(News Bulletin 247) – The group specializing in collective catering has revised downwards its margin forecasts for the whole of its staggered 2022/2023 financial year. With inflation, contract renegotiations are more difficult. Elior is heavily sanctioned on the Paris Stock Exchange.

Nightmarish day for Elior. The title of the catering specialist fell heavily in the wake of the announcement of a lowering of its margin outlook for its staggered 2022/2023 financial year.

On the Paris Stock Exchange, the file shows the largest drop in the SBF 120, and plunges another 19% to 3 euros around 11:50 a.m., after having seen its quotation suspended in the first exchanges. The results delivered by the company specializing in collective catering for the whole of the first half ended in March, however, provide some elements of satisfaction.

Between October and March, the commercial dynamic remained well oriented. Over the period, revenues increased by 10.7% over one year to 2.47 billion euros with organic growth – that is to say excluding changes in exchange rates and scope – of 14.1%. Turnover for the period came out “slightly above expectations”, points out Stifel in his last note devoted to Elior.

In the second quarter alone, organic growth was 16.5% and there too it surprises Stifel favorably. According to a consensus quoted by the research department, analysts were expecting organic growth of 12.9%. Stifel notes that Elior’s growth is “accelerating” compared to the first quarter (11.7%) and recalls that it comes “both from France and internationally”.

Price hikes and efficiencies

A little further down in the accounts, Elior recorded restated current operating income (adjusted Ebita) for the first half of 2022/2023 as a whole of 41 million euros, a marked improvement compared to the loss of 16 million euros over the same period last year. Here too, the adjusted Ebita is “in line” with the consensus quoted by Stifel which indicates that Elior benefited “from the operational leverage effect of the recovery in volumes, price increases, ‘efficiency and consolidation of the portfolio’.

On the net result side, Elior is still in the red. At the end of March 2023, the group still posted 23 million euros in losses, linked “to the combined increase in average debt and the cost of financing linked to the rise in interest rates”.

Elior is still heavily indebted, still bearing the scars of the Covid-19 health crisis. The group posted financial debt of 1.24 billion euros at the end of March, compared to 1.21 billion at the end of September 2022. It is in this context that the recycling specialist Derichebourg took control of Elior by increasing of capital and in exchange for taking over the multi-service branch of the recycling specialist.

Contract renegotiations more difficult with inflation

In addition to Elior’s financial situation, the market is concerned about the company’s ability to pass on to its customers soaring food prices. The group must redouble its efforts at the contract renegotiation table, particularly when it comes to public sector customers.

Quoted by AFP, Didier Grandpré, financial director of Elior declared on this subject, the reluctance of local authorities to accept tariff increases, “is reflected today by a small proportion of public contracts in France, which could be renegotiated”.

At the end of March, the loss of contracts represents a reduction in turnover of -8.7%. At the same time, the customer retention rate, an indicator closely monitored by the contract catering market, remained stable at 91.2% compared to the end of March 2022.

And for the rest of the year, Elior clearly lacks visibility given the inflationary pressures on its margins. This led the group to abandon part of its forecasts for the full year unveiled last November. Elior now expects an adjusted Ebita margin (restated current operating income) down from the initial range of 1.5% to 2%. Until then, the company expected to achieve an adjusted Ebita margin of between 1.5% and 2% of turnover.Quoted by AFP, the broker Oddo BHF estimated for its part that the previous prospects announced by the group were “ambitious”.

“We therefore expect consensus expectations for Ebita for the fiscal year to be revised down from around 80 million euros to 70-75 million euros,” Stifel said.

As for organic growth in turnover, this is expected at “around 10%”, against a previous forecast “of at least 8%” for the 2022/2023 financial year. The group attributes this target increase to price increases given that the expected growth in volumes will be “less”.

Elior also indicates that it will communicate its financial objectives for the 2023/2024 financial year when presenting the annual results for the financial year ending at the end of September 2023.

“From a purely operational point of view, we still believe that improvement at Elior will be slower than at competitors, even with the integration of DMS (the multi-services arm of Derichebourg), with a relatively high risk of integration in the short term”, adds Oddo BHF who estimates that it will take “2-3 years to turn the group around, in a context of a currently strained balance sheet”.