Sodexo S.A. (SW) Earnings Call Transcript & Summary

Good morning. This is the conference operator. Welcome, and thank you for joining the Sodexo's Fiscal 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to the Sodexo team. You have the floor.

Thank you very much. Thank you, and good morning, everyone. Welcome to our fiscal '22 results call. On the call today, as usual, we've got Sophie Bellon and Marc Rolland. If you haven't already downloaded them, the slides and press releases are now available on our site at sodexo.com. And you'll be able to access this call on our website for the next 12 months. The call is being recorded, but may not be reproduced or transmitted without our consent. Please get back to the IR team if you have any further questions after the call. I hope to see you next week in Paris or online for our Capital Markets Day on Wednesday, November 2. For those of you who do want to come to the meeting in Paris but has not yet responded, please do so as soon as possible. I now turn the call over to Sophie. Sophie?

Good morning, and thanks for being with us today for our fiscal 2022 results announcement. As usual, I will introduce the numbers, Mark will go into the detail and then I shall come back to conclude. And then of course, both of us will take your questions. This has been an exciting and very challenging year. We have managed the war, inflation and Omicron, and I'm proud of the numbers we have achieved. Let's go into the details. Firstly, Organic growth was 16.9%, ending up in the upper end of our guidance range. The underlying operating profit margin is 5%, in line with what we are aiming for and progress has been strong in both On-site and BRS, up 160 basis points and 370 basis points, respectively. On Slide 5, you can see that in Q4, the group was back up to fiscal year 2019 levels with On-Site at 99% and BRS, well ahead at 115%. So we are confident that we should be able to exceed 2019 revenue level in 2023 with room for upside, particularly in food, where we are still at 87% for the full year. The really good news is that retention is improving, up 140 basis points to a record level of 94.5%. And my conviction is that retention is the KPI for sustainable profitable growth. If we keep our clients, we can go and get more. So this is a very satisfying result even though I'm sure we can do better. Development has also improved, up 150 basis points to 7.5%. And the annual development, including cross-selling is currently running at EUR 1.5 billion. As a result, net new business is positive for the first time in many years, and this is particularly true in North America. As you may remember, I had 4 strategic priorities when I took over in October last year. The first one was to boost U.S. growth. I'm really pleased with the performance here. Retention is back over 96%, up 400 basis points, and it is the best retention in the past 10 years. We've also had a strong development, also up 400 basis points. And as I said before, we have also had some strong cross-selling. We have also increased the share of first-time outsourcing in our signature at 44% during the year. The second priority was to accelerate the food model transformation. We have been developing our high-end brand on a global basis. We have done some targeted M&A to strengthen our position in North America and China, and we're transforming production and logistics with offsite kitchen in France, in China, in the U.S., in the U.K. and Chile. Our advanced food model revenues now account for 6% of Corporate Services food sales from less than 2% a year ago. We have also continued to manage our portfolio more actively. And on top of the advanced model acquisition, we have also been building out our European Entegra network and growing our technical equipment management services in Asia Pacific. We have also completed a lot of disposal of non-core activities and geographies. Just to confirm this, we are now down to 53 countries. And we are in the process of enhancing the effectiveness of our organization, the full transfer of P&L to 3 geographic zones. North America, Europe and Rest of the World is now effective. We have also given BRS a dedicated governance. Mark and I are following the execution of the strategic plan very carefully, and the Board is also monitoring the progress at each Board meeting. And we have decided to grant a specific BRS LTIP to the top manager as we did for North America last year. And as you probably have already seen, we have decided that BRS should have its own guidance for the year. Because I'm proud of what the team has done in North America, I wanted to make a few minutes -- take a few minutes to talk about the progress being made in health care in North America. As you can see on the chart, our retention and development picked up strongly this year. And for the first time in a while, we have a positive net new wins. Retention has increased by 60 basis points, and development was up 390 basis points as well. And the profitability of what we signed is also better. I wanted to draw your attention on 2 big contracts won and retained. The first is a very significant extension to our activity with Ardent. We have signed a 7-year contract in which we shall serve 50 locations with patients and staff dining, nutrition counseling, retail and environmental services, including our Protecta protocol offer. In this contract, we have taken some business from competitors, but we have also taken over services that were previously done in-house. We won this because the client liked what we were doing on our small touch and the value added that we propose for their group. We have also been reappointed by University Hospitals for another 5 plus 3 years. They value our partnership, and we have some exciting development projects to manage with UH over the next few years. In Slide 9, I wanted to talk about how BRS has been growing strongly in the meal market for several years and has become the reference with a really excellent year in fiscal year 2022. Israeli tech company are having to cope with employees who are mobile and sought after, so the benefit packages are vital. I'll remind you there are no tax benefit in Israel. Our enhanced digital omnichannel meal experience is totally centered around end user expectation, and we have also seen up-beating our marketing and sales mindset. The result is that we have increased our issued volumes by 53% in 1 year. While underlying volumes are increasing, the development helped at a very strong 35%. We have won EUR 83 million of issue volume this year, among which 1,115 new tech clients. This bring us ahead of all other competitors with a 50% market share overall. Ending on a high with Ardent, we have had some excellent wins this year in all areas and regions. Let's take a few examples. We have just started up for a 10-year partnership with Eastern Nazarene College in the Boston area for food and facilities management on campus. We are building a new menu program, working with the dietitian to develop a clean eating program, updating the look and feel of the dining space, adding tech options including mobile ordering options as well as FM services, including custodial services, ground maintenance and building management. Sodexo Live! has been awarded the British Airways and American Airlines contract in North America within our airport lounge portfolio. They are co-locating their services in a brand-new state-of-the-art space in the JFK Airport, housing 3 premium lounges specifically dedicated to transatlantic and coast-to-coast passengers. The British Airways contract in North America also covers 8 lounges across major cities with business and first-class dining and the creation of a specialist beverage program. We've also retained some great contracts. In 2022, renewed its contract with Life Insurance Corporation of India for the fifth time. Life Insurance Corporation serves over 290 million policyholders. Their 10,000 employees received meal benefits via card and mobile app every month at all of the more than 2,300 locations. Sodexo has been an Abingdon School's catering partner since 2007. The new contract will see the enhancement of the prep school kitchen servery and a new dining facility added to the current catering facilities. Sodexo provides breakfast, lunch and supper for both the senior school, which has 1,000 students and the 250 pupils at the prep school located a few miles away. The Sodexo team also provide hospitality for all events. Extension. We have also won the new flagship of Sanofi near Boston, including offices and R&D, and we will be providing a full FM solution from SodexoMagic premium food services to maintenance and hospitality services with floor ambassadors. The campus has 2 buildings close to all the major universities, including Harvard and MIT. There will be 76 employees working in regulated spaces in the client production lines. So with all these, group net profit was multiple by 5 back up to EUR 695 million, catching up with the underlying net profit, which I remind you is corrected for restructuring charges amongst others and which doubled to EUR 699 million resulting in a EUR 4.78 earnings per share. The Board is proposing a dividend of EUR 2.4 this year, up 20% on last year and representing a payout ratio of 50% of underlying net profit, in line with the group's dividend policy. In Slide 12, I wanted to highlight that gross CapEx reached 2.3% of revenues, with more investment going into retention than last year and still solid IT and digital investments. Free cash flow was also very good, thanks to a much improved operating cash flow and despite significant nonrecurring outflows. As a result, cash conversion was at 91%. And the reduction in net debt continued this year, bringing the net debt ratio back to -- back down to 1% onetime EBITDA, and I remind you that our target is between 1% and 2%. I also wanted to highlight that we are making progress against most of our Better Tomorrow 2025 objectives. The business value, which benefits SMEs, rose 13% to EUR 7.8 billion. Obviously, our direct emission increased with revenues. However, our total Scope 1, 2 and 3 emissions are down by 27% against the baseline compared to our 2025 target of 34%. And for the first time, we now have full disclosure of our emissions, which you will find in our universal registration document, which we will publish in about 2 weeks. We have also continued to reduce waste. However, the overall reduction is only 41.5% versus last year at 45.8%, but we are now measuring on double the number of sites since last year, so this is an excellent performance. We are targeting to be fully measured on more than 84% of our purchasing base by 2025, and we're currently at half of that today. I now hand over to Marc for the detailed numbers.

Thank you, Sophie, and good morning, everyone. As usual, you will find the alternative performance measures definition in the appendices along with extra information to help you with your modeling. Now let's start with the fiscal '22 P&L. Fiscal year '22 revenues amounted to EUR 21.1 billion, up 21.2% or 15.7% excluding the currency impact, and as Sophie pointed out in our first slide, plus 16.9% organically. Underlying operating profit was back up over EUR 1 billion, up 83.3% or 73.5% excluding the currency impact, and the margin increased 170 bps to 5% without any significant currency impact. This was a combination of On-site improving by 160 bps at constant rate and BRS, up 330 bps at constant rates, too. Other operating income and expenses were negligible at minus EUR 5 million this year. I shall come back to this later. Financial expenses also fell to EUR 87 million, down from EUR 106 million the previous year. This is mostly due to the increase in interest income, while financial charges remained flat. The blended cost of debt at fiscal '22 year-end was unchanged at 1.6%. The tax charge was up EUR 264 million, reflecting the higher pretax profit. However, the effective tax rate was at 27.5%, back down to a more normal rate compared to the 43.9% last year, impacted by restricted recognition of deferred tax assets. Cash tax was at EUR 200 million at current rates. As a result, in fiscal '22, the net profit was multiplied by EUR 500 million to EUR 695 million, and the underlying net profit was multiplied by 2 to EUR 699 million. To finish the picture, published EPS was EUR 4.75 and the underlying EPS was EUR 4.78. I remind you that this is the underlying EPS, it's the basis for the dividend policy. I just want to highlight the fact that inflation management was under control. The in-year impact in pricing is circa 4.5%, progressively increasing from quarter-to-quarter, reaching just over 6% in Q4. We have applied our contract clauses to ensure that inflation has been passed on. We have also been very dynamic on retail price reviews, and we have also been engaged in active renegotiations beyond contractual terms. The teams have also implemented substantial mitigation action plan, active procurement measures such as project swapping to limit cost inflation relative to the market indices, and in the operation, to enhance labor scheduling, reengineer menus and, as Sophie mentioned, reducing waste and more. For fiscal '23, we are expecting a similar pricing effect, although it is likely to be more front-ended, and we are expecting that at some stage, inflation trends should come down. Let's now go back to the other income and expense that we have done to only minus EUR 5 million in fiscal '22. First, after 2 years of significant GET cost, the restructuring costs were only EUR 10 million, down from EUR 153 million in '21 and EUR 191 million in 2020. Second, we had a positive net scope change impact of EUR 50 million linked to the disposal of activities. I'll remind you also about the indemnity we collected in relation to the Hungary litigation reported on the other line. Turning to free cash flow. This was much better than I had anticipated at EUR 631 million against EUR 483 million in fiscal '21. Operating cash flow of EUR 1.243 billion improved significantly compared to the previous year at EUR 766 million, boosted by the strong recovery in underlying operating profit and, for instance, by the Benefits & Rewards indemnity from the Hungarian government. The working capital outflow in fiscal '20 of EUR 63 million was due to some significant exceptional items as we pointed out in the first half announcement. We have listed them in Appendix 11, there is nothing new. Net capital expenditure increased significantly to EUR 341 million or 1.6% of revenues compared to a particularly low level of EUR 211 million in the preceding year or 1.2% of revenues. The growth CapEx, which includes old client investments that are deducted from revenues was EUR 478 million or 2.3% of revenues. Digital and IT investment accounted for 30% of the growth spend, with the remainder focused on client-facing investments. M&A activity was on the low side in fiscal year '22, with acquisition spend of just EUR 70 million, and it was more than offset by disposals of EUR 84 million. After taking into account other changes, consolidated net debt decreased by EUR 210 million, ending the year to EUR 1.3 billion. As a result, cash conversion came out at 91%, below 100% and below the average, excluding the COVID years. With this number, this include minus EUR 363 million of nonrecurring elements. Without them, we would have been easily above the average. Next slide, you can see the reduced net debt to just under EUR 1.3 billion. Combined with the revaluation of financial assets and positive currencies, it's placed favorably into the gearing ratio, which fell from 47% in August '21 to only 29% at year-end. The net debt ratio also came back significantly from 1.7 turn to 1 turn at the bottom of our target range of between 1 and 2. In October '21, Sodexo reimbursed by anticipation a EUR 600 million bond due to mature in January '22. Our prudent debt management met at your hand, 96% of the group's gross debt of EUR 5.7 billion was at fixed rates. And by currencies, 71% is euro-denominated, 6% in sterling and 22% dollar-denominated. The average maturity was 4.8 years at the end of August. I also remind you that our debt is 100% covenant-free. By the end of fiscal '22, operating cash reached a total of EUR 4.5 billion, including EUR 960 million of restricted cash and EUR 297 million of financial assets of BRS. Their assets to liability coverage improved significantly to circa 120% compared to 113% as August 31, '21. I would like to point out that the rest of the group also had a significant operating cash position of EUR 1.7 billion. At year end, unused credit line totaled EUR 2 billion. I thought it might be useful to show you the underlying EBITDA at group level and for BRS. As you can see here, our underlying EBITDA is almost back where we were in fiscal year '18 at group level and already back to fiscal year '18 level for BRS. The ROCE for the group is recovering pretty well as well to 17.2% last year. Now let's move on to the operations. In Slide '23, you can see that group revenues reached EUR 21.1 billion, up 21.2% as published and 16.9% organically. The scope change of minus 1.2% reflects the net of the disposal and the acquisition with, for instance, the child care activities being deconsolidated from March. The currency impact was a strong 5.5%, boosted by the strength of most currency against the euros and in particular, the dollar. On-site Services were up 17%, reflecting very significant recovery in North America out of COVID at plus 24%. Europe and the Rest of the World were also strong, up 13% and 11.5%, respectively. Benefits and Rewards was up plus 14.2% for the year, accelerating quarter-after-quarter. So let's go into the details, starting with On-Site. Fiscal '22 business and administration was up 22.7% organically. Before going into the geographical details, I first wanted to go back to our 2020 prediction on the working from home expected impact. Based on the last 2 months of trading, we are where we thought we should be in terms of loss of food volumes, about EUR 500 million annual pro forma. The good news is that we are convinced that there will be further progress in terms of food volume recovery in the months and quarters to come. So now by geography. Organic growth in North America was 45.1% with a progressive return to the office quarter-on-quarter and a strong recovery in Sports & Leisure, first in the stadiums and then in the convention centers. Government & Agencies and Energy & Resources were both up, thanks to new business and a gradual return of office workers on site. Neither segment have been significantly impacted during the pandemic. In Europe, revenues were up plus 20.3% organically, driven by the progressive return to the office, strong recovery in the Sports & Leisure activities, first in the sporting event then, in the second half, corporate entertaining and tourists. Government & Agency was impacted by the end of the TR contract in the U.K. and little new business. Energy & Resources was flat due to weak activity in the energy sector. In Asia Pacific, LatAm, Middle East and Africa, organic revenue growth was 11.6%. Growth in Corporate Services segment remained solid across all regions, particularly in India, where the COVID-related recovery was strong and despite the multiple COVID confinement. Energy & Resources continued to achieve very solid growth, particularly in mining with new business ramp-ups in Latin America, more than offsetting the lack of new oil and gas projects and some contract losses in the Asia Pacific region. Healthcare & Seniors was up plus 4% organically. In North America, organic growth was plus 6.1%. Activity in hospitals and occupancy in senior homes increased, helped by some cross-selling and the recovery in retail sales even though this seems to be stabilizing at just over 80% in the fourth quarter. Pricing is benefiting from inflation pass-through. The contribution of net new business remained low as the new signings during the year have not yet fed through into revenue. In Europe, organic growth was plus 0.7%, impacted by the closure of the testing centers in the U.K. at the end of March with a negative revenue differential of about EUR 90 million year-on-year. Excluding this impact, the organic growth will have been nearly 6%, resulting from pricing new contracts in seniors in France and some increase in volumes, especially in retail sales. In Asia Pacific, LatAm, Middle East and Africa, the 8.5% organic growth was due to increased volumes, pricing and some new business. I'll remind you that the health care business is principally located in India, China and Brazil. Education was up 22% organically and was much stronger in North America and Asia Pacific, where the return to school was well behind Europe. North America was up 27.9%, reflecting full reopening of schools and universities from the beginning of the '21 academic year, even though staff shortage and Omicron impacted retail and special catering activities in the first half. In the fourth quarter, summer camp activity was strong and the 2022 start of the academic year was helped by an extra day and higher levels of staffing. In Europe, revenue was up 6.5% organically. All schools and universities were fully opened. However, [ mediums ] were impacted by a high level of absenteeism due to the different waves of COVID in the first half. Organic growth was plus 24% in Asia Pacific, reflecting reopening of schools and universities in China and India. On-site Services underlying operating profit was EUR 926 million, up 90%. The margin came out at 4.6%, up 170 bps. This improvement was linked to the strong recovery in volumes in Corporate Services, Sodexo Live! and Education. The positive impact of the GET savings and the portfolio management, which has been going on over the last few years. In Business & Administrations, the 230 bps improvement in the underlying operating margin was particularly helped by the flow-through of the significant improvement in the activity levels in Corporate Services and Sports & Leisure. In Healthcare & Seniors, the margin was flat. In a highly inflationary environment, particularly in North America, pricing has been robust, and the teams have been very active in rolling out their mitigation actions. In education, plus 260 bps improvement in margin. The improved performance is strongly linked to the flow-through of the revenue recovery, particularly in North America this year. High inflation and staff shortages have been offset by very significant mitigation efforts on the ground as well as pricing in North America. On the other hand, the situation has been very difficult in France where the national inflation index used in the school contract has underperformed our input cost increases. Now let's turn to Benefits & Rewards. First, I want to show you the acceleration in revenue growth from the first quarter through to the fourth quarter when we were running at 19.8%. This acceleration is in all regions and coming from strong growth in operating revenues, but also helped by the higher interest rates. Employee benefits were up 18.7%, accelerating quarter-by-quarter to 23.1% in the fourth quarter. Issue volume amounted to EUR 14.3 billion for the year and was up 16.2% organically, boosted by strong net new business leveraging digital products and enhanced sales efficiencies as well as face value increases. Financial revenues were also up strongly, supported by rising interest rates, particularly in Latin America and for instance, Eastern Europe. Services diversification was down 1.3% organically for the year. This reflects the end of the COVID-related public benefits and solid growth in mobility solutions in Latin America. Organic revenue growth was strong across all geographies with Europe, U.S.A. and Asia, up 14.4%; and Latin America, up 13.8%. This performance was due to strong net new business in all key markets, sustained increase in face values. In addition, financial revenues were also up strongly, thanks to increasing interest rates in Latin America and in Eastern Europe. The increase in operating revenue of 12.4% reflects strong growth in issue volumes due to face value increases and significantly -- and significant, sorry, net new business in most countries and in most services except public benefit. Financial revenues were up 43.7% due to the progressive effect of the increase in interest rates in Latin America and Europe. The BRS underlying operating profit was up 33.2%, and EBITDA was up 27.5%. While the EBITDA margin increased by 310 bps, the UOP margin increased by 360 bps. Of course, the quarterly momentum in volume helps and particularly given that part of the momentum was due to the increase in financial revenue, which flows straight through into results. At the same time, we continue to increase investments to fuel the BRS transformation in digital and IT. Thank you for your attention. I now hand you back to Sophie for the outlook.

Thank you, Marc. So now let's turn to the guidance for the group. Strong organic growth will continue, and we are expecting 8% to 10% for fiscal year 2023. And this will come from a further recovery in Corporate Services and Sports & Leisure as they catch up with 2019 levels for the full whole year; the positive net new business momentum, including a further improvement in retention; we expect to gain inflation in the top line for the year of between 4% and 5%. On the other hand, the end of the testing centers will cost 100 basis points of growth in the year. And as we have always said, once we have revenue back up to '19 levels, we will get our margin back up, too. So we expect to be at close to 5.5% at constant rate. Obviously, the further ramp-up in volumes will help us -- will help, but we also expect to pass through inflation as we did in fiscal year 2022 with a combination of pricing and mitigating measures. And we are constantly improving our operating performance helped among other things by further supply chain efficiency. We decided that from now, BRS should have also its own guidance. So on Slide 38, you can see we are planning for organic growth between 12% and 15%, which is boosted by further progress in new business, cross-selling and retention, strong demand in all regions and the benefits of inflation through face value increases and interest rate in financial revenues. We expect the European margin to be around 30%, coming from the top line growth flow-through while maintaining a high level of investment in technology, digital offers, brand and sales and marketing. We have decided to reserve our mid-term guidance for the next week at our Capital Market Day, so we hope that you will all be there with us in Paris or online. I thank you very much for your attention. And now Marc and I are available to answer all your questions on the fiscal year 2022 numbers. Operator, can we move on to the questions.

[Operator Instructions] The first question is from Jamie Rollo with Morgan Stanley.

Three, please. First, obviously, a very good set of results, but just wanted to focus on a couple of bits that stand out as weakening quite sharply. The facilities management revenue fell from 115% to 108% of '19 sales between the third and fourth quarter, I thought that can be the U.K. testing contracts that went in March, I think. And also, the schools went from over 100% to under 90% between the beginning and the end of the year. So could you please talk about those two and what the sort of impact is on 2023? I know you quantified U.K. testing as 100 basis points, but I think these are separate items. And then secondly, sort of linked to that, very good retention of 94.5%. It looks like outside North America, that's still pretty low, sort of 93% or so. Just really wondering what the impact of the -- I mentioned in my first question are on that? So what would the 94.5% be excluding some of those headwinds? And also that 93% outside North America, where do you think that can really, really get to? And then finally, the balance sheet is clearly very strong. Free cash flow, very good. What are your thoughts on returning cash to shareholders? And could that possibly involve somehow sort of collapsing the softened sort stake that you're effectively having yourself through Bellon SA?

So the -- on the schools question, the answer is related to the crash disposal, which came up as I mentioned in the second half. And with regards to the FM, I believe this is a testing center impact.

I thought the testing contract ended in March. Was it the Justice rehabilitation contract?

The rehabilitation contract was the year before, but I think it lasted till the end of the year and throughout the beginning of the new year. And the testing centers dropped in March, but I think there was some ramp down in volumes. So last year was strong. Testing center last year was strong. But in fiscal year '22, it was pretty weak in the second half.

And regarding retention, well, as you know, one of my key initiatives was to boost the U.S. growth, and it's true that we've made a lot of investment in boosting that growth, both on retention and development. And concerning the rest of the group, the performance has not been even. For example, France had a good performance in retention last year. But as you know, we lost the Justice contract in France and some other contracts. So we didn't have such a good performance. We also lost a number of our contracts in E&R in Australia, so it affected the performance of APAC. But I'm pretty confident that retention is going to -- retention is on top of mind of every leader today. It's in everybody's conversation. It's -- as I said, it is the indicator that when we start a meeting, we start talking about, and when I meet the team, and they know that. So it's on everybody's mind. And I'm pretty confident that the progress we have made in the U.S., of course, needs to be sustainable. And that when we have not performed this year, we will progress next year.

On the balance sheet, so yes, we have a strong balance sheet, but we are going to be paying EUR 2.4 dividend. There is no plan for any other type of return of cash. So yes, no plans discussed at the moment. And what about collapsing [indiscernible] stake, I mean, right now, we studied it, but there is no decision. And it's not happening.

Your next question is from Vicki Stern with Barclays.

Just firstly, coming back on the leverage. Sophie, you've made it clear there's not a sort of plan at this stage for incremental returns of cash. So I suppose what is the plan within the target leverage range? How should we think about your use of cash, your priorities? Is M&A quite high up the list? Would you still consider really bolt-on deals or you'd be open to anything larger there? Secondly, just on BRS, if you could help and hold our hand a little bit just on the interest income. So you did EUR 61 million this year. Just so how do we see that progressing into next year? Just perhaps a reminder of where you're invested, how quickly you feel the benefit of the rising interest rates. And then coming back on the retention and the signings, I guess your exit rate implies something like 2% net new if we take your retention and the signings figures you gave. Is that the sort of level we should be looking at for net new business growth next year? And do you think that is a sustainable level to have in mind or potentially better going forward?

So on the cash return.

Yes. On the cash, yes, we have some ideas for M&A, but it's going to be very focused. It's going to be bolt-on. So that's going to be massive M&A. There could be a bit more in BRS in core and near core, but we will tell you more at the Capital Markets Day. On interest income at BRS, as you've seen, there is a growth. This year, we had a growth of EUR 18 million and 44%. I think we should have a relatively similar growth in the coming year in percentage on a higher base. So it will be a little bit more in euros, but this is what we are expecting. And the interest rates for us, the euro interest rates are also going up. So we have to end the -- weigh the maturity of our investment to reinvest. But it's coming up, so we are expecting a similar growth next year.

And on the net new, the 2% net new, yes, it will contribute to the growth for next year. As you've seen with the improvement on the indicators in the U.S., it's much better in the U.S. And as I said, we want 94.5% retention. It's not the final objective. We want to first reach at least 95% and also, very quickly, a 96% across the group. And in terms of new development, we have progressed 150 basis points this year, but we also target to increase that number.

So just to follow up back on the interest income. Any color you can give us also just on the sort of geographic mix you have and sort of how you're invested, so we have a sense on how quickly we fill the interest rate benefit flow through?

So we are invested in the country where we operate now because the cash remain in country. So obviously, I mean, right now, we benefited significantly from the BRL interest going up, so -- because it's been going up now for a few quarters. In the Eurozone, we have a fair pool of cash, so it's now going up now. But in the Eastern Europe country like Romania, Czech Republic, Poland and so forth, it went up earlier because there was tension on their interest rates earlier than on the euros. So the reais, we will benefit from an uplift on the reais, but the euro uplift will be significant in the coming year. But nothing much happened on the euro last year.

The next question is from Jarrod Castle with UBS.

Just also three for me. And just firstly, on B&I, you're talking about 12% to 15% organic growth. Within that number, what do you see kind of as face value growth like-for-like new contract wins? So any color on that. Secondly, just on margins. You've obviously done a lot of cost-cutting during the 3-odd years of COVID and you're kind of getting back with more in terms of revenues, but you're still talking about getting back to pre-COVID margins. So what's happening with the benefits from the cost cutting? Are there structural benefits, which are going to come through in 2023 actually? And in relation to that, I guess your peak margin was 6.4%, 6.5%. Could we go back towards that? And then just on pricing, you saw inflationary pricing 4% to 5%. Obviously, Q4 was 6%, I guess, hoping for moderation. But is that passing on all your costs? And can you give us the split where things currently stand with cost plus fixed price and P&L contracts?

BRS, the organic growth, even if I strip out the financial income or the financial revenue growth. The BRS growth is a solid double-digit growth, supported by a great year of selling in fiscal year '22 and Aurélien will tell you more at the Capital Market Day, but we had a very strong selling year in '22. We are also benefiting from face value increase, the inflation pass-through by our clients to the benefit of their employees. But very, very strong sales on new digital products. We gave you the example of Israel. I mean this is typically the kind of things the team is doing. On the margin for the group, we benefit again next year from elements of ramp-up, as we told you. Corporate Services and Sodexo Live! and, to a certain extent, Education have further ramp-up to do. So there will be a ramp-up. And then we have also efficiencies, which are the benefits of efficiencies were up to fiscal year '22, but they remain there. Especially on the SG&A, they are structural benefit. So we are confident with the 5.5%. I will not comment on the 6.4%, as you mentioned. I think we'll tell you more at the Capital Markets Day. On the inflationary pricing, we passed circa 4.5% in fiscal year '22. The input cost is more 6% to 7%, let's say, even 7% on the food cost then 5% to 6% on the salary cost. So obviously, if I just look at what we had and what we have as input, there is a gap. But as we explained already a few quarters ago, we have mitigation actions to close the gap. And our teams are closing the gap as we speak. So you have 4.5% on pricing, 5% to 6% on labor and 6.5% to 7%, I would say, on food cost.

And the contract split?

And the split cost [indiscernible] has not changed much. I think globally, we have 25% in cost plus with a big focus in the U.S. where it's more than 40%. And the rest is P&L, and we have more and more retail. So I think in the U.S., on the rest, we've got the 20% to 25%, which is retail where we can flex the prices. So the proportion of split cost, cost plus and P&L has not changed much.

The next question is from Jaafar Mestari with BNP Paribas.

I've got three questions, if that's all right. First one, just very quickly, putting together all your comments here on the different components of organic growth next year. Does it sound correct if the 8% to 10% is 4% to 5% inflation, around 2% net new business and implicitly between 2 and 3 points of like-for-like volume recovery? And I guess more specifically on new business, I appreciate the forward-looking trends as of today. It looks like EUR 300 million, and that could be 2%. But if I take full year '22 organic growth plus 17%, of which like-for-like plus 21%. So the in-period contribution from net new business was negative minus 4%, and that's not improving at all compared to H1 or to Q3. So how do we get comfortable with an overnight improvement to 2%? Is there a specific moment where all the losses have annualized? How do you put a date on this? I think you were previously talking about broadly neutral for the full year or at least positive in H2. So I appreciate it's really difficult to call. But when does it turn positive? And lastly, on the very good retention performance this year, especially in the U.S. I'm just keen to hear any extra context, if you could maybe talk about your success rates rather than retention. Was '22 a normal year? Did you have as many big university contracts actually up for renewal than you would normally have? Or were you in any way helped by the timing of renewals?

Maybe I'll take the last question. No, I don't think we were helped by -- it was a pretty normal year in terms of renewal. We had a lot of renewals. But it is a topic that we have been working on for 2 years now, 2, 3 years. And I think we have put even more pressure in anticipation of the renewal of the big contract. And so I think now, it's -- the remote focus from the team on the topic, we have invested more also on retention. And so it has -- and we have performed better. But as you know, retention, it has -- the focus has to be constant, and we want to stay at that level and learn everything for that.