• Revenue: EUR12.5 billion, up 3.1% with organic revenue growth of 3.5%.
• Organic Growth Guidance: Revised to 3% to 4% for fiscal year '25, down from initial 5.5% to 6.5%.
• Operating Profit: Increased by 6.4%, with a 10 basis point margin improvement to 5.2%.
• Net Profit: EUR434 million, down 12.5% compared to last year.
• Underlying Net Profit: EUR450 million, up 5.4%.
• Free Cash Flow: Negative EUR234 million due to seasonality, working capital requirements, and exceptional tax outflow.
• Net Debt: Increased by EUR850 million to EUR3.4 billion.
• Net Debt-to-EBITDA Ratio: 2.3 times, unchanged from H1 fiscal year '24.
• Retention Rate: 93.9% with a target of 94% to 94.5% for the full year.
• Development Rate: 7.3% with a target of 7% to 8% for the full year.
• Cost Savings: EUR10 million from Global Business Services project.
• Tax Rate: Projected at 23% to 24% for the year.
• CapEx: EUR256 million or 2.1% of revenue, with a target of around 2.5% for the full year.

• Warning! GuruFocus has detected 2 Warning Sign with SDXAY.

Release Date: April 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Sodexo (SDXAY) secured over EUR1 billion in new contracts during the first half, indicating strong business development momentum.
• The company achieved a 3.5% organic revenue growth in the first half, with food services outperforming at 4.5% organic growth.
• Sodexo (SDXAY) maintained a retention rate of 93.9%, with a target to reach between 94% and 94.5% for the full year.
• The company is making progress in cost management, with its Global Business Services project delivering around EUR10 million in savings this year.
• Sodexo (SDXAY) reported a 6.4% increase in underlying operating profit, with a 10 basis point margin improvement.

Negative Points

• Sodexo (SDXAY) revised its full-year guidance due to a lower-than-expected pace of growth, particularly in North America.
• The company faced delays in the ramp-up of new healthcare contracts, contributing to a 90 basis points drag on growth.
• Net new contributions in North America were weaker than expected, with some large contracts only starting to contribute in fiscal year '26.
• The education segment experienced a 60 basis points impact due to lower-than-expected volume growth and weather-related school closures.
• Sodexo (SDXAY) faced retention pressure in corporate services, contributing to a 50 basis points impact in North America.

Q & A Highlights

Q: What is the potential impact of American tariffs on Sodexo, and how will it affect your Australian contracts? A: Sophie Bellon, CEO, explained that Sodexo's operations in the US are largely insulated from tariffs as they recruit locally and source 90% of their food domestically. While some products from Mexico and Canada might be affected, the company can adapt by passing inflationary costs to contracts or changing products. Regarding Australian contracts, no impact is expected on the Rio Tinto and Santos contracts, as they are either in preparation or unaffected by current conditions.

Q: Why do you expect CapEx to increase to 2.5% of sales by year-end? A: Sebastien De Tramasure, CFO, stated that the increase in CapEx is due to the timing of new contract mobilizations and retention efforts, which are expected to ramp up in the second half of the year, necessitating additional CapEx.

Q: Can you provide more visibility on the growth algorithm for fiscal year 2026? A: Sophie Bellon, CEO, mentioned that while it's too early to provide detailed guidance for 2026, the company expects strong new contract momentum and a retention rate between 94% and 94.5%. The exit rate for growth in Q4 is expected to be better, providing a clearer picture for fiscal year 2026.

Q: What are the reasons behind the delay in the US healthcare contract ramp-up? A: Sophie Bellon, CEO, clarified that the delay is specific to the Captis contract, which involves onboarding multiple healthcare organizations. The initial ramp-up was too optimistic, and while the impact will be small this year, it will grow in the following years, with significant contributions expected by fiscal year 2026.

Q: How does Sodexo plan to handle the US government's stance on diversity and inclusion policies? A: Sophie Bellon, CEO, stated that Sodexo has not received any letter from the US Embassy regarding diversity and inclusion policies. The company is cautious and pragmatic, adjusting its external communications to avoid vulnerabilities while maintaining its core values.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.