Earnings Call: H2 2020

Oct 29, 2020

Good morning. Thank you for standing by, and welcome to the Sibexos Fiscal Year 2020 Results Conference Call. At this time, all participants are in a listen only I advise you that this conference is being recorded today. Thursday, October 29, 2020. At this time, I would now like to hand the conference over to the Sodexo team. Please go ahead. Thank you very much. Good morning, everyone. Welcome to our fiscal year 2020 results call. On the call today are CEO, Denis and CFO, Mark Holland. 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. The call is being recorded and may not be reproduced or transmitted without our consent. Please get back to the IR team. If you have any further questions after the call, I remind you that we have our capital our Investor Day on Monday And our first quarter announcement will be on January 8, 2021. I now turn you over to Denis. Thank you, Virgina, and good morning to all of you. Thanks for being with us this morning. I hope first that you all safe and well. The first thing that I want to say today is that our fiscal 2020 numbers are better than our recent hypothesis. They prove that our business model is resilient on the top line on the underlying operating profit and also in terms of the cash generation, even through the worst crisis that the group has ever seen. To go to Slide 4, and look at the second half, the organic revenue decline was 27.5%. Which is better than the minus 28 percent predicted. Was at 21.2% at constant rates versus the range of 20% to 23% that we had given you. And the free cash flow pre USB p make whole was positive EUR 465,000,000. And this allowed us to be cash flow positive this year, even after the make whole. I think it's a remarkable performance given the circumstances. If we now turn to Slide 5 for the detail in revenues, a Q4 organic decline came out better in all segments and activities than the Q3 trend, which was minus 36%. And our Q4 hypothesis at -27 percent. The Q3 trend shows the underlying trend for 3 full quarters of COVID crisis, given that the 1st weeks of March were normal. We definitely saw signs of an improvement in Europe, in corporate services and schools. And Asia Pac was growing in most segments. On the other hand, the recovery in North America remained very slow. So for the year, the organic revenue decline was 12%, split minus 12.1% in on-site services and minus 7.8% in BRS. Given this revenue decline at constant rate, the group and the on-site margins were down 240 basis points to 2.9% and 2.6%, respectively. The BRS margin was down 300 basis points to 26.2 percent. If we look now at our growth indicators, the good news is that client retention is up 20 basis points at 93.5%. I highlight the fact that quite a few sites have closed down definitely in some markets due to the crisis, and these are counted as lost business. This year, also because of the crisis, when clients were not prepared to negotiate, we took more drastic measures to eliminate are underperforming contracts. So excluding voluntary exits, retention would have been 94.4%. Comparable unit growth at minus 11.9% is the direct result of confinement lockdown and partial unemployment at existing sites. And despite some solid cross selling during the year, before entering the prices. Development was very slow at only 4.9%. If you look at retention and development, just to give you a bit of color on these figures, the good news is that North America retention was up 230 basis points, and particularly in health care and education, which is really good news. Gross profit retention was better than revenue retention at 95.7%, principally due to the voluntary exits. On the development front, pro form a gross margins on our signings were up 50 basis points, And an interesting point is that cross selling in Corporate Services was 2% for the year, helped in the second half by the extra disinfection and clinic services amongst others. Now on Slide 9, I'd like to share with you an example of an integrated facilities management contract with 1 of the largest pharmaceutical leaders in the world with successfully extended our relationship this year from a regional contract to a global 1. Sodexo has been a service partner for this client in Europe, the Middle East and Africa to deliver 78 services, including food, hard and soft defense services in more than 60 countries and in five continents, at more than 100 sites from corporate services to R&D sites and manufacturing plants. We made the difference. Thanks to our long standing relationship, as well as our expertise in delivering global IFM solutions, for the life sciences sector. Our strong proposal on sustainability, diversity and inclusion and well-being was a key differentiator. With our clients, we are working together to nurture a workplace environment that contributes to sustainability and economic inclusion. By improving environmental performance in facilities, by developing awareness and engagement of the seasoned consumers and by promoting employee and supplier diversity and inclusion. And this is how we are concretely acting to help our clients enhance their workplace experience and the well-being of their employees and at the same time preserve the talent. So on Slide 10, We can see that in this crisis, we kept a very close eye on our balance sheet. We reduced our CapEx in H2 by half, related to the first half run rate. We paused our acquisitions, helped by the fact that the first half had been spent integrating the previous year acquisitions. So net M and A spent was only EUR 18,000,000. And as a consequence, there is a limited 0.7 contribution to revenues from changes in scope. We generated 1,000,000 of free cash flow pre the USDP make whole in the second half. Our net debt sale between February August, by nearly EUR 300,000,000 and our liquidity by year end was very strong at 1,000,000,000. Now I hand you over to Mark to go into the detail. Mark? Thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning. As usual, you will find the alternative performance measure definition in the appendices, along with some information to help you with your modeling. Now let's start with the focus on the flows through performance in H2 2020 on Slide 12. As Denis has already pointed out, our UAP flow through at constant rate was 21.2% in the range of our hypothesis of between 2023. When taking into account the currency impact on revenues and underlying operating profit, the EOB flow through that you can calculate through our numbers, but actually even slightly better at 20.4%. Let's now have a look at the P and L performance for full year 2020 clearly impacted significantly by the sanitary crisis. Revenue growth was minus 12 percent and total revenue amounted to 1,000,000,000. Given the loss in the second half, underlying operating profit was EUR 569,000,000 and was down minus 52.6%. The underlying operating profit margin was at 2.9 percent, down 260 bps or 240 bps, excluding the currency mix effect. As we indicated in our trading statement, back in September, our restructuring costs and impairments can be seen in the step up of all their operating income and expenses. I should come back to this with the next slide. Financial expenses increased by EUR 191,000,000, I remind you that this includes the make whole payment of EUR 150,000,000 and the IFRS 16 effect for EUR 25,000,000 which was not there last year. This was also, and to a lesser extent, impacted by a decline in interest income due to lower interest rates on deposits and the interest cost of the new bonds raised in April July. With the reimbursement of the USPP and the new bond, Average gross debt cost at year end was 1.6%, again, 2.6% last year. The tax charge came out at 1,000,000 on a pretax loss of about 1,000,000. In fiscal 2020, we decided not to recognize about EUR 122,000,000 of tax assets related mainly to the pretax losses in France, where we capped recognition of deferred tax assets to the amount in deferred tax liabilities. Excluding this one off impact, the underlying effective tax As a result, the net loss for the year was minus EUR 315,000,000 and EPS of minus EUR 2.16 0. When you strip out all the exceptional elements, OIE, McCall and taxes, the underlying profit was a positive EUR306,000,000 and EPS a positive EUR 2.1. No, I would like to come back on the other income and expenses. The vast majority of the OIE were accounted for in H2. As you can see and in line with our September trading update, the biggest ticket items were. First, the restructuring costs were $191,000,000, of which $158,000,000 in H2. We decided to be proactive and to adjust our on-site labor cost base and anticipate the expected end of the Ferallel programs. We are also working on a reduction of our SG and A and have executed part of the plan, a part of the plan on this in H2. Of the EUR 158,000,000 in H2, the split was 60% on-site, 40% off-site or SG and A. And approximately 50% of this EUR 158,000,000 have already been cashed out in fiscal year 2020. Then the impairments of assets, intangibles and goodwill in the second half amounted to 249,000,000 with about half of them in the sports and leisure segment. As a result, overall, the OIE were 1,000,000 up 1,000,000 versus the prior 2, now we go from the reported net profit to the underlying net profit. So from the minus 1,000,000 of net profit, you hand back the OIE and the make whole in financial expenses, you adjust for the tax impact of those two items for 154,000,000 and then you factor in the impact of the non recognition of deferred tax assets and you get to 306. Let's now have a look at the evolution $143,000,000 in H1. Then Q3 was minus $309,000,000, but with very different results months per month. After a very difficult month of March, where all our over the counter cash sales suddenly stopped, while we continued to pay suppliers, we got back to positive inflows in April and then in May. Then we had an excellent q4 at $624,000,000 each month contributing positively. To get there, we worked hard on client collections and strictly controlled our client's past dues. Payables outflows became mechanically lower as we were buying much less. We got some payment delays from government support programs for about $200,000,000 and DRs did well too in H2. As a result, our free cash flow And what is really good, as you can see on the right side of the slide is that both our VRS and on-site activities have to be proven to be cash resilience in H2 in on-site, even if you strip out the government support delayed payment, the free cash flow was positive in H2. This slide has far too many figures. What I really wanted to show you was first, the high for what now comes through positively in the operating cash flow, but it has no impact on our free cash flow. You will note the positive variance of the working cap year on year, showing the resilience of our cash model, it's 55,000,000. Then you will see that CapEx was severely reduced in H2 by more than 50% compared to H1. However, we did maintain IT, BRS and digital investments. As a result, full year net CapEx was down a little bit and represents now 2.2% of revenue versus 1.9% last year. The increase in dividend payments reflects the 5.5 percent increase in the dividend per share for fiscal 2019 I remind you that this was paid on 2nd February before the global pandemic emerged. A few important elements $55,000,000 to $1,868,000,000. Our net debt to EBITDA ratio is slightly above our target range of 1 to 2 at 2.1%. Our gearing ratio also increased to 67% due to the net debt increase, but also due to the in shareholders' equity. The single biggest impact on shareholders' equity came from currencies variation, and especially the weakness of the dollar and the reais, particularly in the second half. Then of course, there was the impact from the reported loss for the year, The reevaluation of financial assets under IFRS 9, the first time adoption of IFRIC 23 book to equity and obviously, the dividend from fiscal year 2019. At the end of fiscal 2020, the group had a cash position of 1,000,000,000, of which billion is related to the BRS activity, including restricted cash for 1,000,000 and financial assets for 1,000,000. I would just like to highlight the strong liquidity at the end of the worst year, the group has ever been true. At the end of the first half, we had liquidity of $4,400,000,000. During the 1st month of the crisis, the commercial paper market dried up, so we stopped using issuing any accounting for a reduction in liquidity of 725. As soon as we came out of close period in April, we issued a bond for 1,000,000,000. We also increased our unused credit facility by 1,000,000 and having decided to reimburse the USPP for 1,000,000,000, which happened in Q4, we issued another EUR 1,000,000,000 bond in July. H2 free cash flow was positive as described earlier, And finally, we suffered negative currency effects on the reais and U. S. Dollar for the main ones for 244 As a result, we ended the year with 1,000,000,000 Let's now turn to the review of operation. I will focus my comments on H2 rather than the full year. You have all the full year numbers The second half was impacted significantly by the COVID-nineteen pandemic from the middle of March. H2 revenue was 1,000,000,000 down 30.1%. There was a 3% negative currency effect, predominantly linked to the reais and a 0.4% positive contribution from acquisition net of disposals. As a result, organic growth is negative at minus 27 point 5. On-site services was down 27.8% and benefits and rewards was down 18.8%. So let's look first at the on-site business. In the second half, also the food services were impacted significantly down 42.2%. There were pockets of resilience. FM was down only 1.4%. Global accounts, which are predominantly FM accounts and also more weighted to blue collars, were flat. ENR and G And A together were positive up 1.3%. APAC, LatAm and EMEA regions were only down 5 2% altogether, while Europe and Norham were the most severely impacted regions with minus 28.54 and minus 35.9, respectively. Even the 26% decline in corporate services shown earlier on Slide 5 was reasonably resilient because we have a fiftyfifty white collar blue collar split and about 1 third of the contracts where customs contracts going into the crisis. This unfortunately didn't stop the business from being very badly impacted. In H2, B and A organic growth was down 29.2% with a negative margin of 3.3 percent for the semester. Healthcare and seniors were clearly less impacted with revenue down 11.1% The margin was reasonably solid at 5.8 percent on only 100 dips. Education revenue was down a lot more significantly at minus 47.2 percent and similarly across all the regions. The margin was hit a lot more significantly than the OXC segment, and was a negative at minus 14.9 percent. However, I remind you that H2 margins in education are usually just about breakeven due to the seasonality of the underlying operating margin was negative at -1.9percent. Now if we go into the segment, starting with business and administration. Corporate services saw a very severe decline in food revenue, but this was somewhat offset by the factor of resilience that I mentioned previously. In North America and in Europe, office workers mostly remain at home with some early signs of recovery in Europe during the summer. In sports and leisure, There was a sharp decline due to the complete closure of stadium's convention centers and museum from March. French to it was very low in the summer. As already said, E and R and government agencies remained open throughout the second half and was particularly boosted by track COVID related activities, in particular, in the mining sector, which remained open throughout the crisis due to very strict sanitary measures implemented. On the revenue, I would like to highlight the performance of APAC, LatAm and EMEA with only a minus 3.4 percent organic degrowth. The margin was negative and down 7.60 bps due to the 29.2% decline in revenues, reflecting a flow through of 22.6%. This reflects the writing up of excess food stock at the outset of the crisis, some necessary delays to adapt the workforce to the volumes, the remaining cost of the furlough schemes, extract costs in relation to new protocol and personal protective equipment, depreciation charges continuing and the time required to negotiate terms with clients. Moving on to Health Care. Organic growth was minus 11.1%. COVID 19 impacted severely the retail activities in hospitals. The sharp reduction in elective surgery also impacted patient dining activity but there were several opportunities for enhanced protocol and more staff provision. With an organic decline of 14.6% in North America, a significant part of the degrowth is coming from the impact of the contract losses and exit, and some negative same store sales due to COVID 19 impact. In Europe, the situation was better due to a large contract with the government in the UK, the rapid testing centers. The seniors activity was stable in North America, In Europe, where it's been more difficult, we have seen some improvement in July August. Operating margin was down 100 bps impacted by the lower retail sales during the crisis, higher personal and protective equipment costs, but partially mitigated by extra new services and the exit impacts, which were relative on the margin. Education's organic growth was minus 4 7.2% with similar reductions across all regions. Universities in North America were severely impacted. There were some very active negotiations that took place to cover our costs through minimum charges and cost plus arrangements. Concessions and construction suffered greatly, but FM services were a lot more resilient. Schools overall were more resilient than universities, due to a higher share of FM services and because of the multiple millions of meals prepared for local authorities to provide meals to families despite the school's closures. The 2nd half margin is traditionally very low due to the seasonality of the revenue flow. The education margin was minus 14.3% versus breakeven in the previous year due to the very significant line in revenue and the time necessary to adjust the on-site labor force to the new volumes. Now let's move on to benefits on rewards performance in 2 and delivered of resilience that we talked about in Q3. Employee benefit issue volumes were down 8.4% in the 2nd half, but there was a step improvement in Q4 from minus 12% in Q3 to only minus 4% in Q4. And as you can see, Latin America has been more resilient than Europe and Asia. But what is exciting is that we have seen a 12 point increase in the digitalization of our activities and the increases in all the countries where the paper was still operational even in France. As a result, our rate of digitalization has now reached 86%. We have also seen a massive increase in food delivery, thanks to the 70 partnerships we have with food delivery companies. We have simplified the presentation. So overall, at the bottom of the slide, you can see that VRH to revenues were down 18.8 percent with underlying operating margin of 20.8 percent, down 800 basis points. So on the organic growth, by service, employee benefits were down 17.5% on issue volume, down 8.4%. The discrepancy between the revenue and issue volume performance is due to the delay in merchant revenues, which were impacted by confinement and restaurant closures. We note that the competitive situation in Brazil continues to be difficult and interest rates very low. Services diversification was down 23.5% with a very severe decline in travel, of our RIDU Mobility and expense activity. By region, revenues were down 18% in Europe, where the trend improved significantly in Q4 as restaurants reopened. In LatAm, the decline was 19.9% due to the competitive environment and falling interest rates in Brazil. Issue volumes were much more resilient in LatAm, done only 6.9% as used on the previous slide. On the far right table, you can see the impact of the financial revenue down 25.2 percent significantly impacted by the drop of in interest rate and particularly of the Brazilian CELIC currently down to 2% versus 5% a year ago. In spite of significant efforts on the cost line, the sharp decline in revenue could not be compensated by the declining cost. In a variable revenue and fixed cost business, the flow through is usually severe, and here, it was a reasonable 62%. As a result, the underlying operating margin was down 800 bps to 20.8%. We have maintained during the crisis, the necessary investment CapEx to continue the transformation and the overall CapEx to revenue ratio for PRS increased from 6.5% to 9.1% this year. Thank you for your attention. I now hand you back to Denis for the outlook. Thank you, Martin. Before going to the outlook, I'm sure you noticed that in our announcement that, to protect the balance sheet given the severity of the COVID-nineteen downturn, activity, given the uncertainty as to the timing of recovery and also in solidarity with our teams. The board has decided not to propose a dividend for fiscal year 2020, even if the underlying net profit was positive. Now let me go through our hypothesis for, our first half of fiscal 'twenty one. As you all know, the level of uncertainty as to the extent of the second wave, which we are currently experiencing and the timing evacination remains high. What is clear is that the effect of the COVID 19 pandemic will continue to be significant for the group in the quarters. The government and agencies and the energies and resources segments will continue to be resilient. Healthcare and seniors are progressively returning to pre COVID level, but clearly, Some segments such as sports and leisure will not recover until the pandemic is over. Others such as corporate services and education will see activity improving progressively. Benefits and rewards employee benefits issue volumes will return progressively to growth as digitization and penetration continue to progress strengthen by working from home trends. This progression may be impacted by the rising level of unemployment if we go into economic recession. On the revenue side, the progression in benefits and what is linked to reimbursement patterns and impacted negatively by extremely low interest rates. So we see the first half of fiscal, twenty twenty one organic revenue growth in a range of -20 to-25 percent. The slow ramp up in Sports And Asia that we experienced from July to September mostly in France has almost completely stopped. Education is trending well in Europe, but remains volatile in the US with activities varying a lot from 1 week to another. Corporate services was on an encouraging trend from July to September in Europe there are several signs that it will be more difficult in the next few months. North America remains very impacted in food services with very slow improvement. Energy And Resources, government agencies, health care and seniors are progressively stabilizing and bring us resilience. Of course, until activity levels return to more normal levels, we are using all available for us furlough programs. We have announced restructuring measures in several countries recently, and we will continue to take measures to protect margins going forward as government support falls away in several countries. We are working on Given the cost reduction already implemented in fiscal 2020, our hypothesis for the first half of fiscal twenty twenty one group underlying operating margin is between 2% 2.5%. On free cash flow, we expect recurring free cash flow for the first half to be around $200,000,000. However, we have several non recurrent elements such as the cashing out of restructuring costs, the reversal of government support payments and the reimbursement of the 2020 Olympic Games, Hospitality packages amounting to a total of 250,000,000. Other results, free cash flow in the first half will be around EUR 350,000,000. Now in terms of midterm guidance, looking further out on the basis that the pandemic will be over 2021 by calendar year end, The group aims to return to sustained growth and to rapidly increase the underlying operating margin back to pre COVID level. As you know, we've planned, an Investor Day this coming Monday. To proceed with this Investor Day or not, as we go into lockdown in France, and the day before an unpredictable U. S. Election is a tough call to make. My team and I have fought long and hard and asked ourselves lots of questions before deciding to maintain this Investor Day. In the end, We decided to be proactive and forward looking. We are all acutely aware of the noise, the worries and distractions around each of us. And therefore, that our audiences might not want to listen. At the same time, however, we also felt that it was important to protect this opportunity to update you on what we've been doing as it is key to understanding our direction during these challenging times. Doing the event virtually rather than physically for once had the advantage that it would be available to all key stakeholders to listen later and whenever they are ready. I can assure you that will be observing the strictest social distancing and hygiene guidelines to ensure absolute safety. For our teams of presenters and for the studio team, just as we do for our clients and our consumers every day. I do hope that you will choose to be with us on Monday as your presence will mean a great deal to us. Thanks again. For being with us today. And let's open up the floor to your questions. So operator, we can start the Q And A session. Thank you. Ladies and gentlemen, we will now begin the question and answer session. So our first question is coming from the line of Jamie Rollo from Morgan Stanley. Thank you. Please ask your question. First, just on the guidance, it's quite brave to give guidance. I just want to push you on the confidence in that 20% to 25% decline because the statement says, the company saw a significantly improving trend going into September. So if you can give us maybe the August September figures, that'll be quite helpful. And also talk about what your assumption is for, the impact of the lockdowns in Europe in that period. Secondly, on the on, again, on the guidance or on the margin guidance this time on the first half, if my math is right, but that implies the flow through will improve again to below 20%. So is that being driven by restructuring savings or is that some of the contract conversions to cost plus or something else? And then finally, thinking slightly more longer term. You talked about 1 big pharma contract win and you talked a bit about cross selling hygiene services. But could you give us a flavor of any any other signs of more outsourcing or more contract wins that gives us confidence, please? Thank you. Thank you, Jamie. Answering your first question, yeah, we, I think we're pretty confident in this 20% to 25% guidance, we had a reasonably solid, if I could say, September given the circumstances, which has confirmed that we expect that 20% to 25% guidance. Definitely, we'd see lockdowns coming up in Europe. There was an announcement in France by a present macro. II hypothesis have been updated mid October. So we are saying we've given a relatively wide range to take into account a flow of both positive and negative information as they come. At this moment, we believe that particularly what was announced in France yesterday is within hypothesis. So, of course, we're still navigating in certainty, but I'd say we are relatively confident in this broad range of minus 20 percent to minus 25 percent. On the margin? Yes, we are not looking at it as we were looking at it in H2, in H2, we were looking at the flow through because we were coming from a pre COVID situation to a post COVID situation and we were adapting. Today, I mean, we are really tracking the business side by side at gross margin level and seeing how we can improve gross margins from Q4 to Q1, Q1 to Q2. And so this is how we drive the business to improve margin and we've seen margin improvements already as the months we're progressing to improve margin the biggest ticket item is to adjust the labor costs. And so this was really what was improving the flow through, from Q3 to Q4. And so adapting the labor force to the volume. Hence why, we are taking the furlough programs, but we also launched into restructuring program, and quite a bit of it at gross profit level because we have to reduce our labor costs. The food costs is under control. I mean, this is not an issue. And then the third part is renegotiation with clients. And so during, for instance, in education, we have done a lot of negotiation with universities in schools as to how we will invoice them for the reopening and trying to move them to a cost plus scenario because during turmoil, it's actually better to be in conference. And now the fact is that we are renegotiating the contract almost every 3 months because in March, April, we were negotiating the downturn. Now we were renegotiating the reopening and soon enough will be re renegotiating the new normal, so to speak, and so forth. But this is how we are tracking margins and we are continuing in our gross margin projections. And as far as the our pipeline in a way, the way it looks like, I must say that, yes, I'm just we are happy with this big contract win. We are happy with the rate of cross selling well, happy to a certain extent, just given the situation where we are in. But, we have in our pipeline a good chunk of first time outsourcing, clients thinking about whether they should outsource So that's pretty encouraging. How much of this will be translated? It's still unknown. Sometimes first time outsourcing takes more time to deliver because clients are asking questions. And it's not like switching from or rebooting on an existing scope. But I must say that we will see it as months come, but I think, we feel that the complexity of the situation and the difficulty to handle properly, both food services and also cleaning and disinfection services, which are complex services to operate in a COVID-nineteen world, are pushing clients to talk to us. The rise with Sodexo campaign has got a lot of good reactions with clients. And prospects. So I think more to come on this one, but I'm pretty positive on this trend. Thanks. And so just to go back to the first question, can we push you a bit more just on some of those figures? Are you able to give us either the August or the September month to see what the cadence was like in the period? Jimmy, we don't communicate on the month. And plus, I think September was a bit, I would say, a bit reassuring. However, there are cutoffs, etcetera. So we've got to be careful. I'd say, yes, September was, yes, it is very difficult moments September was a bit reassuring. Encouraging. But there was one extra day of work in France, for instance, in September. So but September was encouraging. Thank you. The next question is from the line of Vicki Stern from Barclays. And back on the medium term margin comments. So, I think you sort of described that you believe you can get margins ultimately back to where they were precoded. Just curious where that confidence comes from. What does that assume in terms of volumes recovering? Do you assume that volumes can fully get back to where they were before in light of work from home, etcetera? And I think you mentioned already there that contract renegotiation are happening very much stage by stage. So how much comfort are you getting really on those contract renegotiations today about long term where those positions can, can land? Coming back then on the sort of longer term thoughts on work from home and delivery, your sort of best view at stage on where volumes will land in light of those two trends? I think going to post COVID world, I'm talking. Just finally on the competitive dynamic, I think one view around sort of how this will all play out is that clearly it's going to be quite tough for a lot of the smaller competitors out there. Just curious what you're seeing from that perspective. Yes. Hi, Vicky. First, in terms of you talk about margins and volumes, it's true. It's there's a mix of 2 things. Volumes are very hard to run from in revenue are very hard to predict that stage. There's a lot of uncertainty out there. And there are lots of moving parts. The volumes in sports and leisure I think will be hard to recover before we have a vaccination. There's a lot of uncertainty around what happens in universities in North America moving forward. And, to your 3rd point, there's, this, this, the working from home trend that impacts corporate services, which also represents an opportunity for us, is is, of course, full of moving parts. So the volumes are of course, uncertainty, but the efforts that we do in our margins, and Mark mentioned that the restructuring that we do and the strength that we put the effort that we put on our gross margins, and I can tell you, all our teams, our whole hands on deck, on the gross margin, make us confident that, moving forward, we can get back to pre COVID margin, get back over this as we exit the sanitary crisis. So I think we're doing lots of efforts, both on the gross margin side and on the cost side to, to be confident that we can recover those margins with an uncertainty of the volumes. On the negotiation, we clearly, started very early to renegotiate. I was giving the examples of where there was a renegotiation in universities, but we have also, for instance, renegotiate in corporate services in France, where we have a big white collar business in France, And so it's been tough negotiations, especially at the beginning. I think where months were progressing by June, July, I think most of the renegotiation were done. So we had the contracts to reopen. So now we are, we are actually living with those contracts. We renegotiated It is actually possible that when 2021 start, in university, we may have to continue negotiations for the reopening after the winter break and the beginning of in spring and so forth. But negotiation are in most cases, and I would say 75% to 80% of the contracts have been renegotiated some have been exited. And somewhere, we're good at the out at the start because they were at cost plus. So we continue with this. Now we are confident in our ability to negotiate and to renegotiate ongoing because this is not the end. I think every 3 or 4 months you need to sit down again with your clients and renegotiate the terms for the quarters to come. Yes. And on the your question, Vicki, regarding delivery and working for long term impact estimates, I think we'll have a dedicated moment on our Investor Day on Monday on this. So I want to expand, but I believe And we all believe that this also represents an opportunity. The shape of our revenue with corporate services will change But the opportunity to capture market share, the opportunity to capture a share of wallet for in our consumers are appealing. And I think there is a tolexis was also a unique positioning on this with our benefits and what's activity plus the on-site and the convergence of both. So more to say on this on Monday in our Investor Day. Regarding competitive environments, yes, of course, smaller players suffer as we do sometimes, of course, more, the resilience that we have, thanks to our portfolio of countries, of services and segments is quite unique and activities is unique. So, yes, some of them are in difficulty. And, but it's yet to be really seen on the market. Lots of them also benefit from the furlough measures in government. So they have some cash that they can get. So, it's still too early to say if, what exact impact will it be and also possibly some possibility of acquisitions for some smaller players that could be possible, good targets. Thank you. Just coming back on the contract renegotiations, just sort of in theory, if you're looking at, say, a corporate services contract where Obviously, it will be impacted in some cases by work from home. Would you also be confident that even if volumes are, say, 10%, 20%, 30% below where they were before that in those specific cases, you'd be able to get the margin on those contracts. That's where they were before. Yes, we will be hit as we are. Rebuilding the margins. In some cases, it's a good margin or the pre COVID margin on a lower volume. Or it's delivered differently, but we are rebuilding the margin. There is a transition period and there will be the post COVID margins. Right now, we are in the transition period, but margins are improving. From what we saw in Q3, Q4, clearly going into Q1, margins are higher. And it's our job to maintain them in Q2 going forward. Thank you. Next question is from the line of Jaafar Musday from Exxon. Thank you. Please ask your question. Two questions, please. Just 1st year as a follow-up on guidance, maybe to ask the same question differently. If your range includes things as bad as general lockdowns in some major countries, Can I ask what is a scenario that is not included in your guidance? That's if we hear about it tomorrow morning, could take your revenue decline back to minus 30% or minus 35%. And then the second question on U. S. Client retention. And so I'm just trying to unpick the different parts in North America. So total client retention in North America, if I'm correct is improving by over 2 percentage points. And that's despite your comments that U. S. Healthcare is still problematic with the number of contract losses there. So does this suggest that retention in US B and I and U. S. Education is really, really strong, maybe 5 points higher, I would guess at that stage. And if that's the case, is that real underlying improvements? Or is it just that in BNI education, those contracts are just being renewed ad hoc and then they don't don't come up for renewal because the client has other priorities. Sorry, for the firefighter noise, if you can hear it, okay, I'm sure it's not in our building, but sorry for this. In terms of guidance, Jafar, what we've and since the beginning, we said that our hypothesis moving forward would be of smart lockdowns in countries and not a full lockdown. That's what we have in our guidance. What we understand from typically, if we look at the announcement that that we had yesterday in France, it's that business will be able to continue to operate as much as they can. Of course remote working is encouraged, but production will continue to operate, people will continue to work. So that's that's the hypothesis. So can we have another surprising something coming up Yes, I don't exclude. There's so much uncertainty, but I would say that we've taken some with this big range, we think that if the activity is not fully stopped if we were in Europe, we can be in the range. Of course, if something, again, another something different happens, it might change, but we're today, what we hear from the countries tells us that, we could make this range. In retention, in North America, yes, it's up mainly healthcare given it's given its size and the retention programs that we have is a big contributor to the improvement in retention in North America. We've also improved retention in schools. We've improved retention in energy and resources. We're quite stable in government agencies. We've, and we've also improved even though the volumes are not there, we've improved our retention in sponsor leisure. We don't have the volumes, but we have the contracts. So, it's, and some renewals have been pushed back, absolutely, true in universities also, not so true in health care, actually. Health care has continued to be, quite active in terms of bids, etcetera. But I think this reflects some significant efforts that we've made in health care, but also in other segments. And we are I can tell you, we are all hands on deck on that. Are we done? We never done. We're very, very vigilant, very careful. Our operations are stronger, particularly in health care. And that of course helps retention. Thanks. And sorry, maybe I'm just looking at the wrong things on this, but just to clarify U. S. Healthcare in your answer just now, you said it was a contributor to the improvement in retention maybe I didn't hear it correctly, but in your in Mark's commentary on North America, contract exits and losses that continued in Q4 were flagged as a big reason why North America Healthcare was minus 15% in H2. So is this just a question of definition are those Q4 contract losses not fully reflected in retention? Is U. S. Healthcare retention actually better her year on year? No, you actually, you have to first recognize that, we come from a low level of retention, okay? So that's important. And there is a delay. Sometimes we we when we talk about the retention, we look at there's the indicator, which is a forward looking decatur because as soon as we lose a contract, we put it in our retention. But then the impact on the revenue comes later So the contract that we see in our indicator, in a particular quarter you can't see the impact for the or the year moving forward. So that's what that explains. And the bulk of, the exit and losses were coming from fiscal year 2019. And there was one extra loss in Q4 But in magnitude, it is much less than what we had lost in fiscal 2019, impacting the numbers. Thank you. So the retention number is forward looking and it's getting better, including for U. S. Health care? The retention in health care is definitely much healthier in 2020 than it was in 2019. So looking forward, it is better. And we have a whole hands on deck on that. I can tell you it's the competition is fierce and, and will, you know, I've been very clear that we've got to be very, very solid in this. Thank you. The next question is from the line of Richard Clark from Bernstein. Thank you. Please ask your question. 3 for me if I can. Just two questions again on the guidance. Just wondering, obviously, we can imagine that European B And A may take a step back from here. Which segments would you expect to set forward? Is it North American Education, North American Healthcare, where are you expecting some step ups and improvement into the first half? Second question, if I look on page 12, I think I can just about work out a regional drop through, which gives me 16% in U. S. 17% in the UK and 29% in the euro area. Just wondering given the impression is that Furlough schemes have been more generous in at why is there such a big difference between the drop throughs by regions and how might that transition? And then also on the Olympics, you you mentioned you're paying back some of the hospitality packages. Can we read into that that we should not expect Olympic revenues in FY 2021? Thanks, Richard. So Yes. Well, definitely, you know, in north America, we're still be quite uncertain given the sanitary crisis. In Europe, we believe that overall health care will be health care and seniors will continue to be solid, definitely, the, of course, the impact of a second wave, well, might slow down a bit in care, as you know, when we when there is a big proportion of COVID-nineteen patients, we have less services, retail doesn't ramp up back. So there are some, but still, health care will help us move forward government agencies will be solid and energy and resource, even in Europe, has a relatively good trend. Schools are in Europe more or less back to not normal, but very, very good levels. They are much more and certain much more volatile in North America as they open and close it here and there. But in Europe, it's quite solid. And as you again, we see that even though lockdown measures have been taken, schools remain open. So, and we don't expect anything from sports and leisure anywhere. So I'd say healthcare and seniors, government agencies, energy and resource, corporate services will be ups and downs, as lockdowns impact But, but, you know, as, as Mark said earlier, in several countries, the proportion of the type of the portfolio that we have in corporate services has an impact. LatAm will be solid because LatAm is blue collar. France is shaken because LatAm is more white color and more urban. So it's really a mix of things that, that create the corporate services numbers. On the second question, Mark? Yes, I'm not too completely sure to understand your second question and where you extracted from. I assume it's paid 12 on the MD and A Yes, that's right. You can quite do the year on year for the revenue and EBIT, I guess, from page 12. And it just looks like the I mean, you've got Europe there. Obviously, euro area is loss making, and it looks like a big drop through in Europe. And I'm just wondering why that's so high given given the further schemes and maybe also why the U. S. Looks so good at 16% down? So in terms of flows through, what I had explained, I think, with Q3, the best flow through we experienced was in North America. Because this is where we can flex the labor the fastest. And so and the best flow through in North America was in universities because in universities, we have hourly labor. So North America is really the best flow through of all the regions. Then the second best was the UK, because first, we, the mix of business and the furlough program and the flex ability and the fact also we have the rapid testing centers, which we call redeploy staff, helped us managing the labor. And the UK team was actually pretty good and had a very good drop through. Then we moved to the continents and in the continent, as you know, labor is not flexible. I mean, the labor laws, whether it's in Germany, Netherlands, in Italy, in France, in Spain, very difficult, flexing the labor force was very difficult. So we used the furloughs, but the furloughs left charges for us to pay. In France was 22% in some of the countries was a little more. So it's actually in the Eurozone, so to speak, that the flow through was the worst because of the unflexibility of the labor market. Also, one thing is the labor market is inflexible, is this where we did most of the restructuring? And the adjustment. So, so that's why in euro, we are in losses, while we are actually doing a lot better in dollars and telling. And we did also very good in reais because in reais, Brazil, even though the pandemic there is crazy, I mean, they managed a fantastic flow through and they managed a P and L very healthy during the crisis. Okay. And regarding the Olympic gates, by contract, we have to reimburse the packages We are in negotiation with Tokyo 2021 now. To see if, and there are, we have some group talks with them for Tokyo 2021. What we want to do is, of course, as there is uncertainty also on Tokyo Twenty 21, we want to secure whatever contract terms that we have moving forward. So, and if we were to sign then the reimbursement pattern would be certainly different, but we take the hypothesis that, because it's not sure at all that we will reimburse the packages, because that's the safest assumption to take for fiscal year. Well, of course, we are actively negotiating with Tokyo 21. The next question is from the line of James Ainley from Citi. Can I just follow-up on that, Olympic Games reimbursement point, more broadly, can you just give us a bit more of a breakdown on those cash flow impacts, the gap between the 100 and the 350 that you mentioned in your outlook slide, could you give us some sense about kind how each of those 3 break down? Secondly, can you tell us what percentage of your BRS revenues are now coming through from food delivery? And kind of related to that, are you seeing any OSS clients moving towards offering delivery only services or some kind of hybrid model with an on-site cafeteria, but an increase in delivery type options for their underlying employees? So on your first question, so just to our recurrence free cash flow is expected be minus 100, which is actually a very similar to prior years. Then we have 250,000,000 of one offs, so to speak. The first one is linked to the restructuring we booked in fiscal year 2020. In fiscal year 2020, out of the 160,000,000 booked in H2, only half of it was cashed out. The other half is coming now, So it's about 1,000,000. Then the reimbursement of the Olympic Games ticket all in because we need be reimbursed by the TokOC and we will reimburse the clients is about 1,000,000. And the balance 50,000,000 is linked to the delayed programs. The government gave us in some countries like the U. S. And the UK. And EUR 50,000,000 of those delaying benefits we got, which were EUR 200,000,000 at year end, 50,000,000 will be reimbursed by February. So that's a 250. Right. In terms of, the percentage of benefits and rewards, in delivery, it's so we don't communicate on the volumes, but we see the percentage growing significantly. Have now 70 partnerships with, with delivery companies and lots of consumers, particularly in small in small and medium enterprises, which are an important part of our portfolio, of course, maybe in urban areas, call a delivery company and pay with their SodIXO card. So that percentage is really growing at a fast pace. Regarding the 3rd question, we see we've seen during the crisis, delivery options being that we also proposed it's been accelerating that particularly, even in your own side, the pig and Collect has been an important part of our services because it allows people to 1st be efficient and also not necessarily sit in a restaurant So it's good for the COVID 19 dispensation, social distancing thing policies. We, we've also, with food sharing and some of our delivery partners proposed, integrated options for our clients. And they stay, even after a lockdown, clients appreciate this this panel. And again, we will, expand on this, on Monday's Investor Day because we believe it's important that we dig deep into how we analyze the corporate services market, our on-site clients and consumers are evolving. So it's And we believe again that we have some interesting things to implement and are, and we are currently implementing this, an array and a range of multiple options for employees. Okay, great. Thank you. Thank you. Next question is from the line of Sabrina Blank from Societe Generale. Thank you. Please ask your question. I have a free question, if I may. The first one is regarding the European market. And just could you remind us the biggest countries, difference between France and UK, for example. And I have a second question regarding we go back to a full lockdown in April? And can you provide us some color on what was the worst impact due to the slowdown notably in those countries? And my latest question is regarding the dividend policy. I guess that at this stage, it's too early to answer for next year, but what do you have in mind for the coming years? Okay. So you said difference between the main countries for France and what we can say about Europe And so the between France and Germany and Belgium, Maryland, there is not much different Italy. I mean, Continental Europe, the mix of services, the mix of segments can be different. The weight of Healthcare and seniors can be different. But if you drill tone and look at segments, there is not much difference in behaviors of those markets for us. I mean, they are all within a range in terms of volume drop. Now between France and the UK, the biggest difference between France and UK is really the mix of services. We have a lot of government services in the UK, a lot of public services with justice, with defense, with health care. And this was extremely resilient. During the crisis. Also in the UK, for instance, in corporate services, we do a lot of FM in manufacturing we don't do much food in London, for instance. So we didn't suffer from the food downturn, but in France, we do a lot of food, white color in La Defense. And obviously La Defense was one of the first micro markets in France which suffered. The region did not suffer in France that much. So the difference between UK and France is a mix. Also in France, we have a lot more sport and leisure than we have in the UK. So the UK portfolio was extremely resilient, even the E and R portfolio did relatively well during the the pandemic in the beginning of the pandemic in April. If I go back to the worst impact, in those countries is the labor. This is what I explained on Richard's question. The labor flexibility, our ability to reduce the volume of labor quickly to the volume of services requested by our consumer and client is the main impact on the margin. And as soon as you have a very flexible labor market, within days, you can adjust your volume. In France, in Germany, in Netherlands and to a lesser extent in the UK, it's not as flexible as it is in the U. S. Yes. And, regarding the dividend policy, of course, much too early to mention anything, for next year or further. What I can tell you is we have, for many, many years, a very steady, and clear dividend policy with a 50% payout and, well, this is something that we have We have not lost. It's just that this particular year is very special. That's why the board has decided for doing very good reasons. To give a dividend. But of course, this policy is for us, a very, very important moving forward. That's what I can tell you. Yes, perhaps one of one further question. And in terms of size, could you remind us the size of the French market and the UK market before COVID? Yes. A pre COVID, the UK market was about 1,800,000,000 and the French market was about 2.3. That's fiscal year 2019 numbers from top of my line, but yes. Thank you. Next question is from the line of Jared Castle from UBS. Thank you. Please ask your question. Thanks very much and good morning gentlemen. Just following a little bit more on your guidance, You've given obviously the free cash flow guidance for the first half. Any comments around CapEx? Should we still be looking around the 2% level? And I guess, should we also be thinking about free cash flow being positive in the second half? Secondly, just in terms of margin and kind of the redundancies that you've announced, can you give a bit of color in terms of potentially how long it would take to see the 7% leave the organization. And I guess also just directionally, I mean, should we be expecting the second half margin to be higher, than the guidance for the first half, just given the cost cutting, that you are undertaking. And then just lastly, on kind of, M and A, you barely did any disposals, in the year just gone by, I think it was $17,000,000 of free cash flow. Would this be a source of free cash flow when we think a bit about the year to come? Thanks. So the CapEx We are assuming that the CapEx in H1 will get back to normal level. We looked at it into details and there are pluses and minuses in relation to sports and leisure because last year, we had intangible in relation to the games and so forth. But but if I strip out this, it will be very similar in H1 this year than it was in H1 last year. And that's included in the minus 100 of recurrent free cash flow. Free cash flow for the second half, I mean, we will work hard to make it positive, but I cannot give you hypothesis for H2 just now. So but yes, we will work hard to make sure that it is a positive like we did last year. And regarding the restructuring plan in France, that recently at 7% of our staff. We are, we just announced it this week. We're entering into negotiations with the unions, it's going to take something around 4 months to go through the whole process, the negotiation and the whole organization of all this. We also favor the mobility across segments. It's an integral part of of that plan. And it's important because move, re inventing a new mobility and transversal transfer across trends would bring us agility moving forward, and we need this agility to respond better to changing markets and trends. So, but you can imagine that it's going to take it's going to go through H1 and H2 this year to implement the planning frames. In terms of the 3rd question around the margins in H2, as you understood, we gave a guidance for H1. Didn't give a guidance for the full year, which means we won't give you a guidance margin or revenue guidance for H2. Sorry, Jared. But you can count on this to work hard. Yes, absolutely. On the M and A, so we had some disposals, as you may not have seen, we are now in 64 countries. When we started the program, we started with 80 countries. Obviously, what we are disposing of are not the biggest countries. So they are small, so they don't impact the revenue a lot. But we have a long list of assets we are currently selling. It does not necessarily mean leaving the country. It means sometime leaving an activity or sub activities in the country, there will be some cash inflow if some of the biggest ticket items are sold. But it will not be a source of free cash flow, okay? It will be a source of cash. That does not include in the free cash flow. But we are working on this. So you can count the number of countries to come down and some assets to be disposed, but it will not have a massive impact on the P and L, it can have some impact on the cash, positive impact, okay? Next question is from the line of Leo Carrington from Credit Suisse. Thank you. Please answer your question. Thank you. Good morning. Can I just focus on B and A with a few questions, three questions? Facility management activity looked to have sequentially improved in Q4. Can you just sort of detail what's in the mix here? Was it effectively cleaning and disinfection driving this? And to what extent this can continue in 2021? And then secondly, if you could just comment on the underlying global white collar versus blue collar trends, would it be fair to assume blue collar organic growth was down single digits and the balance was driven by white collar? And then lastly, on the client renegotiations, you mentioned these took some time to come through during H2. To what extent the client supporting higher operating costs and any higher procurement costs So regarding the sequential improvement in Q4, it's a mix of things, but it's a mix of, in B And A of energy and resources having a good trend. Government agencies being resilient. And in corporate services, we've seen activity coming back in several places, particularly some of the white collar portfolio that we have, people have gone back to work. We have reopened restaurants, Of course, they were not full to at full volumes, but we've seen that activity coming up. And on top of that, we mentioned that. We've also done some significant cross setting in disinfection and FM overall. Cleaning, etcetera. So it's really a mix of things. Can it continue in 2021? Yes. I think we will continue. And those services particularly cleaning and FM services have demonstrated their importance. Clients want more. It will depend or so. We had a big intake, a big ramp up in services in the mining sector, for example. And as the pandemic, particularly, for example, in Australia, as the pandemic seems to go away. The plans might ask for less of the services moving forward. And of course, big uncertainty, as we, as I said earlier, on what the lockdowns in Europe will or how they will impact people going to the office or not. As far as white color and blue color against same thing, it really depends on our portfolio. But blue collar have definitely demonstrated that, those clients, they continue to operate they want to, to secure their people, both from a, from for food services and also from FM services. So, that the strength of our portfolio there is, I think, is really an asset. Regarding, client negotiation? Yes, the client negotiation, the first point is, when you are reopening or when you are in downturn with the clients is to, is very 2 different things. When we were closing sites and and so we had fixed costs. The negotiation was asking the clients to continue bearing some of those fixed cost. So that was a difficult conversation, but many clients accepted to continue bearing some of the fixed costs, even though there was hardly any volume. When we are reopening, the question is more, let's take, in la defense, you have a big tower and you have 3 restaurants your tower. The negotiation is let's reopen only one restaurant and not the 3 because otherwise the fixed costs are too high. And when you are in one restaurant instead of having buffet 20 offers and whatever, can we reduce it to 2 or 3 offers implement the protocol and so forth. And this is what really helped us reduce our costs. Because our costs are much less than it costs less to the client, but it also allows the client to reopen because the client needs the service to reopen if service is not there, some clients will find it difficult to reopen their sites. So in some cases, there is an extract cost to the client. But very often, we can mitigate most of it by actually reducing the offer or reducing the number of kitchen, reducing even the hour of opening so that we can adjust. And this is what needs to be renegotiated because it's a new way of working during that period of transition. And then there will be possibly a final way, final negotiation because when it will restart, with, let's say, less people because now people work more from home, we will need to see whether we keep those free kitchen or 20 offers and whatever so that we can add up to the new volumes. Those are really the sequence of negotiation that we are facing through. And the response from clients in overwhelming most cases, they're not happy to renegotiate sometime if it means extra cost, I mean, it's not an easy conversation, but we most of them are we are coming to to term with them and with a very decent restart up contract. All right. Is there a last question before we wrap up? Yes, sir. There is question coming up. It's coming from the line of Andrea Via from Deutsche Bank. Thank you. Please ask your question. Good morning, everyone. So I've got a few questions. The first one is about education. Could you give us some more color between the split between sorry, about the split between schools and university just to have proportion between both, because if I understood well, school are still open in most countries where universities are more closed, especially in the UK and the United States. Second question was a general question about your market share. What do you see, from peers and from your clients. We've seen that your retention rate was up, but In general, the market is still growing. You are gaining market share or you are seeing a local player being very creative and international competitor as well. Third question was about the vouchers. Could you give us some more color about the trend between paper and digital and remind us what is the proportion of digitalization. And the last question, if I may, was about developing gaps Could you give us some more color about the renegotiation you have with Japan? And the kind of turnover we could expect in the new version. Thanks. Well, regarding education, schools and universities have approximately the same weight in the overall revenue, definitely what we see in terms of trend is, as I said, schools have reopened in Europe, and for the vast for the important majority in Asia, in Norway is still very, very volatile. Some schools are open, some schools close. Universities are obviously strongly impacted. And again, the pattern of behaviors in universities is very, very diverse. Some like more than half of them have gone into hybrid models with online and campus And, of course, the dining options have been really reshuffled. And it's very, very hard to predict what we what will happen moving forward, still a lot of uncertainty. Lots of universities have said that spring semester would be postponed by like 2 or 3 weeks, they still don't know what they're going to do for summer. So, yes, that's of uncertainty there. In terms of market share, I think we, of course, obviously, the numbers are very fluctuates a lot, improving our retention demonstrates that we were particularly North America that we are holding strong against competitors. Some local players are aggressive, but not to a greater extent than before. And I must say that the competition between, the major players, as before, and of course, very quite fierce, particularly in North America as it has always been fierce in health care, but also in other segments. So I say there's the crisis so far has not changed in a significant manner, the behavior of competitors. And we are it's also internally there has been a lot of focus on the retention of our clients. And ensuring business continuity was the first step to secure, client retention. When the clients know that you are by their side in tough times, you have much better, of course, chance to, to retain them moving forward. In terms of the trend between paper and digital, we have really accelerated in BRs, we accelerated our progress on digital. We are now 86% digitized with improved twelve points, in Q4 in Europe. So that was really, really, in a way, Kobi helped us a lot accelerate digitization, which is great for us. And we will continue to see this trend progressing. As far as, yeah, for the Olympics, the negotiation are ongoing. So it it's difficult to give you numbers and it will depend of what we agree with the Olympic game committee, but it will be much less than what we had planned at the outset for the July 20 Olympic game. So it could be probably 50 percent of the size at the maximum. So yes, but it's still going to be significant, if we can make it. But I would say something around between 1000000 and 1000000 if we were making it, but it's very volatile as numbers go. So up to predict. Yeah. Okay, thank you. All right. Thanks a lot for all your questions. We appreciate it. We look forward to further exchanges with with all of you on Monday. I hope you will be with us. And until then, keep safe and have a good day. Thank you. Thank you. Bye bye. So that does conclude our conference for today. Thank you all for participating. You may all disconnect.