Elior Group SA (ELIOR) Earnings Call Transcript & Summary

Hello, and welcome to Elior Group's conference call. [Operator Instructions] I will now hand over to your host, Bernard Gault, Elior Group's Interim CEO to begin today's conference. Thank you.

Hello. I'm Bernard Gault, I'm the new Interim CEO of Elior. You don't know me yet, but I've been a Board member of Elior for 4 years, Independent Board member. I also know Elior for a number of years before, and I'm familiar with its operations. I'm here with Esther Gaide, Group CFO and together, we'll be handling your questions. Before we do this, let me just make an introduction. The news of the day today is Philippe Guillemot's resignation. To be crystal clear, Philippe's resignation came up as a total surprise to the Board. Let me recap the event. We had an AGM and EGM of the company on Monday afternoon in Paris. There, among other things, Philippe was reelected as a Board member of the company at a 98% approval rate. Following this, Philippe had dinner, who is our CEO, during which he announced that tomorrow morning, i.e. Tuesday morning, he would resign from the company. We had no idea, nor had our Chairman, Mr. Cojan nor myself or any other Board member had any idea that Philippe would be resigning. We insisted on Philippe giving us notice and staying for the interim period, and we were not able to convince him to do so. So when we convened to the Board on Tuesday morning, we had to find a neutral resolution. Thank God, we were well prepared. We had a contingency plan, and here I am. I didn't ask anything, but I am going to be CEO for a little while, until we find the final CEO of the business for the future. To be crystal clear, on the CEO, we will be considering external options as well as internal options. Some might say, okay, but what Philippe spotted, or are we aware of anything, that may have caused anything? Let me be crystal clear, I am not aware of any business matter that has caused Philippe's departure. The business, is business as usual, we continue to perform the way we've indicated to the market. There is no surprise, no things that were unexpected. We have our challenges. We have our opportunities, and we'll talk about it in a second. Do you have questions?

[Operator Instructions] Our first question comes from Leo Carrington from Credit Suisse.

I suppose as a Board member, what have your perceptions of Elior been? And firstly, where do you see the main successes over the past 2 years and in which areas would you like to see improvement? And secondly is, maybe asking the same question in a different way, but when thinking about the footprint of Elior now in terms of regions or clients, where do you see the relative strength, and where do you see Elior is needing to accelerate its performance as a business?

Okay. And you're right to qualify the answer. The answer is as a Board member, I have been in CEO position only for 2 days or less. And to be crystal clear also, I have no intention to remain the CEO of the business, right? I mean, I'm definitely a pure interim person. But to this point, precisely, Leo, the reason why I felt comfortable doing this, is because I have had years of experience with the management team presenting at levels N minus 1 versus Philippe, and I have always thought and continue to think that there is a strong team below Philippe, that sort of knows what they're doing and are very responsible, can operate the business autonomously, and don't require sort of a day-to-day supervision. So I'm very comfortable with the quality of the bench, I'm comfortable with the size of the bench regarding this. Now your second question was about -- the footprint of the business. Okay. Well, look, that is typically a question that you should ask to my successor. When we have found the right person, he might have different views about the footprint. I am part of the Board that voted for the strategic plan, the new so-called new Elior brand, and that new brand has certain characteristics and certain objectives, and I'm completely comfortable in executing on that new Elior plan during my tenure.

Okay. So your -- you see your -- however many months you're in position, as primarily executing the existing strategy and securing...

Absolutely. Absolutely. Without a doubt. It would be unfair to anyone who comes and takes the job, internal or external, to take decisions that have implications for long-term future. We have a strategy. I think the strategy is a totally defensible strategy, and it's one that I voted again, right? I've met -- by the way, since I've been in the job and prior to being in the job as a Board member, I have met all the [indiscernible] members already in person, because it so happened that they were coming to pounce for management meeting that we didn't, of course, didn't cancel, used the opportunity to go and sit with them since yesterday afternoon, until this morning. So almost 24 hours together.

The next question comes from James Ainley from Citi.

A couple of questions, please. I missed the very beginning of the call. So perhaps you'd be repeating yourself, but.

We are not hearing well, James.

Is that better? Can you hear me now?

Yes, better. Thank you.

Okay. So I missed the very beginning of the call, so you might have already explained this, but how did Philippe explain his decision, what were his motivations? Second thing is, can you just tell us what is your sort of immediate -- on your immediate agenda as you take over the role, albeit on an interim basis? And then the last one is, can you just give us an update on the trading context since the Q1?

So maybe on the trading update, I will take the point. I cannot obviously give you numbers. But what we see -- if you remember that France is very important in our landscape. And as you say, omicron has very strongly impacted France. So basically, what we see now -- we know that when we talked last time, January was impacted very strongly. Why? Because for the first time, schools were impacted, because they were not closed, they were open, but with very strong constraints on the kids. So we had very -- a lot of waste, because we are producing 2 or 3 days before delivering to the schools, and because of the way the tests of the kids were organized, it was very difficult to forecast the number of kids we were going to feed. So January was difficult. We think that things have been becoming much more easier in February, and hopefully, we will get very soon in a normal way in the school area. For B&I, we have a good proxy, which is U.K. As you may recall, U.K. is 2 or 3 weeks ahead of France. We know that in London, what we have been hearing from our colleagues from the U.K. we've been meeting for the last day is that people are coming back. It's not yet at the level we will have hoped, but it's actually coming back. So we are feeling that as soon as the sanitary constraints will ease and what we've been seeing in some months, like September or some months during the pandemic. As soon as the constraints are eased, it's coming back and people are happy to come back to the schools to the offices and to have some time with others in the restaurant. So we feel that it's -- it's not -- we are not yet where we want to be, which is back to 2019, but actually it's becoming -- we see light.

Okay. And when do you think we might get some updated guidance?

Okay. The updated guidance is the following. I mean, of course, we'd like to give you visibility. We know that you hate absence of visibility, and we're trying to give you this. I think a reasonable timeframe, my personal objective, is to give you visibility on the entire year -- on the H2 and the entire year, when we communicate on H1 results, which is, Esther?

May.

May or something. And wish we can do better than that, to be crystal clear. We will. Okay. Now on you -- what is on my agenda, James. My agenda, like anyone else, when I come in is, first of all, retention. I just want to make sure that our key business unit managers actually are focused on retaining the good people, are focused on retaining the customer, okay? So that's one structure I gave them this morning when we met. Point number two, I want them to be very focused on the effect of the attrition on our business and the need for us, like any other competitor, to renegotiate the prices and pass on the price increases to our customers, okay? And that's going to be very critical for the profitability of the business. And last, as I stated, there is some light possibly at the end of the tunnel. I want them to be very focused on how we rebound after the effects of the COVID. Those are the 3 things I would say.

[Operator Instructions] The next question comes from Andre Juillard of Deutsche Bank.

First question to come back on the trading update, and when you will be able to give us some more visibility. Don't you think that you should be able to have a relatively clear visibility in March, and being able to communicate new guidance on your range of expectations before H1 results, first question. Second question, when Philippe announced his resignation, did you feel something? Did he explain the motivation of this decision, because it's relatively surprising to see him, being as usual for the AGM and right after informing you that he is leaving.

Okay. Let me take the second question. I think you might have missed the beginning of my statement, Andre, but I've made it very clear. I was totally surprised by -- and any of my Board colleagues and anyone else were totally supplied by Philippe's resignation. You know the -- to explain what the circumstances were, but totally surprised. And when we asked Philippe's resignation, Philippe would not communicate his motivations. The only thing I can tell you is that the business is business as usual. There is nothing that I can see in our business that would explain Philippe's resignation. Now, Esther, on anticipating the guidance?

I've been discussing already [indiscernible]. I really -- can you hear us?

Yes.

Yes, we can hear you.

Okay. So the way we are working in the group since I joined 4 years ago is that we get the reporting at a certain stage, and we make the analysis, and we have tough reviews with the divisions to understand what they've been putting in there, and we are reviewing that forecast. If it was only on Q1, yes, I will have a clear view, I would say very quickly. The thing is as Bernard just mentioned, we want to give you H2 and H2 is a little bit more difficult to forecast, and I need to change then. So the only – as Bernard said, when we will be publishing H2, we will give you full year. If we can before, we'll see. But for the time being, I think it's something we want to do very thoughtfully. And we -- it's an exercise that commits us. So again, if we can, we'll do it before. The thing is, I want to make sure we are not fooling ourselves, and doing the right thing.

The next question comes from Jaafar Mestari from BNP Paribas.

I've got one question for Esther and one question for Bernard, hope that's okay. So just on the guidance, again, it sounds like the margin part is really the one that's completely up in the air, given inflation. On revenue, is it not possible to take some sort of worst case for February and March, and then update guidance on that basis? I mean, no one will hold against you, if you produce a new revenue guidance based on what the governments currently tell you about the reopening and that if things get delayed, then you can update it? Does that make sense? Is revenue a bit easier to talk about at this stage? And then for Mr. Gault, I was just curious whether your appointment as Interim CEO is the default appointment, because you've chaired the Nominations Committee, so it's effectively your job? Or whether you would argue that your more personal expertise outside of that, is going to be relevant in your mandate, that being long term in mergers and acquisitions, but also more recently, having helped some of the officers restructure their holdings, diversify away from their core business, invest the new economy, too. Does that help? And will that be relevant at all, in the few months where you'll be interim CEO?

Let me tell you why I accepted the job, right? And it's an interim job, obviously, but let me tell you why. It's -- these are, to a large extent, personally [ good ]. I've been a Board member -- I'm a Board member, because I'm on this company and I have known Robert Zolade, it's founder for a long time. Robert a friend, and whilst we always have debates with Robert on business matters, there is a level of confidence between us. And you know the natural thing would have been for -- when something like this happens, is that the Chairman of the company becomes the interim CEO, right? So Gilles Cojan, our Chairman, should have done the job. He knows the business very well, et cetera. [indiscernible]. Okay. Yes. And I'm [indiscernible] going to start with you. I hope I'm not saying more than Gilles would like me to say, okay. But Gilles -- as you have noticed last year, Gilles was absent -- was on leave of absence for a little while. He had serious health issues and he turned to me and said, I would have loved to do this, I cannot possibly do this for health reasons. I want you to do this, will you do it?' That's it. That's the reason why I did it. The fact that I've been in finance for 14 some years is largely relevant. There is no financial agenda there. It's an interim guy, who just wants to do the right thing for the company. And frankly, is attached emotionally to the company also, and wants to make sure that the company and its shareholders are happy about the tradition. No, I didn't ask anything. I'm not looking for a job in any way. But I think, there is a need for someone to do the interim. Gilles was not able to do it, so I have to do it.

Okay. So Jaafar, on the guidance on the top line, it's -- for the time being, I still don't know if the sanitary conditions in schools are going to be eased in mid-March or not. So as you know, that's something very important. And second, once I would have given you March, you will ask me for H2. So I prefer to directly to give you all the story. I'm not giving you numbers at some stage like that, even in ranges. And the second thing, yes, we have strong analysis to put together, which I think is new for a lot of people, which is on inflation because everybody was expecting inflation, but not at that range. And now the new events at the Eastern borders, we will see. But in any case, we are working together with the teams to be able to give you what we have just said, with Bernard in May, when we publish the H1.

Okay. Sorry, if I'm allowed just a quick follow-up on that. So at this stage, both revenue and margins really up in the air. Just for context, last year and in 2020, when you said we've done a good job, we have approached our clients, we have renegotiated. What exactly was renegotiated? Was it just a very temporary cost support, because you seem to be saying now, well, we don't have much cost plus contracts, so it's going to be very difficult. Just curious, what the progress was done in 2021 that is not helpful today, because some of your peers have -- when they said, we've renegotiated? Apparently, what they did is implement new contract structures that carry on to this day, and there's still over 50% cost plus?

No. Yes, the boost of cost plus structures, and mostly in all my contracts on P&L. So it's not at all, the same kind of situation. What we did last year, is actually we renegotiated all the fixed cost part of it. So that was a good job, and that was done. The thing is now, we are not talking about fixed costs, we are talking about top line and increasing prices, because we have -- what we've seen -- which has come, and nobody was expecting at that level, is inflation. So basically, what we are now, is renegotiating all the customers, all the contracts, but from the top line. And it's actually going back to them and saying, well, the inflation, it is what it is, and we need to get increases. And that's what we are also -- we have put KPIs to follow that, and that's something also we'll be able to give you some light, when we will come back to you in H1. But that's -- we are not in the same geographies. I know you know very well the market and it's true that the big difference is that we are maybe in P&L countries. So now we are -- what was done before, was the right thing to do at that time. and negotiating to have the right level of fixed costs -- to cover for the fixed costs in the P&L contracts. And now we need to go back to them and to ask for more money, because we have inflation. We have inflation not only in COGS, in the goods, but we have also inflation on labor. And when you saw what some of my friends gave to the employees, some are talking about 5% and are vocal about it, but it doesn't ease the work of my HR guy. So again, we'll come back to you with -- and that's why I want to be as complete as possible, when we will come back to you in May.

Yes, sure. So the cost that you obtained from the clients that they covered them on your behalf in 2020 and 2021, what their utility is...

Yes. The way the P&L contracts are structured, we have first, fixed cost base on the attendance. And when we had to come back to them, it's because when you -- attendance is going down, then you still have fixed costs and you need to discuss about that. So at that time, they did a great job, and the thing is also that they were able to discuss with their customers and to explain what we were doing. I think -- and some of -- I mean we have some color on that big customers; during the lockdown, there were -- we had quarters that were up and they were still -- they still needed to be fed and they came and we opened the restaurants, and we didn't tell them, you go and buy a sandwich, we actually cooked for them. So that now comes back to -- we need to go back and explain why now it's not a [ good story ]. It's not about fixed costs, but it's basically about top line, which is we need to get price increases, because there is inflation not only on the food, but it's also inflation on labor.

So you're ready for the lower volumes, but you weren't ready for higher inflation?

Well, we were ready for inflation, but we were not ready for that type of inflation. We already had inflation built in the business, in the BP, but not as much as we are considering now.

The next question comes from Tony Lebon from Sycomore.

Yes. It's a basic one. Could you please remind us the average meal cost in terms of raw materials, I'm sure it depends on the segment, but if you could please give some numerical color on this?

It's very different segment by segment. But usually, it's around 30% in COGS and 50% in salaries, in human costs.

Sorry, could you repeat?

30% and between 40% and 50%.

And in terms of absolute figures for the raw material only, depending on the segment, for sure, but how much is it the average meal?

No, I cannot give you that on this -- I don't have the figure for the raw material. I won't give you any idea. No more idea. It's not a rule of thumb. It's just -- I mean, it's item by item. You can change - -when you're in that kind of inflation, what you're doing is your -- and my sourcing people will explain that to you, it's actually we are changing the kind of, when you have a turkey -- from chicken to turkey and then to nugget. I mean, it's really to try to use the best of the euros you are spending, which is to feed the people with adjusting the cost to the -- to what you can get out of that. So it's really -- it's not that a simple way of improving the [ DP ].

[Operator Instructions] The next question comes from Matthias Desmarais from ODDO.

Just 2 quick questions from -- on my side. Probably the first one, sorry, I was a little bit late. I might have missed it. But is there a particular profile for the new CEO you're looking at? That's the first question. And the second one, knowing out of the businesses and probably the cash collection and everything, is there a risk to the covenant for September at 7.5x net debt to EBITDA? And if so, what could happen in that context?

Okay. On the profile, we have put in place immediately yesterday morning, the prompt resignation of Philippe, a group publicly to recruit in the most efficient way, the new CEO of the business. The committee is chaired by the Lead Independent Director, Gilles Auffret, and this consists of our Chairman, Gilles Cojan and myself. So we have 3 -- we have designated a search firm to help us doing the job, as we've started the job, as we speak. The profile is very simple to understand. We need someone with operating experience in the service business, knows how to conduct a group that has 100,000 number of people, and has experience to manage and motivate a group of strong-minded individuals at the N minus one level, the [indiscernible] level. That's the profile. Not a particularly detailed profile, we could -- that person could come from a relatively broad area. No particular nationality, no particular -- but someone who has experience. We want someone who knows how to deal with B2B services.

So the second point, as you may know, I'm following the cash like, every night, I know exactly where we are. We are reconciling cash and treasury and cash on balance sheet every month. We are following up on the working cap very, very thoughtfully. And we explained very -- and we are following up on that. So -- in the same way, we went for the restructuring of the debt last June, and actually, I must pay tribute to Bernard, because he was very supportive in the Board, and we made it very clear, we were right to go to change the bank pool to '21 or '23. We add to now 8 main banks, 3, which are subsidiaries of those banks. I think now we are in the right level of being able to follow up, if and when we need to go back to get -- whatever we want to do. But as you know, the main part of the long term -- I mean, in terms -- in '25 and '26. So we don't feel any pressure on that. And again, we are very, very keen, as we've been for the last 4 years and following up the cash. So really, no issue on that so far. Sorry, what was your question?

Bernard, you answered both my questions.

Okay. Thank you. Sorry.

We have currently no questions coming through. [Operator Instructions]

Okay. So if there are no further questions, I would like to thank you all for attending the conference call. As you could tell, I wasn't expecting to be in this position only 48 hours ago, but I'm here fully assuming, transitioning. And looking forward to speaking to you. Esther and I are committed, as well as anyone else in the management team and in the Board, to deliver a good future for the company. Thank you.

This concludes today's call. You may now disconnect. Thank you.