Sodexo S.A. (OTCPK:SDXOF) Q4 2022 Earnings Conference Call October 26, 2022 3:00 AM ET
Company Participants
Virginia Jeanson – Head of Investor Relations
Sophie Bellon – Chairwoman and Interim Chief Executive Officer
Marc Rolland – Group Chief Financial Officer
Conference Call Participants
Jamie Rollo – Morgan Stanley
Vicki Stern – Barclays
Jarrod Castle – UBS
Jaafar Mestari – BNP Paribas
Leo Carrington – Citi
Neil Tyler – Redburn
Andre Juillard – Deutsche Bank
Simon LeChipre – Stifel
Operator
Good morning, this is the conference operator. Welcome and thank you for joining Sodexo Fiscal 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. [Operator Instructions]
At this time, I would like to turn the conference over to the Sodexo team. You have the floor.
Virginia Jeanson
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 release is 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 [Technical Difficulty] please do so as soon as possible.
I now turn the call over to Sophie. Sophie?
Sophie Bellon
Good morning and thanks for being with us today for our fiscal 2022 results announcement. As usual, I will introduce the numbers, Marc 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 for war, inflation and Omicron and I’m proud of the numbers we have achieved.
Let’s go into the detail. 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 a 160 basis points and 370 basis points respectively.
On slide five, you can see that in Q4, the Group was back up to fiscal year 2019 level with On-site at 99% and BRS well ahead at 115%. So we are confident that we should be able to exceed 2019 revenue levels in 2023 with room for upside particularly in food where we still — where we are still at 87% for the full-year.
The really good news is that retention is improving at 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 EUR1.5 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 four 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 have 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 upside 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 Integra 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 three geographic zones, North America, Europe and Rest of the World is now effective.
We have also given BRS a dedicated governance. Marc 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 the things I’ve 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 two big contracts won and retained. The first is a very significant extension to our activity with Ardent. We have signed a seven-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 want this because the client liked what we were doing on our small touch and the value-added that we proposed for their Group.
We have also been reappointed by University Hospitals for another five plus three years, the value our partnership. And we have some exciting development projects to manage with UH over the next few years.
In slide nine, 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 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 marketing and sales mindset.
The result is that we have increased our issue volumes by 53% in one year, while underlying volumes are increasing the development helped at a very strong 35%. We have won EUR83 million of issue volume this year, among which 1,115 new tech clients. This brings us ahead of all other competitors with a 50% market share overall.
Ending on the high with Ardent, we’ve 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 a dietician 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 three premium lounges specifically dedicated to Transatlantic and coast-to-coast passengers. The British Airways contract in North America also covers eight lounges across major cities with business and first-class dining and a 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. They have 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 Abingdon School’s catering partners 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.
Expansion, 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 Sodexo Magic premium food services to maintenance and hospitality services with floor ambassadors. The campus has two buildings, close to all the major universities, including Harvard and MIT. There will be 76 employees working in regulated spaces in the client production line.
So with all this, Group net profit was multiple by size, back up to EUR695 million, catching up with the underlying net profit, which I remind you is corrected for restructuring charges amongst others and which doubled to EUR699 million, resulting in EUR4.78 earnings per share. The Board is proposing a dividend of EUR2.4 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 want 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 non-recurring outflows.
As a result, cash conversion was at 91% and the reduction in net debt continued this year, bringing the net debt ratio back down to 1% — one-time 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 EUR7.8 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 two 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 are currently at half of that today.
I now hand over to Mark for the detailed numbers.
Marc Rolland
Thank you, Sophie. And good morning, everyone. As usual you will find the alternative performance measure 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 EUR21.1 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 EUR1 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 rates and BRS up 370 bps at constant rates too.
Other operating income and expenses were negligible at minus EUR5 million this year. I shall come back to this later. Financial expenses also fell to EUR87 million, down from EUR106 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 EUR264 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 EUR200 million of current rates.
As a result, in fiscal ‘22, the net profit was multiplied by five to EUR695 million and the underlying net profit was multiplied by two to EUR699 million. To finish the picture, published EPS was EUR4.75 and the underlying EPS was EUR4.78. I remind you that this is the underlying EPS is 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 renegotiation 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 will come down.
Let’s now go back to the other income and expense that we were down to only minus EUR5 million in fiscal ‘22. First after two years of significant GET costs, the restructuring costs were only EUR10 million, down from EUR153 million in ‘21 and EUR191 million in 2020. Second, we had a positive net scope change impact of EUR50 million linked to the disposal of activities. I remind you also that 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 EUR631 million against EUR483 million in fiscal ’21. Operating cash flow of EUR1,243 million improved significantly, compared to the previous year at EUR766 million boosted by the strong recovery in underlying operating profit and for instance by the benefits and rewards indemnity from the Hungarian government. The working capital outflow in fiscal ‘20 of EUR63 million was due to some significant exceptional items as we pointed out in the first half announcement. We have listed them in the appendix 11. There is nothing new.
Net capital expenditure increased significantly to EUR341 million or 1.6% of revenues, compared to the particularly low level of EUR211 million in the preceding year or 1.2% of revenues. The gross CapEx, which includes all client investments that are deducted from revenues, was EUR478 million or 2.3% of revenues. Digital and IT investments accounted for 30% of the gross 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 EUR70 million and it was more than offset by disposals of EUR84 million.
After taking into account all the changes, consolidated net debt decreased by EUR210 million ending the year to EUR1.3 billion. As a result, cash conversion came out at 91%, below 100% and below the average excluding the COVID years, but this number did include minus EUR363 million of non-recurring elements without them, we would have been easily above the average.
Next slide, you can see the reduced net debt to just under EUR1.3 billion combined with the revaluation of financial assets and positive currency. This plays 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 of EUR600 million bond due to mature in January ‘22. Our prudent debt management met at year end 96% of the Group’s gross debt of EUR5.7 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 EUR4.5 billion, including EUR960 million of restricted cash and EUR297 million of financial assets of BRS. The assets to liability coverage improved significantly to circa 120%, compared to 113% as of August 31, 2021. I would like to point out that the rest of the Group also had a significant operating cash position of EUR1.7 billion. At year end, unused credit lines totaled EUR2 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 at 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 EUR21.1 billion, up 21.2% as published at 16.9% organically. The scope change of minus 1.2% reflects the net of the disposals and the acquisition which for instance the childcare 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 at 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 detail, 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 two months of trading, we are where we thought we should be in terms of lots of food volumes about 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 and Leisure first in the stadiums and then in the convention centers. Government and agencies and energy and resources were both up, thanks to new business and a gradual return of office workers on-site. Neither segments 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 and Leisure activities, first in the sporting events, then in the second half corporate entertaining and tourism. Government and agency was impacted by the end of the TR contract in the U.K. and little new business.
Energy and 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 segments remained solid across all regions, particularly in India where the COVID-related recovery was strong and despite the multiple COVID confinements.
Energy and 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 project 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 EUR90 million year-on-year. Excluding this impact, the organic growth would 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 remind you that the Healthcare business in principally located in India, China and Brazil. Education was, up 22% organically and it 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 shortages in Omicron impacted retail and special catering activities in the first half. In the first 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 are impacted by 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 EUR926 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 and Administration, 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 and Leisure.
In Healthcare and 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 margins, 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 schools contracts has underperformed our input cost increases.
Now let’s turn to benefits and 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 that 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 EUR14.3 billion for the year and was up 16.2% organically, boosted by strong net new business, leveraging digital products and enhanced sales efficiency, 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, USA 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 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 net new business in most countries and in most services except Public Benefits.
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 European margin increased by 360 bps. Of course the quarterly momentum in volumes 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.
Sophie Bellon
Thank you, Marc. So now let’s turn to the guidance for the Group. Strong organic growth will continue and we’re expecting 8% to 10% for fiscal year 2023 and this will come from a further recovery in Corporate Services and Sports and Leisure as a catch-up with 2019 levels for the full-year. The positive net new business momentum including a further improvement in retention, we expect to get 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 a 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 rates.
Obviously, the further ramp-up in volumes will help that — 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 region 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 topline 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 question on the fiscal year 2022 numbers. Operator, can you move onto questions?
Question-and-Answer Session
Operator
Thank you. This is the conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Jamie Rollo with Morgan Stanley. Please go ahead.
Jamie Rollo
Thanks. Good morning, everyone and thanks for taking my questions. 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 2019 sales between the third and fourth quarter, albeit 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 X, I mentioned in my first question are on that. So what was 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 collapsing the Sofinsod stake that you effectively have in yourself through Bellon SA. Thank you.
Marc Rolland
So on the schools question, the answer is related 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.
Jamie Rollo
I thought the testing contract ended in March. Was it the Justice Rehabilitation contract?
Marc Rolland
The Rehabilitation contract was the year before, but I think it lasted till the end of the year and dropped at 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 was pretty weak in the second half.
Sophie Bellon
And regarding retention, well, one of my key initiative was to boost 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 justice contracts in France and some other contracts. So we didn’t have such a good performance. We also lost a number of 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. As I said, it is the indicator that when we start a meeting we start talking about, and when I meet a 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.
Marc Rolland
On the balance sheet, so yes, we have a strong balance sheet, but we are going to be paying EUR2.4 dividend. There is no plan for any other type of return of cash. So yes, no plans discussed at the moment. And what about the collapsing in Sofinsod stake, I mean right now we studied it, but there is no decision and yes, it’s not happening.
Jamie Rollo
Okay. Thank you very much.
Operator
Your next question is from Vicki Stern with Barclays. Please go ahead.
Vicki Stern
Yes. Hi, good morning. Just firstly, coming back on the leverage. Sophie, you’ve made it clear there is no sort of plan at this stage for incremental returns of cash. So what is the plan within the target leverage range? How should we think about your use of cash priorities? Is M&A quite high on the list? Would you still consider really bolt-on deals or you’d be open to anything larger there?
And secondly, just on BRS if you could help and hold a hand a little bit just on the interest income. So you did EUR61 million this year, just how do we see that progressing into next year, just perhaps a reminder of where you’re invested, how quickly you saw 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 as a sustainable level to have in mind or potentially better going forward? Thanks.
Sophie Bellon
So on the cash returns?
Marc Rolland
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 current and new corp, as we will tell you more at the Capital Markets Day. On interest income at BRS, as you’ve seen the growth this year, we had a growth of EUR18 million and 44%, I think which will have a relatively similar growth in the coming year in percentage on the higher base, which will be a little bit more in euros. But this is what we are expecting and the interest rates for — the euro interest rates are also going up. So we have to end the — wait the maturity of our investment to reinvent, but it’s coming up, so we are expecting a similar growth next year.
Sophie Bellon
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 a 94.5% retention is not the final objective. We want to first reach at least 95% and also very quickly 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.
Vicki Stern
Thank you. So just a 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 feel the interest rate benefits flow through.
Marc Rolland
We are invested in the country where we operate and because cash remain in countries. 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 Euro zone, we have a fair full of cash, so it’s now going up now. But in 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 reals — we will benefit from an uplift on the reals but the euro uplift will be significant in the coming year. But nothing much happened on the euro last year.
Vicki Stern
Thanks very much.
Operator
The next question is from Jarrod Castle with UBS. Please go ahead.
Jarrod Castle
Thank you, and good morning everyone. Just also three for me, 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 three-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%. And 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? Thanks.
Marc Rolland
BRS, the organic growth, even if I strip out the financial income, 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 Aurelien 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 that 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.
Jarrod Castle
Thanks. And the contract split?
Marc Rolland
It does not change much. I think globally, we have 25% in cash flow with a big focus in the U.S. where it’s more than 40%. 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 big-cost plus and P&L has not changed much.
Jarrod Castle
Thanks very much.
Operator
The next question is from Jaafar Mestari with BNP Paribas. Please go ahead.
Jaafar Mestari
Hey, morning. 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 points 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 looks like EUR300 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?
Sophie Bellon
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 two years now, two, three years. And I think we have put even more pressure in anticipation of the renewal of the big contract. And so I think now, the remote focus from the team on the topic, we have invested more also on retention. And so — 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 everything for that.
Marc Rolland
In your first question on the components of the 8% to 10%, I would say, yes, inflation 4.5% looks fine. We have a bit of cross-selling. And so — and we have a minus 1% of the rapid testing center that you should not forget. But otherwise, the ramp-up and the net development, yes this is more or less where we are.
Do not forget also that in the modeling and the appendix for the modeling, we have a scope change of minus 1% that you should be expecting next year, so to be factored in. When we look at the net new, we hear the impact of the net new of ‘22 in ‘22 was modest. And because of the timing of the wins and losses, Ardent, for instance, was one at the very end of the year. So there will definitely be an impact next year, and we expect to repeat the net new of ‘23 at the same level or higher next year. So there will be a compounded impact.
So the net new is there to happen in fiscal year ‘23 and will be supported by a renewed net new in ‘23. And yes, I think in Q3, we said that there will be a neutral in-year contribution in Q4 and we had a little bit more — we were a little surprised by the strength of our Q4 numbers. So we had a little bit more in year than what we were expecting, but the bulk will happen next year.
Jaafar Mestari
Sorry, just on that point, I’m not sure I get the math right then. So in the year, if I take organic growth and remove like-for-like of ‘21, it looks like minus EUR4 million. And then in H1, organic growth was 17% and like-for-likes were 19%. So it’s more like 2.5%, am I getting it wrong? Because it doesn’t look like it’s improving.
Marc Rolland
I’m not following your math. So I suggest you take it off-line with Virginia. I think we are very clear as to what we mean, but I’m not sure I can share your question well.
Jaafar Mestari
Okay. Well you’re saying net new business was positive in period in Q4 and above expectations?
Marc Rolland
I think we had more revenue in and contribution of net new in Q4 was part of it, but we also had more volumes and more ramp-up, but there will some contribution in Q4.
Jaafar Mestari
Thanks. Thank you.
Operator
The next question is from Leo Carrington with Citi. Please go ahead.
Leo Carrington
Thanks. Good morning. Firstly, can you just outline the rationale behind the issuing — the BRS financial targets? Is this about — is this purely about enhancing focus and tying the time of the incentives of the division to the performance? Or are you sort of trying to send a signal that you are, in particular, focusing on this asset in isolation?
And then two quick follow-ups, please. On inflation versus price, obviously, you mentioned France education segment. But at these levels of inflation at a group level, will margins in 2023 see any negative impacts from the price increases lagging the input cost inflation that you see?
And secondly, on CapEx, can you give any guidance as to what we would expect for 2023? What level is consistent with the new organic growth guidance? Thank you.
Sophie Bellon
Okay. So thank you for your question. So on the rationale behind BRS targets, it’s clearly — as we explained to you last year, we have defined a new road map to accelerate the development of Benefits & Rewards. And we are convinced that there is still strong potential development. And the fact the post-dated period is also accelerating that. Companies are desperate to engage and incentive and motivate their employees, whether they are at the office or out of the office. So you’ve seen that the numbers have really accelerated. Q1, we were at 7%; Q2, 11%; Q3, 17.7%; Q4, 19.8%.
So we really think that we’ll continue to accelerate that growth, and it’s part of the plan. And of course, the current environment with the rising interest and inflation is also a tailwind for that and especially for our benefit and reward model. And on the incentive of performance, it has not been implemented yet. So it’s not — we cannot. We hope that for the future, it will help us sustain those rates. And I think we will give you more detail next week on how we plan to achieve that growth. But we’re pretty confident.
Marc Rolland
With regard to France, actually, ‘23 will be France Education ‘23 will be better than ‘22 because in ‘22, we passed very little inflation to our clients in France in education, while we had the input cost at least now this year, we’ve managed to pass inflation to many clients. The discussions have been difficult, but we are doing it. So ‘23 will be a much better year for school in France and ‘22 both.
Sophie Bellon
And I think also for France, we have a lot of discussion with the profession on indexes, because we didn’t have, especially for public contract. And I think that finally, we ended up — and we think that for 2023, we will get indexes that are going to be closer to what — to the reality of the business. So it’s a potential margin for improvement. And here, I’m talking specifically about public contract in France.
Marc Rolland
And for CapEx, today, the growth CapEx are 2.3%, I can see clearly the gross CapEx above 2.5%. We’ve already made some CapEx commitment in September and October. So as we speak, so I would expect it to be higher than the 2.3%. So I would say, above 2.5%.
Leo Carrington
Okay. Thank you both. Thanks very much.
Operator
Your next question is from Neil Tyler with Redburn. Please go ahead.
Neil Tyler
Good morning. Thank you. Two questions left, please. First one on Facilities Management revenues again. I think if I’ve interpreted your disclosures correctly, they ran at about 7.9 billion in aggregate in the year 2022. And looking back, this figure looks like it’s still about EUR1.5 billion higher than was the case in 2019. I’m not sure that there’s I think they are. So if they are comparable, I understand the testing contracts going to unwind. But can you put some context around your sort of efforts to push facilities and how that has translated into that uplift. And whether there’s any component in that? And I suppose related to the very first question on this call were there any component in those revenues that might unwind as things normalize.
The second question on margin guidance. It’s a quick one. Do you assume any drag from mobilization costs of the new the net new wins as they land through 2023? Thank you.
Marc Rolland
The FM this year is — we are back at the end of ‘22 at the split of 60% food, 40% FM, which I think was almost a split we had in ‘19. I think we were 58%, 42% or something like this. So as you can see, the food has really bounced back in ‘22 and the FM has grown, but I think it’s circa 3%. We’ve had a modest growth in FM in fiscal ’22.
And it’s true that the testing center, but the Chicago Public School, where all FM contracts, Chicago Public School was lost last year, was in our Q4 numbers last year. Rapid testing center did a superb Q4 last year. So it’s true that we’ve had some contracts which are pure FM ending, but other than that, there is no unwinding of contracts, except those two, which we highlighted very clearly in our past quarter’s publication, I don’t see any other. But there is clearly a focus on food and on growing food and ramping up food back to ‘19 level. I don’t know if you want to say something, Sophie, but — yes.
Sophie Bellon
Yes. Yes. No, definitely, and I think we will discuss it even further next week, but there is definitely a focus on food and especially in that period where we have to reinvent our food business, but we see a very much upside of this post-COVID period, because all the everything that has happened during the COVID have been accelerated, all the trends have been accelerated and now we are ready to take this opportunity and especially in our food business.
Then in terms of the mobilization cost, you’re right. I mean, it’s absolutely — we know that when we mobilize construct, the first year, the profitability is not the profitability that we signed. But it really is something that is already taken into account in our margin, in our target. And so it should not affect some of the big contracts that we won, we have been working on these contracts for many months. And so it has been taken into account.
Neil Tyler
Okay. Thank you very much.
Operator
Your next question is from Andre Juillard with Deutsche Bank. Please go ahead.
Andre Juillard
Yes, good morning. Thank you for taking my question. First one was about the retention rate. I was just wondering if you were still planning some cleaning of portfolio and things like that. And the 95% to 96% you were targeting was something achievable for ’23 and you could keep that level in the following years.
Second question about profitability. If we take in consideration the 5.5% you are targeting for ’23, this is more or less corresponding to the level you were before the COVID. But in between, you’ve put in place some savings and we should have normally the positive effect of these savings in ’23. So I was wondering where the difference was wells coming from?
And last on BRS, I was just wondering if you could give us some more color about the split of businesses between meal vouchers and other kind of vouchers? And maybe give us some more color about the digitalization of the business. Thank you.
Sophie Bellon
So on retention, no, I mean, we don’t plan to have some portfolio cleaning and I think it’s something that we have done in the last years. And some of our portfolio was affected by COVID, and some of the margin of some of our clients, of course, was affected by COVID. So now that we are almost fully recovered or that we will be next year in fully recovered situation, it will help. So we recover the margin of those contracts that were affected by the COVID.
And in terms of the achievable target — well, we will do our best to first to stay at the level where we are because I remind you that we have not been at that level in the last 10-years. So we need to stay there. We need to go to 95%, 95% is the minimum. And then we need to target at 96%. And as you have seen, as it was discussed before, it depends of the region. And where we had issued last year, we’re putting in place action plan to make sure that we are progressing.
And it is — for me, it’s not even an indicator. It’s a philosophy. You don’t lose a contract that you don’t want to lose. So the plan is to get the whole organization aligned behind that and behind that objective. So hopefully, yes, we will continue to make progress, and we will stay at that level.
Marc Rolland
On profitability, our commitment was to come back to 2019 level in ‘23 in revenue and margins. So this is what we are working towards, but what we want to do is to avoid, we want to keep on investing to make sure the top line remains growing sustainably and avoid what happened in the past where we had ups and downs and fluctuation in margins. So the question here is we need to invest in ‘23 like we started to do in ‘22 to maintain high retention and good organic growth and solid organic growth over time.
So we will tell you more at the capital markets there, but our midterm ambitions, but what matters to us is not delivering a little bit more margin next year, but to be able to sustainably grow stronger in a recurrent fashion year-after-year. And for that, we have decided to invest some of our savings in doing this.
The BRS the employee benefits, which the bulk of it is meal and food has grown 18.7% last year and grew at 23% in the fourth quarter. So yes, in the speech earlier, I was highlighting those numbers. Meal and food is 90% of employee benefit. The digitalization level today, we are at 90%.
Andre Juillard
And do we have to anticipate some specific investments in the digitalization or nothing special?
Marc Rolland
Yes. The BRS has been investing more and more, and Aurélien will tell you more next week. But yes, he plans to invest north of 9% of revenue in CapEx, but we will tell you more next week as to what does we plan to invest in. And most of BRS investment, 90% of them are IT and digital investments.
Andre Juillard
Okay. Thank you very much.
Operator
The next question is from Simon LeChipre with Stifel. Please go ahead.
Simon LeChipre
Yes. Good morning. Two questions, please, on margins. First of all, at a group level, what do you expect as an impact from FX on your 2023 margin I particularly think about the impact from the Brazilian real?
And secondly, on the BRS margin and based on your guidance and your commentaries for financial revenue next year, it implies operating EBIT margin still well below 2019 and even further below 2017 level. So why is that? And do you expect at some point to get back to the same operating EBIT margin than before.
Marc Rolland
The FX and it’s factored in because we took the constant rate now is the average ‘22 rate that we used for the guidance. So we’ve had some impact on the margin, but it was in bps. So it was not massive. And there could be a further bps impact next year if the dollar keeping very strong and the reais, too but it’s too early to evaluate. But it brings a handful of bids now it’s not tens of bps. So I think the impacts are modest, but they are there.
I think the BRS margin, if we can save the question for this Capital Market Day, Aurélien will explain his plan and what does the plan to invest and how fast those we plan to increase the margin. I think there is a plan, and we will want to show that to you next week.
Simon LeChipre
Okay, thank you.
Operator
Excuse me this is the operator. There are no more questions registered at this time.
Sophie Bellon
Okay. So thank you very much. If there is no more question, thank you for being online with us today and we really hope to see you next Wednesday in-person. So have a good day.
Operator
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
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