May 28, 2010

Sodexo
Primary Credit Analyst:
Mohammed Fayek, London (44) 20-7176-3408; mohammed_fayek@standardandpoors.com
Secondary Credit Analyst:
Alf Stenqvist, Stockholm (46) 8-440-5925; alf_stenqvist@standardandpoors.com

Table Of Contents

Major Rating Factors

Rationale
Outlook
Business Description: A Leading Global Player In Food And Facilities
Management And Service Vouchers
Business Risk Profile: Leading Position In A Stable Market
Financial Risk Profile: Intermediate, Benefiting From Strong Cash Flow
Generation
Financial Statistics/Adjustments

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Sodexo
Major Rating Factors
Strengths: Corporate Credit Rating
• Leading worldwide player in contract catering BBB+/Stable/A-2
• Diversified client base and geographic coverage.
• Strong free cash flow generation with high visibility.
• Good return on capital with high margins in voucher business and stable
margins in the core food and facilities management business.

Weaknesses:
• Limited price flexibility.
• Somewhat cyclical revenues from the corporate segment, and some exposure to fluctuations in food prices.
• Increasingly acquisitive and shareholder-friendly policies.
• Influence of Bellon S.A. as major owner of Sodexo.

Rationale
The ratings on France-based food and facilities management company Sodexo reflect our view of its leading global
position in contract catering, in which it has a No. 1 position in the U.S., and in the fast-growing health care, senior,
and education segments worldwide. The company benefits from higher-than-average stability and visibility of
revenues and cash flow, thanks to the long average length of its contracts and high renewal rates. The ratings are
further supported by the high margins of Sodexo's motivation solutions (service vouchers) business and the
improving margins of its core on-site solutions (food and facilities management) business. The company also enjoys
low capital requirements. These factors are partially offset by limited price flexibility because of low barriers to
entry and strong competition from large and local players, the cyclicality of revenues from the corporate segment,
and exposure to fluctuating food prices. The ratings are also constrained by the company's moderate leverage, its
increasingly acquisitive and shareholder-friendly policies, and its relationship with France-based major shareholder
Bellon S.A. (not rated), which we consider has significantly lower credit quality.

Key business and profitability developments

Sodexo recorded revenues of €14.5 billion in the 12 months ended Feb. 28, 2010. Despite weak economic
conditions across Europe and North America, Sodexo managed to broadly maintain its revenues, recording organic
growth of 0.4%, and improve its reported operating profit margin by 20 basis points to 5.7% in the first half of
financial 2010 (ended Feb. 28, 2010). Sodexo's improved profitability in the period was largely attributable to
initiatives to increase productivity across all the regions in which it operates.

The bulk of Sodexo's growth in food and facilities management (96% of first-half revenues in financial 2010) was
largely attributable to the education, health care, and senior segments. This growth was partially offset by a minor
decline in the corporate services segment. Sodexo's service vouchers and cards segment (4% of first-half revenues in
financial 2010) recorded a sharp decline in organic growth reaching 3.2% (relative to 17.8% in the same period in
2009), largely on the back of tough economic conditions, reduced workforces, and low interest rates. We anticipate
that Sodexo's organic growth for the rest of financial 2010 will remain positive--in the low single digits--and that

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 Sodexo

profit margins will be stable.

Key cash flow and capital-structure developments

We believe that Sodexo's financial risk profile will remain "intermediate". The company generates strong cash
flows--reflecting modest capital expenditure (capex) needs--that provide good debt repayment capacity. The
company's adjusted ratio of funds from operations (FFO) to debt in the 12 months ended Feb. 28, 2010, stood at
about 34%, compared with 39% for financial 2009 (ended Aug. 30, 2009). This was largely a result of Sodexo's
nonrecurring interest payments throughout the 12 months ended Feb. 28, 2010. Sodexo's cash flows in the period
included two interest payments, one for a bond which was repaid in full in March 2009 and another interest
payment for a new bond issued to refinance the repayment. Reversing the impact of this one-off payment results in
an adjusted FFO-to-debt ratio of about 37%, which we consider commensurate with the ratings on the company.

Although acquisitions made in financial year 2009 may temporarily increase Sodexo's adjusted debt levels, we
believe that its free cash flows will cover a substantial portion of the funds consumed by these transactions. Based on
current information, we anticipate that credit measures will remain within our guidance for the 'BBB+' rating,
including adjusted FFO to debt of more than 35%. In the near term, however, we consider that Sodexo will have
limited flexibility within the ratings to undertake either further acquisitions or shareholder-friendly measures.

Liquidity
Sodexo's strong liquidity benefits from its generally recurring large cash balances, strong free operating cash flow
(FOCF) generation, and available and unused credit facilities. On Feb. 28, 2010, the company held cash and
equivalents (excluding restricted cash balances) of about €1.4 billion and unused committed credit facilities of about
€427 million.

Over the coming two years, Sodexo has negligible debt repayments. In 2011-2012, Sodexo will face material debt
refinancing requirements of €637 million, which we anticipate the company to address well in advance of repayment
dates. We believe that Sodexo's free cash flow generation will remain strong in the near term on the back of a stable
operating performance and the company's limited capex requirements, which stood at about 1.5% of revenues for
financial 2009. Sodexo generated about €531 million in adjusted FOCF in the 12 months ended Feb. 28, 2010.

We believe that Sodexo's relationship with Bellon does not impose an immediate financial or liquidity burden,
despite Bellon's reliance on dividends from Sodexo to service its debt interest costs and on Sodexo shares as
collateral for its own debt.

Outlook
The stable outlook reflects our view that Sodexo will continue to deliver adequate operating performance over the
next few years, despite a generally weaker economic climate in the near term. The outlook also assumes that the
company's adjusted FFO to debt will remain above 35%.

In our view, an extended and sustainable strengthening of the company's financial profile could lead to upside rating
potential in the longer term. Downside risk would likely arise from further material cash- or debt-financed
acquisitions in the near term, excessive use of a proposed share buyback program, deteriorating operating
performance, or governance issues.

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 Sodexo

Business Description: A Leading Global Player In Food And Facilities Management

And Service Vouchers
Service company Sodexo had sales of about €14.5 billion the 12 months ended Feb. 28, 2010, and operates in two
main areas:

• On-Site Service Solutions (food and facilities management). This division represented 96% of Sodexo's sales and
about 78% of operating profits before central costs in the first half of financial 2010. The business consists of
supplying food and facilities management services to companies, public authorities, hospitals, clinics, retirement
homes, schools, colleges, and universities. It also includes remote-site management, providing services to workers
on offshore oil rigs, large construction projects, and mining sites. Services include food, reception management,
landscaping, heat ventilation, air conditioning, cleaning, maintenance, and security.
• Motivation Solutions (service vouchers). This division represented 4% of the company's revenues and 22% of
operating profits in the first half of financial 2010. Companies or public authorities of all sizes offer vouchers to
their employees or citizens to pay for items such as food, gasoline, child care costs, and employee incentives. The
vouchers often have tax or social-charge benefits for their users.

Business Risk Profile: Leading Position In A Stable Market

The company's "strong" business risk profile reflects:

• Sodexo's leading position among global food and facilities management service providers. It retains sufficient
scale to be competitive in this market and was about the same size as its closest competitor, Compass Group PLC
(BBB+/Stable/--), at the two firms' respective financial year-end dates for 2009. Sodexo has a strong presence in
North America, is the largest player in a number of European countries and ranks second in the U.K., behind
Compass, and third in Germany. It also has limited, but expanding, operations in the Asia-Pacific region and
Latin America.
• The company's No. 2 position worldwide in service vouchers after Accor S.A. (BBB-/Watch Neg/A-3). We view
the industry favorably, as it is relatively stable, has high operating margins of above 30%, and offers high growth
rates in excess of 10% throughout regular economic conditions, given that market sources estimate world market
penetration at only about 40%.
• Good geographic diversification. In the first half of financial 2010, North America generated about 39% of
revenues, Continental Europe 36%, the U.K. and Ireland 8%, rest of the world 13%, and service vouchers 4%.
• Client base diversity. The company operates 33,900 sites through its food and facilities management business and
serves 375,000 clients through its vouchers business. None of its contracts account for more than 2% of total
sales.
• High contract retention rates and long-term client relationships. Although contracts generally do not have a fixed
maturity and can be terminated with three months' notice, Sodexo's average contract duration is more than nine
years. The company's renewal rate has stood at 93%-94% over the past three years; however, Sodexo is aiming
for 95% over the next few years as it invests in training and focuses on the quality of its customer service.

These strengths are partially offset by:

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 Sodexo

• The highly competitive and fragmented nature of the food and facilities management sector due to low barriers to
entry. This leaves limited pricing flexibility for service providers and relatively low operating margins throughout
the sector at about 4%-6%. Therefore ongoing efforts to control overheads, staff costs, and food price inflation
are necessary.
• Exposure to economic cycles in the corporate services business segment, which contributed roughly 34.5% of the
company's revenues in the year ended Aug 31, 2009. This is largely due to this segment's dependence on
corporate expenditures and employment levels.

Financial Risk Profile: Intermediate, Benefiting From Strong Cash Flow Generation
The main strengths of the company's "intermediate" financial risk profile are:

• Strong free cash flow generation with high visibility. The stability of the sector and low capex make Sodexo's
business model very cash flow generative. In financial year 2009, reported FOCF amounted to €378 million. In
our view, Sodexo should be able to maintain credit measures commensurate with the ratings, for example
adjusted FFO to debt of more than 35%.
• Sodexo's adequate liquidity profile and limited maturities over the next 24 months, which are covered by cash,
undrawn committed credit lines, and free cash flow generation. The company's key credit facilities benefit from
long-term tenors.

These strengths are moderated by:

• Sodexo's ongoing acquisitive strategy to complement organic growth. Its very wide market reach creates potential
for bolt-on acquisitions. We therefore anticipate Sodexo to use the bulk of its financial headroom for acquisitions
or to implement shareholder-friendly measures.
• The company's relatively weak capital-structure metrics and asset-protection measures. Sodexo's adjusted ratio of
debt to debt plus equity stood at 45% on Feb. 28, 2010. In addition, more than 40% of the company's total
assets are intangible. Goodwill represents the majority of these assets in light of the company's acquisitive track
record.
• Major shareholder Bellon's continued effective control of Sodexo. Bellon is a France-based company controlled
by members of the founding Bellon family, and 18.5% by Sodexo through related entity Sofinsod. Bellon held
37.7% of Sodexo's share capital and 43.8% of voting rights on Aug. 31, 2009. Although we view Sodexo's
governance practices as consistent with the ratings, we will continue to monitor certain aspects because of their
potential importance to creditors and other financial stakeholders.

Financial Statistics/Adjustments
Sodexo reports its financial statements under International Financial Reporting Standards. We adjust Sodexo's
financial debt and ratios for operating leases and the pension deficit. We also take into account the company's
surplus cash, which is readily available under reported cash and cash equivalents. This is calculated by excluding
restricted cash of about €370 million, as disclosed in the notes to the company's financial statements, as well as an
estimate (about €200 million) of cash and equivalents that is tied to daily operations or to countries where relatively
unstable financial systems involve cash repatriation risks (see table 1).

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 Sodexo

Table 1
Reconciliation Of Sodexo Reported Amounts With Standard & Poor's Adjusted Amounts (Mil. €)*
--Fiscal year ended Aug. 31, 2009--

Sodexo reported amounts

Operating Operating Operating
income income income Cash flow Cash flow
Shareholders' (before (before (after Interest from from Capital
Debt equity D&A) D&A) D&A) expense operations operations expenditures
Reported 2,683.0 2,279.0 963.0 963.0 746.0 185.0 577.0 577.0 221.0

Standard & Poor's adjustments

Operating leases 329.0 -- 101.0 23.4 23.4 23.4 77.6 77.6 65.7
Postretirement 168.8 (1.3) (1.0) (1.0) (1.0) 1.0 (2.0) (2.0) --
benefit
obligations
Surplus cash and (1,231.0) -- -- -- -- -- -- -- --
near cash
investments
Share-based -- -- -- 12.2 -- -- -- -- --
compensation
expense
Reclassification -- -- -- -- 86.0 -- -- -- --
of nonoperating
income
(expenses)
Reclassification -- -- -- -- -- -- -- 96.0 --
of
working-capital
cash flow
changes
Minority -- 37.0 -- -- -- -- -- -- --
interests
Reversal of -- -- -- -- -- -- 12.2 12.2 --
one-off items
Total (733.2) 35.7 100.0 34.6 108.4 24.4 87.8 183.8 65.7
adjustments

Standard & Poor's adjusted amounts

Operating
income Cash flow
(before Interest from Funds from Capital
Debt Equity D&A) EBITDA EBIT expense operations operations expenditures
Adjusted 1,949.8 2,314.7 1,063.0 997.6 854.4 209.4 664.8 760.8 286.7
*Please note that two reported amounts (operating income before D&A and cash flow from operations) are used to derive more than one Standard & Poor's-adjusted
amount (operating income before D&A and EBITDA, and cash flow from operations and funds from operations, respectively). Consequently, the first section in some
tables may feature duplicate descriptions and amounts.

Table 2
Sodexo Peer Comparison*
Sodexo Compass Group PLC Experian Finance PLC
Rating on May 28, 2010 BBB+/Stable/A-2 BBB+/Stable/-- BBB+/Stable/A-2

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 Sodexo

Table 2
Sodexo Peer Comparison* (cont.)
--Fiscal year ended Aug. 31, --Fiscal year ended Aug. 31, --Fiscal year ended March 31,
2009-- 2009-- 2009--

(Mil. €)
Revenues 14,681.0 14,709.1 2,917.2
EBITDA 997.6 1,236.2 801.1
Net income from continuing operations 393.0 597.4 357.0
Funds from operations (FFO) 760.8 1,046.3 758.0
Capital expenditures 286.7 238.9 234.7
Free operating cash flow 378.1 843.5 531.7
Debt 1,949.8 1,757.6 1,767.0
Equity 2,314.7 2,783.7 1,430.4

Adjusted ratios
EBITDA/revenues (%) 6.8 8.4 27.5
Operating income (before 7.2 9.2 28.1
D&A)/revenues (%)
EBIT interest coverage (x) 4.1 6.8 5.0
EBITDA interest coverage (x) 4.8 8.4 7.8
Return on capital (%) 21.3 23.1 14.2
FFO/debt (%) 39.0 59.0 43.1
Free operating cash flow/debt (%) 19.4 43.6 30.6
Debt/EBITDA (x) 2.0 1.4 2.2
Total debt/debt plus equity (%) 45.7 38.7 55.3
*Fully adjusted (including postretirement obligations). Excess cash and investments netted against debt.

Table 3
Sodexo Financial Summary*
--Fiscal year ended August 31--

2009 2008 2007 2006 2005

Rating history BBB+/Stable/A-2 BBB+/Stable/A-2 BBB+/Stable/A-2 BBB+/Stable/A-2 BBB+/Stable/A-2

(Mil. €)
Revenues 14,681.0 13,611.0 13,385.0 12,798.0 11,693.0
EBITDA 997.6 926.8 849.5 820.2 646.0
Net income from continuing operations 393.0 376.0 347.0 323.0 212.0
Funds from operations (FFO) 760.8 747.8 666.6 543.0 536.1
Capital expenditures 286.7 287.8 408.6 299.4 224.4
Free operating cash flow 378.1 617.0 446.0 283.6 542.7
Debt 1,949.8 1,411.9 1,127.7 1,475.8 1,580.0
Equity 2,314.7 2,198.5 2,300.0 2,146.0 2,051.0

Adjusted ratios
EBITDA/revenues (%) 6.8 6.8 6.3 6.4 5.5
Operating income (before D&A)/revenues (%) 7.2 7.3 6.9 7.0 6.2
EBIT interest coverage (x) 4.1 4.9 4.8 4.9 3.3

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 Sodexo

Table 3
Sodexo Financial Summary* (cont.)
EBITDA interest coverage (x) 4.8 6.0 5.9 6.2 4.5
Return on capital (%) 21.3 21.4 19.5 17.6 12.9
FFO/debt (%) 39.0 53.0 59.1 36.8 33.9
Free operating cash flow/debt (%) 19.4 43.7 39.5 19.2 34.3
Debt/EBITDA (x) 2.0 1.5 1.3 1.8 2.4
Debt/debt and equity (%) 45.7 39.1 32.9 40.7 43.5
*Fully adjusted (including postretirement obligations). Excess cash and investments netted against debt.

Ratings Detail (As Of May 28, 2010)*

Sodexo
Corporate Credit Rating BBB+/Stable/A-2
Corporate Credit Ratings History
06-Dec-2004 BBB+/Stable/A-2
28-Nov-2002 BBB+/Negative/A-2
20-Sep-2002 BBB+/Watch Neg/A-2
Business Risk Profile Strong
Financial Risk Profile Intermediate
Debt Maturities
On Aug. 31, 2009:
2009-2010: €136 mil.
2010-2011: €65 mil.
2011-2012: €637 mil.
2012-2013: €65 mil.
2013-2014: €624 mil.
Thereafter: €1,155 mil.
Related Entities
Sodexo Inc.
Issuer Credit Rating BBB+/Stable/A-2
Senior Unsecured (2 Issues) BBB+
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard
& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.

Additional Contact:
Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com

Additional Contact:
Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com

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