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Good morning. Thank you for standing by, and welcome to the Sodexo First Quarter 2018 Revenues Conference Call. I advise you that this conference is being recorded today, on Thursday, January 11, 2018. I would now like to hand the conference over to the Sodexo team. Please go ahead.
Thank you. Good morning, everybody. Welcome to our first quarter fiscal 2018 call. On the call today we have CEO, Michel Landel; Deputy CEO, Denis Machuel; and CFO, Marc Rolland. As usual, the slides and press releases can be downloaded from the website, and you'll be able to access this call on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without our consent. I remind you that 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. Please get back to the IR team if you have any questions after the call. I remind you that the next announcement will be the half year figures on Thursday, 12th of April. Thank you, and I now hand you over to Michel.
Good morning, everyone, and Happy New Year to all of you who are joining this morning. Thank you for being with us. I am with Denis and Marc. I will do an introduction, marc will go into the details of our performance and Denis will talk about the objectives for our fiscal year and moving forward. So this quarter, as expected, we had a relatively soft start. Organic growth is 1.9%, On-site Services is 1.8% and Benefits & Rewards grew at 3.8%. On the one hand, we had a good momentum in Business & Administration, with an improving trend in Energy & Resources, the confirmation of a pickup in France and also a continued very strong momentum in developing countries. Health Care was once again very strong in developing economies, but still slow in Europe and North America. And on the other hand, Education, again, as we said back in November, is suffering from poor prior year retention in universities and fewer working days. Benefits & Rewards growth was the lowest it has been for a long time due the expected slowdown in inflation and the decline in interest rates in Brazil. Now we have a solid pipeline and we are, of course, signing many very good contracts and our revenue growth should progressively improve in the coming quarters. A few example on Slide 6 of contracts that we are continuing to expand within the scope of services, Rich Narcissus Hospital, which is a very prestigious hospital in Shanghai; Fannie Mae in the U.S., which is an important contract for us, we added FM services to a number of locations in different states. As I said, the momentum in Energy & Resources is still very good. We signed an important contract with Vale Biopalma, which is a palm oil producer, a new client in Brazil. And even in Europe, where business has been challenging, as you remember, in the offshore segments, we've seen some encouraging signs. I can mention Aker BP in Norway, where we are going to deliver services in 5 rigs for 5 years. As well a contract that we won in the U.K, Bibby Marine, which is, of course, for full FM and catering services. On Slide 7, you can see that this quarter we've signed an important 5-year master service agreement with Cathay Pacific. We will start by opening their 6 lounges in Hong Kong for an annual value of roughly EUR 35 million. And we should, from that, expand internationally as we move forward. This is a typical example where our global client segment and subsegmentation organization has really helped us being successful in our development. And just to give you a perspective on this subsegment, we began this airline lounge business with one United Airline lounges in Denver, Colorado, in the States, and steadily grew in North America to make, actually, a global contract for a few years. And then we expanded outside the U.S., starting with an initial contract with Virgin Atlantic at London Gatwick Airport. This grew to a global contract with Virgin that we signed in 2009 and that we recently renewed. We also now, as I said, have a global agreement with United. And in parallel, we have developed business with other carriers as in France -- Air France, Singapore Airlines, Emirates, Delta, American Airlines. And overall today, we provide services at 200 lounges in 80 cities, and we have a strong pipeline. Clearly, our global footprint and specialized expertise in this subsegments makes us a strong partner for airlines who want to create a unique branded customer lounge experience at airports around the world. On Slide 8, I would like to highlight the good momentum in foodservice contract signings. This is a trend which is confirmed by new business won with clients in France, for example, such as Total, we signed a contract for all their sites in France; Covéa; and the new courts of justice in Paris. And this is on top of what we announced last November. We already spoke to you about significant contracts with Michelin. And in the U.K., we also signed a 10-year patient dining and retail service contract with Doncaster and Bassetlaw Teaching Hospital, which is, actually, a first generation of outsourcing.And on Slide 9, I wanted to point out also that after The Good Eating Company in September 2017 and Peyton and Byrne in October 2016, we continue to bring new innovative business models into the group, with the recent investments in FoodChéri in France, we announced it today, where we have the majority; and the EAT Club in the U.S.A. where we took a minority stake. While FoodChéri's business is currently primarily B2C and EAT Club B2B, both are innovative, entrepreneurial startups at the forefront of the digital dining revolution. We will help them expand their business and they will help us enrich our offer. Thank you. And now, Marc will go into the details of our financial performance. Marc?
Thank you, Michel. Good morning, everyone. I'm very pleased to be here with you this morning, and I wish you all a Happy New Year. Before I start, I just want to remind you that all the alternative performance measures used in this presentation are defined on Slide 24. Now turning to Slide 11. First of all, the detail on growth. Revenues for the quarter were down 2.6% due to a very strong euro against all other currencies, especially the U.S. dollar, the Brazilian real and sterling. I remind you that this currency impact are only impacting translation into euro because all our costs are in the currency of our revenues. Scope changes were also negative at 0.3%. This was due to the deconsolidation of Vivabox, which is seasonally heavy for Christmas as well as some of our activities in the EMEA region closed down last year, and finally, disposal of businesses in New Caledonia and Hungary. As far as the acquisitions are concerned, this quarter only includes one month of Morris and 2 of months of Good Eating Company and does not include yet anything from Centerplate. So for next quarter, we should go back to positive contribution from scope changes. This brings us to 1.9% organic growth for the group, of which On-site is up 1.8% and BRS is up 3.8%.So let us now take the individual segments of the On-site activities one by one, starting on Slide 12 with Business & Administrations. Organic growth in revenue was strong at 5.2%, supported by the pickup in the tourism in France and the recovery in Energy & Resources. In North America, organic growth was plus 5.9%. We had strong growth in the airport lounge activity, which Michel talked about earlier. This activity was also boosted by projects. So this rate of growth will probably not be sustainable for the next few quarters. In Europe, sales were up 1.3%, reflecting quite a few startups and the continued recovery in tourism in France as well as growth in the U.K. Although the growth in the U.K. will not last as we should start to feel the progressive impact of the loss of some army contracts from Q2. The region Africa, Asia, Australia, Latin America and the Middle East were up 12.2% with robust growth in Corporate, driven by new business and comparable unit sales growth. The momentum in E&R also remains very strong, with a recovery in mining and onshore subsegment and contract startups. I remind you that this is the last quarter of the big Rio Tinto contract ramp-up. Moving on to Health Care in Slide 13. As expected, organic growth was muted at 1%. North America was impacted by the lack of new business and some general uncertainty in the sector. We remain very confident in the long-term opportunity in North America health care. However, the current environment is complicated by a lot of merger activity, poor financial health of the sector and the need for this industry to enhance productivity and reduce cost. In Europe, organic growth was up 0.5%. Some comparable unit growth was achieved, but this was offset by the shortfall in new business as the teams remained highly selective in their bids due to very competitive pricing. The positive news is that there have been several good hospital wins in the U.K. in the last few months. So hopefully, things are looking up. In Asia, Latin America and Brazil, Health Care was up 17.7%, thanks to strong new business and comparable unit growth. There were, for instance, many contract startups in Brazil alone in this segment during the quarter. In Education, we had a very slow start to the year, which was down 4%. In North America, the segment was impacted by 1.5 fewer days than in the previous quarter. We're expecting to recoup half a day in Q2. However, hindering this is the impact of the loss of business last year despite some good wins. In Europe, sales were up 0.9% with high single-digit growth in the U.K. and solid growth in the Med region. France suffered from some strike as we closed down a central kitchen near Paris. On the other hand, we continue to generate strong growth in Asia, with the region up 18% thanks to ramp-ups in China, Singapore and India. As a result, on Slide 14, the organic growth by region comes out at minus 1% for North America, with a strong Business & Administration activity offset by weakness in Health Care and Education. Europe was up 1.1% with a recovery in France, but we suffered from ongoing weakness in the oil industry, even though there are signs of improvements with the signature of several new contracts in the North Sea. The 12.8% growth in Africa, Asia, Australia, Latin America and the Middle East is proof of the enormous opportunity in all this region and in all segments to grow the business. Now let's move on to Benefits & Rewards performance. On Slide 16, issue volume organic growth was plus 5.9%, perfectly in line with previous quarters. However, revenue organic growth was up only 3.8%. The reason for the slowdown is in the different regions. In Europe, Asia and U.S.A., the growth has remained strong in both issue volume, at plus 6.9%; and even more so in revenue, at plus 8.6%. And I remind you that, last year, Q1 was already very good, up nearly 10%. The traditional voucher activities remained strong during the quarter and particularly in Central Europe, offsetting some weakness in India where the imminent transfer to the card from January 1 had an impact on orders. The very strong momentum in revenue growth was amplified by the strength of the Incentive and Recognition activity in the U.K. and the U.S.A, which, by nature, does not impact the issue volume. Of course, you can see here the deconsolidation impact of Vivabox, which I remind you is very seasonally weighted to the first 4 months of the year.On the other hand, in LatAm, things are more difficult, specifically in Brazil. The issue volume remains positive. However, revenues were impacted by the decline in interest rates and inflation in Brazil, whereas the expected growth in beneficiaries have not yet come through. As I said in November, I expect the interest rate trough to have a EUR 15 million impact on annual revenues and profits. Thank you for your attention. I now hand you to Denis who's going to cover the outlook.
Thank you, Marc, and hello to all of you. I just want to say that we -- as a conclusion, that we maintain our fiscal 2018 objectives that we expressed a few months back. We see France being positive. We see an improvement in Energy & Resources, as Marc was mentioning, and we see also a strong growth in developing economies. And this is compensating for the lack of growth that we have in North America in Education and in Health Care. So we maintain our organic revenue growth guidance between 2% and 4% before the impact of the 53rd week. And let me remind you that this impact was 0.7% last year. We also maintain our guidance for stable underlying operating profit margin at 6.5%. So thank you for your attention, and I now pass you back to Michel to announce the last Q&A session with all of you.
Thank you. And so we are ready, the 3 of us, to answer your questions.
[Operator Instructions] And now we'll take our first person from the queue, Jamie Rollo from Morgan Stanley.
I've got 3 questions, please. The first, just on BRS and that 1.5% organic sales drop in LatAm, which I think is your first decline ever. That's a very wide 600 basis points gap to issue volume. It looks like the interest income was, as you say, EUR 3 million to EUR 4 million in the quarter, so maybe 3% to 4% of that difference. Is it therefore fair to say that commission pressure was a negative 2% to 3%? And also, what's your revenue guidance in the full year for BRS, overall? Secondly on OSS North America Education, 1.5 days is about 2% to revenues, so is it fair to say the sort of underlying decline was minus 3% and when do you annualize that issue about the lower prior year retention? And then finally, and [ this is ] in your sales call, but if we just think about the mix impact on margins, you've seen double-digit growth in Rest of World and not much in North America or Europe. And your Rest of World margins, when you used to report them, was significantly lower. And also, you've seen much stronger growth in B&A than in Health Care and Education, and your margins are much lower in B&A. So I calculate that mix impact to be about a 10 basis point headwind to group margins. Do you agree with that? And is that in your full year margin guidance?
Okay. So do you -- Marc, answer the BRS question.
Yes, the -- to start with your first question on BRS. Indeed, the pressure on interest rate is an annualized value of EUR 15 million. It's not actually quite linear because the interest rates were very high in Q1 last year. So I will say that the pressure just for interest rates is probably 4% to 5% alone in Q1. And then there is continuous pressure on client commissions given the competition in Brazil. There has been a gap for quite a while now between the revenue growth and the Bibby growth because of that competitive pressure. And this quarter, it's particularly enhanced by the drop in interest rates, which is quite heavy on the growth.
Maybe for the year, the outlook, as you asked, Jamie, we expect to be probably around 5%.
Yes, for the overall BRS, I mean, given the strengths of the growth in Europe and in Incentive and Recognition, we reckon that the guidance of around 5% should be maintained for BRS.
In terms of the second question on Education, we expected a significant drop because we had a very poor performance in retention last year. And we discussed that during the annual results presentations, and that's a mathematical impact. As you know, the selling season is late in that business, and we will have results of that selling season in May, June, July, right? So hopefully, we'll have a better selling season this year. As we discussed, we have made many changes in that business. We are continuing to make changes in that business because the -- our CEO of that business left and so we're taking the opportunity to reshape the organization. So -- but we are confident because, again, it's a good business and we have very, very good footprint. So we'll be able to turn this business around. And the other thing is that same-store sales have been weak also, right? But again, we are all working on all this. And we should, as we move forward in the coming years, recover growth in Education in North America, right? And the third question, Marc?
And just to wrap up this, I think when you do the math of the 1.5 days and we -- what we see is that we will not totally recover that 1.5 day for the full year. And so I will tend to say the underlying degrowth or negative growth is actually between -- around 2.5% currently. And until we sign new contracts in universities, it's going to be that. Now in schools, we've had quite a few ramp-ups of contracts, and we signed an extension with Chicago Public School and this is coming up. So -- but the underlying growth is correct. With regard to the mix impact on margin. And indeed, North America is our highest margin territory. So currently, I mean, it does put some pressure and we have to work very hard, but we believe that over the year, we should be able to maintain our guidance on margin.
And now we'll take our next person from the queue, Julien Richer from Kepler Cheuvreux.
Two questions from me, please. The first one on the Education segment in North America. So you are talking about weak comparable unit growth due to the calendar impact. Excluding that calendar impact, is there any change in terms of unit growth on that segment? And second question in terms of the pickup in France. Is this mainly because of tourism activity that is recovering? Or is it also related to better volumes on-site for your corporate clients?
Well, on Education, it's the overall environment and the fact that the population on these campuses are probably spending less. But overall, we have been working on marketing programs, new offering. We discussed at the -- in November some new offers that we are putting in place. So we are confident that we can build that momentum back and grow the business, as I said, and recover positive growth in the years to come. Now in France, it's clear that it's -- it's the signing of new contract. It's the fact that we have had a very good retention rate last year that we signed some good contracts. So we have a positive momentum. Of course, the business in Paris in the -- on the river and everything and the tourism, is picking up a little bit. But it's not the reason of -- the main reason of the positive growth. It's the underlying business and the new business, which is growing favorably and which is very good news. Very, very good news. Because France has been negative for a few years in the past. And for the last, I would say, 3 quarters, have been significantly more positive. And it's a good trend, a solid trend.
And now we take our next person from Vicki Stern from Barclays.
I have 3 questions. Just firstly on U.S. Health Care, because you talked about Education, but just on Health Care in the U.S., any comments there on thinking around pipeline and retention rate? U.K., again, similar sort of question, backdrop in terms of volumes. I think that you described it as being somewhat tough last quarter, and again on business wins and retention. And then just finally, some updated comments, please, on tax reform, following obviously the recent changes.
Well, on U.S. Health Care, retention last year was weaker than the years before, but still strong, close to 95%. So of course, it has an impact this year. But in Health Care, the reason for the soft growth is mainly in new business, right? Again, as we mentioned for the last few months, we had many, many changes in the U.S., in the teams, we've changed many teams. We are rebuilding those teams. And in Health Care, again, we should recover some -- there's good growth in the years to come. Marc mentioned the fact that this business has a lot of potential. Of course, there is pressure, economic pressure on this segment. But it is a good and strong business for us, and we are putting the necessary efforts and resources to come back on positive growth. For the U.K.?
Yes, the U.K. has a positive quarter and -- supported by growth in many different segments. The positive in the U.K. is the fact that the Health Care division is signing more, and that's new after a period where it was very, very soft. We've also benefited and this is what I tried to comment. We benefited in -- the entire Defense business was put to rebid, and we won lots at the beginning of the process. So currently, we are carrying the wins we had. Unfortunately, later on in the process, we lost some lots, and those lots losses will hit us in H2. So currently, I mean, we have the benefit of those Defense early wins, but we don't yet have the later losses which are going to hit us in H2. But the U.K., so far, is doing good otherwise, in other segments. With regard to the tax reform, now we have a bit more visibility. So -- and it does correspond in broad lines to what we had commented earlier. There is -- so there -- in the U.S., there will be a negative impact about the deferred tax, that we were carrying deferred tax. And obviously, with the tax rate drop, we will have an impact. There is an impact of the deemed repatriation tax, which is because Canada was a subsidiary of the U.S., we had left the dividend in Canada, so now we will have to pay the tax on those dividends. So that's for the 2 negative. The positive is that the impact of the tax reform is going to be prorated this year. So we were expecting the tax reform to impact us only next fiscal year, actually now impacting us from January. So that's good because it helps the ETR of the U.S. right in the first year. And we have had some mixed news on the tax credit and allowances that we were using. I think we will be able to recover [ and use ] some this year, but even though we will lose them in the future. In France, the good news of the 3% dividend tax is confirmed and we will book it. So what we do expect is that the -- now all in, we expect the ETR of the group to be around 28% this year, while I think earlier in November, I guided for 32%. So it's a significant improvement on the ETR. And going forward, because of the [indiscernible] reforms and the allowances, which are going to disappear gradually, we believe that we should be between 28% and 30% as a tax rate. It will also depend on the mix, obviously, of profits [ per ] countries and so forth. So I would say 28% for this year, all in, with all the pluses and minuses, and 28% to 30% going forward from fiscal '19, '20 and so forth.
And now we'll take our next person from the queue, Simon LeChipre from Raymond James.
Just 2 from me, please. The first one on M&A. If you could comment, please, on the pipeline? Do you expect to strike some new deals in the next few months here? And the second one on the Rest of the World region, you clearly have very positive momentum. Do you expect this trend to continue in the coming quarter given you will no longer benefit from the ramp-up of the Rio Tinto contract?
On M&A pipeline, Simon, we don't comment the M&A pipeline. Obviously, we are working and we are looking at things, but it's not something I will want to comment. But let's say we are active. Rest of the World, E&R was particularly stronger this quarter because it was an alignment of various things, among which the last effects of the ramp-up. When we look at Q2, obviously, I mean, it may slow down a little bit, but it will remain, let's say, in the high single digit. That is for Q2. And we'll see for H2, depending on the signing. But we are signing contracts and the momentum is good.
Yes, the momentum is strong. And Asia is -- will continue. China is good.
Lots of ramp-up in Latin America.
Brazil is good as well. So...
The only dark spot is the North Sea, as we commented. Even though we've seen some positive signs. Because it was getting better in Norway, we've made a few -- we had a few wins. But the [ recovery ] is still very, very negative. So I mean, there is a watch point in the North Sea for the moment.
And now we'll take our next person, Jaafar Mestari from JPMorgan.
I have 2 questions, please. Firstly, on North America Health Care and Education. You have flagged that disruptive impact of your reorganization on retention. I think that was last July, so 3 quarters ago. And of course, this will annualize. But can you explain maybe in more detail what changes you've made in the U.S. Education and Health Care business to help turn that around? When you say you've reshape the organization, is it new hires in sales, more investments in retention? When you say new offers, is it about introducing more brands? Is it about a different mix of services, et cetera? And my second question is on meal delivery. How do you view this market with the acquisitions of FoodChéri and the EAT Club. Is it a service that you intend to cross-sell to your existing clients for their smaller sites, for example, where there's no canteen? Or is it a service you think will bring you new clients, SMEs or even maybe B2C?
Thank you for your question. On North America, we said -- we explained, as we said, as you mentioned at the end of last fiscal year, that we made a lot of changes in the U.S. for the last few years. We had early retirement plans and many people left and was expecting -- as we're expecting. We also made a lot of change in the middle management. We cut off some position. So we've really reorganized this business. We are continuing to do this because it takes time. So we're changing people, we're modifying some of the organization and some of the regions within North America. So frankly, this should pay off. We're convinced of that because it's not the first time that we've been through this kind of reorganization, but this one was significant. And in terms of new business and new developing offers, we've discussed that. In Education, we've signed some very good contract last year, actually based on new offers that we've developed. And actually, we took this new business at a price which was not the lowest price, right? So frankly, it was attractive. So we -- there is a -- it's a big business, it takes some times. This year, hopefully, we'll have a better retention that we had in the last year in these 2 businesses. We also will have, hopefully, more good new signing. So we are rebuilding the momentum step after step. Those business are good. Just a matter of managing our internal issues, right? And of course Denis is of course on top of it and is working on it as we speak. Isn't it, Denis?
Definitely, Michel.
And so we are confident that this business will recover some good growth in the future. Now for the second question, Denis, maybe you should take it.
Yes. On the meal delivery part, both companies, EAT Club and FoodChéri, have a very interesting know-how with central kitchens that cook and then we deliver mainly in B2B in the U.S. and both in B2B and in B2C in France. We see that -- definitely to your question, Jaafar, we see that very much also, of course, as a cross-sell to our existing clients and consumers within our existing portfolio, of course, particularly in Corporate Services. And we also see, of course, this being -- bringing us additional clients from the small and medium business segment, and which is already the case for EAT Club and for FoodChéri. We also see that in some geographies, like in France, we see synergies, possible synergies coming from our sales team in Benefits & Rewards, which addresses of course small and medium businesses. And so we think that there is leverage there. So it's definitely both. And it's a way also to adapt ourselves to a trend of our consumers, particularly in Corporate Services. But you can imagine that as well in other segments. But a trend of this food delivery, [ trying ] something that it's really picking up. It's a way for us to enter into that market to learn and to also profit from the agility of these start-ups, which will be coveted and taken care by their founders. We -- the founders stay within the business. But what's important for us, to profit from their dynamic and their vision of the market.
And maybe just following up on that last point. When Elior launched their own delivery service or delivery plus service last year, they have quantified the market at EUR 5 billion in France, basically saying the market is the vouchers market. So do you think that, in the future, the choice is either vouchers or delivery? Or you think it's actually a service you can sell on top of?
Yes. I don't think you can oppose one to the other.
No.
I think it's a combination of both.
Exactly.
We haven't seen -- to be frank, we haven't seen the Elior offer jeopardizing our voucher business. So it's more a combination of both, actually.
And now we take our next person from the queue, Tim Ramskill from Crédit Suisse.
Two questions from me, please. The first is just around your comment about expected acceleration through the course of the year. I guess, Marc, in your pre-prepared comments, particularly on Business & Administrations, you talked about less sustainable growth in North America, the loss of army contracts in the U.K., the end of the Rio Tinto ramp-up. So just kind of interested to understand what the kind of key positive elements do you see coming through to see that acceleration. And in particular, I guess to reach the top end of your organic guidance you need something like 5% organic growth every quarter for the rest of the year, which would seem like an enormous improvement. So just why you think the top end of that range is even relevant. And then my second question is a little bit similar to Jamie's around margin, but within BRS. So within BRS historically, particularly as we've seen big FX changes, the margins you've noted are higher in LatAm and that had some impacts, as I say, more previously because of FX. Given the different growth dynamics in terms of geographical regions, is that margin differential again something to bear in mind? And maybe you can just give us a sense as to whether there's still a meaningful gap in profitability, LatAm versus your European and other regions?
Yes. There is -- in B&A, we had a very strong quarter, but it doesn't mean that Q2 is going to fall from the cliff. So it is not going to stay at the strength of what it was in Q1 because it was very strong, but it will remain strong. What we are expecting also the emerging countries are still going to be strong. France is showing some good signs also of remaining strong. The U.K., we have this difficulty with the Army contract, which is going to start hitting us in H2, but Q2 should remain strong. We're having also a development in the Med region, which is good. So...
Energy & Resources.
And Energy & Resources remain, as I said, high single digit at least for what we see in the next quarter. Now key in Health Care and Education -- and in Education there is a ramp up in school, the key now is actually the pipeline and the signature and the speed of mobilization. And we are actually busy mobilizing contracts. So those contracts will ramp up through the year. But it is a challenge to reach the upper, upper range of when we say 2% to 4%, 4% is going to be a challenge. But the pipeline is there and we've got currently good sign. The retention is also improving. So the KPIs are heading into the right direction, now it's to solidify them quarter after quarter. With regards to the margin, I mean, I think we spoke in November that there was a FX, I mean, impact. And as -- you're quite right, Brazil is probably our highest-margin business. So when the real is depreciating, it will have an impact of the blended margin, so to speak. And then the falling interest rate having an impact of EUR 15 million, there is no secret here, it impacts revenue and also impacts EBITDA. There is no cost in front of it, so this is 100% negative flow, unfortunately. So yes, there will be an impact on the BRS margin. I don't think this is new, it's as expected. For us, we factored it into our guidance and we've been very clear on that. So the -- and we also say last time that you should look less at BRS as a margin rate, but more as the evolution of EBIT in, because -- in volume because this is making more sense, especially with the development of Incentive and Recognition, the new acquisition with different models, the expansion in mobility and so forth. So the margin rate that we were displaying over the years were clearly -- when we were a pure player of meal and food it was making sense. Now that we are diversifying in other services, it is a lot more challenging to predict and analyze.
But those margins are strong, and they are...
Better than the group average.
Yes, they are good for the group, relative for the group margins.
And now we take our next person, Richard Clarke from Bernstein.
Two questions from me please. One is on the U.S. Health Care. You talked about some of the challenges you're seeing there and one of them you brought out is that you're seeing a need for cost-cutting in that segment. Now normally, you'd expect that to be a positive for the outsourcing business, so are you being undercut by rivals? And what's happening there that you're not picking up from that trend? And then the second one is just following on from Vicki's question on tax reform. Obviously, you've given us the -- where you expect your tax rate to come up. But are you seeing any change in behavior from your clients? Are they less willing to outsource more, willing to outsource more, willing to spend more on a higher-quality product given the fact that they'll have higher cash flow for themselves?
Well, in Health Care, the challenge of the hospital industry is not new, right? It's been like this for many, many years. Now of course, today, with the all the reforms and the uncertainty about this business, there's still more pressure. We see more and more mergers and acquisitions. So we are definitely doing not as good as Compass. We all know that, and we've discussed that many times with you. And this is why we're working on reorganizing our business. Compared to the others, I'm not sure. And I'm actually not convinced that we are not doing less good than themselves. So we -- this is why Marc said again that this business is a good business. It's a business where we should grow and we will recover growth. Again, and I've said that many times in the last few months, the challenge in health care is our problem. We have to fix our issues, and we are fixing them, right?
Yes. And just to bring some color. We -- the past few years, we had a very strong same-store sales in Health Care. But because of the cost-cutting and synergy searching and so forth, the same-store sale is not as strong, and this is where I was heading you to. Now the fact that they are looking at cost reduction is good for the midterm. But in the short term, they are squeezing. But in the midterm, obviously, I mean it means that a lot of more things will come our way. In term of tax reform, we have not seen any of our clients are modifying. It's very early. So -- but we're not expecting any significant movement on that side from -- most of our contracts are purely annual contract, they've got indexation, but they don't have a tax rate clause. So maybe at the next renewal, I don't know. But no, I'm not expecting much pressure on the fact that the tax rate...
No, I don't think so.
The tax rate in the U.S. was knowingly very high. So now it's back into a more reasonable rate, so I'm not expecting pressure on that.
No.
Too early to say.
And now we'll take our next person, Jarrod Castle from UBS.
Michel, I guess it's your -- one of your last calls, so thanks for everything. Just 2 from me, please. One, just coming back to kind of Page 9 and kind of your platform businesses. Can you quantify how big they are at the moment in terms of future revenue generation if we look across the whole group, this business model? And secondly, most of the catering companies have, to some extent, veered away from airline catering even though it's a big market. Given that some of these activities are centralized and given the fact that you're also now doing airline lounges, would that be something of an opportunity for you? And then just lastly, any update on your reinvestment program on the digital front, i.e., the reason for the flat margin, how that's progressed through the quarter?
Okay, Jarrod. Thank you for your question. Yes, it is not actually one of my last call, it is my last call because Denis will take over in the next few weeks. But -- just I would answer on the lounges. The lounges business is managing lounges, right, and it has nothing to do with airline catering, which is an industrial business where we provide trays and meals for the planes. We are not in this business and we will not be in this business. We have looked at this business many times, and this is not a business that we want to be in. Now the lounge business is a very different business. It's an opportunity for us to have large contracts to provide services to these airlines and help them provide a customer experience, which is consistent around the world. And we have developed capabilities, specific teams and specific programs, and it's actually paying off. It's, as I said, a benefit of our segmentation and subsegmentation. And hopefully, that will continue to grow. So Denis, on the question on FoodChéri?
Yes. On the food delivery platform. I think the -- of course, those are start-ups. The revenue...
Small. Very small.
Are very small and not significant at group level. However, the experience that it creates for our clients is significant and our consumers. And it's also, for us, a learning path towards extended offers, more consumer-centricity and also digital marketing and sales. So it's -- for us it's very, very interesting. And as far as the -- your last question regarding additional investments. We are progressing. We've -- we continue to do the investment that we mentioned. As you might know now, we'll do this Capital Market Day early September, and we will have the opportunity to describe in more detail where we invest and what we are doing. What I can tell you is it's -- we have good momentum and it delivers as expected.
And now we take our next person, [ Mahdi Al-Khasi ] from Berenberg.
If you can please give us a little bit of color in terms of European voucher. What are the main drivers of growth? Is it volume or prices? Also, same thing on the catering, can you give us a little bit of color on the volume and prices trend that you're seeing?
Well, in terms of the Benefits & Rewards business, Europe is -- we have good momentum because the economy in Europe is really going well, being in Western or Eastern Europe. So we have good pick up on volume with good employments and beneficiaries pick-up. We also have some increase in face value in some countries that also helped. So overall -- and it's across -- I would say, it's across all our countries and it's a general trend across all our countries.
And I would say on the revenue side, we have no more negative impact of falling interest rates because they are all at zero. So now it can only get better. So -- but for the past 3 years, it was going down and down and we had pressure, now we don't have anymore.
And regarding prices, of course, the situation can differ depending upon the country. In some countries you have higher pension and higher competition. But overall, I would qualify the situation in Europe as reasonably stable, particularly when we compare to what we know in Brazil.
Now in the On-site business, I would say the same. There is a no -- nothing special in terms of pricing. It's -- again, it's always been and will be a competitive business. And -- but there's nothing to say more than what happened in the past.
But I will say what makes the difference is the offer. And we see that when we have the right offer, we write -- we win the contract. It's not just about price, but the offer. And this is why an acquisition like FoodChéri is also very important because it enriches the offer. And it was the same also in the U.K. with Good Eating Company and Peyton and Byrne. We have to have sharper offer, more focus, segmented and I think this is how we will grow the business in food in Europe.
And now we take our next person, Angus Tweedie from Bank of America.
Just a very quick one. I was hoping, in B&A, you could help quantify the scale of the project work in Q1 that impacted North America and also remind us of the scale of the impact in rest of world from the Rio Tinto ramp up?
So I think the size of the project in Business & Administration are, in Q1, was about EUR 17 million.
Yes.
And the ramp-up in Rio Tinto, I think now we are at maturity in terms of revenue. And we are talking, I would say, probably the ramp-up this Q1 was about EUR 5 million extra versus Q4. But I think now we are where we should be.
Yes, because we got to the full volume last year in December, I think.
[Operator Instructions]
Do you have any more questions?
As there are no further questions at this time, I would like to hand the call back to the Sodexo team for any additional or closing remarks.
Well, thank you very much for being with us today, and we wish you all the best. Bye-bye. Thank you.
Thank you.
Thank you.
So ladies and gentlemen, that will conclude today's Sodexo First Quarter 2018 Revenues Conference Call. Thank you for your participation. You may now disconnect.