Hello, and welcome to the Elior third quarter 2022, 2023 revenues conference call. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Mr. Didier Grandpré, Group CFO, to begin today's conference. Thank you. Thank you. Good afternoon, everyone. Thank you for joining us on this call at short notice. As part of our quarterly internal reporting and forecasting process, it became clear that our adjusted EBITA margin for the current fiscal year was going to be below guidance. That's why we published sooner than initially scheduled. Let's address this first before commenting on our third quarter revenue and then opening up the call for Q&A. We are talking about three new contracts totaling about EUR 200 million worth of annual revenue, two in Italy and one in France. The main contract is an onboard train catering for the state-owned national operator in Italy. The contract was renewed at the end of 2022 and began in its new shape in May. The revised offering is implying higher mobilization costs than planned. Though the gaps are small per train, they become material in aggregate given the large scale of the contract. We've been quick at addressing this issue at the highest level of management, but it won't be resolved until after the summer. The two other contracts are smaller: the Ministry of Defense in Italy and Jail in France. Both started earlier this fiscal year, with, again, mobilization costs higher than expected. While we had forecasted the benefits of corrective measures in the 2nd half, this will actually take longer to bear fruit as we are dealing with the public sector in both cases, and we are also a subcontractor for the price in France. On a more positive note, our new CEO is making strong progress with the overhaul of our entire organization in France, both in terms of structures and operations, both in multiservices and contract catering. To date, we've already secured recurring annual cost reductions of EUR 24 million per annum, starting next fiscal year, with a large proportion as early as October. Out of these EUR 24 million, 16 relate to the integration of DMS, including at HQ level. The rest, EUR 9 million, relates to the new organization being put in place for contract catering in France. The revamping process is ongoing, and we are off to a strong start. Now, a few words on third quarter revenue. First of all, you have probably noticed our new reporting segment, catering and multiservices. This actually reflects our new organization today. Third quarter organic growth of +8.8% was solid, despite a tougher year-on-year base after the Omicron recovery effect in the first half. All levels are contributing. Volumes for +2.4%, Second, prices for +5.2% versus 4.5% in H1, Third, net new business for +3.1%. Regarding prices, it's important to bear in mind two things. First, our P&L contracts have annual indexation clauses, whose calculation is structurally backward-looking. Second, in the public sector, we have two big waves in term of annual indexation: the new school year in Education and the new calendar year in administration. This means that we should be able to embark good pricing momentum into next year. Finally, I also wanted to flag the one-year extension of almost 90% of our senior banking facilities, now maturing in July 2026, at the same time as our bond. This was done at no extra cost and without new conditions. Thank you very much for your attention. I'm now ready to answer your questions. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. The first question comes from the line of Leo Carrington, calling from Citi. Please go ahead. Thank you. If I could ask three questions, please. Firstly, on the first topic of the lower guidance. To what extent is if you could sort of attribute the lower guidance to you know, higher than expected lag between cost inflation and pricing, versus the three contracts that you've detailed already? That would be helpful. Secondly, in terms of the voluntary contract losses, can you give an indication of how much of the contract base has yet to be renegotiated? So for how many more quarters we could expect the voluntary losses could persist for? Then lastly, follow up on the synergies. Can you outline just a little more about what the components of the EUR 24 million are, and clarify how much of this would be visible in the FY 2024 P&L, please? Okay, thank you, Leo. Let's start with the first one. Actually, this is what we have just presented. The main reasons for the update of the guidance is coming from these contracts. As a matter of fact, we have a significant impact considering the size of the contract. At the time, we have obviously taken all action at the highest level of the organization to make this impact as short as possible. There are, of course, actions that have been taken by the management. Sometimes it requires as well, discussions with the customer, which is also a reason why it takes a bit more time than initially expected. To your second questions, as a matter of fact, we should consider that we have renegotiated the full base of our contracts. That's why, this is also something that we shared in the previous call. That's why we are not following anymore as such, the percentage of contracts that have been renegotiated. Because I would say aside the fixed price contracts, which again, represent a very small proportion of our contracts, all contracts have been suggest and even the fixed one, fixed price one, by the way, have been re-discussed, at least with the customers, and some of them have been already renegotiated several times. Now, and you have seen, as part as well of our communication, that the effort to renegotiate contract continues. We are adding EUR 20 million in the third quarter, compared to the situation at the end of March. It illustrates the fact that this is really a continuous effort. Of course, the context is not favorable, with some contracts, especially with the private customers. It's more challenging, with the public contracts. Regarding those, now we are looking forward the next contractual revision milestones, which are in particular, the start of a new school year, around the end of the summer or beginning of a new school year, September. We have as well a major milestone at the end of this calendar year. Regarding your last question about the synergies, at this stage, we are mainly focused on the optimization of our structure at HQ level and as well regarding the operations in France. As we presented with our H1 results, the integration started with where, let's say the main activities are taking place. France representing roughly 85% of the Derichebourg Multiservices activities. This was the primary focus. The EUR 24 million of cost reduction are coming from this geographical perimeter, which includes as well headquarters. EUR 15 million are directly related to the forcing synergies as part of integration between DMS and Elior Services, and as well, the organization decided by our new CEO. We have EUR 9 million which relate to the acceleration of the evolution of the organization in France. Maybe one last comment on this, is that this is, of course, an ongoing process. In particular, we are currently running the budget cycle for the next fiscal year. We have, as part of this exercise, let's say confirm the identification of some synergies that were identified as well as part of a project before the signature of this deal. So for instance, related to the interim that should. That is a new service offered by Derichebourg Multiservices, should benefit to Elior services as well to the contract catering activities. We have another example around the maintenance, for instance, for the central kitchen, can be as well for the building, which is again, a new service offered by Derichebourg Multiservices. We are still working in process of confirming the first step, the items, reviewing the baseline, and then we'll quantify the part of the synergies, and we will, I would say, give to ourself an objective for the implementation of these synergies as part of the next fiscal year. Okay. Thank you, Didier. You're welcome. The next question comes from Jaafar Mestari, calling from Exane BNP Paribas. Please go ahead. Hi, good afternoon. I've got two, if that's okay. On the revenue figure, you mentioned the three new contracts are proving problematic. Could you just repeat that revenue figure, please? I think I heard EUR 100 million. Is that all three together? Presumably, that revenue contribution was already in your expected revenue guidance. It's just the problems that are new, it's not the revenue. On the new business, voluntary exits, you're saying - 1.9... The 1.9% impact has been ramping up over the last few quarters. Where's the max? At which point do you start having a stable impact and possibly reducing the impact of those voluntary exits once you're done assessing all the portfolio? Okay. Regarding your first question, the overall annualized revenue for this contract is about EUR 200 million. Actually, the activity related to this contract is actually part of, was part of a forecast that supported the guidance in May and are still part of the revenue, for this year in particular. Now, as you said, the effort is really on addressing the operational challenges, in term of operating margin on these three contracts. Regarding the percentage of voluntary exit, I guess there are two ways to look at retention, if I may answer to this question more broadly. Meaning that we see a retention momentum, which is favorable, and retaining profitable clients is obviously a top priority for us. When we did contracts on a voluntary basis, it's certainly for the sake of profitability improvement, considering as well the good commercial development momentum. Meaning from that perspective, we are looking at it in terms of what is the best way to allocate our fixed cost operating structure to our contract portfolio, if you want. I don't see any specific contract or movement on our contract portfolio that would significantly increase this percentage in term of impact on our retention or evolution of volume. Okay, thank you. It stays around two for a couple of quarters, and then presumably at some point, it starts reducing completely. Yeah, exactly. I think it's a fair assumption. Thank you. You're welcome. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one now on your telephone keypad. The next question comes from André Juillard, calling from Deutsche Bank. Please go ahead. Yes, good morning. Good afternoon, sorry. two question, if I may. First one is to come back on the public contracts. Just to be clear on what are the issues, because we know that these are the most complicated contracts. I wanted to be sure that you were in a good position to be able to pass inflation in the next few months. Could you clarify us the impact you're expecting from prices improvement and so on? Second question is about the leverage and the covenant. Could you remind us? Mm-hmm the new covenants you have at the end of the fiscal year, and the issue that you could have, in term of, refinancing on all that? Thank you. Okay. On your first question, as a reminder, as part of our contract portfolio, we have four main contract types. Always the ones that I present as the two extreme, which are the cost plus, whereby we are able to actually pass through the inflation as costs increase, which are the cost plus contract, mainly in the U.S. and U.K., and the other extreme, the fixed price that we have mainly in Iberia and Italy. We have the big bulk of P&L contracts, which are split between private customers and public customers. As far as public customers and the P&L contracts are concerned, we do have a price revision clause in this contract that allows us at least to increase the prices as per the revision clause on a yearly basis. That's where we have been always speaking about contract renegotiation, which is a kind of extra effort to go beyond the contractual price revision terms in order to close as quickly as possible the gap between the increase of the cost and the possibility to increase the prices towards our customers. What we have been more successful to do with our private customers than the public one, simply because I would say the contract is for them, the best protection in term of securing their cost on their side. For sure it's a handicap on our side, but it's an advantage if you put yourself in the shoes of the customer. Now when we look at the profile of this particular contract, meaning the P&L for the public, they largely relate, not only, but largely relate to the Education business. That's why we are expecting a positive impact with hopefully a price increase that will be more favorable than the cost increase at the beginning of the next school fiscal year. As well, at the end of the calendar year, some of the contracts that might have a close revision term beginning of the calendar year, although the school year obviously is more around the end of the summer. This is an exercise in term of evaluation, which is still work in progress. As I mentioned earlier, we are in the middle of our budget cycle, that's obviously one item each team are really working on in order to simulate the best they can. 'Cause as a matter of fact, it's not one single clause for all the contracts. It may vary from one contract to another one. That's a bit a cumbersome exercise, and this is something that we will for sure review, and maybe we'll be in a better position to provide more details with the full year publication. Sorry to interrupt you. Yeah. Sorry to interrupt you. Just to be sure that I understand well. Mm-hmm. Could you give us a kind of proportion of public contracts which are renegotiated or updated on a fiscal year basis, meaning in September or October, and the proportion of contracts which are renegotiated at the end of the civil year? I don't know if you have the information, but? I'm not sure we have these details. We can look for those and ask the teams. I mean, the proportion is that you will have more contracts, especially for Education, for sure around the beginning of the school year. The other example that I have in mind that would be more at the beginning of a civil year, would be the contract of more for the private Education, as a matter of fact. I would say it's actually less applicable to the public sector contract that we are looking at. Maybe the one that would be at the beginning of a civil year, would be more the ones related to administration. Okay. Understood. To your second question to the leverage ratio, that we should comply with at the end of September, is 6x the last twelve months adjusted EBITDA. I think it's worth reminding, the adjusted EBITDA that we will consider in this calculation at the end of September. Actually, what we mean by last twelve months, pro forma adjusted EBITDA, means that it is including the changes in scope in and out, that we can have during the fiscal year. As far as we are concerned, it means that in our leverage ratio at the end of September 2023, we'll take into account the full year EBITDA of Derichebourg Multiservices, although on a reported basis, the reported adjusted EBITDA will include Derichebourg Multiservices only from April 18th. On top of this, we should be as well in a position to add annualized cost savings in addition to the acquisition. That's two elements that we, that's important to keep in mind, and which make us confident to be below 6x the last 12 months pro forma EBITDA at the end of September. Okay. In term of refinancing, can you just remind us, because I didn't understand very well, what were the main timing? Okay. Because you said that the refinancing of the credit lines had been postponed to 2026. Is that right? Yes, that's right. Actually, through the refinancing in July 2021, we got two main maturities, the bond in July 2026, and the senior facilities in July 2025. At the time of the signature, I mean, as part of the contract, we have this one-year extension facility, subject to the approval of the bank. That's what we have extended to now July 2026, which also makes sense in term of refinancing, because as a matter of fact, the two are to be refinanced together. I mean, you have kind of cross reference between the debt refinancing from the bank as well from the bond. It makes sense, and it actually gives us a bit more time to work on our free cash flow generation, which is the top priority from our new CEO. Okay, understood. Thank you. You're welcome. The next question comes from [Harriet Beech Bernstein]. Please, go ahead. Hi, thank you for the call. Just a couple questions. Firstly, just on the A&E of the term loan and RCF, could you just confirm, are these still based on the same margins? I'm sorry, we did not hear your question very well. Could you repeat, please? The interest rates for the term loan and the RCF, are these still the same or have they increased? I don't know. The conditions are unchanged. Okay, great. Secondly, I appreciate the new reporting, but are you able to share for Elior standalone Q3 revenue split by Education, Business & Industry, and Health & Welfare? I just want to try and understand the performance across each of these end markets. As a matter of fact, we had to update the operating segment, which means that we are not going to follow the split between BNI, Education, and Health & Welfare separately. I'm afraid we'll not be able to provide this detailed information any longer. Just generally, are you seeing growth across each of these markets? In term of contract catering, I would say for those three markets remain, our focus. I mean, there is no change from that perspective. It's just that we have considered that in term of reporting, they are less relevant following the integration of the Derichebourg Multiservices. Yeah, we have to, I mean, we can generally consider that we have now enter into a new norm in term of activity in each of the three markets. Meaning in BNI, we see, especially in the service area, that compared to pre-Covid, we have roughly one additional day of home working, and we had to adjust our activities and our structure accordingly, which has been done. Then in term of Education, we were back to normal. Now we are developing the areas which are they are our target. Then in term of healthcare, we might be missing a bit of activities from the cafeterias in some hospitals. The activity in some areas might be still a bit limited due to the lack of healthcare people, which is limiting the activities in those locations and the number of visitors. I would say it's roughly like it's globally marginal. Now, especially in BNI, we see in particular, let's say an increase in the average ticket price when the people are in the office, as well, an higher attendance, personalized versus pre-Covid. As well, we see let's say some momentum as well in the recovery of what we consider the site activities around catering activities, complementary to let's say the traditional catering. Okay, great. Thank you very much. You're welcome. We currently have no question coming through. As a final reminder, if you would like to ask a question, please press star one now. The next question comes from Julien Richer, calling from Kepler Cheuvreux. Please go ahead. Yes. Hello, everyone. Just a very quick one. On the EUR 24 million of cost reduction you mentioned, is it a net or a gross amount? If it's a gross amount, what is the cost attached to implementing it, please? Like, that's actually a net amount, but excluding the restructuring cost. What I mean by this is that in some cases, you can have a synergy, with a change in the organization, meaning you reduce some costs and you implement some other costs, and then you have a positive net between the two. That's what I mean by net, but actually, it's not taking into account the restructuring costs, which are quite marginal at this stage. That's really. Anyway, that's what you should expect in term of contribution to the EBITDA, considering that the restructuring cost will be accounted for below that line, if you will. Okay. The net is EUR 20 million +s that has to be taken into account? Yeah, that's a fair assumption. Okay. It's rather marginal. Yeah. Perfect. Thank you. You're welcome. There are no further questions, so I will hand you back to your host to conclude today's conference. Okay. Thank you everyone for your participation. The next call will be with the announcement of the full year results in November. Thank you very much, and have a great day. 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