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Fiscal 2005 results in line with objectives
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- Organic revenue growth: + 4.3 %
- EBITA increase: + 5 % at constant exchange rates
- Net Debt reduced by € 344 million to € 575 million
- Proposed dividend increase: + 7 % to 0.75 € per share
Paris, November 17, 2005. SODEXHO ALLIANCE (Euronext Paris FR0000121220 - SW / NYSE:SDX) - On November 15, 2005, the Sodexho Alliance Board of Directors met under the chairmanship of Pierre Bellon to close the accounts for the year ended August 31, 2005 and to propose for shareholder approval a 7 % dividend increase.
Overview of Fiscal 2005 financial performance
French GAAP (1)
In millions of euro | Fiscal 2005 | Fiscal 2004 | % Change (current exchange rates) (2) | % Change (constant exchange rates) |
Revenues | 11,672 | 11,494 | +1.5% | +3.9% |
Organic growth | 4.3% | 4.0% | ||
EBITA | 530 | 515 | +2.8% | +5.0% |
Net financial expense | -103 | -118 | +12.8% | +10.7% |
Net exceptional expence | -95 | -33 | n.m. | n.m. |
Income tax | -103 | -109 | n.m. | n.m. |
Group net income | 159 | 183 | -13.5% | -11.1% |
Group net income, excludin resolution of US litigation | 197 | - | +7.6% | +9.9% |
Earnings per share (in euro) (3) | 1.0 | 1.15 | -13.5% | -11.1% |
Earnings per share excluding resolution of US litigation (in euro) | 1.24 | 1.15 | +7.6% | +9.9% |
(1) The transition to International Financial Reporting Standards (IFRS) will begin in Fiscal 2006
(2) The US dollar declined by 5.3 % against the euro during Fiscal 2005
(3) As of August 31, 2005, earnings per share on a fully diluted number of shares is identical
With organic revenue growth of 4.3 % and a progression of 5 % in EBITA (at constant exchange rates), the Group's financial results were in line with the objectives set by the Board at the start of the fiscal year.
Group net income for Fiscal 2005 of 159 million euros included an exceptional expense, net of taxes, of 38 million euros related to the settlement in April 2005 of the class action law suit in the United States. To avoid protracted proceedings and without admitting any liability, Sodexho chose to settle the class action law suit. Excluding the effect of the resolution of this litigation, Group net income would have risen by nearly 8 % or 10 % at constant exchange rates.
Net cash flow from operating activities reached record levels and resulted in a reduction of net debt to 575 million euros as of August 31, 2005. This demonstrates the strength of the Group's financial model.
Given these elements, the Board of Directors will ask shareholders to approve an increase of 7 % in the dividend, to 0.75 euro per share, at the Annual General Meeting of January 31, 2006.
Organic revenue growth: + 4.3 %
In Food & Management Services, revenues totaled 11.4 billion euros. Organic growth of 4.1 % reflects a sharp increase in the Healthcare segment (+ 6.2 %), continued robust growth in the Education segment (+ 4.5 %) as well as positive growth in the Business and Industry segment (+ 2.8 %).
In North America, organic revenue growth accelerated during Fiscal 2005 to 4.4 %. In Continental Europe, revenues rose by 4.1 %. In the UK, the revenue decline of 2.6 % was much improved over the prior year's performance. Double digit growth rates were achieved in Latin America, in Asia and in Remote Sites.
In Service Vouchers & Cards, revenues totaled 280 million euros. Organic revenue growth accelerated sharply reaching 13.2 %, driven principally by issue volumes of 5.3 billion euros, up year on year by 8.9% (at constant consolidation scope and exchange rates).
EBITA: + 5 % at constant exchange rates
Consolidated EBITA amounted to 530 million euros.
This sound operating performance includes investments made during the year to reinforce the sales teams and to strengthen client retention initiatives, including the roll out of the “Clients for Life®” program, as well as costs associated with the transition to IFRS and the Group's initiative to refine risk assessment and control.
EBITA growth was particularly strong in Service Vouchers and Cards (+ 20.5 %) as a result of good volume growth and a more favorable interest rate environment.
In Food and Management Services (1):
- Operating profit also progressed sharply in Continental Europe (+ 19 %), as a result of site and overhead efficiencies, notably in France.
- In North America, EBITA declined by close to 2.6 % year on year. The subsidiary recorded initial benefits from the implementation of new management systems for site managers in the Education segment. However, two items weighed on its performance: first, doubtful debt provisions constituted in the last months of the year against receivables in the Healthcare segment, and second, poor profit performance with the US Marine Corps contract; as is common in federal contracts of this nature, certain modifications to level and scope of services are taking time to review and discuss.
(1) % changes are expressed at constant exchange rates - In the United Kingdom and Ireland, Sodexho achieved strong improvements in site productivity. However, EBITA was broadly comparable to In the Rest of the World, which includes Latin America, Asia - Oceania and Remote Sites, and excluding the Rugby World Cup in Australia in 2003, EBITA rose 16 %.
Accordingly, the Group operating margin for Fiscal 2005 increased slightly to + 4.5 %.
Fiscal 2005 impacted by net exceptional expense
Exceptional expense totaled 95 million euros, and included:
- 62 million euros relating to the resolution of the US litigation.
- 10 million euros relating to reorganization costs in the United Kingdom, principally property rationalization and headcount reductions.
- Provisions totaling 7 million euros for stock option plans and 5 million euros for various legal disputes.
Group net income up 7.6 % to 197 million euros (excluding resolution of US litigation)
A decrease in net interest expense and a low effective tax rate contributed to an increase in Group net income, excluding the charges relating to the resolution of the US litigation. Earnings per share increased by the same proportion.
Balance sheet strengthened by substantial net cash flow from operating activities
Net cash flow from operating activities totaled 655 million euros, up by 7 % as compared to the prior year. This includes inflows of 229 million euros from working capital variations resulting from a number of positive factors:
- Continued growth,
- Good control over client credit in Food and Management Services,
- Strong issue volumes in Service Vouchers and Cards in the last months of the fiscal year.
- As a result, net debt decreased during the year by 344 million euros (including a 36 million euros currency effect) to 575 million euros, and now represents only 27 % of Group shareholder's equity as compared to 52 % two years ago.
Outlook for Fiscal 2006
In Europe, the economic environment remains challenging, nevertheless Sodexho has recently enjoyed good sales activity in France. In the UK, Sodexho still targets a return to slightly positive growth by the end of the current fiscal year. The Group continues to record solid performance in Latin America, Asia, Remote Sites and Service Vouchers and Cards.
In North America, and in New Orleans in particular, Sodexho has a leading market share in the higher education and healthcare segments. The hurricane damage in September in the Southern part of the United States will have a negative impact on profit growth for Sodexho in North America for the current fiscal year. In particular, the timing of the reopening of approximately ten large accounts in this region is currently uncertain.
On this basis (excluding currency effects and using comparable accounting standards), Sodexho is targeting the following objectives for Fiscal 2006:
- Revenue growth of between + 4.5 % and + 5 %
- An increase in operating profit of between + 5 % and + 6 %.
Michel Landel, Chief Executive Officer of SODEXHO ALLIANCE, said: “Considering the potential within our markets, the real strength of our global network and our excellent financial model, I am confident in the Group's ability to accelerate annual revenue growth to the objective of 7 % in the medium term. We remain strongly focused on our strategic priorities:
- Accelerating profitable growth by improving client retention, increasing revenues on existing sites, developing our multiservice offerings and winning new clients.
- Developing our human resources, notably by reinforcing our succession planning, the roll-out of new training programs, and continuing initiatives to promote diversity within the Group.
- Improving our competitiveness and operating margin by investing in procurement, systems and tools to support our site managers improve productivity, and by leveraging organization efficiencies.
- Finally, by improving risk assessment and control and by the widespread implementation of best practices.”
About Sodexho Alliance
SODEXHO ALLIANCE is the leading global provider of Food and Management services, with more than 324,000 employees on 26,700 sites in 76 countries. Listed on Euronext Paris and on the New York Stock Exchange, the Group's current market capitalization is 5.5 billion euros.
This press release contains 'forward-looking statements' within the meaning of the United States Private Securities Litigation Reform Act of 1995. These include, but are not limited to, statements regarding anticipated future events and financial performance with respect to our operations. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like 'believe,' 'expect,' 'anticipate,' 'estimated' , 'project ' , 'plan' 'pro forma,' and 'intend' or future or conditional verbs such as 'will,' 'would,' or 'may.' Factors that could cause actual results to differ materially from expected results include, but are not limited to, those set forth in our Registration Statement on Form 20-F, as filed with the Securities and Exchange Commission (SEC), the competitive environment in which we operate, changes in general economic conditions and changes in the French, American and/or global financial and/or capital markets. Forward-looking statements represent management's views as of the date they are made, and we assume no obligation to update any forward-looking statements for actual events occurring after that date. You are cautioned not to place undue reliance on our forward-looking statements.
Analyst and journalist meeting
SODEXHO ALLIANCE will hold today an analyst and journalist meeting at Espace Etoile-St-Honoré, 23, rue Balzac, 75008 Paris. The meeting will be webcast and will begin at 8:30 am (Paris time). A slideshow presentation will be available on the following link www.sodexho.com, under the “latest news” section, beginning at 7:30 a.m.
The call-in access number is + 33 1 72 26 01 28.
Financial Calendar
- First quarter 2005-2006 revenues (IFRS)
Wednesday, January 11 at 8:30 am (Paris time), with a conference call immediately following. - Annual Shareholders' Meeting
January 31, 2006 at 16:30 pm (Paris time) at the Palais des Congrès (Porte Maillot, Paris).
The above dates are provided for information only and are subject to change.
