Elior FY24: Cautious Tone

• Elior delivered on its FY24 guidance, both at the top line and EBITA level. Organic revenue growth came in at +5.1%, and adjusted EBITA margin rose by +170 bp YoY to 2.8%, helped by pricing, decelerating inflation and self-help measures. Retention was, however, down YoY and continues to lag peers.
• The FY25 guidance is disappointing. The company targets +3-5% organic revenue growth and adjusted EBITA margin of at least 3.0%, which given the planned synergies and positive pricing momentum appears relatively subdued and seems to reflect overall caution around the French economic landscape.
• FCF generation has been robust, at €124 mn, making up for last year’s FCF burn. Cash flow has benefited from a €107 mn working capital inflow, boosted by increased use of receivables securitisation. FY25 FCF should remain supported by working capital inflows, we suspect also linked to the securitisation.
• Net leverage continues to trend lower and reached 3.8x at Sep-24 based on adjusted EBITDA (5.4x PF for DMS at Sep-23). Elior still targets 3.0x net leverage by Sep-26.
• The company did not provide any incremental information around its mid-term outlook, as had been alluded to with the F1H24 results.

FY24 Key Takeaways and FY25 Outlook

Elior delivered on its FY24 guidance, both at the top line and EBITA level. Organic growth of 5.1% came in marginally above the 4-5% projected range, and the adjusted EBITA margin of 2.8% (+170 bp YoY) comfortably matched the >2.5% target. The improved profitability was largely supported by a pricing catch-up effect and decelerating inflation, as well as by self-help measures, including sustained operational efficiencies and synergies delivery with DMS. One clear negative was retention, which was down YoY to a relatively low level of 92.7%, even excluding voluntary contract exits, and continues to lag peers. Cash flow generation has been robust in FY24 – although aided by a meaningful increase in securitisation – which combined with improving profitability contributed to lowering net leverage based on adjusted EBITDA to 3.8x (5.4x on a PF basis in FY23), comfortably below the 4.5x the financial covenant threshold under the SFA.

Contrasting with the generally positive FY24 trajectory, the FY25 guidance was disappointing. Elior is targeting organic growth of +3-5% in FY25 and an adjusted EBITA margin of >3.0%, suggesting a ~+20-30 bp margin improvement YoY. While this is not so far off the +40 bp targeted by Sodexo, Elior’s margins are still considerably lower than peers’ in absolute terms (4.7% adjusted EBITA for Sodexo in FY24), and relative to its own pre-pandemic margins (3.6% in FY19). The guidance also