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Edited Transcript of SW.PA earnings conference call or presentation 7-Nov-19 8:00am GMT

Full Year 2019 Sodexo SA Earnings Call

ISSY LES MOULINEAUX Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Sodexo SA earnings conference call or presentation Thursday, November 7, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Denis Machuel

Sodexo S.A. - CEO

* Marc Rolland

Sodexo S.A. - Group CFO

* Virginia Jeanson

Sodexo S.A. - Head of IR

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Conference Call Participants

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* Geoffrey d'Halluin

BofA Merrill Lynch, Research Division - Director & Research Analyst

* Jaafar Mestari

Exane BNP Paribas, Research Division - Analyst

* James Robert Garforth Ainley

Citigroup Inc, Research Division - Director and European Hotels and Leisure Analyst

* Jamie David William Rollo

Morgan Stanley, Research Division - MD

* Kean Marden

Jefferies LLC, Research Division - Head of Business Services Equity Research

* Victoria Jane Lee Stern

Barclays Bank PLC, Research Division - MD & Equity Analyst

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Presentation

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Virginia Jeanson, Sodexo S.A. - Head of IR [1]

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Thank you. Good morning, everyone. Welcome to our full year fiscal 2019 results call. Today, we have Denis Machuel and Marc Rolland online with me. As usual, if you haven't already done so, the slides and press releases are available on sodexo.com, and you'll be able to access this call on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without our consent. Don't hesitate in getting back to Sarah and I at the IR team if you have any further questions after the call. And remind you that the next announcement will be the first quarter figures on January 9, 2020.

And I now turn the call over to Denis Machuel. Denis?

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Denis Machuel, Sodexo S.A. - CEO [2]

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Thank you, Virginia, and good morning to all of you. Welcome to our fiscal '19 results announcement. And the first thing that I want to tell you is that Sodexo is in better shape today. The good news is that organic growth has picked up and our cash flow has been better than expected. We've also advanced on our responsibility agenda with the launch of our battle against waste, and we are progressing very fast with providing healthier and more biodiverse menu options, and I'm confident that renewed discipline is progressively coming back into the organization, which in turn is raising internal confidence, even though we still have some challenges.

So now for the highlights of the year. On Slide 4, you'll see that our revenues grew 7.6%. This was helped by positive currency effect and the ongoing impact of the Centerplate acquisition. The really good news is that organic growth came out at 3.6%, the first time we are over 3% since 2012. While this is not yet a level that I consider satisfactory, it's encouraging and demonstrates that our action plan is delivering results. This is driven by On-site Services, up 3.3%, with all segments improving. Most notably, the recovery is coming through in North America, which is at plus 1.8% of organic growth. And excluding North America, organic growth came out at 4.6%. Benefits & Rewards is up 8.5%, with strong growth in all regions despite the slowdown in Brazil in Q4.

Now on Slide 5. As I said earlier, we are still not where we want to be. Because net new business was only neutral this year. During fiscal '19, retention was down 50 basis points at 93.3%. This was impacted by our decision to exit a large health care contract in NorAm, which has always been difficult and was not going to be renewed at the right level of profitability. Excluding this one lost contract, retention would have been up 10 basis points. All segments and regions were up or stable, except health care North America in terms of retention.

Business development is down 50 basis points at 6.3% because much stricter discipline on the bidding process is being implemented throughout the organization so that when contract accruals come up to Marc and myself, they are generally much more solid opportunities. We are absolutely determined to improve the quality of what we sign. Even if it may have a short-term effect on signings as we rebuild the pipeline in a more targeted and disciplined manner.

On the other hand, comparable unit growth was very solid at 3.1% against 2.6% last year. Excluding a negative overall impact of 20 basis points from first-time IFRS 15 implementation, the underlying trend was 3.3%. This represents some solid cross-selling and wage inflation pass-through, particularly in North America. The good news is that on top of a very successful Rugby World Cup last month, we have also been awarded the 2020 Summer Olympics hospitality contract, which means that with these 2 major sports events in Japan, our comparable unit growth in fiscal 2020 will be boosted by 100 basis points -- by 100 points, sorry.

On Slide 6, you will see that enhanced discipline is visible in both the way we sell and the way we operate. LTIR, the lost time incident rate is a good indicator of our operations. It has fallen by a further 11.1% in fiscal year '19 to 0.86 for the group as a whole. We know we can still do much better going forward because our best segment, Energy & Resources is at 0.1. There is no doubt that lowering LTIR represents everyday discipline to ensure that the teams are working in an ever-safer environment, understanding what they have to do and having the right equipment to do the job.

As far as our sales are concerned, it's interesting to note that the gross profit retention is at 95% versus the sales retention at 93.3%. And that our margins are 20 basis points higher on the new contract signed than in previous years, which reflects the enhanced discipline through the organization.

In Corporate Services, a lot of work has been done to rebalance the portfolio of the pipeline by boosting smaller local contracts, which tend to ramp up quickly and profitably. They currently stand at 80% of the pipeline.

On Slide 7, you'll see that underlying operating profit came out stable at 5.5%, and this is in line with expectations at the lower end of the original range given this time last year.

The margins are stable, and that's on Slide 8, as all the productivity generated by the business has been used to invest in actions to boost growth. We've made good progress in managing labor. We see positive signs in several segments and regions. However, further work is required to ensure consistency in labor management across the company. On the circa management side, we are also benefiting from better take-up of DRIVE, our internal food management system, which is now being used on more than 1/4 of all our sites around the world. This helps to deliver our menu strategy with menu development standards for improved quality, consistency, costing and speed to market.

This is helping us to grow the proportion of healthier dishes in our menus and ensuring fast rollout of our new group retail offers and systems. So this is for on-site productivity.

Now let me talk about Fit for the Future, our program focused on reducing SG&A. And this is -- and this program is progressing. It's helping us to enhance efficiency of our organization, and results are coming through into the figures, thanks to, for example, more streamlined back offices with our European Accounting center in Porto, generating savings in the U.K. and the Netherlands and soon in Germany. We are also simplifying some of our organizations in certain smaller countries in Asia and Eastern Europe by taking out excess segmentation or just exiting countries. We'll talk more about this later.

We've also done a substantial review of all our real estate around the group and adjustments are being made. And this efficiency is then being reinjected back into growth. Some of the projects are long term, like the work we're doing on our brand strategy. Some of it has immediate impact by reducing our prices in certain markets to ensure competitiveness. And some of it will have a progressive impact with investments in more innovative and consumer-centric food offers or digital marketing or better sales targeting tools. We are continuing to invest in Benefits & Rewards, in the digitalization of the offers. And even more importantly, in our back office support systems.

As an example, the recent investment in Zeta will accelerate the transfer of this excellent Indian platform technology into our other markets. As a consequence, the margins are stable as all the productivity generated by the business has been used to invest in actions to boost growth in line with our focus on growth objectives. And before Marc goes over all this in detail in a few minutes, I'd like -- I'd just like to say that our financials are very solid. Our NGO and cash conversion remain very high, respectively, at EUR 907 million and 136%. And that is despite a much higher level of net CapEx this year, mainly in the Education and Sports & Leisure segments.

Net acquisitions amount to EUR 301 million. We have acquired 2 food specialists in Switzerland, on the high end. And in the U.K. in the Education market. We have also accelerated our investments in Homecare and Childcare, and I'll come back to this a bit later in the presentation. And despite this, our net debt ratio has fallen back below 1.

Let me now give a quick perspective on 2 contracts that we are really proud of as we move to Slide 10.

First, our contracts with the Inditex logistic center in Spain. Our partnership with Inditex started a year ago, as we built our offer together with a clear focus on healthy and responsible diet. We are improving the well-being of employees, we are reducing the impact on the environment and natural resources and working with small local producers around the site. We have really built a unique 360-degree dining concept. The restaurant serves more than 1,600 meals a day in this logistic center in Northern Spain, with 65% of the products coming from local suppliers, including more than 40 organic products. By sourcing local products, we'll reduce the impact of logistics as well as packaging.

The relationships developed with the local producers are really strong to the point that we now work together on the seasonal planning of their crops, and we design our menus accordingly. We also work to promote native varieties of vegetables. And the fish comes fresh every day from a fish market at the nearby port. We designed a plastic-free restaurant, where plastic bottles and soda cans have been removed and filtered water is served from the tap. Edible leftovers are donated to an animal center, while the nonedible leftovers are converted into compost and given to a local ecological greenhouse.

The packaging used for takeaway is compostable too. And all that remains is transformed into biogas. Our next challenge for this year is to become fully a 0-waste restaurant, as currently, only 2.5% of the waste is nonrecyclable. And in just 1 year, this restaurant has obtained the LEED Gold certification for its on-site energy efficiency and integration of renewable energy. And a few months ago, we opened a second restaurant with the same offer for this client.

Now Slide 11 is another great example of our work in Lima last August when we supported the organization of the Pan American and Parapan American Games in Lima, Peru, as the official supplier for food services. This came after the success of our first Pan Am Games contracts in Canada in 2015. For 10 weeks, more than 600 Sodexo employees were mobilized to provide food services for about 10,000 people, including 6,700, at least, from 41 countries of the Americas out of huge purpose-built tents as you can see on the slide.

Our Sodexo teams delivered 6 food services daily, 24,000 meals each day, 700,000 meals throughout the entire competition, demonstrating the expertise we have in serving and operating to the highest quality standards, offering the best of Peruvian cuisine, while providing for the requirements of an athlete's diet. During these games, standardized processes were implemented throughout the chain from the evaluation of suppliers, control and distribution of raw materials, processing and tracking to ensure that the food was safe, of the right level of quality, and met regulatory requirements.

Our offer was also designed to be environmentally friendly. More than 3 million biodegradable and compostable paper pulp dishes, plates and bowls were used and more than 1.5 billion recyclable glasses. Our teams in Peru designed an innovative process for the event, the technified kitchen to provide our clients with a faster, more efficient, safe and nonpolluting mass service. This service has now been implemented in other kitchens worldwide. We are really proud of the work.

So now after this great example, over to you, Marc, for the details of our financial performance.

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Marc Rolland, Sodexo S.A. - Group CFO [3]

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Thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning. As usual, you will find the alternative performance measures definition in Appendix 16, along with other information to help you with your modeling. I also remind you that these appendices are not translated into French, so please go to the English versions for them.

So now let's start with the performance in the P&L on Slide 13. This has been a better year for the P&L relative to last year. Currency translation had a positive impact this year, and it was also helped by the contribution of acquisition. Revenue growth was, therefore, 7.6%, and total revenues reached nearly EUR 22 billion. Underlying operating profit at EUR 1.2 billion was up 6%, excluding currencies. The underlying operating profit margin was stable at 5.5%, with or without the currency impact. This is in line with our adjusted guidance in July.

Other operating income and expenses were at EUR 141 million, EUR 10 million higher than last year. I shall come back to this in the next slide.

Financial expenses increased by EUR 10 million. I remind you that last year, the number was helped by EUR 7 million of interest payments on the reimbursement of dividend tax paid in the past. Otherwise, the year-end rate was slightly up by 10 basis points at 2.6% due to new long-term financing during the year and the reduction in use of the euro treasury bill financing at negative rates. The effective tax rate was 29%. This rate now reflects the full effect of the lower rates in the U.S.A. Because of all of this, the underlying net profit was EUR 765 million, up 7.8%, excluding the currencies impact. The earnings per share benefited from a lower average share count due to the share buybacks in the previous year. As a result, underlying EPS was up 10.1%. Net profit was EUR 665 million, up 2.2%, and EPS was up 3.6%.

Now I would like to come back on the other income and expenses. Restructuring costs were EUR 46 million. As we said we would, we have continued to simplify our organization. You should continue to model about EUR 40 million to EUR 50 million for structuring spend for the coming year.

Losses related to perimeter closures were 0. In fact, this year, we generated a small gain on disposal of the closure of some activities. I remind you that over the last couple of years, we have reduced the number of countries in which we are present from around 80 to 67 today.

Amortization and impairment of acquired intangible assets was more important than the previous year due to some intangible write-offs. We expect this to come back to around EUR 50 million in fiscal '20. As a result, other operating income and expenses were EUR 10 million more than in the previous year.

Operating cash flow is flat because last year was boosted by the tax reimbursement and interest compensation from the French state on dividend tax. The positive inflow of EUR 182 million in working capital is strong, but lower than the record variation of last year. It benefited from a significant positive working capital inflow due to sports events in Japan.

Net CapEx is, as expected, EUR 130 million higher at EUR 415 million or 1.9% of revenues versus only 1.4% of revenues last year. This was mostly due to more investment in Education and in Sports & Leisure. So free cash flow reached EUR 907 million.

M&A expense totaled EUR 301 million versus the particularly high level last year linked to the Centerplate acquisition. And there were no share buybacks this year. So with a stable outflow for dividends, the group reduced its debt by EUR 47 million.

The increase in CapEx is linked to some new or renewed Education contract in North America and in Europe as well as to the substantial Sports & Leisure renewal program, which traditionally requires more CapEx to sell than most of the segments. The investments in BRS also continue to be significant at 6.5% of revenues to ensure the digital transition of the activity. As a result of the very strong free cash flow, cash conversion reached 136% compared to the record 165% in the previous year and still well above fiscal '17 at 123%. This performance was supported by this Japan's sports event, and in particular, the early hospitality packages sales of the Rugby World Cup up to the end of August, while the events are held in fiscal year '20.

So with net debt declining by EUR 47 million to EUR 1,213,000,000, our net debt to EBITDA ratio is just under our target range of 1 to 2, and gearing has fallen to 27%, helped by the revaluation of the shares held in Bellon SA.

As we mentioned in the H1 figures, IFRS 9 has had an impact on our assets by revaluing our stake in Bellon SA, which was traditionally carried at purchase cost and is currently valued at EUR 708 million. You will find more details in Appendix 9, Slide 57.

As you know, we should also be implementing IFRS 16 as from September 1, '19. So while we do not expect to have any impact on free cash flow and on net cash flow and only a limited impact on the underlying operating profit, I confirm that our net debt is increasing by EUR 1.3 billion, which takes our gearing ratio to 54% from 27%. And you will find this in detail in Appendix 11, Slide 59 and 60.

At the end of fiscal '19, the group had an operating cash position of EUR 2,866,000,000, of which nearly EUR 2 billion is linked to the BRS activity, including restricted cash for EUR 650 million and financial assets for EUR 427 million.

I remind you that we renegotiated our revolving credit facility this year, which means that we now have a total of EUR 1.75 billion of backup financings available. As part of the renewal of this credit facility, we have indexed the margin paid to our performance on weight. So depending on how we perform on weight, the margin paid will vary by plus or minus 2 basis points.

In Slide 19, you can see that the dividend to be proposed by the Board to shareholders is EUR 2.9, up 5.5% on last year compared to the increase in EPS of 3.6% to reflect the strong cash performance and its confidence in the group strategy. As a result, the payout ratio is 55% of underlying EPS and 64% of published EPS.

So now let's go on to the review of operations. Let's start with group revenues on Slide 21. This year revenue was up 7.6% to reach EUR 22 billion. There was a 1.5% positive currency effect, predominantly linked to the dollar and a 2.6% positive contribution from acquisitions, including the ongoing effect of the consolidation of Centerplate, as well as a smaller acquisition done this year. As a result, organic growth is 3.6%, the best rate of growth for 7 years. On-site Services were up 3.3% and Benefits & Rewards was up 8.5%.

So let's look firstly at the On-site business. The good news is that all regions are growing. North America is back to growth at 1.8%. Outside North America, Europe is up 3.2%, and our activities in developing economies are up 7.9%. As a result, the growth outside North America is 4.6%.

Now if we go into the segments. Starting with Business & Administration on Slide 24. Organic growth was up 3.5%. In North America, organic growth was up 1.9%.

Corporate Services were strong, driven by same-site sales growth, new contracts and solid retention, compensating weaker organic growth in other segments.

Government & Agency same-site sales growth was impacted negatively by the renewal of the U.S. Marine Corp. contract. However, the team has worked hard to improve the offer, increase efficiency and renegotiate with the clients when necessary. And the results are coming through month by month.

In Sports & Leisure, organic growth was negative due to the planned exit of some less profitable contracts. The extent of the substantial contracts renewal program this year mobilized the sales team, resulting in low levels of new development. The pipeline is currently looking better.

Energy & Resources remained volatile quarter-by-quarter. It was particularly impacted in Q1 by a tough comparable base due to a large one-off project in Q1 fiscal '18. The trends appear better at the end of the year.

In Europe, sales were up 2.5% organically. Corporate Services continued to generate solid growth due to cross-selling with an easier comparative base in Benelux and strong growth in Southern and Eastern Europe.

In Sports & Leisure, the summer season in Paris was better than expected, partially compensating a contract loss in France.

Government & Agencies improved quarter-by-quarter during the year, especially in the U.K. as the effect of the Army contract losses subsided progressively.

Energy & Resources turned positive in the second half with some new projects being signed up. At 6.8%, organic revenue growth remained strong in Africa, Asia, Australia, Lat Am and Middle East despite an ever-stronger comparable base. This reflects strong growth in same-site sales and new business in Corporate Services everywhere and progressive improvement quarter-by-quarter in Energy & Resources. We also had the impact of the successful Pan Am Games in August in Peru.

Moving on to Health Care on Slide 25, organic growth was 2.1%. In North America, organic growth was 1.5%. The management team is absolutely focused on improving execution and productivity, generating more cross-selling on existing contracts, passing through inflation and putting more discipline into the sales process. This impacted retention with a loss of several health care contracts, including one particular large contract for which profitability has been an issue for a long time. These contracts started to fall out of revenues in the fourth quarter, which will continue to do so in the first half of fiscal '20. Development has also been slowed due to a much more selective process. However, the contracts signed are more robust. The pipeline is being rebuilt progressively integrating this more selective process.

Seniors organic growth improved progressively quarter-by-quarter after the loss of a significant contract in the first quarter. In Europe, organic growth was 0.9%. Hospitals and Seniors have both been impacted by a lack of development opportunities, hampering growth in most markets. On the other hand, same-site sales growth was strong, particularly in Northern Europe. The pipeline is showing signs of improvement.

Despite an ever more challenging comparable base, organic growth in Africa, Asia, Australia, Lat Am and Middle East has remained strong all year at plus 17.4%. New contract startups and strong same-site sales growth continues in Brazil and Asia, as clients are seeking to outsource for the first time in order to benefit from the group's expertise. Development rate has slowed down slightly during the year but remains well up over the average for the segment.

Education was up 4.7% and much better than last year. North America turned around up 2.2% or 3.6%, excluding the IFRS 15 impact. And just to be clear on this IFRS impact, the implementations of IFRS 15 in fiscal '19 has had a negative impact of 20 bps of fiscal '19 group organic growth. However, this is made up of a significant negative impact in Education in North America, here 140 basis points, and a lesser positive impact disseminated broadly around the other segments and regions.

So back to North America Education. While net new business from last year was neutral, same-site sales growth has been solid, helped by inflation pass-through, some impact from extra working days and solid summer works. The selling season in fiscal '19 remained broadly neutral with higher retention but lower development. So we are starting fiscal '20 with neutral new business again.

In Europe, organic growth was plus 12%, driven by solid contract wins in the U.K. last year, and the start-up in January of this year of the new school contracts in the Yvelines department. The Yvelines contract is the biggest school contract ever signed in France, combining both food and facilities management services. Since it started up in January, it will continue to contribute to growth until December for the first 4 months of fiscal '20.

In Africa, Asia, Australia, Latin America and the Middle East, organic growth remained high at plus 12.3% despite an ever-higher comparable base. There were several new school and university contracts started up in China, Singapore and India.

On-site Services' underlying operating profit was up 3.9% at constant rates, so that the margin was flat at 5% relative to the previous year.

Business & Administrations' underlying operating profit increased by 7.1%, and the operating margin was stable at 4.2%. As expected, the productivity generated by the business during the year was reingested to accelerate growth. The timing differences between investment and productivity gains visible in the first half figures were covered as expected, helped by some client renegotiation to establish better levels of profitability in some of the large contracts, and in particular, for the U.S. Marine Corp. contract.

In Healthcare & Seniors, the increase in underlying operating profit and margin was, respectively, plus 6.3% and plus 20 basis points, reflecting the imminent discipline of the new team, particularly in North America, as well as better management of staffing and food cost and generally, more rigorous follow-up of the step operational KPIs.

In Education, underlying operating profit fell by 5.7% and the margin by 70 basis points due to previous year churn, particularly in North America and the start-up of many new contracts. The first half was also impacted by strikes in France. North American wage inflation has been passed through. However, wage inflation has continued in fiscal '19, absorbing most of the productivity achieved during the year.

Now let's move on to Benefits & Rewards performance. Benefits & Rewards Services revenue amounted to EUR 892 million, up 4.9% year-on-year, excluding the negative currency impact of 3.7%, due principally to the weakness of the Brazilian Reals and the Turkish Lira, organic growth in revenue was strong at 8.5%, with the very first -- very strong first 9 months, and then the slowdown in Q4 at 5.2%, against a higher comparable base in the first quarter of the previous year.

Employee benefit revenues were up 9.4% organically compared to an organic growth in issue volume of 7.1%. In Brazil, growth was strong in the first half, slowing down in the fourth quarter, particularly due to the strong comparable base and the business environment, which became progressively more difficult. Growth was strong in Europe.

Services diversification was up 5% organically or 18.7%, excluding some portfolio rationalization in Incentive & Recognition, resulting from strong double-digit growth in mobility and expense and a rapid development in Corporate Health & Wellness offers.

In Europe, Asia and U.S.A., organic growth in revenues remained strong at 8.6%. This performance is due to a solid performance in Western Europe, double-digit growth in Eastern and Southern Europe and Turkey. In the nontraditional business, Rydoo, the end-to-end travel (inaudible) offers.

Organic growth in Latin America was 8.3%, reflecting strong growth in activity, particularly in the first half of the year, following on from the strong pickup in Brazil in the third quarter of fiscal '18. Growth slowed down in the first -- fourth quarter due to the higher comparable base. Growth in Mexico and Chile remained very solid.

Operating revenues were up 8.4%, with solid growth in Western Europe, double-digit growth in Eastern and Southern Europe and strong growth in Latin America. Financial revenues were up 9.1% as a result of continued volume growth across the region this year and high interest rates in Turkey, Czech Republic and Romania.

In Romania, we also had an exceptionally high float due to high insurance at the end of the previous fiscal year. Growth was slower in the fourth quarter due to the decline in Brazilian interest rates.

On Slide 34, the underlying operating profit of BRS was up 12.7% at constant rate, and 5.7% at current rate. As a result, the margin is increased by 20 bps to 31% and by 110 basis points, excluding the currency effect.

Thank you for your attention. I now hand you back to Denis, who's going to cover the new investment in PHS, the strategic agenda and the outlook.

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Denis Machuel, Sodexo S.A. - CEO [4]

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Thank you, Marc. Hello, again. So let's move to Slide 36 because I wanted to touch base with you on our Personal & Home Services. About 10 years ago, encouraged by [Care Bill], we identified the Childcare and the Homecare markets as interesting because they provide a quality of life value proposition in the continuum of our activities, and they represent a huge market potential. These markets benefit from several major trends, democratic shifts -- demographic shifts, aging populations, urbanization, emerging middle class, et cetera.

And therefore, they are expected to be able to generate high single-digit growth going forward. Homecare is currently a EUR 220 million revenue business for us today. We've multiplied sales by 7 in the last 5 years, thanks to a combination of organic growth, acquisitions and buying out franchisees. We're currently present in 6 major countries, and the business is accretive in terms of margin. We strongly believe that this is a major market, which is really made for us. In Childcare, we are still starting out on the development path. Our annualized revenue is EUR 150 million, and we have tripled that in the last 5 years.

We currently have 285 Childcare centers in 3 countries, and the business has reached group margins. We are used to managing caring businesses, knowing how to recruit and retain our employees for the long term through training and internal promotion. By widening our scope, we offer more opportunities for our employees to expand their competencies. And in both Homecare and Childcare, we've reached a critical mass, and the businesses are absolutely aligned with our quality of life purpose and represent strong growth opportunities.

On Slide 37, you'll see that we've started to build up our businesses back in 2009, and we have accelerated our developments with the acquisition this year alone of Crèches de France, doubling our Childcare capacity and bringing us up to top 3 level in France. Elly & Stoffl, with whom we've entered the German Childcare market. Also with the Good Care company, which strengthens our position in the U.K. Homecare market. Domicil+, strengthening our position in the French Homecare market. Pronep and Prima Omsorg with whom we've entered, respectively, the Brazilian and the Nordics region, both of which have enormous potential for the very long term.

And finally, Active Global, with whom we've entered the Asian markets with, in particular, a strong position in Singapore, Shanghai and Hong Kong. We are positioned in both markets principally in the private sector, where a large part of the services is financed by private pay, either by the individual or the family or the company in which the individual works. We are really excited by this opportunity to grow organically and through acquisitions in these highly fragmented businesses.

Now let's turn to our focus on growth strategic agenda on Slide 39, and we go on each of the 4 pillars with some examples.

First, being client and consumer centric. For this quarter, I wanted to talk about what our Benefits & Rewards Services activity is doing in India with Zeta to provide multichannel services. We've been using the Zeta Technology for our digital transformation since 2018. And this summer, we signed 2 deals with Zeta, firstly, to merge our Indian vulture businesses together. And secondly, Sodexo took a stake in the Zeta holding company to back the Zeta Technology. So let me explain the offer. The service for multi-benefit paths is a unique solution that works on 2 different networks, Sodexo's proprietary main network and RuPay's open-loop network for a multitude of employee benefits.

We got to know that RuPay is a leading scheme in India like MasterCard or Visa. The services that we provide include the customized offer for each client for its employees as well as a merchant locator, multiple payment modes and a marketplace for selected providers and partners. Sodexo's consumers can check and consume the benefits offered on the Sodexo Zeta app. And currently, Sodexo's Benefits & Rewards India offers 12 major benefits. There is definitely strong demand for this product from clients and prospects, especially from the small and medium companies segments. And the model is already live in Vietnam and the Philippines and discussions are already well underway elsewhere around the world.

Now on Slide 40, on enhancing operational efficiency. This year, we have moved forward on several fronts, and particularly, we've continued to rationalize our country portfolio. We've now reduced our number of countries from 72 at the end of last year to 67, according to what we had said in the Capital Markets Day. As a reminder, we were present in 80 countries 2 years ago, and the work is ongoing. We've had 2 disposals and 3 closures, with very little impact on revenues and bottom line. The important element is to simplify and focus our efforts on areas where we can grow the business profitably.

And we will continue to do so. We've also moved forward on our step deployment. This performance management framework has now been rolled out more extensively after the pilot phase. The standardized cloud-based dashboards are available in 6 countries with 21 KPIs and will be available to 7,500 sites by February 2020 and to more than 25,000 users by the summer of 2020. The tool is one lever, but the philosophy is the most important one, as we are getting back to managing our business with operational KPIs.

Now on Slide 41. In nurturing talent, there are several things that we've done this year, which I'm particularly satisfied with, in particular around food. You know our business is 70% food, and we have 40,000 chefs around the group. Food is at the heart of the quality of life, and good food done well has the power to do good in the world. So we are putting food back into the heart of everything we do. And so here are several key examples. The Chef Academy has already engaged 2,500 of our chefs with content from best-in-class practices across Sodexo, with global culinary principles and techniques to define minimum presentation standards that have been perfected by chefs at Lenôtre.

The idea is to ensure that all our chefs can be part of a culinary community within Sodexo, where they can express their passion for food and acquire the tools to apply this to the business they run. And the Love of Food app is providing the structure for this. I can tell you that the benefits in terms of raising food quality, lowering operational costs and improving guest satisfaction on a global basis are our program today. And another program, which I believe is particularly important is the Global Chef Exchange program. 54 of our executive chefs have created 2,500 recipes and have visited 180 client sites in 14 countries to promote them. This is a way of celebrating success, retaining the best talent and engaging chefs and their teams around the world.

Now on Slide 42, I want to highlight the fact that our absolute responsibility as a food services company, with a sustainable and inclusive business model, is to fight food waste. We've substantially stepped up the deployment of our game changing, data driven food waste management program, which is called WasteWatch, designed in collaboration with the American startup, Leanpath. And this is a group wide initiative. We are targeting 3,000 sites within this year to then accelerate thereafter, the deployment of WasteWatch around the group. As of October 1, already 40% of the 3,000 sites were being deployed. And there are some in every region around the world.

The program reduces waste by 50% on average. But how do we do that? We empower people with knowledge and engage with our clients and consumers in the process to change behaviors and drive efficiency, innovation and accountability. And there are numerous ways to do so, with new recipes, new ways of thinking about food, planning and cooking methods like batch cooking or using leftovers, turning breadcrumbs into fruit crumbles or [fat] crunch, you name it, with new collaboration with suppliers also to better plan supply or better collaboration with clients to better understand the specific waste patterns.

We are committed to publishing the figures from the program to bring a sense of urgency and raise accountability for us but also for our clients and our consumers. Everyone is playing the game. And Marc told you that he had just renewed a EUR 1.3 billion revolving credit facility with a pricing adjustments mechanism based on Sodexo's waste performance. Just our collective reach with what we do with our suppliers, our clients and consumers is potentially reducing 50% of 117,000 metric tons of food. It's a massive endeavor, but we can do it. Let's be clear, preventing food waste is not only good for the planet, but also good for reducing our food costs and increasing client and consumer satisfaction.

Now a quick focus on growth for North America because North America is critical to our business as you know. And our on-site business there is having a rough time in terms of growth. We've already done a lot, but it's going to take time to fully recover. If we look at the bottom left box, we've now rebuilt the leadership team in virtually all our segments, but particularly in health care and education. More than 2/3 of that team -- of that team in North America has changed through a combination of internal promotions and external recruitments. We still have a lot of work to rebuild fully the talent pool in the different segments. We have also completely redesigned the compensation policy with a focus on individual performance and behaviors.

Today, a non-perform person in North America would have only 20% of his or her bonus on collective objectives, the remaining 80% being individual and mostly financial. This is a big change from the previous organization where individual objectives had been significantly reduced. Our program to accelerate growth has been focused on enhanced targeting to improve the hit rate and more web-based tools, which are then being brought together in a new marketing and sales distribution center.

This should help the North American teams to improve their ability to engage with both existing clients and prospects, and develop more qualified leads to support the field sales teams to drive growth. We are also focusing the teams on accelerating the deployment of our end-to-end food management process, DRIVE. We are upgrading the labor management tools so as to manage labor more efficiently. We have reinforced the supply chain leadership team in order to better leverage our purchasing power. And the Centerplate synergies have been delivered in full according to the plan.

Finally, I wanted to touch base on exciting developments in more healthy foods in North America. Last year, we launched 200 plant-based meals across the country. And this year, in February, we signed a Future 50 projects with WWF in the U.K. and Unilever to provide more sustainable dishes by massively diversifying the plants we use in the kitchens every day, with 50 nutritious foods, such as fonio, pumpkin flowers, cactus and many more that are healthy, full of flavor and more affordable than some of the plants we use today.

These Future 50 projects provide 40 recipes using the new ingredients, and they are currently being rolled out in 5,000 Sodexo sites, particularly in the U.S. And in August, we launched our new Impossible Burger, 100% plant-based at more than 1,500 U.S. locations, particularly in colleges, universities, health care and some corporate services accounts. And last month, we launched an initiative to bring local farmers and artisan food producers into 70 universities in 27 states. Things are moving fast on that front.

I am convinced that these steps can have a big impact, and we are committed to continue to innovate to be able to offer the best of food to our consumers with the lightest impact on the environment. With all this, I hope you have a favor of all the work that we're doing to accelerate growth going forward.

And now let's turn to our guidance for this year on Slide 45. For fiscal year 2020, we will have the impact, as we mentioned earlier, on the Health Care losses in North America. We also know that we have neutral net new business in Education in North America. This is a bit of a drag on revenue growth. On the other hand, we have continued growth in developing economies and solid momentum in Europe. And we have the advantage of about 100 basis points from the Rugby World Cup and the Olympics Games to boost our cover before the North American growth fully takes off.

Given all that, we expect organic growth of around 4%, including the sports events. As the cost reduction will feed the growth initiatives, again, this year, we are expecting a stable underlying operating profit margin, excluding currency effects and pre-IFRS 16 implementation. Midterm, we are aiming to deliver market-leading growth. We are convinced that the investment we are making, our current mix of activities and the strength of our geographic positioning, provide us with ample opportunity to capture more than our share of the growth in the market.

We are (inaudible) with our sustainable and increasing business model, we are convinced that Sodexo is capable of accelerating organic growth over the years to come. And as organic growth increases, we will ensure that the investments being made to accelerate our growth will be kept in check so that the effect of our enhanced discipline and our efficiency gain can feed through to sustainable margin expansion in the years to come.

Thank you for your attention. And now if you have any questions, and I believe you have, Marc and I are here to take them. Thank you.

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Virginia Jeanson, Sodexo S.A. - Head of IR [5]

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Operator, could you take the questions, please?

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Questions and Answers

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Operator [1]

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Your first question comes from the line of Jamie Rollo.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [2]

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Just had a few questions on the sales guidance, first of all, please. First of all, the retention rates and development, both about 50 basis points lower than a year ago. I think [Marc was saying basis points] are measured out at year-end. So doesn't that point to a weaker sales performance in 2020? Secondly, that development rate, the new contract wins being 50 basis points lower, that's despite CapEx being up quite sharply.

So I'm sort of wondering what returns we're getting on that spend, please? And thirdly, you sound a little bit cautious on North America, still. So are there any sort of big losses still to come there? And are you able to give us what you think North America will be within that 4%, I guess, it's 1.8% last year. So would it be better or worse than that? And if I can have a final one. Any way you can break down the 100 basis points between the Rugby and the Olympics so we can get a feeling for the cadence of sales growth through the year, please?

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Denis Machuel, Sodexo S.A. - CEO [3]

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Thanks, Jamie, and hello to you. First, on the retention part, I think if we exclude, as we said, if we exclude this big -- this last contract in Health Care, we would be 10 basis points up. And I think retention, it's not I think, retention is stable or up in all regions and segments, except what we have in North America in Health Care. So we have a specific situation. We also highlighted in our Q3 call, that we were unsure about retention for the end of the past year and for the quarters to come. We see -- of course, we have -- we've put all our efforts in retention.

And we see as a good sign, the fact that it's up in many parts of the world. Health Care is still under pressure. You remember, we talked about these operational efficiencies, the difficulties that we've had in the past, they still weigh a little bit in our retention perspective. I can tell you that the team is all hands on deck on this. We would expect the beginning of the year in Health Care North America being a bit difficult, but we still have some of large contracts under bid, but we have a reasonable level of confidence in keeping them, and we see more the second half of the year being better in Health Care. That's for the retention. For the development part and the CapEx related, do you want to say a word?

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Marc Rolland, Sodexo S.A. - Group CFO [4]

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Yes. The CapEx increase this year is mostly linked to Education and Sports & Leisure and a little bit on our IT investments and so forth. But the CapEx in Education and Sports & Leisure was very much driven to improve retention. And even though it doesn't show yet into the overall group numbers, it does show in the Education numbers where the retention is better. And this is a long-term gain because this is good for the margin over time. So it may not be immediately good in the year you do the CapEx, but improving retention in North America, in Education is good for business.

So that's why we are committing more CapEx resources towards retention. And as Denis stated, retention was not very good in the U.S. because of Health Care and some work we did on the portfolio of Sports & Leisure, but retention was actually improving and better and very close to 95% in many regions and many segments across the world. And so we are building-- we are moving the needle in retention. This year, it doesn't show because of the U.S., but it will show over time. We are confident with this.

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Denis Machuel, Sodexo S.A. - CEO [5]

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Regarding NorAm losses, as you said, Marc, this Health Care is weighing quite a bit. You have to anticipate NorAm -- well, being not so good in terms of even possibly negative growth for the first half. But the second half, we are more positive on the second half of the year. Overall, NorAm won't be as good this year than the past year. But the -- we believe that the underlying trend for the second half and ongoing will be much better.

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Marc Rolland, Sodexo S.A. - Group CFO [6]

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Coming to the Japan's sports events. So the Rugby World Cup is expected to bring, for the full year, 30 basis points of organic growth. And it's mainly focusing on Q1. So everything will occur in Q1, obviously. And the Olympic Games, which will be fully in Q4 is 70 bps of annual organic growth. So the 2 together, they refer that 100 bps.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [7]

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That's -- all right. Just following up on a couple of those. Just on the last point. So if we look at the 3% sort of underlying guidance, excluding the 2 events. Maybe you can give us a feeling on a cadence there. It sounds like, clearly, first half weaker than second half, but by how much? And so just on your retention point, I take your point that underlying retention is up a little bit, excluding the U.S. Health Care loss, but that U.S. Health Care Loss is in the 4% sales guidance. So you're still looking for an acceleration in sales and yet the KPIs suggesting are weaker.

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Denis Machuel, Sodexo S.A. - CEO [8]

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Well. Yes, the -- you're right. I'm not sure I understand your point, Jamie. Sorry, I didn't get your point, sorry.

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Jamie David William Rollo, Morgan Stanley, Research Division - MD [9]

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Apologies. I was just trying to understand that the -- your 4% sales guidance is despite a loss of that U.S. Health Care contract. So it's clearly more like nearer 4.6% million, right? So you still got -- so retention is not much -- it's not really improved underlying, up 10 basis points. Development is worse, and yet you're looking for quite a big acceleration in organic sales. I'm just trying to work out why sales growth is accelerating despite the fact that retention and development together are worse.

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Marc Rolland, Sodexo S.A. - Group CFO [10]

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So, yes. When we look at the KPIs, we had a strong like-for-like growth at -- I think it's 3.1%. And actually, it absorbed the 20 bps of IFRS 15. So the trend is clearly -- the CUGR is clearly having a trend above 3%. So what we could say is that, yes, the net new loss globally is not very positive, but it's relatively neutral. And the CUGR has been strong and stronger. So we -- the CUGR should be the one fueling the growth in the coming year. Now we have a pipeline, we have opportunities. And so we believe the 3% is the right target, excluding the Japan event. Now when it goes about H1 and H2, moving forward, obviously, we see H1 softer than H2...

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Denis Machuel, Sodexo S.A. - CEO [11]

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Softer, yes.

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Marc Rolland, Sodexo S.A. - Group CFO [12]

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softer. But we are confident on the overall 4%, which is 3%, excluding the Japan events.

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Operator [13]

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Your next questions comes from the line of Geoffrey d'Halluin.

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Geoffrey d'Halluin, BofA Merrill Lynch, Research Division - Director & Research Analyst [14]

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Geoffrey d'Halluin from Bank of America Merrill Lynch. Three questions from my side, please. First of all, would you mind to quantify exactly what could be the impact on margins with World Cup Rugby contracts and the Olympics. So you gave some comments on top line. But how much can we expect in terms of profitability? Secondly, would you mind to quantify the working capital boost you had last year, thanks to the Rugby World Cup contracts? And thirdly, you spoke in the past regarding the 6% margins ideally reaching 2021. Would you mind to comment on this? And is it still a guidance which is valid?

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Marc Rolland, Sodexo S.A. - Group CFO [15]

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Thank you, Geoffrey, for the question. So Rugby World Cup and Olympic Games are going to have actually about the same underlying operating profit, and they are in the group average. I mean, we are still waiting for the Japan results for the Rugby because it's coming through, but it was planned to be at group margin. So it will not impact positively or negatively the margin, it will stay within the margin. The working capital impact we had, we sell hospitality packages, including access to the stadium and food and beverages during the event. And all those packages are sold much before the event. So they were sold during the year, from January to August. And we've calculated that it had a positive inflow in our current FY '19 LGU of about EUR 70 million. So it is significant.

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Denis Machuel, Sodexo S.A. - CEO [16]

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And you know I was expecting your question on that one Geoffrey, and what I would say is, as you know, I'm not going to give big term objectives because we decided not to. But I can tell you that I have a very clear idea of where I want to be, and it's very aligned with the Board and the executive committee. So getting back to margins that are above 6% is definitely an objective and we have this -- all our efforts are aiming at, as I said, first, reigniting growth on revenue. And then increasing the margins. I'm not going to give any timing on this. But what I can tell you is we're doing everything that we can to achieve that. And I expect the European margin to improve from next year onwards.

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Operator [17]

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(Operator Instructions)

Your next question comes from the line of Vicky Stern.

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Victoria Jane Lee Stern, Barclays Bank PLC, Research Division - MD & Equity Analyst [18]

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And just firstly around the Q4 growth. When you spoke back in July, I think you were clearly quite cautious about Q4. And clearly, things got quite a bit better, I guess, in the second part of the quarter. So just -- you touched on some of the points, but if you could just flesh out the biggest drivers of surprise for you? It seems more from like-for-like than anything else and perhaps a bit less in terms of contract losses. But yes, just if you can provide a bit more color.

And indeed, then the sustainability of that into next year. Secondly, on Slide 8, you gave that pretty helpful bridge between savings and investments to 2019. I'm not expecting you to flesh that out fully for 2020. But can you give us a sense around those different buckets? Does that look pretty similar as you see it for 2020 between savings and investments? Or are any of those going to be particularly bigger or smaller? And then just finally, on food inflation, particularly African swine fever, is that having much of an impact? Do you expect it to? And is that some of the reasons for the like-for-like being (inaudible).

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Denis Machuel, Sodexo S.A. - CEO [19]

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Thanks, Vicki. On the Q4 growth, actually, yes, we were -- we had a better Q4 than we had expected, which was good news. Overall, I think all geographies and segments were a bit better than we had expected. We had a slightly better-than-expected tourism in France. We had good project work in Education, in North America. We had also -- last year was good, but this year was even a bit better, which is encouraging. And we've been, I think, quite good in successfully renegotiating some of our last contracts, and that went through in Q4. So a lot of work -- this contract renegotiation is part of this new discipline and rigor that we are establishing and it will support us moving forward.

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Marc Rolland, Sodexo S.A. - Group CFO [20]

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Yes. And Vicki, on the Slide 8 question. This is the picture for '19. The picture for '20 will be broadly similar, but maybe the buckets will become larger because [Seazon] future is taking momentum, productivity, too. So the size of those buckets for '20 is slightly higher than the size for '19.

With regards to food inflation. In Europe, we've been doing -- we've been managing food inflation pretty well in most countries. In the U.S., we see a food inflation of about 2%. We've had also a food inflation, quite a good bit of volatility in Brazil for investment and passing it through clients and created some distortion on the quarter-by-quarter margin. But overall, we passed inflation pretty well. And if I look at the U.S., we still experienced a labor inflation, about 3.4%. And the food inflation, about 2%. So we have a blended inflation in the U.S. of 2.8%. But this is what we pass to clients on average. So I think our inflation in the U.S. is pretty covered. That's it. Yes.

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Victoria Jane Lee Stern, Barclays Bank PLC, Research Division - MD & Equity Analyst [21]

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And so, just one follow-up on the investment piece. So if the bucket of investments is slightly going to pick up a little bit. Just where is the extra emphasis going? Would that be around incremental brand additions? Just a bit more color on that, please?

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Marc Rolland, Sodexo S.A. - Group CFO [22]

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We -- this year, we'll -- also, in FY '20, we are reinforcing our investment in supply management, with new tools, more people, IT systems, we have more work to do in infrastructure. We also are pushing harder on marketing and branding. So there will be more work done there. And then we've decided to give more resources to our GPO activity, for instance and so forth. So it's very much investments which are driven to either bring growth or when it's supply management in IT, and then margins and the way we operate. So I believe it's good investments for the future.

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Denis Machuel, Sodexo S.A. - CEO [23]

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And it's quite balanced. I think across all these...

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Marc Rolland, Sodexo S.A. - Group CFO [24]

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Yes, we will continue to invest in BRS also significantly because we have to move faster in the digital transformation. I highlighted during the presentation that our CapEx to revenue in BRS is 6.5%. It will probably be higher than that in FY '20, we have to keep on pushing. This is important. We need to invest more in BRS...

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Denis Machuel, Sodexo S.A. - CEO [25]

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And deliver good margin.

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Marc Rolland, Sodexo S.A. - Group CFO [26]

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(inaudible)

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Operator [27]

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Your next question comes from the line of Jaafar Mestari.

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Jaafar Mestari, Exane BNP Paribas, Research Division - Analyst [28]

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I've got 3 questions, please. First one, very quick. I don't think I've seen the percentage of group revenue that was in facilities management in 2019, the comparable number is something like 32.5% for 2018. If you have that number, handy, please. And then on your 2020 revenue guidance. The Olympics, if it's 70 bps, it's about EUR 150 million of expected contribution from the Japan Olympics, which is what's the London Olympics delivered, especially higher with the falling sterling, I guess. So how will Japan end up being a larger event than London?

Is it a wider contract scope or just very high visitor expectations, please? And lastly, on North America growth, you talk about targeting -- you say 80 of your salespeople are now sectorized, if I understand correctly, targeting specific markets and verticals. Can you just help us understand how material this is? What was the total sales force in the U.S. and how exactly it's organized? Do they really pitch sub-brands? Do they just pitch a specific B&I offer, Health Care offer, please?

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Denis Machuel, Sodexo S.A. - CEO [29]

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Sure, Jaafar. The first question is simple. So today, the FM part of it represents 34% of the [volume driven fact]. And regarding -- I'll take your third question on the sales people, we -- this represents about -- depending upon what we call sales, split between, let's say, half or 1/3 of what we have in sales. There -- the idea is to really reinforce the targeting. So we already had sales people that were sectorized, that were organized by the segments. But the work that we've done is -- has been focused and more targeting the prospects and the clients that we wanted to win.

And so it's much more advanced thinking, much more pre-sales work to ensure that we maximize the hit rate. We are still not at the level that we would like to do be in the retail hit rates, but better targeting, better pre sales work, better digital sales and marketing around that will help us, I think, deliver results. We see the first signs of it, that in the overall NorAm picture, we still have work to do. So it's promising, but it's more of a midterm thing until it fully delivers the full power.

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Marc Rolland, Sodexo S.A. - Group CFO [30]

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And on the Olympics, you're right, 70 basis points is about EUR 150 million. To be honest, I just remembered the number for the U.K. The U.K., yes, it looks like it was EUR 100 million. I don't believe the scope is wider, but the [euro] specialty package and the traveling, the mix is different. So this is what we have in our plan and in the model, it's about EUR 150 million. So we'll dig more into this, and we'll give you a feedback on the comparison to why it's bigger.

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Denis Machuel, Sodexo S.A. - CEO [31]

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We've established our offer with a very strong partner, local partner, JTB. And that will -- that gives us a lot of confidence in the way we will commercialize our offers. So that is part of the explanation of a bigger revenue.

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Jaafar Mestari, Exane BNP Paribas, Research Division - Analyst [32]

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Okay. Because for [212], you said EUR 200 million in total for New Zealand Rugby and London Olympics. So yes, it looks like it's biggish.

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Operator [33]

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Your next question comes from the line of Kean Marden.

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Kean Marden, Jefferies LLC, Research Division - Head of Business Services Equity Research [34]

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I've got a few questions as well, if I may. Just starting off on the CICE and the French subsidy regime changes. Marc, I wonder if you can just help summarize the headwinds to profitability in fiscal '19 and then some of the potential tailwinds that come through once the fee on subsidy and the December subsidy payment is reengaged over the next 12 months. And then secondly, on the FM business. If we go back to sort of your initial review of the business and the intention to review your activities in FM and potentially introduce more third-party provision, particularly in areas like cleaning, where do we sit with that at the moment? What actions have you taken? And also mindful of profit warnings elsewhere in the FM sector over the last week or 2 where margin expectations have continued to come down.

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Denis Machuel, Sodexo S.A. - CEO [35]

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Yes, we noticed some of the profit warnings, you've been mentioning. The FM business is currently under review. It's -- you don't turn the ship into -- in 3 months. FM represents, as I said, 34% of our on-site business. So it's going to take time. We are -- at this very moment, reviewing what our capabilities are, what services we are currently delivering, with what profitability, in what regions, in what segment. So there's a whole mapping of our capabilities, business opportunities and profitability.

So this is actually ongoing. We are already taking some decisions here and there to outsource more, subcontract more of the FM, and well, over the -- this next calendar year, we'll give much more visibility on what we do. But we have to be cautious because it's complex to operate as a change in direction, not as a massive change, but an adjustment into the direction we take. The other thing that I want to tell you is that we are -- and I think Marc said that as well. We are very cautious on what we sign. So in the FM, we were sure that we remain competitive, but we won't sign things at any cost. We've said no to some of the bids because we thought that was too low. That explains a little bit of the drop in the development. So we're very cautious in FM and boosting food at the same time. So it's work. It's ongoing work, and it's -- I think we'll give more visibility to that in the coming year.

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Marc Rolland, Sodexo S.A. - Group CFO [36]

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And with regard to the [Seafood], the impact on FY '19 is negative at net income level, we estimate it's about EUR 12 million. There is a small impact, negative impact on our UOP, about EUR 3 million, and most of the impact is on tax at EUR 9 million. And for FY '20, we do expect those impacts to neutralize that UOP level and that net income and become much less significant from going forward. But the FY '19 impact was minus EUR 12 million on net income.

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Kean Marden, Jefferies LLC, Research Division - Head of Business Services Equity Research [37]

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Great. That's very helpful. One quick follow-up, Marc. Forgive me, when you mentioned the working capital benefits from the Rugby World Cup, was that EUR 7-0 million or EUR 1-7 million?

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Marc Rolland, Sodexo S.A. - Group CFO [38]

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EUR 7-0 million , yes, EUR 7-0 million.

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Operator [39]

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You next question comes from the line of James Ainley.

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James Robert Garforth Ainley, Citigroup Inc, Research Division - Director and European Hotels and Leisure Analyst [40]

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Three questions from me, please. First, I wanted to come back to this medium-term margin guidance, which has been removed. In the absence of a clear guidance, could you maybe help us with some kind of framework as to how to think about the scope for margin potential? I mean, sort of what level of organic revenue growth do we need to see before margins can improve? And certainly, if you [talk to] something like campus, they'll say, above a certain level, it's actually harder to drive margin improvement as new contracts tend to be dilutive initially.

So could you give us some kind of -- some scope or some range about where you might -- of organic revenue growth that where you might see margin expansion? And that's the first question. And the second question, I think you referenced in your earlier remarks that some of the cost savings were being reinvested in price to drive competitiveness. So is that reflective of any change in the competitive environment? And why the need to reinvest in price and in which markets, please? And then the third question is, could you give us some sense of underlying volume trends in North America and across the key European markets?

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Denis Machuel, Sodexo S.A. - CEO [41]

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Okay. What did you mean by volume trends, James?

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Marc Rolland, Sodexo S.A. - Group CFO [42]

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The like-for-like volume.

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James Robert Garforth Ainley, Citigroup Inc, Research Division - Director and European Hotels and Leisure Analyst [43]

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The like-for-like volume.

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Denis Machuel, Sodexo S.A. - CEO [44]

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Like-for-like. Okay. So on your first question, yes, you understand why we -- I guess -- we didn't want to give a midterm guidance because we hadn't reached the midterm guidance in the past. So I reiterate the fact that being above 6% is definitely an objective. And we have room for that. We have room for that. And what you said about Compass is we are in a different situation because we are below them in terms of margins. So we have room for margin improvement. But I don't want to jeopardize the good growth, organic growth in revenue that we have created by pushing margins up too quickly.

That's why I said, I see this year flat, and next year, UOP margins starting to improve, and reaching the 6% in the future or over -- above 6%. What we want is sustainability. And as I said in the Capital Markets Day, we want to be sustainably above 3%. And ideally, in the range of 4% and 4% plus, that's what we -- we don't need to be at 5% to improve the margins, but we want to be sustainably above 3%. And that's really our goal and to reach best-in-class in terms of organic growth and improve the margins. So no guidance given, but margin improvement for next year, and of course, this objective of 6% and above 6%, really as a target. And sustainably then, the idea is to be sustainably above 6%.

Now on the cost savings we're investing in pricing. We've always reinvested some of our savings into our competitiveness. This is the name of the game. I haven't seen major changes in the competitive environment. It has always been competitive. And I wouldn't say that this is a change in pattern for us or for others. We are reinvested -- reinvesting in also -- in the value that we create in our offers and in several cases, we are also able to price premium because of the quality of what we do. When typically, we introduce some of our very trendy offers. We are able to, in several cases, to price them with a premium or, at least, to really win with these offers. So no particularly more competitive environment. And, yes.

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Marc Rolland, Sodexo S.A. - Group CFO [45]

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And on volume trends, our performance region-by-region is more of a reflection of our internal issues or strength than actually the market itself. The U.S., we see the market as still being strong. And yes, we've grown 1.8%, and we cannot be satisfied with 1.8% in such markets, we should be growing faster. So the market, we still see the market as being sorted in the U.S. In Europe, we are doing better. The market has been slightly better for us, we believe, in the past year than it was maybe 3 years back.

I mean, the price is better, but we also see it in the -- in Mediterranean. And we have still some issues in Benelux. But again, I think there's more internal issues than actually the market itself. We've done well in Central Europe last year, well in May, we've done well in the U.K. and France. So for us, the trend is very good, in France is good, in Europe. I mean, it's not flamboyant but it's there.

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Denis Machuel, Sodexo S.A. - CEO [46]

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It's solid.

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Marc Rolland, Sodexo S.A. - Group CFO [47]

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Yes, it's solid.

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Operator [48]

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We have no further question coming from the phone lines. (Operators Instructions) Please continue.

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Denis Machuel, Sodexo S.A. - CEO [49]

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Okay. Well, if we have no further questions, I just want, again, to thank you for being with us this morning. I just want to reiterate the strong confidence that we have in the action plan that we've put in place to: First, reignite growth; strengthen our capability; and with this consolidation of the growth that we see moving forward, then margin increase will come up. Very -- we have a very solid team. We have very good perspective, I'm extremely confident for the future of Sodexo. So thank you for being with us today, and looking forward to our last -- next interaction. Thank you.

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Marc Rolland, Sodexo S.A. - Group CFO [50]

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Thank you. Have a good day.