 |
1,399 |
+5.9% |
BUSINESS & ADMINISTRATIONS TOTAL |
5,645 |
5,295 |
+2.8% |
First Half Fiscal 2019 Business &
Administrations revenues totaled 5.6 billion
euro, with organic growth of +2.8%.
First Half revenues in North America
were up +0.8%. The decline of -1.3% in the first quarter
due to a previous year large one-off project in Energy &
Resources was more than compensated by the return to positive
organic growth in the second quarter. Strong growth in Corporate
Services was driven by same site sales growth and new contracts.
Government & Agencies activity was down due to the renewal of
the Marine Corps at lower comparable unit sales. The consolidation
impact of the acquisition of Centerplate ended in December.
Centerplate is currently going through a significant renewal
process; most contracts have been renewed and, often extended to
other services, successfully and some less profitable ones have
been exited.
In Europe, sales were
up +2.1% organically. After a strong start to the
year, tourism in Paris slowed down in the second quarter. Corporate
services continued to generate solid growth due to cross selling in
all countries. Government & Agencies stabilized in the second
quarter, after the exit of British Army contracts. Energy &
Resources performance in the North Sea is stabilizing.
In Africa, Asia, Australia, Latin
America, Middle East organic revenue growth was
+5.9% reflecting strong growth in both new
business and same site sales in Corporate services offset somewhat
by the end of several large construction projects and a low level
of contract signatures in Energy & Resources.
Health Care & Seniors
REVENUES BY REGION (In
millions of euro) |
H1 FY19 |
H1 FY18 |
RESTATED ORGANIC
GROWTH |
North America |
1,571 |
1,483 |
+1.3% |
Europe |
836 |
746 |
+1.7% |
Africa, Asia, Australia, LatAm, Middle East |
144 |
130 |
+16.9% |
HEALTH CARE & SENIORS TOTAL |
2,552 |
2,359 |
+2.2% |
Health Care and Seniors revenues amounted to
2.6 billion euro, up +2.2% organically.
In North America, organic
growth was +1.3%, improving progressively quarter
after quarter due to solid comparable unit growth helped by
inflation pass-through and cross-selling. While Seniors retention
has been weak, Health Care has been strong to date and development
has been trending upwards.
In Europe, organic growth was
+1.7%, boosted by strong same site sales growth
through cross-selling and the startup of a new contract in Benelux.
However, new business started up last year makes the comparable
base more difficult in the UK. The Nordics is still declining due
to negative net lost business.
In Africa, Asia, Australia, Latin
America, Middle East organic revenue growth has remained
strong all year, at +16.9% reflecting many new
contract startups in Brazil, China and India, as clients seek to
benefit from the transfer of the Group’s global expertise in these
countries.
Education
REVENUES BY REGION (In
millions of euro) |
H1 FY19 |
H1 FY18 |
ORGANIC GROWTH |
North America |
1,795 |
1,696 |
+1.4% |
Europe |
573 |
488 |
+10.4% |
Africa, Asia, Australia, LatAm, Middle East |
52 |
43 |
+10.5% |
EDUCATION TOTAL |
2,420 |
2,228 |
+3.6% |
Revenues in Education were 2.4 billion euro, up
3.6%.
North America was up
+1.4%, accelerating in the second quarter. While
net new business from last year remains neutral, same site sales
growth has been solid, helped by inflation pass-through. One less
working day was more than compensated by strong retail sales in
Universities and some project work in Schools.
In Europe, organic growth was
+10.4%. This performance is driven by solid prior
year contract wins, in the UK, some extra day impact and the
start-up in January of the new Schools contract in the Yvelines
department.
In Africa, Asia, Australia, Latin
America, Middle East, organic growth was
+10.5% resulting from the opening of several new
School and University contracts in China, India and Singapore.
On-site Services Revenues by region
REVENUES BY REGION (In
millions of euro) |
H1 FY19 |
H1 FY18 |
ORGANIC GROWTH |
North America |
4,937 |
4,438 |
+1.2% |
Europe |
4,066 |
3,872 |
+3.0% |
Africa, Asia, Australia, LatAm, Middle East |
1,614 |
1,572 |
+6.9% |
ONSITE SERVICES TOTAL |
10,617 |
9,882 |
+2.8% |
North America is back to growth, at +1.2%. Outside North
America, On-site revenue growth was +4.1%, with a slowdown in
Africa Asia, Australia, Latin America and the Middle East due to
several construction projects coming to an end, and compared to the
previous year double-digit growth.
Benefits & Rewards Services
Benefits & Rewards Services
revenue amounted to 430 million euro, up +4.1%. The currency effect
of -6.3% resulted in particular from the weakness of the Brazilian
Real and the Turkish Lira. The scope change was +0.2% from the
integration of several sports card activities. Organic growth in
revenues was +10.1%.
Revenues
REVENUES BY ACTIVITY (In
millions of euro) |
H1 FY19 |
H1 FY18 |
ORGANIC GROWTH |
EXTERNAL GROWTH |
CURRENCY EFFECT |
TOTAL GROWTH |
Employee benefits |
341 |
329 |
+11,4% |
|
|
|
Services diversification |
88 |
84 |
+5,0% |
|
|
|
BENEFITS & REWARDS
SERVICES |
430 |
413 |
+10,1% |
+0,2% |
-6,3% |
+4,1% |
Employee benefits were up +11.4% compared to
total issue volume of 6.8 billion euro, up +8.1%. Services
diversification was up +5% with strong double-digit growth in
Mobility & Expense and in Corporate Health and Wellness
products offsetting a weak start of the year in Incentive and
Recognition.
REVENUES BY REGION (in
millions of euro) |
H1 FY19 |
H1 FY18 |
ORGANIC GROWTH |
EXTERNAL GROWTH |
CURRENCY EFFECT |
TOTAL GROWTH |
Europe, USA and Asia |
244 |
229 |
+8.2% |
|
|
|
Latin America |
186 |
184 |
+12.5% |
|
|
|
BENEFITS & REWARDS SERVICES |
430 |
413 |
+10.1% |
+0.2% |
-6.3% |
+4.1% |
In Europe, Asia and the USA,
organic growth in revenues was +8.2% with solid
growth in Western Europe and double-digit growth in Eastern and
Southern Europe. Good momentum in the traditional benefits,
Mobility and Health and Wellness activities is compensating weaker
Incentive and Recognition activity. The launch of Rydoo, the new
end-to-end Travel and Expense management system, was completed in
June 2018 and the business development is very strong.
Organic revenue growth in Latin
America was +12.5%, reflecting a strong
recovery in Brazil, with growth in volumes, solid new business wins
and a slightly more moderate competitive environment, thanks to a
much-improved economic environment. Growth in Mexico remains
strong.
REVENUES BY NATURE (In
millions of euro) |
H1 FY19 |
H1 FY18 |
ORGANIC GROWTH |
EXTERNAL GROWTH |
CURRENCY EFFECT |
TOTAL GROWTH |
Operating Revenues |
394 |
377 |
+10.1% |
|
|
|
Financial Revenues |
36 |
36 |
+10.4% |
|
|
|
BENEFITS & REWARDS
SERVICES |
430 |
413 |
+10.1% |
+0.2% |
-6.3% |
+4.1% |
In First Half Fiscal 2019, financial revenues
growth was slightly better than operating revenues growth due to
high interest rates in Turkey and an exceptionally high float in
Romania since Q4 2018. Rates are stable in Brazil.
Underlying operating profit
Fiscal 2018 Underlying operating profit amounted
to 647 million euro, up +3.1%, or +3.3% excluding the currency
effect. As a result, the Underlying operating margin was 5.9%, down
-20 basis points relative to the previous year.
Underlying Operating profit by activity
(in millions of euro) |
UNDERLYING OPERATING PROFIT
H1 FISCAL 2019 |
DIFFERENCE |
DIFFERENCE (EXCLUDING CURRENCY EFFECT) |
UNDERLYING OPERATING PROFIT MARGIN
H1 FISCAL 2019 |
DIFFERENCE MARGIN |
DIFFERENCE IN MARGIN (EXCLUDING CURRENCY
MIX EFFECT) |
Business & Administrations |
205 |
+0.4% |
+1.3% |
3.6% |
-30 bps |
-30 bps |
Health Care & Seniors |
162 |
+9.6% |
+5.8% |
6.3% |
+20 bps |
+20 bps |
Education |
215 |
+1.7% |
-2.0% |
8.9% |
-60 bps |
-70 bps |
ON-SITE SERVICES |
581 |
+3.3% |
+1.2% |
5.5% |
-20 bps |
-30 bps |
BENEFITS AND REWARDS
SERVICES |
125 |
+1.0% |
+11.8% |
29.1% |
-90 bps |
+30 bps |
Corporate expenses & Intragroup
eliminations |
(60) |
+0.8% |
+0.8% |
|
|
|
UNDERLYING OPERATING
PROFIT |
647 |
+3.1% |
+3.3% |
5.9% |
-20 bps |
-20 bps |
The performance by segment, excluding the
currency effect, is as follows:
- Business & Administrations: Underlying
operating profit was up +1.3% but the operating margin decreased by
-30 basis points. This performance reflects timing disparity
between efficiency gains and spending to accelerate growth. The US
Marine Corps renewal also weighed on margins due to the step down
in value. This will pick up over the life of the contract.
- Health Care & Seniors: Underlying
operating profit was up +5.8% and the margin +20 basis points. The
management team is progressively reinstalling discipline down
through the organization in North America. Efficiency gains have
been secured, and inflation is covered by pricing increases.
- Education: Underlying operating profit fell by
-2% and the margin by -70 basis points. This decline is due to
start-up costs of the Yvelines Schools contract in January and more
general contract churn, particularly in North America. The semester
was also impacted by strikes in France and lower working days in
North America. In Universities, inflation has been passed through
to clients.
In Benefits & Rewards
Services, excluding currencies, the Underlying operating
profit and margin were up respectively +11.8% and +30 bps,
benefiting from the strong recovery in volumes and the
stabilization of interest rates in Brazil. Investments were also
down in migration costs. Nevertheless, the year-on-year weakness of
the Real has significantly impacted the published margin which is
down -90 bps.
Group net profit
Other operating income and
expense
Other operating income and
expenses were 69 million euro versus 73 million euro in
the previous year period. Restructuring costs in the First Half
amounted to 19 million euro against only 7 million euro in the
previous year, but proportionally in line with full year figures in
Fiscal 2018. However, acquisition costs were much lower compared to
the previous year period in which the Centerplate costs were
accounted for. Amortization and depreciation of client
relationships increased to 43 million euro against 31 million euro
in First Half Fiscal 2018, due to further brand impairment for 24
million euro, after 16 million euro last year
As a result, the Operating
Profit was 578 million euro up +4.2%.
Net financial expenses
increased by 10 million euro year on year essentially due to the
absence this year of the exceptional interest payment on the
dividend tax reimbursement last year of 7 million euro. The
remainder is due to higher average debt resulting from the
acquisition of Centerplate in January 2018 and the share buy-backs
last year. The blended cost of debt was 2.3% as of February 28,
2019, compared to 2.2% at the end of First Half Fiscal 2018.
The effective tax rate of 28.8%
does not include any exceptional elements, unlike the previous year
First Half tax rate of 25.9% which benefited from the one-off
reimbursement of dividend taxes. The current rate reflects the full
effect of the reduction in the US tax rate, which took effect in
January 2018.
The share of profit of other companies
consolidated by the equity method was
2 million euro. Profit attributed to non-controlling
interests was 11 million euro against 7 million euro in the
previous year.
As a result, Group net profit
was 364 million euro, down -2.3%, or -2.6% excluding the positive
currency impact. 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
(adjusted for Other operating income and expenses at a
normalized tax rate) amounted to 413 million euro, up +4.1% or
+4.3% excluding the currency effect. Underlying EPS was
2.84€, up +6.2%.
Consolidated financial
position
Cash flows
Cash flows for the period were as follows:
(in millions of euro) |
FIRST-HALF FISCAL
2019 |
FIRST-HALF FISCAL
2018 |
Operating cash flow |
648 |
650 |
Change in working capital excluding change in BRS financial
assets* |
(428) |
(402) |
Net capital expenditure |
(205) |
(123) |
FREE CASH FLOW |
14 |
125 |
Net acquisitions |
(234) |
(674) |
Share buy-backs/ Treasury stock |
12 |
(49) |
Dividends paid to shareholders |
(403) |
(411) |
Other changes (including scope and exchange rates) |
32 |
(43) |
(INCREASE)/DECREASE IN NET DEBT since August
31 |
(579) |
(1,052) |
*
Excluding change in financial assets related to the Benefits and
Rewards Services activity (+€55m in H1 Fiscal 2019 and €(73)m in H1
Fiscal 2018). Total change in working capital as reported in
consolidated accounts: in H1 Fiscal 2019: €(373)m = €(428)m+€55m
and in H1 Fiscal 2018 €(475)m = €(402)m+€(73)m |
Operating cash flow totaled 648 million euro,
stable on the previous year. The increase in operating cashflow was
offset by higher cash taxes, amounting to 64 million euro versus 46
million euro in the previous year, and higher net interest paid.
Last year, both benefited from the exceptional dividend tax
reimbursement, and associated exceptional interest payment. The
traditional negative Working capital variation in the First Half of
428 million euro is principally due to the difference in activity
levels between August 31 and February 28.
In line with the Centerplate contract renewal
campaign and enhanced retention in Education, net capital
expenditure increased substantially to 205 million euro for the
period, representing 1.9% of revenues, versus 123 million euro in
First Half Fiscal 2018, or 1.2% of revenues. More than two thirds
of this increase in investments is attributable to the Education
and Sports & Leisure segments.
Free cash flow was 14 million euro. The
underlying performance on cash is solid given the significant
increase in capital expenditure. Note that the Free cash flow last
year was exceptionally high due to the dividend tax reimbursement
and related interest payment which together amounted to around 50
million euro.
Net acquisitions and disposals of subsidiaries
returned to a more modest level at 234 million euro from the higher
levels of the previous year linked the acquisition of Centerplate
for a total of 610 million euro. The combination of increased
capital expenditure, more modest acquisitions and the annual
dividend which was held stable on a smaller number of shares,
consolidated net debt rose during the year by 579 million euro
to 1,839 million euro at February 28, 2019.
Acquisitions for the period
During the First Half Fiscal 2019, the Group
completed four acquisitions:
- 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 in Switzerland,
- Pronep providing an entry point into the Brazilian home care
market.
- Alliance in Partnership in the UK, a specialist education
caterer, reinforcing our focus on high quality, locally sourced and
seasonal meals at competitive prices.
Total revenues generated by acquisitions during
the period contributed 3.7% to growth in the First Half Fiscal
2019, influenced by the last months of the consolidation of
Centerplate. The contribution in the next two quarters will be
lower but is expected to be between 2 and 2.5% for the full
year.
Condensed consolidated statement of financial position
at February 28, 2019
(in millions of euro) |
FEBRUARY 28, 2019 |
FEBRUARY 28, 2018 |
|
(in millions of euro) |
FEBRUARY 28, 2019 |
FEBRUARY 28, 2018 |
Non-current assets |
9,147 |
7,981 |
|
Shareholders' equity |
3,999 |
3,343 |
Current assets excluding cash |
5,581 |
5,207 |
|
Non-controlling interests |
46 |
34 |
Restricted cash Benefits and Rewards |
577 |
495 |
|
Non-current liabilities |
4,615 |
3,956 |
Financial assets Benefits and Rewards |
458 |
465 |
|
Current liabilities |
9,055 |
8,335 |
Cash |
1,950 |
1,519 |
|
|
|
|
TOTAL ASSETS |
17,714 |
15,668 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY |
17,714 |
15,668 |
|
|
|
|
GROSS DEBT |
4,753 |
4,062 |
|
|
|
|
NET DEBT |
1,839 |
1,663 |
|
|
|
|
GEARING |
45% |
49% |
|
|
|
|
NET DEBT RATIO |
1.3 |
1.1 |
As a result of IFRS 9, effective since the
beginning of Fiscal 2019, the Group now values its financial
investments at fair value. As a result, the Group’s 19.6% stake in
Bellon SA, Sodexo’s controlling shareholder, and other financial
assets have been revalued by 688 million euro. The value of the
Bellon SA stake has been revised from the historic cost of 32
million euro to a fair value of 662 million euro as of February 28,
2019. For further information, please refer to note 6.2.2. to the
Financial Statements.
As of February 28, 2019, net debt was
1,839 million euro, representing a gearing of 45%, compared to
49% as of February 28, 2018, and a net debt ratio of 1.3, well
within the Group’s target range of 1 to 2.
Despite the seasonally higher level of debt at
the end of the First Half of the year, the Group’s financial
position remains strong. At the end of the period, the Group had
unused lines of credit totaling 1.6 billion euro.
The operating cash position totaled 2,914
million euro as of February 28, 2019, including bank overdrafts for
72 million euro. The Benefits & Rewards Services position was
2,171 million euro, including 577 million euro of restricted
cash and 458 million euro of financial assets of more than three
months.
Subsequent events
- On April 8, 2019, Sodexo announced the acquisition of The Good
Care Group. With this acquisition, Sodexo is expanding its services
in the UK live-in care market and will be ranked second nationally
in the live-in care market and among the top five in the
private-paid care market
- As of March 4, 2019, Sodexo Inc reimbursed 150 million US
dollars of a loan, at maturity, subscribed by American investors in
2014.
Related party transactions
- The main related party transactions are presented in Notes
6.4.11 to the First Half Fiscal 2019 consolidated financial
statements.
Main risks and uncertainties
- The main risks and uncertainties are not materially different
from those described in the Risk Management section of the Fiscal
2018 Registration Document file with the Autorité des Marchés
Financiers (AMF) on November 22, 2018 except for litigations
mentioned in note 6.4.12 of the First Half Fiscal 2019 consolidated
financial statements.
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 business in Brazil, and the high level of the 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 improves, Group margins increase.
1€= |
AVERAGE
RATE H1 FY 19 |
AVERAGE RATE H1 FY 18 |
AVERAGE RATE H1 FY 19 VS. H1 FY18 |
REFERENCE RATEFY 18 |
CLOSING RATE H1 FY
19 AT 28/02/2019 |
CLOSING RATE 28/02/19 VS. 31/08/18 |
CLOSING RATE 28/02/19 VS. 28/02/18 |
U.S. DOLLAR |
1.145 |
1.195 |
+4.4% |
1.193 |
1.142 |
+2.1% |
+6.5% |
POUND STERLING |
0.887 |
0.885 |
-0.3% |
0.884 |
0.858 |
+4.5% |
+2.9% |
BRAZILIAN REAL |
4.398 |
3.864 |
-12.1% |
4.075 |
4.269 |
+13.8% |
-7.8% |
Note: Reference rate Fiscal 2018 is the average
rate for Fiscal year 2018, used for organic growth calculation.
Sodexo operates in 72 countries. The
percentage of total revenues and underlying operating profit
denominated in the main currencies are as follows:
(H1’19) |
% OF REVENUES |
% OF UNDERLYING OPERATING
PROFIT |
U.S. DOLLAR |
43% |
56% |
EURO |
26% |
5% |
UK POUND STERLING |
8% |
7% |
BRAZILIAN REAL |
5% |
16% |
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.
As a result, for the calculation of organic
growth of Benefits & Rewards in Argentina Peso figures for H1
FY 2019 and H1 FY 2018 have been converted at the exchange rate of
1€ = 44.045 ARS vs 44.302 ARS for FY 2018.
Starting FY19 Venezuela is accounted for using
the equity method. Consequently, Venezuela is no longer included in
revenue.
Inter-segment restatements
Since the beginning of Fiscal 2019, some
contracts have been reallocated between segments. The major change
was in some European countries, where after several years of
restructuring, the business has now been segmented for the first
time. As a result, the Hospitals and Seniors business is now
reported in Health Care and Seniors while it was previously
reported in Business & Administrations, as are all the
non-segmented businesses.
Given the low materiality of these changes, pro forma figures
for FY 2018 are not required. FY 2019 organic growth and variations
in UOP margin have been adjusted to take into account such
changes.
Below are the adjustments for these restatements
for each quarter of Fiscal 2018.
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.
Financial Ratios
Definitions
|
|
H1 2019 |
H1 2018 |
Gearing ratio |
Gross borrowings(1) – operating
cash(2) |
45% |
49% |
Shareholders’ equity and non‑controlling
interests |
Net debt ratio |
Gross borrowings(1) – operating
cash(2) |
1.3 |
1.1 |
Earnings before Interest,
Taxes, Depreciation and Amortization (EBITDA)(3) |
Financial Ratio
Reconciliation
|
|
H1 2019 |
H1 2018 |
(1) Gross
borrowings |
Non-current borrowings |
3,576 |
2,978 |
+ current borrowings excluding
overdrafts |
1,189 |
1,095 |
- derivative financial instruments recognized
as assets |
(13) |
(12) |
|
4,753 |
4,062 |
(2)
Operating cash |
Cash and cash equivalents |
1,950 |
1,519 |
+ financial assets related to the Benefits
and Rewards Services activity |
1,035 |
960 |
- bank overdrafts |
(72) |
(81) |
|
2,914 |
2,399 |
(3)
Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA) |
Operating profit |
1,021 |
1,157 |
+ depreciation and amortization |
347 |
296 |
|
1,368 |
1,453 |
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.
As a result, for the calculation of organic
growth of Benefits & Rewards in Argentina Peso figures for H1
FY 2019 and H1 FY 2018 have been converted at the exchange rate of
1€ = 44.045 ARS vs 44.302 ARS for FY 2018.
Issue volume
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.
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:
- For businesses acquired (or gain of control) during the current
period, revenue generated since the acquisition date is excluded
from the organic growth calculation;
- For businesses acquired (or gain of control) during the prior
fiscal year, revenue generated during the current period up until
the first anniversary date of the acquisition is excluded;
- For businesses divested (or loss of control) during the prior
fiscal year, revenue generated in the comparative period of the
prior fiscal year until the divestment date is excluded;
- For businesses divested (or loss of control) during the current
fiscal year, revenue generated in the period commencing 12 months
before the divestment date up to the end of the comparative period
of the prior fiscal year is excluded.
- 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 of Benefits & Rewards in
Argentina, all Peso figures for H1 FY 2019 and H1 FY 2018 have been
converted at the exchange rate of 1€ = 44.045 ARS vs 44.302 ARS for
FY 2018.
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 H1 2019 figures at FY
2018 rates, except for countries with hyperinflationary
economies.
2
|
|
|
|
CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
|
- CONSOLIDATED INCOME STATEMENT
(in millions of euro) |
NOTES |
FIRST-HALFFISCAL
2019 |
FIRST-HALFFISCAL
2018 |
REVENUES |
6.3 |
11,045 |
10,293 |
Cost of sales |
6.4.6 |
(9,417) |
(8,706) |
GROSS PROFIT |
|
1,628 |
1,587 |
Administrative and Sales Department costs |
6.4.6 |
(981) |
(964) |
Share of profit of companies consolidated by
the equity method that directly contribute to the Group’s
business |
|
- |
5 |
UNDERLYING OPERATING
PROFIT |
|
647 |
627 |
Other operating income |
6.4.7 |
3 |
7 |
Other operating expenses |
6.4.7 |
(72) |
(80) |
Operating profit |
6.3 |
578 |
554 |
Financial income |
6.4.8 |
19 |
27 |
Financial expense |
6.4.8 |
(73) |
(71) |
Share of profit of other companies
consolidated by the equity method |
|
2 |
1 |
PROFIT FOR THE PERIOD BEFORE
TAX |
|
526 |
511 |
Income tax expense |
6.2.3 and 6.4.9 |
(151) |
(131) |
PROFIT FOR THE PERIOD |
|
375 |
380 |
Of
which: |
|
|
|
Attributable to non-controlling interests |
|
11 |
7 |
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT |
|
364 |
372 |
BASIC EARNINGS PER SHARE (in
euro) |
6.4.10 |
2.50 |
2.51 |
DILUTED EARNINGS PER SHARE
(in euro) |
6.4.10 |
2.46 |
2.47 |
- CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions of euro) |
FIRST-HALF FISCAL 2019 |
FIRST-HALF FISCAL 2018 |
PROFIT FOR THE PERIOD |
375 |
380 |
Components of other comprehensive income that
may be reclassified subsequently to profit or loss |
|
|
Financial assets reassessed at fair value
through OCI |
126 |
2 |
Change in fair value of Cash Flow Hedge
instruments |
|
|
Change in fair value of Cash Flow Hedge
instruments reclassified to profit or loss |
|
|
Currency translation adjustment |
210 |
(119) |
Currency translation adjustment reclassified
to profit or loss |
|
|
Tax on components of other comprehensive
income that may be reclassified subsequently to profit or loss |
|
|
Share of other components of comprehensive
income (loss) of companies consolidated by the equity method,
net of tax |
1 |
(1) |
Components of other comprehensive income that
will not be reclassified subsequently to profit or loss |
|
|
Remeasurement of defined benefit plan
obligation |
(2) |
|
Tax on components of other comprehensive
income that will not be reclassified subsequently to profit or
loss |
(17) |
|
TOTAL OTHER COMPREHENSIVE INCOME
(LOSS), AFTER TAX |
318 |
(118) |
COMPREHENSIVE INCOME |
693 |
262 |
Of which: |
|
|
Attributable to equity holders of the
parent |
681 |
256 |
Attributable to non-controlling
interests |
12 |
7 |
- CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
Assets
(in millions of euro) |
NOTES |
FEBRUARY 28, 2019 |
AUGUST 31, 2018 |
NON-CURRENT ASSETS |
|
|
|
Property, plant and equipment |
|
687 |
619 |
Goodwill |
6.4.2 |
6,049 |
5,664 |
Other intangible assets |
|
698 |
704 |
Client investments |
|
589 |
558 |
Companies consolidated by the equity
method |
|
87 |
83 |
Financial assets |
|
893 |
190 |
Derivative financial instrument assets |
6.4.4 |
2 |
3 |
Other non-current assets |
|
19 |
18 |
Deferred tax assets |
|
124 |
105 |
Total non-current
assets |
|
9,147 |
7,944 |
CURRENT ASSETS |
|
|
|
Financial assets |
|
38 |
36 |
Derivative financial instrument assets |
6.4.4 |
10 |
15 |
Inventories |
|
290 |
280 |
Income tax receivable |
|
168 |
176 |
Trade and other receivables |
|
5,074 |
4,121 |
Restricted cash and financial assets related
to the Benefits and Rewards Services activity |
|
1,035 |
1,042 |
Cash and cash equivalents |
6.4.3 |
1,950 |
1,666 |
Total current assets |
|
8,567 |
7,336 |
TOTAL ASSETS |
|
17,714 |
15,280 |
Shareholders’ equity and liabilities
(in millions of euro) |
NOTES |
FEBRUARY 28, 2019 |
AUGUST 31, 2018 |
SHAREHOLDERS' EQUITY |
|
|
|
Share capital |
|
590 |
590 |
Additional paid-in capital |
|
248 |
248 |
Reserves and retained earnings |
|
3,161 |
2,445 |
Equity attributable to equity holders
of the parent |
|
3,999 |
3,283 |
Non-controlling
interests |
|
46 |
45 |
Total shareholders’
equity |
6.4.1 |
4,044 |
3,328 |
NON-CURRENT LIABILITIES |
|
|
|
Borrowings |
6.4.4 |
3,574 |
3,537 |
Derivative financial instrument
liabilities |
6.4.4 |
3 |
- |
Employee benefits |
|
403 |
389 |
Other non-current liabilities |
|
169 |
190 |
Provisions |
|
91 |
88 |
Deferred tax liabilities |
|
376 |
126 |
Total non-current
liabilities |
|
4,615 |
4,330 |
CURRENT LIABILITIES |
|
|
|
Bank overdrafts |
|
72 |
28 |
Borrowings |
6.4.4 |
1,187 |
420 |
Derivative financial instrument
liabilities |
6.4.4 |
2 |
1 |
Income tax payable |
|
92 |
98 |
Provisions |
|
67 |
73 |
Trade and other payables |
|
4,527 |
4,222 |
Vouchers payable |
|
3,109 |
2,780 |
Total current
liabilities |
|
9,055 |
7,622 |
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES |
|
17,714 |
15,280 |
- CONSOLIDATED CASH FLOW STATEMENT
(in millions of euro) |
NOTES |
FIRST-HALF FISCAL 2019 |
FIRST-HALF FISCAL 2018 |
Operating activities |
|
|
|
OPERATING PROFIT OF CONSOLIDATED
COMPANIES |
|
578 |
549 |
Depreciation, amortization and impairment of
intangible assets and property, plant and equipment |
|
186 |
156 |
Provisions |
|
(23) |
(15) |
Net disposal (gains) losses and other
non-cash items |
|
8 |
12 |
Dividends received from companies
consolidated by the equity method |
|
2 |
17 |
Interest paid |
|
(57) |
(54) |
Interest received |
|
18 |
31 |
Income tax paid |
|
(64) |
(46) |
OPERATING CASH FLOW |
|
648 |
650 |
Change in inventories |
|
1 |
(5) |
Change in trade and other receivables |
|
(828) |
(664) |
Change in trade and other payables |
|
158 |
34 |
Change in vouchers payable |
|
240 |
233 |
Change in financial assets related to the
Benefits and Rewards Services activity |
|
55 |
(73) |
CHANGE IN WORKING CAPITAL FROM
OPERATING ACTIVITIES |
|
(373) |
(475) |
NET CASH PROVIDED BY OPERATING
ACTIVITIES |
|
275 |
175 |
Investing activities |
|
|
|
Acquisitions of property, plant and
equipment and intangible assets |
|
(203) |
(148) |
Disposals of property, plant and
equipment and intangible assets |
|
9 |
14 |
Change in client investments |
|
(11) |
13 |
Change in financial assets |
|
(10) |
(25) |
Acquisitions of subsidiaries |
6.4.2 |
(236) |
(676) |
Disposals of subsidiaries |
|
2 |
2 |
NET CASH USED IN INVESTING
ACTIVITIES |
|
(450) |
(820) |
Financing activities |
|
|
|
Dividends paid to parent company
shareholders |
6.4.1 |
(403) |
(411) |
Dividends paid to non-controlling
shareholders of consolidated companies |
|
(12) |
(6) |
Purchases of treasury shares |
6.4.1 |
0 |
(66) |
Sales of treasury shares |
6.4.1 |
12 |
17 |
Acquisition of non-controlling interests |
|
(1) |
(4) |
Proceeds from borrowings |
6.4.4 |
761 |
596 |
Repayment of borrowings |
6.4.4 |
(14) |
(3) |
NET CASH PROVIDED BY FINANCING
ACTIVITIES |
|
343 |
124 |
CHANGE IN NET CASH AND CASH
EQUIVALENTS |
|
169 |
(521) |
Net effect of exchange rates and other
effects on cash |
|
72 |
(21) |
Net cash and cash equivalents, beginning of
period |
|
1,638 |
1,980 |
NET CASH AND CASH EQUIVALENTS, END OF
PERIOD |
6.4.3 |
1,879 |
1,438 |
- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
(in millions of euro) |
Shares
outstanding |
Share
capital |
Additional paid-in
capital |
Treasury
shares |
Reserves and
comprehensive income |
Currency translation
adjustment |
TOTAL SHAREHOLDERS’
EQUITY |
Attributable to equity holders of
the parent |
Non-controlling
interests |
Total |
Notes |
|
|
|
|
6.4.1 |
|
|
|
|
Shareholders’ equity as of August 31,
2018 |
147,454,887 |
590 |
248 |
(420) |
3,795 |
(930) |
3,283 |
45 |
3,328 |
Restatement due to IFRS 9 & IFRS 15 first
application (1) |
|
|
|
|
403 |
|
403 |
|
403 |
Shareholders’ equity as of September
1, 2018 |
147,454,887 |
590 |
248 |
(420) |
4,198 |
(930) |
3,686 |
45 |
3,731 |
Profit for the period |
|
|
|
|
364 |
|
364 |
11 |
375 |
Other comprehensive income (loss), net of tax
(1) |
|
|
|
|
108 |
209 |
317 |
1 |
318 |
Comprehensive income |
|
|
|
|
472 |
209 |
681 |
12 |
693 |
Dividends paid |
|
|
|
|
(403) |
|
(403) |
(12) |
(415) |
Treasury share transactions |
|
|
|
11 |
|
|
11 |
|
11 |
Share-based payment (net of income tax) |
|
|
|
|
22 |
|
22 |
|
22 |
Other (2) |
|
|
|
|
1 |
|
1 |
1 |
2 |
Shareholders’ equity as of February
28, 2019 |
147,454,887 |
590 |
248 |
(409) |
4,290 |
(721) |
3,999 |
46 |
4,044 |
(1) See note 6.2.2 (2) Including the
effects of hyperinflation, recognition of commitments to repurchase
non-controlling interests.
(in millions of euro) |
Shares
outstanding |
Share
capital |
Additional paid-in
capital |
Treasury
shares |
Reserves and
comprehensive income |
Currency translation
adjustment |
TOTAL SHAREHOLDERS’
EQUITY |
Attributable to equity holders of the
parent |
Non-controlling
interests |
Total |
Notes |
|
|
|
|
6.4.1 |
|
|
|
|
Shareholders’ equity as of August 31,
2017 |
150,830,449 |
603 |
534 |
(371) |
3,455 |
(685) |
3,536 |
34 |
3,570 |
Profit for the period |
|
|
|
|
372 |
|
372 |
7 |
380 |
Other comprehensive income (loss), net of
tax |
|
|
|
|
1 |
(118) |
(117) |
(1) |
(118) |
Comprehensive income |
|
|
|
|
373 |
(118) |
256 |
7 |
262 |
Dividends paid |
|
|
|
|
(411) |
|
(411) |
(9) |
(419) |
Treasury share transactions |
|
|
|
(49) |
|
|
(49) |
|
(49) |
Share-based payment (net of income tax) |
|
|
|
|
16 |
|
16 |
|
16 |
Other (1) |
|
|
|
|
(6) |
|
(6) |
3 |
(3) |
Shareholders’ equity as of February
28, 2018 |
150,830,449 |
603 |
534 |
(420) |
3,428 |
(803) |
3,343 |
34 |
3,377 |
(1) Including the effects of hyperinflation and
the recognition of put options written over non-controlling
interests other than in connection to business combinations.The
following notes are an integral part of the condensed interim
consolidated financial statements.
- NOTES TO THE CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
Sodexo is a société anonyme (a form of limited
liability company) headquartered in Issy-les-Moulineaux,
France
The condensed interim consolidated financial
statements for the six-month period from September 1, 2018 to
February 28, 2019 were approved by the Board of Directors on April
9, 2019.
Significant events
During the First Half of the 2018-2019 financial
year, the Group significantly strengthened its Personal and Home
Services offering with the acquisition of Crèches de France. Sodexo
also acquired Novae Restauration in Switzerland as well as Alliance
in Partnership in the UK which operates in Education. Strategic
initiatives have been launched with the majority stake taken in
Pronep in Brazil and the acquisition of International Club of
Suppliers in the US.
Details of these business combinations’ impact
on the consolidated financial statements at
February 28, 2019 are provided in note 6.4.2.
Basis of preparation of the financial statements
6.2.1. General principles
The condensed interim consolidated financial
statements for the six months ended February 28, 2019 have been
prepared in accordance with IAS 34 "Interim Financial Reporting",
as published by the IASB and adopted by the European Union. They do
not include all of the disclosures required for complete annual
financial statements and should be read in conjunction with
Sodexo’s consolidated financial statements for the year ended
August 31, 2018, except for certain interim reporting
requirements.
Amounts in tables have been prepared in
thousands of euro and are expressed and rounded to the nearest
million (unless otherwise indicated).
6.2.2. Standards and interpretations
The accounting policies applied by the Group in
the condensed interim consolidated financial statements for the six
months ended February 28, 2019 are the same as those used in the
annual consolidated financial statements for the fiscal year ended
August 31, 2018, except for the first-time application of IFRS 9
and IFRS 15 as described below.
The Group has not applied any IFRSs that had not
yet been approved by the European Union as of February 28,
2019.
The Group has not elected to early adopt any
standards or interpretations whose application is not mandatory in
Fiscal 2019.
During the First Half of Fiscal 2019, the Group
continued its work on collecting data relating to the leases in
place in its various business segments and
regions.First-time application of IFRS 9 - Financial
instruments
IFRS 9 specifies the principles of recognition
and financial reporting for financial instruments. These principles
have been applied by the Group from September 1, 2018 in place of
those set forth in IAS 39 - Financial Instruments: Recognition and
Measurement. IFRS 9 introduces:
- a new classification of financial instruments, and the
resulting measurement rules, based on the management model and the
contractual specifications of the financial instruments (Tier
1),
- a new model for impairment of financial assets, based on
expected credit losses, replacing the model previously based on
incurred credit losses (Tier 2), and
- new principles on hedge accounting (Tier 3).
The nature and impacts of the main changes in
accounting policies arising from the application of IFRS 9 are
summarized in the following paragraphs.
Tier 1: Classification and measurement of financial
assets and liabilities
The standard presents a new model for the
classification and measurement of financial assets, based on the
contractual characteristics of cash flows and on the economic model
for managing these assets. The four categories prescribed by IAS 39
for the classification of financial assets have been replaced by
the following three categories:
- financial assets measured at amortized cost;
- financial assets measured at fair value through profit or
loss;
- financial assets measured at fair value through other
comprehensive income.
The main impact for Sodexo relates to the stake
held by the Group (19,61%) through its subsidiary SOFINSOD, in the
share capital of Bellon SA, Sodexo SA’s controlling shareholder.
Under IAS 39, the Group previously recognized its interest in
Bellon SA at cost (32.4 million euro). The application of IFRS 9
led the Group to measure this investment at fair value in
accordance with IFRS 13, and to recognize future changes in fair
value in Other Comprehensive Income. The measurement of the fair
value of the interest in Bellon SA is presented in Note 6.4.5
Financial Instruments.
Tier 2: Impairment of financial assets
The IAS 39 financial asset impairment model,
based on turned out losses, has been replaced by a model based on
expected credit losses. The application of this model does not have
a significant impact on the Group's financial statements.
Tier 3: Hedge Accounting
The changes to hedge accounting had no impact on
the Group financial statements.
The net total impact of these changes as of the
first application is 404 million euro (net of tax) and was
accounted for in equity on September 1, 2018, with no restatement
of the comparative periods presented, in accordance with the option
permitted by the transitional provisions of IFRS 9. The following
table presents both first-application impacts recorded in equity on
September 1, 2018 and impacts for the half year period recognized
in OCI:
(in millions of euro) |
Impact as of February 28,
2019 |
OCI variation - H1
2019 |
Impact as of September 1st,
2018 |
Bellon SA shares |
630 |
66 |
564 |
Other non-consolidated investments |
58 |
58 |
|
Impairment of financial assets |
(21) |
|
(21) |
Differed tax assets |
2 |
|
2 |
Differed tax liabilities |
(157) |
(16) |
(141) |
TOTAL |
512 |
108 |
404 |
First-time application of IFRS 15
The first application of IFRS 15 has very little
impact on the Group Financial statement because of the nature of
its activities. Consequently, the Group has decided to apply the
cumulative catch-up method allowing to correct any change in
revenue recognition through opening equity of FY 19, as at
September 1st, 2018. A small negative impact of – 1m€ has been
booked in the opening equity of FY 19. The impact of IFRS 15 on the
semester is presented in paragraph 6.3.2.
Revenues reported by Sodexo relate to the sale
of services relating to the ordinary activities of fully
consolidated companies as follows:
- On-site Services: revenues include all revenues stipulated in
the contract, considering whether Sodexo acts as principal (most of
the cases) or agent. Considering changes in revenue recognition
principles introduced by IFRS 15, in particular the agent-principal
guidance, we have reassessed some instances where we subcontract
part of our facility management services. Some contracts are now
booked on a gross basis considering this new guidance. Furthermore,
in certain cases and mainly upon client requirements, the Group
pays fees or rent for the use of space or equipment made available
to us on sites that enable us to deliver our services. In
accordance with IFRS 15 principles, we have considered that such
expenses should be recognized as a deduction from the corresponding
revenues.
- Benefits and Rewards Services: revenues include mainly
commissions received from clients and affiliates, financial income
from the investment of liquidities generated by the activity, and
profits from vouchers and cards not reimbursed. The implementation
of IFRS 15 has no significant impact on revenue recognition for
Benefits and Rewards Services.
Revenues are measured at the fair value of the
consideration received or to be received, net of discounts and
rebates as well as Value Added Tax (VAT) and other taxes. Revenues
are recognized when it is probable that future economic benefits
will flow to Sodexo and these benefits can be measured reliably. No
income is recognized if there is significant uncertainty about
recoverability of the costs incurred or to be incurred in meeting
the service obligation.
Foodservices and other On-site Services revenues
are recognized when the service is rendered, i.e. when the
performance obligation is satisfied under IFRS 15.
Commissions received from clients in the
Benefits and Rewards Services activity are recognized when the
vouchers are issued and sent to the client or the cards are
credited. Commissions received from affiliates are recognized when
the vouchers are reimbursed or the cards are used. Profits from
unreimbursed vouchers and cards are recognized based on their
expiration date and the deadline for presentation for reimbursement
by the affiliate.
6.2.3. Specific interim reporting
requirements
Income tax expense
Income tax expense (current and deferred) in the
condensed interim consolidated financial statements is computed by
applying an estimated average annual tax rate for the current
fiscal year to each tax reporting entity's pre-tax profit for the
First Half of the year as adjusted, where applicable, for the tax
effect of any specific events that may have occurred during the
period. The resulting deferred tax charge or benefit is recognized
in deferred tax assets or deferred tax liabilities in the
consolidated statement of financial position.
Post-employment and other long-term employee
benefits
The expense for post-employment and other
long-term employee benefits is computed as one half of the annual
charge estimated as of August 31, 2018. There were no material plan
amendments in the First Half of Fiscal 2019.
6.2.4. Income statement presentation
As a reminder, to better focus the Group’s
financial communication on recurring operating profit and to
simplify benchmarking with competitors, the consolidated income
statement has changed as from Fiscal 2018 to include a new
indicator, “Underlying operating profit”, which corresponds to
operating profit before “Other operating income” and “Other
operating expenses”.
Other operating income and expenses include
gains and losses arising from changes in the scope of
consolidation, gains and losses arising from changes in
post-employment benefit obligations, restructuring and
rationalization costs, M&A costs, amortization and impairment
of client relationships and trademarks, impairment of non‑current
assets and other unusual or non‑recurring items representing
material amounts.
Underlying operating profit has replaced
operating profit in the segment information, as it is now the main
indicator reviewed regularly by the Executive Committee, which is
the Group’s main operating decision‑maker.
6.2.5. Use of estimates
The preparation of the condensed interim
consolidated financial statements requires the management of Sodexo
and its subsidiaries to make estimates and assumptions that may
affect the amounts reported for assets, liabilities and contingent
liabilities as of the date of preparation of the financial
statements, and of revenues and expenses for the period.
These estimates and valuations are updated
continuously based on past experience and on various other factors
considered reasonable in view of current circumstances, and are the
basis for the assessments of the carrying amount of assets and
liabilities.
Actual results may differ substantially from
these estimates if assumptions or circumstances change.
Significant items subject to such estimates and
assumptions are the same as those described in the consolidated
financial statements for the year ended August 31, 2018 (provisions
and litigation, derivative financial instruments, post-employment
defined benefit plan assets and liabilities, goodwill and other
intangible assets, impairment of current and non-current assets,
deferred taxes, and share‑based payments).
6.2.6. Changes in principal currency exchange
rates
The following table presents changes in exchange
rates for the main currencies used to convert the financial
statements of subsidiaries compared with the First Half of the
prior fiscal year.
Currency |
CLOSING RATE AS OF FEBRUARY 28,
2019 |
AVERAGE RATE FOR
FIRST‑HALF FISCAL
2019 |
CLOSING RATE AS OF AUGUST 31,
2018 |
CLOSING RATE AS OF FEBRUARY 28,
2018 |
AVERAGE RATE FOR
FIRST‑HALF FISCAL
2018 |
U.S. DOLLAR (USD) |
1.142 |
1.145 |
1.165 |
1.221 |
1.195 |
POUND STERLING (GBP) |
0.858 |
0.887 |
0.897 |
0.884 |
0.885 |
BRAZILIAN REAL (BRL) |
4.269 |
4.398 |
4.859 |
3.961 |
3.864 |
Segment information
The segment information presented below has been
prepared based on internal management data as monitored by the
Group Executive Committee, which is Sodexo's chief operating
decision maker. The Group's two business segments correspond to
On-site Services and Benefits and Rewards Services.
On-site Services revenue and underlying
operating profit are broken down by global client segment. These
global client segments meet the definition of operating segments
under IFRS 8.
Consequently, Sodexo's operating segments and
groups of operating segments are as follows:
- On-site Services:
- Business & Administrations, which includes Corporate
Services, Energy & Resources, Government & Agencies, Sports
& Leisure and other non-segmented activities,
- Health Care, combined with Seniors,
- Education, comprising Schools and Universities;
- Benefits and Rewards Services.
The operating segments that have been aggregated
carry out similar operations – both in terms of type of services
rendered and the processes and methods used to deliver the services
– and have similar economic characteristics (notably in terms of
the margins they generate).
Segment assets and liabilities are not presented
as they are not included in the chief operating decision maker’s
measurement of segment performance.
Since the beginning of the 2018-2019 fiscal
year, some contracts have been reallocated between segments. The
most important change concerns some European countries where, after
several years of restructuring, the activity is now segmented.
Thus, the activities operated in Hospitals and Seniors were
transferred from the Business & Administration segment (where
all non-segmented activities are reported) to the Health &
Seniors segment.
6.3.1 By business segment
FIRST-HALFFISCAL
2019(in millions of euro) |
ON-SITE SERVICES |
BUSINESS &
ADMINISTRATIONS |
HEALTH CARE &
SENIORS |
EDUCATION |
BENEFITS AND REWARDS
SERVICES |
ELIMINATIONS AND CORPORATE
EXPENSES |
CONSOLIDATED TOTAL |
Revenues |
10,617 |
5,645 |
2,552 |
2,420 |
428 |
|
11,045 |
Inter-segment sales (Group) |
|
|
|
|
2 |
(2) |
- |
TOTAL |
10,617 |
5,645 |
2,552 |
2,420 |
430 |
(2) |
11,045 |
Underlying operating profit (1) |
581 |
205 |
162 |
215 |
125 |
(60) |
647 |
(1) Including Group’s share of profit of
companies consolidated by the equity method that directly
contribute to the Group’s business, and excluding other operating
income and expenses.
FIRST-HALFFISCAL
2018(in millions of euro) |
ON-SITE SERVICES |
BUSINESS &
ADMINISTRATIONS |
HEALTH CARE &
SENIORS |
EDUCATION |
BENEFITS AND REWARDS
SERVICES |
ELIMINATIONS AND CORPORATE
EXPENSES |
CONSOLIDATED TOTAL |
Revenues |
9,882 |
5,295 |
2,359 |
2,228 |
411 |
|
10,293 |
Inter-segment sales (Group) |
|
|
|
|
2 |
(2) |
|
TOTAL |
9,882 |
5,295 |
2,359 |
2,228 |
413 |
(2) |
10,293 |
Underlying operating profit (1) |
562 |
207 |
145 |
211 |
124 |
(59) |
627 |
(1) Including Group’s share of profit of
companies consolidated by the equity method that directly
contribute to the Group’s business, and excluding other operating
income and expenses.
6.3.2 By significant country
The Group’s operations are spread across
72 countries, including two that each represent over 10% of
consolidated revenues: France (the Group’s home country) and the
United States. Revenues in these countries are as follows:
FIRST-HALF FISCAL
2019 (in millions of euro) |
FRANCE |
UNITED-STATES |
OTHER |
CONSOLIDATED TOTAL |
Revenues
(third-party) |
1,465 |
4,686 |
4,894 |
11,045 |
Out of which IFRS 15
impact |
- |
(18) |
13 |
(5) |
FIRST-HALF FISCAL 2018(in
millions of euro) |
FRANCE |
UNITED-STATES |
OTHER |
CONSOLIDATED TOTAL |
Revenues (third-party) |
1,391 |
4 208 |
4,694 |
10,293 |
Notes to the interim consolidated financial statements
6.4.1. Consolidated statement of changes in
shareholders' equity
As of February 28, 2019, the Group held
1,731,012 Sodexo shares with a carrying amount of
167 million euro, including (i) 1,636,012 shares (158
million euro) purchased to cover the Group’s obligations for free
share plans for Group employees, and (ii) 95,000 shares
(9 million euro) held under the liquidity contract.
As of August 31, 2018, the Group
held 1,869,352 Sodexo shares with a carrying amount of
177 million euro to cover its obligations under stock
option and free share plans for Group employees. During the First
Half of Fiscal 2019, Sodexo shares with a carrying amount of 3
million euro were delivered to employees upon exercise of stock
options or under free share plans. During the First Half of Fiscal
2018, Sodexo shares with a carrying amount of 17 million euro were
delivered to employees upon exercise of stock options.
Total dividends paid out in the First Half of
Fiscal 2019, adjusted for treasury shares, amounted to
403 million euro, representing a dividend of 2.75 euro
per share and, where applicable, a dividend premium of 0.275 euro
per share.
6.4.2. Business combinations
Changes in goodwill were as follows in the First
Half of Fiscal 2019:
(in millions of euro) |
AUGUST 31, 2018 |
INCREASES |
DECREASES |
CURRENCY TRANSLATION
ADJUSTMENT |
RECLASSIFICATIONS |
FEBRUARY 28, 2019 |
Corporate Services |
1,001 |
|
|
27 |
41 |
1,069 |
Government & Agencies |
359 |
|
|
11 |
|
370 |
Sports & Leisure |
415 |
8 |
|
7 |
|
430 |
Energy & Resources |
320 |
|
|
11 |
|
330 |
Other non-segmented activities |
325 |
148 |
|
10 |
(57) |
425 |
Business & Administrations |
2,420 |
155 |
|
66 |
(16) |
2,625 |
Health Care |
998 |
|
|
22 |
4 |
1,025 |
Seniors |
424 |
33 |
|
9 |
13 |
477 |
Health Care & Seniors |
1,422 |
33 |
|
31 |
17 |
1,502 |
Schools |
352 |
45 |
|
8 |
(4) |
401 |
Universities |
855 |
|
|
18 |
|
873 |
Education |
1,207 |
45 |
|
26 |
|
1,274 |
ON-SITE SERVICES |
5,049 |
234 |
|
123 |
(3) |
5,401 |
BENEFITS AND REWARDS SERVICES |
615 |
|
|
33 |
|
648 |
TOTAL |
5,664 |
234 |
|
156 |
|
6,049 |
During the First Half of Fiscal 2019, goodwill
totaling 234 million euro was recognized on the acquisition of
Novae Restauration, Alliance in Partnership in Schools, Pronep in
Seniors, Crèches de France, International Club of Suppliers as well
as the adjustment on Sports & Leisure related to prior year’s
acquisition of Centerplate Inc.
In the meantime, some contracts have been
reallocated between segments since the beginning of the fiscal year
2018-2019. The most important change concerns some European
countries where, after several years of restructuring, the activity
is now segmented. Goodwill previously disclosed among non-segmented
activities has been revised accordingly. The activities operated in
Hospitals and Seniors have been therefore transferred from the
Business & Administration segment (where all non-segmented
activities were reported until then) to the Health & Seniors
segment.
The table below shows the impact of newly
consolidated entities. It includes the values of the assets
acquired and liabilities assumed, as provisionally estimated at
February 28, 2019, and the adjustments resulting from the final
purchase price allocation of prior acquisitions.
(in millions of euro) |
FEBRUARY 28, 2019 |
Intangible assets |
- |
Property, plant and equipment |
41 |
Other non-current assets |
2 |
Current assets |
35 |
Cash and cash equivalents |
(18) |
Borrowings |
(10) |
Other non-current liabilities |
(35) |
Net deferred tax |
2 |
Other current liabilities |
(35) |
TOTAL IDENTIFIABLE NET
ASSETS |
(17) |
Goodwill |
234 |
Non-controlling interests |
- |
CONSIDERATION
TRANSFERRED |
218 |
Cash acquired |
19 |
Change in liabilities related to
acquisitions of subsidiaries |
- |
IMPACT ON THE CASH FLOW
STATEMENT |
(236) |
Companies acquired during the First-Half of
Fiscal 2019, that were consolidated from the date of acquisition,
contributed by 82 million euro to the consolidated revenue and by 4
million euro to the consolidated underlying operating profit of the
period.
Intangible assets mainly include customer
relationships and trademarks. The amortization period for customer
relationships has been provisionally set by management at a maximum
of 15 years, based on the estimated attrition rate. Goodwill
primarily reflects the expertise and know-how of the acquired
businesses’ employees and the expected synergies between these
companies and Sodexo.
6.4.3. Cash and cash equivalents
(in millions of euro) |
FEBRUARY 28, 2019 |
AUGUST 31, 2018 |
Marketable securities |
425 |
365 |
Cash (1) |
1,525 |
1,301 |
Total cash and cash
equivalents |
1,950 |
1,666 |
Bank overdrafts |
(72) |
(28) |
TOTAL (2) |
1,879 |
1,638 |
(1) Including 16 million euro allocated to the
liquidity contract signed with an investment services provider,
which complies with the Code of Conduct drawn up by the French
financial markets association (Association française des marchés
financiers – AMAFI) and approved by the French securities regulator
(Autorité des Marchés Financiers – AMF), to improve the liquidity
of Sodexo shares and the regularity of the quotations.
(2) The Group’s international cash pool has
negative cash positions in U.S. dollars for the equivalent of 496
million euro, in Sterling Pounds for the equivalent of 169 million
euro and in other currencies for the equivalent of 36 million euro,
partly offset by a positive cash position in euro of 702 million
euro.
Total marketable securities comprised:
(in millions of euro) |
FEBRUARY 28, 2019 |
AUGUST 31, 2018 |
Short-term notes |
313 |
199 |
Term deposits |
91 |
138 |
Mutual funds and other |
21 |
29 |
MARKETABLE SECURITIES |
425 |
365 |
6.4.4. Borrowings
(in millions of euro) |
FEBRUARY 28,
2019 |
AUGUST 31,
2018 |
CURRENT |
NON-CURRENT |
CURRENT |
NON-CURRENT |
Bond issues |
20 |
2,178 |
15 |
2,176 |
Euro |
20 |
2,178 |
15 |
2,176 |
Bank borrowings (1) |
1,159 |
1,371 |
392 |
1,335 |
US dollar |
155 |
1,362 |
152 |
1,334 |
Euro |
1,003 |
9 |
240 |
1 |
Finance lease
obligations |
3 |
4 |
4 |
5 |
Euro |
3 |
3 |
3 |
4 |
Other currencies |
|
1 |
1 |
1 |
Other borrowings (2) |
6 |
20 |
9 |
21 |
Euro |
1 |
8 |
|
8 |
Other currencies |
5 |
12 |
9 |
13 |
TOTAL EXCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS |
1,187 |
3,574 |
420 |
3,537 |
Net fair value of derivative financial
instruments |
(9) |
1 |
(14) |
(3) |
TOTAL INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS |
1,178 |
3,575 |
406 |
3,534 |
(1) Including the proceeds of (i) three U.S.
private placements (207 million U.S. dollars, 400 million U.S.
dollars and 1,100 million U.S. dollars respectively as of February
28, 2019) and (ii) commercial paper issues (1,000 million euro as
of February 28, 2019). The U.S. private placements are subject to
financial covenants that the Group complied with as of February 28,
2019, August 31, 2018 and February 28, 2018.
(2) Including 15 million euro as of February 28,
2019 corresponding to liabilities recognized relating to
commitments to repurchase the non-controlling interests in certain
subsidiaries (18 million euro as of August 31, 2018).
Changes in borrowings during the First Half of
Fiscal 2019 were as follows:
(in millions of euro) |
AUGUST 31, 2018 |
NEW BORROWINGS |
REPAYMENTS |
DISCOUNTING EFFECTS AND
OTHER |
CURRENCY TRANSLATION
ADJUSTMENT |
CHANGES IN SCOPE OF
CONSOLIDATION |
AS OF FEBRUARY, 28, 2019 |
Bond issues |
2,191 |
|
|
7 |
|
|
2 198 |
Bank borrowings |
1,727 |
761 |
(3) |
|
31 |
14 |
2 530 |
Finance lease obligations |
9 |
|
(2) |
|
|
|
7 |
Other borrowings |
30 |
|
(11) |
(4) |
1 |
10 |
26 |
TOTAL EXCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS |
3,957 |
761 |
(16) |
3 |
32 |
24 |
4 761 |
Net fair value of derivative financial
instruments |
(17) |
|
2 |
|
7 |
|
(8) |
TOTAL INCLUDING DERIVATIVE FINANCIAL
INSTRUMENTS (1) |
3,940 |
761 |
(14) |
3 |
39 |
24 |
4 753 |
(1) As of February
28, 2019, the fair values of bond issues and bank borrowings were
2,279 million euro and 2,507 million euro respectively (2,266
million euro and 1,715 million euro respectively as of August 31,
2018).
As of February 28, 2019, approximately 42% of
the Group’s borrowings were denominated in U.S. dollars, after
considering the effect of derivative financial instruments and the
cash pooling system. As of February 28, 2019, approximately 79% of
the Group's borrowings were at fixed rates of interest and the
blended cost of debt at that date was 2.3%.
As of August 31, 2018, nearly 94% of the Group's
borrowings were at fixed rates of interest and the blended cost of
debt at that date was 2.5%.
July 2011 multi-currency confirmed
credit facility
As of February 28, 2019, the Group has a
multi-currency confirmed credit facility for 531 million euro plus
709 million U.S. dollars, expiring in July 2022.
No amount has been drawn down on this facility
neither on August 31, 2018 nor on February 28, 2019.
Bilateral confirmed credit
facility
On December 20, 2017, the Group obtained two
150-million-euro bilateral confirmed credit facility, one expiring
in December 2018 and the other in December 2019.
On March 5, 2018, the Group obtained a third
150-million-euro bilateral confirmed credit facility expiring in
March 2019.
The facilities originally due to expire in
December 2018 and March 2019 have been extended to December 2019
and March 2020 respectively.
No amounts had been drawn down on any of these
facilities neither on August 31, 2018 nor on February 28, 2019.
Commercial paper issues
On January 22, 2018, Sodexo Finance set up a
commercial paper program representing a maximum of 1.4 billion
euro, guaranteed by Sodexo S.A., in addition to Sodexo S.A.’s
existing program.
As of February 28, 2019, borrowings under the
Sodexo SA and Sodexo Finance commercial paper programs totaled 1
billion euro compared to 240 million euro as of August 31, 2018 and
explains the increase of 761 million euro of bank borrowings.
6.4.5. Financial instruments
Fair Value Level 3: Measurement of
Bellon SA Securities
The Group holds, through its wholly-owned
subsidiary SOFINSOD, a 19.61% stake in Bellon SA, the controlling
shareholder of Sodexo SA with 42.2% of its shares and 57.07% of its
voting rights, exercisable on February 28, 2019. This shareholding
does not give the Group considerable influence over Bellon SA, as
voting rights attached to Bellon SA shares that it holds cannot be
exercised by SOFINSOD, in accordance with the provisions of Article
L. 233-31 of the French Commercial Code (Code de Commerce).
Due to the application IFRS 9, the Group has
assessed for the first time this investment at its fair value,
determined in accordance with IFRS 13, and opted to account for
subsequent changes in fair value in other non-recyclable items of
consolidated comprehensive income (OCI).
Management conducted a fair value assessment of
the equity interest for the first application of IFRS 9, with the
support of two independent experts. The determination of the fair
value of the investment depends, among other things, on the
revalued net asset value (NAV) of Bellon SA which has limited debt
and holds no assets other than shares of Sodexo SA. These shares
were valued at their closing share price for the calculation of the
NAV of Bellon SA.
The Articles of Incorporation of Bellon SA
include a clause which restricts the sale of Bellon SA shares to
non-shareholder third parties, subject to the prior approval of its
Supervisory Board. Bellon SA is controlled 72.6% by Mr. and Mrs.
Pierre Bellon, and their four children, who, in June 2015, signed a
50-year agreement preventing the direct descendants of Mr. and Mrs.
Bellon from freely disposing of their Bellon SA shares. The sole
asset of Bellon SA is its interest in Sodexo and it can be deduced
from the foregoing that Bellon SA does not intend to sell this
interest to third parties.
As a result of these specific characteristics,
the interest that SOFINSOD holds in Bellon SA has very limited
liquidity. The valuation method used by Management (Level 3 of the
hierarchy defined by IFRS 13) incorporates this illiquidity on the
one hand, as well as all of the characteristics of the holding's
ownership structure, on the other hand. This method results in a
discount to the net asset value on Bellon SA estimated at 40% as of
September 1, 2018 and February 28, 2019.
As of September 1, 2018, the fair value of the
investment was evaluated at 596 million euro, leading the Group to
recognize a gross impact of 564 million euro million euro with a
net of tax impact of 423 million euro as of September 1, 2018
recognized in the opening balance sheet.
As of February 28, 2019, the fair value of the
investment is evaluated at 662 million euro, and its change since
the opening of the half-year has been recognized in other
non-recyclable items of comprehensive income.
6.4.6. Operating expenses by nature
(in millions of euro) |
FIRST-HALF FISCAL 2019 |
FIRST-HALF FISCAL 2018 |
Depreciation, amortization and impairment
losses |
(190) |
(160) |
Employee costs |
|
|
- Wages and salaries |
(4,095) |
(3,829) |
- Other employee costs (1) |
(1,203) |
(1,125) |
Purchases of consumables and change in
inventory |
(2,954) |
(2,803) |
Other operating expenses (2) |
(2,025) |
(1,826) |
TOTAL |
(10,467) |
(9,743) |
(1) Primarily payroll taxes, but also including
costs associated with defined benefit plans, defined contribution
plans and free share plans.
(2) Other operating expenses mainly include
operating lease expenses (169 million euro for the First Half of
Fiscal 2019 and 191 million euro for the First Half of Fiscal
2018), professional fees, other purchases used for operations,
sub-contracting costs and travel expenses.
6.4.7. Other operating income and expenses
(in millions of euro) |
FIRST-HALF FISCAL
2019 |
FIRST-HALF FISCAL
2018 |
Gains arising from changes in scope of
consolidation |
3 |
|
Gains arising from changes in
post-employment benefit obligations |
|
|
Other |
|
7 |
TOTAL OTHER OPERATING
INCOME |
3 |
7 |
Restructuring and rationalization costs |
(19) |
(7) |
M&A costs |
(4) |
(14) |
Losses arising from changes in scope of
consolidation |
|
(18) |
Losses arising from changes in
post-employment benefit obligations |
(3) |
|
Amortization and impairment of client
relationships and trademarks |
(43) |
(31) |
Other |
(2) |
(11) |
TOTAL OTHER OPERATING
EXPENSES |
(72) |
(80) |
6.4.8. Financial income and expense
(in millions of euro) |
FIRST-HALF FISCAL 2019 |
FIRST-HALF FISCAL 2018 |
Gross borrowing cost (1) |
(59) |
(54) |
Interest income from short-term bank deposits
and equivalent |
14 |
16 |
NET BORROWING COST |
(45) |
(38) |
Interest income from loans and receivables at
amortized cost |
1 |
1 |
Other financial income |
4 |
10 |
Other financial expense |
(6) |
(5) |
Net foreign exchange gains/(losses) |
(1) |
(4) |
Net interest cost on net defined benefit plan
obligation |
(3) |
(4) |
Monetary adjustment for hyperinflation |
|
|
Change in fair value of derivative financial
instruments not qualified for hedge accounting |
|
|
Other |
(4) |
(4) |
NET FINANCIAL EXPENSE |
(54) |
(44) |
Out of which financial income |
19 |
27 |
Out of which financial expense |
(73) |
(71) |
(1) Gross borrowing cost represents
interest expense on financial liabilities at amortized cost and
interest expense on hedging instruments |
6.4.9. Income tax expense
The 25.9% effective tax rate for the First Half
of Fiscal 2018 increased to 28.8% in the First Half of Fiscal 2019.
This increase is mainly attributable to the reimbursement of the
tax on dividends in France, for 43 million euro in the First
Half of Fiscal 2018.
6.4.10. Earnings per share
The table below presents the calculation of
basic and diluted earnings per share:
|
FIRST-HALF FISCAL 2019 |
FIRST-HALF FISCAL 2018 |
Profit for the period attributable to equity
holders of the parent (in millions of euro) |
364 |
372 |
Basic weighted average number of shares |
145,647,702 |
148,535,880 |
BASIC EARNINGS PER SHARE (IN EURO)
(1) |
2.50 |
2.51 |
Average dilutive effect of stock option and
free share plans |
2,026,982 |
2,026,926 |
Diluted weighted average number of
shares |
147,674,684 |
150,562,807 |
DILUTED EARNINGS PER SHARE (IN EURO)
(1) |
2.46 |
2.47 |
(1) Basic and diluted earnings per share do not
reflect the effect of the dividend premium to be paid on qualifying
registered shares. |
All Group’s free share plans had a dilutive
impact in the First Half of both Fiscal 2019 and Fiscal 2018.
In the First Half of Fiscal 2019, the last stock option plan shares
were delivered, therefore stock option plans had a dilutive impact
only on the First Half of Fiscal 2018.
6.4.11. Related party information
Non-consolidated companies
Transactions with non-consolidated companies are
similar in nature to those described in note 4.25, "Related
parties" to the consolidated financial statements for the fiscal
year ended August 31, 2018.
Principal shareholder
As of February 28, 2019, Bellon SA held 42.2% of
the capital of Sodexo and 57.07 % of the exercisable voting
rights.
During the First Half of Fiscal 2019, Sodexo
paid fees of 1.7 million euro (2 million euro for the First Half of
Fiscal 2018) under the assistance and advisory services contract
with Bellon SA.
Bellon SA received dividends of 171.4
million euro on its Sodexo SA shares in February 2019.
6.4.12. Other disclosures
Free share grants
On September 13, 2018, the Board of Directors
decided to grant up to 34,100 shares to certain Group employees.
The shares granted under this plan will only vest if the
beneficiaries are still working for the Group on the vesting date,
and some of the share grants are subject to a performance
condition.
Members of the Board of Directors and the Executive
Committee, Chief Executive Officer
There were no significant changes from the
fiscal year ended August 31, 2018 in relation to the nature of
compensation, advances and commitments for pensions or similar
benefits granted to members of Sodexo's Board of Directors or
Executive Committee, or to the Chief Executive Officer.
Disputes and litigation
- The Company is in dispute with the Brazilian tax authorities
regarding the tax deductibility of the amortization of goodwill
recognized on the purchase of VR in March 2008. For the record, in
Fiscal year 2017, Sodexo Pass do Brasil received a tax reassessment
notice from the Brazilian tax authorities for fiscal years 2010,
2011 and 2012 relating to the deductibility for tax purposes of the
amortization of goodwill recognized on the purchase of VR in March
2008. The reassessment amounted to 102 million euro (breaking down
as 30 million euro in principal and 72 million euro in penalties
and late payment interest).
Sodexo Pass do Brasil is firmly disputing this
reassessment, which the Brazilian tax authorities originally
envisaged during a previous tax audit covering fiscal years 2008
and 2009 but then abandoned. The Company considers that the
goodwill amortization was valid, both in terms of its underlying
reasons and the way it has been recorded. Therefore, the Company
considers that there is a strong probability of winning the dispute
with the tax authorities, and this has been confirmed by its tax
advisors. Consequently, no provision was recorded for this dispute
in the consolidated statement of financial position as of August
31, 2017.
This dispute was presented on August 14, 2018
for a judgment of the competent administrative court. The court
ruled in favor of Sodexo Pass do Brasil as it considered that the
goodwill and corresponding amortization were legitimately
recognized on the acquisition of VR. The judgment therefore
confirms that Sodexo Pass do Brasil acquired a full business
structure when it purchased VR.
This judgment can be reversed on appeal. The
Group believes, however, that the risk of change in this judgement
is low.
In addition, the tax savings generated by this
tax depreciation were offset in the consolidated accounts of the
Group by a deferred tax expense of the same amount for each of the
financial periods concerned, in accordance with the IFRS rules. The
balance of the related deferred tax liability amounts to 74 million
of euro at the end of the financial year.
- On October 9, 2015, Octoplus filed a complaint with the French
Competition Authority (‘Autorité de la concurrence’) concerning the
practices of several French meal voucher issuers, including Sodexo
Pass France SA, together with a request for protective
measures. Following the hearing of the parties concerned, by
decision of October 6, 2016, the Competition Authority rejected the
request for protective measures but ordered further investigation
on the merits.
On February 27, 2019, the Rapporteur général
sent Sodexo Pass France his final investigation report. The Group
and its counsel believe that it can present a compelling defense to
the grievances, noting that Sodexo Pass France has until April 29,
to file its response. The hearing before the college of the
Competition Authority and the decision that will follow should take
place before the end of the 2019 calendar year.
The Competition Authority has broad discretion
to determine on a case-by-case basis the financial fines it may
impose in accordance with the principles of proportionality and
individuality. In view of the difficulty in assessing the extent to
which the Competition Authority may take into account the arguments
which have been put forward by Sodexo Pass France in its defense
and due to the multiple factors contributing, where appropriate, to
the determination of a fine, it is not possible at this stage to
estimate the amount of the potential fine that might be incurred in
the event of an adverse decision, even though it might have a
significant impact on the Group’s consolidated accounts. In this
context, no provision has been made as at February 28, 2019, at
this stage of the investigation.
- In Brazil, a difference of interpretation opposes Sodexo and
its main competitors to the Tax Administration on the deductibility
of PIS / COFIN on certain purchases that are made at a zero rate.
Proceedings are pending before the Superior Courts and, based on
the opinion of our counsel, the Group considers that its chances of
success in these proceedings are good and therefore did not
consider necessary at this stage to provision for appropriations
deducted to date.
- On January 28, 2019, the International Center for Settlement of
Investment Disputes (ICSID) delivered its decision in Sodexo’s
arbitration claim against the Hungarian State in the Group’s favor.
Due to changes in the regulatory and fiscal environment in Hungary
related to the issuance of food and meal vouchers, Sodexo had filed
a claim for ICSID arbitration in July 2014 against the Hungarian
state.
This decision represents an important step in
the process of resolving this dispute. The next step consists of
making sure that the ICSID arbitration tribunal’s decision is
implemented. The Hungarian state has up to 120 days from the date
of the decision to officially appeal. At this stage, the Hungarian
State having publicly declared that it intends to apply for
annulment of the decision, the Group has considered it was too
early to record an income based on the decision of ICSID.
To the best of the Company’s knowledge, there
have been no governmental, judicial or arbitral proceedings
(including any such proceedings which are pending or threatened of
which Sodexo is aware) which may have, or have had in the past 12
months, material effects on Sodexo and/or the Group’s financial
position or profitability.
Sodexo is also involved in litigation arising
from its ordinary activities. The Group does not believe that
liabilities relating to such litigation will in aggregate be
material to its activities or to its consolidated financial
position
6.4.13. Subsequent events
On April 8, 2019, Sodexo announced the acquisition of The Good
Care Group, a leading player in the live-in care market in the
UK.
With this acquisition, Sodexo is expanding its services in the
UK live-in care market and will be ranked second nationally in the
live-in care market and among the top five in the private-paid care
market.
On March 4, 2019, Sodexo Inc redeemed 150 million U.S. dollars
of the 2014 U.S. private placement at maturity.
3
|
|
|
|
STATUTORY AUDITORS' REPORT |
|
|
|
|
PricewaterhouseCoopers
Audit63, rue de Villiers92208 Neuilly-sur-Seine Cedex
France |
KPMG AuditDepartment of KPMG
S.A.Tour Eqho – 2, avenue Gambetta92066 Paris La Défense Cedex
France |
Statutory Auditors’ review report on the interim
financial information
For the six months ended February 28, 2019
This is a free translation into English of the Statutory
Auditors’ review report issued in French and is provided solely for
the convenience of English speaking readers. This report should be
read in conjunction with, and construed in accordance with, French
law and professional auditing standards applicable in France.
SODEXO255 Quai de la Bataille de
Stalingrad92866 Issy-les-Moulineaux Cedex 9France
To the Shareholders,
In compliance with the assignment entrusted to
us by your Shareholders' Meeting and in accordance with the
requirements of article L. 451-1-2 III of the French Monetary and
Financial Code (Code monétaire et financier), we hereby report
to you on:
- the review of the accompanying condensed interim consolidated
financial statements of Sodexo for the six months ended February
28, 2019;
- the verification of the information contained in the interim
management report.
These condensed interim consolidated financial
statements are the responsibility of the Board of Directors. Our
role is to express a conclusion on these financial statements based
on our review.
I - Conclusion on the financial statements
We conducted our review in accordance with
professional standards applicable in France. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with professional standards applicable in France and consequently
does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our
attention that causes us to believe that the accompanying condensed
interim consolidated financial statements have not been prepared,
in all material respects, in accordance with IAS 34 – "Interim
Financial Reporting", as adopted by the European Union.
Without qualifying our conclusion, we draw your
attention to the note 6.2.2 “Standards and interpretations” to the
condensed half-year consolidated financial statements regarding the
approach on and the consequences of the first-time application as
of January 1, 2018 of the standards IFRS 9 “Financial Instruments”
and IFRS 15 “Revenue from Contracts with Customers”.
II - Specific verification
We have also verified the information given in
the interim management report on the condensed interim consolidated
financial statements subject to our review. We have no matters to
report as to its fair presentation and its consistency with the
condensed interim consolidated financial statements.
Neuilly-sur-Seine and Paris La Défense, April 10,
2019
The Statutory Auditors
PricewaterhouseCoopers Audit |
KPMG AuditDepartment of KPMG S.A. |
|
Jean-Christophe Georghiou |
Caroline Bruno-Diaz |
1 Restated for inter-segment reclassification, see the
Restatement Section for detail.
- PR Sodexo First-half Fiscal 2019 results ENG
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