Earnings call transcript: Smurfit WestRock stock falls amid sector challenges

Smurfit WestRock PLC (SW) experienced a significant decline in its stock value, closing down 9.24% at $42.71 and continuing to drop by 2.44% in premarket trading to $41.67. This movement brings the stock closer to its 52-week low of $38.55, reflecting investor concerns amidst broader market pressures. According to InvestingPro analysis, the stock is currently trading above its Fair Value, with a P/E ratio of 53x and a market capitalization of $21.7 billion.

Key Takeaways

• Smurfit WestRock’s stock decreased significantly, nearing its 52-week low.
• Premarket trading indicates continued bearish sentiment.
• Broader market or sector-specific challenges might be influencing investor decisions.

Company Performance

Smurfit WestRock’s recent stock performance highlights potential investor concerns. The company maintains a solid financial position with a current ratio of 1.37 and an Altman Z-Score of 4.97, indicating financial stability. Despite these fundamentals, the stock has declined 20.07% year-to-date, while offering an attractive dividend yield of 4.03%. InvestingPro subscribers have access to detailed analysis showing additional metrics and insights through comprehensive Pro Research Reports, available for over 1,400 US stocks.

Financial Highlights

• Stock closed at $42.71, down 9.24%.
• Premarket price of $41.67, down 2.44%.
• Trading volume in the premarket session was 470 shares.

Market Reaction

The stock’s decline, both in regular and premarket trading, indicates a negative market sentiment. This reaction might be driven by sector-specific challenges or broader economic concerns. The stock’s proximity to its 52-week low could further unsettle investors.

Outlook & Guidance

While specific guidance for Smurfit WestRock was not provided, InvestingPro data reveals that net income is expected to grow this year, though three analysts have revised their earnings downwards for the upcoming period. The company’s next earnings report is due in 27 days, with analysts maintaining a consensus recommendation of 1.76 (Buy). Investors will be keenly watching for any strategic initiatives or guidance revisions in upcoming periods.

Executive Commentary

No direct commentary from Smurfit WestRock executives was available. However, similar companies in the sector have expressed concerns about economic pressures and the need for strategic adaptations.

Risks and Challenges

• Macroeconomic pressures could impact demand and pricing.
• Operational challenges in adapting to market changes.
• Potential sector-specific issues affecting performance.

Q&A

No specific questions from analysts were available for this period. However, typical concerns might include inquiries about market strategy, cost management, and future guidance.

Full transcript - Smurfit WestRock PLC (SW) Q2 2025:

Conference Operator: Good morning. Thank you for standing by and welcome to Sodexo’s First Half Fiscal twenty twenty five Results Conference Call. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. I advise that this conference is being recorded today, Friday, on the 04/04/2025. I would now like to hand the conference over to the Sodexo team.

Please go ahead.

Juliette Clan, Head of Investor Relations, Sodexo: Good morning, everyone. Thank you for joining us today. I’m Juliette Clan, Head of Investor Relations, and I’m pleased to welcome you on our H1 fiscal twenty twenty five results call. On the call today is Chairwoman and CEO, Sophie Belong and CFO, Sebastien de Tramazur to take us through the presentation. After their remarks, we’ll open the line for questions.

We’ll ask you to please limit yourself to two questions and one follow-up. The press release is available on fedexo.com. Please note that this call is being recorded and may not be shared without our consent. Just a reminder that our next announcement will be the Q3 figures on July 1. Please reach out to the IR team if you have any questions after the call.

With that, I now hand over to Sophie.

Sophie Belong, Chairwoman and CEO, Sodexo: Thank you very much, Juliet. Thank you for joining us today. Just two weeks ago, we shared our preliminary H1 results and revised our full year guidance. We recognize then and reiterate today that some of our initial assumptions have not played out as expected. Today, we want to provide further clarity on what has changed and why we remain confident in our strategy.

When we started the year, we believe there was a clear path to achieving our targets. This was based on strong commercial momentum, expected volume growth and the ramp up of key contract. Several factors, however, did not materialize as we anticipated. Upon receiving particularly weak February results, we immediately started to review and analyze our data and assumption in granular details. We concluded that our financial year 2025 guidance was too optimistic regarding the pace of volume acceleration and new contract openings.

Sebastien will provide you with more details just after. The challenges we are facing are in a few specific areas and we are addressing them head on. In North America, education remains the key focus. We have a new leader in place since February. His roadmap is clear, refine the portfolio mix, strengthen our offer and accelerate innovation to improve growth and performance.

The impact of these initiatives should become visible throughout fiscal year twenty twenty six. Another significant challenge this year is a negative net new contribution in North America. While our 2024 signings were strong, two large contracts will only start contributing in financial year 2026 and beyond. This means the underlying financial year 2024 net new contribution was effectively neutral. At the same time, net signings in the first half of fiscal year ’20 ’20 ’5 were weaker than expected.

We are having to deal also with the timing challenges. Some of the new contracts are ramping up gradually, while some losses take full effect immediately, which means net new contribution is a headwind for this year in North America. Our plan to address this challenge is based on two key pillars. First, are anticipating our focus on sales and retention, building on the initiative we have implemented over the past year and this includes the effective deployment of branded offers, the complete review of incentive schemes for our sales team done this year and extensive training programs. These efforts are already showing encouraging signs.

Our North American pipeline remains strong and we have secured notable contract wins in recent weeks, while these will have a limited impact on this year’s results. Mainly starting in Q4, they laid the foundation for growth in fiscal year twenty twenty six and beyond. Second, we are tightening our approach and criteria to assessing contract ramps up and scrutinizing volume assumption more closely. This will help improve predictability and ensure a more disciplined execution of our growth strategy. Finally, in Europe, while macroeconomic conditions continue to impact facility management, we are focused on execution and operational efficiency to mitigate the effects.

Despite these challenges, our confidence in our strategy remains unchanged. Our teams are highly engaged and committed to execution, restoring performance in these key areas and tightening predictability. Looking ahead, our priorities are clear. We are executing with discipline, adapting where necessary and staying focused on long term value creation. With that, I will hand it over to Sebastien who will take you through the details of what led to the guidance revision and provide clarity on how we view the second half of the year.

Sebastien de Tramazur, CFO, Sodexo: Good morning, everyone. As Sophie just outlined, we revised our full year guidance two weeks ago to reflect a lower than expected pace of growth. And today, I would like to go through the key drivers behind this revision. So, looking at the bridge on the slide, you can see that we initially guided to our organic growth between 5.56.5% for fiscal year twenty twenty five. And with the updated outlook, we now expect organic growth of between three to 4%.

And the shortfall is essentially concentrated in North America, which accounts for 80% of the revision. Breaking it down further, the largest impact come from healthcare, which represents a 90 basis points drag on growth, mainly due to delays in the ramp up of new contracts that Sophie just mentioned. Our initial assumption on the timing of this new ramp up were too optimistic. And this lower realization rate also explain more alone explain more than half of the shortfall in this segment. Additionally, our partnership with a major healthcare organization, Catis, which we signed last year was expected to contribute significantly in the second half, but it will only start in fiscal year twenty twenty six.

And this accounts for another 30% of the healthcare shortfall. The rest come from lower like for like volume with retail initiative ramping up more slowly than anticipated. In education, The shortfall represents a 60 basis points impact as you can see in the slide. In university, we had expected a boost in volume driven by several retail initiatives and increased student enrollment in the strict semester. However, these initiatives fell short of expectation and did not generate incremental revenue we had planned.

The shortfall here account for approximately 40 basis points. Additionally, weather related school closure and lower attendance contributed a further 20 basis points. The remaining 50 basis points from North America come from other parts of the business, in particular lower than expected retention in Corporate Services. Outside of North America, facilities management in Europe has also been softer than expected, reflecting ongoing macroeconomic pressures. This represents a 40 basis points impact.

We have seen fewer facility management projects, which are sensitive to budget constraints. So in summary, the downward revision is essentially due to delays in healthcare ramp up, lower growth in volume in medication and retention pressure in corporate services, all concentrated in North America. While these headwinds impact fiscal year twenty twenty five, we remain focused on executing and positioning ourselves for a return to stronger growth. Now that we have explained the gap versus our initial expectation, let’s move on to our performance and the fiscal year twenty twenty five outlook. After delivering 4.6% organic growth in Q1, Q2 came in at a much lower 2.4% with an expected weak February driven in the main by North America.

The key factors behind this decline were calendar effect and one off, the drive from net new contribution, including losses in corporate services, such as a large facilities management contract we lost last year and we demobilized in January and lower volume due to higher comparable base. Looking ahead to H2, we expect organic growth between two point five percent and four point five percent, bringing our full year outlook to between 34%. And in terms of phasing, Q3 likely to look more similar to Q2 than Q1 and Q4 is expected to be stronger despite a minus 1.3 drag from last year’s Olympics game. Q4 will benefit from the ramp up of several large new contracts, including the present contract in France, SNES in The UK, Santos in Australia, which are already mentioned in January, but also for instance University of Cincinnati Health in The US. In addition to the fading impact of prior year contract losses, this will give us a boost of net new contribution of circa 100 basis points between Q3 and Q4 with limited risk of CPH.

And a more favorable mix from seasonality in education as well as positive calendar impact will also contribute support growth in Q4. Moving on to cost management and our continued strong cash flow. On cost management, we are making progress. Our global business services project is delivering results, bringing around EUR10 million of savings this year as expected. We are also streamlining the organization in key regions, while maintaining strict monitoring and control over our HQ costs.

On cash flow, our underlying free cash flow in H1 remained robust, excluding the exceptional tax outflow related to the tax reassessment in France. We have also continued to improve working capital reinforcing our financial position. Looking ahead, we are on track to achieve a leverage ratio between our targeted range of between one and two by the end of the fiscal year. I will now hand over to Sophie, who will take you through the key highlights of our H1 performance.

Sophie Belong, Chairwoman and CEO, Sodexo: Thank you, Sebastien. Let’s now turn to the group’s performance in H1. H1 revenue reached EUR 12,500,000,000.0, up 3.1% with organic revenue growth of 3.5%. Food Services continued to outperform delivering 4.5% organic growth, while FM Services grew at 1.7%. Underlying operating profit rose plus 6.4 with a 10 basis point margin improvement and underlying net profit also grew by 5.4% at €450,000,000 I want to highlight the strong business development momentum in H1.

We secured over EUR1 billion in new contract including cross sell opportunities. On this slide, you’ll find our usual last twelve months KPIs as of H1 with a retention rate of 93.9% as you can see in the middle block and the development rate at 7.3% on the right block. These figures are influenced by the specific dynamics of last year’s H2 where we saw both particularly high losses and strong wins still embedded in these rolling indicators. Looking at our full year target, starting with retention and to repeat what we said two weeks ago, financial year twenty twenty four and financial year ’20 ’20 ’5 have been unusually dense in global accounts renewal with 80% of our EUR 1,600,000,000.0 portfolio coming up for renewal over these two years, including $900,000,000 in financial year twenty twenty five alone. Among the six major contracts expiring this year, we have successfully retained five of them.

As a result, we are targeting a retention rate between 9494.5% for the full year, factoring in the one non renewal. Without this, our retention would be above 94.5%, demonstrating solid underlying performance. On the development side, momentum remains strong. In H1, we signed €1,000,000,000 in new contracts including cross selling, representing a 20% increase compared to last year. And of that 30% to 40% is expected to contribute to financial 20 five revenue.

Further strengthening our outlook, our pipeline is larger and more advanced than usual, reinforcing our confidence in delivering a 7% to 8% development for the full year. On the next slide, you’ll see a selection of contracts we either signed, renewed or extended during the first half. I won’t go through them in detail, but I encourage you to take a look. And I would like to just highlight the good momentum in healthcare in The U. S.

Where we recently secured several significant contracts, including AtlantiCare, the largest healthcare system in Southeastern New Jersey and UCHealth, which is set to mobilize in Q4. We also signed significant contract with Tennis Canada National Bank Open in Montreal, BNP Paribas in London and Huber in India. Over the next three slides, we have outlined key milestones and business highlights from the first half across our region. In North America, Sodexo Life delivered world class hospitality at the Super Bowl in New Orleans this year and the Taylor Swift Era Tour proving our ability to enhance major events. We’re also expanding in the fast growing U.

S. Convenience market with the acquisition of CRH catering, strengthening our in reach offering and accelerating our growth. In education, we are reshaping campus experiences with food hive convenience stores and our new resident dining experience one and all, improving accessibility, speed and community engagement for students. In Europe, we are proud to demonstrate the added values Sodexo is able to share through the talent of chefs. Some examples, in Marseille, we partnered with a three star Michelin chef, Alexandre Maillard, to redefine the culinary experience at the Maison Museum.

In Sweden, Jesse Zomarstrom, Executive Chef at Sodexo Sweden has composed the Nobel Prize Banquet menu. And at the beginning of this week, the Michelin starred Frederic Canton saw his six stars renewed. Our transformation boosted by branded offers extended across multiple sectors. For example, the rapid expansion of Keymark in Sweden highlights our investment in sustainable, high quality corporate dining and in The UK, we launched the KitchenWorks Micro Kitchen, transforming military dining with digital first efficiency, delivering increased sales, margin and customer satisfaction. Sodexo also continues to develop its BPO Entegra.

Serving clients in nine countries in Europe, Entegra has grown significantly in recent years through both organic growth and also acquisition in France and in The Netherlands with the recent acquisition of Oroinko and Highland Purchasing to complement the previous one of Prosent in The Netherlands. For the rest of the world, we had a strong commercial momentum in Australia as well as in India. We continue to develop initiative, innovative food service like our autonomous micro markets Nopunto in Brazil, with a planned expansion to 190 locations by the end of fiscal year twenty twenty five, driving a projected 20% growth in retail sales. And we also launched our country’s first autonomous retail store in Australia in a mining village, offering workers a seamless AI powered shopping experience. We have just opened our new global business service center in Bogota after successful opening of our shared service centers in Porto in 2018 and Mumbai in 2019.

The objective to promote standardized practices, innovation, efficiency and better controls and cost management within the organization. This GBS will progressively mutualize expertise for HR, finance, supply management, tech and innovation. These highlights illustrate the strong momentum and strategic progress we’ve made across our geographies. Finally, everywhere we are continuing the implementation of our strategy to positively impact people and planet. And as you can see on the slide, we have been recognized by major organization for our leadership in sustainability and responsible business conduct.

Now, I will hand it over to Sebastien to take you through our financial performance for the first half.

Sebastien de Tramazur, CFO, Sodexo: Thank you, Sophie. So as discussed already, our performance in the first half reflects the challenge we have been navigating. Nevertheless, there is some solid underlying progress. Operating profit increased by 6.4%, driven by revenue growth of 3.1% and operating margin of 5.2%, up 10 basis points. Moving on to other income and expenses.

This amounted to minus EUR71 million, driven by higher restructuring costs related to the global business service project compared to a gain from Home Care disposal last year. For fiscal year twenty twenty five, we now expect total other income and expenses to be around €150,000,000 And as usual, the modeling slide is available in the appendix. Net financial expenses were €40,000,000 down €6,000,000 mainly due to lower interest rates on The U. S. Floating debt and the reimbursement of two bonds during the first half of fiscal year twenty twenty four.

For fiscal year twenty twenty five, we expect the financial result to be around EUR100 million. The effective tax rate for the first half of the year was 19.5%, mainly impacted by the finalization of the SODEXO SA tax a bit. In comparison, the prior year’s tax rate was 16.6 due to non taxable gains from the Home Care disposal. The projected tax rate for the year is now around 20% to 24%. Group net profit was $434,000,000 down minus 12.5% compared to last year, mainly due to the change in other income and expense I explained earlier.

The underlying net profit adjusted from other operating income and expenses and net of tax and exceptional tax item reached EUR450 million, up 5.4%. Moving on to our cash performance. Operating cash flow for the first half was EUR600 million. Excluding the exceptional tax outflow from the tax reassessment in France, it increased compared to last year. The change in working capital in the first half was seasonal negative EUR491 million, an improvement on the negative EUR513 million in the same period last year.

Net CapEx, including new client investment was slightly up at EUR256 million or 2.1% of revenue. And we still maintain a target level of around 2.5% of revenue for the full year. This brings us to a free cash flow of negative EUR234 million, which is due to three factors: one, seasonality of cash flow with the dividend payment in the first half two, seasonal working capital requirement and three, the exceptional tax outflow. Continuing down to the table, acquisitions net of disposal amounted to an outflow of EUR72 million mainly from the acquisition of CRH Scattering in The US on January 2025. On the dividend, we maintain our 50% payout ratio and the dividend paid during the year amounted to EUR388 million lower than the previous year’s figure, which still included Plexus contribution.

All in all, consolidated net debt is increased by EUR850 million in the first half to reach EUR3.4 billion at the February ’25. Let’s move to the next slide. So, with running twelve months EBITDA up 6% year on year, our net debt to EBITDA ratio stands at 2.3 times, which is unchanged from H1 fiscal year twenty twenty four. We remain committed to holding our strong investment grade credit rating and expect to be back within our target range of one to two times by year end. Moody’s recently upgraded our outlook from negatives to stable acknowledging our disciplined management of our balance sheet.

And looking ahead, we plan to repay our EUR700 million bond maturing in April 2025 in full from existing cash resources while maintaining flexibility to pursue targeted bolt on acquisitions. So, as you can see, whilst we have to revise our guidance, our cash position and balance sheet remains strong. Let’s now turn to the review of operation. First half fiscal year twenty twenty five revenues were $12,500,000,000 up 3.1%. Currency impact was minimal and scope effects reduced revenue by 0.3%.

As a result, organic growth was up 3.5%. Organic growth in North America was 3.5%, Europe plus 2.1% and the rest of the world plus 6.6%. And in a moment, I will come back to the detailed geographic performance of each region. Food Services performed better at 4.5% organic growth. Facilities Management Services activity was impacted by lower volumes and contract demobilization and was therefore only up 1.7%.

Now, starting with North America, revenue reached CHF 6,000,000,000, up 3.5% organically. Business and administration continued to grow, supported by strong food services, while Q2 was impacted by some contract transition and fewer working days. So Nexolive maintained strong momentum with a standout Q1, while Q2 was influenced by event timing. Education faced negative net new contribution and wins from fewer working days and weather impact. And finally, healthcare and seniors remained resilient, balancing strong early performance with some contract savings.

Next, Europe. Revenues in Europe reached EUR4.3 billion, up 2.1% organically. Business and administration saw modest growth supported by pricing and new openings, but tempered by lower activity and site closure. Excluding the impact of major sporting events, Sodexolive growth was driven by strong performance of UK airports, lounges and stadiums. Education grew steadily with price increase balancing last year contract exits.

And Health Care and Senior delivered strong growth benefiting from higher volumes, price adjustment and new business in France and Belgium. In the rest of the world, first half revenue reached EUR2.2 billion, up 6.6% organically. We saw strong performance in India and Australia, but Chile and Peru were impacted by prior year site losses. And China continues to see signs of recovery. And finally, let’s look at our margins.

Our underlying operating profit margin increased by 10 basis points to 5.2%, driven by operational efficiency and effective cost management. In North America, despite the low organic growth, the margins rose by 10 basis points to 7.1%, supported by better purchasing efficiencies and overhead cost control. In Europe, profitability increased by 10 basis points to 4.3% with positive operational improvement and price revision. In the rest of the world, in spite of some operational challenges in Latin America, the margin increased by 20 basis points to 3.9, driven by improvement in Australia and China. In conclusion, we are confident in our ability to deliver sustainable and profitable growth as we focus on maintaining financial discipline, executing our operational priorities and transforming the organization.

I will now hand back to Sophie for the concluding remarks.

Sophie Belong, Chairwoman and CEO, Sodexo: Thank you, Sebastien. To conclude, we acknowledge that our initial expectation for financial year 2025 were too optimistic and we have moved quickly to restore performance and tighten predictability. At the same time, our business fundamentals remain strong. We’re making progress demonstrating that our structure and model are resilient in the face of challenges and we’re well positioned to navigate different scenarios. We are confident that our 3% to 4% organic growth and margin progression by 10% to 20% is deliverable.

We will provide more detailed guidance beyond 25% at our financial year results in October. Our priorities are clear. We are driving sustainable growth, managing costs closely, investing in our future and thus positioning ourselves for recovery in fiscal year twenty twenty six. With that, I would like to open the line for your questions.

Conference Operator: Thank you. This is the conference operator. We’ll now begin the question and answer session. The first question is from Ivar Bialfra Kelly at UBS. Please go ahead.

Ivar Bialfra Kelly, Analyst, UBS: Good morning everyone and thank you for the presentation. I think the first thing on everyone’s mind is of course the potential impact that we might see from American tariffs now that we have more visibility on the absolute magnitude that we have. Could you please walk us through your expectations both in terms of first order effects that you could expect and maybe even second order effects? And there, mean, for example, could there be impact on the Australian contract that you just won given the dependence on the Australian economy on the Chinese market, could suffer in the future? And secondly, looking at your CapEx plans, I mean, you mentioned CapEx to sales at 2.1%, but you still expect it to be 2.5 for the full year.

What is it that’s actually going to lead to that acceleration? Because that is a pretty big step up compared to where you’ve been historically.

Sophie Belong, Chairwoman and CEO, Sodexo: So thank you, Ingvar, for your questions. So I think the first one is the impact on tariffs. And can you precise expectation on first and second order? What do you mean by that?

Ivar Bialfra Kelly, Analyst, UBS: Well, I suppose, I mean, for first order, I mean, direct impacts within a given country. But the second order, as I mentioned, Australia, they’re dependent on the Chinese economy, which could suffer. You just won a big contract there in the offshore and remote services. Could that actually see lower volumes than you previously expected?

Conference Operator: Okay.

Sophie Belong, Chairwoman and CEO, Sodexo: Well, first, let me answer you on the tariffs and the impacts of the measures in The U. S. And then Sebastien will answer you on the CapEx. So first, on the tariffs and let’s start with The U. S.

The increase tariffs, we are a service business. In The U. S, we are our teams are American. We recruit locally and most of our sourcing for food especially is in the country, 90% of the sourcing. So it’s a way of derisking our position.

Of course, on certain products, maybe coming from Mexico and Canada, like fruits and vegetables, especially during the winter, it could have an impact. But we have to stay vigilant on the announcement because we saw nothing on Canada and Mexico in the last announcement. Of course, it can create inflationary pressure in our supply, especially in food. But first, we don’t see anything coming up now. Inflation is really something that we can adapt because as know, part of inflation can be passed to our contracts and also depending on the product, we can also change products and it’s exactly what we did when we had the increase in inflation during the Ukraine war.

And for the impact on Australian contract, I can tell you that there are two big contracts in Australia. One that we retain Rio Tinto and we see a new impact. It has not started. The new contract has not started. We are getting ready for the new contract for next year.

But the reinforcing of the partnership on the opposite shows that we are identifying more cross sell or new service that we could support our Rio Tinto client. So we don’t see we don’t forecast any decrease in volume for that contract. And for the Santos contract, which is a new contract, and this contract is going to be mobilized in Q3. We don’t see also for now, we don’t see any impact on the contract.

Sebastien de Tramazur, CFO, Sodexo: Okay. And to your question on CapEx. So, as you know, evolution of this CapEx and the phasing of the CapEx depends on the timing of retention and timing of development obviously. So, as you know, we are expecting a ramp up of the in year contribution and the opening mobilization during the second part of the year, especially with the opening of large new contract. And those opening are linked with additional CapEx.

So, the phasing of CapEx H1, H2 is quite consistent with our underlying assumption regarding the evolution of the development during the year.

Ivar Bialfra Kelly, Analyst, UBS: Perfect. Thank you very much.

Conference Operator: The next question is from Simon Le Chiffre at Jefferies. Please go ahead.

Simon Le Chiffre, Analyst, Jefferies: Yes, good morning. My first question is on the phasing and on your expectation of 3Q revenue was similar to 2Q. I mean, I think you had a 80 bps leap year impact in Q2. So why Q3 should not be higher than Q2? Is it just like net new wind getting weaker quarter to quarter?

And second question is more like on medium term, obviously you did not provide any update this morning, but I I think in the current context investors would appreciate some sort of visibility. So is there anything at this stage you could share on the growth algorithm for next year? Could 2026 be similar to 2025 given some large losses coming up next year This is a global account.

Leo Carrington, Analyst, Citi: Thank you.

Sophie Belong, Chairwoman and CEO, Sodexo: Okay. Thank you. Thank you very much, Simon. So Sebastien will answer your first question and I will take the second question.

Sebastien de Tramazur, CFO, Sodexo: So to your first question on the phasing and the acceleration of the organic growth between Q2, Q3 and then Q4, There is yes, you are right, there is the impact of leap year and calendar year in Q2. We are expecting favorable positive and favorable calendar year impact in Q3 that we helped the organic growth. And then we start, as we mentioned earlier, we start the mobilization of new contract at the end of Q3. So, again, this will help the organic growth in Q3 and we’ll have the full quarter impact from those mobilization in Q4.

Sophie Belong, Chairwoman and CEO, Sodexo: Okay. And then, for the long term, it’s much too early to give long term or next year guidance. What I can tell you, we said that the dynamic on new contract is good, because we are over 1,000,000,000 for new contract plus cross sell in H1. And we expect to be beyond the achievement of EUR 1,900,000,000.0 at the end of the year also for a new contract and cross sell. And as I said, for retention, we plan to be between 9494.5% including site closure.

And but part of that is also the effect of the FM contract that we lost and it will start to have an effect in Q2 and Q3 of next year. So, the underlying retention also should be above between 94.5 and 90 five So that’s those are the key lever to drive our growth in 2026. And as Sebastien said, growth our exit rate in Q4 for the growth is going to be better. And also on Q4, we will have to look at the underlying organic growth, because I remind you that in Q4 last year, we had the Olympic Games. And so we will also have to look at the underlying Q4 organic growth in Q4 to have a better visibility of how we start financial year 2026.

Simon Le Chiffre, Analyst, Jefferies: Okay. Just on retention rate, I’m getting a little bit confused because on Slide nine, you mentioned 75 retention rate above 94%, excluding the loss of the mobile account. And you just said, like, it would be 94, including the loss of this account. So could you just clarify that?

Sophie Belong, Chairwoman and CEO, Sodexo: No, the 94% is including the loss of the GSA contract.

Simon Le Chiffre, Analyst, Jefferies: Okay. So slide nine is wrong.

Sophie Belong, Chairwoman and CEO, Sodexo: Slide nine. Can we see the slide nine? No, we said that excluding it would be above 94.5. So, a is a point five missing.

Simon Le Chiffre, Analyst, Jefferies: So, basically, underlying retention rate all in all would be 94%?

Sophie Belong, Chairwoman and CEO, Sodexo: The underlying retention rate without that big JSA contract would be above 94.5%. Okay.

Simon Le Chiffre, Analyst, Jefferies: Thank you.

Conference Operator: The next question is from Leo Carrington, Citi. Please go ahead.

Leo Carrington, Analyst, Citi: Good morning. Could I firstly ask on, the renewals? You mentioned the 80% of contracts being up for renewal this year and last.

Sebastien de Tramazur, CFO, Sodexo: What’s what’s the average

Leo Carrington, Analyst, Citi: contract duration here? Do you is there a risk that that we that we face this this profile of you or is there efforts that you can deploy to try and work on extensions to to try

Jaafar Mestari, Analyst, BNP Paribas: and smooth this renewal cycle, in future?

Leo Carrington, Analyst, Citi: And then secondly, in terms of education, just taking into all of the factors mentioned earlier on this call, to what extent are the Q2 issues, a forecasting issue or more of a performance issue versus expectations in terms of volumes and net new? Thank you.

Sophie Belong, Chairwoman and CEO, Sodexo: So, on the renewal of those contracts, it depends of the contract, but usually it’s three plus one plus one or it can be four years or it can be five years. Well, it happened that last year and this year, there was a big part of the portfolio out for bid. So, of course, we are trying to minimize the effect for the future year. Also, but it’s contractual terms. So, it’s also difficult to change.

What we can do to minimize is being very proactive and do preemptive bid to anticipate some of the contractual terms with those clients.

Sebastien de Tramazur, CFO, Sodexo: And to your second question regarding the variance between the Q2 expectation and actual organic growth, I would say it’s a mix of different topics. Obviously, it was lower volume than expected. And then it’s true that when we look at the detail and assumption behind that, it probably embedded some optimism, and we are probably bit too optimistic in terms of increase of volume. So, it’s an adjustment. So, again, it’s a combination of both.

Simon Le Chiffre, Analyst, Jefferies: Okay, thank you.

Conference Operator: The next question is from Andre Juillard at Deutsche Bank. Please go ahead.

Andre Juillard, Analyst, Deutsche Bank: Good morning. Thank you for taking my question. First one is about The US. Regarding the actual environment and the fact that Donald Trump is pushing for America First, don’t you have any fear about having a preference for U. S.

Player rather than you in the new renegotiation contract? First question. Second question about retention. If we look at a more midterm view, what is your target? It’s to come back rapidly on above 95%?

Or do you still consider that 94% to 95% is a normal rate? And last question, very short, about tax rate. I just wanted to revalidate what you’ve been saying for 2025 and for the midterm target you are expecting for the tax rate on a yearly basis. Thank you.

Sophie Belong, Chairwoman and CEO, Sodexo: Okay. Thank you for your question. So, on The U. S. Environment, as I said in the beginning, for me, in The U.

S, we are American. We employ more than 120,000 people in The U. S. We buy locally. We pay our taxes locally.

And I don’t know if you remember, but at the time when we first signed the U. S. Marine Corp, there were some challenges on that, but we kept the contract. And then on the impact, our government portfolio is smaller. And the contract with federal government in The U.

S. Only represents 4% of our revenue with the U. S. Marine Corps contract representing half of that. So, 2%.

So, of course, you know, it’s so we don’t think that being a French company, but and we also have a lot of French American investors. So, we are an international company with a big footprint in The U. S. On the retention, we want to come back rapidly to 95 and as close as possible to 95 without this big GSA contract this year. And but then, it’s not the final target.

We want to grow and we want to keep the target to be above 95 in the midterm. On the tax rate, maybe can answer the Yes, so

Sebastien de Tramazur, CFO, Sodexo: on the tax rate, the initial guidance for the year was around 27%. For this year, the revised guidance between ’23 and ’24. And this is mainly because of the positive effect of the risk update associated with the tax audit of Sodexo SA. And the midterm is still we are back to the initial guidance of around 27% effective tax rate.

Andre Juillard, Analyst, Deutsche Bank: Okay. Thank you very much.

Conference Operator: The next question is from Jaafar Mestari, BNP Paribas. Please go ahead.

Jaafar Mestari, Analyst, BNP Paribas: Hi, good morning. First question on retention, Your targets to reach an underlying 94.5%. I’m just curious why you’re so ambitious in the context of everything else you’ve said, which includes you have a particularly busy renewal season in education at the end of the year. Since you last spoke, I think some of the bridges you mentioned now includes weaker than expected retention in corporate. So I appreciate it’s the right medium term target.

But in the short term, what’s something that allows you to have that confidence given a particularly difficult remainder of the year? Secondly, just on U. S. Healthcare. Obviously, when you describe the delay in opening one major new contract, of course, it sounds very, very specific to that client and to you and it doesn’t sound like an industry issue.

But I guess, could we just maybe take a step back and how much more can you tell us about the underlying reasons there? Is the client just not ready in terms of IT, in terms of invoicing? Or is there more going on? Is your client restructuring, closing down sites, reviewing wards, etcetera, these hospitals, etcetera? And then lastly, I assume you have received a letter from the U.

S. Embassy last Friday like many French companies operating in The U. S. I think you had five days to reply. So do you expect to be stating that the Sodexo Group does not operate any diversity and inclusion policies anywhere in the world?

Or are you effectively prepared, to have your principles in balance with your business with U. S. Federal agencies and with the U. S. Military?

Sophie Belong, Chairwoman and CEO, Sodexo: Okay. Thank you very much, Jafar, for your questions. So I will start with the third question and we will go backward. And then I will answer the second question and let Sebastien reply to you on the first one. So, third question, no, we did not receive the letter from the U.

S. Embassy about DNI. So, we are very cautious on the topic. We are a people company and we have been operating and we have strong values. And but of course, we are very concerned and very cautious about what’s happening.

We already have taken measures. There are some word that we are not using anymore. And we are also careful about what is going to be published externally concerning that topic because we don’t want to make ourselves vulnerable on by the BNI topic. Are adjusting to a new situation because we don’t want to put risk. We are not changing our values, but we’re very pragmatic and we don’t want to put our risk on business.

Second, on the healthcare contract. Yes, you’re right. It’s a very specific contract and it’s not very linked to the industry. So, I should go into a little more detail with that contract. So, we have been awarded an exclusive partnership with, CAPTIS, for its members for food and nutrition services and environmental services.

So CAPTIS, what is CAPTIS? It’s a collaborative healthcare organization delivering savings and value for members through aggregation and committed spend. So, Captis has proven long standing history of driving contract compliance and savings across its portfolio for its members. So, Cactus is has various healthcare organization across The United States, more than 100 health system with 1,400 hospitals in 29 states in The U. S.

And we have an exclusive contract of tenure with them with over 100,000,000 booked revenue commitment in the first two years. And it’s true that when we say delay, it’s a delay of implementing this partnership and embarking the members of Captis in in the new contractual terms with us. So that’s why you don’t understand you don’t hear similar comments for other contract. But and we don’t see it we don’t have the same issue for other contract. But for this very specific contract, it’s true that we have been too optimistic in the ramping up, especially for this year.

So it’s going to take longer than we thought. And we have a very small impact this year. It’s going to grow next year, but we won’t have the full impact next year either. And it’s going to be much better in 2026. So thank you because I think it was important for us to clarify the situation on this captive contract.

Jaafar Mestari, Analyst, BNP Paribas: Sebastian, I don’t think I heard your did you say the initial agreement was all the members would contribute at least CHF 100,000,000 of revenue? I didn’t quite catch if that was in the first year, in the first years, plural.

Sophie Belong, Chairwoman and CEO, Sodexo: No, no. All the members, they represent more than €1,500,000,000 business in our services. So the initial commitment is over two years. And in the first two years, we should have had more than €100,000,000

Ivar Bialfra Kelly, Analyst, UBS: Okay.

Jaafar Mestari, Analyst, BNP Paribas: In the first two years. Thank you very much.

Sebastien de Tramazur, CFO, Sodexo: And on retention sorry, on retention, just to answer the first question. So, we said that the target for this year is above 94% to 94.5%. And then if you restate the loss of the global account, again, it’s 70 basis even we are still discussing the scope, then you are above the 95%. And we need to keep in mind also.

Sophie Belong, Chairwoman and CEO, Sodexo: No, we are above 94.5%.

Sebastien de Tramazur, CFO, Sodexo: And then as you know, it was quite quite dense year in some segments, especially in schools in 2024 and in 2025. So, it’s the reason why we expect again to be back above 95% in the coming years.

Jaafar Mestari, Analyst, BNP Paribas: Thank you. My question was I think that definition in two different processes is very clear. My question was you have some particularly busy renewals in education, I think you said. And then you also had some more recent pressures on specifically retention in corporate. So I’m just curious how H2 can be expected to improve year on year in the context of you’ve got a lot on your plates in H2?

Sophie Belong, Chairwoman and CEO, Sodexo: Well, we’re trying to be ambitious and it’s true that we know that that DSA contract will have a full year impact. And because I’ll remind you that our definition, we take the full year impact of the loss. So we’re saying, we hope to be between ’94 and 94.5. And so, that GSA, it could be above that. That’s the only thing we’re saying.

And yes, we want to be ambitious because retention, as I said, it’s for me, it’s the first lever of our growth and we want to continue to progress. But as you said, there are still it’s not yet the end of the year and sometimes you also have some surprise like we had one in corporate services in North America at the beginning of the year. But what I’m saying is that we are also making some progress. That’s what we are pushing, we are continuing to push on the topic. That’s what I’m saying.

Jaafar Mestari, Analyst, BNP Paribas: Thank you.

Conference Operator: more questions registered at this time. I turn the conference back to the Sodexo team, for any closing remarks.

Sophie Belong, Chairwoman and CEO, Sodexo: Okay. No more questions? Okay. So if there is no more question, we will end the call now. Thank you very much for taking the time to listen to this call and have a good day.

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

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