Sodexo’s profits rise, sets new cost-cutting target

Outsourced food services and facilities management group Sodexo, which employs more than 1,800 people in Ireland, has reported a further rise in annual sales and profits .

The world's second-biggest catering company after Britain's Compass Group said it was confident it could deliver on its mid-term goals after cost-cutting and favourable changes in currency exchange rates helped it beat its profit target in the year ended August 31st.

It also told investors it was increasing the dividend payout by 22.2 per cent to €2.20 a share and would spend €300 million in a share buyback programme, driving its share price up by over 9 per cent on Thursday to €87.84.

"Full-Year 2014-15 results were ahead of expectations with a share buyback," said Bryan Garnier analysts, who kept a "neutral" rating on the stock, saying the short-term outlook was "challenging".

"Overall trends remain solid in our businesses despite an extremely volatile economic climate," chief executive Michel Landel said on a results news conference call.

Mr Landel cited a slowdown in Brazil, a “halting” recovery in Europe, and lower commodity prices which were hitting the oil, gas and mining sectors.

Sodexo manages canteens and facilities for office workers, armed forces, schools, hospitals and prisons and also supplies vouchers for meals and gifts. Its clients range from the Royal Ascot Racecourse in England to the US Marine Corps.

In France, which accounts for 14 per cent of group turnover, the deadly Paris attacks were expected to have some effect on the group’s local tourism business in the coming months but Mr Landel said it was too early to quantify the likely impact.

Sodexo owns the Paris cabaret Le Lido, the Yachts de Paris luxury river cruising business and also has the catering contract for the La Tour Eiffel restaurant. Its tourism business generates sales of around €300 million .

NEW COST CUTS

Having won some major new facility management contracts Sodexo said it was stepping up cost cutting measures, aiming to lop €200 million off annual costs by fiscal year 2018. Against this, the group would book €200 million in exceptional costs over the next 18 months, it said.

Cost cuts of €170 milion euros had helped lift operating profits before exceptionals by 11.9 per cent at constant exchange rates to 1.143 billion euros in the year ended August 31st, beating the group’s forecast for a 10 percent rise.

Revenue was up 2.6 per cent at constant exchange rates and 10 percent at current exchange rates at €19.8 billion thanks to facility management contract wins in the UK and North America.

For the current year Sodexo forecast underlying revenue growth of around 3 per cent and a rise in operating profit, excluding currency effects, of around 8 per cent.

Reuters