June 26, 2018 / 7:15 AM / 22 days ago

UPDATE 1-Elior's shares fall on investors' doubts over new strategic plan

* Shares fall, some scepticism over new targets

* Unveils new targets in three-year plan

* Aiming to fight back after issuing profit warnings

* Sees organic growth above 3% per annum on average

* Eyes cumulative operating free cash flow of €750m (Adds CEO quotes for statement, shares)

By Dominique Vidalon

PARIS, June 26 (Reuters) - Elior, Europe’s third-largest catering group that has been hit by recent profit warnings, vowed to boost revenue and profits in a new strategic plan, although its shares fell on concerns over whether or not it could meet its new targets.

Elior, which competes with Sodexo and Compass and has had three profit warnings since last November, said that for the period covering 2019-2021, it was targeting annual organic sales growth above 3 percent.

“Lately the group had lost its recipe for success,” said Elior chief executive Philippe Guillemot, adding that Elior’s new strategy plan represented a “new chapter” for the company.

“The roadmap we will present today is both ambitious and deliverable,” added Guillemot at a briefing for investors.

Guillemot, who has been six months into the job, said Elior also targeted growth in its adjusted earnings before interest, tax and amortisation (EBITA) margin that would be double that of its organic sales growth.

This would compare with expected organic sales growth of close to 3 percent and an adjusted EBITA margin of 4.3 percent to 4.6 percent in its 2017/18 financial year ending September 30, which the group reiterated on Tuesday.

Elior said the path towards achieving these goals, which also included cumulative operating free cash flow of 750 million euros ($878.70 million), would “not be linear”.

“The first year will bring stabilisation in EBITA margin and capex, in the second and third year, the operating leverage and capex reduction will gradually produce their effect on EBITA margins, operating free cash flow and cash conversion,” Elior said in a statement.

Free cash flow will be used for acquisitions in the United States, which has been a key pillar of Elior’s expansion, deleveraging and for the return of cash to shareholders.

SHARES FALL

Nevertheless, Elior’s shares were down 3.7 percent in early session trading - the worst performing stock on Paris’ SBF-120 index.

“The target for organic sales growth of above 3 percent remains ambitious,” said Paris-based brokerage MidCap Partners in a note. It kept a “neutral” rating on Elior shares.

The plan comes with Elior shares under pressure after the profit warnings, which the group has blamed on start-up costs on new contracts and the fact that some of its cost-saving plans made less of a contribution than expected.

Elior, like its rivals, is also operating in a tough competitive environment in Europe.

Sodexo cut its sales and profit margin outlook in March while Compass, the world’s biggest catering firm, missed first-half earnings expectations in May.

Elior’s contract arm, which provides catering to businesses, schools and hospitals, accounts for 76 percent of its overall business. It also has a concessions business, which serves airports, railways and motorways.

Elior said that in contract catering it would explore new growth areas and consolidate its leadership position in Continental Europe while aiming to outpace market growth in Britain and India. In North America, the goal was also to outpace market growth continue its expansion. In concessions catering Elior said it would focus on getting payback on past investments and would grow selectively.

Elior’s shares have fallen nearly 20 percent so far in 2018.

Elior, whose net debt reached 1.8 billion euros at the end of March following recent acquisitions, reiterated it was targeting capital expenditures of 300 million euros for its 2017/2018 full financial year.

$1 = 0.8535 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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