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

Good morning. Thank you for standing by, and welcome to Sodexo's First Half Fiscal 2022 Results Conference Call. [Operator Instructions] After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I advise you that this conference is being recorded today on Wednesday, the 5th of April 2023. At this time, I would like to hand the conference over to Sodexo team. Please go ahead.

Thank you. Good morning, everyone. Welcome to our First Half Fiscal Year 2023 Results Conference Call. I'm here with Sophie Bellon, our Chairwoman and CEO; and Marc Rolland, our CFO. They'll go through the presentation and then take your questions. The slides and press releases are available on our site, 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. I need to warn you that certain information included in this presentation are forward-looking statements, including in relation to the proposed spin-off and listing of Benefits & Rewards. These forward-looking statements are based on current beliefs, expectations and assumptions, including, without limitation, assumptions regarding present and future business strategies and the environment in which Sodexo Group operates and involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements or industry results or other events to be materially different from those expressed or implied by these forward-looking statements. Forward-looking statements speak only as of the date of this presentation, and Sodexo Group expressly disclaims any obligation or undertaking to release any update or revisions to any forward-looking statements included in this presentation to reflect any change in expectations or any change in events, conditions or circumstances on which these forward-looking statements are based. For the full disclaimer, please look at the last page of the press release or the presentation. Please get back to the IR team if you have any further questions after the call. And I now hand you over to Sophie.

Thank you, Virginia. Good morning, everyone. Thanks for being with us today. This morning, I'm really pleased to be able to announce not only a great set of H1 numbers, but also the launching of the project to spin-off BRS and create 2 pure players. I shall come back to this at the end. Let's first go through the numbers. On Slide 4, Group organic revenue growth for the first half was 13.4%. And as we expected, we have seen the final step-up post COVID of the recovery in the return to the office and a strong increase in convention center and sporting events activity. The underlying operating margin was up 60 basis points at 5.8% or 50 basis points excluding currencies, so perfectly in line with our guidance for the year. On-site Services were up 12.9% with a margin back up at 5.1%. And Benefits & Rewards achieved much better growth than expected at 24.2% with a margin up 510 basis points on constant currencies at 31.9%. We have won some exciting contract this last quarter, a couple of highlights. Entegra won the contract for the purchasing of all Accor hotels in North America for a minimum of 5 years. This is a big new contract for Entegra and has already started seamlessly. We won this contract based on our data-driven focus, flexibility, detailed and customized reporting, strategic growth partnership focus, understanding of their sector and our capacity to provide custom contracting and enhanced productivity. We have a commitment also to support their sustainability efforts. In case you had forgotten, Accor was a founding member of the Avendra GPO, and we do already serve Accor Hotels in some European countries. Another example is the Czech Republic, where we have expanded our relationship with Skoda. We are now leveraging our employee benefit and engagement platform by proposing leisure benefits in addition to a wide range of existing benefits. We are also very proud of the way we have been able to extend our relationship with Korian into Spain. In a 3-year contract, we will be servicing 57 sites, including senior and mental health sites with food service and cleaning service, including procurement, on-site food and chilled delivery. Finally, I would just like to highlight the renewal and extension of the Unilever contract. We will be providing IFM services to 82 sites in Europe, North America and Asia Pacific in their headquarter offices, research and development, and manufacturing sites. Having in the last decade driven IFM standardization for Unilever, in this new contract we are being asked to enhance user experience in a more flexible, more digital post-COVID world. Now let's turn to our growth indicators. Retention in the first half was 97.8%. We have not had any surprises losses this semester. So we are on track to reach our objective of 95% for the year. New developments was 3.6%, representing more than EUR 800 million, including cross-selling, which is a record level for an H1. On Slide 7, you can see that the organic growth of Food service was plus 20%, reflecting the full recovery post-COVID compared to the 2% FM organic growth or plus 6%, excluding the impact of the testing centers contract. The result is that the mix of our revenue has changed with 65% coming from food in the first half of the year and 35% from FM services. When we look at the new development sign during the same period, the share of few food services has also increased by 4 points to 59%. Integrated services, where we are selling food and FM services, has also increased its share. As I said at the Capital Markets Day, we are focusing more and more on food services and integrated services where there is a high perceived value for clients. I now pass onto Marc for the details of our first half numbers.

Thank you, Sophie, and good morning, everyone. I am very pleased to be here with you this morning. As usual, you will find the alternative performance measures definition along with some information to help you with your modeling in the appendices. Let's now have a look at the P&L performance for the first half of fiscal 2023. The year has started well with revenue up 17.8% and 12% excluding a significant currency impact. Although by the end of the first half, the dollar and reais had come up substantially from the highs in Q1, currency still provided a boost of 5.7% during the first half. Despite high input cost inflation during the period, underlying operating profit increased 30.9% or 22.4%, excluding currencies, to EUR 704 million. This is a 5.8% UOP margin, up 60 bps, or 50 bps excluding currency effect. Other operating income and expenses were minus EUR 42 million compared to minus EUR 1 million in the previous year. The detail of this is on the next slide. Financial expenses amounted to EUR 48 million versus EUR 53 million last year. The blended cost of gross debt at the end of February was more or less stable, up from just over 1.6% at the end of August '22 to 1.7% at the end of February. The tax charge was up in value at EUR 166 million, but the effective tax rate decreased to 27.1% versus 28.3% last year, principally due to the substantial increase in profit before tax. As a result of all these items, group net profit increased 30.6% to EUR 440 million. Adjusted for other operating income and expenses after taxes, the underlying net profit was EUR 475 million, up 40.1%. As said, other operating income and expenses were at minus EUR 42 million, including EUR 10 million of restructuring costs linked to the reorganization of the group into regions. It compares to minus EUR 1 million last year, a year in which we benefited from significant positive one-offs. Operating cash flow was strong, reflecting the improvement of the operating performance. Despite a 47% increase in net CapEx, the cash outflow was limited to minus EUR 46 million. Gross CapEx increased strongly by 43% to EUR 317 million, representing 2.6% of revenues. This is a significant rise in line with the investment strategy presented during the CMD. BRS CapEx was more than 10% of revenues, and more than 85% of that was in IT and data. This represents a significant increase in CapEx to enhance our systems and platform. On-site CapEx was also up and represented 2.3% of revenues, the highest rate we've had for a while. More than 85% was client-facing, reflecting the higher level of commercial activity recently. So let's see how this has all impacted the balance sheet. Gross debt is stable. Net debt is down EUR 174 million year-on-year. As a result, gearing decreased 10 points year-on-year to 46%. And our net debt-to-EBITDA ratio fell to 1.3 turns versus 1.8 turn last year. Let's now turn to the review of operations. On Slide 15, you will find the breakdown of organic growth. First half fiscal '23 revenues were up 17.8% for the group as a whole to EUR 12.1 billion. Currencies contributed 5.7%. This was due to the very strong dollar and Brazilian reais, but it is deteriorating. It was 9.2% in Q1. On the currencies projection, if the current closing rates were held until the end of the year, we are likely to have a small negative impact in H2, bringing the annual currency effect to less than 2%. The Scope effect reduced revenue by 1.3%. It is due to our disposal program over the last quarters. We have done nothing significant in the first half, neither in acquisition nor in disposal. As is, we expect the full year impact to be just around minus 1%. The organic growth was 13.4%, of which On-site Services is up 12.9% and Benefits & Rewards is up 24.2%. I shall come back on the detailed geographic performance in the next slide. So let's look first at the On-site business, starting with the inflationary impact in the semester. First, I confirm that the pricing effect is above 5% for the first half, as expected. There are signs that food inflation is starting to slow down in North America and Brazil, but not yet in Europe. The teams remain totally focused on passing on inflation to clients through price increases and implementing operational mitigation actions where there is a delay or a shortfall. And we've had successful price negotiations from January onwards. Given the continued high food inflation on our ongoing actions, we now believe that the pricing contribution to the second half revenues will be higher than initially expected, remaining at above 5% in H2. Now let's turn to the detail by geography. North America growth was 16.4%. Overall, pricing contributed positively in all segments. Business & Administration was up 31.3% as the return to the workplace remained strong, and we saw increased activity in convention centers and airline lounges. The Energy & Resources and Government & Agencies segments were also up. Convenience Solutions and Entegra also contributed to growth even though they remain small. Healthcare & Seniors organic growth was up a solid 9.4% driven by price increases, cross-selling, continued recovery in retail volume, which were up double digit during the semester. Senior home occupancy has also increased. The contribution to revenues from net new development was limited during the period as contract terminations happened earlier in the year than the start-ups. But the balance is expected to improve in the second half with, for instance, the full impact of the Ardent mobilization. In Education, organic growth was 10.7%. School was impacted by the reduction in government waiver eligibility for students and in the first quarter the last effect of the loss of the CPS contract. Growth in universities was much stronger with a higher number of board plans, 1 extra day, stronger retail sales and more on-campus catering. I'll remind you that last year, the university recovery stalled in Q2 due to the Omicron variant. In Europe, organic growth was 8.3%, helped by the improved impact of price increases. Business & Administration organic growth was 16.7%, supported by very strong demand for sporting and corporate events as well as the ongoing return to the office. This was somewhat partially offset by contract losses in Energy & Resources and Government & Agencies. Excluding the closing of the testing centers, Healthcare & Seniors was up 8.6%, thanks to new startups, recovery in retail sales and improved seniors occupancy. Education was up 5.3%, reflecting some volume growth as last year was impacted by poor attendance due to the Delta and Omicron variants. The pricing contribution was lower than in most segments, particularly in France, where passing on inflation remains slow. Rest of the World, organic growth was 14.7%, significantly fueled by new start-up and pricing. Business & Administration was 14.9%. Growth in the Corporate Services and Energy & Resources segments is very strong with volume increases in most regions, except in Australia, impacted by previous year contract losses and in China, impacted by COVID-related site closures. Start-ups, particularly in the tech sector in India and in mining in Latin America, have contributed positively. Healthcare & Seniors revenue was up 8.6%, with a strong performance, particularly in India. Education may be small, but it has been recovering fast over the last quarters. The 30.7% organic growth in H1 reflects the full ramp-up of school and university attendance in India post-COVID. Of course, the situation in China has meant that like-for-like growth suffered, while there was modest new sites opening as well. The On-Site underlying operating profit at EUR 593 million was up 23.3% or 15.4% excluding currency. As a result, the margin was up 20 bps at 5.1% versus H1 fiscal year '22. Generally and very importantly, the teams have been absolutely focused on ensuring that pricing and operational actions are mitigating input cost inflation. The leverage from post-COVID volume recovery is solid, especially in North America and in Europe, even though this was slightly offset by the end of the testing centers contract in the U.K. In the Rest of the World, there was a temporary decline due to timing of price increases, mobilization costs as well as the impact of COVID-related issues in China. Overall, for H1, the margin is a bit better than we expected a few months back. We've been quick to adapt to the new organization, and we've been disciplined in our cost management. We also passed inflation well. Pricing and mitigation actions are still in place and producing results. We've had some mobilization costs, but a little less than expected due to timing. Looking at H2, food inflation is remaining high, especially in Europe and for a little longer than we expected back in January. So the benefit of the receding food inflation will be lighter in H2 and partially delayed to next year. There will also be more mobilization costs than in H1. So in spite of good pricing action, above 5% in H2, we now expect that the H2 On-site UOP margin will be lower than the H1 margin. Now let's turn to BRS. Before we go into the normal detail of revenues in BRS, I wanted to highlight the quarterly acceleration we've seen since the beginning of fiscal 2022. As you can see in this slide, on the left-hand side, you can see that the operating revenues have accelerated progressively quarter-on-quarter. This is due to solid operational improvements linked to portfolio growth, net new business and strong efforts to push through face value increases. On the right, you have the financial revenue, which have been growing very strongly as rates have increased. First, in Brazil from Q1 '22, then in the rest of LatAm and the Eastern Europe part -- eastern parts of Europe, sorry, from Q3 '22 and now in the Eurozone. We are now running at a rate of over EUR 30 million of financial revenues per quarter, equivalent to 12% of total revenue, a level we had not seen for a while. So here, you have the analysis between operating revenues and financial revenues for the first half. I'm not going to repeat myself here. So let's now go to revenue by services. Here, you can see the very strong momentum in organic growth in both Employee Benefits and services diversification. On the left, employee benefit issue volumes are growing at 12.6%, amounting to EUR 8.3 billion in the first half. This is due to face value increase, positive development and strong existing client growth or as we call it, portfolio growth, particularly in Brazil, Turkey, Romania and Mexico. Revenues from employee benefits are up 24.2%, reflecting the issue volume performance as well as a much higher interest rates. The 24.1% increase in service diversification is due to the combination of strong fuel and mobility cards activity and the 2 major public benefit contracts in Austria, Romania that I talked about in the first quarter. Europe, Asia and U.S.A. organic growth was 22.8%. The acceleration strategy is working. We are increasing SME penetration and winning new business. There is generally strong demand in all markets. We have also continued to achieve strong face value increases over the semester. In Latin America, the even stronger growth of 26.9% was boosted by the volume increase in fuel and fleet across the region as well as the higher interest rate. The BRS UOP was up 52.8% and 46.4%, excluding currency impact. As a result, the margin came out at 31.9% against 26.7% last year, up 510 bps at constant rate. The EBITDA margin was also up 460 bps to 36.8%. This very strong performance was due, of course, to the significant boost in financial revenues. But please note that the margin will have been up without the additional financial revenues, thanks to solid operating leverage and despite a close to 50% increase in IT, data and digital CapEx spend during the first semester at constant rates. Thank you for your attention. I now hand you back to Sophie.

Thank you, Marc. So now you have the numbers, I would like to go through our plan to spin off and list Benefits & Rewards. This is a very important step for Sodexo. The creation of 2 pure players, 1 in On-Site services and the other in Benefits & Rewards, is the best option for all stakeholders. We came to this logical conclusion after the in-depth strategic review we launched 18 months ago with in mind the absolute necessity of both BRS and On-site services to accelerate their profitable growth. As 2 pure players, each company will have its own focused strategy. Each company will have to assert itself as a leader in its environment with a specific branding, positioning and employee value proposition. Each company will have its relevant capital structure, will have its fully dedicated and empowered governance and leadership team. And each company will become a differentiated investment proposition with its own profile, business drivers, KPIs and benchmarks. These 2 companies should be able to enhance performance and strategic execution benefiting from the financial flexibility, strong investment-grade ratings and direct access to the market, make the relevant acquisition and attract the best suited investors. And on top of all this, they should also be able to optimize talent recruitment and retention through adapted compensation mechanism. So let's turn to Slide 30. I'm not going to go through each line because I know you know all of this. The 2 sides of this slide show the characteristics of each entity. They both have growth markets, leading positions, clear strategies and cash-generating business model, but one is a massive 417,000-people company with margins at around 5% and the other is a tech-enabled platform with 5,000 people generating margins of 32% in this first half. So where are we today on this transaction? We have the unanimous approval by the Board. Bellon SA intends to continue to play the role of a long-term shareholder in both entities. The contemplated transaction is expected to take place during 2024. It is subject to a number of steps, including consultation of the employee representative. And it is not expected to generate any material adverse effect on the business, but there will be some one-off costs normal for a transaction of this nature and size. So now let's go to our guidance. As you have seen, the first half has been strong, a little bit stronger than we expected on revenues and even on operating margins. BRS growth continued to accelerate quarter-on-quarter, and the margins have benefited from ongoing improvements in the operating margin as well as financial revenue flow-through. In On-site, the post-COVID ramp-up was a little bit stronger than we thought. We have managed our costs well and the start-ups are more back-ended than originally expected. In H2, BRS revenues will slow down against a higher base, but margins should continue to be close to 32%. But this is offset by the fact that in On-Site services, the inflation pivot point that we expected in the second half is delayed. All in all, we are upgrading revenue growth to close to 11% and maintaining our group margin target to close to 5.5% for the year. Looking further out, we reiterate our guidance for 2024 and 2025 of the higher 2023 guidance and are completely committed to achieving this through the 2 entities post spin-off. Thank you very much. Operator, could you please launch the Q&A session.

This is the conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Jamie Rollo from Morgan Stanley.

Three questions, please. The first couple are on the spin-off. So first, just really wondering what changed from that review 18 months ago. Originally, the plan was to sell a minority stake, then to keep the business and turn it around internally; now spinning it off. So just really wondering about what's changed to sort of cause that or maybe that was the plan all along? Secondly, the balance sheet is clearly very strong. You talked about plans for M&A and cash returns, but are those now only going to happen post the separation? Or could they happen in advance of 2024? And then finally, just on the sort of performance of the business, the 0.5% net new development in first half. Are you still on track for 2% for the full year, which I think is going to be -- needs more like 3% in the back half. Is that sort of fair assumption?

So thank you, Jamie. So on your first question, what changed from selling a stake first to keeping the business, so for over the last 18 months, we have worked on an accelerating plan for BRS. Various options were carefully studied by Sodexo and the Board and the management. The conclusion was that this project is in the best interest of both entities and of all Sodexo stakeholders. And as I said, the family holding, our controlling shareholders support this plan and will still be an important shareholder on -- after the spin-off. So I think it's -- nothing has changed. It has been -- we have studied, we have looked at different options, and we have decided that that was the best option. And so we have made the choice to move forward.

On the next question, we have -- we do not have plan to stall anything or cash return. The dividend will be paid in due time. And if we have M&A opportunities, we will work and do those as planned. So no, it doesn't change anything to our profile for the next periods. Now in terms of net development, yes, we had 0.5% of net opening in H1, and we are actually planning 2% in H2 -- slightly over 2% in H2. And so no, it doesn't mean 3% for H2. It's 2% for H2. So we will be opening what we -- and broadly what we signed last year.

The next question is from Vicki Stern from Barclays.

I've got 3. So just coming back, what was the actual net new contribution in...

We can't hear you. Could you speak up?

Yes, we can't hear you, Vickie.

Sorry about that.

Yes, much better.

Okay. Sorry. Yes. So just coming back on the net new in Q2, what was the actual contribution to net new in Q2? Obviously below the 2%, but just to know what that was. And on that sort of why do you think you didn't achieve the 2% already in the first half? Because I think originally you expected 2% for the full year. Obviously, the first half seems to be a bit lighter. Second one is on retention. So you mentioned you're still confident in the 95% retention rate this year, which is obviously an uptick from the 94.5% last year. First is sort of how much visibility you actually have around that in terms of sort of which contracts might be renewing in the second half? And then does that leave you feeling, when you think about your signings pace at the moment, that you're consistently sort of executing on around about this 2% go forward. So not just in the second half, but the sort of forward-looking run rate as we go into next year, is 2% still the right number to have in mind given what you see today. And then just thirdly, on the spin-off, any indication at this stage in terms of the cost split. I'm assuming the corporate costs will sort of naturally fit more with the OSS remaining business. But yes, any sort of indication at this stage on how costs might split between the 2?

So the net new Q2 contribution, as you remember, when we met -- when we spoke in January, we said that the Q1 contribution was close to 0. So to get to 0.5% for H1, we had a net new contribution of Q2 slightly above 1%, which makes 0.5% in Q2. And we will get 2% in H2. What makes the contribution moving is the fact that the timing of opening and closing is not linear, and we had more closing at the beginning of the period and opening a progressive and ramp-up over the quarters. For instance, Ardent was mobilized, I think, at the end of Q1, but has progressively gone up and will be much higher in H2 than it is in H1. So it's purely mechanical effect of the timing.

So on the retention, the retention is slightly below last year at H1. But I think it's more a question we've lost a big contract. It was planned. It was absolutely no surprise in health care in North America. All the other contracts that we have lost also were planned. As Marc said, some retention, sometimes -- when we lose it, we lose it right away. So -- but I want to repeat that there was no surprise. On the visibility of the improvement towards the end of the year, we are tracking much more specifically each contract in our database and anticipating at the same time with a bottom-up approach and a top-down approach. And we are confident that so far, we've had a number of contracts, especially a big one in the U.K. that we secured. And we are confident that we will reach this target. And as I said, there is -- retention is key. It's a key indicator for -- on which we have been working a lot. And as I remind you, all our leaders have an incentive on retention this year, which is new. And second, on the development rate. As we said, we achieved above EUR 800 million development including cross-sell. Development was high in all 3 regions, and we expect to land between 7 and 8 development rate for the year, as we have planned.

And on the cost, so in principle, what we've been working on right now is that in aggregate, we do not expect any increase in HQ cost deriving from the spin-off. But obviously, BRS will have to spend a few -- a little more on their structure because they will be listed. They will have a Board, the chairperson and so forth. So obviously, there will be some additional costs at BRS, but there will be a reduction of cost at On-site level. And you must remember that BRS is currently a business managed very independently. So they are standalone in many aspects. So we are really looking at only, I would say, governance and corporate cost in addition for BRS.

Just any sense on the quantification of those roughly?

Sorry?

Any sense on just the quantification of those governance and corporate costs?

No, it's going to be small. So we're not talking big money. I can't give you a number right now, but it is modest.

The next question is from Jarrod Castle from UBS.

Just a question. You were looking previously for BRS to sell a minority stake. If you were approached now, is that something you would consider? Or are you very much committed to the demerger path? Secondly, just on simplification. There is still the cross-shareholding Sodexo has in Bellon SA. Is there any thinking about whether or not that makes sense in terms of the cross-holding? And then just in terms of clients and health of your clients, are you seeing any impact on like-for-like growth due to layoffs at the moment with unemployment likely to start to go up?

So on the BRS sell minority, no, it's not -- I mean there has been a Board yesterday and the decision was unanimous. And it is something that we explored, but there was no decision on it. Yesterday, we had a decision on the spin-off. So it will -- what will happen in the next month. On the simplification of cross-shareholding, as I said before, it is an option. On regular basis, we're looking at the option and if it's possible. So it's still something that, as I said before, we are working on, but nothing specific at the moment.

And sorry, Sophie, just on -- I mean, if you were approached, is a demerger to shareholders preferred over an approach for the whole company or for BRS, that is?

We are not in the disposal mood. We are clearly wanting to give BRS its autonomy to grow faster and further. So the spin-off is our preferred option. When we had -- when we were working on another option, it was a very partial disposal to get a private equity to come in. But clearly, Bellon SA wants to remain the principal shareholder of BRS and this is supported by the entire Board so -- and management. So this is what we want to do.

Yes. And we have looked at the option earlier, but we decided it was not the right option. It was not just about the investor. It's not what we want to do. So no, we will continue in what we have started and decided yesterday.

And then on the client health. We are watching this very carefully because obviously, everybody reads and hears about the tech layoffs. Fortunately or unfortunately, we -- our exposure to the tech sector is limited. It has grown over the past 18 months, but still remain very reasonable. So we are watching it. And we've not been impacted. On the contrary, actually, we are growing in the tech sector, especially, for instance, in APAC, but it's more because we are winning new contracts. On the existing contracts, we haven't seen any signs of lower level of attendancy. So we're watching it. What we are seeing is that people are coming back to the office more and more. So it's a little blurred into the picture.

The next question is from Leo Carrington from Citi.

If I could firstly ask, on the contract wins announcements in the trade press, they appear to have picked up. I mean -- and it seems to be more skewed towards B&A. Is that representative of an underlying trend? And if not more broadly, how is the bidding and retention trends in health care and education at the moment? And then secondly, you've now had some time to bed in the new reporting structure, new regional reporting structure, I should say. Do you have any observations you can share with us in terms of noteworthy operational or strategic enhancements or even challenges as a result?

On the contract win, no, I think we've won some contracts in all segments. For example, we've won a contract in the U.S. in health care, Lehigh Valley that used to be ours, and we lost it to Morrison and we won it back. We're very proud of this one -- of this success. And we won some contracts in government recently in the U.K. We've won some universities. So well, maybe it's just -- maybe it appears that it's B&A, but I think we have grown in all segments. And definitely, for example, health care or universities in the U.S. are clearly a segment that we target strongly and we want -- where we want to increase our, yes, our new development and our new contracts. And for the new organization, I think it went pretty smoothly. I think everyone realized that a lot of things happen at the country level. And I think all the efforts that we've made on the segmentation helped us understand better our clients, better our consumers with our consumer insight, the need to reinforce our brand, and that's what we're working, and we're keeping that. But at the same time, I think the P&L going back to the region, yes, went very smoothly because, of course, especially with what's happening still now, situations are very different with what's happening dynamic in NorAm. And we see it also with inflation. It's not happening the same way in all the countries and in all the big countries. What's happening in NorAm is different from what's happening in Europe or in China or India. So I think it has simplified the life of our team on a daily basis. So everyone is happy with that, I would say. And in a very complex world, everything that you can simplify is good.

The next question is from Jaafar Mestari from BNP Paribas.

I've got 3, please, if that's okay. So firstly, with your updated assumptions, could you walk us through the components of the 11% organic growth guidance now? Is the pricing now more like 6% net new business, sounds like maybe 1.5% for the full year. Does that mean the same site volumes are also going to be a touch stronger than you were expecting, definitely a 3%, 6% to 3% plus 1.5%. And then on the full year margin guidance, just to clarify, when you reiterate around 5.5%, is there any chance that the full year margin is below 5.5%? And just lastly, a relevant capital structure. What is this for each business? What sort of net debt to EBITDA do you believe each business can sustainably have? And on the demerger, how will you allocate debt between the 2 businesses? And then over time, how much more leverage do you think each of them can take?

So on the 11% guidance, what we said clearly is that we are expecting inflation to be above 5% in H2, while before, we were guiding for 4% to 5% for the full year and we were above 5% in H1. So mechanically, it meant that inflation in H2 will have been a lot lower than 5%. And here, there is -- we are saying now that inflation in H2 is going to be 5%. We have the net open close that we were expecting. So we told you that it will come by H2 and it's coming by H2. In H2, we will have circa 2% of net open flow. We have the testing centers impact that we are expecting, which is a small negative of 0.5% in H2 and a negative of circa 1% for the year, and the rest is the like-for-like volume. So mechanically, the main driver is the fact that we are expecting more inflation in H2 than mechanically it will have been if we had stayed between 4% and 5%. On the margin, clearly, I mean, we are confirming reiterating the 5.5% UOP margin. That's it. I can't comment any further. And on the capital structure, clearly, it's too early to tell you. What we are aiming at is that both businesses will have strong investment-grade rating. And we've been working on that, and we've already had some exchanges with rating agencies to work on that and what it will mean. But it's too early to give you a push down of the debt or a proper detailed capital structure. But each one will have a capital structure, allowing it do the M&A and the growth strategy that we explained at the CMD, for instance. You have to wait a little more details.

Just on the organic growth bridge, if we can take those elements one by one, maybe come up quite getting to 11%. So 11% for the full year, that's ex testing centers. So actually, you need to do 12% ex testing centers. Then net new business is going to be below 2%, isn't it? But let's take out 2% on the 10%. And then that 10% inflation, you're not quite saying fixed, you're saying more than 5%. So I guess my question is, is that...

Please speak up, we can't hear you properly, please.

I'm sorry. I was trying to walk through the 11% organic growth guidance. So 11% is ex testing centers. So you actually need to do 12%. And then net new business, you're talking about 2%. But mechanically in the full year, it's going to be a little bit below that, right? But let's take out 2%, I still need 10%. And then inflation you're not quite saying fixed. You're saying above 5%. So does that mean that same-site volumes have been significantly stronger than expected? I need something like 4.5% in same side volumes to get to 11%? 11%, plus 1 minus 2.

Jaafar, you can look at it the other way around. So we've had a strong H1, stronger than it was expected, okay? So we are banking 100 bps more than the consensus on H1. Then before we had the growth guided between 8% and 10%, and I think the consensus was 9.5%. And to do that and for us to do 11% given the first H1, we've got to do something like between 8% and 9% for H2. And with the math, it works pretty well. I mean you've got inflation, you've got like-for-like growth, you've got net opening and so forth. The variable which is missing into your math is the like-for-like growth. We can get off the line and discuss this into more details, but you just have to adjust it with the like-for-like growth.

And also the fact that the H1 was very strong.

Exactly.

So the fact that the H1 was very strong imply that it will have an impact on the full year.

And the contribution of BRS at above 20%. So...

I'm sure it works. Maybe in isolation on like-for-like, do you have an estimate of where you are on current same-site volumes compared to...

I was guiding on like-for-like for H2. Please let's be reasonable. So let's take this offline.

The next question is from Andre Juillard from Deutsche Bank.

Congratulations for the solid results. A few questions, if I may. First one is about governance, considering that the idea if I understand well is that the Bellon SA will remain the main shareholder of the 2 entities. But could you clarify the way governance is going to be organized? And what is going to be Sophie's role in the 2 entities? First question. Second question was still about the debt split. So if I understand well, we'll have to be patient about the split, but the idea is to have 2 strong investment-grade ratings for both entities. And the third question is around the 2 aspects, governance and leverage. If Sodexo was buying back the 13% it owns in the Bellon SA, what would it imply in terms of leverage, financing and so on?

So on governance, first, it's a little early to say concerning the governance of the newco. But what I can tell you is that I will keep my role for on-site services, and we are working on the governance for the new company. So we will update you when we make a decision.

But does that mean that you will remain both share woman and CEO of On-site? Or will you come back to a simple role of chairwoman?

For the moment, for Sodexo, it doesn't change anything. So for the moment, yes, I remain Chairwoman and CEO of Sodexo, the current company.

And your second question is about the split of debt between both companies?

Yes.

It's too early to tell you. I think we have a few options on the table. And as you -- as we said -- as I said earlier, we want both entities to remain strong investment grade. We are working on the M&A trajectory and firing power, but we want to give the appropriate firing power on each side. And based on that, we will caliber the push down of the debt. It's a little too early. So we can tell you that maybe at some point in the future. And in terms of -- I think you're talking about the Bellon SA so far, is that right, for your third point?

Yes, absolutely. The fact that Sodexo still only 30% -- 13%, sorry, of the Bellon SA.

What does it mean in terms of financing, it all depends how you're doing it. But Sodexo is more selling than buying. So it's more of a question for Bellon SA.

Okay. That means that if Bellon SA wants to buy back the 13% owned by Sodexo, that will have some implications in terms of cash and potential return to shareholders?

Depends how we are doing it and what are the options, obviously. But Sodexo SA as an asset that we would like to sell. So the primary transaction is receiving cash. So after the question is what do we do with that cash. So -- but it's too early to say. I mean we have no plan yet, so.

And the Sodexo transaction is totally different from what we are discussing today on the BRS spin-off. It's very independent.

The one does not prevent the other.

No, exactly. So as I said before, we current -- we regularly assess the opportunity to do that transaction.

Okay. But the idea at the end is that Bellon SA will keep the same kind of participation it has in Sodexo in BRS?

Yes, strong participation, yes, yes.

Yes.

Absolutely.

[Operator Instructions] The next question is from Sabrina Blanc from Societe Generale.

Just a following question regarding the capital and what you said about the -- after the spin-off and following Andre's question. If you can't answer for the new entities, could you remind us which is the level we are in terms of leverage to keep your investment-grade rating on the current -- I mean, on the current structure?

I don't have the ratio in mind just now. So yes, you're catching me off guard. But it's all about FFO and so -- ratio. So I think On-Site today has a very good FFO ratio with S&P. And so we are BBB+. And so we worked on the rating for BRS, and the whole idea will be to try to keep them at the same rating. But all of this is suspended to how much data are we pushing down and so forth. So I think our Sodexo rating is public. So you can see what we have. But we are working on it. And it's a little early to give you more details.

Okay. And yes, a following question. It's now regarding Entegra. You have mentioned this contract, which has been a win in North America. But could you come back on your -- globally on the ambitions that have been highlighted during the CMD and where you are at this stage?

Entegra, we clearly expressed an ambition as a CMD. And in H1, Entegra has had a very good performance with strong growth in North America and in Europe. We are keeping -- building up the asset in Europe by making small acquisitions. So the growth is very solid. It's obviously double digit, but a very strong double digit. And we are investing, and it's on plan.

Sodexo team, there are no more questions registered at this time.

Well, so if there is no more question, well, thank you very much for being online with us today, and have a great day.

Thank you.

Thank you. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.