Elior Group SA

PAR:ELIOR

Earnings Call Analysis

Earnings Call Transcript 2022-Q4

[Operator]

Hello, and welcome to the credit investors presentation. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand over the call to your host, Esther Gaide, CFO of Group, to begin today's conference. Thank you.

[Esther Gaide, executive]

Good afternoon to everybody. I just want to apologize because the slide show we have, due to technical problems, I would ask you to look at the website of Elior and you will find them because we have not been able to join. That's why we're a little bit late. We have not been able to join the call to the webcast. So I will turn now to Bernard Gault who is going to be introducing the -- that this call and our fiscal year results 2022. Bernard?

[Bernard Gault, executive]

Thank you, Esther. Thank you, and thank you to all of you for paying your attention to and you're listening to Elior. I'm Bernard Gault, I'm Chairman and CEO of the company since March 1. And before we go into the presentation itself, I would like to share with you a few thoughts. And when I arrived, I felt a very difficult situation. The company has just announced -- was about to announce the very bad results for H1. The debt levels are quite high. And the company was fundamentally unprepared for handling the record inflation that is happening right now.

In front of these issues, we took action. I took action. 1/3 of the executive committee is now -- is new. Loss making operations are in the process of being closed. We've shut down the Preferred Meals operation in the U.S., which we're losing EUR 40 million on a yearly basis. We are addressing the loss-making contracts. We've put incentive schemes in place to align interest of employees and remotivate them, and take this opportunity to thank our employees for whatever they've done for the company. We have a bunch of [indiscernible] and very dedicated employees, and that's one of our strengths.

We have put in place a task force, in fact, task forces for -- to debunk issues such as renegotiation, purchasing and operating improvement. Results are already showing in '21-'22. The retention and the new development are at record level. EBITDA is as indicated before, around breakeven, and that stabilized in H2 '22. So these actions also are putting us in good place for '22-'23. We have very good commercial momentum. As a matter of fact, it was announced yesterday that we -- our contract with Trenitalia, the Italian train operator was renewed. Just to give you a magnitude of the contract, it's EUR 140 million a year contract for 6 years and another EUR 20 million for the next service. So it's a very major contract. In fact, it's by far the biggest that we have at Elior and it just shows that we can win in front of strong competitive environment.

We also had recently ATP, the local subway operator [indiscernible]. EBITDA margins are set to benefit from renegotiations that already took place in '21-'22. Benefits of those will show up in its entirety in '23 -- in '22-'23. And the EBITDA will also be helped by, what I call, self-help initiatives. I will discuss about the self-help initiatives in the call of the presentation. Despite inflationary environment, I'm confident that we will achieve our goals for '22-'23. And those goals are EBITDA margins of 1.5% to 2% on sales and organic growth of 8%. In the coming weeks, I will share conclusions of the strategic study. It's too early to be -- to discuss with details. But what I could tell you at this stage is that we will enhance the strategic positioning of the group. And we will also improve the financial position of the company. In other terms, we will be addressing the elephant in the room, what are we doing with [indiscernible] and how do we deal with our balance sheet. With this introduction, it's now the turn of Esther Gaide to go into the presentation. Esther?

[Esther Gaide, executive]

Yes. Thank you, Bernard. Turning to Slide 6 for the full fiscal year '21-'22. Elior Group's consolidated revenues amounted to EUR 4.5 billion compared to EUR 3.7 billion a year ago. The 20.6% increase in business compared with the previous year reflects organic growth of 18.3%, a 1.1% impact due to a change in scope following the exit of Preferred Meals in the U.S.A. and the sale of CRCL in India, the stronger U.S. dollar and British pound positive effect of 3.4%. Like-for-like revenues increased by 15.4%, a clear rebound from the 3% decline recorded a year earlier.

On the right side of the slide, you will see that international revenues rose by 26.2% to EUR 2.5 billion. This reflects all countries where Elior operates, having had double-digit organic growth that contributed to the rebound of 22%. The strong U.S. dollar contributed to favorable currency effect of 6.4%, while the closure of Preferred Meals and the sale of CRCL was another decrease of 2.2%. Elior's U.K. operations had the strongest organic growth followed by the North America, largely driven by the ability to pass on inflation, which Bernard will cover in more detail. Revenues generated internationally accounted for 56% of group revenues, up from 54% a year ago. Revenues in France totaled EUR 1.9 billion, an increase of 13.5% on an organic basis. Corporate and Other segment, which includes the residual concessions activities not sold with [ Elior's ], generated revenues of EUR 50 million compared with EUR 4 million last year.

Taking a closer look at Elior's revenue growth on Slide 7. Like-for-like revenues significantly progressed by 15.4% compared to a 2.9% decline a year ago. New business development, openings boosted revenues by 9.8% versus 6.2% last year. Contracts Closings accounted for 6.8%, an improvement on the 8.6% a year ago. The total net new development reached EUR 108 million. We achieved a record retention rate of 93.2% as of September 30, 2022. It is important to note that Elior's North America segment delivered a 97% retention rate. Now turning to Slide 8. To the left of the page, you will see that Elior Group's adjusted EBITA, excluding Preferred Meals was negative EUR 6 million compared with EUR 19 million loss the prior year.

As for the International segment, excluding Preferred Meals, adjusted EBITA was a positive EUR 39 million for the full fiscal year compared with a gain of EUR 23 million a year ago. On the same basis, the adjusted EBITA margin was positive in our North American operations, contributed to the positive EBITA margins in the U.K. and Spain and improving to an early breakeven in Italy. In France, the rebound in activity was impacted in the first half by the Omicron variant with particularly restrictive health protocols for students compared to previous COVID wave that hit our education market.

We estimate the impact to be around EUR 40 million to Elior's adjusted EBITA. This was compounded by the sharp rise in inflation and the challenging price renegotiations for public sector contracts for the overall catering industry. Thus, France adjusted EBITA margin was a loss of EUR 27 million compared to a loss of EUR 21 million a year ago. Bernard will discuss the renegotiations progress with you shortly. Corporate and other EBITA, which includes corporate costs and the residual concession activities not sold with areas, adjusted EBITA represented a loss of EUR 18 million compared to a loss of EUR 21 million a year ago.

On Slide 9, you will see our business growth in the last COVID-19 wave. We were slammed by inflation starting in the U.S.A. and moving to Europe which has not stopped since. It amounted to EUR 153 million for the fiscal year. We succeeded in obtaining EUR 68 million through ongoing price renegotiations, combined with EUR 42 million in operating efficiencies. Some of these self-help measures include sourcing optimization, product rationalization and central kitchen productivity gains.

Moving on to the profit and loss statement on Slide 10. We already covered the first 3 lines. There was a EUR 3 million share-based compensation, noncash, charge related to employee long-term incentive programs, down from EUR 5 million a year ago. Current operating income from continuing operations is a loss of EUR 69 million in fiscal year '21-'22 compared to a loss of EUR 87 million in 2021.

Net -- non-recurring operating expenses amounted to EUR 309 million compared to EUR [ 120 ] million in fiscal year 2021, reflecting mainly the impairment of goodwill in France and Spain for EUR 206 million and provisions and expenses relating to the discontinuation of the Preferred Meals business in the United States for EUR 74 million.

Net financial expense of EUR 26 million compared to EUR 44 million a year ago, reflects an increase in debt and interest rate that were offset by positive foreign exchange and the provision reversal on financial participation. Income tax was a charge of EUR 36 million compared to EUR 12 million gain in the previous year. The tax charge includes CVAE for an amount of EUR 9 million compared to EUR 11 million last year. Net income group share amounted to a loss of EUR 427 million compared with a loss of EUR 100 million a year earlier.

Turning to Slide 11. On the top graph, you have Elior's second half year free cash flow, which was positive, notably thanks to the improvement in change in working capital coming mainly from receivables. On the bottom graph, you will see that Elior's full free cash flow, which was negative notably to the strong rebound in business development in the first half and its consequences on working capital. Bernard will cover Elior's CapEx in more detail shortly.

Turning to Slide 12. You will see that the net debt was broadly unchanged in the second half, thanks to our positive free cash flow during the [indiscernible]. We also had a positive contribution from existing Preferred Meals that reduced lease liabilities.

On the following slide, you have to the left Elior Group's debt by nature that is fairly diversified between bonds, bank financing and securitization. To the right of the Slide 13, you can see that the debt maturity profile is widespread over time.

Now turning to Slide 12. As of September 2022, available liquidity amounted to EUR 399 million compared with EUR 437 million at June 30, 2022, which reflects our positive free cash flow in the second half and the evolution notably related to the securitization program that is structurally lower in the second half of the year.

I will now hand you back to Bernard for the business review. Bernard?

[Bernard Gault, executive]

Thank you, Esther. Can you hear me well?

[Esther Gaide, executive]

Very well.

[Bernard Gault, executive]

Okay. Good. Thank you, Esther. Well, on Slide 16, you've seen this slide before, it's an update from the previous versions. What this slide says is that the activity level compared to pre-COVID 2019 levels was overall for the group at the 95% level with variations depending on which part of the group we talked about. And for business and -- for education, we are 109%.

But for business, and we -- B&I, we're only at 88%. It's completely classical and normal. Your common sense suggests that people haven't reverted back and more to revert back to the offices, and that's already is affecting the revenues of our B&I. But overall, we're gradually recovering from this, and we've adjusted for B&I, clearly.

On Page 17 -- Slide 17, we're talking about one of the satisfactions of the year. We have strong new business. We also had record retention. And you can see that on the left-hand side, the new business contribution to organic growth has been 9.8%. It's about half of the organic growth comes from new business.

On the retention rate, we are at record level at 93.2%. And for example, in the U.S., we reached 97%. Structurally, the retention in the U.S. is actually higher than it is in Europe. And that sort of shows in our numbers as well as it does show, too, the numbers in our peer's report.

Turning to Slide 18. We have -- we're showing here that the net new business contribution is actually 3% with 4.6% adjusted EBITA margin. What is the message here? The message is double. One is instead of having negative new business, which we recorded in -- since '18 -- '18, '19. So we now have a positive. So we restored the [indiscernible]. I can tell you that what we're doing is that we're adding profitable new business because the margin on this new business is 4.6% EBITA margin, which is significantly higher than what we are doing today.

So we're not acquiring new business at the expense of downgrades in the margins. We are acquiring profitable new business. On the right-hand side, you could see the CapEx levels as a percentage of sales. That number has declined, and this is definitely the -- on purpose. We're not -- we decided that we want to go into asset-light type of biddings, and we're now concentrating only on contracts that have little, if any CapEx. Well, you might ask yourself, why are we doing this?

First of all, our share of the U.S. business is more -- I mean, particularly in the U.S., the projects tend to be more capital incentive. If you look at our competitors, because they had -- the bigger competitors, because they have a much bigger share of U.S. business, their CapEx will be naturally higher. But we've looked at this. We've done the analysis and what we -- what is evident to us given our position is that we can decrease the amount of CapEx we put through every contract and still do profitable business and still win business that you can tell from the left-hand side. So I think our strategy in that sense, asset-light strategy is paying off.

Turning to Slide 19 and 20, those 2 slides show a few examples of new contracts that we've won during the year. Let me point out -- just point you to only 2 or 3 of them. On Page 19, the Ramsay contract. This is the largest private hospital group in Europe. This is our big -- second biggest contract after the [indiscernible] contract that I've mentioned early on. And we renewed it. In fact, we did better than renew it. We renewed it and expanded it at the expense of one of our biggest competitors. So what it shows is that we're able to renew the big contract, and we're able to win market share and wanted share at the expense of the best competitors.

On Page 20, we're looking at international contracts, and I can point to 2 contracts. One is the BMW/Rolls Royce contract, which is obviously their procedures. The second one is Apollo Global Management, a U.S. contract to serve the headquarters of the private equity firm, Apollo. We're doing this dedicated unit in the U.S. called -- New York as a matter of fact called Constellation. And that those that we can win low-margin business or lower price business, and we can also win the highest [indiscernible] Apollo for them sort of feeding the employees with [indiscernible] wanted ultimate quality and we are able to win that tender.

In fact, what you will see and what I've learned since I've been the CEO of this company is that we are usually winning when quality matters. We are known for delivering really, really good quality where we can improve clearly is the price at which we are delivering the [ operating ] position. But fundamentally, when it comes to quality, Elior is the choice.

Slide 21 reminds you of the conditions at which we exited the Preferred Meals business in the U.S. This business didn't make sense. It was [indiscernible] million a year. When I came in, I said, okay, let's get rid of this before the year-end, and that's what we did. We successfully completed total exit of this business within 6 months. And that's why we're now reporting separately from Preferred Meals because those operations have been publicly discontinued.

The good news is not only did we achieve this within the time frame, but we were able to retain certain clients, in fact 25 clients, which were using the Preferred Meals so that before -- and which we turned into a cook-on-site offering, which we are providing. And that results in USD 67 million of revenues repaid and transferred to our cook-on-site operations, and that contributed positively to EBITA.

We were also able to retain 25% of the employees and 47% on a management position. So this is the painful exercise. We clearly lost money from the amount of money we invested when we acquired this. Having said that, the conditions at which we were able to exit are as good as it could be in this [indiscernible].

Turning to contract renegotiations. Slide 22. We have renegotiated at group level 67% of old contracts, 15% as going, only 8% are yet to start, 10% are not eligible. That results in EUR 139 million of 12-months rolling price increases.

Only EUR 56 million of those EUR 139 million has an effect on '21-'22. But clearly, as we go into '22-'23, this is -- the full effect of this price increases will be backed into the account. And just to give you a sense of dynamics, we only had 37% of contracts renegotiated in March, with 67% in September, and we're expecting 90% of old contracts renegotiated by the end of this calendar year.

Just illustrating this into another slide, which is Slide 23, it shows how much of the price renegotiations have actually been recorded into the '21-'22 accounts. You can see that the U.K. and the U.S. were the faster to end up -- were to be implemented, and therefore, 91% of renegotiations are actually into the '21-'22 accounts where in contrast, France, only 20% of the total negotiations that have taken place are recorded in the account.

It just shows that U.K. started early in the year, the U.S. started early in the year and France started later. They were probably slow at moving there, but there are reasons for this, which I'm happy to discuss. This is further discussed in Slide 24, where we mentioned exactly the numbers.

On Page 25, I'm discussing the self-help initiatives that we are assessing and actually implemented to complement the price negotiations and in order to restore profitability in our [indiscernible]. It's clear when you look at the numbers that the challenge of restoring the margins from '21-'22 to '22-'23, depends on our ability to turn around the profitability of the [indiscernible] business. And so what are we doing, we are renegotiating the prices, I alluded to it early on.

But we are also taking substructural measures, what I call self-help initiatives. And let me explain to them what they are, right? The first one is we are dealing with central kitchens. What is it? Historically, in your [indiscernible] as a matter of fact, we're the leaders in the market in France and it relied on the fact that we were low cost producers on the basis of large central kitchens that were able to handle a large number of meals per day.

This industrial organization has evolved. The demand has been more sophisticated, more diverse and being big is actually now more of a handicap. And we have to recognize this and we are recognizing it. We have a full study in place that is pointing to the fact that reorganization of this central kitchens is needed. What -- by that, I mean, rationalizing everything, so closing down some of the units, concentrating production, changing the [indiscernible], it's a profound reorganization but one that we can handle.

We also had a second initiative, which we call B&I productivity. Just in simple terms, it deals with the Friday. The Friday in B&I is a day that has changed completely, and we need to change what we're doing on Fridays and the sort of offers we are offering to our guests, and that's in process. We're changing this. There is a complete reorganization of the procurement in place. And we are also working on SG&A.

There are several levels, headquarters. Our budget for headquarters for '22-'23 is 1/3 down from the plan -- from the business plan, 1/3 less from the plan, to be clear. So that's pretty clear -- pretty clear focus. But it's not limited to headquarters. They are at the French level, the various corporate entities that -- where there are a number of unneeded administrative function, et cetera. There's quite a lot of things that we can do there. So overall, there is beyond price renegotiations, beyond clients where we are recording some very good success. There is the profound works, it's sort of what I would call cost in those terms.

And that is in process. Some would show what is in the current year. Some will show next year. And it's probably more profound that it takes longer than price renegotiations. We are at it with all the energy we can deploy. Working on costs and working on clients doesn't prevent us from delivering on CSR, and that's Slide 26 and others. I won't go through all the achievements, you can read it and it sort of speaks for itself, but let me highlight a few of those.

We are the first caterer that has adopted the Nutri-Score into their restaurants. We have it in more than thousands of restaurants. It's -- guest appreciate this, particularly we conducted a study and 95% of guests found that the Nutri-Score is something that sort of help them making their choice when they're choosing their meals. And we're particularly happy at par about this. We are at the forefront of Nutri-Score. We are the pioneers. Everyone else is now joining the queue, jumping on the bandwagon, but we are the pioneers of it.

Sustainable food sourcing, 27% of our total food sourcing is now sustainable. We have higher objectives obviously. Food waste is on page 27, is another area of focus. It's good for the planet, it's also good for [indiscernible].

So we are focusing on this. We are hoping that we can reduce this by 30% by 2025. It remains our objective. We've achieved 9% so far. We need to achieve more, and that's what we're working on. Lastly, on the teams and communities, [indiscernible] of the CSR Social, one highlight I would want to make, we have 29% women at executive level. It's the half -- the glass half [indiscernible]. I would love to report 50%, which would be my ultimate goal over time.

But to be clear, it's already a good progress from where we were before. And the diversity index has increased by 10 points in 3 years, which shows that we are in the right direction on the CSR in general. Let me now conclude by giving you the outlook for the full year '22 -- '22-'23 on page -- on Slide 29.

We are reaffirming the organic growth at least 8% for the top line. We are targeting a 1.5% to 2% EBITA margin, and we think we're going to spend 1.5% -- 1.7% of revenues in CapEx. For the ambitions in the year '24, and it's Slide 30, we are reaffirming them totally unchanged. Organic growth at least 7% CAGR on average for the last 2 years.

Adjusted EBITA at 4% for margin for '23-'24. Organic revenue growth as a percentage of CapEx as a percent of revenues between 2.5x and 3x. And hopefully, if we get to 4% EBITA, we will be in a position to repay a dividend for the fiscal year '23-'24. So dividend '24 on the year '23-'24 to be [indiscernible].

Let me just now go through a few comments. One is, I think we have delivered. We have taken a full measure of the difficulties that we're in, and we have acted in a swift way. The 2021-'22, we've achieved EBITA almost breakeven and very good commercial results. That -- it sets us very well for '22-'23. And I'm targeting 1.5% to 2%. And that sort of consistent with the 4% that the ambition sets us to -- for '23-'24. Elior is transforming. Elior is recovering, and we will now take questions.

[Operator]

[Operator Instructions] We will take the first question from line of Manu Nair from Chenavari Investment Manager.

[Manu Nair, analyst]

I have 3 questions, please. First one is, can you give us an update on the inflation impact that you're currently seeing spread by food inflation, labor inflation and other components and whether the recently negotiated contracts of 67%, and I note you're targeting 90% by end of the year, does that fully cover the inflation impact that you're currently seeing, including the ones that you negotiated recently?

Secondly, can you give us an update on the nonrecurring costs, which you expect to incur over the course of the next year, especially considering the self-help initiative you've discussed?

And then one more question on the covenant. Now if I use your 8% -- I know it's at least 8%, but if I just use your 8% revenue growth expectation for the next year, apply the midpoint of the EBITA guidance of 1.75% and I'm sort of arriving at a net leverage level of broadly around 4.5x, I assume you can hit that, which is pretty much your covenant threshold.

So I appreciate the recovery is going to be slow and steady. But given you are quite tight in that -- in your own covenant projection, why not seek a covenant waver, especially given the strength of your relationship with your banks? And is the decision to not seek a waiver perhaps related to the impending announcement on the strategic review that is addressing the balance sheet that you've mentioned?

[Bernard Gault, executive]

Okay. Let me answer the third question and I'll let Esther answer inflation and nonrecurring costs. On the last question, your guess is absolutely the right one. We -- what -- we will announce where -- we will share with you in a few weeks. We will address both the strategic considerations as well as strengthening the balance sheet. So stay tuned. We will be with you shortly.

On inflation and nonrecurring cost, Esther?

[Esther Gaide, executive]

Yes. So in inflation, basically, what we've been doing so far is to change the mindset of what we -- our people. When Bernard joined, it was just the beginning of inflation in France because in the U.S., we are already having that since the last year.

And actually, what -- he actually pushed the European teams to take actions and to adopt the methodology and to be helped by experts in that kind of negotiations. So it's a mindset that has been put because as we've been saying we haven't been having inflation for the last 40 years. So it's more than a generation. So basically, it's a change of mindset, and that means people now they need to go back to the customers. It's not only when they see that the amounts are going to be increasing, it's just even before they need to anticipate. And that's the most difficult thing.

On lever, in the different countries, we see very different, as you see in -- what we see in the different countries is very different. We see that in the U.S. and the U.K. in this year, we have been having a high level of inflation in labor and also shortage in labor because we don't have enough people, even more than in Europe. And in France, in Spain and Italy, for instance, the increase in labor wages were very slow in this year. So we anticipate it's going to go up in next years. So basically, what -- in terms of inflation, what we are trying to manage is the balance of inflation and to make sure we are beating that at the corporate level, that's what we are looking.

And on the people that are in the field that are meeting with the customer every day is to anticipate and make sure they get more price increase that what actually they are showing as inflation.

On the nonrecurring, we have been guiding on the modeling details you have in the appendix, which is around EUR 35 million, EUR 45 million. This year has been very particular because as you've seen, we have been impairing goodwill. That's obviously noncash.

[Operator]

We will take the next question from the line Christian [indiscernible] from FIL.

[Unknown Analyst]

I also [indiscernible] give us an update on the percentage of underperforming contracts, first of all. And the second question was on France, where you mentioned that especially on the public side, negotiations are taking longer. If you can just let us know the percentage of your overall revenue that is basically referring to that. And I was just wondering with respect to the previous question, with respect to nonrecurring cash with EUR 35 million to EUR 45 million for fiscal year '23. Is that -- are these projects that relate to your margin target? And any additional work that might basically be announced with strategic review would be on top of that? And the other question is, I mean, would you expect significantly higher nonrecurring cash from any potential strategic review?

[Bernard Gault, executive]

Well, okay. Esther, you want to?

[Esther Gaide, executive]

Which one? Well, so let's start for the first one. Underperforming contracts, as we are referring, that's something we are following on every performance review every month. It's now on the view we have. We know where they are. The most difficult ones are in the public contracts in France around education. And that's something we are working on continually. And as you -- maybe you have heard that we have a decree that came from the highest court in France -- Supreme Court in France saying that now we are entitled to go and renegotiate even on public contracts.

The issue is when you go back to mayor asking him to pay more for the meals for the kids because in France, it's organized by the towns. It thinks about people that have elected him or her and it's true that it's difficult to get them to pay more. But that's something we need to know, to do in any case. And if it's not the case, I think Bernard made it very clear that we need to not to renew that and to try to exit.

So that's where we are. And again, that's something that is really on a very, very close review. On the nonrecurring, I think this year, we had 3 main countries where we had social plans going on, which are France, Italy and Spain. And I think that's something which is part of the maintenance of what we are trying to do is to decrease as much as we can, the fixed cost. But that's something it's -- it's what we had before. We had around between, I would say, EUR 20 million and EUR 30 million every year before COVID.

[Operator]

[Operator Instructions] We will take the next question from line, [indiscernible] from ODDO BHF.

[Unknown Analyst]

Can you hear me well?

[Bernard Gault, executive]

Yes, we can.

[Unknown Analyst]

On the -- one question on the renegotiation slide, are those contracts a number of contracts? Or is this regarding volume though...

[Esther Gaide, executive]

Number.

[Unknown Analyst]

I think -- it's number of contracts. And can you maybe give a bit of color on the volumes of the renegotiated contracts or the 67% are those average-sized contracts? Or are those the smaller ones? Or can you tell us?

[Esther Gaide, executive]

I think the -- as I mentioned before, we started with the consultant firm that was helping us. I think they did it as a consultant, but they took the bigger ones because it's -- actually, there is a way to select them. So I would say they have been going through the 80/20 method. So no, I think they have taken the most important ones and getting -- I would say, for instance, in B&I, that's been going very well slowly at the beginning, but it's -- when you have -- in front of your private companies, they understand and you know the way to have something to eat when people come back to the office is a good motivation to come to the office.

So at least in France, that was a good -- very good motivation. So that is -- the main topic is after that to convince and to negotiate on the public sector first. And then to -- now the thing is that the inflation is reaching levels where people come and say, please let's try to work with us to find solutions, which means reengineer the menus maybe to offer less variety, instead of 2 or 3 main dishes only 2.

So it's -- again, it's a question of being close to the customer and trying to give them a solution.

[Unknown Analyst]

Okay. And maybe one more question on working capital and you appended on Slide 38. You have a detailed change in working capital, where the receivables are quite large chunk of cash outflow. Then you said in H2, something already came back. But can we expect further receivables to come back? Or will it stay at the current level with new contracts or something?

[Esther Gaide, executive]

The working capital for the last 5 years are already spent for this company. My main concern with my team is to be managing cash. And when you look at the free cash flow between CapEx and working capital, obviously EBITA, that's the main topic.

Traditionally, in this group, the working cap is normal -- yes, the working cap should be between zero and minus 1. So it's really something that shouldn't be moving. What we had this year is because with 18% organic growth obviously have a big impact on top line. We had a big impact on receivables. And we had a big increase in the U.S.

We don't have any securitization to finance the working cap. So that plays the game in there. So basically, what happened is we -- at the beginning of the year with the big increase we had in revenues, the working cap was impacted. And in H2, we caught up. So it's a question of normalization of the top line. In any case, I'd rather have an increase in top line with a good margin and try to manage better my working cap.

[Operator]

We will take the next question from line [indiscernible].

[Unknown Analyst]

I just have 3 questions. Firstly, on the contract negotiations. Could you just clarify in France, what were the changes which now makes the public negotiation easier? Is it just as you said the mayors now have to engage? And is there a cap on the public contracts by what you can increase by?

And then secondly, just on the contract negotiation split shown on Page 22, what does that 10% of not eligible relate to?

And then thirdly, just on interest rate hedging. Could you just confirm the hedges, including details of the caps and tenor you have in place [indiscernible]?

[Esther Gaide, executive]

So yes. On the contract renegotiation...

[Bernard Gault, executive]

What -- the question was what does the change in The Conseil d'État for ability to renegotiate the contract?

[Esther Gaide, executive]

The Conseil d'État said that we are allowed to renegotiate and that the public entity should consider our demand because before they were just not -- it was not in the public contract, you could not renegotiate. So that's...

[Unknown Analyst]

And is there a -- on how much you can...

[Bernard Gault, executive]

No. It is just a piece of law or clarification on law that just clarifies that the mayor or whoever is the public person has the right to be flexible in their negotiation. Some people before were looking at the contract had said this is totally inflexible.

I'm not allowed by law to actually change anything in the contract. And that was clarified by the state counsel, The Conseil d'État which is the highest jurisdiction for public sector, which said, no, no, you can apply some flexibility.

So that allows us to tell the mayor, okay, fine. If you don't want to negotiate, that's your decision, but that's not the law. The law allows you to do so.

It's sort of removing one of the obstacles. It's not a silver bullet, right, as we say. But it's a good thing. It's sort of moving in the right direction. It's also sending a signal to all people involved in the supply sector that inflexibility is not the way for negotiation with caterers.

Okay. Now, interest hedging, Esther?

[Esther Gaide, executive]

So we have been hedging in September. Fixed rate, we have been hedging 80% of the debt that now is hedged. And we are using a swap and gap and the gap is at 3%.

[Operator]

There are no further questions. So I will hand it over back to your host to conclude today's conference.

[Bernard Gault, executive]

Well, thank you, everyone, for the very good question. Thank you for your interest in Elior. I think as you could tell, we have significant headwinds hitting our business. But at the same time, we are working and we are improving. We are recovering. And we hope that in a few weeks, we will be able to talk more of our strategy and balance sheet. Thank you so much.

[Esther Gaide, executive]

Thank you. Bye.

[Operator]

Thank you for joining today's call. You may now disconnect.