PARIS (Reuters) - Sodexo (EXHO.PA) is boosting its focus on services outside of its core catering business and betting on emerging markets to drive growth as it braces for more difficult times in Europe.
Sodexo, which manages canteens and facilities for office workers, armed forces, schools, hospitals and prisons, also sells vouchers for meals and gifts. Its clients range from the Royal Ascot Racecourse to the U.S. Marine Corps.
The world’s No.2 catering services company behind British group Compass (CPG.L) plans to expand mostly without acquisitions, but could target small to mid-sized deals in facilities management and vouchers, its chief executive said on Thursday.
“These two big levers (diversification and emerging markets) allow us to be relatively, even very confident for the future,” Michel Landel told Reuters in an interview.
Sodexo, which operates in 80 countries and has a market value of 11 billion euros ($14.42 billion), has forecast “modest” revenue and profit growth in the year ending August 31, due to a slow growing European market.
“Short-term we have said growth would be limited but we are well positioned for the medium and long-term. We will continue to invest despite a difficult economic climate,” Landel said.
With cash of over one billion euros and a debt to equity ratio of 21 percent, Sodexo has “the means to fund its expansion”, Landel said.
Catering contributes 70 percent of Sodexo’s turnover, but companies and governments seeking to cut costs by outsourcing services like equipment maintenance and prisoner training have helped fuel growth at its facilities management busness, which contributes 26 percent of sales and is now Sodexo’s fastest growing business.
That growth could see the business contribute between 35 percent and 40 percent of sales within 3-4 years, Landel said.
Emerging markets contribute 20 percent of Sodexo’s sales. It has market leading positions in Latin America, notably in Brazil, and is also strong in India and China. More recently it started investing in Thailand, Vietnam, and Indonesia.
It has made a few acquisitions in recent years, buying Brazil’s facilities management group Puras do Brasil, Mexican meal-voucher company Servi-Bonos and Indian facilities management company MacLellan India, though most expansion has been internal.
Other moves the company has taken to counter weak European markets include announcing in November plans to cut costs and cut jobs to help achieve a 6.3 percent operating margin by the end of FY 2014/15, compared with 5.4 percent for 2011/12, and average annual revenue growth of 7 percent.
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Reporting by Dominique Vidalon; Editing by Elaine Hardcastle