Financial Report Half year 1

Transcription

1 Financial Report Half year February 28, 2011 Financial Report Half year 1

2 Contents Activity report - first half Fiscal Condensed Interim Consolidated Financial Statements Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated cash flow statement Statement of changes in shareholders equity Notes to Consolidated Financial Statements Significant events Basis of preparation of the financial statements General principles Standards and interpretations applied Specific items relating to preparation of the interim financial statements Use of estimates Exchange rates Segment Information Notes to the February 28, 2011 financial statements Cash and cash equivalents Borrowings Operating expenses by nature Financial income and expense Earnings per share Share-based payment Related parties Subsequent events Statutory Auditors' report...22 Responsibility statement for the half-year report...26 Financial Report Half year 2

3 Activity report first half Fiscal 2011 At the Board of Directors meeting on April 19, 2011, chaired by Pierre Bellon, Chief Executive Officer Michel Landel presented the Group s performance for the first half of Fiscal 2011, ended February 28, Key Figures Change excluding currency impacts Currency impacts Change in scope Organic growth Total change millions of euro 1st half Fiscal st half Fiscal 2010 Revenues 8,269 7, % + 5.7% - 0.1% + 4.8% % Operating profit % + 6.1% % Group net income % + 6.2% % Net cash provided by operating activities Revenue growth Consolidated revenues for the first half Fiscal 2011 were 8.3 billion euro. Organic growth of 4.8% in On-site Service Solutions included: 6.5% in Corporate (including 15.7% in Defense and Justice) reflecting Sodexo s strength in emerging markets and the significant impact from the ramp-up of the contract with the French Ministry of Justice; 3.4% in Health Care and Seniors; and 3.3% in Education. Organic growth for Motivation Solutions accelerated compared to the first half of Fiscal 2010 to reach 5.0%, a result of excellent momentum in Latin America since mid-2010, offset by a slight decline in Europe. There was no significant change in consolidation scope during the period. Increase in operating profit Operating profit was 488 million euro. Excluding currency effects, revenues rose by 8.5%, a result of productivity gains: in Motivation Solutions as well as in On-site Service Solutions in North America. After including positive currency effects, particularly for the U.S. Dollar and the Brazilian Real, operating profit rose 14.6%. The consolidated operating margin improved to 5.9%, compared with 5.7% in the first half of Fiscal The operating margin for Motivation Solutions increased to 35.3% compared with 31.7% for the first half of the prior year, meeting the Group s medium-term improvement objective. Increase in Group net income Group net income was 252 million euro compared with 227 million euro for the first half of last year, an increase of 11%, or 4.8% excluding currency impacts. This includes an increase in the net financial charge of 9 million euro compared with the first half of Fiscal 2010, as the reduction in interest expense linked to debt repayment was mainly offset by a 5 million euro write-down resulting from the cancellation of the Defence Training Review Public Private Partnership with the UK Defence Ministry. Financial Report Half year 3

4 Net cash provided by operating activities Net cash provided by operating activities was 284 million euro compared to 335 million euro during the first half of the prior year. The first half Fiscal 2010 had benefited from the start-up of Motivation Solutions Eco- Pass in Belgium resulting in a higher level of orders than for the first half of this year. Deployment of the Group s strategic positioning During the first half of Fiscal 2011, Sodexo continued the transformation started in 2009 with the redefinition of its strategic positioning and its twofold objective: to differentiate and position Sodexo to seize new opportunities for growth for future years. The Group is positioning itself as the integrator of quality of daily life services and the strategic partner of its clients. In order to succeed in this transformation, Sodexo has continued to invest in its comprehensive solution offering and in the training of its teams. New talent has been recruited, and the Group also continues to develop platforms of technical competencies. Recognitions For the fourth consecutive year, Sodexo was named "Global leader" in its sector by the Dow Jones Sustainability Index for Diversity Inc. magazine ranked Sodexo 2 nd among the 50 best companies for diversity and inclusion in the U.S. Finally, in France, Sodexo received the Bronze Top Com for its interactive annual publications web site (activity reports and reference document). 2. Revenues and operating profit by activity Revenues by activity (millions of euro) First Half Fiscal 2011 First Half Fiscal 2010 Change at current exchange rates Change at constant exchange rates (1) On-site Service Solutions North America 3,256 2, % + 3.8% Continental Europe 2,808 2, % + 3.6% UK and Ireland % +1% Rest of the World 1, % % TOTAL 7,926 7, % + 4.8% Motivation Solutions % + 5% Intra-group revenue (8) (9) eliminations TOTAL 8,269 7, % 4.7% (1) The change at constant exchange rates is determined by applying the average exchange rate for the first half of the previous year to the figures for the first half of the current year. Financial Report Half year 4

5 Operating profit by activity (millions of euro) 1 st Half Fiscal st Half Fiscal 2010 Change at current exchange rates Change at constant exchange rates (1) On-site Service Solutions North America % % Continental Europe % + 2.2% UK and Ireland % % Rest of the World % % TOTAL % + 6.6% Motivation Solutions % % Headquarters (35) (29) ELIMINATIONS (8) (9) TOTAL % % (1) The change at constant exchange rates is determined by applying the average exchange rate for the first half of the previous year to the figures for the first half of the current year. During first half of Fiscal 2011, activities outside the euro zone represented 68.8% of revenues (of which 38% were in U.S. dollars) and 82.5% of operating profit (of which 42.5% were in U.S. dollars) On-site Service Solutions Revenues for On-site Service Solutions were 7.9 billion euro, up 10.4% over the previous years comparable period. Organic growth was 4.8%, accelerating from the 0.2% organic growth during the first half of Fiscal This evolution in organic growth is a result of: Acceleration of growth in Corporate (+ 6.5%) reflecting: Sodexo s momentum in the Rest of the World (+ 13.5%), particularly in Latin America, Asia and Remote Sites; the contribution of new comprehensive service solutions contracts such as the French Ministry of Justice (management of 27 correctional facilities); a level of patronage that has varied little on foodservice sites in North America and Europe; An increase of 3.4% in Health Care and Seniors, reflecting an improvement in comparable unit growth in North America but also continued slower decision-making by prospective clients in Europe and the United Kingdom; An increase in Education of 3.3%, primarily a result of increased enrollment in North American universities. Operating profit for On-site Service Solutions increased by 44 million euro to 407 million euro, for an operating margin of 5.1% North America Revenues in North America reached 3.3 billion euro, an increase of 11.9% consisting of organic growth of 3.8% and a favorable currency impact of 8.1% from the average rate of the U.S. dollar against the Euro. The 1.0% organic growth in the Corporate segment represents a return to growth following the start-up of comprehensive service solutions contracts for clients such as GlaxoSmithKline, Henkel and British Aerospace. However, patronage levels on sites and spending on foodservices by consumers changed little over the same period last year, reflecting the lack of re-hiring by clients. At the same time, it should be noted that the first half of Fiscal 2011 compares with the first half 2010 which benefited from the contract for the Winter Olympics in Vancouver. Financial Report Half year 5

6 Recent new contract wins include comprehensive service offerings for clients such as Bristol Myers Squibb (six sites in several states), ADP (California and Utah) and Medtronic Puerto Rico, Inc. In Health Care and Seniors, organic growth accelerated to 5.5%. This performance reflects an excellent level of client retention achieved in Fiscal 2010 and higher comparable unit growth, reflecting an expansion of the offering on some contracts and slight inflation. Recent contract wins that confirm the relevance of Sodexo s comprehensive offer in this segment include St. Vincent Medical Center (Los Angeles, California), Jackson Memorial Hospital (Miami, Florida), Crouse Hospital (Syracuse, New York) and Rideout Memorial Hospital (Marysville, California). In Education, organic revenue growth was 3.6%. This results primarily from the increasing number of students on university campuses and in schools. Among the major contracts won during the first half were Garvey School District (Rosemead, California), Delgado Community College (New Orleans, Louisiana), University of Missouri (St. Louis, Missouri), Utica College (Utica, New York) and in particular, the contract for the 136 public schools of the city of Detroit (Michigan) where Sodexo has been selected to provide technical maintenance services, maintenance of buildings and grounds and cleaning services. This is one of the largest contracts awarded to the Group in the Education segment in the U.S. Continuous improvements in site productivity and the effect of more favorable seasonality during the first part of the fiscal year on certain overhead spend contributed to an improvement in operating profit of 12.9%, excluding currency effects, which rose to 207 million euro. The operating margin reached 6.4% in the first half of Fiscal 2011, compared to 5.9% for the first half Fiscal Continental Europe Revenues for Continental Europe were 2.8 billion euro, with organic growth of 3.6%. At + 5.3%, revenues in Corporate reflect primarily the contribution of new comprehensive service solutions contracts that started in 2010, such as the French Ministry of Justice (27 correctional facilities) as well as continued good business development in Germany and Russia. New contracts recently signed include the RIE Tower 9 in France, Sirius Business Park Siemens in Germany, Immeuble Citalium in Montevrain, France, Institut Català de Finances in Barcelona, Spain, Aga AB in Lidingö, Sweden, the French Ministry of Defense for five sites (Houilles, Valence, Lyon Carnot, Lyon Bellecour and Grenoble) and Museo del Prado in Madrid, Spain. In Health Care and Seniors, organic revenue growth of 1.0% reflects weak comparable unit growth and still moderate development, a result of slower decision-making by prospective clients. Among the commercial wins for the first half were Maasstad Ziekenhuis and Jeroen Bosch Ziekenhuis in the Netherlands, Clinique Belledone in Saint-Martin d'hyères, France, and Ospedale San Giuseppe Grupo Multimedica in Italy. Organic growth in Education of 1.7% resulted mainly from new contracts won in the prior fiscal year in Sweden such as schools of the cities of Helsingborg and Katrineholm and satisfactory comparable unit growth in Italy. New contracts include the University of Pavia in Italy. At 141 million euro, operating profit grew by 2.2%, a pace slightly lower than that of revenues. This reflects difficult economic conditions in countries such as France and the Netherlands. Operating margin moved from 5.1% for the first half Fiscal 2010 to 5.0% for the first half Fiscal Financial Report Half year 6

7 UK and Ireland Revenues reached 0.6 billion euro, with organic growth of 1%. The return to organic growth of 3% in Corporate reflected the contribution from comprehensive service solutions contracts for clients such as Johnson & Johnson and GlaxoSmithKline and an increased level of activity in Defense and Justice. In contrast, the demand for foodservices by companies remained unchanged. Among recent contracts won by Sodexo were Seven Seas Limited and Sportscotland. The decline of 6.7% in Health Care and Seniors is explained partly by the non-renewal of the contract for King's Hospital for part of the services previously outsourced to Sodexo as well as a weaker level of new business development linked to uncertainty about government budgets over the past twelve months. Organic revenue growth in Education was 2.8%, reflecting successful development in universities, particularly in the management of accommodation services on the Solent, Medway and Lincoln campuses. Operating profit in the UK and Ireland amounted to 21 million euro, down 3 million euro as compared to the first half of the prior year. Despite substantial site productivity gains, particularly in Health Care and Justice, two factors weighed on performance: costs related to the cancellation by the UK Ministry of Defence of the proposed "Defence Training Review Public Private Partnership; expenses incurred for the preparation of major contracts for sporting events, such as the Rugby World Cup and the Olympic Games, that should contribute to Fiscal 2012 performance. The operating margin was 3.4% compared with 4.1% during the same period last year Rest of the World For the Rest of the World (Latin America, Middle East, Asia, Africa, Australia and Remote Sites), revenues were 1.2 billion euro for the first half. Accelerating growth in Latin America and Asia was confirmed over the six month period with organic revenue growth of 13.4%, in particular, a result of strong development in Brazil, Chile and Australia. In India and China where Sodexo holds clear leadership positions, contract wins during the first half included Volkswagen India Pvt. Ltd., Pune and Medanta - The Medicity, Gurgaon (India), Andrew Telecommunications (China) Co., Ltd., Suzhou, Toshiba Elevator (China) Ltd., Shanghai Wuhan City Planning & Design Institution, Wuhan, and technical services for Nokia in Beijing and Dongguan (China). Other commercial successes included Compañía Minera Zaldivar SA (Chile), Freeport McMoran Copper & Gold, TFM (Democratic Republic of the Congo), Rio Tinto Pilbra Iron, Western Turner (Australia), Xstrata Fuerabamba and Vale FM, Piura - Bayovar (Peru). Operating profit was up 13.3% excluding currency effects, reaching 38 million euro. Sodexo continued to invest in countries with high potential in the medium term. Operating margin remained stable at 3.0%. Financial Report Half year 7

8 2.2. Motivation Solutions The issue volume for Motivation Solutions amounted to almost 7 billion euro, up 12.3% over the first half of last year. Organic growth was 7.9% and currency effects added + 4.4%, in particular as a result of the appreciation of the Brazilian Real. Issue volume of 7 billion euro was distributed between 3.1 billion euro in Latin America (with organic growth of 12.4%) and 3.9 billion euro in Europe and Asia (with organic growth of 4.7%). Revenue amounted to 351 million euro, representing organic growth of 5.0%: In Latin America (which represents 51% of revenues) performance was strong with 14% organic growth. This reflects increases in the number of beneficiaries and face value, commercial successes and a slightly positive impact related to the rise in interest rates, In other geographic areas (mainly in Europe), organic growth was down 2.6% due to: A still difficult situation in Central Europe; Lower sales of Eco-Pass in Belgium (the first half 2010 having benefited from its launch); Pressure on client commissions related to strong competition in some countries. The difference between issue volume and revenue growth in Europe resulted from the good volume growth on the ONEM contract in Belgium (universal services vouchers similar to the CESU in France). This growth does not translate into revenue growth in the same proportion because of the size and structure of the contract. Recent commercial successes included Life Insurance Corp. and Gas Authority of India (India), Coca Cola and KGHM Polska in Poland, Petrobras and University Estado do Amazonas in Brazil and Fuller Beauty Cosmetics in Mexico. Operating profit was 124 million euro, up 22.8% over the first half At constant exchange rates, operating profit rose 15.8%, reflecting continued productivity gains in both gross margin (including synergies from the integration of VR in Brazil) and in overhead expenses. Operating margin for the activity amounted to 35.3% compared with 31.7% in the previous year. 3. Other income statement line items 3.1. Net financing costs Net financing costs were 83 million euro compared with 74 million euro in the first half of the prior year. The 9 million euro increase in expense occurred in spite of lower financing costs resulting from debt repayments, which were mainly offset by a 5 million euro write-down resulting from the cancellation of the Defence Training Review Public Private Partnership with the UK Defence Ministry Income tax expense Income tax expense was 150 million euro. The effective tax rate is 37%, compared with a level of 35.1% for the first half of the prior year, reflecting the benefits of the use of tax loss carryforwards from previous years in several countries. Financial Report Half year 8

9 4. Financial position The following table presents the components of cash flows. millions of euro February 28, 2011 Half year ended February 28, 2010 Net cash provided by operating activities Net cash used in investing activities (131) (109) Net cash used in financing activities (508) (237) Cash flow (355) (11) Cash flows related to operating activities amounted to 284 million euro compared with 335 million euro in the first half of Fiscal The first half of Fiscal 2010 had benefited from the start-up of Eco-Pass in Motivation Solutions in Belgium and consequently from a higher level of Eco-Pass orders during the period. Finally, working capital traditionally deteriorates during the first half before improving in the second half of the year. Net cash used in investing activities essentially includes net capital expenditures and client investments of 118 million euro, or 1.4% of revenues. Net cash from financing activities includes the payment of dividends for 220 million euro, of which 208 million euro was distributed by Sodexo SA, and net repayments of debt amounting to 310 million euro. As of February 28, 2011, borrowings totaled 2,314 million euro, a significantly lower level than at August 31, 2010 and consisting primarily of two euro bonds for 1,380 million euro and a private placement with American investors of $500 million. Financing through various bank loans and leases and financial derivatives constitute the balance of the debt. Cash and cash equivalents net of bank overdrafts amounted to 1,070 million euro as of February 28, Investments of cash in Motivation Solutions in instruments of more than three months totaled 203 million euro and Motivation Solutions restricted cash was 351 million euro. As of February 28, 2011, the Group's operating cash (which includes investments and Motivation Solutions restricted cash) amounted to 1,624 million euro, with 1,508 million euro for the Motivation Solutions activity. As of February 28, 2011, net debt stood at 690 million euro, compared with 1,036 million euro as of February 28, 2010, and represented 26% of Group equity compared with 42% as of February 28, As of February 28, 2011, gross debt represented less than 2.9 years of operating cash flow. As of the same date, the Group had unused bank credit lines of 699 million euro. On March 29, 2011, Sodexo finalized a loan through a private placement with U.S. investors (United States Private Placement) of $600 million at a fixed rate in three tranches ($250 million for seven years, $225 million for 10 years and $125 million for 12 years). This transaction enabled Sodexo to secure most of the refinancing of debt maturing in April 2012 and extend the maturity of its borrowings. Following this transaction, the average interest rate on borrowings is 5.7%. Financial Report Half year 9

10 5. Corporate Governance At the January 24, 2011 General Shareholders Meeting, the Board proposal was approved to reward the commitment, trust and loyalty of long-term shareholders by amending Article 18 3 b) of Sodexo s bylaws to insert the concept of a bonus dividend. This proposal allows any shareholder able to demonstrate the holding of registered shares for at least four years as of the end of the relevant fiscal year, to receive a bonus dividend held equal to 10% of the dividend per share approved at the General Shareholders Meeting. The number of shares eligible for these increases for a single shareholder may not exceed 0.5% of the share capital. In accordance with French law, the first such dividend will not be able to be allocated before the end of the second year following its introduction in the bylaws. It will apply for the first time for the payment of the dividend for the year ending August 31, 2013 (as determined by the Ordinary Shareholders Meeting in January 2014) and will benefit shareholders able to prove they have held their nominative shares continuously since at least August 31, Transactions between related parties The main transactions with related parties are summarized in note of the notes to the consolidated financial statements. 7. Key risks and uncertainties for the 2 nd half of Fiscal 2011 The principal risks and uncertainties which the Group may face in the remaining six months of the year have not undergone any significant change from those identified in "Risk Factors" in the Fiscal 2010 Reference Document filed with the AMF on November 10, Outlook for Fiscal 2011 At the April 19, 2011 Board of Directors meeting, CEO Michel Landel, presented the outlook for the remainder of Fiscal On the strength of its performance in organic revenue growth in the first half of the fiscal year, the Group has raised its objective (as compared to the objective announced last November) for organic growth in revenues for the full year Fiscal 2011 of around 4.5%. In addition, the Group confirms its objective of achieving an increase in operating profit of around 10%, excluding currency impacts. For the remainder of the fiscal year, these objectives take into account the following: an increase in the new sales pipeline, more complex contracts that take time to finalize and implement, and signs of acceleration in food and energy cost inflation worldwide. Sodexo remains very confident in its medium-term outlook of average annual revenue growth of 7% and achieving an operating margin of 6%. Michel Landel said, "I would like to thank our clients for their loyalty, our shareholders for their confidence and Sodexo s 380,000 employees for their efforts to ensure the quality of services that improve the Quality of Daily Life for our clients and consumers and to make every day a better day. " Financial Report Half year 10

11 Condensed Interim Consolidated Financial Statements February 28, Consolidated income statement Millions of euro Notes First Half Fiscal 2011 First Half Fiscal 2010 Revenue 6.3 8,269 7,488 Cost of sales (6,978) (6,309) Gross profit 1,291 1,179 Sales department costs (120) (110) General and administrative costs (674) (639) Other operating income 3 12 Other operating charges (12) (16) Operating profit Financial income Financial expenses (111) (97) Share of profit of associates 6 9 Profit for the period before tax Income tax expense (150) (123) Profit for the period Profit attributable to minority interests 9 11 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Basic earnings per share (in euro) Diluted earnings per share (in euro) These financial statements should be read in conjunction with the accompanying notes. 2. Consolidated statement of comprehensive income Millions of euro First Half Fiscal 2011 First Half Fiscal 2010 Profit for the period Available for sale financial assets 0 0 Cash flow hedges (1) 23 (3) Actuarial gains on defined benefit pension plans and other items 5 0 Currency translation differences (191) 108 Income tax related to components of other comprehensive income (9) 1 Total other comprehensive income, after tax (172) 106 Total comprehensive income Attributable to: Equity holders of the parent Non-controlling interests 7 1 (1) Including net-of-tax share of hedge accounting variations for companies consolidated by the equity method These financial statements should be read in conjunction with the accompanying notes. Financial Report Half year 11

12 3. Consolidated balance sheet Millions of euro Notes February 28, 2011 August 31, 2010 Non-current assets Property, plant and equipment Goodwill 4,413 4,634 Other intangible assets Client investments Investment in associates Financial assets Other non-current assets Deferred tax assets Total non-current assets 6,039 6,309 Current assets Financial assets 6 6 Derivative financial instruments 6 6 Inventories Current income taxes receivable Trade and other receivables 3,565 3,033 Restricted cash and financial assets related to the Motivation Solutions activity Cash and cash equivalents ,175 3,033 Total current assets 5,641 5,466 TOTAL ASSETS 11,680 11,775 Millions of euro Notes February 28, 2011 August 31, 2010 Shareholders equity Common stock Additional paid in capital 1,109 1,109 Undistributed earnings Reserves Equity attributable to equity holders of the parent 2,616 2,707 Equity attributable to minority interests TOTAL SHAREHOLDERS EQUITY 2,645 2,739 Non-current liabilities Borrowings ,172 2,534 Employee benefits Other liabilities Provisions Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES 2,995 3,311 Current liabilities Bank overdrafts Borrowings Derivative financial instruments Income tax Provisions Trade and other payables 3,111 2,985 Vouchers payable 2,522 2,307 Total current liabilities 6,040 5,725 TOTAL LIABILITIES AND EQUITY 11,680 11,775 These financial statements should be read in conjunction with the accompanying notes. Financial Report Half year 12

13 4. Consolidated cash flow statement Millions of euro Operating activities Notes First Half Fiscal 2011 First Half Fiscal 2010 Operating profit of consolidated companies Elimination of non-cash and non-operating items Depreciation and amortization Provisions (10) (11) Net of tax impact of disposals and other 9 4 Dividends received from associates 5 2 Change in working capital from operating activities (130) (42) - Change in inventories (15) (12) - Change in accounts receivables (616) (577) - Change in trade and other payables Change in vouchers payable Change in financial assets related to the Motivation Solutions activity Interest paid (89) (87) Interest received 8 5 Income taxes paid (114) (73) Net cash provided by operating activities Investing activities Acquisitions of property, plant and equipment and intangible assets (116) (105) Disposals of property, plant and equipment and intangible assets Change in client investments (14) (4) Change in financial assets (11) (18) Acquisitions of subsidiaries (2) 0 Dispositions of subsidiaries 0 1 Net cash used in investing activities (131) (109) Financing activities Dividends paid to parent company shareholders (208) (197) Dividends paid to non-controlling shareholders of consolidated companies (12) (12) Sales of treasury shares Purchases of treasury shares Increase (decrease) in common stock and additional paid in capital Acquisitions of non-controlling interests (1) 0 Dispositions of non-controlling interests Proceeds from borrowings Reimbursement of borrowings (528) (129) Net cash used in financing activities (508) (237) CHANGE IN NET CASH AND CASH EQUIVALENTS (355) (11) Net effect of exchange rates and other effects on cash (43) (92) Net cash and cash equivalents as of beginning of period 1,468 1,162 NET CASH AND CASH EQUIVALENTS AS OF END OF PERIOD ,070 1,059 These financial statements should be read in conjunction with the accompanying notes. Financial Report Half year 13

14 (millions of euro) Shareholders equity as of August 31, 2009 Profit for the period Other comprehensive income Comprehensive income Dividends paid (excluding on 5. Statement of changes in shareholders equity Shares outstanding Quantity Common stock Additional paid in capital Treasury shares Consolidated reserves, retained earnings and net income Cumulative translation adjustment Total shareholders equity Attributable to holders of the parent Noncontrolling interests 157,132, ,109 (143) 1,156 (471) 2, ,316 Total (2) (10) (197) (197) (9) (206) treasury shares) Share increase Share reduction Treasury shares Share based payments (net of tax) Other 3 3 (1) 2 Shareholders equity as of February 28, ,132, ,109 (128) 1,194 (353) 2, ,478 (millions of euro) Shares outstanding Quantity Common stock Additional paid in capital Treasury shares Consolidated reserves, retained earnings and net income Cumulative translation adjustment Total shareholders equity Attributable to holders of the parent Noncontrolling interests Shareholders equity as of 157,132, (229) 1,326 (127) 2, ,739 August 31, 2010 Profit for the period Other comprehensive 19 (189) (170) (2) (172) income Comprehensive income 271 (189) Dividends paid (excluding on (208) (208) (10) (218) treasury shares) Share increase Share reduction Treasury shares Share based payments (net of tax) Other Shareholders equity as of February 28, ,132, (203) 1,398 (316) 2, ,645 As of February 28, 2011, the Group held 2,930,714 Sodexo shares with a value of 131 million euro to cover its obligations under stock option plans awarded to Group employees. During the period, the Group delivered 23 million euro of Sodexo shares upon exercise of stock options by employees. Total Financial Report Half year 14

15 Dividends paid during the first half of Fiscal 2011, given the effect of treasury shares, totaled 208 million euro, representing a dividend of 1.35 euro per share. Transactions recognized in other elements of comprehensive income (Group share) comprise the following: Millions of euro Available for sale financial instruments Cash flow hedges (1) Actuarial gains (losses) and other Cumulative translation adjustment Income taxes on other comprehensive income items Total of other elements of comprehensive income (Group share) Shareholders equity as of August 31, (27) 1 (471) 10 (487) Variation during the period (3) Shareholders equity as of February 28, 2010 (30) 1 (353) 11 (371) Shareholders equity as of August 31, (39) (61) (127) 27 (200) Variation during the period 23 5 (189) (9) (170) Shareholders equity as of February 28, 2011 (16) (56) (316) 18 (370) (1) Including 7 million euro for the first half of Fiscal 2011 and (1) million euro for the first half of Fiscal 2010 related to companies consolidated by the equity method. 6. Notes to Consolidated Financial Statements Sodexo is a société anonyme (a form of limited liability company) domiciled in France, with its headquarters located in Issy-Les-Moulineaux. The condensed consolidated interim financial statements of the Group were approved by the Board of Directors on April 19, Significant events As described in note 6.4.8, Subsequent events, on March 29, 2011, Sodexo SA concluded a private placement transaction to borrow USD 600 million at a fixed rate from U.S. investors, which allowed the Group to secure and extend the maturities of its borrowings. 6.2 Basis of preparation of the financial statements General principles The condensed consolidated interim financial statements of the Sodexo Group as of and for the six months ended February 28, 2011 have been prepared in accordance with IAS 34, Interim Financial Reporting. They do not include all of the disclosures required for complete annual financial statements, and should be read in conjunction with the consolidated financial statements for the year ended August 31, 2010, except for certain interim reporting treatments as described below. Amounts in tables are expressed in millions of euro (unless otherwise indicated) Standards and interpretations applied The accounting policies applied by the Group in the consolidated interim financial statements are the same as those used in the consolidated annual financial statements for the year ended August 31, The Group has not elected to early adopt the new standards and interpretations that are not mandatory for Fiscal 2011, and is currently assessing their practical consequences and impact on the annual financial statements. Financial Report Half year 15

16 The Group does not apply IFRS standards and interpretations that have not been approved by the European Union as of the balance sheet date Specific items relating to preparation of the interim financial statements Income taxes In the interim financial statements, the income tax charge (current and deferred) has been computed by applying the average annualized tax rate estimated for the current tax year to the period s half-year pre-tax income for each tax reporting entity. Post-employment and other long-term employee benefits The charge recognized for post-employment and other long-term employee benefits has been estimated as one-half of the annual charge as computed on the basis of the information available as of August 31, There have been no significant modifications to the plans during the period Use of estimates The preparation of the condensed consolidated interim financial statements requires the management of Sodexo and its subsidiaries to make estimates and assumptions which may affect the amounts reported for assets, liabilities and contingent liabilities as of the date of preparation of the financial statements, and of revenue and expenses for the period. These estimates and assumptions are reassessed continuously based on past experience and on various other factors considered reasonable in light of current circumstances, which constitute the basis for assessments of the carrying amount of assets and liabilities. Actual results may differ substantially from these estimates if assumptions or circumstances change. Significant items subjected to such estimates and assumptions are the same as those described in the consolidated financial statements for the year ended August 31, 2010 (provisions for litigation and tax risks, derivative financial instruments; post-employment benefit plan assets and liabilities, goodwill and intangible assets, impairment of current and non-current assets, deferred taxes, goodwill, and share-based payments) Exchange rates The exchange rates for the main currencies used in the conversion of subsidiary financial statements evolved as follows as compared to the prior year: Currency Closing rate as of February 28, 2011 Average rate for the first half of Fiscal 2011 Closing rate as of February 28, 2010 Average rate for the first half of Fiscal 2010 Dollar (USD) Pound Sterling (GBP) Real (BRL) Bolivar (VEF)* * The exchange rates for the Venezuelan Bolivar Fuerte were determined as follows: as of February 28, 2010 based on the applicable parallel market rate as of that date, or 1 VEF = 6.6 USD as of February 28, 2011 based on the most recent quote observed on the parallel market as of May 14, 2010, which was unchanged since August 31, 2010, or 1 VEF = 8.25 USD Financial Report Half year 16

17 6.3 Segment Information As of February 28, 2011, Sodexo had two principal activities worldwide: On-site Service Solutions and Motivation Solutions. On-site Service Solutions is further segmented by geographic region: North America Continental Europe United Kingdom and Ireland Rest of the World The Group s operating segments are On-site Service Solutions (further segmented by geographic region) and Motivation Solutions. First Half Fiscal 2011 (millions of euro) Revenue (third-party) Inter-segment sales (Group) North America On-site Service Solutions Continental Europe United Kingdom and Ireland Rest of the World Total Motivation Solutions Corporate expenses Eliminations 3,256 2, ,249 7, ,269 Total 8 (8) 0 Total 3,256 2, ,249 7, (8) 8,269 Segment operating profit (31) (8) 488 First Half Fiscal 2010 (millions of euro) Revenue (third-party) North America On-site Service Solutions Continental Europe United Kingdom and Ireland Rest of the World Total Motivation Solutions Corporate expenses Eliminations 2,911 2, , ,488 Intersegment sales 9 (9) 0 (Group) Total 2,911 2, , (9) 7,488 Segment operating profit (29) (9) 426 Total Financial Report Half year 17

18 6.4 Notes to the financial statements as of and for the six months ended February 28, Cash and cash equivalents (millions of euro) February 28, 2011 August 31, 2010 Marketable securities Cash 735 1,107 SUB-TOTAL: CASH AND CASH EQUIVALENTS 1,175 1,527 Bank overdrafts (105) (59) TOTAL 1,070 1,468 Marketable securities totaled 440 million euro as of February 28, 2011 and comprised the following: (millions of euro) February 28, 2011 August 31, 2010 Short-term notes Term deposits Listed bonds SICAVs and other TOTAL MARKETABLE SECURITIES Borrowings Millions of euro February 28, 2011 August 31, 2010 Current Non-current Current Non-current Bond issues Euro ,386 Bank borrowings U.S. dollar (1) Brazilian real Euro Other currencies ,056 Finance lease obligations Euro Brazilian real Other currencies Other borrowings Euro (2) Other currencies TOTAL (EXCLUDING DERIVATIVE FINANCIAL INSTRUMENTS) 133 2, ,534 Net fair value of derivative financial instruments 9 19 TOTAL INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS 142 2, ,534 (1) Amount includes the proceeds from the issuance of 500 million U.S. dollars in a private placement with U.S. investors during Fiscal This debt includes financial covenants which were met as of February 28, (2) Of this amount, 36 million euro related to debt recognized on put options on non-controlling interests in certain subsidiaries Financial Report Half year 18

19 The Group s borrowings evolved as follows during the first half of Fiscal 2011: Millions of euro August 31, 2010 Increases Repayments Discounting effect and other Translation adjustment February 28, 2011 Bond issues 1,429 (17) 1,412 Bank borrowings 1, (516) (3) (54) 777 Finance lease obligations 70 4 (11) 2 65 Other borrowings 48 4 (1) 51 BORROWINGS (excluding derivative financial 2, (528) (20) (52) 2,305 instruments) Net fair value of derivative financial instruments 19 1 (5) (6) 9 BORROWINGS (including derivative financial instruments) 2, (527) (25) (58) 2,314 As of February 28, 2011, 87% of Group consolidated borrowings is at a fixed rate and the average interest rate as of that date was 5.3%. April 2005 multi-currency revolving credit facility As of February 28, 2011, utilization totaled 267 million euro (557 million euro as of August 31, 2010). The unused portion of this credit line was 699 million euro as of February 28, Operating expenses by nature (millions of euro) First Half Fiscal 2011 First Half Fiscal 2010 Depreciation, amortization and impairment charges (111) (109) Employee costs - Wages and salaries (2,939) (2,642) - Other employee costs (1) (858) (837) Purchases of consumables and change in inventory (2,664) (2,387) Other operating expenses (2) (1,212) (1,099) TOTAL (7,784) (7,074) (1) Includes costs associated with defined benefit plans and stock options. (2) Other operating expenses mainly include operating lease expenses (157 million euro for the first half of Fiscal 2011 and 149 million euro for the first half of Fiscal 2010), professional fees, other consumable purchases, other subcontracting costs and travel expenses. Financial Report Half year 19

20 6.4.4 Financial income and expense (millions of euro) First Half Fiscal 2011 First Half Fiscal 2010 Gross borrowing costs (67) (70) Income from cash and equivalents 5 3 Net borrowing cost (61) (67) Interest income from loans and receivables at amortized cost 3 2 Other financial income 1 0 Other financial expense (3) (1) Net foreign exchange gains (4) 1 Net impairment charges (releases) 0 0 Expected return on defined-benefit plan assets Interest cost on defined-benefit plan obligation (18) (17) Change in fair value of derivative financial instruments (8) (1) Monetary adjustment related to hyperinflation accounting (2) (3) Other (10) (4) NET FINANCIAL EXPENSE (83) (74) Financial income Financial expense (111) (97) Earnings per share The number of shares outstanding with and without the effects of dilution is provided below: First Half Fiscal 2011 First Half Fiscal 2010 Weighted average number of shares basic 153,733, ,245,696 Average dilutive effect of stock options 521, ,585 Weighted average number of shares - diluted 154,255, ,103,640 Basic and diluted earnings per share were computed as follows: First Half Fiscal 2011 First Half Fiscal 2010 Profit for the period attributable to equity holders of the parent Weighted average number of shares - basic 153,733, ,245,696 Basic earnings per share Weighted average number of shares - diluted 154,255, ,655,281 Diluted earnings per share Two stock option plans representing 1,756,316 options did not have a dilutive effect on the first half of Fiscal 2011 but could do so in the future depending on the evolution of Sodexo s share price. Financial Report Half year 20

21 6.4.6 Share-based payment New plan granted in December 2010 On December 13, 2010, a new plan granting 1,734,700 options with an exercise price of euro was approved by the Board of Directors. Of this total, 620,060 options include performance conditions related to the Group s attainment of a specified level of earnings for Fiscal Charge recognized for the first half of Fiscal 2011 Compensation expense of 8.1 million euro related to stock option plans was recognized for the first half of Fiscal 2011 (6.9 million euro for the first half of Fiscal 2010) Related parties Members of the Board of Directors, the Executive Committee, and the Chief Executive Officer of Sodexo Relationships with the members of the Board of Directors and the Executive Committee as well as with the Chief Executive Officer of Sodexo have not evolved significantly since August 31, Unconsolidated companies Transactions with unconsolidated companies mainly relate to loans, commercial transactions and off balance sheet commitments involving associates recognized under the equity method and unconsolidated investments. Principal shareholder As of February 28, 2011, Bellon S.A. held 37.7% of the capital of Sodexo. During the first half of Fiscal 2011, Sodexo recognized a charge of 2.2 million euro (3.2 million euro for the first half of Fiscal 2010) in connection with the assistance and advisory services contract with Bellon S.A. During the first half of Fiscal 2011, the Annual Shareholders meeting approved the payment of a dividend of 1.35 euro per share. Consequently, Bellon S.A. received a dividend payment of 80 million euro in February Subsequent events On March 29, 2011, Sodexo SA concluded a private placement transaction to borrow USD 600 million at a fixed rate from U.S. investors. This new financing includes three tranches: USD 250 million at a fixed rate of 4.24% and reimbursable in March 2018 USD 225 million at a fixed rate of 4.85% and reimbursable in March 2021 USD 125 million at a fixed rate of 4.95% and reimbursable in March 2023 This borrowing includes the same financial covenants as those required for the private placement realized in 2008, which are calculated by reference to the Group s consolidated financial statements: Net debt (excluding restricted cash from total cash and cash equivalents) should not be higher than 3.5 times EBITDA (operating profit plus depreciation and amortization expenses) during the last 12 months. Net assets adjusted for cumulative translation effects should not be less than 1.3 billion euro. Financial Report Half year 21

22 Statutory Auditors' report Financial Report Half year 22

23 Financial Report Half year 23

24 Financial Report Half year 24

25 Financial Report Half year 25

26 Responsibility statement for the half-year report Financial Report Half year 26

27 Financial Report Half year 27

28 Financial Report Half year 28