June 26, 2018 / 5:48 AM / 25 days ago

French catering group Elior unveils 3-year plan to boost earnings

* Unveils new targets in three-year plan

* Aiming to fight back after issuing profit warnings

* Sees organic growth above 3% per annum on average

* Eyes cumulative operating free cash flow of €750m

By Dominique Vidalon

PARIS, June 26 (Reuters) - Elior, Europe’s third-largest catering group, on Tuesday vowed to boost revenue, profit growth and cash flow under a new, three-year strategic plan up to 2021.

The company, which competes with Sodexo and Compass and has had three profit warnings since last November, said that for the period covering 2019-2021, it was targeting annual organic sales growth above 3 percent.

It also targeted growth in its adjusted earnings before interest, tax and amortisation (EBITA) margin that would be double that of its organic sales growth.

This would compare with expected organic sales growth of close to 3 percent and an adjusted EBITA margin of 4.3 percent to 4.6 percent in its 2017/18 financial year ending September 30, which the group reiterated on Tuesday.

Elior said the path towards achieving these goals, which also included cumulative operating free cash flow of 750 million euros ($878.70 million), would “not be linear”.

“The first year will bring stabilisation in EBITA margin and capex, in the second and third year, the operating leverage and capex reduction will gradually produce their effect on EBITA margins, operating free cash flow and cash conversion,” Elior said in a statement.

Free cash flow will be used for acquisitions in the United States, which has been a key pillar of Elior’s expansion, deleveraging and for the return of cash to shareholders.

SUFFERED RECENT PROFIT WARNINGS

The plan comes with Elior shares under pressure after three profit warnings since November 2017, which the group has blamed on start-up costs on new contracts and the fact that some of its cost-saving plans made less of a contribution than expected.

Elior, like its rivals, is also operating in a tough competitive environment in Europe.

Sodexo cut its sales and profit margin outlook in March while Compass, the world’s biggest catering firm, missed first-half earnings expectations in May.

Elior’s contract arm, which provides catering to businesses, schools and hospitals, accounts for 76 percent of its overall business. It also has a concessions business, which serves airports, railways and motorways.

Elior’s shares have fallen nearly 20 percent so far in 2018.

Elior, whose net debt reached 1.8 billion euros at the end of March following recent acquisitions, reiterated it was targeting capital expenditures of 300 million euros for its 2017/2018 full financial year.

$1 = 0.8535 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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