Sodexo's (SDXOF) CEO Michel Landel on Q3 2014 Results - Earnings Call Transcript

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 |  About: SODEXO (SDXOF)
by: SA Transcripts

Sodexo SA (OTC:SDXOF) Q3 2014 Earnings Conference Call July 9, 2014 2:30 AM ET

Executives

Pierre Benaich - IR

Michel Landel - CEO

Siân Herbert-Jones - CFO

Analysts

Vicki Stern - Barclays Capital

Jarrod Castle - UBS

Jaafar Mestari - JPMorgan

Tim Ramskill - Credit Suisse

James Ainley - Citigroup

Guillaume Rascoussier - Exane BNP Paribas

Nick Edelman - Goldman Sachs

Nick Thomas - BofA Merrill Lynch

Pierre Benaich

Thank you, good morning all, this is Pierre Benaich speaking. Welcome to our First Nine Months Fiscal 2014 Review Revenue Call. On the call today, we have Sodexo’s CEO, Michel Landel and CFO, Siân Herbert-Jones. As usual, slide and press release can be downloaded from our Web site on sodexo.com. We also run a live audio webcast, available on the Web site currently. There will be an audio replay of this call available later today at 10.30 AM Paris Time. For the replay, you’ll be able to dial 44-1452-550-000, with the access code 63435894 and that will be available through to July 22nd. The audio replay will be as well archived on the Web for the next 12 month.

As usual this call relates only to revenues and we won't today discuss our profit performance. The call is being recorded and may not be reproduced or transmitted without our consent. This presentation contains statements that may be considered as forward-looking statements and as such may not relate strictly to historical or current facts. These statements represent management’s views as of the date they are made and we assume no obligation to update them. You are cautioned not to place undue reliance on our forward-looking statements.

I would like now to turn the call over to Mr. Michel Landel.

Michel Landel

Thank you, Pierre, and good morning everyone. Thank you for joining us this morning. As you have seen from this morning’s press release, our overall performance for the first nine months remained very much in line with the number reported in H1, and that reflects similar trends in our performance and in our markets around the world. And clearly, I must say that our integrated quality of life offers with our strong capabilities to deliver hard FM services, are the main driver of our performance including our benefits and rewards services. Integrated services are a source of growth for Sodexo, at a time when volumes in food services are flat or slightly depressed in many geographies.

So, for the first nine months, organic revenue growth is 2.3%, again very similar to the trend we announced after six months last April. And this performance includes 1.7% growth for on-site services, and a very solid 14% organic growth in benefits and rewards services confirming the acceleration seen over the last 12 months. So as you can see, we remain a growth company, and overall managing through a very complex environment around the world.

So on Slide 6, you can see that our revenues totaled €13.8 billion. In addition to the 2.3% of organic growth acquisitions contributes a further 30 basis points to our top-line. However, like many international groups, and given that we corporate across 80 countries, the strength of the euro versus almost all other currencies continues to have a significant negative currency conversion effect on our reported numbers. Indeed negative currency effects reduced our revenue by 5.4%. And the most significant impact came from the Brazilian real, U.S. dollar and also the Venezuelan bolivar. And Siân will go into these numbers shortly in many more details.

So before that let me come back on some recent commercial successes around the world that reinforced my confidence in the relevance of our strategy and of our unique positioning. If we talk about the corporate segment, we have signed a significant and important partnership with Alcatel-Lucent globally to deliver integrated services solution on 240 sites in 44 countries. And so through this partnership we provide a full range of FM services around 40, with also benefits and rewards services. I will also mention, Heineken in Brazil, we've signed a significant agreement for five sites for -- delivering services on five sites across Brazil. I will also mention J&J Medical in Germany with a full facilities management offering as well. We have a strong partnership with J&J worldwide and we reinforced that one.

Talking about education, we have signed a significant contract with the Chicago Public Schools, which is a very large school district in America with over 400,000 students, and for that city we will deliver full IFM, Integrated Facility Management offering. In that segment, I will also mention some very good success in signing new business for private schools. So I'll mention The Lady Eleanor in the UK but also in Asia we’ve signed some private schools and also some universities, which prove the dynamic of this market worldwide.

In Healthcare, of course we have significant growth in the rest of the world. I will mention the Medical City in Manila in the Philippines, which is a state-of-the-art acute care facility where we provide a full range of hard facility management. The U.S. despite the slowdown of new contract ramp-up is still very active we’ve signed contracts of course. I will mention Wheaton Franciscan Healthcare where we have signed an agreement to provide services, hard services in eight sites in America.

The remote site segments of course and you will remember I guess separate from volume decline specifically in the mining segments. But we have actually signed some good contracts recently in the oil and gas and construction business which would bring us to bring this business to positive growth in fiscal ’15. And I will mention this contract that we’ve signed with BHP in Australia for the full facility management of the full village supporting a remote site. And last but not least in benefits and rewards it was very, very strong growth where South America is still of course driving over in the mid-teens. We’ve signed also some good contracts in Europe and I will mention France, Colruyt but also Johnson Controls in Romania and many others.

So now I will hand over to Siân to go into more details on these nine months revenues, Siân?

Siân Herbert-Jones

Thanks Michel. Good morning all and thanks for joining us. So to add some details to what Michel has already indicated on this nine months revenue performance let me first comment on on-site services activity. And as you can see by geography our organic revenue growth has been strongest in the UK and Ireland at 4.5%. This is thanks to the success of our integrated offering in corporate, in justice and also in healthcare markets. In North America our organic growth has been 3.7% reflecting broadly similar trends to those seen after six months.

In Continental Europe growth remains positive albeit modest at 0.3% despite the complex environment. As in the most of the world which includes remote sites, Asia, Australia, Latin America, Africa and the Middle East. Our reported organic growth is fractionally down 0.7%. As we explained back in April this is weaker performance driven by decline in our remote sites and most specifically as Michel said services providing to the mining sector. If we exclude remote sites business our organic growth in these emerging economies has been 7% and actually it’s been double-digits in healthcare and the education markets.

If we look at our organic revenue growth performance by client segments, as you can see on Slide 11. In corporate our organic growth has been 1.9%, however excluding the remote sites activity where worldwide revenues are down by around 6%. You can see that our underlying growth in corporate has been accelerating and now stands at 4%. This very solid growth reflects the strong contribution of our integrated quality of life comprehensive offering in all geographies. Michel mentioned some prestigious recent new wins, although these are complex for our clients to implement and will take time for some of them to implement a ramp-up.

In healthcare and seniors our revenues are up 1.4%, reflecting a progressive although slower than originally anticipated ramp-up of large multi-site contracts won in fiscal 2013 in North America. And in education our organic growth is 1.7% a level very similar to the first half. This continues to reflect increased student participation in the U.S. both in K-to-12 and also in campuses, and also a challenging context in Europe requiring us to remain very selective in terms of new business.

Looking now at Sodexo’s top-line revenue performance in more detail by geography, as you can see on Slide 12, our revenues in North America were €5.3 billion which represents as I said organic growth for the first nine months of 3.7%. Our growth in corporate services continued the very solid trends shown after months. And it reached a high of 8.4%. This comes mainly from the extension of our services offering and facility management services including hard facility to a prestigious array of clients including the IMF, GE, Alcatel-Lucent, as Michel mentioned and more recently the new Fortune 500 awards such as Unilever, Walt Disney Resorts and Citibank. In Canada our teams have also successfully continued to drive business development in remote sites for clients in the energy sector such as Suncor.

In healthcare and seniors, our organic revenue growth has been 1.4%. In this arena, some of the large multi-sites, multi-service and more recent contract awards as I have said are proving to take more time than originally anticipated to fully ramp-up and transition to Sodexo. Moving onto education, our organic growth was 3.2%. We have benefited from strong client retention and also encouraging trends in student participation.

Turning now to Continental Europe on Slide 13, our revenues reached €4.4 billion and our overall organic revenue growth was 0.3%. This growth trend is of course a little dampened by the May holiday period across Europe with more bank holidays than last year. And excluding this, the trend we believe is unchanged versus what we explained to you at the half year stage last April. Growth continues at a faster pace in Russia and in Poland. It’s also been improving slightly in Germany and in Spain. The client downsizing and budget cuts as well as the economic environment continues to weigh on food volumes in countries such as Italy, France and Finland.

Volumes in food service remained generally negative in many European countries by around 3%. However, Sodexo’s success in more comprehensive facility management and technical services has helped offset this trend, so in Continental Europe we remain in positive growth. In corporate services, our growth has been accelerating compared to the first half and stands at 1.7%. As Michel highlighted earlier, we are clearly benefiting from the ramp-up impact in some integrated fully comprehensive contracts with customers such as Unilever, Johnson & Johnson, AstraZeneca and more recently Carlsberg. The pipeline remains solid and we are currently finalizing contracts which will ramp-up starting in the autumn with many other large corporate names.

In healthcare and seniors, our revenues were down versus the prior year by 0.8%. Despite some new business developments in recent months, notably in Sweden and also in the seniors market in Luxembourg. In an environment where social and fiscal pressures continue in countries such as, Spain, Italy and above all, France, we have enforced a selective approach to new business with strong commercial profitability and cash flow requirements. In education, revenues were down 3.1% also given the pressures on public sector budget throughout Europe.

Let me turn now to Slide 14, Sodexo’s operation in the rest of the world. Our revenues in these geographic were €2.5 billion, down from the €2.8 billion recorded in the first nine months of fiscal 2013. Since currency variations impact significantly, just under 12%, but as you know this is only a conversion and translation impact since our business is local and operating income and expense are in the same currency. Excluding currency effects and a marginal acquisition impact, our revenues in the rest of the world is down by 70 basis points. But as I mentioned there are two very different dynamics at work in the emerging economies.

Our remote sites segment activity is down around 9% for two principle reasons. First, the impact of various construction project completion, terminating over the course of the last 12 months and secondly, as the result of few new business opportunities in the mining sector. We believe it’s fair to say that given the timing of project completion trends together with some of the new business awards in oil, gas and construction and their progressive ramp-up, this negative trend in remote sites is now largely behind us. And as Michel said, we are confident we will be back to positive growth in the first half of 2015.

In all other segments in the rest of the world, our organic revenue growth continued at a very solid rate of 7%. In Latin America, carnival holidays fell into this third quarter in fiscal 2014 as compared to the second quarter in the prior year. In the corporate segment, our organic growth was just over 5% with excellent growth in India 12%, over 10% in Southeast Asia and also around 5% in Brazil. Our new business momentum remains good with new clients for example Heineken in Brazil and Cerro Matoso in Latin America. In healthcare and seniors our organic growth reached 14.1%, benefiting from a leverage of our global healthcare expertise and solid new business wins and development in both Latin America and also in Asia. In Education, our growth reached a record 17.9% due to various wins in India and in Southeast Asia.

To conclude with our on-site activity, let me now comment organic revenue growth in the UK which you can see on Slide 15. At €1.1 billion our organic revenue growth is as I said a very solid 4.5%. In corporate services, the growth was actually very strong of 6.1%. And although food volumes are down similar to the trends in Continental Europe. This has been much more than offset by Sodexo’s strong offering in facility management that meets class and consumer needs and particularly in multi-technical services. In the UK, we continue to benefit from extra work orders on some of our large corporate client basis for example with AgustaWestland, with Unilever, GSK and Zurich Financial. Also the initial startup of our new contract with the Ministry of Justice at Northumberland Prison has contributed to this solid growth.

In healthcare, organic revenue growth also remained strong at 4.9% and this continues to reflect service extensions at several large university hospitals. In education, our revenues are down 7.6%. In the public K-to-12 market, we have refused to compete on price and value for several years. However, our UK teams have had recent encouraging successes in the university market notably with UCL and City University in London.

Let us turn now to benefits and rewards services, which is, as you know a key component of our overall offering. Issue volumes for the first nine months have been €11.6 billion with organic growth of close to 11%. Revenues have been €556 million reporting an excellent growth of 14% accelerating versus the prior year.

In Latin America, our organic growth in issue volume remains fairly solid at close to 18%. And on the revenue side, the growth has been even stronger at close to 22%. Growth has been driven around 50% by ongoing face value increases in Brazil, Venezuela, and other countries. And the remaining 50% of growth has been driven by excellent commercial successes notably in Brazil, in Chile, adding new beneficiaries and through cross-selling. As explained previously, the higher growth in revenue as compared to issue volume is driven by timing impact since affiliate commissions are recorded in revenues on reimbursement and may therefore fall into a different quarter versus the quarter that reports the top-line of issue volume.

Moving to Slide 19, you can see in Europe and Asia both the issue volume and revenue organic growth have improved versus the prior fiscal year and they are up organically by around 4%. This performance includes encouraging new sales trends in Turkey, in Central Europe, and also in Asian market such as India and China. In Belgium, Sodexo has recently been extended as service provider to the Belgium Ministry, the O&M for the universal service voucher until the end of calendar 2014. And in France, as in Belgium, our teams are prepared successfully offering solutions and regularly managing the changing technology to cards as a support for this service.

This summary concludes my comments on our revenue performance for the nine months. But before handing back to Michel to comment on our outlook, I would just like to a specific request to those in the audience that like to model out with projections on our performance. Please regularly update your assumptions on evolving exchange rates not just regarding the evolution of U.S. dollar versus the euro, but also notably as regard the Brazilian real and the Venezuelan bolivar. As you know, Sodexo converts its Bolivar earnings to euro using the latest rates at which we’re able to repatriate earnings, and as announced a few weeks ago the bolivar’s euro rates now stands at 71 bolivar to the euro.

Finally, we’re proud to be number one in Brazil both in on-site and benefits and rewards, but this means we need to take account of currency swings, which as I said don’t impact operational performance but they do need to be integrated into your financial models. On a lighter note, we are also very proud that the French football squad in Brazil chose a Sodexo chef Mr. Yannick Coquisart to accompany them to the World Cup in Brazil. Even if some of my French, Belgian, and as of this morning, Belgian colleagues are disappointed with the last results in the matches there.

Thank you, and let me hand back to Michel.

Michel Landel

Thank you, Siân for the details on our nine months revenues. So as you’ve seen, our third quarter revenue trends are very similar to those announced at the half year stage last April. Our teams remain focused and are delivering value to client and consumers as we continue our transformation.

As you see on Slide 21, our current estimates of organic revenue growth may fall marginally short of the objective announced last November between 2.2% and 2.5%. So we are learning and we have learned further over the last few months that integrated service partnership often for our clients including considerable changed management and of course cost effectiveness, this change take time to ramp-up.

Now on the other hand, thanks to our team’s efforts and engagements because today we are well on-track with and we are confidently confirming our full year fiscal 2014 operating profit year-on-year growth objective at 11% at constant currency and excluding the cost associated and recorded in our first half related to our operational efficiency and cost reduction programs. And also, I remain extremely confident as I build with my team the further steps in our continuing transformation to deliver profit progression and margin improvement in fiscal 2015 and reach a 6% operating margin again at constant currency rate related to fiscal 2013.

So now we are ready with ready with Siân to answer your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Vicki Stern of Barclays. Please ask the question.

Vicki Stern - Barclays Capital

Good morning. Just had a couple of questions, just firstly coming back on the commentary around it's taking slightly longer for contracts to ramp up, for the integrated contracts to ramp up, just any more color you can provide on that. I guess it's hard to say, but what is the average length of time based on the experience you do have now for some of these large contracts to start ramping up and I guess what is that timeframe to maturity? Second question, just how should we start to think about organic growth for next year? Obviously you gave some quite good color regarding the remote sites turning positive next year, but perhaps could you flesh that out in terms of how you're thinking about some of the other geographies for next year? Thanks.

Michel Landel

Thank you, Vicki for your questions. These large contracts take time to ramp-up Unilever we took this example several times. It took us probably 18 months to sign and 2 years to fully implement. In Europe, we have now signed a contract with Unilever in for North America and probably we will ramp-up also in Asia. It really depends. I also would like to mention that in Europe we have signed a few other large contracts but we cannot mention the names because our clients have told us not to mention and those contracts will start early next year in fiscal ’15. But it takes time because there is a massive change for people on our client’s side and it takes time generally probably six to nine months, it’s been delayed six, nine months. But we're very, very confident because when they are implemented. Of course this is a very strong source of revenue and very strong source of growth and also very strong source of differentiation. In terms of remote sites…

Siân Herbert-Jones

I think Vicki your question was more on other geographies, wasn’t it?

Vicki Stern - Barclays Capital

Yes, Exactly.

Siân Herbert-Jones

Yes.

Michel Landel

Yes, in other geographies. The rest of the world should recover positive growth because remote sites as we said with Siân, we have been able to sign many new contracts in oil and gas and construction and actually also some in mines and we should really recover that starting September. I would say that Europe is a little bit stronger and will be a little bit stronger than this year. And on the U.S. side or North American side, we are on a 4% trend and I think that will confirm, but we’ll give you firm guidance in November as we do every year. Thank you for your question.

Vicki Stern - Barclays Capital

Thanks very much.

Operator

Thank you. Your next question comes from Jarrod Castle of UBS London. Please ask the question.

Jarrod Castle - UBS

Good morning. Two questions, if I may. You spoke about catering volumes being weak. You highlighted Continental Europe. Do you think that's an industry trend or has it been more Company-specific in terms of your bid process etc., not chasing volumes for the sake of it? Any color you can maybe give on food service volumes. And then just secondly, anything you can say in terms of any positive from the World Cup in terms of a pickup? Has that had any positive impact? Thanks.

Michel Landel

On your first question on volume concerning food, yes, I mean it’s a logical trend as companies are downsizing as also the way of, the work habits are changing, it has a lot of more people working at home for few days. So, and I think when you look at the market and all the competitors are actually seeing that evolution. So, it’s not, it’s a general trend that we see in actually all geographies. And so that's why the fact that we provide a full range of services actually is demonstrating being the strength because that's the driver of growth specifically in Europe as well. And actually so in FM, we said that growth has been at least three times lot faster than in food service and clearly we have the right composition here. Now the World Cup in Brazil, I wish, I guess you’ve seen the beginning last night?

Jarrod Castle - UBS

Yes.

Michel Landel

For us it has been actually a negative impact.

Siân Herbert-Jones

Many bank holidays in Brazil, we reckon it probably cost us around €10 million of revenue with extra bank holidays.

Michel Landel

Yes, yes.

Jarrod Castle - UBS

Okay. Thanks very much.

Michel Landel

You’re welcome.

Operator

Thank you. Your next question comes from Jaafar Mestari of JPMorgan. Please ask the question.

Jaafar Mestari - JPMorgan

Hi. Good morning. I had two questions please. Firstly, on North America, following up on your comments about the ramp up, if we look at the Q1 organic growth of 5% for the region as a whole, can we consider that this is maybe the normal run rate which you should return to when the contracts start ramping up more normally again or would you mention any other factors to explain the small slowdown in Q2 and Q3? And then secondly, on rest of the world OSS, I was just curious whether, after a few quarters of high single-digit organic decline in remote sites, would you say that your portfolio now is more equally weighted between the ongoing extracting activities and the more CapEx-related construction activities, to which I think you previously commented that you were much more exposed to going into the recent weakness?

Michel Landel

Well, for that last question, the fact that what we observed during the last 24 months was specifically in the mining industry with very strong decline in volumes. So, production has decreased, right? Now, we’ve not lost any contracts it’s not a matter of losing contract, it’s really a question of volumes. Those volumes have stabilized hopefully. So -- and we have also added a few contracts, new contracts in mining actually. But we also have had some good wins as I said in the oil and gas and also in the construction business. So I think we have a very strong portfolio of mines of also business in oil and gas and platforms, but also extraction. So we’re in good shape to recover solid growth next year. And NorAm, Siân?

Siân Herbert-Jones

Sure. In North America, Jaafar you mentioned, effectively we started this year on quarter one on a trend of around 5%. And you can see for the year we’ve been, our current run rate is around about 4%, just say over 4%. And here in the first quarter we did have this kind of ramp up particularly in calendar some new business also in terms of our corporate clients with Unilever, the IMF et cetera. So quarter one was a slightly stronger as we had the initial bruise up of those contracts. It’s fair to say that we’ll closer to 4ish, as our current run rate.

Jaafar Mestari - JPMorgan

Okay. Thank you. And maybe just a follow-up on that specifically on healthcare and seniors, where probably a couple of the specific issues right now are concentrated. Q1 was around 3%. Is that a good reference point or would you expect an acceleration from that when the ramp-up starts?

Michel Landel

No, I think we should around the 3, 3ish plus you know.

Jaafar Mestari - JPMorgan

Okay, thank you.

Operator

Thank you, the next question comes from Tim Ramskill of Credit Suisse, please ask your question.

Tim Ramskill - Credit Suisse

Thanks. Good morning everybody. Three questions from me, please. First is just around refinancing. Obviously you've done quite a bit of activity in the year so far. Can you just share with us how much available headroom you have now versus a year ago and just a quick reminder on your thoughts on cash returns to shareholders? Second question was just around FX. Siân, obviously you highlighted the need for everybody to be on top of those dynamics. But can you just boil it down in terms of the implications for margins. So clearly you talk about 40bps of margin improvement for this year and for next year on a constant currency basis. But if you look at the currencies as you see them right now, what do those potential reported margin changes look like? And then the third question was just you've talked about some of the delays on these contracts. Can you just give us a bit of color as to how able you are to flex your costs when you face those delays or whether those delays can become expensive in terms of profit implications?

Siân Herbert-Jones

Sure, in terms of the refinancing, and I would stress it is refinancing, we have a bond issue, bonds that matured last March and we have a further bond that matures in January 2015, so in the last six months we have done two refinancing, one in dollars, the other in euros, clearly to balance our portfolios given the fact that we’re very international, so basically we have refinanced in those two markets extending maturities and clearly also the average interest rate will come down given current market conditions, it will come down progressively and basically offset the -- after repayment to the bond next January, so you won’t see, you won’t see the impact in our P&L until more the second half of next year. And nothing is new sorry in terms of ForEx, we do as you know we always give our output guidance on an operational basis so it’s constant currency, who knows what the ForEx movement will do in the future, but if we looked at today’s rates, clearly between the Brazilian real and the bolivar, as well as all other currencies including the dollar we’d probably be down in margin terms around 30 basis points.

Tim Ramskill - Credit Suisse

So, is that the endpoint of that 6 to 5.7?

Siân Herbert-Jones

If currency was to stay at current rate, no.

Tim Ramskill - Credit Suisse

Okay, thank you.

Michel Landel

Concerning the delays you know to start some of our contracts, large contracts, so our healthcare contract in the U.S., frankly I’m not concerned because you know those contracts will start, that’s not the point, clearly, you know, it cost us maybe a little bit more, but frankly, what we just said is that we are confirming the objective for this year to increase our operating profit by 11% and also to deliver margin improvement and profit improvement in next year and both year increasing our operating profit by 40 basis points, so that should have an effect on that, right.

Tim Ramskill - Credit Suisse

Thank you. Can I just clarify one quite point on the refi? Say, Siân, you did very much emphasize that it was a refinancing. So have you got much more by way of facilities now versus before? Apologies, I haven't compared what you were replacing. Is it exactly like-for-like in terms of scale of funding?

Siân Herbert-Jones

It means that we have, we’ll be drawing less on our syndicated loans but it is refinancing, okay, so we’ll have greater capacity on our revolving credit facilities, should there be acquisitions, you know inflow acquisitions or whatever. That’s all it means.

Tim Ramskill - Credit Suisse

Okay, thank you very much.

Michel Landel

Thank you.

Operator

Thank you. The next question comes from James Ainley of Citi. Please ask the question.

James Ainley - Citigroup

Yes, morning. Two questions please. Firstly you talked about weaker volumes, food volumes in Europe. Can you comment on the position in food volumes for North America and the UK please? And secondly, just following on to those comments on interest cost, you said there would be some savings in interest cost. Can you quantify the P&L benefit of the refinancing in terms of low interest costs? Thank you.

Michel Landel

On the food volume, you know in North America they are flat actually, so there's no increase, no decrease. In the UK they are still declining, right. And in the UK as Siân mentioned previously, we have a lot of business in facilities, management and integrated solutions, so that really is a good thing for the UK because food volumes are declining, Siân on the next question?

Siân Herbert-Jones

On the refinancing in a full year, and starting, as I said after January next so more in the second half of next year, in a full year the rate impact, the reduced interest rate impact benefits our P&L pre-tax by around €35 million.

James Ainley - Citigroup

35 is great. Okay. Thank you

Operator

Thank you. Your next question comes from the line of Guillaume Rascoussier of Exane. Please ask your question.

Guillaume Rascoussier - Exane BNP Paribas

Hi. Two questions, if I may. Just on the new contracts that you've mentioned, can you give us a sense of how much revenues we are talking here? I'm referring to the largest ones, so maybe the Alcatel, the other one in the Wheaton Healthcare, just to assess if it's significant in terms of growth from next year. And second question, regarding the contracts you've got, can you tell us where we are now in terms of missing revenue? And when do you think it's going to take an end? How much down should we assume for H1 next year?

Michel Landel

Okay. In terms of new contracts, Alcatel should be probably around 100 million. We as I mentioned, we’ve signed some significant ones in Europe as well that we cannot talk about, but few tens of millions. Also in healthcare, generally those contracts are between 10 million and 20 million in the U.S. So these are significant contracts of course. The second question is on, Siân, on the…

Siân Herbert-Jones

If I understand your idea, when you say contracts missing are you referring to the fact that as we said some of our contracts are taking longer to ramp-up, is that your question?

Michel Landel

Or is it…

Siân Herbert-Jones

Or could you just explain your question a bit more?

Michel Landel

Hello, hello, can you hear us?

Operator

Hello. The line of Mr. Guillaume has disconnected. Thank you. You have a next question from Nick Edelman of Goldman Sachs. Please ask your question.

Nick Edelman - Goldman Sachs

Thank you, good morning everyone. Just a couple of follow-up questions, maybe one on Alcatel I mean, it sounds like a very large contract across a large number of countries. How many other bidders would be in that process? And are you unique as bidding for all of the contracts while other people bidding for part of the contract? And secondly, on the O&M contract, can you just confirm will that then come up for tender again at the end of financial year 2014, or have you lost the contract from beyond financial year 2014? And then lastly, in terms of the margin target for financial 2015, is there no risk to that from the contract start-up costs from the delayed ramp-up in some of the contracts -- sorry and also just from those contracts that you've won in Continental Europe?

Michel Landel

Thank you for your question. On Alcatel, at the beginning, I think we were at 3 or 4 bidders at the end it was just us and another one. I think to be able to bid on this large contracts you need to have the capabilities to deliver the all range of services, right, from self services to hard services. And you have to do be able to do that in many countries around the world. So there are not too many companies who are able to do that, very few actually. But also we made the difference sometimes because we have benefits and rewards activity which as we have said all along is very consistent with our overall strategy providing services on-site, but also offsite for those people belonging to this companies who are not effective to one specific goal, specific facilities. And who can enjoy benefits in different other venues, right. So that’s a very important part. Now concerning finance, we have been extended until the end of this calendar year. And so we’ve not lost the contract, I think the authorities will have to make a decision, probably they will make another tender right. At that point, right. And in terms of…

Siân Herbert-Jones

Okay. The last question was if I understood it, was a, there is risk to our financial 2015 margin target from some of these contracts?

Michel Landel

No, no we’ll be okay.

Nick Edelman - Goldman Sachs

Thank you. If I could ask one follow-up, again on Alcatel, just how much of that roughly would you self-perform of that contract given the vast range of services and number of countries?

Michel Landel

Well, generally we self-perform between 70% and 80%, right, of our contracts.

Nick Edelman - Goldman Sachs

Thank you.

Operator

Thank you. Your next question comes from the line of Nick Thomas of London. Please ask your question.

Nick Thomas - BofA Merrill Lynch

Yes, good morning. I wonder whether you can just remind us and update us on the extent of the contracts that you are exiting from a revenue point of view as part of this sort of overall restructuring program in terms of total quantum and sort of where we're up to year-to-date for an impact on the current year on that. And then secondly in the on-site services business where your overall revenue organically is up 1.7% I realize this will be a mix of different facts and different geographies. But I wonder whether at the Group level you just given broad split between to what extent that’s being driven by the like for like both pricing and volume together and to what extent that’s down to net contract waiting list? And then finally from me just to clarify something that was said earlier in the presentation when Siân was talking about the rest of the world business and indicating return to positive growth from the first quarter of ’15. Just to clarify was that client in relation specifically to the remote size element or rest of world returning to positive growth or was that is more an overall comment for rest of world? Thanks very much.

Siân Herbert-Jones

Very quickly on your last point and I apologize if I wasn’t clear I was referring only to the remote site. As you know remote site is down this year after nine months by around 6%. We are very confident we will be back to positive growth in remote site in rest of the world and remote site generally next year. So that was just to clarify what I said.

Michel Landel

But the other countries which constitutes for the rest of the world our point of view…

Siân Herbert-Jones

So 7%.

Michel Landel

7%, and next year we’ll continue to grow in Asia, China, Southeast Asia and Brazil we feel so confident that our position in those countries will be extend of services that we can provide and very-very strong specs I may say. In terms of…

Siân Herbert-Jones

In terms of your first question I think you asked me to comment on the contracts where we have chosen to exit as you know and I’ve talked about operational efficiency program that took place between September 2012 and February 2014, nothing is new both as well I explained in April. In total we chose to give notice because we are not able to renegotiate for around 330 million of revenues that impacts has -- weighs a little bit on our growth a little bit last year this year and also in the first half next year I have said in April for fiscal 2014 it weighs on our growth for the full year around 90 basis points or 170 million.

Nick Thomas - BofA Merrill Lynch

Thank you.

Michel Landel

This question…

Siân Herbert-Jones

And I think your other question was, you were wanting to understand on the on-site business the split between what we call comparable unit growth like-for-like and then contracts gains, losses et cetera, because of the delayed ramp-up the majority of our growth is clearly coming from the both price and volume effect in terms of the like-for-like growth.

Michel Landel

Yes.

Nick Thomas - BofA Merrill Lynch

Okay thanks for your help.

Operator

Thank you. The next question comes from Vicki Stern of Barclays. Please ask your question.

Vicki Stern - Barclays Capital

Yes, hi. Just a couple of follow-ups and just obviously you're keeping your full-year EBIT guidance having cut slightly the top line. So just curious to know I suppose where's the difference coming from. Is there any one particular area you're feeling slightly better about regarding the margin performance? And then just sticking with the margin theme, looking I guess beyond 2015 are there still a lot of areas that you think you can address in terms of efficiency? I suppose should we think that 5.7 on the reported basis is where it will end up or should we think that there's still quite a bit that you can do as we look out further? Thanks.

Michel Landel

Well, as I said, right, we, for this year, we will deliver the full 40 basis points improvements in our progress in profit. It is based as we have said on a very strict cost control and leveraging size nothing different that what was done there would be increase in our margins everywhere in all geographies as we mentioned so and for next year we will deliver on our promise and improve by 40 basis points, as we have said, and we have our plans well in place. And this will continue to expand in further years, because of course we built strong infrastructure and of course we will benefit from that.

Operator

Thank you. The next question comes from James Ainley of Citi. Please ask your question.

James Ainley - Citigroup

I just wanted to follow-up on the impact of the new bolivar rate. If you had applied the rate for 2013, how big would your minority charge in the P&L have been? So I think you had a €23 million minority interest through the P&L last year. Was that all related to the Venezuelan business or would there be some residual left over after the new rate is applied?

Siân Herbert-Jones

The minority interest in our P&L, we have a lot of partners in various geographies, so you shouldn’t read the minority interest in our P&L is being clearly Venezuelan. We have partnerships with Serco in Australia, in many places in the Middle East, et cetera. What we have said; and I remind you to get back to the press announcement we made, when was it, mid June, when we transacted and extracted some cash from Venezuela, the impact for us for applying the new rate, if you go to -- what you’d have seen in fiscal 2013, yes, it weighs on our operating profit for around €35 million to €36 million, but it is not significant in net income, less some €4 million only. It is not significant. Yes we do have minority partner, but the reason why it’s not significant primarily on net income is that we have been applying hyper inflation for a number of years and therefore in our interest expense we have been having a monetary adjustment which we have become progressively over the years. And that’s why it’s not significant.

James Ainley - Citigroup

Okay. So how big was that hyperinflation adjustment relating to the bolivar last year?

Siân Herbert-Jones

As I said in April, year-on-year, for the first six months the increase was around 12 million, so multiply that by two.

Operator

The next question comes from Nick Edelman of Goldman Sachs, please ask the question.

Nick Edelman - Goldman Sachs

Just two quick follow-ups, please, firstly just on Nick Thomas's question in terms of remote sites moving back into growth. Can you just clarify is that from the first quarter 2015 or for the balance of the year 2015? And secondly, with respect to your comments on FX rates, could you just remind us, please, roughly the proportion of revenues that relate to the Brazilian real for each of the divisions? Thank you.

Michel Landel

For the first question the answer is yes. We will recover growth as of the first quarter, the second question, Siân?

Siân Herbert-Jones

The second question, I would suggest you to go back to our reference documents, or even our half year result. We are very clearly, in our press release, gave the impact of exchange rate in terms of real, but it is very clearly, in our half your press release and also in our earnings presentation.

Operator

Thank you. There are no further questions at this time. You may continue.

Michel Landel

Well, any other questions? We're here still? Well, if there are no other questions, Siân?

Siân Herbert-Jones

Let me just remind you, if you want to replay this call, let me remind you, you need to dial 44-1452-550-000 and then the access code is 63435894.

Michel Landel

Thank you, all of you and we will talk again in the fall.

Siân Herbert-Jones

Thank you.

Michel Landel

Thank you so much.

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