Operator: Good morning. Thank you for standing by, and welcome to Sodexo's Fiscal 2026 Results Conference Call. As a reminder, all participants are in listen-only mode, and after the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. I advise you that this conference is being recorded today on Friday, 23 October 2026. At this time, I would like to hand the conference over to the Sodexo team. Please go ahead.
Juliette Klein: Good morning, everyone, and thank you for joining us for our fiscal 2026 earnings call. I'm Juliette Klein, Head of Investor Relations. With me today are Thierry Delaporte, our CEO, and Sébastien de Tramasure, our CFO, who will take you through the presentation. After that, we will open the line for questions. As usual, we will ask you to please limit yourself to 2 questions and 1 follow-up. If you have any additional questions after the call, please do not hesitate to reach out to the IR team. With now, I will hand over to Thierry.
Thierry Delaporte: Thank you, Juliette, and good morning, everyone. Thank you for joining us. Before we go through the numbers, I would like to step back for a moment on the year we have just completed. Fiscal 2026 was a year of diagnosis and reset. What have we done? Over the past year, I have spent significant time with our teams and clients across our businesses. This has given me a clear view of the issues we need to address, but also of Sodexo's considerable strength, the quality and the commitment of our people, the depth of our client relationships, and our expertise and our global reach. These are absolutely powerful assets. But our performance has not consistently reflected them, and that's the point. Over the year, we worked as a leadership team to turn the diagnosis into Shift & Grow 2030.
Thierry Delaporte: A clear action plan, which is now being deployed across the group. In July at our investor update, we presented that plan to you. Its first phase, covering fiscal 2026 and 2027, is about rebuilding our foundations and restoring our competitiveness. Concretely, that means three things. One, restoring commercial momentum and improving execution discipline. Second, simplifying our organization and reducing complexity. Third, investing in critical capabilities in our people and our systems. Three months on, the work is underway across the group, and I will come back shortly to some of the first concrete changes we have made. The transformation will take time, there is no doubt, but our teams are moving with urgency, and we are where we expect it to be at this stage. That is what I would say today. Our fiscal 2026 results support this.
Thierry Delaporte: We finished the year well, with organic growth ahead of expectations, and today we confirm our outlook for fiscal 2027. Our priorities are very clear, and we are focused on delivering what we committed to. Now, let me turn to fiscal 2026 in detail. As you can see, revenue was EUR 24 billion with organic growth of +2%. This was above our latest guidance, reflecting a stronger than expected Q4. The underlying operating margin was 3.4%, at the upper end of our expected range. We also made progress on our commercial indicators. Developments reached 7.7% of revenue and client retention was 94.4%. What I would say is the direction is encouraging, although retention remains below where we want to be, and we need to sustain improvement over time. We maintain financial discipline through the reset. Free cash flow was EUR 379 million.
Thierry Delaporte: Leverage ended the year at 2.4 times, better than the level of around 2.6 times anticipated in July at the time of the investor update. Sébastien will come back to these elements in more detail. The proposed dividend of EUR 1.74 per share is in line with our capital allocation policy. Our focus now is to improve, as I said, retention, execute our new contract mobilization well, and continue to raising execution standards across the group. Moving to Shift & Grow. Shift & Grow 2030. It has been three months since our investor update. As I said, we are moving forward as planned, and Shift & Grow 2030 is now being translated into concrete actions across the group. We know what we need to do, get closer to our clients, be more competitive, faster in our decisions, and more consistent in our execution. None of this is conceptually complicated, we know that.
Thierry Delaporte: But it is demanding, and it requires disciplined execution every day, contract by contract, and site by site. Now, let me give you one example under each priority. On growth. The new account management model that we talked about back in July is in place for our top 200 clients. Each account now has one named owner accountable for retention, for growth, and financial performance. In North America, in the US, education segment, I have absolutely seen that change first hand. The new leadership team has restored a level of focus and an intensity around retention that frankly, we have lost over time. They are getting closer to every critical account, mobilizing the right people well ahead of renewal decisions. They have done systematic franchise review on all critical accounts at an accelerated pace. It is still early, I know that, but we are beginning to see better outcomes on renewals. On simplification now.
Thierry Delaporte: Restructuring actions are underway in every region. In the US, each segment has removed between 1 and 3 organizational layers, bringing segment CEOs closer to frontline operations and shortening decision paths. The work continues. This is not, as you can imagine, a one-time initiative. Simplification remains a core discipline and will continue to remove complexity wherever it slows execution or creates distance from our operations. Finally, on performance culture, we have acted on the leadership review starting in North America. We have renewed around two-thirds of the leadership team at the level immediately below, combining internal promotions on one side with selected external hires. We have also extended the review across all levels, from operational leaders to the senior leadership team in each segment, giving us a much clearer view of where we have strong talent and where capabilities need to be strengthened.
Thierry Delaporte: I have been clear with our leaders, performance must be differentiated and decisions on roles, progression, and reward must reflect results. Technology supports all 3 priorities. In fiscal 2026, our focus was on making the right choices before scaling investments. We introduced much stricter go, no-go discipline and concentrated resources on the core systems and data capabilities that matter most to our competitiveness. Deployment will accelerate from fiscal 2027, in line with the roadmap presented in July. What matters now, of course, is to keep the pace and make these changes stick across every business. This is a real transformation of the company, and it requires a lot of work. Fiscal 2027 remains the second year of the restructuring phase. We will continue to strengthen capabilities, simplify the organization, and raise execution standards. The benefits should build progressively with a more visible acceleration from fiscal 2028.
Thierry Delaporte: The actions I have just described are the core of Shift & Grow. We are contemplating them with targeted portfolio moves, each with a clear strategic rationale. For Entegra, the objective is to build greater procurement scale and expertise. This is an important engine of competitiveness and profitability for our own operations, as well as a growth platform with third-party clients. Keddy and Prestige Purchasing strengthen that platform in Europe. In food services, Europe is a region where Sodexo has deep roots, but where our positions are uneven. Menü2000 is a great example of the type of bolt-on we are looking for. Germany is a priority market where we want to regain ground, and particularly, in the corporate segment. Menü2000 brings an established position with SMEs, as well as a proven operating model built around a central production unit, its own logistic fleet, and strong culinary expertise.
Thierry Delaporte: Menü2000 will retain its independent structure, that is for sure. We will preserve the local expertise and the client proximity behind its success, but we will use Sodexo scale selectively where it creates value. This limits complexity and management distraction. We are also actively managing the other side of the portfolio. In July, we sold Active Global in Asia, the remaining part of our former home care activities, which we decided to exit in 2023, if you remember, as it was not core to Sodexo. Let me be clear. M&A is not an objective in itself, not now. We already have a significant transformation underway, so we want to be careful about adding complexity. Our focus is on bolt-ons that support the organic plan and are manageable for the business. Any further transaction will need to meet that test and deliver the right returns.
Thierry Delaporte: Now, I will hand over to Sébastien to take you through the financial performance. Over to you, Sébastien.
Sébastien de Tramasure: Thank you, Thierry, and good morning, everyone. Revenue close was close to EUR 24 billion. Organic growth was 2%, with a stronger Q4 at 2.6%. Looking at the full year bridge, pricing contributed approximately 2.4%, like-for-like volumes around 0.6%, and net new business was around -0.3%. The North American contract reclassification reduced group growth by around 70 basis points over the year. The stronger Q4 reflected strong activity at Sodexo Live! in Australia and Latin America, and additional client project in Europe. Some of the downside risk, including our forecast, did not materialize. It was a better finish to the year, but this is not the starting run rate for fiscal year 2027. In the Q1, we will face the timing of contract exits and openings. Meta is also still ramping up.
Sébastien de Tramasure: We will also continue to carry a headwind of around 100 basis points from the North American contract reclassification, broadly in line with Q4. This impact will drop out in January. We therefore expect growth to start below the full year range of our guidance and build progressively through the year. Turning to margin. Underlying operating profit was EUR 810 million, and the margin was 3.4%, down 130 basis points. The bridge had three main components. First, around 50 basis points related to the review of the contracts and assets. This covered areas such bad debt, litigation, onerous contracts, and decisions to rationalize certain assets and facilities. The review was largely completed in the H1 when most of the contract-related provisions were recognized. The H2 impact was more limited, with no new broad category of risk identified.
Sébastien de Tramasure: Our fiscal 2027 outlook does not assume a repeat of the charges, although we will continue to assess contracts and risk with the same level of rigor. Second, higher operating expenses for commercial capabilities, supply chain, and technology reduced the margin by around 30 basis points. The impact was broadly evenly split across the three areas, and as planned, spending increased in the H2 as deployment accelerated. On commercial capabilities, we said in July that the investment would represent around EUR 100 million of incremental annual operating costs when fully deployed. Fiscal 2026 included only a partial impact as hiring took place progressively during the year. Spending will build further in fiscal 2027 as these hires annualize and the remaining roles are filled. Technology programs were also still at an early stage.
Sébastien de Tramasure: The EUR 500 to 600 million planned for technology and data is a cumulative investment through fiscal 2030, and most of it remains to be deployed. Investment will accelerate from fiscal 2027 in line with the phasing presented in July. The third and final component, around 50 basis points, came from operations. This reflects underperformance across parts of the portfolio. It also includes a tougher comparison in the H2 as the prior year period benefited from a non-recurring indirect tax item in the rest of the world. An improving operational performance is our major priority. As we become more competitive commercially, rigorous execution is critical to protect contract economics. Let me briefly close the operating review with the regional performance. In North America, organic growth was -1% for the year, with a trend that improved in the H2 as the impact of prior contract exits started to fade.
Sébastien de Tramasure: Organic growth was broadly flat in the H2, including a headwind of around 220 basis points from the contract reclassification. For fiscal 2027, we expect North America to return to positive organic growth. Europe grew organically by 2.1%, while rest of the world delivered a particularly strong 9.7% organic growth. On margin, North America recorded the largest decline and reflecting the three factors I have just discussed. In Europe, the decrease mainly reflected charges from the contract and asset review. In the rest of the world, the decline was more pronounced in the H2, and this largely reflected a tougher comparison, as I just mentioned, together with accelerated transformation investment, including the ERP pilot in India. You will find the detailed Q4 performance and the full breakdown by segment and region in the appendix. That covers the operating performance.
Sébastien de Tramasure: Moving below underlying operating profit, other operating income and expenses represented a net expense of EUR 290 million. The largest component was EUR 216 million of restructuring costs linked with organizational simplification, workforce transformation, and the expansion of shared services. These costs were partly offset by the disposal gain on Active Global. The restructuring charge was higher than discussed in July, mainly because the provisions related to the reorganization project announced in France this summer were recognized earlier than initially expected. This changes the timing of recognition but not the overall size of the program. For fiscal 2027, we expect other operating income and expenses to represent a net expense of around EUR 240 million, including approximately EUR 190 million of restructuring costs.
Sébastien de Tramasure: Together with the EUR 216 million recognized in fiscal 2026, this keeps the cumulative restructuring charge broadly in line with the EUR 400 million envelope we announced in July. The cash profile of restructuring cost is more gradual. Cash outflows were around EUR 100 million in fiscal 2026. At this stage, we expect most of the remaining cash impact in fiscal 2027, with a residual amount in fiscal 2028. Net financial expense increased from EUR 88 million to EUR 137 million. This is mainly due to the full year impact of the USD bond issued in May 2025. For fiscal 2027, we expect around EUR 190 million, reflecting the EUR 1.1 billion bond issuance completed in September and fewer favorable one-off financial items compared to fiscal 2026.
Sébastien de Tramasure: The effective tax rate was 23.4%, below the level of around 26% we had expected, mainly due to the geographic profit mix, including the Active Global disposal gain in Singapore. Group net profit was EUR 304 million, and underlying net profit was EUR 508 million. Turning to cash, operating cash flow was EUR 1.1 billion, and free cash flow was positive at EUR 379 million. Working capital contributed EUR 75 million, supported by strong collection together with favorable timing and one-off effects. On a more normalized basis, we continue to expect working capital to be broadly neutral. Net capital expenditure was EUR 604 million or 2.5% of revenue, reflecting higher investment in contract renewal and new business.
Sébastien de Tramasure: Across the cycle, we continue to expect capital expenditure of between 2.5% and 3% of revenue, mainly driven by contract-related investment at site, at client site, and to a lesser extent, technology. Net debt ended the year at EUR 2.9 billion, and leverage was 2.4 times. This was slightly better than the level of around 2.6 times discussed in July, reflecting the stronger EBITDA outcome and better working capital and the disposal of Active Global. For fiscal 2027, we continue to expect leverage of between 2.6 and 2.8 times, reflecting continued investment in the business and higher restructuring cash outflows before deleveraging from fiscal 2028. Thierry, back to you for the outlook.
Thierry Delaporte: Thank you, Sébastien. For fiscal 2027, we continue to expect organic growth of between +2% and +3%, and an underlying operating margin broadly in line with the 3.4% achieved in fiscal 2026. Fiscal 2027, as we said, is the second year of our rebuilding phase. Sébastien explained very well. We expect growth to start below the full year range and then improve progressively. Our priorities are to improve retention, convert the pipeline that is building up, and execute the ramp-up of Meta, but also our other new contracts. On margin, the non-recurrent, sorry, of the review charges and the first benefits from workforce, but also procurement actions will provide support. This will be broadly offset by the further step-up in commercial, in technology, and supply chain operating expenses together with start-up cost on new contracts.
Thierry Delaporte: This is why we expect the margin to remain broadly stable in fiscal 2027. Regarding our fiscal 2030 ambitions, they remain unchanged. Organic growth above 5%, net new business above 3%, and underlying operating margin above 5%. What I would say to conclude is, this is a demanding transformation, but the levers are largely within our control, and we have strong assets to build on. Confidence will come from results. Our job now is to continue to execute with discipline and deliver tangible progress quarter after quarter. With that, Sébastien and I are now happy to take your questions. Over to you. Operator?
Operator: Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Leo Carrington, Citi.
Leo Carrington: Good morning. Thank you for taking my questions. Firstly, could I just ask on retention delivered, I think, 94.4% this year. Is this something you can build further on in FY 2027? Will the initiatives you have mentioned around retention come to fruition already this year? Secondly, I guess it is adjacent comment, but could you elaborate on the comments about your improvements in the Education segment in North America? How is the turnaround going in some of the other historically more challenged areas of the business like North America Healthcare? Together, Education and Healthcare, is FY 2027 too early to see an improvement in these segments?
Thierry Delaporte: Okay. I will take it, Leo. Thank you for those two questions. I will try to cover them. First on the retention, 94.4%. If you look back, two comments on retention at 94.4%. On one end, it is an improvement from the previous year. It is slightly an improvement from the previous year. It is actually, if you go back 10 years in time, it is actually 15 years in time, it is the third-best performance. So it is actually from that standpoint in Sodexo's term, it is a reasonably encouraging result.
Leo Carrington: Yeah.
Thierry Delaporte: If you are comparing with our competitors, it is significantly below. What I mean by that is two things. One, it is an absolute priority of focus for us, and second, it would be foolish to assume that can be easily fixed. It is a structural and deep challenge for us. Okay? That is the starting point. If I look at 2026 itself, there has been a pattern. Okay? I would say first in some of the countries, the retention has been good. So it is not across the board. We have some who are not doing as well as others, so we know where to focus our attention. One, for example, was you mentioned it, and we mentioned it as well, is Education in America. We have seen also a pattern in the way we have slowly improved over the year, retention.
Thierry Delaporte: But again, I think we are very clear on what we need to do, on how we will improve retention. Now we are being careful, I guess, in the way we are setting objectives for ourselves quarter after quarter, because this is a long-term trend that we are looking for here more than anything else. Expectation for 2027, ambition obviously to do better. Now we will see. Okay? So far so good. It is only the beginning of the year. It is a time of mobilization. On the education itself. What have we done? The team has done an incredible. First of all, most of the leadership of the education team is being renewed, over the last 12 months. We have great leaders that have joined. They have brought in talent with them. We have also promoted talent from within to reinject energy and client attention and focus.
Thierry Delaporte: It is all about being present with clients every day. It is all about visiting them. There has been a fabulous, I must say, fabulous mobilization from the leadership and the team in a kind of, I do not want to use the word war anymore to this context, but a retention mobilization, if you like. Very specially in education where it has been about going to clients, accelerating massively the pace of the Fresh Eyes report. I do not know how much you know about it, but typically what we are doing is we are driving regular, in-depth interviews of a lot of the stakeholders at our clients, seeking feedback on which we have to act on. In most of the segments in America, this process was largely discontinued over the last year.
Thierry Delaporte: We have relaunched it and with fast pace so that we know where to focus our attention and immediately act on the actions. Because what is key, Leo, for us in retention is one, get the feedback from the client, step one. Second, understand and turn it into an action for us and then execute. And that is obviously not something, so it is not like you need to do it only 3 months before renewal. It is throughout the life of a contract with our clients. Trust me, mobilization everywhere in the world, highly intense in America. And in particular, I took the example of education, but I know that it is the case as well in healthcare and in corporate, across the board.
Leo Carrington: Thank you. That is very helpful. Could I just ask a follow-up? Thank you for that extra detail. In terms of the leadership for North America at a high level, how close are you to appointing a permanent leader? Or are you now finding it very helpful to extend the current arrangement?
Thierry Delaporte: I am very happy with the way it works today. I repeat, this is a business where each of the leaders today in America manage a business of 2 to 4 billion, which is the size of the other regions we manage around the world. So I am very happy with the way it works. I myself spend 50% of my time in America supporting them the most I can and certainly driving alignment across the board, but they run their business, and they do not need additional layer. That is the way I feel today. Things may change, and I will keep you posted on whenever it is the case, but that is how it works today, and it is working great.
Leo Carrington: Thank you very much, Thierry.
Thierry Delaporte: You are welcome, Leo.
Operator: The next question is from Jamie Rollo, Morgan Stanley.
Jamie Rollo: Thanks. Good morning, everyone. Two questions. First of all, on the better development of 7.7% and retention of 94.4%, that obviously implies net new of around 2% at a full annualized run rate. I am really wondering what you are embedding in the 2027 2% to 3% organic sales growth guidance on net new and also your pricing and volume assumptions within that. Secondly, just back on the phasing of organic sales. You have obviously reminded us about the 100 basis point accounting headwind continuing through Q1, and it sounds like net new will be skewed to the H2. Except for those two points, do you see a similar profile during the year on OSG? Are you seeing anything at the moment from the protests in France? Thank you.
Thierry Delaporte: I will make a couple of points, and Sébastien, you will provide more details on the sequencing, pricing, and volume. Okay. A couple of points, Jamie. One, development and retention. First, keep in mind that if 7.7% there is a significant ramp up between Q1 and Q4 of 2026. Okay? Even excluding Meta, we have seen an acceleration of our development in the H2 of the year, and that is the encouraging part. It is not only an increase of the pipeline, it is also an increase of the contract signed. The retention, I covered it, so I think I do not need to get back to that. I will let Sébastien reflect on it. What I would say on the philosophy of the way we have built our guidance for 2027 is that we continue to push hard on development, and we are expecting retention to improve.
Thierry Delaporte: But at the same time, we know that. I am being personal in the way we are looking at the projection with Sébastien. We always take a little bit of care with the way we look at retention because as I said in my previous point, although nothing lead us to believe that that could go worse, it is something that you need to win every single day. So a little bit of caution here. Just before I let you. You want to cover the phasing first, and then I will go back to the protest in France?
Sébastien de Tramasure: Yes.
Thierry Delaporte: You go. Go ahead.
Sébastien de Tramasure: Okay. To your question, Jamie, on the guidance for fiscal year 2027, what is embedded in the 2% to 3% guidance. We factor a minimum price increase of 2%. Then in term of net new, we are expecting a contribution between 0.5% and 1%, and this will be largely driven by Meta. For the like for like volume, it is I would say neutral. Neutral to maybe slightly positive. The remaining impact is the impact of the reclassification of the large contract. This will impact, if you look at the fiscal year 2027 year, around 30 to 35 basis points for the year. But it will impact 100 basis points for Q1. If we look at the trend over the year, we do expect a slow start, Q1 organic growth is expected below the range.
Sébastien de Tramasure: This will progressively improve over the year with the ramp-up of the impact of the net new.
Thierry Delaporte: Yeah. Thanks, Sébastien. On the protest in France. First of all, obviously, as you can imagine, we are paying attention to it. We keep an eye on it. We are headquartered in France. The sooner the situation stabilize, the better. Now, having said that, first for us, France is 12% of our business. Okay? It is not more than that. Second, our business in the high schools and where the protests are, when it is not in the streets is, I would say modest size of our business. So it is not significant at group level. What I would say overall, Jamie, is that we are not seeing, I would say material impact. We are a global group. We have presence around the world.
Thierry Delaporte: We are obviously looking at everything happening in one place, in another, in the third, and we know that we are in a world where it is not always stable everywhere. But so far so good. Now, of course, indirectly, it is never good for an economy. But so far, no visible impact in term of performance, Jamie.
Jamie Rollo: Thank you. Can I just come back on the pricing? 2% looks very conservative given you did 2.4 last year and inflation is going up, not down. Also, the net new H1 to 1%, doesn't that feel a bit light given your KPIs suggest more like 2%?
Sébastien de Tramasure: So to your second question or second remark. Clearly, what we said is that there is a fading impact now between the impact of the demobilization and the ramp-up of the new contract. If you look at the retention from fiscal year 2026, especially in education in North America, in Europe, this will really start impacting September, beginning of Q1. While again, mobilization and openings will be more progressive over the year. On pricing, as you know, our pricing is a blended rate, first of all, between food cost and labor. Also, we are managing our internal inflation, and our internal inflation in food is better, I would say it is lower than the external inflation.
Sébastien de Tramasure: Based on that, even if we do expect some inflationary pressure during the year, more in the H2 than in the H1 of the year, and because of this combination again of procurement mitigation and pricing, on that basis, I still confirm our guidance above 2% pricing impact for the year. This remains appropriate assumption at this stage.
Jamie Rollo: Thank you very much.
Operator: The next question is from Simon Le Chipre, Jefferies.
Simon Le Chipre: Yes, good morning. Thanks for taking my questions. First of all, coming back on Q1.
Sébastien de Tramasure: Simon, we do not hear you too well.
Operator: Can you speak louder? We cannot hear you well.
Simon Le Chipre: Hey, can you hear me better now?
Operator: Yeah.
Sébastien de Tramasure: Much better.
Simon Le Chipre: Sorry. Two questions, and the first one coming back on the Q1 organic growth outlook. It seems that you expect net new wins to be negative in the quarter. When do you expect net new in the period to turn positive? What do you expect for volume in Q1? Secondly, in terms of the margin outlook, any phasing to expect between H1 and H2? Thank you.
Sébastien de Tramasure: Coming back to the forecast for Q1 organic growth, as I said, we are expecting the ramp-up of net new during the year, Simon. What we need to keep in mind is that the business mix between Q1 fiscal year 2027 compared to Q4 is very different. Because the weight of education is much stronger, and we do expect a negative organic growth in Q1 in education. At the opposite, the weight of Sodexo Live! is lower in Q1 versus very strong performance and strong weight in Q4, and we do not expect Sodexo Live! to remain at the double-digit organic growth at the start of the year.
Simon Le Chipre: Yeah.
Sébastien de Tramasure: So this clearly also explains why when we look at our numbers for Q1, we are expecting an organic growth to the start of the year, slightly below the overall range of our guidance for fiscal year 2027. Then on your second question is on the margin outlook phasing between H1 and H2. So clearly here, what we see overall is that it should be the. If you look at the year-over-year, it should be broadly in line in terms of evolution comparison from fiscal year 2027 and fiscal year 2026. Even if H1 margin could be slightly softer than fiscal year 2026, and H2 margin for fiscal year 2027 might be slightly stronger because we start really getting the benefit of all the action, especially the restructuring on the workforce.
Simon Le Chipre: Okay, thank you. A very quick follow-up coming back on net new. Do you expect net new in the period to turn positive as of Q2 or only as of Q3?
Sébastien de Tramasure: Honestly, we will not give answer on really the bridge of each driver by quarter. But I think what is very important is we do expect this improvement of the net new impact over the year.
Simon Le Chipre: Great. Thank you.
Operator: The next question is from Estelle Weingrod, J.P. Morgan.
Estelle Weingrod: Hi, good morning. Two questions. The first one is on a GPO Entegra. I mean, it is a big part of the equation in the turnaround story. You presented the situation at the CMD in July and what needs to be done. My question is: how will we be able to assess progress, and what are the key KPIs to track, and will you present them to us? Just another question for you, Thierry. I mean, now that you have been here for a year as a CEO, what is one major initiative or change that is facing more friction than you initially anticipated? Thank you.
Thierry Delaporte: I am reflecting on your question 2. What I can tell you is, Estelle, on the question, I will come back to the question 1. But on the point number 2 is, one thing that I found very interesting is that, in fact, across the organization, everybody wants to win. The fact that we have mobilized Sodexo through Shift & Grow in a growth mindset, people love it. I think the drive, the energy that is being pulled through by everybody, the mobilization, the alignment around the strategy is working well. But we know that we will never win on strategy. We know that we will win on execution. It is all about execution every single day, Estelle. There is no specific friction. At the same time, a normal attention to execution every day, which is tough. It is demanding and everywhere people are working hard.
Thierry Delaporte: That is what I would tell you, honestly. For the rest, Shift & Grow is well understood. People are aware, they know it, they embrace it, they are aligned. Leaders are mobilized. I am positive about the situation where we stand. On your first question, which is the Entegra, you are right. It is very important. It is a strategic part of our business. I have had the opportunity to say it. First of all, Estelle, we have presented the plan around Entegra and Supply and the way we were aligning both Entegra and Supply to really build an ambitious.
Thierry Delaporte: GPO serving the market, but also Sodexo, leveraging scales on both sides as being presented to the investor update. We have an action plan and it is executing in the field every day. It takes a bit of time to roll it out because it is a real transformation for the organization itself, but I think it is going well. Sébastien, my neighbor here, and I, we are doing reviews of the Entegra supply integration program every month, to track the performance, but also the program we call Convergence. We actually reviewed literally a few days ago, and we have a set of KPIs. I am not going to tell you, Estelle, we are going to share all the KPIs, but certainly, we do. At some point in time, we will provide you with some update on how things are progressing. It is a strong engine.
Thierry Delaporte: I am pretty happy with the way it is progressing. The second thing I would say, Estelle, is that we have developed a transformation program called TON, which defines our operating model and aligns our supply machine to this operating model. That is also with savings associated with it, which are reflected in Shift & Grow projection. Let us face it, we will need the deliverables of Entegra to deliver our ambition for Shift & Grow 2030. It is on track. So far, so good. We will keep you posted sometimes.
Estelle Weingrod: Thank you.
Operator: The next question is from Pravin Gondhale at Barclays.
Pravin Gondhale: Hello, good morning. Thank you very much for taking my questions. Firstly, on FY27 margin guidance. Similar to slide number 10 in the presentation deck, could you please quantify the bridge to the broadly flat margin year on year? So between the operational recovery investments and the other buckets on the slide. Secondly, on the leverage. Leverage ended at FY26 slightly better than what you had anticipated previously. Does the additional headroom change your priorities between reinvestment, bolt-on M&A, and further deleveraging? Thank you.
Thierry Delaporte: I think that's for you, Sébastien.
Sébastien de Tramasure: Yeah.
Thierry Delaporte: Yeah.
Sébastien de Tramasure: On the first topic, on the first question on the margin. Clearly, guidance is to have a fiscal year 2027 margin broadly in line with 2026, it means around 3.4% for fiscal year 2027. If you look at the different buckets, we are not expecting any large review and contract assets done already. We will continue what we said, that we continue to apply our framework, our rigorous framework, looking at contracts and assets, but we do not expect any significant impact on this bucket. Then, as we said, we will have clearly the impact of the acceleration of the investment. Clearly, this impact the margin fiscal year 2027 will be a year of investment with the deployment, further development on the commercial investment, on technology, and on supply.
Sébastien de Tramasure: Then you will have the positive impact because we are not expecting any way a negative impact coming from the review contract and asset, but we get the positive impact because this will neutralize the impact of the investment. On the operation, on the last bucket, we will have a combination of different impact. We will have some early benefit of the initiative, but also we will have also the impact of the new contract mobilization. We have some initial cost on the mobilization, and also we have the impact of our commercial aggressiveness, I would say, price to win. That impact also the margin in fiscal year 2027. On to your second question on the leverage. As I said in July, we do expect a leverage between 2.6% and 2.8%, and at this stage, there is no expected change regarding our M&As.
Sébastien de Tramasure: We are talking really about more debt transaction, both on M&A, as Thierry said, and we are also working on the asset disposal and some arbitrage when we look at our portfolio of asset.
Pravin Gondhale: Thank you very much. This is really helpful.
Operator: The next question is from Neil Tyler, Rothschild & Co Redburn.
Neil Tyler: Yeah, good morning. Thank you. I just wanted to come back to the delayering and ask for a bit more of your insights on how you are ensuring that you do not lose expertise or damage client relationships. I am sure you have thought about this very carefully, but I wonder if you could share your thoughts and experience on that particular topic. Secondly, can you help us understand, maybe in terms of either organic growth or net new, the different dynamics over the next 12 and 24 months between food and FM, please. Thank you.
Thierry Delaporte: Okay. Thanks, Neil. I will take the first.
Sébastien de Tramasure: Yes.
Thierry Delaporte: It is a good question. For sure, you are absolutely right. Delayering sounds like a great idea, but you need to make sure that you are not losing talent and certainly what is our obsession, the right connect with our clients. Neil, what has driven the work has been couple of points. One is what we call the spans of control. Typically, first, what did we do is, first, we looked at how many layers exist between the youngest member of the team and the CEO of a business. We just build up the tree all the way back up and say, "Okay, John reports to Susan, and Susan reports to." That is how we did that. Then we started to look at, okay, what is everyone's role here.
Thierry Delaporte: One is connected with the client, engaged with the client, and work on delivering services to the client. Then above, what are the roles versus layers of aggregation? That is how we started to define the roles that matter versus the one that we feel are being just aggregation and that can be simplified. Because then span of control comes into play. If you are a manager and you are managing two individuals, then maybe you should run more than two individuals if you are a good manager. That is where we started to rationalize organizations unit by unit and started to remove layers. The efficiency of such decision is incredibly important, not only in term of cost, but also in term of operational efficiency and productivity. Ability to make decisions, ability to get messages across, all of that is dependent on the number of layers.
Thierry Delaporte: That is how we drove it, for sure to make sure that we are not losing expertise.
Sébastien de Tramasure: To your second question on the organic growth, if we look at fiscal 2026, the organic growth in facility management was higher than in the food. We ended the year at 2.9% organic growth in facility management and 1.6% in food. If we look forward next 12 months, we do expect a higher, I would say, organic growth in food, mainly driven by the ramp-up of the contract of Meta. The overall also will depend on volume and on the commercial activities, but definitely, Meta will be a key driver of the organic growth of the group.
Neil Tyler: Thank you. That is very helpful. Thank you.
Operator: The next question is from Jaafar Mestari, BNP Paribas.
Jaafar Mestari: Hi. Good morning. I have two, please. Firstly, on the contracts and assets review, now that you have completed it, I think the total non-cash charges have reached EUR 120 million. Can you confirm that it is mostly complete? Are you able to tell us now what is the total revenue attached to these contracts for which you have had to take provision? Secondly, on assessing the organic growth from here, you make very fair points that 2.6%, which is the Q4 exit rate, if you want, it really shouldn't be the starting point because of the mix. I have done exactly that. I have taken your organic growth by segment in Q4, and I have reweighted it for the revenue business mix of a normal Q1. What it spits out is 1.5%. Is that the starting point for Q1?
Jaafar Mestari: That is still with slightly positive net new business in the last months of the year. You seem to be saying there are more losses that will incrementally hit us before some of the wins start ramping up. Really trying to zero in on Q1. Is it 1.5 with downside, please?
Thierry Delaporte: Yeah. Okay. I will take the beginning, Jaafar. I think on the first point, the contract and assets review. As we said, the best part of the work was done back in April. Was it April? In March.
Sébastien de Tramasure: Yeah. March.
Thierry Delaporte: March. Yes. Back in March. A couple of adjustments. I would say now we are back to business as usual, okay? It is not the same. There was a need for this review. Now it is just ongoing process, where we review the level of risks every quarter and take actions based on this. This is not in a context of a discontinued process, if you like. It is just back to normal discipline in the process. The total revenue related to this contract, I cannot tell you the amount, but it is not significant. Interestingly enough, Jaafar, those risks were not coming from the largest account or the largest contract necessarily. Sometimes those are the ones that are smaller in size, where we have had not enough attention to it.
Thierry Delaporte: All I can tell you is this is possibly less of the total revenue than what you would have in mind, I guess.
Sébastien de Tramasure: Yeah.
Thierry Delaporte: For the second one, you take it, Sébastien?
Sébastien de Tramasure: Yes. Again, as I said, I don't think that really the performance of Q4 is really a good proxy for the forecast of Q1. Probably better to look at Q3 and the mix by segment. For Q1, we don't especially expect a negative net new contribution in Q1. As I mentioned before, it will be a progressive ramp-up during the year. As I mentioned, you have the fading of the opening and the closing. That means this fading is less supportive than in Q4. Q4 benefited by, again, as we said, some events in Sodexo Live! Overall, if you look at the trend again by region, by segment, as I said, Q1 organic growth should be slightly below the range of the year.
Thierry Delaporte: Yes. Thank you.
Operator: The next question is from Kate Xiao, Bank of America.
Kate Xiao: Good morning. Thank you very much for taking my questions. First, I wanted to clarify on net financial expenses. Obviously, you have guided that to go up a bit in 2027. If you look at slide 21 of your deck, there is a EUR 800 million of bonds maturing in April 2027. I just want to confirm if the maturity and refinancing of these is already part of the guide. Second question on capital allocation. Thierry, on slide 7, you mentioned some deals you have done. There is a couple that was completed in early 2027. I just wonder whether you could give a bit color of what is in the pipeline. What are you looking at in terms of M&A in 2027?
Thierry Delaporte: Oh, okay.
Kate Xiao: And some of these deals. Thank you.
Thierry Delaporte: Okay. All I can say, maybe I can take the one on M&A.
Sébastien de Tramasure: I will take the one on refinancing.
Thierry Delaporte: Okay. On M&A, I do not think you should expect anything material. As we said, we are doing bolt-ons within the budget that we allocate to ourselves in a given year. We are being consciously, carefully the way we are going after M&A now, not by conviction, but more just by the fact that this is part of the way we have structured Shift & Grow 2030, where we are saying 2026, 2027 is about structural transformation and therefore, more focusing on our back to basics, and on our improvements and discipline. M&As, specific bolt-on tuck-ins when justified in a given market, but nothing of material to be expected for the foreseeable future.
Sébastien de Tramasure: Okay. To your first question, yes, as we raised EUR 1.1 billion in September, this was really the anticipation of the repayment of the EUR 800 million bond that will mature in April. The cost of that is fully embedded in our guidance of EUR 190 million in term of financial expense for fiscal year 2027.
Kate Xiao: Very clear. Thank you.
Operator: The next question is from Jarrod Castle, UBS.
Jarrod Castle: Thank you. Good morning, everyone. Just the first question, you spoke about 0.5% to 1% net new, of which Meta is a big chunk of it. I am just wondering, when you are looking at your pipeline on a gross level, which industry segments are healthy? Which industry segments in terms of it is maybe less healthy or you less focused on?
Jarrod Castle: Second question, Thierry, you spoke about employees being very motivated, et cetera. Have you done any internal surveys in terms of the employee mood, especially at the head office, given restructuring, and any points you would like to pull out if you have, in terms of culture, motivation, et cetera? Thanks.
Thierry Delaporte: Jared, thanks for the two questions. The first one, the pipeline, your first question is around the pipeline.
Jarrod Castle: Yeah.
Thierry Delaporte: I believe today, I am scanning through my head, I believe pretty much every single of our segments are showing pipeline increase. By virtue of extreme focus on building it up, being proactive, I think we have seen it. Now, what are the ones that are the strongest? We have an increased volume of pipeline from large account in the corporate world. We have a strong pipeline building up in the healthcare world, and I would say also strong in the Sodexo Live! world. I think frankly, looking at the pipeline, opportunities are here, significant acceleration. But again, you will notice my caution. It is great pipeline. You want to turn it into deals. That is what we are working on. The point number two, which is about the question of the motivation of the employees and survey and so on. For sure, we are doing survey.
Thierry Delaporte: We are doing survey regularly, for example, in the context of Shift & Grow 2030, to make sure that our managers understand and feel part of Shift & Grow 2030, but also just to make sure that they are aligned and are completely on board with what we are doing. In few hours from now, I will handle a call with our, there is a forum of several hundred leaders across the organization where I will share with them everything we discuss now. We do that regularly. We have constant interaction. We have also surveys and feedback for sure. We are very aware that whenever we have difficult discussions or moments that are not easy to handle, like some restructuring activities going on in some countries, and we are handling it with the best care and the best attention, the most sense of respect, for sure.
Thierry Delaporte: That is the Sodexo way of handling things. But I feel that the level of motivation is certainly high and the energy and the confidence in the future is really comforting at the moment at Sodexo.
Jarrod Castle: Thanks very much.
Operator: The next question is from Joanna Jordan, Oddo BHF.
Johanna Jourdain: Yes, good morning. Regarding the Meta contract ramp-up, given its size and the fact that it is relatively new area, have you identified any specific execution risk in delivering the required service quality?
Thierry Delaporte: Okay.
Johanna Jourdain: When should the contract reach a normalized margin? The second question, and more generally, could you please share any comments on your pipeline in the data center space? Thank you.
Thierry Delaporte: Okay. The first one is Meta. We started, I believe, the transition sometimes in June timeframe, I believe. It is a transition that takes several weeks and months, so we are still in the middle of it. It involves many little projects, if you like. We have 130 sites across 30 countries, so there are thousands and thousands of people involved every day. We obviously, as you can imagine, we have a, I would say, SteerCo at group level, and we are exchanging with the Meta team regularly to stay focused and aware of where we are. We have the direct connection with the executive of Meta as well to make sure that whenever there is a need, they can reach out to us, and my cell phone in particular. So far, so good. We are progressing well. It is still early stage, but it is progressing frankly well.
Thierry Delaporte: I would say positive. When should the contract normalize margin, Sébastien?
Sébastien de Tramasure: During the H2 of the year.
Thierry Delaporte: Right.
Sébastien de Tramasure: Yeah.
Thierry Delaporte: Then for the question on the pipeline in data centers. Yes. What we have done in this field. First of all, data centers, we already work with some of our clients around data centers in several of our countries, in particular in America, for sure. There is a growing pipeline, that is for sure. We have also built our own offering around data center, our solution, it is called Sodexo Edge, and that we are deploying around the world. What we are doing here, Joanna, is that we are leveraging two things. One, our very deep expertise in the remote site management, right? The fact that we are managing, and we have been managing for decades, remote site, whether it is in the mining, in the oil industries, and they are very much relevant in the phase of construction of the data centers.
Thierry Delaporte: And of course, we are leveraging the second aspect, which is the strength of our portfolio of clients in the tech industry. Obviously, one client you know the name, we just mentioned it. There are others with whom we are working. So, we are expanding. We have built a specific team to go after this market of data centers. We today operate north of 100 data centers, but the potential of growth is significant. So we own it. We will keep you posted as we grow as well.
Johanna Jourdain: Thank you.
Operator: Gentlemen, that was the last question. I turn the conference back to you for any closing remarks.
Thierry Delaporte: Of course. Okay. Thank you. So, thank you everyone for your questions. As you have seen, we have a clear plan. The actions are underway across the group. What really matters, and believe me, this is an absolute paranoid obsession on our side, focused on disciplined execution and turning these actions into results. That is our focus for fiscal 2027, for sure, and we look forward to updating you as the year progresses. Thank you for joining us. Have a great day.
Operator: Thank you, ladies and gentlemen. Thank you for joining. The conference is now over, and you may disconnect your telephones.
