Elior: Elior prepares for a strategic shift and sees his enterprise rising barely sooner than anticipated

(BFM Börse) – The group catering group achieved organic annual growth that exceeded expectations and revised its growth forecast for the current financial year slightly upwards. Elior is also preparing to announce the results of its strategic review.

Elior’s 2021-2022 financial year has proven to be challenging. In March, the group lost its chief executive Philippe Guillemot, who moved to Vallourec, and had to contend with runaway inflation throughout the year, prompting him to renegotiate the vast majority of his contracts. And this while the market is concerned about its debt and balance sheet as interest rates rise.

However, the results of the company, which specializes in mass catering, for the entire financial year that ended in September give reason to be satisfied with the growth.

For the full year, full-year sales grew 20.6% to 4.45 billion euros with organic growth – ie excluding changes in exchange rates and volume – of 18.3%. In the fourth quarter alone, organic growth was 12.2% and revenue represented 95% of its level in the fourth quarter of 2018-2019, the most recent fiscal year not impacted by the pandemic.

According to a consensus quoted by Stifel, analysts on average expect organic growth of 17% for the full fiscal year 2021-2022 and fourth-quarter activity levels equal to 93% of 2018-2019 levels.

An increasing retention rate

The design office notes “a positive sales dynamic” of the company, in particular due to an important commercial development, with a positive contribution of the new contracts of 3% to the organic growth.

At the same time, the customer retention rate, closely monitored by the contract catering market, rose to 93.2% at the end of September from 91.2% a year earlier. That rate rose to 97%, notably in the United States, the industry’s most promising market, to which the group is much less exposed than its rivals Sodexo and Compass.

Despite this brisk activity, the company’s profitability has been severely impacted by inflationary pressures. Elior reported full-year 2021-2022 adjusted operating income (underlying EBITA) close to breakeven (-6 million euros) but excluding an impact of 45 million euros from Preferred Meals Company. This American company, which sells ready meals and frozen meals and is in chronic loss, will have to shut down its operations by Elior, who felt that this company was too far from its core business.

Elior’s net loss quadrupled to 427 million euros. Above all, the group burns cash with a negative free cash flow of 48 million euros, while its financial debt was 1.22 billion euros at the end of September compared to 1.11 billion euros in the previous year.

Regarding its outlook, Elior has slightly raised its growth forecast for the current financial year 2022-2023 and expects organic growth of at least 8% compared to at least 7% previously. The company also expects an adjusted EBITA margin of between 1.5% and 2% of sales.

A strategic review soon to be completed

The group is expected to return to the market in a few weeks. The company announced that the strategic review presented in early July is expected to be completed “in the coming weeks.” Bernard Gault, the group’s CEO, told financial analysts that it was discussing a collaboration with recycling and services company Derichebourg – which acquired more than 20% of Elior’s capital in the spring – and seeking measures to strengthen the company’s balance sheet group will include.

Elior’s share price, which is known for being very volatile and unpredictable when it comes to announcements, is struggling to stabilize but remains in the green according to all the group’s communications. The title occupies 8.2% around 11:10 am.

“Perhaps the market appreciates that announcements will soon be made as part of the strategic review, but in concrete terms the balance sheet remains the company’s big problem,” says one analyst. “We can’t calm the balance sheet if they’ve still burned money,” emphasizes another financial intermediary.

Julien Marion – ©2022 BFM Stock Exchange

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