Earnings Call: Q1 2021

Jan 8, 2021

Good morning. Thank you for standing by, and welcome to the Sodexo First Quarter Fiscal 2021 Readiness Conference Call. I advise you that this conference is being recorded today on Friday, January 8, 2021. I would 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 Ashuel and Marc Roland, 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 French time, online only due to the pandemic. The next numbers announcement will be the first half figures on April 1. I'll now turn the call over to Denis Macherre. 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 Q1 fiscal 2021 call. I must say that we are very pleased With its Q1 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. So if we move to Slide 4, You 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 4th quarter, which was at minus 24.9%. We saw an improvement in September October, even though the 2nd 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 minus 25.4 percent in Q4. So 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 minus 15.1 percent in Q4 as a result of a return to positive growth in issue volumes and reimbursement volumes, Even though the 2nd 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 5, let me remind you that our SCORM business is about 50% of our education activity and is Spread approximately half in North America, the 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% 95%. France has been opened 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 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. And At the school closures in North America, we are continuing to provide strong support to communities with approximately 60,000,000 meals provided to bring healthy and nutritious meals to families in need. And during this sanitary crisis, We have remained more than even more than ever, sorry, focused on promoting and providing good nutrition. In Italy, flexible lunch boxes have been conceived with ingredients to boost immune systems with, for instance, More vitamin C and E, zinc and probiotics. In France, we're still ensuring at least One vegetarian meal a week for all school children. And 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 not quinoa cake are being integrated into the Screw menus. In the U. S. In October, Sodexo Magic, our venture with Magic Johnson, Got together with Impossible Foods to provide a vegetarian burger for more than 5,000 school children across 4 Michigan School District to promote new ways of eating even in these difficult times. Impossible Foods and Sodexo Magic hosted a socially distanced, cookout style event at the Flint Junior High's centralized kitchen. If we now look on Slide 7 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 1st year of students across the U. S. According to New York Times Research. And 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 The negotiations guarantee us more security to cope with a much lower volumes. We are also successfully cross selling our Clean 4 Processed into the university campuses, this array of cleaning tools and supplies reduces surface pathogens, therefore, reducing the risk of contagion. We're also deploying our BYTE 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. Now look at benefits and royalties. Fancy bureaus 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 2 main factors to consider: 1st, because several European governments announced one off tax exemption increases And second, many companies diverted other seasonal budgets such as holiday parties, decorations, etcetera, to boost the gift budget this And this year, digital offers accounted for 42% of the total, up 11 points versus last year. We've 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've also enhanced our targeting of companies and sectors, which were not previously big buyers of gift benefits, and we had a strong dedicated sales and marketing campaign in all of these countries. Let me pass you over now to Marc for the revenue analysis. Thank you, Denis, and good morning, everyone. And my best wishes to all of you for Prosperous 2021. So let's turn to Slide 11. Revenue came in at €4,400,000,000 for the quarter, down 27.1%. The currency impact was a negative 4 Some scope changes were negligible at 0.2%. This gives us an organic decline of 22.7% better than in Q4 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 Redfin. Benefits and rewards improved significantly from 1 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 item accounts being in the pharmaceutical and FMCG ENR and government and agency were very 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 and L type contracts, which represents 2 thirds 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. On the other hand, 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 segment in that region. Slide 14. Business and administration 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 effects in the appendix of this presentation. And 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 and A North America, The organic decline improved slightly, but remained very significant at minus 47%. This trend Improvement in Energy and Resources and Government and Agency. 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 minus 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 minus 26%. It was visible in all segments with a better September 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 and resources, particularly in mining, While activity in corporate services is stabilizing more progressively, growth in China and Latin America is offsetting a more difficult decline of minus 3.5 percent 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 improvements in the previous quarter. On the other hand, cross selling of new COVID related services has been solid. Senior's performance That continues 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 UK and the contribution of a large new contract in France. More generally, hospitals across the region are suffering from the decline in retail sales. By the continued weakness due to the pandemic in Latin America. Education revenue in the first of minus 38.5%. Schools and universities were only very partially open with very catchy performances. Only 15% of schools are fully open, although activities that are close 50% of normal levels due to the emergency meals distribution. Only 27% of universities are fully open, the vast majority providing hybrid learning system. In Europe, schools reopened And so the organic decline was limited to minus 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. However, the international schools remain very difficult. Now let's move on to Benefits and Reward Services. As you have already seen, the Benefits and Reward Services revenue 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 volumes 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, minus 0.4%, they were up 1.9% in Europe, Asia and U. S. A. In India, for instance, despite the very significant effect of the pandemic in the countries and the strict lockdown, Our team was very proactive in moving to virtual digital solutions, leveraging the VISTA technology. Within weeks of the lockdown, we were able to to mute 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 insurance 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 The Q4 fiscal 2020 trend. Service diversification was down minus 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. A, 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 October, we saw an improvement in reimbursement volume even though the trend reversed in November due to the 2nd round of lockdown. 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 minus 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 CELIC It's 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 minus 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. And if we now go to the outlook. So as far as the outlook is concerned and given the performance in the Q1 on revenues And the fact that there will possibly be further 3rd 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 minus 20% and minus 25%. Given the strict cost control, the solid contract negotiations 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 €150,000,000 in the first half due to the traditionally negative recurrent first half outflow of about €100,000,000 and the nonrecurrent elements of about €250,000,000 including previous year restructuring costs, Government support payment delays reversals and the reimbursement of the 2020 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 or the effects of the vaccination on the pandemic. However, on the basis that the pandemic We'll largely be dealt with by 2021 calendar year end. We aim to return to sustained growth And rapidly increased the underlying operating margin back over to the pre COVID levels. And let me now open the meeting to your questions. Thanks again for being with us. So operator, if you can switch to questions. Call. And 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 EM. 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. And 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? [SPEAKER MARTIN PEREZ DE SOLAY:] Thank you, Dheal. In terms of we have a A contract means we have a, 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. And sometimes it takes time because we want to negotiate those contracts properly. In terms of single service, We are we have a in full particularly, we put an emphasis on that, and We have good expectations and some nice signatures. First time outsourcing, We present at the moment about onethree of our pipeline, which is good. And again, The speed at which we signed was first time can be sometimes a bit slower given the pandemic we're still in. But I think it's I would say, I would qualify our pipeline as solid, safe and promising. Thank you. Thank you. Thank you, Lila. Thank you. And your next question comes from the line of Samer Simone Lefebvre from Stifel. Please ask a question. Your line is open. Your next question comes from Simon Lefebvre, Rosettela, are you there? No. So the next question comes Simon Lefebvre. Please ask your question. Your line is open. Yes. Okay. So 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? So basically, do you expect Q2 to show slight Deterioration compared to Q1. And secondly, in terms of margin, so if you could please come back on the drivers behind the better performance and give us some details on the segments which are doing better compared to your initial expectations. And lastly, looking to your free cash flow guidance, so you keep it unchanged despite a better profitability expected. So does that mean the minus €100,000,000 recurring free cash flow you expect is really a conservative scenario right now? Or there are other factors that would offset the impact from the better profitability. Thank you. Thanks, Simon, and happy year to you as well. So regarding Q2 and H1 as a whole, yes, I think We are confident in the guidance that we've given. It integrates that guidance integrates The lockdown that we have at the moment in the UK, we've upgraded our margin assumptions and kept our revenue guidance. The reason for that is because we've 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 are focused a lot on how we control the costs, how we, again, get the full impact of our contract negotiations. We were very close to our clients and really deliver the services that are Acquired in a proper contractual framework and that's very, very important. We if we go above and beyond and 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 are very focused in getting rewarded for the services that we provide. So what we see is we see a 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. And of course, the restructuring program that we put in place to improve and reduce our SG and A ratio Yes. It's well underway. And it, of course, brings support to our confidence. In terms of free cash flow, Amar? Yes. In terms of free cash flow, we're probably Could be slightly better. Okay. Thank you very much. Thank you very much. Thank you. And your next question comes from the line of Jamie Rollo from Morgan Stanley. Yes. Good morning, everyone. Happy New Year. Three questions, please. First, just coming back on one of the previous Your expectations for Q2, clearly, the H1 guidance, which is unchanged, gives a pretty wide range 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 Q1. 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, it's nearly all Well, a lot of it's in Europe. And that's in spite, of course, the lockdowns there in November. But 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 It does seem to be a very wide gap between North America and Europe right now, wider than it was in previous quarters. And 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 Thanks, Jamie, and Happy New Year to you. Yes, well, actually, we've seen Q2 is 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 2nd part of Q2, which schools Remain open, except in the UK. France has said that they would the government recently said that they would close the school At the very, very last at the very, very last decision, so we're I think We're quite confident that we would have probably a Q2 more or less in the same range as Q1. Yes. Well, NORAM, what we can say over the last 3 months, NORAM is more or less flat in terms of trend. And It's a bit above minus 30%. And we don't see improvement here coming up. So but it's true that we've seen you are progressing a bit. November has been a bit less is good Then September October, as we said, we had a promising 1st 2 months. And then with the lockdowns in Europe, we went a bit down. So 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 have controlled very much our cost. We ignite the top line as much as we can. And yes, as I said in the guidance, margins Will increase. Will they increase more quickly than our revenue? Probably, yes. But let's be pragmatic. Let's take things step by step. What we're convinced Yes, we can pre post sanitary crisis when populations are vaccinated, we can We ignite our margin improvement and get back over to the pre COVID margin levels that we have. That's we're confident. We are To confirm this, the speed between the revenue and the margin is yet to be Yes, probably we can increase margins quicker than Aravind. It's possible, but let's take it step by step. So just a follow-up on the Q1. At 2.5%, you're already halfway back to where you were. And you're still running with sales down over 20%. So 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 sort of minus 20 to flat. I mean, I'm guessing we're factoring in a suddenly a much slower margin performance I'm not sure I you were breaking up so much. So what you're suggesting is that We are almost halfway through. Is that right? Yes. Sorry, there's an echo on my line. I'm just so the point I wanted to make was In your Q2 last year sorry, in your Q3 last year, I think your margin was negative 3%, with sales down about 30%, and it's now Possibly at least plus 2.5%, with sales down between 2025%. So it's only a fairly small sales improvement, but a Dramatic margin improvement. And at 2.5%, you're only half of your sort of roughly half of your pre COVID margins. So just mathematically, there must be a much slower pace of improvement from here. But I'm just wondering when that slowdown Come through, is it when the sales decline is in the sort of teens, like between 15%, 20% or is it when it's single digit declines? It's hard. I wouldn't sorry, and I'll let Marc compliment that. I wouldn't model this like this. There Yes. Lots of moving parts. And if you compare the situation in Q3, I mean, we had massive changes. We had stocks, inventory that we had to get rid of. Yes, I mean, there is not much like for like Yes. There was a point of Q1 off issues in Q3 and Q4, which were not record. What we have with Q1 is that I think we have a clean recurrent view on the business For the first time, in Q4 and Q3, lots of moving parts. There are still a few moving parts like government, as How long it will carry on, when will it stop and so forth. But today's Q1 gives us a much cleaner View on performance that we had in previous quarters. And as Denis said, we've been encouraged By what we saw in Q1 versus what we were expecting, so we believe there is a path. Negotiation I've given us good results, cost control is there. So now let's see how Q2 It's performing in Q3 and we will give you more visibility, but we need to confirm. This is encouraging. Yes. Thank you. Thank you. And your next question comes from the line of Vicki Stern from Barclays. Hi, morning. Just coming back on the earlier question around net new business growth. Firstly, any comment on how retention is faring in this quarter? And obviously, short term, the pipeline is being impacted By the pandemic still, but just your sort of outlook, 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 Thanks, Dickie, and hello. Happy New Year to you. Just The development is slightly better, which is encouraging versus last year. So 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 give you more elements of that in H1, but I'd say the quality of the pipeline is improving. Definitely, the net new business moving forward Well, we'll be positive because we again, we aim at on a steady state Phases, we aimed at really reigniting our top line growth as well as improving the margins. And retention will be a very, very has been and will be a very, very important focus For all the teams moving forward that we put lots of efforts there. So we want a healthy pipeline In terms of new wins, we want to capture opportunities that we can have in 1st time outsourcing. We know that they are more profitable Most of the cases and sometimes the we're playing to a tender and market share gain. And so retention is very, very critical to us, but I'm positive on The yes, net new business wins that we can have moving forward. Thanks. And perhaps a follow-up. There's obviously been a lot of discussion about the impact All of this on some of your smaller competitors. Just any anecdotal comments around what you're seeing amongst those competitors? Have there been many heavily disrupted. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] In some spots, smaller computers 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, in 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. So the ones that had some difficulties in, It's spring summer. As soon as schools reopen, they got oxygen back. So 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. And sorry, just one last follow-up. Just any regional differences in terms of sort of new Is Europe sort of moving slower, faster than the U. S. On that front, for example? In terms of the business trends or the company The signings and or retention. 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 reason difference, yes. Thank you, Vicki. Thank you. And your next question comes from the line of Leo Kington from Credit Suisse. Please ask your question. Good morning. Thank you. Two questions. Firstly, on BRS. I guess BRS saw the Stronger sequential improvement. I'm 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? And I also appreciate you said it's Perhaps more of a effect visible for Q2. And 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? And then second question, I was surprised to see Compass quietly acquired EatClub in the U. S, which You, 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. In terms of beer, so yes, we believe that this 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, but we think that, that will continue. And yes, we have a good sales activity in DRS, and we continue to be confident. We have a high definitely a high single digit growth On the Christmas campaign, that will bring good things, particularly on the revenue side when reimbursements come in. The good thing also is we're improving our digital Our first in guests, so we see more and more clients ordering digital solutions on guests, which is good and yet At the food level, but it's improving. In terms of cross selling, yes, I think The joint offers between OSS and BRS are very 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. And that's I think we give you more light And more information as we move forward, but this is really promising. In terms of EatClub, We had a stake into IT Club. We they went into it was a minority stake. Yes, 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. It was we had some, of course, discussions, but we felt that was not bringing the value that we would have We move to other options rather than taking it completely. Thank you very much. Sure. Thank you. And your next question comes from the line of Joe Thomallon of Degroof. Please ask your question. Good morning. Hello. It's Jeff Thomas from HSBC. I just wanted to come back on the pipeline, if that's okay. So I think you characterized the pipeline as being solid, and you said that I think first time outsourcing was about onethree of the pipeline. How much 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. Now you say they've been given more oxygen. So I just want to get a better steer on whether there is a potential For the growth to be accelerated. That's the first question. And then the second question is on the health care side of things. We read some grim headlines in the newspapers daily, especially in the UK, about routine operations being Delayed, postponed, especially in London at the moment. I don't know to what extent that's more widespread. But any thoughts on how that's Yes. Well, how you're thinking about the Healthcare business more generally? Right. So Yes. The polyparenceolid, as I said, first time is with 1 third. I must say that it's higher As a promotion than we had before, 2 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 Specialists is complex and even operating food services to ensure the proper food safety, the proper The people in the way we operate being more digital to ensure that there's sort of pick and collect and pick and delivery services is hard to do When you self operate. So that's one side of things. The second thing is we had For the past, let's say, 18 months, 2 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, which is still massive. So we have put an emphasis on our sales teams pre quarter on feeding the pipeline with 1st time outsourcing. So I think Both elements contribute to that increasing part of first time outsourcing in the pipeline. And the pipeline is increasing. I would say it's more the quality The pipeline is increasing. We always had a good pipeline, but the quality in terms of the margin that we could expect, The quality in terms of the our capacity to win the velocity and everything is improving. In terms of health care, We believe this is a great market. As you know, it suffered less than the 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, and we have We strongly believe in the potential of that market. We are well positioned. In the U. K, yes, it's going to Gradually, but we're positive on that market. Strong positions in the UK, strong position in France, One question in ORAM, so and in Asia as well. So that's going to be an important market for us moving forward. Again, as the pandemic goes away, we'll see volumes progressively, Pimica. No, I appreciate that it will I'm sorry, you broke up. Can you repeat your question, sorry? Yes. No, I understand that it's 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. Yes. What we've seen is that health care month per 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. So yes, it could be some hiccups in term of It is surgery for a few months, but the rapid testing centers activity is quite solid. So actually, the U. K. It's one of our best performing markets at the moment in health care, and it's gradually improving. The underlying trend is improving month after month. So I think today the health care systems Around the globe are a lot more organized than they were a year ago, and they are able to cope more with other surgeries. It's not yet brilliant and there are some delays, but it's getting better. So we're not too worried. And then We are seeing this going further, progressing positively. And obviously, in the U. K, we're supported by the testing center. Thanks very much. Thank you. And 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. So if any of these been asked already, then please let me know. In your presentation, you mentioned that there's some working from home benefits and the benefits from reward. 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 health care, just wondering, I kind of understand in education why Europe is doing so much better than North America, but why in health care is Europe doing so much better? Is Really down to the testing centers, or is there something else different in health care between the two divisions? And can is vaccinations an opportunity for you? Or is testing And then just to push on the longer term guidance. You talk about the if the virus is over, the pandemic is over by Calendar year 2021, you'll then go back on margins. Should those things be kind of concurrent? So If 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. And So on the work from home in VRS, it's much more than the sort of gift A campaign that we did, we did a good gift campaign, but the fundamental trend is We see clients willing to accompany their employees when they are home. And 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 like 2 days per week. Of course, for office workers, not for production people. But and for those 2 days, Clients are really figuring out how they will accompany and accompanying people with food services, typically with our cards, makes a lot of sense. And where we are 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. So that trend will support the development of joint offers, And we're really positive on it. We're signing clients. We have a good pipeline. Of course, in the countries where PRS is, but it's strong. In terms of so we're positive on that. In terms of Healthcare, Marc, you want to Yes. The LKAR in Europe is better, generally speaking. Even if you Move away the rapid testing centers, the trend is better in the U. S. It's also because the retention Historically, it's a lot better in Europe than in the U. S. In the U. S, last year, we had some large And so there is still a compounded effect on the NORAM numbers. And so the NORAM numbers will improve Because the day will get favorable in the coming quarters. In Europe, I would say, If you remove the rapid testing centers, the trend is about minus 5%. And with the rapid testing center, you move 10%, because the rapid testing center is about €20,000,000 a month right now. So that gives you the trend. But the trend is improving. What's important is that steadily, we see the health care trend improving month after month. And regarding your and regarding vaccinations, we are open for business. I mean, we Obviously, I mean, 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. Maximization is a little bit more technical required from but yes, we are open to that. But today, we have no opportunity signed. And it depends On government's protocols, government strategies and everything, but we can do. And as far as your third question, Richard, As I said, we aim post pandemic. We aimed at getting back to sustainable growth And increasing UOP over the pre COVID levels, but I won't give Any time frame on that, we've been 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 is for us important, the cost Control that we do are also good signs, but I won't commit on a date. [SPEAKER SEBASTIEN DE MONTESSUS:] Thanks very much. Very clear. Thank you, Richard. Thank you. And there are no further questions at this Brian, please continue. All right. So thank you very much for being with us So 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 'twenty one than we had of 'twenty. I'm convinced that this year is a year of opportunity. We are 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 Put all our efforts in surging from the crisis and getting back to The levels that 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 positive moving forward, even though, Yes. The months to come might be a bit difficult, but the energy is there, the willingness is there to develop the business and yes, Looking forward, 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