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UPDATE 1-Sodexo cautions on slowing emerging markets, forex
November 14, 2013 / 8:01 AM / in 4 years

UPDATE 1-Sodexo cautions on slowing emerging markets, forex

* 2012/13 underlying sales rise 1.1 pct, op margin 5.2 pct of sales

* Sees 2013/14 underlying sales up 2.5-3 pct, margin at 5.6 pct

* Sees 2014/15 operating margin of 6 pct vs previous forecast 6.3 pct

* Brazil, China still slowing; weak forex in emerging countries (Adds details from CEO conference call)

By Dominique Vidalon

PARIS, Nov 14 (Reuters) - French catering-to-vouchers group Sodexo cautioned on Thursday that weak currencies in emerging markets, and a slowdown in Brazil and China would continue to weigh in the coming months while austerity-hit Europe would remain weak.

As a result, the world’s No.2 catering services company after Britain’s Compass Group trimmed its operating margin goal for fiscal year 2014/15 to 6 percent from a previous target of 6.3 percent.

“There is a short-term slowdown in emerging markets but I am not worried over the medium-term,” Chief Executive Michel Landel told a conference call with journalists. “Emerging markets will return to comfortable growth levels in the future.”

Brazil, where Sodexo makes revenue of some 1 billion euros ($1.34 billion), was not recovering as fast as expected, while there was a slowdown in China, which contributes revenue of around 200 million.

There was also weaker demand in the mining sector in Chile, Peru, Brazil, Australia and some African countries.

Sodexo manages canteens and facilities for office workers, the armed forces, schools, hospitals and prisons, and sells vouchers for meals and gifts. Its clients range from the Royal Ascot Racecourse to the U.S. Marine Corps.

For the year ended Aug. 31, Sodexo posted a 1.1 percent rise in underlying revenue to 18.397 billion euros and predicted growth would accelerate to between 2.5 and 3 percent in 2013/14.

It forecast that its operating margin would rise to 5.6 percent from 5.2 percent in 2012/13, helped by cost savings.

Operating profit before exceptional items declined to 953 million euros from 958 million a year earlier, amid lower food services volumes in Continental Europe, where clients were seeking to cut costs.

There was also inflationary pressure in emerging countries and a negative foreign exchange impact of 21 million euros tied to a weaker Brazilian Real against the euro. Sodexo said.

According to a Thomson Reuters I/B/E/S poll, Sodexo was on average expected to post revenue of 18.453 billion and operating profit of 947.5 million.

As it faces tough times in Europe, Sodexo has been focusing more on services outside its core catering business and betting on emerging markets to drive growth.

Emerging markets now make up 21 percent of group sales against 10 percent in 2005.

Sodexo trades at 20.48 times estimated earnings against 17.96 times for Compass, a premium some analysts tie to hopes that a cost-cutting plan it unveiled a year ago will boost operating margins. ($1 = 0.7460 euros) (Editing by James Regan)

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