Good morning. Thank you for standing by, welcome to the Sodexo first quarter fiscal 2021 revenues conference call. I advise that this conference is being recorded today on Friday, January 8, 2021. I'd now like to hand the conference over to the Sodexo team. Please go ahead.
Thank you, Nadia. Good morning, everyone. Happy New Year. Welcome to our Q1 call. On the call today, we have Denis Machuel and Marc Rolland. As usual, if you haven't already done so, the slides and press releases are available at sodexo.com, and you'll be able to access this call on our website for the next 12 months. I remind you that this call is being recorded and may not be reproduced or transmitted without our consent. Please get back to us at the IR team if you have any further questions after the call. I remind you that we have our AGM on Tuesday at 3:30 P.M. French time online only due to the pandemic. The next numbers announcement will be the first half figures on April the 1st. I now turn the call over to Denis Machuel. Denis?
Thank you, Virginia, and good morning, everyone. Happy New Year, and my best wishes to all of you and your loved ones. Thank you for being with us for this first quarter fiscal 2021 call. I must say that we are very pleased with this first quarter relative to our assumptions and relative to our targets, both on revenues, which are in line, and our cost control, contract negotiations, and restructuring, which are better than expected. If we move to slide four, you'll see that the organic decline in Q1 revenues was 22.7%, or 21.5% if we exclude the Rugby World Cup in the base. This was better than in the last two quarters of fiscal 2020, and in particular, the fourth quarter, which was at -24.9%.
We saw an improvement in September and October, even though the second wave impacted our activity in November, reducing some of the progress. The organic decline in On-Site was 23.3% and would have been 22.1% if we exclude the impact of the Rugby World Cup last year. This compares to -25.4% in Q4. While North America has remained very impacted in all segments by the pandemic, the recovery in Europe and Asia-Pacific and Latin America has continued. Benefits and Rewards was down 5.6%, showing a significant improvement in the trend relative to the -15.1% in Q4 as a result of a return to positive growth in issue volumes and reimbursement volumes, even though the second wave has slowed this recovery. Latin America remains affected by a very competitive environment and lower interest rates in Brazil.
In the next few slides, I'd like to go into a bit more detail on the situation in education, which remains very contrasted. On slide five, let me remind you that our schools business is about 50% of our education activity, and it's spread approximately half in North America, a third in Europe and the rest in Asia. As you can see on the slide, European schools were open, and although not all schools and classes are open all the time, the participation rate was high, between 80% and 95%. France has been open since the beginning of September. Schools in the U.K., Spain, and Italy have opened more progressively. On the negative side, we are now going back into lockdown in the U.K., which will have an impact on our Q2. In North America, the situation is far more difficult, with only 15% of schools fully open.
However, our activity rate is around 50% due to the critical role we've played in the distribution of emergency meals. On the next slide, you will see that we have renegotiated about 70% of our contracts. Despite the school closures in North America, we are continuing to provide strong support to communities with approximately 60 million meals provided to bring healthy and nutritious meals to families in need. During this sanitary crisis, we have remained more than ever focused on promoting and providing good nutrition. In Italy, flexible lunchboxes have been conceived with ingredients to boost immune systems with, for instance, more vitamin C and E, zinc, and probiotics. In France, we are still ensuring at least one vegetarian meal a week for all school children.
Going further than that, we've developed lots of new vegetarian recipes using some of the 50 ingredients of the future, such as quinoa, beetroot, and spinach. Desserts such as apple and beetroot puree and/or pear and quinoa cake are being integrated into the school menus. In the U.S. in October, SodexoMagic, our venture with Magic Johnson, got together with Impossible Foods to provide a vegetarian burger for more than 5,000 school children across four Michigan school districts. To promote new ways of eating, even in these difficult times. Impossible Foods and SodexoMagic hosted a socially distanced cookout style event at the Flint Junior High centralized kitchen. We now look on slide seven at universities. Our universities business is principally, as you know, in North America, and many of our clients are suffering there.
The overall enrollment decline in this current academic year is 5%, but has reached 16% for first-year students across the U.S., according to The New York Times research. When you look at the breakdown on the chart, you'll see that only 27% of learning is physical, 8% is fully online, and the rest is a hybrid approach. This situation cannot last. Surveys have repeatedly shown that students want physical learning and campus life. As far as the situation is concerned, it's still very fluid in universities, with very little visibility even for the spring term. As previously mentioned, we've now managed to renegotiate approximately 70% of our contracts, mainly on the food side. Cost-plus contracts now account for 30% of the total versus only 10% pre-COVID. These renegotiations guarantee us more security to cope with a much lower volumes.
We are also successfully cross-selling our Clean4 process into the university campuses. This array of cleaning tools and supplies reduces surface pathogens, therefore reducing the risk of contagion. We are also deploying our Bite payment app for our university students in more than 170 of our sites for the spring term, and with about 27,000 users so far and growing. Look at benefits and rewards. The festive year-end gift campaigns account traditionally for approximately 7% of BRS revenues, and we have these offers in 10 main countries. The campaigns this year have been very positive, less so in Q1, but more in the final run-up to the holiday season with two main factors to consider. First, because several European governments announced one-off tax exemption increases, and second, many companies diverted other seasonal budgets such as holiday parties, decorations, et cetera, to boost the gift budget this year.
This year, digital offers accounted for 42% of the total, up 11 points versus last year. We have been very successful in new business and cross-selling due to the launch of some new offers such as our Sodexo Premium Pass Celebration Dining in India. We have also enhanced our targeting of companies and sectors which were not previously big buyers of gift benefits. We had a strong dedicated sales marketing campaign in all of these countries. Let me pass you over now to Marc for the revenue analysis.
Thank you, Denis, good morning, everyone, and my best wishes to all of you for a prosperous 2021. Let's turn to slide 11. Revenue came in at EUR 4.4 billion for the quarter, down 27.1%. The currency impact was a negative 4.5% due to the weakness of most currencies against the euro, and in particular, the real. Some scope changes were negligible at 0.2%. This gives us an organic decline of 22.7%, better than in Q4 fiscal 2020. Particularly if you take into account the Rugby World Cup, which had a negative impact of 120 basis points on the group and on on-site numbers. On-Site was down 23.3% or 22.1% excluding the rugby. Benefits and Rewards improved significantly from one quarter to another, being down only 5.6%. Turning now on slide 13 for the on-site levers of resilience.
Again, this quarter, certain service geographies and segments have been much more resilient than others. FM was flat, and our global IFM accounts were actually up 1%. This is due to our great sectorial mix with 80% of our global IFM accounts being in the pharmaceutical and FMCG sectors. E&R and government and agency were very slow, up 5.5% combined. It was helped by strong activity in the mining sector due to additional COVID-related services. In corporate services, we have also been able to renegotiate all our P&L type contracts, which represent two-third of our contractual base in that segment. Geographically, we saw strong resilience in our APAC, LATAM, and EMEA regions, which was flat this quarter. Europe was down only 19.8% or 16.6% excluding the impact of the Rugby, and was much better than the previous quarter due to schools going back progressively as of September.
North America remains very badly impacted by COVID, with little sign of improvement at this stage, particularly given the weight of the education and sports and leisure segments in that region. Slide 14. Business and Administration's organic decline was 27.7%. The trend was 2.1 points better than in Q4, but double that at 4.2 points if you strip out the rugby, which was in last year's published figures. You will find full disclosure on the rugby effect in the appendix of this presentation. While I'm on the appendices, please take a look at them because we do put quite a lot of detail into them. In B&A in North America, the organic decline improved slightly but remained very significant at -47%. The trend improved in Energy & Resources and government and agencies.
However, most sports and leisure sites remain closed, and corporate services showed no improvement in trend relative to the previous quarter. In Europe, sales were down -30.2% organically, more or less in line with the performance of the previous quarter. However, the trend is much better if you exclude the impact of the rugby, at -26%. It was visible in all segments with a better September and October, more than offsetting the impact of the new lockdown measures in November. In Asia, Pacific, LATAM, Middle East, and Africa, activity was flat in the quarter, reflecting strong growth in Energy & Resources, particularly in mining, while activity in corporate services is stabilizing more progressively. Growth in China and Latin America is offsetting a more difficult situation in India and some other Asian countries. In Healthcare & Seniors, the organic decline of -3.5% was much better than the previous quarter.
Organic growth in North America was down 10.6% due to the weakness of retail sales in the majority of hospitals during the pandemic, and with no sign of any improvement since the previous quarter. On the other hand, cross-selling of new COVID-related services has been solid. Seniors performance has continued to improve month by month with encouraging new wins. In Europe, the strong organic growth of 9.9% reflects the ramping up of the COVID rapid testing center contract in the U.K. and the contribution of a large new contract in France. More generally, hospitals across the region are suffering from the decline in retail sales. Seniors activity is more or less back to previous year levels.
In Asia, Pacific, LATAM, Middle East, and Africa, the organic decline was better at -4.3%, with a return to strong growth in China, partially offset by the continued weakness due to the pandemic in Latin America. Education revenue in the first quarter were down -31.2% organically. In North America, the segment remained severely impacted by the COVID pandemic, with an organic decline of -38.5%. Schools and universities were only very partially open, with very patchy performances. Only 15% of schools are fully open, although activity is at about 50% of normal levels due to the emergency meals distribution. Only 27% of universities are fully open, the vast majority providing hybrid learning systems. In Europe, schools reopened, and so the organic decline was limited to -7.4%. Most schools were back by mid-quarter, even if some classes are forced to close from time to time due to COVID.
In Asia, Pacific, LATAM, Middle East, and Africa, the organic decline remained significant at 21.5% due to the lockdowns in India, Singapore, and Hong Kong. China recovery was visible in the bilingual schools, which are up strongly. The international schools remain very difficult. Let's move on to Benefits and Reward Services. As you have already seen, the Benefits and Reward Services revenue trend improved significantly in Q1 versus the previous quarter, down only 5.6% organically. This improvement was due to a strong improvement in employee benefit issue volume, and even more so in reimbursement volumes. Both were up respectively 0.8% and 1.6% year-on-year. While issue volumes were down very slightly in Latin America, -0.4%, they were up 1.9% in Europe, Asia, and USA.
In India, for instance, despite the very significant effect of the pandemic in the country and the strict lockdown, our team was very proactive in moving to virtual digital solutions, leveraging the Zeta technology. Within weeks of the lockdown, we were able to issue meal, cafeteria, and multi-benefit solutions totally virtually to overcome the difficulties of manufacturing and distributing physical cards. More than 3,200 contracts were set up for digital issuance, and more than 225,000 cards have been issued virtually. We have also started to market joint On-Site BRS offers and have begun to win some contracts. Moving on to slide 19. Employee benefits revenues were down 4% organically, demonstrating a clear recovery compared to the fourth quarter fiscal 2020 trend. Service diversification was down -10.7% due to the continued difficulties in sports and travel markets in most countries.
On the other hand, public benefits are up strongly in all regions. In Europe, Asia, and U.S., revenue declined by 3.2% organically, which represents a significant improvement relative to the previous quarter in most countries. Issue volumes were solid, and in September and October, we saw an improvement in reimbursement volume, even though the trend reversed in November due to the second round of lockdowns. Growth in issue and reimbursement volumes, for instance, in India, in China, and Turkey were strong, helped by innovation and new offers. In Latin America, sales declined - 9.4%. Overall, issue volumes and reimbursement volumes were stable in the region. However, revenues were impacted by the highly competitive environment and falling interest rates in Brazil. Although the Brazilian Selic is still declining year-on-year, it has stabilized since last summer at about 2%.
The momentum in the rest of the region remains very strong, except in Chile, which was more impacted by the pandemic and the economic environment. I have already talked a lot about the operating revenue. They were down only - 4.2%. On the other hand, financial revenues were down 23.5%, still impacted by the decline in interest rates, particularly in Brazil. Thank you for your attention, and I will hand you back to Denis for the outlook.
Thank you, Marc. If we now go to the outlook. As far as the outlook is concerned and given the performance in the first quarter on revenues and the fact that there'll possibly be further third-wave lockdowns in some countries over the next couple of months, as we are seeing in the U.K. at the moment, we maintain the first half organic growth hypothesis at between -20% and -25%. Given the strict cost control, the solid contract negotiation, and the ongoing restructuring, we now target an underlying operating profit margin of at least 2.5%, so above the original estimate of between 2% and 2.5%.
As far as the free cash flow is concerned, we maintain our assumptions of a negative free cash flow of EUR 150 million in the first half due to the traditionally negative recurrent first half outflow of about EUR 100 million and the non-recurrent elements of about EUR 250 million, including previous year restructuring costs, government support payment delays reversals, and the reimbursement of the 2020 Olympic Games hospitality packages. For the second half, it's far too early to foresee the way things will play out on our activity, as it will depend heavily on the equilibrium between new waves of contamination and the speed of the effects of the vaccination on the pandemic. However, on the basis that the pandemic will largely be dealt with by 2021 calendar year-end, we aim to return to sustained growth and rapidly increase the Underlying operating margin back over to the pre-COVID levels.
Let me now open the meeting to your questions. Thanks again for being with us. Operator, if you can switch to questions.
Yes. Thank you. Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait your name to be taken. If you wish to cancel your request, please press the hash key. Once again, please press hash one to ask a question. Your first question comes from the line of Bilal Aziz from UBS. Please ask your question. Your line is open.
Good morning, everyone, and Happy New Year. Just two questions from my side, please. You mentioned in the back of the slide pack some contract wins in FM. Can you talk a bit more broadly once again about the pipeline and how that might be split between integrated contracts and single service catering contracts, and if you've noticed any pattern between that? Secondly, partly related to that, is there a split between what you're seeing between market share gains and first-time outsourcing, particularly interested in the U.S. with regard to what you're seeing and hearing on smaller competitors? Thank you.
Thank you, Bilal. In terms of contract wins, we have, I would say, a solid pipeline. The velocity in the pipeline is probably not as fast as we would wish, given the impact of the crisis, of course, but we have a solid pipeline. The split between integrated and single service has not massively moved. You know that the large integrated contracts, we've been very careful about the profitability that we expect from those contracts. We were more selective. We have a good pipeline of that, but we're selective as well. Sometimes it takes time because we want to negotiate those contracts properly. In terms of single service, in food particularly, we've put an emphasis on that, and we have good expectations of some nice signatures. First time outsourcing represents at the moment about one third of our pipeline, which is good.
Again, the speed at which we sign those first time can be sometimes a bit slower given the pandemic we're still in. I would say I would qualify our pipeline as solid, safe, and promising.
Thank you.
Thank you.
Thank you. Your next question comes from the line of Simon Lechipre from Stifel. Please ask a question. Your line is open. The next question comes from Simon Lechipre. Are you there? No. The next question comes Simon Lechipre. Please ask your question. Your line is open.
Hi, can you hear me?
Yeah.
Okay. Good morning and happy New Year. Three questions, please. First of all, looking to Q2, how confident are you in terms of your guidance for H1 given the new restrictions being put in place? Basically, do you expect Q2 to show a slight deterioration compared to Q1? Secondly, in terms of margin, if you could please come back on the drivers behind the better performance and give us some details on segments which are doing better compared to your initial expectations. Lastly, looking to your free cash flow guidance. You keep it unchanged despite better profitability expected. Does that mean the minus EUR 100 million recurring free cash flow you expect is really a conservative scenario right now? There are other factors that would offset the impact from the better profitability? Thank you.
Thanks, Simon, and happy New Year to you as well. Regarding Q2 and H1 as a whole, I think we are confident in the guidance that we've given. That guidance integrates the lockdown that we have at the moment in the U.K. We've upgraded our margin assumptions and kept our revenue guidance. The reason for that is because we are improving the business quarter by quarter in terms of top line progressively. Q1, as I said, in all segments, is better than Q4. On the cost side, we have focused a lot on how we control the costs, how we again get the full impact of our contract negotiations. We're very close to our clients and really deliver the services that are required in a proper contractual framework. That's very, very important.
If we go above and beyond, then we ask for the extra above and beyond revenue that's needed. I must say that mindsets have changed thanks to this crisis in our teams, and they're very focused in getting rewarded for the services that we provide. What we see is the gross margin getting more and more solid, improving versus previous quarters, and that's what makes us confident in this improvement of the profit margin. Of course, the restructuring program that we put in place to improve and reduce our SG&A ratio is well underway, and it of course brings support to our confidence. In terms of free cash flow, Marc?
Yeah, in terms of free cash flow, we're probably a little conservative on maintaining the free cash flow. Yeah. Could be slightly better.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Jamie Rollo from Morgan Stanley.
Yeah. Morning, everyone. Happy New Year. Three questions, please. First, just coming back on one of the previous questions, your expectations for Q2. Clearly the H1 guidance, which is unchanged, gives a pretty wide range for Q2, down 17 to down 27. It would just be helpful if you can give us a flavor for where you think you might end up. I assume Q2 will be worse than the first quarter, but if you could talk about that and maybe give us a flavor for what November was. Secondly, if we look at the improvements you reported in Q1 versus Q4, as you show, a lot of it's in Europe. That's in spite, of course, the lockdowns there in November. Even within North America, some of the segments seem to have got a bit worse. I'm just wondering what your expectations are.
Clearly, it's very difficult to guide on the virus, but there does seem to be a very wide gap between North America and Europe right now, wider than it was in previous quarters. Finally, on the commentary about recovering your margins. Since you last reported, Compass said they hope to recover their pre-COVID margins before recovering their pre-COVID revenues. Do you see a similar trend, or do you expect more of a linear relationship?
Thanks, Jamie, and happy New Year to you. Yeah. Well, actually, we expect Q2 to be more or less in line with Q1, not a massive change one way or the other. We are already halfway through Q2, almost. If some lockdowns come, they will impact the second part of Q2. Which, schools remain open, except in the U.K. France has said that the government recently said that they would close the school as a very last decision. I think we're quite confident that we would have probably a Q2 more or less in the same range as Q1. Yeah. Well, NORAM, what we can say, over the last three months, NORAM is more or less flat in terms of trend. It's a bit above minus 30%, and we don't see improvement here coming up.
It's true that we've seen Europe progressing a bit. November has been a bit less as good than September and October. As we said, we had a promising first two months, then with the lockdowns in Europe, we went a bit down. That's how you can see Q2 versus Q1. Not a massive improvement, but not necessarily a massive deterioration. In terms of margins, as we've said, we control very much our cost. We reignite the top line as much as we can. Yes, as I said in the guidance, margins will increase. Will they increase more quickly than our revenue? Probably, yes. Let's be pragmatic. Let's take things step by step. What we're convinced is we can, post-sanitary crisis, when populations are vaccinated, we can reignite our margin improvements and get back over to the pre-COVID margin levels that we have. That, we're confident.
We're confident this. The speed between the revenue and the margin is yet to be assessed. Yeah, probably we can increase margins quicker than our revenue. It's possible, but let's take it step by step.
Sorry, just to follow up on the last one. At 2.5%, you're already halfway back to where you were, and you're still running with sales down over 20%. Clearly the pace of margin improvement is going to slow very sharply. If you can give us any help on thinking about that on the trajectory of sales improving from -20% to flat. I'm guessing we're factoring in suddenly a much slower margin performance as you head into the sort of Teams-type production. Is that fair?
I'm not sure. You were breaking up, what you're suggesting is that we are almost halfway through, is that right?
Yes. Sorry, there's an echo on my line. The point I wanted to make was, in your second quarter last year, sorry, in your third quarter last year, I think your margin was negative three, with sales down about 30%.
Mm-hmm.
Possibly at least +2.5%, with sales down between 20% and 25%. It's only a fairly small sales improvement, but a dramatic margin improvement. At 2.5%, you're only roughly half of your pre-COVID margins. Just mathematically, there must be a much slower pace of improvement from here. I'm just wondering when that slowdown comes through. Is it when the sales decline is in the sort of teens, like between 15% and 20%? Or is it when it's single-digit declines?
It's hard. Sorry, I'll let Marc complement that. I wouldn't model this like this. There's lots of moving parts. If you compare the situation in Q3, we had massive changes. We had stocks, inventory that we had to get rid of. There's not much like for like, per se.
There was quite a few one-off issues in the Q3 and Q4.
Yeah.
Which were not recurrent. What we have with Q1 is, I think we have a clean, recurrent view on the business for the first time. In Q4 and Q3 was lots of moving parts.
Yeah, lots of moving parts.
There are still a few moving parts like government aid, how long it will carry on, when will it stop, and so forth. Today, Q1 gives us a much cleaner view on performance than we had in previous quarters.
As Denis said, we've been encouraged by what we saw in Q1 versus what we were expecting. We believe there is a path. Negotiation have given us the good result. Cost control is there. Now let see how Q2 is performing and Q3, and we will give you more visibility. We need to confirm. It's encouraging.
Yes. Thank you.
Thank you. Your next question comes from the line of Vicki Stern from Barclays.
Yeah. Hi, morning. Just coming back on the earlier question around net new business growth. Just firstly, any comment on how retention is fairing in this quarter? Obviously, short-term, the pipeline's being impacted by the pandemic still, but just your best guess at this stage as we look out over the next couple of years or so as to what that level of net new business wins should look like.
Thanks, Vicki. Hello, Happy New Year to you. Just the development is slightly better, which is encouraging, versus last year. That's a good sign. Retention is yet to be fully assessed. We are, again, at the beginning of the year. We're still very early in the year, so we'll give you more element of that in H1, but I'd say the quality of the pipeline is improving. Definitely, the net new business moving forward will be positive because, again, on a steady state basis, we aim at really reigniting our top-line growth as well as improving the margins. Retention has been and will be a very important focus for all the teams, moving forward. We put lots of efforts there. We want a healthy pipeline in terms of new win. We want to capture opportunities that we can have in first-time outsourcing.
We know that they are more profitable, in most of the cases, than sometimes the gain to a tender and market share gain. Retention is very, very critical to us, but I'm positive on the net new business wins that we can have moving forward.
Thanks. Perhaps a follow-up. There's obviously been a lot of discussion about the impact of all of this on some of your smaller competitors. Just any anecdotal comments around what you're seeing amongst those competitors that have been really heavily disrupted?
Some spots. Smaller competitors have been, of course, disrupted as we've been. Some that are less diversified have been sometimes severely impacted, particularly the ones that operate in schools, for example, last year, of course, they've been impacted. The point is, because we are not a cash-intensive business, you can survive even if you struggle. The ones that had some difficulties in, let's say, spring and summer, as soon as schools reopened, they got oxygen back. We haven't seen any major failure of even smaller competitors. Will there be some opportunities, maybe some acquisitions moving forward? Yes. We think there will be, but we haven't seen any heavily disrupted competitor of relevant size, I would say.
Thank you. Sorry, just one last follow-up. Any regional differences in terms of new activities? Is Europe moving slower, faster than the U.S. on that front, for example?
In terms of the business trends or the competitors?
New signings and/or retention.
No, nothing particular. No, nothing particular in terms of signatures or anything. They're mostly linked to the situation that the markets are in.
Great. Thanks very much.
No major regional difference. Yeah. Thank you, Vicki.
Thank you. Your next question comes from the line of Leo Carrington from Credit Suisse. Please ask your question.
Good morning. Thank you. Two questions. Firstly, on BRS. I guess BRS saw the strongest sequential improvement, and I am interested in the sustainability of this performance and underlying client activity. Firstly, you mentioned gifting was 7% of revenues in BRS last year. What kind of increase in activity have you seen in Q1? I also appreciate you said it is perhaps more of an effect visible for Q2. Secondly, have you seen any cross-selling progress during the crisis? Can you just remind us on how much client overlap there is and what the potential is there? Second question, I was surprised to see Compass quietly acquired EAT Club in the U.S., which you at Sodexo previously were part owners of. Can you just give an indication of why you didn't look to take ownership or perhaps if there was a reason why that business didn't fit with yours?
Thank you.
Yeah. Thanks. In terms of BRS, yeah, we believe that the improvement, particularly in the issue volume, will continue. Of course, lockdowns again in Europe where we have a significant business may impact a bit. We think that will continue. We have a good sales activity in BRS and we continue to be confident. We have definitely a high single-digit growth on the Christmas campaign, that will bring good things, particularly also on the revenue side, when reimbursements come in. The good thing also is we're improving our digital offers in Get. We see more and more clients ordering digital solutions on Get, which is good. Not yet at the food level, it's improving. In terms of cross-selling, yes, I think the joint offers between OSS and BRS are promising. We accelerated the cross-selling.
We've signed really some more and more contracts, and we have a good pipeline in terms of that really joint offer. That, I think, will give you more light and more information as we move forward. This is really promising. In terms of EAT Club, we had a stake into EAT Club. It was a minority stake. They went into trouble because they couldn't find their market, and we looked at the potential, and we decided not to take it over completely. We had some core discussions, but we felt that it was not bringing the value that we would have expected, so we moved to other options rather than taking it completely.
Thank you very much.
Sure.
Thank you. Your next question comes from the line of Joe Thomas from HSBC. Please ask your question.
Morning. Hello. It's Joe from HSBC. I just wanted to come back on the pipeline, if that's okay. You characterized the pipeline as being solid, and you said that, I think, first-time outsourcing was about a third of the pipeline. What percentage of the pipeline is first-time outsourcing normally? I'm just trying to get a sense of whether that's increased or decreased and whether the overall scale of the pipeline is going up or going down. It doesn't sound as though there's much coming from smaller competitors, and I would say they've been given more oxygen. I just want to get a better steer on whether there is a potential for growth to be accelerated. That'd be the first question. The second question is on the healthcare side of things.
We read grim headlines in the newspapers daily, especially in the U.K., about routine operations being delayed, postponed, especially in London at the moment. Any thoughts on how you're thinking about the healthcare business more generally?
Right. Yeah, the pipeline is solid, as I said. First time is with one third. I must say that it's higher as a proportion than we had before. Two things that may contribute to that. The first thing is some of our prospects have realized that operating food services or FM services themselves was difficult. Operating your disinfection services when you were not a specialist is complex. Even operating food services to ensure the proper food safety, the proper safety of the people in the way we operate, being more digital to ensure the click and collect and click and delivery services is hard to do when you self-operate. That's one side of things.
The second thing is we had for the past, let's say, 18 months, two years, we have said to the teams that they needed to be more focused on that first-time outsourcing market, which is still depending upon the segments, of course, but which is still massive. We have put an emphasis on our sales teams pre-COVID on feeding the pipeline with first-time outsourcing. I think both elements contribute to that increasing part of first-time outsourcing in the pipeline. The pipeline is increasing. I would say it's more the quality of the pipeline that is increasing. We always had a good pipeline, but the quality in terms of the margins that we could expect, the quality in terms of our capacity to win, the velocity, and everything is improving. In terms of healthcare, we believe this is a great market.
As you know, it suffered less than many of other segments. Yes, elective surgery has been postponed in many hospitals. Retail has also disappeared almost in all hospitals. There are no more visitors. Obviously, elective surgery will come back, as soon as pandemic goes away. Retail will come back because visitors will come back to hospitals. We strongly believe in the potential of that market. We're well-positioned. In the U.K., yeah, it's going to come gradually. We're positive on that market. Strong positions in the U.K., strong position in France, strong position in NORAM, and in Asia as well. That's going to be an important market for us moving forward.
Okay, thank you.
Again, as the pandemic goes away, we'll see volumes progressively picking up.
No, thank you. No, I appreciate that it will come back. My question was really aimed at understanding whether it had got worse in Q1.
I'm sorry, you broke up. Could you repeat your question? Sorry.
Yes. No, I understand that it will come back eventually. My question really was aimed more at understanding on a quarterly basis whether Q2 was looking worse than it did in Q1.
Okay, sorry. Marc?
Yeah. What we've seen is that healthcare month to month, it's progressively improving. We've also had the rapid testing centers in the U.K., which gave us healthcare growth in the U.K. because of the testing centers. Yes, there could be some hiccups in term of elective surgery for a few months, but the rapid testing centers activity is quite solid. Actually, the U.K. is one of our best performing markets at the moment in healthcare. It's gradually improving. The underlying trend is improving month after month. I think today, the healthcare systems around the globe are a lot more organized than they were a year ago. They're able to cope more with other surgeries. It's not yet brilliant and there are some delays, but it's getting better. We're not too worried, and then we are seeing this going further, progressing positively.
Yeah.
Obviously in the U.K., we're supported by the testing centers.
Thanks very much.
Thank you. Your next question comes from the line of Richard Clarke from Bernstein. Please go ahead, ask a question.
Hi there. Good morning, everybody. Apologies, there was some sound issues on some of the earlier questions. If any of these have been asked already, please let me know. In your presentation, you mentioned that there's some working from home benefits and the Benefits and Rewards. Is that the gifting that you referred to in the presentation, or is there some more longer-term sort of working from home benefit you see within the Benefits and Rewards? In healthcare, just wondering, I kind of understand in education why Europe is doing so much better than North America. Why in healthcare is Europe doing so much better? Is that really down to the testing centers, or is there something else different in healthcare between the two divisions? Is vaccinations an opportunity for you, or is testing the sort of limit there?
Just to push on the longer-term guidance. You talk about the, if the virus is over, if the pandemic is over by calendar year 2021, you'll then go back on margins. Should those things be kind of concurrent? Will H2 FY 2022 see margins above pre-pandemic levels, or would there be more work to go over the sort of coming quarters to get back onto that trajectory?
Thanks, Richard. On the work from home in BRS, it's much more than the sort of gift campaign that we did. We did a good gift campaign, but the fundamental trend is, we see clients wanting to accompany their employees when they're at home. We see employees asking for support when they work from home. As we said in the investor day, we expect work from home to sort of land at two days per week. Of course, for office workers, not for production people. For those two days, clients are really figuring out how they will accompany and accompany people with food services, typically with our cards, makes a lot of sense.
Where we're strong at is that we can integrate both offers, the On-Site and the BRS cards in one system, one integrated system, which is great value for our clients and for the employee experience. We are unique on this. That trend will support the development of joint offers. We're really positive on it. We're signing clients. We have a good pipeline, of course, in the countries where BRS is, but it's strong. We're positive on that. In terms of healthcare, Marc, do you want to
Yeah, the healthcare in Europe is better, generally speaking. Even if you move away the rapid testing centers, the trend is better than the U.S. It's also because the retention historically is a lot better in Europe than in the U.S. In the U.S., last year we had some large losses, and so there is still a compounded effect on the NORAM numbers. The NORAM numbers will improve because the base will get more favorable in the coming quarters. In Europe, I would say, if you remove the rapid testing centers, the trend is about -5%. With the rapid testing center, you move to 10%, because the rapid testing center is about EUR 20 million a month right now. That gives you the trend, but the trend is improving. What's important is that steadily, we see the healthcare trend improving month after month.
And regarding your-
Regarding vaccinations, we are open for business. Obviously, we did good business, and I think we're providing good service in the U.K. for the testing center. We will be happy to support for the vaccination. Vaccination is a little bit more technical and requires some. Yes, we are open to that. Today we have no opportunity right now.
It depends on government strategies.
On the protocol and the government strategies and everything. We can do.
As far as your third question, Richard, as I said, post-pandemic, we aim at getting back to sustainable growth, and increase the EUR over the pre-COVID levels. I won't give any timeframe on that. We are always cautious. I think you should take the trend that we have as a positive one, and the efforts that we're making in improving quarter after quarter our gross profit margins after the crisis that we've lived through, and it is for us important, the cost control that we do are also good signs. I won't commit on a date.
Thanks very much. Very clear.
Thank you, Richard.
Thank you. There are no further questions at this time. Please continue.
Okay. All right. Thank you very much for being with us today. I want to again, want to wish you the very best. I want to wish to all of us, I would say, a better 2021 than we had 2020. I'm convinced that this year is the year of opportunity. We've been demonstrating resilience and strength during the crisis. I think we've done really well relative to some of our competitors. We're ready to put all our efforts in surging from the crisis, and getting back to the levels, and better levels that we had in terms of revenue and profit. That's our goal. We're confident. The teams are absolutely focused and motivated, close to our clients, and I'm positive moving forward, even though, yeah, the months to come might be a bit difficult.
The energy is there, the willingness is there to develop the business and, yeah, looking for more good things moving forward. Thank you very much. Have a great year.
Thank you. Bye-bye.
Take care, and stay safe.
That does conclude our conference for today. Thank you for participating.