Unassociated Document

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
Report of Foreign Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For the month of May, 2007
 
Commission File Number: 001-31274
 
SODEXHO ALLIANCE, SA
(Translation of registrant’s name into English)
 
 
3, avenue Newton
78180 Montigny - le - Bretonneux
France
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
 
 
 Form 20-F   X  
  
Form 40-F    
 
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
 
 
Yes ____
  
No    X   
            
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
 
 
Yes ____
  
No    X   
            
 
Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
 
 
Yes ____
  
No    X   
            
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A 
 






SODEXHO ALLIANCE, SA 

TABLE OF CONTENTS 

 
  Item  
 
1.
 
First-half Fiscal 2007 Results

 


Item 1
 

I.   BUSINESS REVIEW
       FIRST-HALF FISCAL 2007

Sodexho Alliance Chief Executive Officer, Michel Landel, presented the results for the first-half of Fiscal 2007 to the Board of Directors at the April 24, 2007 meeting of the Board.

Highlights

(in millions of euro)
First-half
Fiscal 2006
First-half
Fiscal 2007
Change
(excluding currency impact)
Currency impact(1)
Total
change
Revenues
6,546    
6,819    
+8.4%    
-4.2%    
+4.2%    
Operating profit
315    
364    
+20.4%    
-4.8%    
+15.6%    
Group net income
160    
198    
+29.2%    
-5.0%    
+24.2%    
Net cash provided by operating activities
93    
211    
     

(1)
The currency impact is unfavorable. However, Sodexho subsidiaries’ income and expenses are expressed in the same currency; hence, unlike exporting companies, currency variations carry no operating risk.
(2)
Currency effects are computed by applying the average exchange rate for the prior period to the amounts for the current year period.
 
 
•
 At 8.2%, at constant scope of consolidation and exchange rates, organic growth in revenues accelerated for the first-half of Fiscal 2007. This performance reflects the improvement in client retention achieved in Fiscal 2006, good new sales activity, particularly in the Rest of the World (Latin America, Asia-Australia and Remote Sites) and a strong acceleration in comparable unit sales. The Service Vouchers and Cards activity continued to show dynamic organic growth based on its innovative offers.
     
 
•
Operating profit rose by 15.6% to 364 million euro and by 20.4% excluding the currency impact. This increase is attributable to the continued progress achieved by teams across all geographies.
     
 
•
Group net income increased by 24.2% or 29.2% excluding currency effects. This increase, stronger than that shown for operating profit, is attributable essentially to the improvement in the effective tax rate, which went from 38.8% for the first-half of Fiscal 2006 to 35.5% for the first-half of Fiscal 2007.

 
- 1 -
 
1. Analysis of evolution of revenue and operating profit by activity
 
Revenue by operating activity
  
First-half
    
First-half
    
Change at
    
Change at
  
(in millions of euro)
  
Fiscal 2007
  
 
Fiscal 2006
    
current
    
constant
  
               
exchange
    
exchange
  
               
rates
    
rates
  
Food and Facilities Management
                        
Services
                        
North America
    
2,890
      
2,919
       -1.0 %     7.1 %
Continental Europe
    
2,236
       
2,111
         5.9 %     5.8 %
United Kingdom & Ireland
    
720
      
663
       8.5 %     6.9 %
Rest of the World
    
766
      
678
       13.0 %     19.5 %
Total
    
6,612
      
6,371
       3.8 %     8.0 %
Service Vouchers and Cards
    
211
      
178
       18.4 %     22.9 %
Elimination of intragroup revenues
     (4 )     (3 )                
Total
    
6,819
      
6,546
       4.2 %     8.4 %
 
Operating profit by operating
  
First-half
 
  
First-half
    
Change at
    
Change at
  
    activity  
 Fiscal 2007
   
Fiscal 2006
    
current
    
constant 
  
(in millions of euro)
              
exchange
    
exchange
  
               
rates
    
rates
  
Food and Facilities Management
                        
Services
                        
North America
    
163
      
152
       7.4 %     16.1 %
Continental Europe
    
115
      
103
       11.0 %     10.9 %
United Kingdom & Ireland
    
30
      
17
       76.8 %     74.2 %
Rest of the World
    
20
      
11
       86.7 %     104.4 %
Total
    
328
      
283
       15.9 %     21.1 %
Service Vouchers and Cards
    
66
      
53
       24.4 %     29.7 %
Corporate expenses
     (30 )     (21 )                
Total
    
364
      
315
       15.6 %     20.4 %

In the first-half of Fiscal 2007, operating activities outside the euro zone accounted for 69.8% of revenues (of which 41.5% were denominated in US dollars) and 69% of operating profit (of which 39.2% were in US dollars).
 
- 2 -

1.1. Food and Facilities Management Services

In Food and Facilities Management Services, organic revenue growth was 7.9% .

Organic revenue growth for Business & Industry accelerated from 5.2% in the first half of Fiscal 2006 to 8.2% for the first half of Fiscal 2007. Three principal factors explain this good performance:

 
•
The business recovery in North America
 
•
Sustained growth in the Defense and Leisure segments in the United Kingdom
 
•
Double-digit growth in the Rest of the World

At 7.8%, organic growth in Healthcare and Seniors was comparable to that for the same period for the previous year reflecting the relevance of Sodexho’s offer of Facilities Management services to improve the Quality of Life.

In Education, organic growth rose to 7.3%, a result in particular of a return to growth in North America following the reduced level of activity during the first half of Fiscal 2006 resulting from the hurricanes in the Gulf Coast region.

Analysis by region

In North America, revenues totaled 2.9 billion euro, with organic growth of 7.6% .

Revenues in the Business & Industry segment, up 5.8%, benefited from a number of favorable developments, including an improvement in client retention and a satisfactory increase in comparable unit sales. The accelerated pace of business development was especially noteworthy in Facilities Management, as contracts were signed with Pfizer, USAA Insurance and the General Electric Nuclear Energy.

Organic growth of 7.9% in the Healthcare and Seniors segments reflected mainly an increase in comparable unit revenues led by an innovative portfolio of Facilities Management services. Among the new clients that signed with Sodexho during the period were the Moses Cone Health Center in North Carolina, Stanford University Hospital in California and Landmark Medical Center in Rhode Island.

Several factors contributed to the 8.2% revenue increase in the Education segment:

 
•
Strong demand for Facilities Management services, notably for construction and renovation projects.
 
•
An increase in comparable unit Foodservice revenues for both schools and universities.
 
•
The positive impact of Fiscal 2006’s improved client retention rate.

Operating profit reached 163 million euro, increasing 16.1% excluding currency effects. The operating margin for the first half of Fiscal 2007 was 5.6% . Several factors contributed to the improved operating profit:

 
•
Good development in comparable unit sales in Education and Healthcare
 
•
Comparison with a Fiscal 2006 first-half that was negatively impacted by several elements (hurricanes, timing of certain expenditures) and losses during the winter months by Spirit Cruises prior to its divestiture at the end of Fiscal 2006.

- 3 -
 
Sodexho was able to successfully complete certain discussions that were long outstanding regarding its contract with the U.S. Marine Corps during the first half of Fiscal 2007.

In Continental Europe, revenues totaled 2.2 billion euro, with organic growth of 4.9% . Organic revenue growth in the Business & Industry segment progressed 3.8% with varied results between countries:

 
•
Continued good business development in Central Europe.
 
•
Strong growth in comparable unit sales; notably in Spain.
 
•
More modest results in certain countries (particularly Italy and the Netherlands) as a result of the economic environment and rigorous application of the profitable growth business strategy.

The 7.1% organic growth in the Healthcare and Seniors segments reflected the diversity of the services offering and the prior year’s strong business development. Contracts were recently signed with University Hospital Gent in Belgium and la Clinique Saint Jean Languedoc in France.

The 5.5% growth in the Education segment can be attributed to improved client retention rates and an ongoing commitment to selectivity, especially in public sector markets. New clients included the Dresden Fraichaud schools in Germany, the Sigtuna and Atvidaberg schools in Sweden and the University of Milan in Italy.

Operating profit totaled 115 million euro, an increase of nearly 11% excluding currency effects. The operating margin increased from 4.9% to 5.1%, as a result of two principal factors:

 
•
Improved productivity and the continuing efforts of Sodexho’s teams to reduce overhead costs,
 
•
The effect of major contract start-ups in France which had weighed on operating profit during the first half of Fiscal 2006.

In the United Kingdom & Ireland, revenues rose to 720 million euro. Organic growth of 6.9% confirms the subsidiary’s recovery. Revenues for Healthcare, Correctional Facilities, and Defense increased with the opening of significant contracts such as the hospital of Havering in Healthcare and Catterick Garrison in Defense. Contracts signed as part of the government’s Private Finance Initiative are now ramped up to their normal level of recurring business. Business development has accelerated in the leisure segment, as illustrated by the contract recently signed for the World Scouts Jamboree.

Operating profit rose to 30 million euro. Operating margin was 4.2%, compared with 2.6% in the first-half of Fiscal 2006. This substantial increase in operating profit confirms the business recovery and reflects the effectiveness of:

 
•
Productivity measures undertaken over the past several years, particularly the reinforcement of rigorous management on existing sites,
 
•
Application of the “Right Client Right Terms” policy to new contracts.

In the Rest of the World, which includes Latin America, Asia-Australia and the Remote Sites activity, revenues were 766 million euro, with organic growth of 19.4% .

- 4 -
 
Raw material prices remained high, contributing to satisfactory revenue growth in the Remote Sites business, especially in the Middle East, Africa and Australia, and in the mining sector in Latin America. New contracts were signed with Pluspetrol and Norsemont in Peru, CMPC Celulosa in Chile, Petrobras in Argentina, Ensco in Qatar and Red Sea Housing in Saudi Arabia.

In China and India, expansion continued at a rapid pace, notably with the signing of major Facilities Management contracts with IBM in India and with Tianjin Faw Toyota Motors in China.

Operating profit rose to 20 million euro, a strong increase compared with first-half Fiscal 2006. Operating margin was 2.7% compared with 1.6% in the first-half of Fiscal 2006. This good performance reflects particularly the ongoing development in the Middle East and Asia and strong activity in the mining sector in Latin America and Australia.

1.2. Service Vouchers and Cards

Revenues totaled 211 million euro, with organic growth of 20.5%. Issue volume totaled 3.7 billion euro, up 18.4% (at constant scope of consolidation and exchange rates), fueled mainly by Latin America and, in particular, by Venezuela.

Through the quality of its employee incentive solutions, Sodexho Pass was able to win new clients such as, for example, Coca-Cola in Argentina, the Secretaria Municipal de Saude in Brazil, Cargill and Venevision in Venezuela, JP Morgan Chase in India, Thyssen Kurpp and Mittal Steel in Poland, La Caixa in Spain and Citigroup in the United Kingdom.  Several factors contributed to the organic revenue growth during the first half:

 
•
Innovative offerings in several countries in the area of gift vouchers, especially for the year-end holidays,
 
•
Increases in voucher face values and the number of potential beneficiaries in some countries, including Argentina and Venezuela.
 
•
A strong performance by sales teams.

Operating profit totaled 66 million euro, an increase of 29.7%, excluding currency effects. This reflects the strong growth in issue volume. As operating costs are largely fixed in this activity, the operating margin was 31.3%, or about 1.8% of issue volume.

1.3. Corporate expenses

Corporate expenses increased 9 million euro to 30 million euro.  Two principal factors explain this evolution:

 
•
The increase in the charge related to stock options, as a result of the share price evolution
 
•
Accelerated amortization of fixed assets at the Group’s current headquarters, a decision made in connection with the planned move at the beginning of 2008.
 
- 5 -
 
2. Analysis of other profit and loss line items
 
Income tax

Income tax was 112 million euro. The effective tax rate declined to 35.5% for the first-half of Fiscal 2007, from 38.8% in the first-half of Fiscal 2006. This improvement resulted principally from refunds of withholding taxes under international tax treaties.

Other profit and loss line items did not materially change.
 
3. Financial position of the Group
 
The following table shows cash flow elements.

   
Six months ending
  
   
February 28
  
   
2007
    
2006   
 
   
(in millions of euro)
  
Net cash provided by operating activities
    
211
    
93
  
Net cash used in investing activities
     (113 )   (117 )
               
Net cash used in financing activities
     (242 )   (182 )
               
Decrease in net cash and cash equivalents
     (144 )   (206 )

Net cash provided by operating activities and net cash used in investing activities for the prior six-month period reflect the reclassification of investments at client facilities made in connection with the prior year close.

Net cash provided by operating activities rose to 211 million euro, an increase of 118 million euro compared to the first half of Fiscal 2006 reflecting the strong improvement in operating profit and the change in working capital. Although the change in working capital generally weighs on net cash provided by operating activities in the first half as a cash outflow, this outflow was much less significant during the first half of Fiscal 2007 than for the same period of Fiscal 2006.

Cash flow provided by operating activities enabled the following:

 
•
Capital expenditures and investments at client sites of 108 million euros, or 1.6% of revenues,
 
•
Acquisitions totaling 8 million euros: notably, the acquisition of 100% of the Off- Campus Dining Network LLC (OCDN) in the United States as part of the development of services offered to students on university campuses.

Net cash used in financing activities includes:

 
•
Sodexho Alliance’s February 12 dividend payment of 149 million euros,
 
•
The net acquisition of company shares for 33 million euro to be used for stock option plans and the liquidity contract,
 
•
A reduction in net debt of 52 million euros.

- 6 -
 
As of February 28, 2007, financial debt totaled 1,854 million euro and mainly included two euro-denominated bond issues for 1,364 million euro and US dollar-denominated short-term bank loans for 435 million euro. The remainder comprised various bank loans and lease liabilities, as well as derivative financial instruments. As of February 28, 2007, 76% of net debt was at fixed rates and the average interest rate was 5.7% .

Cash and cash equivalents net of bank overdrafts totaled 851 million euro. Restricted cash and financial assets related to the Service Vouchers and Cards activity came to 468 million euro.

The Group’s operating cash (including current financial assets and restricted cash from the Service Vouchers and Cards activity) totaled 1,319 million euro, of which 877 million euro was from the Service Vouchers and Cards activity.

As of February 28, 2007, net debt was 535 million euro and represented just 24.8% of shareholders’ equity, compared with 31% at the end of the first-half of Fiscal 2006.

As of February 28, 2007:

 
•
the Group has unused lines of credit totaling 514 million euro.
 
•
the Group’s off-balance sheet commitments amounted to 662 million euro (including 359 million euro of operating lease commitments), or 31 % of equity. These commitments include a guarantee made in the amount of 19 million euro in connection with a judicial procedure in progress in Brazil, which the company is appealing.
 
In order to extend the maturity of its existing debt and benefit from current interest rates, Sodexho refinanced part of its debt by issuing a 500 million euro benchmark bond on March 30, 2007 with a maturity of seven years and a coupon of 4.5%.
 
4. Objectives for Fiscal 2007
 
Sodexho Alliance Chief Executive Officer, Michel Landel, presented the objectives for Fiscal 2007 to the Board of Directors at its April 24, 2007 meeting.

With strong performances during the first half, in Food and Facilities Management services as well as in Service Vouchers and Cards, the Board of Directors approved the upward revision of the Group’s objectives.  Based on current information, the Group targets the following objectives for Fiscal 2007:

 
•
organic growth exceeding 7%
 
•
an increase in operating profit, excluding currency impact, of 12%

This growth is in relation to Fiscal 2006 operating profit of 577 million euro, which excludes the gain on the sale of Spirit Cruises and the release of the provision on the U.S. litigation.

Lastly, Michel Landel, along with the members of the Executive Committee, thanked the Group’s clients for their loyalty, its shareholders for their confidence, and the Group’s 332,000 employees for the progress made during this first half.
 
- 7 -
 
II. CONSOLIDATED FINANCIAL STATEMENTS
  SODEXHO GROUP
  FEBRUARY 28, 2007
 
1. Consolidated income statement    

(in millions of euro)
  
Notes
 
  
Half year Fiscal
2007
    
% of revenues
    
change
    
Half year Fiscal
2006
    
% of revenues
  
Revenues
    
3.
      
6,819
       100 %     4.2 %    
6,546
       100 %
Cost of sales
    
4.15.
       (5,812 )     (85.2 )%             (5,610 )     (85.7 )%
Gross profit
            
1,007
       14.8 %     7.6 %    
936
       14.3 %
Sales department costs
    
4.15.
       (85 )     (1.2 )%             (75 )     (1.2 )%
General and administrative costs
    
4.15.
       (567 )     (8.3 )%             (547 )     (8.4 )%
Other operating income
    
4.15.
      
12
                      
2
       0.0 %
Other operating charges
    
4.15.
       (3 )                     (1 )     (0.0 )%
Operating profit
    
3.
      
364
       5.3 %     15.6 %    
315
       4.8 %
Financial income
    
4.16.
      
34
       0.5 %     19.3 %    
28
       0.4 %
Financial expenses
    
4.16.
       (84 )     (1.2 )%     5.4 %     (80 )     (1.2 )%
Share of profit of associates
            
2
       0.0 %            
3
       0.1 %
Profit for the period before tax
            
316
       4.6 %     18.7 %    
266
       4.1 %
Income tax expense
    
4.17.
       (112 )     (1.6 )%             (102 )     (1.6 )%
Result from discontinued operations
            
-
                      
-
          
Profit for the period
            
204
       3.0 %            
164
       2.5 %
Profit attributable to minority interests
            
6
       0.1 %            
4
       0.1 %
Profit attributable to equity holders of the parent
            
198
       2.9 %     24.2 %    
160
       2.4 %
Basic earnings per share (in euro)
    
4.18.
      
1.27
               24.1 %    
1.03
          
Diluted earnings per share (in euro)
    
4.18.
      
1.25
               23.3 %    
1.02
          
 
- 8 -
 
2.
Consolidated balance sheet statement    
 
ASSETS (in millions of euro)
  
Notes
    
February 28, 2007
    
August 31, 2006
    
February 28, 2006
  
                         
Non-current assets
                        
Property, plant and equipment
    
4.3.
      
434
      
430
      
424
  
Goodwill
    
4.2.
      
3,574
      
3,623
      
3,797
  
Other intangible assets
    
4.4.
      
127
      
126
      
93
  
Client Investments
            
142
      
146
      
151
  
Associates
            
34
      
36
      
35
  
Financial assets
    
4.6.
      
83
      
75
      
74
  
Other non-current assets
    
4.14.
      
14
      
18
      
22
  
Deferred tax assets
            
242
      
242
      
244
  
Total non-current assets
            
4,650
      
4,696
      
4,840
  
                                 
Current assets
                                
Financial assets
    
4.6.
      
15
      
17
      
6
  
Derivative financial instruments
    
4.11.
      
45
      
42
      
37
  
Inventories
    
4.8.
      
189
      
168
      
180
  
Income tax
            
32
      
17
      
32
  
Trade and other receivables
    
4.14.
      
2,282
      
1,909
      
2,173
  
Restricted cash and financial assets related to
    
4.6.
      
468
      
423
      
375
  
the Service Vouchers and Cards activity
                                
Cash and cash equivalents
    
4.7.
      
935
      
1,042
      
822
  
Total current assets
            
3,966
      
3,618
      
3,625
  
                                 
Total assets
            
8,616
      
8,314
      
8,465
  
 
- 9 -

LIABILITIES AND EQUITY
                    
 
  
(in millions of euro)
  
Notes
 
  
February 28, 2007
    
August 31, 2006
    
February 28, 2006
  
                         
Shareholders' equity
                        
Common stock
          
636
      
636
      
636
  
Additional paid in capital
          
1,186
      
1,186
      
1,186
  
Retained earnings
          
632
      
668
      
667
  
Consolidated reserves
           (313 )     (334 )     (296 )
Equity attributable to equity holders of the parent
          
2,141
      
2,156
      
2,193
  
Equity attributable to minority interests
          
16
      
17
      
17
  
Total shareholders' equity
    
4.9.
      
2,157
      
2,173
      
2,210
  
                                 
Non-current liabilities
                                
Borrowings
    
4.10.
      
1,794
      
1,852
      
1,727
  
Employee benefits
    
4.12.
      
346
      
349
      
315
  
Other liabilities
    
4.14.
      
78
      
101
      
94
  
Provisions
    
4.13.
      
68
      
68
      
60
  
Deferred tax liabilities
            
53
      
49
      
40
  
Total non-current liabilities
            
2,339
      
2,419
      
2,236
  
                                 
Current liabilities
                                
Bank overdrafts
            
84
      
36
      
81
  
Borrowings
    
4.10.
      
104
      
68
      
107
  
Derivative financial instruments
    
4.11.
      
1
      
2
      
2
  
Income tax
    
 
      
102
      
80
      
129
  
Provisions
    
4.13.
      
40
      
40
      
90
  
Trade and other payables
    
4.14.
      
2,518
      
2,369
      
2,465
  
Vouchers payable
    
4.14.
      
1,271
      
1,127
      
1,145
  
Total current liabilities
            
4,120
      
3,722
      
4,019
  
                                 
Total liabilities and equity
            
8,616
      
8,314
      
8,465
  
 
 
- 10 -
 
3.
Consolidated cash flow statement    

For a detailed analysis of the consolidated cash flow statement, refer to note 4.14.

   
Half year
    
Half year
  
(in millions of euro)
  
Fiscal 2007
    
Fiscal 2006
  
             
Operating activities
            
                 
Operating profit
    
364
      
315
  
                 
Elimination of non-cash and non-operating items
                
                 
   Depreciation and amortization
    
85
      
82
  
   Provisions
    
4
       (5 )
   Losses/(gains) on disposal and other
     (3 )    
2
  
                 
Dividends received from associates
    
1
      
1
  
                 
Change in working capital from operating activities
     (139 )     (191 )
     change in inventories
     (13 )     (2 )
     change in accounts receivable
     (393 )     (393 )
     change in trade and other payables
    
163
      
133
  
     change in vouchers payable
    
147
      
119
  
     change in financial assets related to the Service Vouchers and Cards activity
     (43 )     (48 )
                 
Interest paid
     (23 )     (23 )
Interest received
    
13
      
9
  
Income tax paid
     (91 )     (97 )
                 
      Net cash provided by operating activities
    
211
      
93
  
                 
Investing activities
                
                 
Acquisitions of property, plant & equipment and intangible assets
     (119 )     (85 )
Disposals of property, plant & equipment and intangible assets
    
12
      
3
  
Change in client investments
     (1 )     (9 )
Change in financial assets
    
3
      
1
  
Effect of acquisitions of subsidiaries
     (8 )     (27 )
Effect of disposals of subsidiaries
    
0
      
0
  
                 
     Net cash used in investing activities
     (113 )     (117 )
                 
Financing activities
                
                 
Dividends paid to parent company shareholders
     (149 )    
0
  
Dividends paid to minority shareholders of consolidated companies
     (7 )     (5 )
Change in shareholders' equity
     (33 )    
18
  
Proceeds from borrowings
    
11
      
3
  
Repayment of borrowings
     (64 )     (198 )
                 
     Net cash used in financing activities
     (242 )     (182 )
                 
     CHANGE IN NET CASH AND CASH EQUIVALENTS
     (144 )     (206 )
                 
Net effect of exchange rates on cash
     (11 )    
19
  
Net cash and cash equivalents at beginning of period
    
1,006
      
928
  
                 
     NET CASH AND CASH EQUIVALENTS AT THE END OF PERIOD
    
851
      
741
  

- 11 -
 
4.
Statement of recognized income and expense   
 
   
Half year
    
Half year
  
(in millions of euro)
  
Fiscal 2007
    
Fiscal 2006
  
Financial instruments
    
2
       (2 )
Change in cumulative translation adjustment
     (55 )    
68
  
Actuarial gains / (losses) on employee benefits
    
0
      
0
  
Tax on stock-options
    
16
      
4
  
                 
Profit / (loss) recognized directly in equity
     (37 )    
70
  
Profit for the period
    
204
      
164
  
                 
Total recognized profit / (loss) for the period
    
167
      
234
  
                 
                 
Attributable to:
                
Equity holders of the parent
    
161
      
230
  
Minority interests
    
6
      
4
  

- 12 -
 
5.
Notes to the consolidated financial statements  
 
5.1.
  
SIGNIFICANT EVENTS
14
         
5.2.
  
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
14
         
2.1.
  
 
GENERAL PRINCIPLES
14
2.2.
  
 
STANDARDS AND INTERPRETATIONS APPLIED
14
2.3.
  
 
USE OF ESTIMATES
15
         
5.3.
  
SEGMENT INFORMATION
16
         
5.4.
  
NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
  
 
    FEBRUARY 28, 2007
17
         
4.1.
  
 
BUSINESS COMBINATIONS
17
4.2.
  
 
GOODWILL
17
4.3.
  
 
PROPERTY, PLANT AND EQUIPMENT
18
4.4.
  
 
INTANGIBLE ASSETS
18
4.5.
  
 
IMPAIRMENT OF ASSETS
18
4.6.
  
 
FINANCIAL ASSETS
18
4.7.
  
 
CASH AND CASH EQUIVALENTS
19
4.8.
  
 
INVENTORIES
19
4.9.
  
 
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
20
4.10.
  
 
BORROWINGS
23
4.11.
  
 
DERIVATIVE FINANCIAL INSTRUMENTS
24
4.12.
  
 
LONG-TERM EMPLOYEE BENEFITS
24
4.13.
  
 
PROVISIONS
24
4.14.
  
 
CASH FLOW STATEMENT
25
4.15.
  
 
OPERATING EXPENSES BY NATURE
26
4.16.
  
 
FINANCIAL INCOME AND EXPENSE
26
4.17.
  
 
INCOME TAX EXPENSE
26
4.18.
  
 
EARNINGS PER SHARE
27
4.19.
  
 
SHARE-BASED PAYMENT
27
4.20.
  
 
COMMITMENTS AND CONTINGENCIES
29
4.21.
  
 
RELATED PARTIES
30
4.22.
  
 
LITIGATION
32
4.23.
  
 
SUBSEQUENT EVENTS
32
         
5.5.
  
TRANSITION TO IFRS
33

- 13 -
 
Sodexho Alliance is a société anonyme (a form of limited liability company) domiciled in France, with its headquarters located in Montigny-le-Bretonneux.

The condensed consolidated interim financial statements of the Group were approved by the Board of Directors on April 24, 2007.

5.1. Significant events

There were no significant events during the six months ended February 28, 2007.

5.2. Basis of preparation of the financial statements

2.1. General principles

The condensed consolidated interim financial statements of the Sodexho Group as of and for the six months ended February 28, 2007 have been prepared in accordance with IAS 34, “Interim Financial Reporting.” They do not include all the disclosures required for full-scope annual financial statements, and should be read in conjunction with the consolidated financial statements for the year ended August 31, 2006.

Amounts in tables are expressed in millions of euro (unless otherwise indicated).

2.2. Standards and interpretations applied

The accounting policies applied by Sodexho in the condensed consolidated interim financial statements are the same as those used in the annual consolidated financial statements for the year ended August 31, 2006, except as indicated below.

The following amendments to IAS 39 are mandatorily applicable as from September 1, 2006 and were not early adopted by Sodexho. Application of these amendments had no impact on the Sodexho consolidated financial statements as of February 28, 2007.

 
–
“Fair Value Option”
 
–
“Cash Flow Hedges of Forecast Intragroup Transactions”
 
–
“Financial Guarantee Contracts”

Sodexho has not elected to early adopt those new standards and interpretations that are not mandatorily applicable in the fiscal year ending August 31, 2007, and is currently assessing their practical consequences and impact on the financial statements.

Sodexho does not apply standards and interpretations that have not been approved by the European Union at the balance sheet date.
 
- 14 -

2.3. Use of estimates

The preparation of condensed consolidated interim financial statements in accordance with IFRS requires the management of Sodexho and its subsidiaries to make estimates and assumptions which may affect the amounts reported for assets, liabilities and contingent liabilities as of the date of preparation of the financial statements, and of revenues and expenses for the period.

These estimates and assumptions are reassessed continuously based on past experience and on various other factors considered reasonable in view of current circumstances, which constitute the basis for assessments of the carrying amount of assets and liabilities.

Actual results may differ substantially from these estimates if assumptions or circumstances change.

Significant items subject to such estimates and assumptions are the same as those described in the consolidated financial statements for the year ended August 31, 2006 (provisions for litigation, post-employment benefit plan assets and liabilities, impairment of current and non-current assets, and deferred taxes).
 
- 15 -
 
5.3. Segment information

As of February 28, 2007, Sodexho had two principal activities worldwide: Food and Facilities Management Services, and Service Vouchers and Cards. Food and Facilities Management Services is further segmented by geographic region:

 
–
North America
 
–
Continental Europe
 
–
United Kingdom and Ireland
 
–
Rest of the World

Sodexho’s primary segments are: Food and Facilities Management Services (further segmented by geographic region); Service Vouchers and Cards; and Holding Companies.

The majority of Sodexho’s other activities are included in “Food and Facilities Management Services.” These activities mainly comprise kitchen installation services, some event-driven activities, and the “Remote Sites” activity (which is included in the Rest of the World segment of the Food and Facilities Management Services activity). None of these activities individually represents a reportable segment.

Half year Fiscal 2007
  
Food and Facilities Management Services (FFMS) 
                      
   
North America
    
Continental Europe
    
United Kingdom and Ireland
   
Rest of the world
    
Total Food and Facilities Management
    
Service Vouchers and Cards  
    
Holding Companies
     Elimination     
Total
Revenues (third-party)
    
2,890
      
2,236
      
720
      
766
      
6,612
      
207
      
0
      
0
      
6,819
Inter-segment sales (Group)
    
0
      
0
      
0
      
0
      
0
      
4
      
0
       (4 )    
0
Segment revenues
    
2,890
      
2,236
      
720
      
766
      
6,612
      
211
      
0
       (4 )    
6,819
                                                                       
Segment operating profit
    
163
      
115
      
30
      
20
      
328
      
66
       (26 )     (4 )    
364
 

 
Half year Fiscal 2006
  
Food and Facilities Management Services (FFMS)
                                        
   
North America
    
Continental Europe 
    
United Kingdom and Ireland
    
Rest of the world
    
Total Food and Facilities Management
      
  
Service Vouchers and Cards
      
Holding Companies
       Elimination    
Total
Revenues (third-party)
    
2,919
      
2,111
      
663
      
678
      
6,371
      
175
      
0
      
0
      
6,546
Inter-segment sales (Group)
    
0
      
0
      
0
      
0
      
0
      
3
      
0
       (3 )    
0
Segment revenues
    
2,919
      
2,111
      
663
      
678
      
6,371
      
178
      
0
       (3 )    
6,546
                                                                       
Segment operating profit
    
152
      
103
      
17
      
11
      
283
      
53
       (18 )     (3 )    
315

- 16 -
5.4. Notes to the financial statements as of and for the six months ended February 28, 2007

4.1. Business combinations

•  
OCDN
 
On October 30, 2006, Sodexho Inc. acquired 100% of Off-Campus Dining Network LLC (“OCDN”) in the United States, in line with its strategy to expand its service offerings to university students.

Sodexho Inc. paid $12.6 million (€9.8 million) to acquire OCDN. The process of remeasuring the acquired assets and liabilities at fair value is ongoing. The impact of the acquisition on the consolidated financial statements for the six months ended February 28, 2007 is summarized as follows (in millions of euro):

         
Price paid
    
9.8
  
Share of net assets acquired
     (0.2 )
Goodwill
    
10.0
  
 

•  
The Lido
 
On February 13, 2006, Sodexho acquired a 55.45% interest in the Paris Lido cabaret, in line with its strategy of expansion into tourism and leisure activities in France.

The cost of this acquisition was allocated as follows (in millions of euro):

Net assets of acquiree before fair value adjustments
     (0.8 )
Remeasurement of the Lido brand name
    
3.1
  
Recognition of deferred tax liability on the brand name
     (3.4 )
Net assets of acquiree after fair value adjustments
     (1.1 )
Share of net assets acquired (55.45%)
     (0.6 )
Purchase price
    
13.7
  
Goodwill (residual)
    
14.3
  

4.2. Goodwill

The reduction of €49 million in goodwill during the six months ended February 28, 2007 was primarily due to the net effect of:

-
the decline of the dollar against the euro during the period, which reduced the carrying value of goodwill on the U.S. subsidiaries by €59.3 million;
-
the recognition of €10.0 million of goodwill on the acquisition of OCDN in the United States (see note 4.1).

 
- 17 -

4.3. Property, plant and equipment

The tables below show movements in consolidated property, plant and equipment by type of asset for the six months ended February 28, 2007, including assets held under finance leases. 
 
(in millions of euro)    
Land      Buildings
       
Fixtures and
Fittings
       
Plant and
Equipment
    
 Vehicles
       Office and
computer
equipment
     Construction
in progress
and other
    
 Eliminations 
      
Total 
  
Cost - September 1, 2006
    
7
      
146
      
171
      
465
      
53
      
219
      
122
      
0
      
1,183
  
Accumulated depreciation/impairment - September 1, 2006
    
0
       (78 )     (108 )     (314 )     (35 )     (161 )     (57 )    
0
       (753 )
・ Carrying amount - September 1, 2006
    
7
      
68
      
63
      
151
      
18
      
58
      
65
      
0
      
430
  
Increases during the period
            
1
      
7
      
34
      
3
      
15
      
28
              
88
  
Decreases during the period
             (2 )     (2 )     (3 )     (1 )     (1 )     (3 )             (12 )
Assets classified as held for sale
                                                                    
0
  
Newly consolidated companies
                                                                    
0
  
Newly deconsolidated companies
                                                                    
0
  
Depreciation expense
             (4 )     (10 )     (30 )     (3 )     (15 )     (7 )             (69 )
Impairment losses recognised in profit or loss
                                                                    
0
  
Impairment losses reversed in profit or loss
                                                                    
0
  
Translation adjustment
                             (1 )             (1 )     (1 )             (3 )
Other
                    
4
      
6
       (1 )    
1
       (10 )            
0
  
・ Carrying amount - February 28, 2007
    
7
      
63
      
62
      
157
      
16
      
57
      
72
      
0
      
434
  

4.4. Intangible assets

As of February 28, 2007, intangible assets (excluding goodwill) amounted to €127 million (€126 million as of August 31, 2006), and mainly comprised licenses and software.

The increase in intangible assets was mainly due to the remeasurement of the Lido brand name, recognized as part of the allocation of the purchase price on the Lido acquisition (see note 4.1) .

4.5. Impairment of assets

Assets with indefinite useful lives are tested for impairment whenever there is evidence that they may have become impaired, and at least annually in the final quarter of the fiscal year. As of February 28, 2007 (and as of February 28, 2006) there was no evidence of impairment of indefinite-lived assets, and hence no impairment losses were recognized by the Group.

No impairment losses were recognized on finite-lived assets during either the six months ended February 28, 2007 or the six months ended February 28, 2006.

4.6. Financial assets
 
Non-current financial assets

The increase in non-current financial assets mainly reflects loans granted to project companies established in connection with Public-Private Partnerships (PPP) contracts in the United Kingdom to fund development of their activities.
 
 
- 18 -
 
Restricted cash and assets classified as available for sale

Restricted cash, included in “Restricted cash and financial assets related to the Service Vouchers and Cards activity”, amounted to €294 million, and mainly comprise funds set aside to comply with regulations governing the issuance of service vouchers in France (€170 million) and Romania (€44 million); guarantee funds for affiliates in Mexico (€12 million); and contractual guarantees made to clients and public-sector agencies in Venezuela (€31 million) and Brazil (€21 million).

A net loss of €1 million was recognized directly in equity on available-for-sale financial assets in the six months ended February 28, 2007. Gains and losses reversed out of equity and recognized in the income statement in financial income or expense during the six months ended February 28, 2007 were immaterial.

4.7. Cash and cash equivalents

   
February 28,
    
August 31,
  
(In millions of euro)
  
2007
    
2006
  
Marketable securities
    
334
      
373
  
Cash
    
601
      
669
  
Sub-total: cash and cash equivalents
    
935
      
1,042
  
Bank overdrafts
     (84 )     (36 )
Net cash and cash equivalents
    
851
      
1,006
  
   
Marketable securities totaled €334 million, and comprised the following:
  
   
February 28,
    
August 31,
  
(In millions of euro)
  
2007
    
2006
  
Short-term notes
    
121
      
97
  
Term deposits
    
130
      
117
  
Listed bonds
    
23
      
31
  
SICAVs and other
    
60
      
128
  
Total marketable securities
    
334
      
373
  

4.8. Inventories

(In millions of euro)
    
August 31,
2006
      
Change during
the period
    
Change in
scope of
consolidation
      
Translation
adjustment and
other items
      
February 28,
2007
  
Cost
    
169
      
14
    
 
      
8
      
191
  
Impairment
     (1 )     (1 )  
 
               (2 )
Carrying amount
    
168
      
13
      
0
      
8
      
189
  

 
- 19 -

4.9. Statement of changes in shareholders’ equity
 
   
Shares outstanding
                            
Treasury shares
                      
Total
  
               
Additional
    
Cumulative
                                  
Equity
          
share-
  
         
Common
    
paid in
    
translation
     Consolidated    
Retained
          
Treasury
    
Other
    
holders of
    
Minority
    
holders'
  
   
Quantity
    
stock
    
capital
    
adjustment
    
reserves
    
earnings
    
Quantity
    
shares
    
reserves
    
the parent
    
interests
    
equity
  
Shareholders' equity as of
                                                                        
August 31, 2005
    
159,026,413
      
636
      
1,186
      
10
       (389 )    
708
       (3,435,900 )     (112 )    
21
      
2,060
      
18
      
2,078
  
Common stock issued
                                                                            
0
              
0
  
Dividends paid (excluding treasury shares)
                                             (117 )                             (117 )     (5 )     (122 )
Sodexho Alliance SA profit for prior period
                                     (77 )    
77
                              
0
              
0
  
Profit for current period
                                    
160
                                      
160
      
4
      
164
  
Changes in scope of consolidation
                                                                            
0
              
0
  
Net sale/(purchase) of treasury shares
                                                    
815,787
      
18
              
18
              
18
  
Change in cumulative translation adjustment and other movements
                            
66
      
2
                                      
68
              
68
  
Items recognised directly in equity
                                             (1 )                    
5
      
4
              
4
  
Shareholders' equity as of
                                                                                                
February 28, 2006
    
159,026,413
      
636
      
1,186
      
76
       (304 )    
667
       (2,620,113 )     (94 )    
26
      
2,193
      
17
      
2,210
  
 
 
- 20 -
 
 
   
Shares outstanding
                            
Treasury shares
                      
Total
  
               
Additional
    
Cumulative
                                  
Equity
          
share-
  
         
Common
    
paid in
    
translation
     Consolidated    
Retained
          
Treasury
    
Other
    
holders of
    
Minority
    
holders'
  
   
Quantity
    
stock
    
capital
    
adjustment
    
reserves
    
earnings
    
Quantity
    
shares
    
reserves
    
the parent
    
interests
    
equity
  
Shareholders' equity as of
                                                                        
August 31, 2006
    
159,026,413
      
636
      
1,186
      
(81
 )     (143 )    
668
       (3,085,785 )     (115 )    
5
      
2,156
      
17
      
2,173
  
Common stock issued
                                                                            
0
              
0
  
Dividends paid (excluding treasury shares)
                                             (149 )                             (149 )     (7 )     (156 )
Sodexho Alliance SA profit for prior period
                                     (113 )    
113
                              
0
              
0
  
Profit for current period
                                    
198
                                      
198
      
6
      
204
  
Changes in scope of consolidation
                                                                            
0
              
0
  
Net sale/(purchase) of treasury shares
                                                    
149,503
      
(31
 )            
(31
 )            
(31
 )
Change in cumulative translation adjustment and other movements
                            
(55
 )    
 
                                      
(55
 )            
(55
 )
Items recognised directly in equity
                                                                       
22
      
22
              
22
  
Shareholders' equity as of
                                                                                                
February 28, 2007
    
159,026,413
      
636
      
1,186
      
(136
 )     (58 )    
632
       (2,936,282 )     (146 )    
27
      
2,141
      
16
      
2,157
  
 

As of February 28, 2007, the Group held 2,844,482 Sodexho Alliance shares with a value of €129.0 million to cover its obligations under stock option plans awarded to Group employees. The Group also held 91,800 Sodexho Alliance shares with a value of €4.2 million under the liquidity contract with Oddo Corporate Finance signed on July 10, 2006. These treasury shares are deducted from equity as required under IAS 32.

During the period, the Group acquired Sodexho Alliance shares for €118 million and delivered Sodexho Alliance shares for €85 million upon exercise of stock options by employees and under the liquidity contract.

The total dividend payout during the period (taking into account treasury shares) was €149 million, representing a dividend of €0.95 per share.

 
- 21 -

Other reserves comprise the following:

   
Change in fair
          
Share-
              
   
value of
    
Change in
    
based
    
 
        
   
financial
    
employee
    
payment
          
Total other
  
(in millions of euro)
  
instruments
    
benefits
    
cost
    
 Other
    
 reserves
  
Other reserves as of
                              
August 31, 2005
    
5
      
6
      
10
      
0
      
21
  
Items recognized directly in equity
     (3 )    
0
      
3
      
0
      
0
  
Tax recognized directly in equity
    
1
      
0
      
4
      
0
      
5
  
Other reserves as of
                                        
February 28, 2006
    
3
      
6
      
17
      
0
      
26
  
                                     
   
Change in fair
            
 Share-
                  
   
value of
      
Change in 
    
based
                  
   
financial
      
employee 
    
payment
              
Total other 
  
(in millions of euro)
  
instruments
      
benefits 
    
cost
      
 Other 
      
reserves
  
Other reserves as of
                                        
August 31, 2006
     (1 )     (24 )    
29
      
1
      
5
  
Items recognized directly in equity
    
3
      
0
      
4
      
0
      
7
  
Tax recognized directly in equity
     (1 )    
0
      
16
      
0
      
15
  
Other reserves as of
                                        
February 28, 2007
    
1
       (24 )    
49
      
1
      
27
  

 
- 22 -
 
4.10. Borrowings
   
February 28, 2007
    
August 31, 2006
  
(in millions of euro)
  
Current
    
Non-current
    
Current
    
Non-current
  
Bond issues
                        
Euro
    
67
      
1,297
      
30
      
1,297
  
Bank borrowings
                                
U.S. dollar
    
6
      
429
      
6
      
480
  
Euro
    
8
      
13
      
4
      
15
  
Pound sterling
    
0
      
0
      
0
      
0
  
Other currencies
    
4
      
2
      
4
      
5
  
     
18
      
444
      
14
      
500
  
Finance lease obligations
                                
U.S. dollar
    
0
      
0
      
0
      
0
  
Euro
    
16
      
39
      
19
      
44
  
Other currencies
    
2
      
6
      
3
      
5
  
     
18
      
45
      
22
      
49
  
Other borrowings
                                
Euro
    
1
      
6
      
1
      
4
  
Other currencies
    
0
      
2
      
1
      
2
  
     
1
      
8
      
2
      
6
  
TOTAL
    
104
      
1,794
      
68
      
1,852
  

The tables below show movements in borrowings during the six-month periods ended February 28, 2007 and February 28, 2006:

                                 
Newly
    
Newly
    
Translation
        
   
August 31,
    
New
                
Accrued
    
consolidated
    
deconsolidated
    
adjustment
    
February 28,
  
(in millions of euro)
  
2006
    
borrowings
    
Repayments
    
New leases
    
interest
    
companies
    
companies
    
and others
    
2007
  
Bond issues
    
1,327
    
 
    
 
    
 
      
36
    
 
    
 
      
1
      
1,364
  
Bank borrowings
    
514
      
7
       (46 )  
 
            
 
    
 
       (13 )    
462
  
Finance lease obligations
    
71
               (14 )    
6
            
 
    
 
              
63
  
Other borrowings
    
8
      
3
       (2 )                  
 
    
 
              
9
  
Derivative instruments
     (40 )    
1
       (2 )             (1 )  
 
    
 
       (2 )     (44 )
Borrowings
    
1,880
      
11
       (64 )    
6
      
35
      
0
      
0
       (14 )    
1,854
  
                                                                         
                                                                         
                                           
Newly
    
Newly
    
Translation
          
   
August 31,
    
New
                    
Accrued
    
consolidated
    
deconsolidated
    
adjustment
    
February 28,
  
(in millions of euro)
  
2005
    
borrowings
    
Repayments
    
New leases
    
interest
    
companies
    
companies
    
and others
    
2006
  
Bond issues
    
1,326
                              
36
                              
1,362
  
Bank borrowings
    
548
      
5
       (182 )                    
6
              
13
      
390
  
Finance lease obligations
    
82
               (14 )    
5
                              
1
      
74
  
Other borrowings
    
20
      
1
       (1 )                                     (12 )    
8
  
Derivative instruments
     (38 )     (3 )     (1 )                                    
7
       (35 )
Borrowings
    
1,938
      
3
       (198 )    
5
      
36
      
6
      
0
      
9
      
1,799
  

As of February 28, 2007, 76% of consolidated borrowings were at fixed rates. The average rate of interest as of the same date was 5.7%.

 
- 23 -

4.11. Derivative financial instruments

The improvement in the net asset position on derivative financial instruments was mainly due to foreign exchange effects on the cross currency swap expiring March 25, 2007, which as of February 28, 2007 was in the amount of $118.5 million against €133.6 million.
 
Sodexho did not contract any material new derivative financial instruments during the period, other than extending the maturity of some foreign exchange hedges beyond February 28, 2007.

4.12. Long-term employee benefits

The long-term employee benefit expense reported in the interim consolidated financial statements for the six months ended February 28, 2007 was estimated as half of the annual expense based on data for the year ended August 31, 2006. No actuarial gain or loss was recognized in the six months ended February 28, 2007, and Sodexho did not review the actuarial valuation of the obligation as of that date because no plan amendments and no significant changes in market conditions occurred during the period.

4.13. Provisions

                     
Released
    
Translation
     
Discounting
        
                     
without
    
adjustment
  
 Changes in
 
impact on
        
   
 August 31,
                
corresponding
    
 and other
  
 scope of
  
long-term
    
 February 28,
  
   
2006
    
Charged
    
Utilized 
    
charge
    
items
  
consolidation
  
provisions
    
2007
  
Tax and social security exposures
    
30
      
9
       (1 )     (5 )     (1 )
 
  
 
      
32
  
Employee claims and litigation
    
14
      
5
       (3 )     (1 )        
 
  
 
      
15
  
Contract termination and loss-
                                                        
making contracts
    
32
      
3
       (4 )             (1 )
 
    
1
      
31
  
Client/supplier claims and litigation
    
9
      
1
                          
 
            
10
  
Negative net assets of associates
    
16
                               (2 )
 
            
14
  
Other provisions
    
7
      
2
               (3 )        
 
            
6
  
Total
    
108
      
20
       (8 )     (9 )     (4 )
0
    
1
      
108
  

 
- 24 -

4.14. Cash flow statement

Changes in working capital

               
Translation
              
               
adjustment
             
         
Increase /
    
and
    
Changes in scope
        
(in millions of euro)
  
August 31, 2006
    
decrease
    
other items
    
of consolidation
    
February 28, 2007
  
Other non-current assets
    
18
      
0
       (4 )    
0
      
14
  
Inventories
    
168
      
13
      
8
      
0
      
189
  
Advances to suppliers
    
9
      
2
      
0
      
0
      
11
  
Trade receivables, net
    
1,645
      
365
       (19 )    
0
      
1,991
  
Other operating receivables
    
173
      
5
       (4 )    
0
      
174
  
Prepaid expenses
    
78
      
21
       (1 )    
0
      
98
  
Assets held for sale
    
2
      
0
      
0
      
0
      
2
  
Operating receivables
    
1,907
      
393
       (24 )    
0
      
2,276
  
                                         
Restricted cash and financial assets: Service
                                        
Vouchers and Cards activity
    
423
      
43
      
2
      
0
      
468
  
Change in asset items in working capital
    
2,516
      
449
       (18 )    
0
      
2,947
  
                                         
Receivables related to investing and financing
                                        
activities
    
2
      
4
      
0
      
0
      
6
  
                                         
Employee benefits
    
349
       (3 )    
0
      
0
      
346
  
Other non-current liabilities
    
81
       (2 )     (1 )    
0
      
78
  
Advances from clients
    
217
      
70
       (1 )    
0
      
286
  
Trade payables
    
1,138
      
111
       (16 )    
2
      
1,235
  
Tax and employee-related liabilities
    
863
       (17 )     (9 )    
0
      
837
  
Other operating liabilities
    
71
      
7
      
5
      
0
      
83
  
Deferred revenues
    
50
       (3 )    
2
      
0
      
49
  
Operating liabilities
    
2,339
      
168
       (19 )    
2
      
2,490
  
Vouchers payable
    
1,127
      
147
       (4 )    
1
      
1,271
  
Change in liability items in working capital
    
3,896
      
310
       (24 )    
3
      
4,185
  
Liabilities related to investing and financing
                                        
activities
    
50
       (22 )    
0
      
0
      
28
  

Acquisitions and disposals of assets

(in millions of euro)
  
Acquisitions
    
Disposals
    
Net change
  
Capital expenditure
     (119 )    
12
       (107 )
Change in financial assets
     (1 )    
4
      
3
  
Less: tax effect of disposals
    
0
      
0
      
0
  
Acquisitions/disposals of non-current assets
     (120 )    
16
       (104 )
                         
Acquisitions/disposals of subsidiaries
     (10 )    
0
       (10 )
Net cash of subsidiaries acquired/sold
    
2
      
0
      
2
  
Less: tax effect of disposals
    
0
      
0
      
0
  
Net cash effect of acquisitions/disposals of
                        
subsidiaries
     (8 )    
0
       (8 )
TOTAL
     (128 )    
16
       (112 )

 
- 25 -

4.15. Operating expenses by nature

   
Half year
    
Half year
  
(in millions of euros)
  
Fiscal 2007
    
Fiscal 2006
  
Depreciation, amortization and impairment losses
     (102 )     (99 )
Employee costs
                
- Wages and salaries
     (2,457 )     (2,347 )
- Other employee costs (1)
     (725 )     (734 )
Purchase of consumables and change in inventory
     (2,221 )     (2,181 )
Other operating expenses (2)
     (950 )     (870 )
Total
     (6,455 )     (6,231 )

(1)  
Includes costs associated with defined benefit employment plans and stock options.
(2)  
Other operating expenses mainly include other goods consumed, professional fees, operating lease expenses of 129 million euros, other subcontracting costs and other travel expenses.

4.16. Financial Income and Expense

     
Half year
    
Half year
  
(in millions of euros)
    
Fiscal 2007
    
Fiscal 2006
  
Interest expense, net of interest income
       (44 )     (51 )
Net foreign exchange (losses) / gains
       (1 )    
0
  
Net impairment (losses) / reversals
      
1
      
0
  
Expected return on defined-benefit plan assets
      
14
      
13
  
Interest cost on defined-benefit plan obligations
       (16 )     (13 )
Change in fair value of derivative instruments
       (1 )     (1 )
Other
       (3 )    
0
  
 
Net financing costs
     (50 )     (52 )

4.17. Income tax expense

The effective tax rate, calculated on the basis of the profit for the period before tax excluding the share of profits/losses of associates, fell from 38.8% for the six months ended February 28, 2006 to 35.5% for the six months ended February 28, 2007. This improvement was mainly due to reimbursements of withholding taxes under international tax treaties.


- 26 -
 
4.18. Earnings per share

The number of ordinary shares outstanding used in calculating basic and diluted earnings per share is shown below:

   
Half year
    
Half year
  
   
Fiscal 2007
    
Fiscal 2006
  
Basic weighted average number of shares
    
156,024,484
      
155,948,584
  
Average dilutive effect of stock options (1)
    
2,335,068
      
1,277,295
  
Diluted weighted average number of
                
shares
    
158,359,552
      
157,225,879
  

(1) The impact of dilution increased by approximately 1.1 million ordinary shares relative to the comparative period solely as a result of the rise in the quoted market price of Sodexho Alliance shares, as the new plan granted in 2007 had no dilutive effect in the period. No other stock option plan had an anti-dilutive effect in the six months ended February 28, 2007.

The tables below show the calculation of basic and diluted earnings per share:

   
Half year
    
Half year
  
   
Fiscal 2007
    
Fiscal 2006
  
Profit for the period attributable to equity
            
holders of the parent
    
198
      
160
  
Basic weighted average number of shares
    
156,024,484
      
155,948,584
  
Basic earnings per share
    
1.27
      
1.03
  
Diluted weighted average number of
                
shares
    
158,359,552
      
157,225,879
  
Diluted earnings per share
    
1.25
      
1.02
  

4.19. Share-based payment

The Sodexho Alliance Board of Directors has awarded share-based payment to Group employees under various stock option plans.

4.19.1. Plans awarded following the acquisition of Sodexho Marriott Services

The Group committed to delivering 3,044,394 Sodexho Alliance shares to Sodexho, Inc. employees at an average price of $29.01 per share under stock option plans granted in connection with the June 2001 acquisition of 53% of the capital of Sodexho Marriott Services, Inc.

As of February 28, 2007, 619,830 of these shares were still deliverable; all of these options are exercisable until April 2011 at a weighted average price of $28.06.

The table below gives the quantity, weighted average exercise price (WAP) and movements of these stock options during the six-month periods ended February 28, 2007 and February 28, 2006.

 
- 27 -
 

   
February 28, 2007
    
February 28, 2006
  
   
Number
          
WAP (USD)
    
Number
          
WAP
  
                                 
(USD)
  
Outstanding at the beginning of the period
    
854,391
            
28.53
      
1,565,122
            
28.95
  
Granted during the period
    
0
                    
0
                
Forfeited during the period
    
(15,159
)
    
 
      
30.00
      
(176
)
    
 
      
30.58
  
Exercised during the period
    
(219,402
 )(1)    
 
      
29.76
      
(482,448
 )(2)    
 
      
28.79
  
Expired during the period
    
0
                      
0
                  
Outstanding at the end of the period
    
619,830
              
28.06
      
1,082,498
              
29.01
  
Exercisable at the end of the period
    
619,830
              
28.06
      
1,082,498
              
29.01
  

1)  
The weighted average share price at the exercise date of options exercised in the period was $62.95.
2)  
The weighted average share price at the exercise date of options exercised in the period was $41.78.

The table below presents the exercise price of options outstanding as of February 28, 2007:

Date of grant
  
Exercise price
      
Number of options
outstanding as of February
  
   
(USD)
      
28, 2007
  
November 6, 1997
    
30.01
      
31,141
  
June 8, 1998
    
38.82
      
131,025
  
September 22, 1998
    
37.81
      
2,711
  
February 8, 1999
    
31.95
      
2,839
  
November 22, 1999
    
22.34
      
273,627
  
July 19, 2000
    
23.01
      
452
  
December 15, 2000
    
28.16
      
171,361
  
January 5, 2001
    
27.57
      
2,966
  
April 2, 2001
    
39.71
      
3,708
  
 Total
            
619,830
  

4.19.2. Other plans: movements during the six months ended February 28, 2007

•  
Awarding of a new plan in January 2007
 
On January 16, 2007, the Sodexho Alliance Board of Directors granted 1,344,700 options under a new stock option plan, at an exercise price of €47.85. These options vest in equal tranches of 25% over a 4-year period and have a contractual life of 7 years for grantees who are tax residents in France and 6 years for all other grantees.

The fair value of these options was measured using the same method as for plans awarded previously.

•  
Movements during the six months ended February 28, 2007
 
The stock option expense recognized in the income statement for the six months ended February 28, 2007 was €4.3 million (€2.9 million in the six months ended February 28, 2006).

The table below provides the number, weighted average exercise price (WAP) and movements of stock options during the six-month periods ended February 28, 2007 and February 28, 2006.

 
- 28 -
 

   
February 28, 2007
    
February 28, 2006
  
   
Number
          
WAP
    
Number
          
WAP
  
               
(in euro)
                
(in euro)
  
Outstanding at the beginning of the period
    
5,760,190
            
30.96
      
5,996,468
            
29.79
  
Granted during the period
    
1,344,700
            
47.85
 
    
977,452
            
34.78
  
Forfeited during the period
    
(122,278
)
    
 
      
34.58
 
    
(152,553
)
    
 
      
29.77
  
Exercised during the period
    
(1,647,122
 )(1)    
 
      
33.37
      
(486,587
 )(2)    
 
      
24.04
  
Expired during the period
    
(127,208
)
            
47.00
      
(140,830
)
            
48.42
  
Outstanding at the end of the period
    
5,208,282
              
34.09
      
6,193,950
              
30.60
  
Exercisable at the end of the period
    
2,471,888
              
29.36
      
3,531,803
              
33.09
  
 
1)  
The weighted average share price at the exercise date of options exercised in the period was € 51.23.
2)  
The weighted average share price at the exercise date of options exercised in the period was € 35.29.

The weighted average fair value of options for plans awarded during the period was €14.8, (€8.9 for the six months ended February 28, 2006).

The table below presents the exercise prices and exercise periods for options outstanding as of February 28, 2007:

 
Start date of
          
Number of options
  
 
exercise
Expiration date of
  
Exercise price (in
    
outstanding as of
  
Date of grant
period
exercise period
  
euro)
    
February 28, 2007
  
Jan-02
Jan-06
Jan-08
    
€47.00
      
493,973
  
Oct-02
Oct-06
Oct-07
    
€21.87
      
1,565
  
Jan-03
Jan-04
Jan-09
    
€24.00
      
1,034,296
  
Jun-03
Jan-04
Jan-09
    
€24.00
      
16,165
  
Jan-04
Jan-05
Jan-10
    
€24.50
      
638,714
  
Jan-05
Jan-06
Jan-11
    
€23.10
      
779,886
  
Jun-05
Jun-06
Jun-11
    
€26.04
      
20,000
  
Sep-05
Sep-06
Sep-11
    
€28.07
      
10,000
  
Jan-06
Jan-07
Jan-12
    
€34.85
      
869,983
  
Jan-07
Jan-08
Jan-13
    
€47.85
      
841,100
  
Jan-07
Jan-08
Jan-14
    
€47.85
      
502,600
  
 TOTAL                
5,208,282
  

4.20. Commitments and contingencies

4.20.1. Operating lease commitments

Outstanding commitments over the remaining term of operating leases as of February 28, 2007 were as follows:

-
Less than 1 year:
€108 million
-
1 to 3 years:
€134 million
-
3 to 5 years:
€58 million
-
More than 5 years:
 €59 million

These commitments arise under a large number of contracts worldwide and mainly relate to:

-
Rental of site equipment, office equipment and vehicles (€116 million)
-
Rental of office space (€230 million). The new 12-year leases signed on October 19, 2006 in connection with the planned relocation of the corporate headquarters to Issy-les- Moulineaux in 2008 increased office space rental commitments by €53.8 million.


- 29 -
 
4.20.2. Other commitments made

   
February 28, 2007
                
August 31,
  
(in millions of euro)
                                
2006
  
   
Less than 1
    
1 to 3 years
    
3 to 5 years
    
More than 5
    
Total
    
Total
  
   
year
                
years
              
Financial guarantees to third parties
    
101
      
12
      
0
      
6
      
119
      
129
  
Site management commitments
    
18
      
18
      
13
      
17
      
66
      
34
  
Performance bonds given to clients
    
13
      
0
      
0
      
81
      
94
      
92
  
Other commitments
    
22
      
1
      
1
      
0
      
24
      
26
  
Total
    
154
      
31
      
14
      
104
      
303
      
281
  

Other commitments mainly comprise a €19 million bank guarantee given to the Brazilian courts in connection with the Banco Santos litigation (see note 4.22) .

4.21. Related parties

Subsidiaries

Sodexho Alliance received fees totaling €47.7 million from its subsidiaries for management and co-ordination services in the six months ended February 28, 2007 (€48.2 million in the six months ended February 28, 2006).

Other companies

Transactions with other related companies comprise loans, commercial transactions, and off balance sheet commitments involving associates and non-consolidated companies.

   
Gross value as of
    
Impairment as of
    
Carrying amount as of
    
Carrying amount as of
  
Loans
  
February 28, 2007
    
February 28, 2007
    
February 28, 2007
    
August 31, 2006
  
Associates
    
37
      
0
      
37
      
25
  
Non-consolidated companies
    
1
       (1 )    
0
      
0
  
                               
                               
                               
Off balance sheet commitments
        
February 28, 2007
August 31, 2006
          
Commitments to third parties
                                
Associates
            
30
      
34
          
Non-consolidated companies
            
0
      
0
          
Performance bonds given to clients
                                
Associates
            
53
      
53
          
Non-consolidated companies
            
0
      
0
          

 
- 30 -
 
   
Half year
  
Revenues generated
  
Fiscal 2007
  
Associates
    
110
  
Non-consolidated companies
    
0
  
         
         
   
Half year
  
Operating expenses recognized
  
Fiscal 2007
  
Associates
     (1 )
Non-consolidated companies
    
0
  
         
         
   
Half year
  
Net financing costs
  
Fiscal 2007
  
Associates
    
0
  
Non-consolidated companies
    
0
  

Principal shareholder

As of February 28, 2007, Bellon SA held 36.83% of the capital of Sodexho Alliance. During the six months ended February 28, 2007, Sodexho Alliance recognized expenses of €4.5 million for assistance and advisory services provided under a contract with Bellon SA.

During the six months ended February 28, 2007, the Annual Shareholders’ Meeting of Sodexho Alliance approved the payment of a dividend of €0.95 per share. Consequently, Bellon SA received a dividend payment of €55.6 million in February 2007.

 
- 31 -

4.22. Litigation
 
Sodexho Pass do Brazil

Following an investigation into the financial condition of Banco Santos by the intervener representing the Central Bank of Brazil, Sodexho Pass do Brazil is in dispute with Banco Santos and a mutual fund concerning the existence of bank balances which totaled €19 million in principal, based on closing exchange rates as of February 28, 2007.

Sodexho Pass do Brazil, Banco Santos and the mutual fund have all commenced legal proceedings against one another in this matter. One of these is a collection lawsuit brought by the mutual fund for the above mentioned bank balances. Recently, in connection with this proceeding, a lower court judge has issued a decision in favor of the mutual fund. Sodexho Pass do Brazil vigorously denies that it owes any amounts in connection with these balances, and is appealing the decision. There have been no other decisions on the merits in any of the other proceedings. Since February 28, 2005, the Group has recognized a provision for defense costs only.

4.23. Subsequent events

In order to extend the maturity of its existing debt and benefit from current interest rates, Sodexho refinanced part of its debt by issuing a 500 million euro benchmark bond on March 30, 2007 with a maturity of seven years and a coupon of 4.5% .

On April 11, 2007, Sodexho reached an agreement to acquire the Gift Vouchers and Cards business of Tir Groupé, France’s leading issuer of gift vouchers for the corporate and public sectors. Tir Groupé reported total issue volume (aggregate face value of vouchers issued) of nearly €300 million.

 
- 32 -

5.5. Transition to IFRS

Reconciliations between the consolidated financial statements prepared under French Generally Accepted Accounting Principles (French GAAP) and those prepared under IFRS as of September 1, 2004 and August 31, 2005 were published in the notes to the consolidated financial statements for the six months ended February 28, 2006.

The comparatives as of and for the six months ended February 28, 2006 as presented in the notes to the consolidated interim financial statements incorporate the Group’s final conclusions on the treatment of client investments and some minor changes made since the publication of the financial statements for the six months ended February 28, 2006.

Those minor changes and reclassifications were determined using the same principles as those presented in the notes to the consolidated financial statements for the year ended August 31, 2006. The impact on profit for the six months ended February 28, 2006 is immaterial.
 
 
- 33 -

6.
Summary parent company income statement data as of and for the six months ended February 28, 2007

   
Half year
    
Half year
  
   
Fiscal 2007
    
Fiscal 2006
  
Revenues
    
19
      
22
  
Operating profit
    
153
      
117
  
Profit for the period
    
117
      
98
  

Sodexho Alliance SA is the parent company of the Sodexho Group. Its principal activities are the management of the Group’s equity holdings and the provision of administrative, legal and financial services.

Because Sodexho Alliance SA is a holding company, only consolidated profit for the period is representative of the Group’s operations.

 
- 34 -
 
SIGNATURES
 
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
SODEXHO ALLIANCE, SA 
 
 
 
 
 
Date: May 17, 2007
By:
  /s/ Siân Herbert-Jones          
 
 
 
Name:
Siân Herbert-Jones 
 
 
 
Title:
Chief Financial Officer