Sodexo S. A. (OTCPK:SDXOF) Fourth Quarter 2022 Results Conference Call October 26, 2022 03:00 AMm. ET
Participating companies
Virginia Jeanson – Director of Investor Relations
Sophie Bellon – Interim President and CEO
Marc Rolland – Group Chief Financial Officer
Conference Call Participants
Jamie Rollo – Morgan Stanley
Vicki Stern – Barclays
Jarrod Castle – UBS
Jaafar Mestari – BNP Paribas
Leo Carrington – Citi
Neil Tyler – Redburn
André Juillard – Deutsche Bank
Simon LeCyprus – Stifel
Operator
Hello, this is the convention operator. Welcome and thank you for calling Sodexo’s fiscal year 2022 effects convention. As a reminder, all participants are in listen-only mode. After the presentation, questions will be asked. [Operator Instructions]
At this point, I would like to entrust the convention to the Sodexo team. You have the floor.
Virginie Jeanson
Thank you so much. Thank you and good morning everyone. Welcome to our call for effects for exercise 22. Today by phone, as usual, we have Sophie Bellon and Marc Rolland. If you haven’t downloaded them yet, the slides and press release are now available on our sodexo. com site and you will be able to access this call on our online page for the next 12 months. The call is recorded, but may not be played or transmitted without our consent.
Please contact the IR team if you have further questions after the call. I look forward to seeing you next week in Paris or online for our Capital Markets Day on Wednesday, November 2nd. For those of you who wish to attend the assembly in Paris, still [technical difficulty], please do so as soon as possible.
Now I pass it to Sophie. Sofia?
Sophie Bellon
Good morning and thank you for joining us today for announcing our fiscal 2022 results. As usual, I will present the figures, Marc will move on to the details, and then conclude again. And, of course, we will answer your questions. This year has been exciting and very challenging. We have controlled war, inflation and Omicron and I am proud of the numbers achieved.
Let’s get into the details. First, the biological expansion is 16. 9% and is at the high end of our steering range. The underlying operating margin is 5%, in line with our target, and progress was forged in On-Site and BRS, up to 160 core issues and 370 core issues, respectively. .
On slide five, you can see that in the fourth quarter, the Group returned to the FY 2019 point with 99% on-site interventions and a very advanced BRS at 115%. Therefore, we are convinced that we will be able to surpass the earnings grades of 2019. in 2023 with room for improvement, especially in food where we are still at 87% for the full year.
The very smart news is that loyalty is improving across 140 core issues to a record 94. 5% and I am confident that retention is the KPI for successful sustainable growth. If we remain our customers, we can get more. very satisfactory result, I am sure we can do better. Development also improved, up to 150 basic problems up to 7. 5% and the annual progression adding cross-selling lately is 1. 5 billion euros.
As a result, net new business is positive for the first time in many years, and this is true in North America. As you may recall, I had 4 strategic priorities when I took office last October. The first was to encourage the U. S. to do so. U. S. growth. I am satisfied with the functionality here. Retention returned to more than 96%, increased 400 basis points and is the most productive retention in the last 10 years.
We also had growth, we also went up 400 basis points, and as I said before, we also experienced cross-selling. We also increased the percentage of outsourcing for the first time in our firm to 44% during the year.
The previous moment was to promote the transformation of the food model. We are launching our premium logo globally. We have completed mergers and acquisitions targeting our position in North America and China, and are transforming production and logistics with a positive outlook. down kitchen in France, China, United States, United Kingdom and Chile.
Our complex food-style revenue now accounts for 6% of general service food sales, up from less than 2% a year ago. We also continue to manage our portfolio more actively. In addition to obtaining complex styles, we have also expanded Integra the network and expanded our control of technical devices in Asia Pacific.
We have also made complete divestitures of non-strategic businesses and geographies. Just to verify that, we are now in 53 countries. And we’re strengthening the power of our organization, the whole movement of the
We have also provided the BRS with a committed government. Marc and I are very attached to the execution of the strategic plan and the Board also oversees progress at every Board meeting, and we have to award an express BRS LTIP to the most sensible manager as we did for North America last year. And as you’ve probably already seen, we know that the BRS deserves to have its own instructions for the year.
Because I’m proud of what I’ve done in North America, I wanted to take a few minutes. Take a few minutes to communicate about advances in fitness care in North America. As you can see in the chart, our retention and progression has increased considerably this year. And for the first time in a long time, we have a new net positive. Higher retention through 60 basic problems and also higher progression through 390 basic problems. And the profitability of what we have signed is also better.
I wanted to draw your attention to two major contracts won and selected. The first is a very significant extension of our business with Ardent. We have signed a seven-year contract under which we will serve 50 sites with catering for patients and staff. Array’s nutrition consulting, retail and environmental Array adding our Protecta protocol offering. In this contract, we have taken some business from competitors, but we have also taken care of what in the past was done internally. We need it because the visitor liked what we were doing in our little touch and the added price we presented for their Group.
We were also renovated through the University Hospitals for five plus 3 years, the price of our partnership. And we have exciting progression projects to manage with UH over the next few years.
On slide 9, I sought to communicate how BRS has been experiencing strong expansion in the food market for several years and has the benchmark with a very fair fiscal year 2022. Israeli tech companies have to deal with mobile and sought-after employees. The benefits are therefore vital. I remind you, there is no fiscal merit in Israel. Our enhanced virtual omnichannel dining experience is completely geared to end-user expectations and we’ve also noticed a developing marketing and sales mindset.
The result is that we have increased our issuance volumes by up to 53% in one year, while underlying volumes increase assisted progression to a very strong 35%. This puts us ahead of all the competition with an overall market share of 50%.
Completing seamlessly with Ardent, we have achieved the right victories this year in all spaces and regions. Let’s take some examples. We just began a 10-year partnership with Eastern Nazarene College in the Boston domain for food and service management on campus. We are preparing a new menu program in collaboration with a dietitian to expand a blank feeding program, update the dining room appearance, load generation functions that add cell ordering functions, as well as FM that adds childcare, ground maintenance and construction management.
Sodexo Live was awarded the contract for British Airways and American Airlines in North America as a component of our airport lounge portfolio. They are sharing their facilities in a new logo area at JFK Airport, housing 3 premium lounges in components dedicated to transatlantic and coast-to-coast passengers. British Airways’ North American contract also covers 8 lounges in major cities with business and premium dining and the creation of a specialty beverage programme.
We have also maintained some fair contracts. In 2022, it renewed its contract with Life Insurance Corporation of India for the fifth time. Life Insurance Corporation serves more than 290 million policyholders. They have 10,000 workers who have earned food benefits through a month of maps and mobile apps in more than 2,300 locations.
Sodexo has been Abingdon School’s catering partner since 2007. The new contract includes improvements to the high school’s kitchen service and a new dining room added to existing dining facilities. High school of 250 students a few miles away. The Sodexo team also organizes all events.
Expansion, we also won Sanofi’s new flagship near Boston, adding offices and the R
So with all this, the Group’s net source of income was by size, returning to 695 million euros, catching up with the underlying net source of income, which, I remind you, is corrected for restructuring expenses among others and which doubled to 699 million euros, or 4. 78 euros. Benefits consistent with action. The Board proposes this year a dividend of EUR 2. 4, an increase of 20% compared to last year and representing a payout ratio of 50% of the underlying net income source, in line with the Group’s dividend policy.
On slide 12, I should note that gross CapEx reached 2. 3% of revenue, with more retention investment than last year and virtual and IT investments remain strong. Free money is also very good, thanks to particularly advanced operating money and despite significant non-recurring cash.
As a result, 91% money conversion and net debt relief continued this year, which reduced the net debt ratio to 1%, a one-time EBITDA and remind you that our target is between 1% and 2%. I also sought to highlight that we are making progress on the top of our Better Tomorrow 2025 goals.
The business price that benefits SMEs increases by 13% to 7,800 million euros. Obviously, our direct emissions increase with revenue. However, our overall scope 1, 2 and 3 emissions are down 27% from baseline, from our 2025 target of 34%, and for the first time we now have full disclosure of our emissions, which you will find in our universal registration document, which we will publish in about two weeks.
We have also continued to reduce waste. However, overall relief is only 41. 5% from last year to 45. 8%, but we are now measuring double the number of sites from last year. So, it’s a wonderful performance. Our goal is to fully measure more than 84% of our buying base by 2025, and lately we’re halfway through today.
Now I will pass on the detailed figures to Mark.
Marc Rolland
Thank you Sophie. Et good morning to all. As usual, you will find the definition of the choice functionality measure in the appendices, as well as more data for you with your modeling. Now, let’s start with the P
Revenue for FY22 amounted to €21. 1 billion, an increase of 21. 2% or 15. 7%, exchange rate impacts and, as Sophie noted on our first slide, plus 16. 9% on a biological basis. The underlying operating source of revenue returned to more than €1 billion, up 83. 3% or 73. 5% in exchange rate impacts, and margin creation increased through 170 core issuances to 5% without significant monetary impact. This is a combination of an on-site improvement through 160 basic emissions at constant rates and a BRS building up to 370 basic issues at consistent rates as well.
Other operating sources of income and expenses are negligible at minus €5 million this year. I’ll come back to that later. Financial expenses also decreased to €87 million compared to €106 million last year. This is basically due to the accumulation of the source of interest income, while monetary expenses remained stable. 1,6%.
Tax expenditure increased by €264 million, reflecting a higher pre-tax result. However, the effective tax rate of 27. 5% to return to a more general rate, compared to 43. 9% last year, was affected by the limited popularity of deferred tax assets. The tax on money 200 million euros at the current rates.
As a result, in FY22, net profit increased fivefold to €695 million and underlying net profit doubled to €699 million. Finally, declared EPS EUR 4. 75 and underlying EPS EUR 4. 78. That is the basis of dividend policy.
I should only emphasize the fact that inflation control was under control. The effect on values in the year is around 4. 5%, gradually widening from quarter to quarter, reaching just over 6% in the fourth quarter. We have implemented our contractual clauses to make sure inflation is passed on. We have also been very competitive in sales value reviews and have also engaged in active renegotiations beyond contractual terms. The groups also put in place a really broad mitigation action plan, measures such as exchange projects to restrict price inflation relative to market position indices and in operation to improve job planning, rearrange menus and, as Sophie said, reduce waste. etc.
For FY23, we expect a value effect. Although it is most likely to be more frontal and we expect that at some point inflation trends will decrease.
Let us now return to the other source of income and expenditure which we reduced to just minus EUR 5 million in FY22. First, after two years of significant GET prices, restructuring prices were only €10 million, compared to €153 million at €21 million. and €191 million in 2020. Secondly, we had a net positive impact on a €50 million substitution similar to the sale of activities. I also remind you that the payment we won in the Hungary dispute was worth it. on the other line.
Let’s move on to losing money Array This was much higher than it had forecast at €631 million compared to €483 million for FY21. Operating money of €1243 million increased particularly year-on-year to €766 million, driven by the strong recovery of the underlying operating income source and, for example, through the allocation of benefits and rewards from the Hungarian government. The current capital loss in FY20 of €63 million was due to significant exceptional items, as highlighted in the announcement of the first part. We have indexed them in Appendix 11. Il is nothing new.
Net investments increased to €341 million, or 1. 6% of sales, compared to a low of €211 million last year, or 1. 2% of sales. Gross CapEx, which includes all visitor investments deducted from revenue, amounted to €478 million, or 2. 3% of revenue. Digital and IT investments accounted for 30% of gross spending, with the remainder going to visitor-oriented investments. Weak M&A activity in FY22 with acquisition expenses of only €70 million and disposals of €84 million.
After taking into account all these adjustments, consolidated net debt was reduced by €210 million at year-end to €1. 3 billion. As a result, money conversion stood at 91%, below one hundred percent and below the average for COVID years. However, this number includes minus €363 million of non-recurring parts Without them, we would have been mildly above average.
The next slide shows net debt relief to just under €1. 3 billion combined with revaluation of monetary assets and a positive currency. This has a positive effect on the debt ratio, which fell from 47% on August 21 to just 29% at the end of the year.
The net debt ratio also fell particularly from 1. 7 circulars to 1 circular at the end of our target diversity of 1 to 2. On October 21, Sodexo prepaid a €600 million bond maturing on Jan. 22. for the year, 96% of the Group’s gross debt of 5,700 million euros at constant rates. And by exchange rate, 71% is denominated in euros, 6% in pounds sterling and 22% in dollars. The average age was 4. 8 years at the end of August. I also remind you that our debt is one hundred percent free of agreements.
At the end of FY22, operating money amounted to €4. 5 billion, of which €960 million of limited money and €297 million of BRS monetary assets. The asset/liability policy advanced to around 120% from 113% as at 31 August 2021. I would like to point out that the rest of the Group also had significant operating money of €1. 7 billion. At the end of the year, unused credit lines amounted to €2 billion.
I think it might be useful to show you the underlying EBITDA at the Group point and for BRS. As you can see here, our underlying EBITDA has almost returned to the point of the 2018 monetary year at the Group point and already to the point of 2018. monetary year for BRS. The Group’s ROCE also recovered well by 17. 2% last year.
Now let’s move on to operations. On slide 23, you can see that Group revenue reached €21. 1 billion, an increase from 21. 2% on a reported basis to 16. 9% on a biological basis. Substitution in the scope of minus 1. 2% reflects net sales and acquisitions, adding, for example, childcare activities. deconsolidated since March. The effect of currencies was 5. 5%, driven by the strength of the maximum currencies against the euro and specifically the dollar.
On-site services increased 17%, reflecting a very strong recovery in North America with a 24% increase. Europe and the rest of the world were also strong at 13% and 11. 5% respectively. Benefits and rewards increased by more than 14. 2%. for the year, accelerating quarter by quarter.
So, let’s move on to the details, starting with On-site. Operations and management in FY22 increased 22. 7% organically. from home. Based on the last two months of trading, we are where we thought we needed to be in terms of food volumes of around 500 million pro forma annually. The good news is that we are confident that there will be further progress in terms of recovery of food volumes in the coming months and quarters.
So now through geography. Organic expansion in North America was 45. 1 percent, with workplaces slowly pulling back from one quarter to the next and a strong recovery in sports and recreation, first in stadiums and then in conference centers. Administration and agencies, as well as power and resources, are active. The increase, thanks to new business and a slow return of office staff to the site. None of the segments have been particularly affected by the pandemic.
In Europe, profit grew by 20. 3% organically, driven by the slow return to the office, a strong recovery in Sports and Leisure activities, first in sporting events, then at this time part of the year in corporate entertainment and tourism. The government and the company have been affected by the termination of the TR contract in the UK and some new cases.
Energy and resources remained strong due to weak activity in the power sector. In Asia Pacific, Latin America, the Middle East and Africa, the expansion of biological utility was 11. 6%. Growth in the Corporate Services segments remained strong in all regions, primarily in India, where the COVID-related recovery was strong and despite COVID-related lockdowns.
Energy and resources continued to show a very forged growth, in mining with new impulses in Latin America, which more than compensated for the absence of new oil and fuel projects and some contract losses in the Asia-Pacific region. Bless you
Hospital activity and the frequentation of elderly apartments increased thanks to some cross-selling and the recovery in retail sales, which appears to be stabilising at just over 80% in the fourth quarter. Prices benefit from the pass-through of inflation. The net new business contribution remains low as the new signings for the year have not yet been reflected in sales.
In Europe, biological expansion exceeded 0. 7%, impacted by the closure of check centers in the United Kingdom at the end of March, with a negative profit differential of about 90 million euros year-on-year. Excluding this impact, biological expansion would have been close to 6%, as a result of the pricing of new Senior contracts in France and some accumulation of volumes, specifically in retail sales.
In Asia-Pacific, Latin America, the Middle East and Africa, biological expansion of 8. 5% was driven by higher volumes, costs and new business. I remind you that the Health activity is mainly located in India, China and Brazil. Education grew through 22% biologically and was much more potent in North America and Asia-Pacific, where back-to-school was far from Europe.
North America grew by 27. 9%, reflecting the full reopening of schools and universities since the beginning of the 21st education year, staff shortages at Omicron impacted specialty retail and catering activities in the first part of the year. In the first quarter, summer camp activity was strong and the start of the 2022 school year was aided by an extra day and a higher number.
In Europe, profit grew organically by 6. 5%. All schools and universities have been fully opened. However, the media is affected by a high absenteeism rate due to the other COVID waves in the early part of the year. Organic expansion of more than 24% in Asia Pacific, reflecting the reopening of schools and universities in China and India.
The recurring operating revenue source of On-Site Services increased by 90% to EUR 926 million. The margin was 4. 6%, up 170 bps. This improvement is linked to the strong recovery in the volumes of Commercial Services, Sodexo Vive and Education, the positive effect on GET savings and portfolio control that has been taking place for several years.
In Business and Administration, the 230 basis point improvement in the underlying operating margin is favoured by the significant improvement in the levels of activity in Business Services and Sport and Leisure.
In Health and the Elderly, the margin is stable. In a highly inflationary environment, specifically in North America, collections were physically powerful and groups were very active in deploying their mitigation actions. In Education, in addition to a 260 basis point improvement in margins, the improvement in functionality is strongly related to the realization of revenue recovery, specifically in North America this year. High inflation and shortages were offset by very significant mitigation efforts on the ground, as well as pricing in North America. On the other hand, the scenario has been very complicated in France, where the national inflation index used in school contracts has underperformed our input cost increases.
Now let’s move on to the advantages and rewards. First, I want to show you the acceleration in earnings expansion from the first quarter to the fourth quarter, when we were at 19. 8%. This acceleration can be felt in all regions and is due to a strong expansion in operating profits, also supported by higher interests. Rates. Earnings increased 18. 7%, accelerating quarter-over-quarter to 23. 1% in the fourth quarter.
Issuance volume amounted to €14. 3 billion in the year and exceeded 16. 2% on a biological basis, driven by strong net new business, leveraging virtual products and increased sales efficiency, as well as increases in face value. The financial source of income also rose sharply, supported by emerging interest rates, mainly in Latin America and, for example, in Eastern Europe. The diversification of services decreased by 1. 3% biologically during the year. This reflects the end of COVID-related public benefits and the robust expansion of mobility responses in Latin America.
Strong expansion of organic utility in all geographies with Europe, USA, and Europe and Europe. USA and Asia, 14. 4% more and Latin America 13. 8% more. This functionality is due to a strong net accumulation of new business in all key markets, a sustained accumulation in nominal On the other hand, the monetary source of profits also increased considerably, thanks to higher interest rates in Latin America and Eastern Europe. The profit accumulation of 12. 4% reflects a strong expansion in issuance volumes due to the higher nominal price and significant net new business in maximum countries and in maximum services, with the exception of Public Benefits.
The financial source of income increased by 43. 7%, due to the slow effect of emerging interest rates in Latin America and Europe. BRS’s underlying operating profit increased by 33. 2% and EBITDA by 27. 5%, while EBITDA margin increased by 310 bps, the European margin accumulating to 360 bps. Of course, the quarterly volume boost helps, especially since part of this boost is due to the accumulation of monetary income, which has a direct effect on results. At the same time, we continue to accumulate investments to drive BRS’s transformation into virtual and IT.
Thank you for your attention. I give you now to Sophie for perspectives.
Sophie Bellon
Thank you Marc. Now let’s move on to the instructions for the Group. The strong biological expansion will continue and we expect between 8% and 10% for fiscal 2023 and this will come from a further recovery in business, sport and recreation. catching up on 2019 grades for the entire year. Positive momentum from net new business, adding a further improvement in retention, we expect earnings inflation for the year to be between 4% and 5%.
On the other hand, the completion of the check centers will charge a hundred basic expansion issues in the year, and as we have said, once we have revenue back to 19 levels, we will also recover our margin. Therefore, it is expected to be close to 5. 5% at consistent rates.
Obviously, the additional build-up in volumes will help in that, it will help, but we also plan to beat inflation as we did in fiscal 2022 with a combination of pricing and mitigation measures and we are constantly improving our operational functionality with the help, among other things. improving supply chain efficiency. We have that from now on, the BRS also deserves to have its own guidelines.
So on slide 38, you can see that we expect biological expansion between 12% and 15%, which is due to further progress in new business, cross-selling and loyalty, strong demand across regions, and inflation benefits through face value. increases and interest rates on monetary gains. We expect the European margin to be around 30% driven by the profit expansion stream, while maintaining a peak of investment in technology, virtual offerings, branding, sales and marketing. We have to reserve our medium-term forecast for next week on our Capital Market Day. So we hope everyone is there with us in Paris or online.
Thank you very much for your attention and now Marc and I are here to answer all your questions about the figures for the 2022 monetary year. Operator, can you move on to the questions?
questions and answers session
Operator
Gracias. Es the conference operator. We will now begin the question and answer session. [Operator Instructions] The first is by Jamie Rollo with Morgan Stanley. Continue.
Jaime Rollo
Hello everyone and thank you for answering my questions. Three, please. Firstly, an obviously very clever set of results. But I only sought to focus on some things that are considerably weakened. possibly it would be the UK test contracts that closed in March, I think, and schools also went from over one hundred per cent to less than 90% between the start and end of the year. two and what kind of effect will it have in 2023? I know you have quantified the evidence in the UK at one hundred basis points. But I think they are separate elements.
And then, secondly, in a similar way to this very smart 94. 5% retention. It turns out that outside of North America, it’s still pretty low, around 93%. In fact, I wonder what effect X is will have, I discussed it in my first consultation about it. So what is the 94. 5% excluding some of those headwinds and also that 93% outside of North America, where do you think that can actually happen?
And finally, the balance sheet is obviously very solid, the flow of loose money is very good. What do you think of returning money to shareholders?. Thank you.
Marc Rolland
So, on the schools factor, the answer is similar to eliminating accidents, which was raised as I mentioned in the middle of the moment. And as far as FM is concerned, I think it has an effect on the control center.
Jaime Rollo
I think the contract ended in March. Was it the Justice Rehabilitation contract?
Marc Rolland
The rehabilitation contract was the year before, but I think it lasted until the end of the year and fell at the beginning of the new year and the control centers fell in March. But I think there has been a drop in volumes. Year was a counterfeit verification center, last year it was counterfeit, however, FY22 was weak in the current part of the year.
Sophie Bellon
And in terms of retention, well, one of my main projects to drive expansion in the US and it’s true that we’ve made a lot of investments to drive that expansion, whether it’s retention and development. And for the rest of the group, the functionality is not the same, for example, France had smart functionality on hold last year, however, as you know, we lost legal contracts in France and some other contracts. So we didn’t have such smart functionality. We also lost several contracts in E.
But I’m pretty sure the loyalty goes away; Retention is a priority for all leaders today. It’s in everyone’s conversation. Like I said, that’s the indicator we start talking about when we start a meeting and when I meet with a team, and they know it. So it’s in everybody’s brain and I’m pretty sure that the progress we’ve made in the United States, of course, has to be sustainable and that when we haven’t made it this year, we’re going to make progress next year.
Marc Rolland
On the balance sheet, yes, we have a solid balance sheet, but we will pay 2. 4 euros in dividends. There is no plan for any other type of cashback. So yes, there are no plans discussed at this time. the collapse of the Sofinsod stake, I mean right now, I studied it, but there is no resolution and yes, it is not happening.
Jaime Rollo
IT IS OK. Thanks a lot.
Operator
Next up is from Vicki Stern of Barclays. Continue.
Vicki Popa
Yes. Hello good morning. First, let’s get back to leverage. Sophie has made it clear that there is no plan at this level to get more money returns. So what’s the plan in the target leverage range?How does it deserve us to think about its use of money flow?Are mergers and acquisitions high enough on the list?Would you consider really attractive offers or would you be open to something more vital there?
And secondly, only in BRS, if you can only help and have a small hand in interest income. So, you’ve made $61 million this year, how do we see it progressing next year?Just a reminder of where you’re invested, how Have you temporarily noticed the benefits of EM interest rates?
And then, going back to retention and signatures, I guess your exit rate implies something like 2% net new business if we take your retention and the signature numbers you’ve provided, it’s the kind of point we’re looking for. Net expansion of new business next year. And do you think it’s a sustainable point to stay in the brain or potentially higher in the future?Thank you.
Sophie Bellon
So what about cashbacks?
Marc Rolland
As for cash, yes, we have some concepts for mergers and acquisitions, but it will be very specific, it will be blocked. Therefore, they will be large mergers and acquisitions. There may be a little more BRS in new and existing companies, as we’ll tell you more on Capital Market Day. In terms of source of revenue interest in the BRS, as you have noticed the expansion this year, had an expansion of 18 million euros and 44%, I think it will have a similar expansion next year in percentage on the most sensible basis, which will be a little more in euros. But that’s what we’re expecting, and interest rates for — euro interest rates are also rising. That’s why we want to finish — wait for the adulthood of our investment to reinvent itself, but it’s getting closer, so we expect a similar expansion next year.
Sophie Bellon
And on net new, 2% of net new ones, yes, will contribute to expansion for next year. As you may have noticed with the improvement in signs in the United States, it is much greater in the United States. As I said, we need a 94. 5% retention is not the ultimate goal. Firstly, we must succeed in at least 95% and also very temporarily in 96% throughout the Group. And in terms of new developments, we have progressed through 150 editions of the foundation this year, however, we also aim to increase that number.
Vicki Popa
So, just a track of interest income, whatever color you can give us, also about the type of geographical distribution you have and how you are invested. So we have a concept of how temporarily we feel that interest rates are falling. .
Marc Rolland
We are invested in the country where we operate and because liquidity remains in the countries. So, obviously, I mean right now, we particularly benefit from the BRL’s accrual of interest, because it’s been expanding now for a few quarters. In the Eurozone, we have quite a bit of liquidity, so it’s going up now. But in Eastern European countries like Romania, Czech Republic, Poland, etc. , it increased earlier, because there were pressures on their previous interest rates. than in the euro. So, the reals – we will get advantages from an increase in the reals, however, the increase of the euro will be significant in the coming year. But not much happened in the euro last year.
Vicki Popa
Thank you so much.
Operator
Next up is from Jarrod Castle with UBS. Please continue.
Jarrod Castle
Thank you and good morning to all. Only 3 for me, first in B
Secondly, only at the margins. It has cut prices a lot in the 3 odd years of COVID and is recovering more in terms of revenue, but it’s still talking about going back to pre-COVID margins. So what about the Benefits of Fee Reduction?Are there any structural benefits that materialize in 2023? And compared to that, I assume their maximum margin was 6. 4%, 6. 5%. Can we go back to that?
And then, just in values, he saw inflationary values of 4% to 5%. And obviously, Q4 6%, I guess, hoping for moderation. But does that happen to all your charges?the charge plus constant value and P-contracts?
Marc Rolland
BRS, biological expansion, even if I eliminate the monetary gain, the expansion of monetary gain, the expansion of BRS is a forged double-digit expansion, backed by a smart year of sales in fiscal year 22 and Aurélien will tell you more about the day of the capital market, however, we had a very strong promotion year in the year 22. We also derive advantages from the accumulation of nominal value, from the transmission of inflation through our consumers to the advantages of obtaining from their employees. But very, very strong sales in new virtual goods. I have given you the example of Israel. I mean, that’s the kind of thing the team does.
Apart from the group, we will still gain advantages next year from acceleration elements, as we had announced. Business Services and Sodexo Live!, and to some extent, Education, still have some work to do. be an acceleration. And then we also have power gains, which are: the advantages of getting power gains were until fiscal year 22, but they remain there, that is, in overhead and administrative costs, they are structural advantages. We are confident with ourselves with 5. 5%. I won’t comment on the 6. 4% as you mentioned. I think we’ll tell you more about this on Capital Markets Day.
In terms of inflationary prices, we exceeded about 4. 5% in FY22. The input charge is more than 6% to 7%, say, or even 7% in the food charge and then 5% to 6% in the salary charge. , obviously, if I look at what we had and what we have as input, there is a hole. But as we explained a few quarters ago, we have mitigation measures to close the hole and our end is the hole right now. You have 4. 5% in prices, 5% to 6% in labor and 6. 5% to 7%, I would say, in the food charge.
Jarrod Castle
Thank you. What about the shared contract?
Marc Rolland
It doesn’t replace much. I think globally we have a 25% cash flow, with a maximum concentration in the US. In the US, where it exceeds 40%. The rest is P
Jarrod Castle
Thank you so much.
Operator
The following is from Jaafar Mestari of BNP Paribas. Continue.
Jaafar Mestari
Hello, tomorrow. I have 3 questions, if you agree. First of all, very quickly, collecting here all your comments on the other parts of next year’s biological growth. Does it seem correct if 8% to 10% corresponds to inflation of 4% to 5%, about 2% of net new?and implicitly between 2 and 3 recovery issues of comparable volumes?
And I guess more particularly in new business, I appreciate the forward-looking trends to date that look like three hundred million euros, and maybe it’s only 2%. But if I take the biological expansion of the year 22 plus 17%, of which comparable plus 21%. Therefore, the contribution during the era of net new business was negative to minus 4%, and this does not compare at all with the first part or the third quarter. So how can we feel comfortable with an overnight lie 2%?Is there an express time when all losses have been annualized?How to set a date? I think you were talking before about general fairness for the whole year or at least positive on H2. So, I understand that it is really difficult to call, but when does it become positive?
And finally, about this year’s very smart retention functionality, especially in the United States. I’m looking for more information on the context, if maybe I could communicate about their smart fortune rates that retention was 22 in an overall year. Did you have as many primary college contracts to renew as you normally would?Or did they help you in any way with the renewal schedule?
Sophie Bellon
Maybe answer the last question. No, I don’t think they helped us, it’s a pretty general year in terms of renewal. We have had many renovations. But this is an issue we’ve been working on for two, two, 3 years now. And I think we’ve put even more pressure in anticipation of the big contract being renewed. And I think now, the team’s remote attention on the issue, we’ve also invested more in retention. And that’s the way it is, and we perform better. But as you know, retention has. . . The concentrate has to be constant. Stay at that point and all for that.
Marc Rolland
In your first consultation on the 8% to 10% components, yes, inflation of 4. 5% seems smart to me. We have a bit of cross-selling. And so, and we have less than 1% of the means of immediate control that you should not forget. But, for the rest, the current and transparent development, yes, is more or less where we are.
Also, don’t forget that in modeling and appfinishix for modeling, we have a scope update of minus 1% that deserves to wait for next year, so to keep in mind. The impact on net news from the 22nd to the 22nd was modest. And because of the timing of wins and losses, Ardent, for example, was one at the end of the year. We plan to repeat the new network of 23 at the same point or more next year. Therefore, there will be a cumulative effect.
Therefore, the new network is here to happen in FY 23 and will be supported through a new revamped network in FY 23. And yes, I think in the third quarter we said there will be an unbiased mid-year contribution in the fourth quarter and they gave us a little bit more: we were a little surprised by the strength of our fourth-quarter numbers. So we had a little more in the year than we expected, but the big one will come next year.
Jaafar Mestari
Sorry, just at this point, I’m not sure I’ve understood math correctly. So during the year, if I take the biological expansion and remove the comparable knowledge of 21, it seems minus four million euros. And then in H1, biological expansion 17% and a comparable expansion of 19%. So, it’s more like 2. 5%, am I wrong? Because it doesn’t seem to be getting better.
Marc Rolland
I stick to your calculations. So I recommend you disconnect it with Virginia. I think we perceive very well what we mean, but I am sure I can agree with your question.
Jaafar Mestari
It is ok. Well, are you saying that net new business is positive in the fourth quarter era and above expectations?
Marc Rolland
I think we had more profit and the net contribution of new products in the fourth quarter component of that, however, we also had more volumes and more acceleration, however, there will be some contribution in the fourth quarter.
Jaafar Mestari
Thank you. Thank you.
Operator
Next is from Leo Carrington with Citi. Continue.
Leo Carrington
First of all, can you describe the purpose of the screen: the monetary objectives of the BRS?Is it just about focusing better and tying time from department incentives to performance?to send a signal that you are focusing particularly on that asset in isolation?
And then two quick follow-ups, please. As for value inflation, of course, he discussed the education segment in France. But at those group-level inflation levels, will margins in 2023 see negative effects of lagged value increases on input tariff inflation you see?
And secondly, on CapEx, can you give any indication of what we expect for 2023?What is in line with the new biological expansion guide?Thank you.
Sophie Bellon
It is ok. So thank you for your question. So, in the logic of BRS targets, obviously, as we explained to you last year, we have explained a new roadmap to drive profit progression.
So, we think we’re going to continue to drive that growth, and that’s part of the plan. And, of course, the existing environment with emerging interest rates and inflation is also a tailwind for that and especially for our benefits and rewards model. And as for the incentive of functionality, it has not yet been implemented. So it’s not, we can’t. We hope that in the future, this will help us maintain those rates. And I think next week we’ll give you more main points about how we plan to achieve that growth. But we are quite confident.
Marc Rolland
As far as France is concerned, yes, ’23 will be France Education ’23 will be higher than ’22 because in ’22 we transmitted very little inflation to our consumers in France in education, while we had the responsibility to access at least now this year, we controlled to pass on inflation to many consumers. The discussions have been difficult, but we are succeeding. So ’23 will be a much better year for school in France and ’22 for both.
Sophie Bellon
And I also think that for France, we have a lot of discussions with the race on indices, because we didn’t have any, especially for public markets. And I think we’re finally done, and we believe that by 2023, we’ll have clues that will be closer to what: the truth of the business. So that’s a prospective margin for improvement. And here I refer in particular to public procurement in France.
Marc Rolland
And for CapEx, today, the expansion CapEx is 2. 3%, I can see a gross CapEx above 2. 5%. We have already made CapEx commitments in September and October. As we speak, I expect it to be above 2. 3%, say more than 2. 5%.
Leo Carrington
It is ok. Thank you both. Thank you so much.
Operator
Next is from Neil Tyler with Redburn. Continue.
Neil Tyler
Bonjour. Merci. Il there are two queries left, please. Another first on the profits of facilities management. I think if I correctly interpreted its disclosure, it was about $7. 9 billion in total in 2022. And in retrospect, that figure turns out to be around €1. 5 billion more than in 2019. I’m not sure there are, I think they are. So, if they are comparable, I perceive that verification contracts will be developed. But can you put some context around your efforts to boost the facility and how that translated into this improvement?What if there’s a component to that? And I guess relative to the first query of this call, there’s a component of that gain that could disappear as things normalize.
The moment in the direction of the margin. It’s fast. Do you assume that the costs of mobilizing new net victories come down as they land through 2023?Thank you.
Marc Rolland
This year’s FM is: we’re back at the end of the 22 to 60% food division, 40% FM, which I think was almost a division we had in 2019. I think we were 58%, 42% or something. As you can see, food recovered on 22 and FM went up, but I think it’s around 3%. We experienced a modest expansion of FM on FY22.
And it’s true that the means of verification, however, Chicago Public School, where all FM contracts were lost, Chicago Public School last year, was in our figures for the fourth quarter of last year. The means of immediate verification had a very good fourth quarter last year. it is true that we have had contracts that end in FM Natural, but apart from that there is no contract agreement, those two that we highlighted very obviously in our publication of the last quarter, I do not see others. But the focus is obviously on food and on developing food and raising it to the point of 19. I don’t know if you need to say anything, Sophie, yet. . . yes.
Sophie Bellon
Sí. Sí. No, definitely, and I think we’re going to talk about this even more next week, however, there’s definitely a focus on food and especially in this era where we have to reinvent our food business, but we see a very smart aspect of this post-COVID era, because everything that happened COVID has accelerated, All trends have accelerated and we are now in a position to capture this opportunity and especially in our food sector.
Second, in terms of the cost of mobilization, he is right. I mean, surely it is: we know that when we mobilize construction, the first year, profitability is not the profitability we sign. But it’s really anything that’s already been taken into account. our margin, in our objective. And so it shouldn’t be some of the big contracts we’ve won, we’ve been executing on those contracts for many months. And so it was taken into account.
Neil Tyler
It is ok. Thank you so much.
Operator
The following is from André Juillard of Deutsche Bank.
André Juillard
Yes, hello. Thank you for answering my question. The first was the retention rate. I was wondering if you were still making plans to leave your wallet blank and things like that. .
Second consultation on profitability. If we take into account the 5. 5% that 23% is targeting, that’s pretty much where it was before COVID. But in the meantime, it has put savings in position and we generally have the positive effect of those savings at 23. So, I wondered where the difference between the wells came from.
And despite everything at BRS, I wondered if I could give us more main points about the distribution of corporations between food stamps and other types of vouchers. And maybe give us a little more information about the digitization of the company. Thank you.
Sophie Bellon
So in terms of retention, no, I mean, we’re not making plans to leave the wallet blank and I think that’s something we’ve done in the last few years. And a component of our portfolio has been affected by COVID, and some of our clients’ margin, of course, has been affected by COVID. So now that we are almost absolutely recovered or next year we will be in a situation of absolute recovery, it will help. We are recovering the margin of those contracts that have been affected by COVID.
And in terms of achievable purpose, well, we’re doing everything we can to stay where we are because I remind you that we haven’t reached that point in the last 10 years. So we have to stay there. You have to go to 95%, 95% is the minimum. And then we have to target the 96%. And as you have seen, as has been discussed before, it depends on the region. And where we published last year, we’re putting in place an action plan to make sure we make progress.
And it is, for me, not even an indicator. It’s a philosophy. You don’t lose a contract you don’t need to lose. So, the plan is to align the total organization with this and that goal. So, hopefully, yes, we will continue to progress and remain at this level.
Marc Rolland
In terms of profitability, our commitment was to return to the 2019 point at 23 in terms of profit and margins. So that’s where we’re going, but what we want is to avoid, we want to keep making an investment to make sure that profits continue to grow sustainably and avoid what happened in the afterlife, where we’ve had ups and downs and fluctuations in margins. So the factor here is that we want to invest in 23 as we started doing in 22 to achieve maximum intelligent biological retention and expansion and forged biological expansion over time.
Therefore, we will tell you more about the capital markets there, our medium-term ambitions and yet what themes for us is not to offer a little more margin next year, but to be able to maintain a recurring base year after year. Therefore, we made the decision to invest part of our savings.
BRS, profits, most of which are made up of food and food, rose 18. 7% last year and 23% in the fourth quarter. So yes, in my previous speech, I highlighted those numbers. Meals and food account for 90% of profits. As for digitalization, today we are at 90%.
André Juillard
And do we plan express investments in digitalization or anything special?
Marc Rolland
Oui. La BRS is investing more and more, and Aurélien will tell you more next week. But yes, you plan to invest more than 9% of profits in CapEx, however, we will tell you more next week about what we plan to invest. And the maximum BRS investments, 90% of them are virtual and IT investments.
André Juillard
It is ok. Thank you so much.
Operator
Next is from Simon LeCyprus with Stifel. Continue.
Simon LeCyprus
Yes. Hello. Two questions, please, about margins. First, at the organizational level, what do you expect as an effect of the currency on your 2023 margin?I’m thinking specifically about the effect on the Brazilian real?
And secondly, in the BRS margin and in its forecasts and comments on next year’s monetary income, this implies an operating EBIT margin still well below 2019 and even lower than the 2017 level. So why? And at some point it will expect to return to the same EBIT operating margin as before.
Marc Rolland
The FX and is taken into account because we take the constant rate now is the average rate of 22 that we use for orientation. So we had an effect on the margin, but it was in base problems. It’s not massive. And there may be an additional impact on basic problems next year if the dollar stays very strong and the real too, but it is too early to assess it. fundamental issues. So I think the effects are modest, but they’re there.
I think the BRS margin, if we can keep the consultation for this Capital Market Day, Aurélien will have its plan and what is the plan to invest and how temporarily we plan to build the margin. I think there’s a plan, and we’ll have to show it to you next week.
Simon LeChipré
Fine thank you.
Operator
Excuse me, it’s the operator. There are no more recorded questions at this time.
Sophie Bellon
It is ok. So thank you very much. If there are no more questions, stay in line with us today and we look forward to seeing you next Wednesday in person. Have a great day.
Operator
Ladies and gentlemen, thank you for us. The convention is now over. You can disconnect your phones. Thank you.