Fiscal 2020 Integrated Report

Effectively managing business activity through an unprecedented crisis

Faced with the rapid spread of Covid-19 around the world, Sodexo’s priority has been to adapt its activities to ensure the Group’s sustainability.

AN IMMEDIATE OPERATIONAL RESPONSE

To reduce the impact of the drop in revenue caused by the partial or total closure of a significant number of sites, particularly in the Education, Corporate Services and Sports & Leisure segments, Sodexo immediately identified all possible means to reduce costs and capital expenditures, and preserve cash.

The Group quickly adopted a set of rigorous measures, including proactive above-site and workforce cost management to adapt to rapid changes in the situation, redeployment of teams to high-demand sites and leveraging government measures to protect employment. Other steps included strict management of cash focused on maintaining ongoing dialogue with clients, appropriate and careful monitoring of inventories and the supply chain, and postponement of all non-essential investments.

Adapting services, from enhancing the Foodservices off er to implementing additional Facilities Management services in response to local conditions, also helped to strengthen the confidence of clients and in some cases even expand the business, like the development of Covid-19 testing centers in the United Kingdom. For example, Corporate Services teams deployed a smart App worldwide and in record time that enables real-time monitoring of the situation on 1,400 Global Account client sites: sites open/closed, zones at risk to the spread of the virus, changes in the service offering, business continuity plan, cost management, thus enabling efficient management of the activity.

A SIGNIFICANT IMPACT ON THE GROUP’S PERFORMANCE

The pandemic interrupted the positive growth momentum that had been driven by the strategic agenda launched in 2018. In the second half of Fiscal 2020, organic revenue growth fell by -27.5%. The organic trend nevertheless improved in the fourth quarter, falling only -24.9%, aft er a -36% decline in the third quarter, adjusted for the first two weeks before lockdown. Consolidated revenues stood at 19.3 billion euro for the year, down -12% compared to the previous year.

On-site Services revenues declined by -12.1% for the year and by -27.8% in the second half. This downturn is the most severe ever experienced by Sodexo. The revenue decline for the Business & Administrations segment was -29.2% for the second half, with a highly mixed situation among the sub-segments. For example, s ales from Sports & Leisure activities, which closed very quickly in mid-March, fell by -88% over the period, while the decline in Corporate Services was -26%. In Healthcare & Seniors, the decrease was limited to -11.1% for the period, due in particular to the slowdown in elective surgery in hospitals. The Education segment was down -47.2% in the second half of the year, strongly impacted by the closure of most schools and universities around the world, although Foodservices were requested by certain governmental authorities in order to provide meals to families.

Revenue from Benefits & Rewards Services was down -18.8% over the second half of the year and -13.4% for the full year, with an improving trend aft er the end of the lockdown in Europe and the gradual reopening of restaurants.

Despite this crisis, Sodexo’s financial situation is solid. The underlying operating profit margin for the year was 2.9%. Underlying Net profit amounted to 306 million euro. The Group has been particularly active in scrupulously watching over its cash flow, by reimbursing the USPP of 1.4 billion euro, thus resolving the issue of the covenant thresholds and by issuing 2.5 billion euro of bonds in April and July. Free cash fl ow reached 72 million euro and underlying earnings per share stood at 2.10 euro.

SOME RESILIENCE FACTORS OF THE BUSINESS MODEL

This unprecedented crisis has highlighted the resilience of Sodexo’s model, including the diversity of its services portfolio and its geographical footprint. The Group’s global presence has enabled it to maintain continuous activity in response to the pandemic’s spread around the world. Corporate services activity in China has even returned to growth on a monthly basis by the end of the second half of the fiscal year.

Sodexo can also rely on its Facilities Management services, which represents 40% of On-site Services and which have fallen by only -1.4% during the second half, compared with a drop of -42.2% in Foodservices. This is in a context where cleaning, disinfection or maintenance of installations are key services to ensure that clients are able to gradually reopen sites, and particularly in Global Accounts that represent nearly 10% of sales. Its varied sectoral expertise also enables the Group to face this unprecedented crisis and demonstrate the usefulness of its services, particularly in Healthcare & Seniors, or in Energy & Resources and Government & Agencies ; these last two represent 14% of On-site Services revenue and posted a +1.3% increase in revenue in the second half of Fiscal 2020. Despite the pandemic, Sodexo won significant new contracts in multiple segments, including Energy & Resources. In Peru, Sodexo is providing its expertise in Facilities Management and Foodservices for 8,000 Anglo American Quellaveco employees and is extending its contract with Nexa to cleaning services. 

Sodexo also won a new contract with Antofagasta Minerals in Chile . In Norway, the Group won a significant contract to provide food, cleaning and laundry services for eight off shore platforms with the deployment of innovative technological solutions to improve operational efficiency and safety of services. Benefits & Rewards Services also contributed to Sodexo’s resilience. Although impacted by the drop in revenues in Employee Benefits and Services Diversification, the teams were able to accelerate the digitization of the activity during the crisis by converting clients to digital, developing new partnerships with delivery platforms and strengthening complementarity with On-site Services, in particular through the development of Sodexo cards to improve the meal experience for people working from home. The activity was also supported by contracts concluded with several governments for the distribution of public aid to populations most affected by the crisis.