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Sodexo reports 3Q revenue down by 30% due to due to Covid-19 impact

Sodexo

MILAN – French catering and facilities management firm Sodexo said Tuesday that revenue for its third quarter of fiscal 2020 dropped by almost a third due to the coronavirus pandemic. The company’s third quarter results saw revenues reduce from £5 billion in 2019 to £3.5bn in Q3 2020 – a more than 29% drop.

Revenues across Europe were down by almost £600 million.

The company said the coronavirus became a concern in the second half of January for its business in China, followed by a rapid deterioration world-wide in February.

The group said the fourth quarters sales are likely to fall 27% with a 28% drop of 3 billion euros (£2.72 billion) in the second half of the financial year.

Sodexo provides catering services for businesses, industrial sites, the military, government agencies, hospitals, schools and sports events.

Earlier, the Paris-based group had forecast in April a 15% slump in its fourth quarter and a fall of 25% during the second half of the fiscal.

Sodexo CEO Denis Machuel said:

“We have lost nearly one third of our Q3 revenues relative to last year due to COVID-19. Nevertheless, our On-site business broad geographic mix, strong Facilities Management (FM) and large integrated accounts combined with Benefits & Rewards have given us resilience.

At the start of the crisis, our focus was on protecting the health and safety of our people, consumers and clients. With a significant number of sites fully or partially closed, we immediately identified all means to protect our cash and reduce our costs.

As déconfinement became a reality, first in Asia, then in Europe, we launched “rise with Sodexo”, a new program to help our clients reopen their sites safely and as quickly as possible. This multi-service approach brings together a wide range of our services with secure protocols, approved by the Sodexo Medical Advisory Council and carrying a Bureau Veritas hygiene verification label.

I am extremely proud of the speed of action and innovation that our teams have shown.
I am convinced that the company is in a position to come out of this crisis stronger than ever.”

Q3 Highlights

  • Q3 Fiscal 2020 Group revenue was 3,910 million euro, down -31.2%. Currencies impacted revenues by -1.7% and M&A contribution was +0.3%, resulting in Group organic revenue growth of -29.9%, which compares favorably to the hypotheses provided in April of -33%. Whereas food services are down -44%, FM services are only down -2%. Benefits & Rewards are down -22.8%.
  • On-site Services organic revenue growth was -30.1% reflecting the significant impact of the COVID-19 pandemic as it spread across the world on the Group’s business with many sites closed or only partially open:
  • Business & Administrations was down -28.5%, compared to the -30% hypothesis. While Corporate services was impacted by the lockdowns and home working for white-collar workers, production was maintained in many industries and in many countries, in particular in essential sectors. Even if buildings were closed to workers, essential cleaning, maintenance and security continued, albeit at a slower pace, resulting in more resilience of the FM services than Food services. Sports & Leisure sites closed down completely, whereas Energy & Resources and Government & Agencies were more protected from the lockdown by the nature of their business.
  • Healthcare & Seniors was down -12.9%, a bit more than the -8% hypothesis due to the lack of retail activity and the decline in elective surgery, and not fully compensated by extra COVID-19-linked services.
  • Education was down -53.9% slightly better than the -60% hypothesis. With most schools and universities closing from mid-March onwards, sales were limited to meals provided by local authorities to families in need.
  • Benefits & Rewards Services organic revenue growth was -22.8% vs the -20% hypothesis. In employee benefits, sales were impacted by the combination of a decline in issue volume of 12% due to temporary unemployment in most countries and the interruption of paper voucher production in some countries, and the more significant slowdown in reimbursement volumes, due to restaurants being closed. As a result, the float remained solid. Diversification services were impacted by a sharp decline in the home services vouchers specifically during lockdown, and the decline in corporate travel for the Rydoo platform.
  • Underlying operating profit flow-through from the decline in revenue has improved month by month and is now better than the hypothesis of 25% announced in April.
  • Free cash flow has stabilized in positive territory since April and is in line to achieve a 2nd semester in the range of -200 and +200 million euro, excluding the USPP “makewhole”1 of around 149 million euro.
  • With nearly 5 billion euro of liquidity2 at end May, Sodexo has announced that it will reimburse its USPP notes for 1.6 billion dollars by the end of the fiscal year. The reimbursement conditions include a “makewhole1” provision of around 149 million euro. Going forward, the average cost of debt will fall to approximately 1.2%, versus 2.3% at the end of the 1st half Fiscal 2020. As a result of this operation, Sodexo will have no covenants and will retain full agility to navigate in these uncertain times.