Fiscal 2022 Universal Registration Document

6 CORPORATE GOVERNANCE

Description of Principal Risk Factors

The tables below describe Sodexo’s principal risk factors, their possible impact and give examples of measures implemented to reduce these risks.

CLIENT RETENTION
Risk of not keeping and renewing contracts with Sodexo’s existing clients.
Category: Clients/Consumers

Impact

Many clients now work on a hybrid model, with employees working both at home and in the office on a regular basis. This means that Sodexo's food offer has to be more flexible to be able to reach consumers in both places and that the traditional workplace food offering – an on-site kitchen providing food to on-site employees at set hours – has evolved. Sodexo needs to work with its clients pro-actively as a partner to adapt to changing circumstances and continue to meet evolving client needs. A lack of ability to adapt to the client’s current circumstances, an inability to transform our services to remain attractive to meet client/consumer demand, or any changes in client outsourcing strategy could mean that the client is not retained, possibly leading to:

  • less growth;

  • decrease in profitability;

  • loss of credibility in the market place.

Examples of Mitigating Activities

  • On-site teams continually listening to the client and the consumer.

  • Strengthening of the client relationship management process to ensure alignment with client expectations on an on-going basis.

  • Our client offer Vital Spaces offers a comprehensive and systematic approach to workplace design, workplace management and work life services.

  • Risk reviews carried out with key accounts every six months to review retention risks.

  • Monitoring at global level of retention in the client portfolio, using a client relationship management tool.

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CHANGING CONSUMER EXPECTATIONS AND BEHAVIORS
Increased consumer expectations around personalized, innovative and digital services, healthy food choices and a comfortable environment; increased consumer expectations in relation to business conduct and environmental impact. Structural changes in the way consumers choose to consume food.
Category: Clients/Consumers

Impact

Consumers expect to be able to consume food in different ways and at a time of their choosing. They expect more choice, more convenience, healthier options and socially responsible behavior from the companies from which they receive service. If Sodexo cannot adapt its consumer offer adequately or cannot anticipate and meet consumer expectations for innovation and in relation to environmental impact or business conduct, its revenues, as well as its reputation, could be affected.

Examples of Mitigating Activities

  • Acceleration of the multi-channel delivery model which offers consumers greater flexibility for food consumption; click and collect, delivery, micro-markets, connected fridges.

  • Increased use of technology, for example robotic food delivery on-campus.

  • Focus on expanding the provision of plant-based meals, offering consumers both a healthy option and one with a lower carbon footprint.

  • Partnership with Quorn to launch a carbon neutral food services solution in the UK.

  • Supply Chain Inclusion program that proactively focuses on buying from small and medium-sized companies, suppliers owned or operated by women or people from minority groups and major suppliers who actively embrace diversity, equity and inclusion in their workforce.

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BIDDING RISKS
Risks relating to the commercial and contractual model and the scope of services included in a client contract.
Category: Clients/Consumers

Impact

Some of Sodexo’s client contracts are long-term and may run between five and ten years. This is particularly relevant for the Business & Administrations segment. Factors such as:

  • inaccurate pricing assumptions;

  • a lack of definition or detail in the scope of services;

  • underestimating the complexity of the scope of work;

  • and inadequate contractual clauses.

during a bid proposal can lead to low margins or even losses on the contract, either in the startup phase or at a later date.

Examples of Mitigating Activities

  • Benchmark exercises, site visits, full due diligence and the use of technical expertise are all part of the process to establish unit costs, seasonality of services and base-line estimates (monitoring of cost and performance indicators to verify the relevance and competitiveness of our offer).

  • Identification of the main contractual risks (from the analysis) and the deployment of measures to compensate these risks.

  • Use of costing models and benchmarking to validate assumptions.

  • Robust, standardized and transparent costings.

  • Integration of different stakeholders in the review process to better anticipate possible issues.

  • Strict execution of Sodexo’s key processes for solution and contract design & solution mobilization.

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