Good morning, thank you for joining us today. I'll begin with an overview before handing to Karen, who will take us through the financials. After that, I'll cover our regional performance in more detail and our strategy for continued recovery and future growth. As a reminder, our conference call is at 8:00 A.M. U.K. time when you'll have a chance to ask questions. The dialing details are available on our website and in the press release. If I was summarizing the first half of the year, I'd say we made a strong recovery, and we're able to look forward with confidence. This is testament to the amazing commitment and agility of our teams and the resilience of our business. By controlling the controllable, we were able to rebuild margin despite further lockdowns.
In Q2, we were more than halfway to historic levels of margin of 4.2%, and we expect to make further progress in Q3. New business wins were up around 20% on 2019, and client retention remained strong. Encouragingly, we're seeing an acceleration in first-time outsourcing, historically at 30%, now accounting for half of our growth. Despite the uncertain environment, we've delivered strong free cash flow. We're seeing clients focus more on digital and on social and environmental agendas, and we're well-placed to meet these needs, both culturally and operationally. Finally, we're confident that we'll restore industry-leading margins above 7% before we return to pre-COVID-19 volume. Here are our four strategic priorities. You're familiar with controlling the controllable, which Karen will talk about. As we look ahead, we see many opportunities to invest in growth, and we remain laser-focused on reopening existing sites and mobilizing new business safely.
At the same time, we continue to evolve our operating model to meet new clients and consumer needs. I'll cover these priorities in detail later. With that, I'll now hand over to Karen.
Thank you, Dominic. Group organic revenue in the first half declined by 30%, a little better than we expected in our pre-close update. Year-on-year performance in North America and Europe was most affected, given their sector exposure to B&I and S&L, whereas the rest of the world did better, largely due to the relative resilience of the offshore and remote business. Although the organic revenue % improved in the second quarter, this is mainly because we've now lapsed the two weeks of COVID-impacted performance from last March. Performance across both quarters was broadly unchanged. Business and industry is a story of two parts. Industry volumes have proven to be more resilient, whereas the business portion has been largely closed in our major markets due to widespread working from home in line with government guidelines. Throughout the pandemic, our healthcare and seniors business has recorded industry-leading performance.
This is particularly impressive considering the loss of the retail business, which depends on elective surgery, outpatient appointments, and visitors to drive volumes. We also saw positive revenue progression in education. Higher education, particularly in North America, improved in the second quarter as university campuses reopened in January and more students stayed on campus during the spring break in March. Sports and leisure remained mostly closed in the period, while defense, offshore, and remote has been quite resilient. COVID-related closures materially affected profits in all regions. North America profits declined by GBP 378 million, and profits in Europe were GBP 131 million lower than last year. Although the rest of the world's sector profile has been more resilient to COVID, profits were still down by GBP 17 million. Group operating profit for the half year was GBP 290 million with a margin of 3.4%.
As you can see, operating margin has seen sequential quarter-on-quarter improvement. We've come a long way from -5% in quarter three last year, and we're very pleased with the operating margin of 4.2% in quarter two, as this now represents more than half of our pre-COVID rate. This consecutive margin recovery is a direct result of the actions we've taken to control the controllable. Let's now just take a look at these. At the beginning of the crisis, our immediate priority was to secure the balance sheet, reduce costs, and stabilize cash. Contract renegotiations have helped to stem the losses and cash burn we experienced during the early days of the pandemic. One of the lasting changes from our efforts during the pandemic is our increased labor flexibility, particularly in Europe and rest of world, as we've updated thousands of employee contracts to be more client and sector agnostic.
In effect, we've created more internal labor agencies based on the models of Bench in the U.S. and Constellation in the U.K., which we spoke about in November. These minimize agency costs while creating a more multi-skilled workforce with more career opportunities for individuals. Our operational response has intensified our disciplined approach to cost control across all areas of the business. There are no silver bullets. We've had to work hard across many different initiatives. We adjusted our in-unit labor in response to materially lower volume. We streamlined costs as we removed duplication and inefficiencies, and we rationalized our food procurement spend by working with fewer suppliers on a more simplified range. As a result, we've been adapting our operations and managing our cost base more flexibly and effectively. This will enable us to continue rebuilding margins back to above 7% before we return to pre-COVID volumes.
Managing costs has also required us to make difficult choices to protect the business in the short term while preparing for growth opportunities as we recover. While we believe our resizing activity is well progressed, we will continue to do what is right for the business. We will report resizing costs as we go. Actions taken have avoided an annualized GBP 460 million of in-unit labor costs at current volumes, with a further GBP 90 million of annualized savings created from efficiencies and above-unit costs. As we continue to evolve our operating model, it's likely we will reinvest some of the savings back into the business. As we look ahead, easing restrictions will make way for a gradual reopening, although each country and sector will have its own pace.
Clients are working on their reopening plans, and whilst exact timing is often still unclear, we are preparing to remobilize existing and new business. This involves onboarding and retraining our people ahead of reopening and implementing advanced health and safety protocols. We expect to gradually revert to the pre-pandemic contractual terms but may have to renegotiate some client contracts as we all settle into a new normal. As reopening progresses, the food range will expand, and purchasing scale will rebuild. Whilst the environment remains too uncertain to guide to the full year, we expect quarter three revenue to recover slightly over quarter two. As we begin to reopen more of the business, we will incur mobilization and variable in-unit costs. Taking these into account, we expect operating margin for quarter three to be 4.5%-5%.
Operating profits of GBP 290 million was materially lower than last year due to the adverse impact of COVID-19 on our business. Net finance costs of GBP 56 million were slightly lower than last year as a result of lower debt and interest rates. We expect the full-year net finance costs to be around GBP 113 million for the full year. Our underlying effective tax rate was 27%. This was driven by higher foreign taxes and the impact of non-tax-deductible expenses against a low profit base. For the full year, our current expectation is for the ETR to be between 25%-27%. EPS was GBP 0.096, and the dividend remains suspended in response to the impact COVID-19 continues to have on our performance. Our cash generation was very strong. We are pleased with our H1 free cash flow of GBP 359 million, which was GBP 173 million higher than last year.
This is a strong result considering the uncertainty the business has had to contend with. As we continue to improve the margin, we remain focused on strong cash management. We have particularly worked on collections and have improved our day sales outstanding by a further two days since the full year. We continue to benefit from ongoing indirect and payroll tax deferrals, which will reverse. Cash tax has benefited from prior year refunds, and CapEx in the first half reflects delayed openings due to the pandemic. Our full-year CapEx is dependent on the pace of mobilizations and reopening. As we see it today, the second half spend is likely to be about GBP 150 million higher than in the first half of the year. As we said in November, we always expected the leverage ratio to peak at the end of March.
Our net debt reduced to GBP 2.6 billion, mainly due to our positive cash flow, while our net debt to EBITDA ratio rose to three times, driven by a COVID-19-impacted 12-month trailing EBITDA. Going forward, the ratio will improve as the trailing EBITDA will recover as we continue to rebuild margin and profitability. We are still targeting a net debt to EBITDA ratio of one to 1.5 times over time. As you know, the USPP leverage covenant, which is calculated on a slightly different basis, was waived for the March test. However, the interest covenant was tested and passed. The next test date for both covenants is the end of September, which we expect to meet. Turning now to growth and the role of capital expenditure and M&A.
CapEx is a very important part of our business model, with around 80% of what we spend invested in client-related contracts. More than half of our total spend is on new business wins, where we deploy capital either through tangible or intangible investments to upgrade the environment and facilities. A third is invested in retention, with the balance invested in digital capability and our own infrastructure. We believe that CapEx gives us a competitive advantage in new business tenders. We know that contracts with CapEx typically have longer average duration, and consumers are more likely to spend in an appealing environment. We are well-placed and poised to take advantage of the right M&A opportunities. We seek attractive targets which enhance and complement our business, diversify our portfolio, and offer digital and management capabilities over and above scale.
With our existing infrastructure and benefits of scale, we can quickly unlock synergies and secure good returns. Compass Group has a strong track record of investing in CapEx and M&A to deliver attractive returns. In the short term, ROCE will be suppressed by a lower operating profit after tax whilst we continue to recover. In our ongoing post-investment review process, we have seen that our recent capital investments are on track to deliver in line with historic returns, and acquisitions exceeded group WACC by the end of their second year. Investing now will help to rebuild scale advantages and unlock new revenue streams. In the longer term, capital deployment contributes to margin progression, compounding our returns, and generating future long-term shareholder value. Our capital allocation framework remains unchanged. We will continue to invest in the business through disciplined capital deployment to create long-term shareholder value.
We understand that a dividend is important to many of you, whilst the dividend remains suspended for now, the board will continue to review the situation in order to resume dividend payments at the appropriate time. To conclude, we've come a long way since we spoke to you last in November. Despite limited volume recovery, by controlling the controllable, our margin has made sequential quarterly improvements from breakeven at the end of last year to 4.2% in quarter two, with further progress expected in quarter three. The balance sheet is strong, along with our healthy cash position and growth investment priorities in CapEx and M&A, we've built a strong platform from which to continue our recovery. Now back to Dominic.
Thank you, Karen. From a group perspective, organic revenue for the half year was down 30%, slightly ahead of our March pre-close guidance. Growth from new business was 5.4% in the first half and 6% in Q2, driven mostly by healthcare and senior living and defense, offshore, and remote. This is business that has been mobilized, but the volumes are still low, so there is plenty of future headroom. Retention continued to be strong at 95.6%, which reflects our strong client relationships, which have deepened throughout the pandemic. Despite continued lockdowns, the outsourcing market remains dynamic, and we are very encouraged by the number of new contracts we have signed. Starting with North America, organic revenue was down 33%, a touch better than we expected in Q2, mainly due to improved performance in education.
The contribution from mobilized new business was 5.2% for the half year and 5.6% in Q2, driven by double-digit growth in healthcare and senior living, and a good performance in education and vending. Around 55% of new business in the first six months came from first-time outsourcing, while the retention rate continued to be excellent at 96.6%. All sub-sectors of our healthcare business delivered organic revenue growth with very positive results in support services. Education benefited from the return to school. However, for now, universities continue to operate a hybrid curriculum. B&I is seeing a gradual return to the office, and more sports and leisure events started to return towards the end of the half year. Our margins continued to improve throughout the period, with Q2 margin up 160 basis points on Q1. This is mostly due to the continued focus on cost control and purchasing initiatives.
Moving on to the European region, organic revenue also declined by 33%. The contribution from mobilized new business in the half year was just over 5% and 5.9% in Q2, driven by the U.K. and our business in Turkey. During the first half, around 40% of new business came from first-time outsourcing. Retention continued to improve to 93.5%. Volumes were broadly unchanged due to our exposure to sectors most impacted by the pandemic and additional lockdowns across the region, which are expected to continue into Q3. Europe has seen the biggest absolute margin progression from -13% in the third quarter of last year to +1.7% in Q2 of this year. This reflects the relentless focus on costs, including resizing actions and contract renegotiations. These figures also include our decision to repay the funds we received in the half year under the U.K. government's Coronavirus Job Retention Scheme.
Finally, our rest of world region, particularly Asia-Pacific, continued to recover with organic revenues down 9%. Mobilized new business was 7% in the half and 7.8% in Q2, with contributions coming from double-digit new business in Australia and Chile, predominantly in the offshore and remote sector. Almost 40% of new business came from first-time outsourcing opportunities, and a similar proportion came from contracts previously held by smaller regional players. Our retention rates continued to improve to 94.5%. The region has been more resilient given the high proportion of revenues derived from the more defensive offshore and remote and healthcare and senior living sectors. Growth in Australia was more than offset by volume declines elsewhere, especially in Japan, which is more weighted towards the B&I sector and has experienced ongoing lockdowns.
Rest of world margins were 4.7% in the period and 5.4% in Q2, which is 140 basic points improvements on Q1. During the pandemic, our strategic framework of people, performance, and purpose has been more relevant than ever. The COVID-19 experience has reinforced our belief that balancing financial with social and environmental performance is the right path to long-term value creation. We've seen the benefits of this integrated strategy in attracting talent, strengthening client relationships, and engaging consumers. Let's now look at our priorities and the growth opportunities we see in the market. Karen has covered the first priority, control the controllable in detail, and we talked about margin recovery. Our ambition for growth is simultaneous with the focus on rebuilding margin. We see growth opportunities in three key areas. Firstly, our financial strength will enable us to invest in organic and M&A opportunities.
Secondly, through the safe reopening of our existing sites and mobilizing new business. Thirdly, by optimizing and evolving our operating model. Activity in these areas is not linear, as each region, sector, and sub-sector has its own path to recovery and growth. The total addressable food services market is at least GBP 220 billion, with around half of the market still self-operated. There is significant opportunity in first-time outsourcing and share gains in all three regions and in all five sectors. It's important to note these figures don't include the opportunities we're also seeing in vending, delivery, and support services. Beyond organic growth, we're also looking at targeted M&A, where we can build long-term value and capability into our portfolio. In the past, about 30% of our new business came from first-time outsourcing. However, during the last six months, this has ramped up to around 50%.
We continue to focus on sales and retention, and our client-centric approach is paying off. As you can see on the right-hand side, in the first half of this year, the total value of new contracts was nearly 20% higher than in 2019. Most of the new business wins are not yet reflected in our reported numbers due to delays in mobilization. The pipeline and prospective new business also looks very healthy, with good levels of inquiries and proposals across all regions. We're also seeing a greater proportion of our new business wins coming from Europe and healthcare, which is helping to diversify our portfolio. Clients are continuing to look for partners with proven health and safety processes, resilient supply chain, strong operational track record, and financial stability. Over the past five years, we've sold or exited non-core or subscale support service businesses.
Today, we have a portfolio of brands that all have high value-added services, which gives us an opportunity to grow faster at attractive margins. Premium hygiene services have been particularly well received by clients, and this has been a successful period for cross-selling and margin growth. Historically, our support services have contributed around 15% of group revenues. Going forward, we expect the proportion to grow where the importance of these services is recognized. We're very excited about reopening sites and the mobilization of new business. As we mentioned earlier, the pace of recovery varies considerably across our regions and sectors. Without exception, health and safety is our number one priority. Understandably, some consumers are nervous about the new environment. We can address these worries with robust hygiene and disinfection protocols and social distancing measures, including pre-order, prepaid, and desk drop.
As we bring back and onboard colleagues, we're preparing them for the new processes. Digital tools are helping us recruit, train, and also manage resources as volumes vary. Lastly, prolonged lockdowns have been tough for everyone. Therefore, we're continuing to work with our clients on enhanced health and wellness support. Last year in New Zealand, we hosted the first post-pandemic sports event in the world. It was a rugby match watched by 18,000 fans. Since then, our North American business has started welcoming back sports fans with up to 30,000 spectators. Just last night, we catered at the BRIT Awards ceremony at the O2 here in London. As you would expect, the whole events experience has been transformed to minimize risk. Spectators use digital tickets with notifications to stagger entry.
You can order food on your mobile phone and pick up ready-plated items, while staff protocols include full sanitization, health screening, and infection control training. The excitement of the food experience won't be lost. We've lots of new concepts and suppliers ready to launch. Our data analytics keeps us tapped into consumer behavior, so we can keep refreshing the product mix and pricing while reducing food waste. The final area I want to focus on today is optimize and evolve. In response to the pandemic, we've continued to evolve and improve our operating model. Because we had a strong digital foundation going into the pandemic, we've been able to accelerate solutions such as frictionless retail and central production kitchens. We've also been able to rapidly integrate solutions we developed with concepts we acquired.
In Ireland, we've been using our own Copper Pan Kitchen brand to deliver food to employees working from home. Elsewhere, we combined our own Time 2 Eat technology with a central kitchen model to serve over 3,500 consumers across four locations for our manufacturing clients. In North America, we've leveraged our vending distribution network to deliver food to smaller businesses who don't have their own kitchens. As volumes return, we feel confident that these concepts will bring in new revenue streams. As we know, work patterns are changing, and many employees want to work more flexibly. What might the future of B&I look like? We think that visiting the office will become more purposeful. It will be a place for social connection, collaboration, and innovation.
Although we might come into the office on fewer days, the time spent in the office may be longer to make the most of time with colleagues or to avoid rush hour traffic. As clients reevaluate their approach to real estate, future workspaces will be more fluid, multipurpose, and digital. Food services will also be more flexible and relevant, with food also taking on an important role in keeping employees healthy. COVID-19 has given us all a heightened awareness of social inequality and the importance of our climate responsibilities. Clients are asking us to support their agendas for diversity and other social priorities. Many of our clients are making carbon reduction commitments, and we are well-placed to help them by designing a food offer that aligns with their values.
Let me now explain how our values around people and purpose are aligned with our commercial strategy and our offer for clients.
Our people are at the heart of our business. I'm extremely grateful for their hard work during the most challenging year in our history. I believe that our people and culture differentiates us from the competition. They're one of the main reasons clients choose to work with us. Our colleagues are energetic, ambitious, and entrepreneurial, delivering amazing food and hospitality to millions of consumers around the world. It's because of our exceptional operators and their ability to innovate that we've been able to embed change so quickly. We continue to invest in training and development, including a digital program for all of our growth teams. We've also recently set up the Leadership Academy so that we have the right talent ready to mobilize new contracts and to deepen the valuable client partnerships we already enjoy. One of our strengths as a business is our inclusive culture.
It supports innovation, increases employee retention, and leads to better commercial outcomes. These benefits are recognized by our clients. Across the globe, we constantly challenge ourselves on diversity and different regions share best practice. This year, our Australian business has reached 48% gender parity across all levels in the organization. In North America, we've launched our first ever diversity and inclusion survey and received 30,000 responses. We've also provided unconscious bias training for 7,000 employees, and we're proud to be recognized again by Forbes as one of the best employers for diversity. We are in an industry that is a major contributor to greenhouse gas emissions, so the sustainability of our business requires us to reduce our carbon footprint. Compass Group U.K. & Ireland has just unveiled a commitment to reach net zero emissions by 2030.
This transformation will include more plant-based dishes, full carbon labeling of all menus, and sourcing from regenerative agriculture. Tackling climate change is a huge agenda, and it will require collaboration with clients, suppliers, NGOs, and government. We continue to work with our partners to develop carbon labeling of menus, food waste reduction initiatives, chef training, and other tools to promote healthy and sustainable diets. Our scale in procurement means we can make a big social impact, too. We've increased our spending with local suppliers and social enterprises, businesses that reinvest their profits into social causes. In 2020, our U.S. business increased local procurement to just over 20% and has also purchased over $500 million from women and minority-owned suppliers. Foodbuy U.K. and Ireland is currently working with more than 20 different social enterprises.
Businesses like Change Please, a coffee company that is empowering the homeless by training them to be baristas. We have plans to roll out responsible sourcing programs like these across our largest markets to create value at a local level. We believe that the Compass model of long-term value creation has served us well and remains intact. We've adapted throughout this pandemic and our business has been remarkably resilient as our operating margin demonstrates. CapEx is supporting growth, retention efforts, and the innovation, we are opportunistic about bolt-on M&A. We intend to resume dividend payments and other shareholder returns at the appropriate time. To summarize, in Q2, we restored more than half of our historic margin, and we expect Q3 margins to be between four and a half and 5%.
We're very encouraged by the structural growth opportunities, the momentum in first-time outsourcing, reflecting a continued flight to trust. Because of our strong financial foundation, we've continued to invest in growth, to innovate our offer, and to evolve our operating model. We remain disciplined about bolts on M&A to gain sector exposure or additional capability. Our competitive advantages in people, scale, and sectorization remain strong. We look forward to welcoming our consumers back as sites reopen with an unrelenting focus on health and safety. Our strategy is underpinned by a genuine focus on people and purpose, which resonates with our clients' needs and will in turn lead to long-term value creation. We remain confident about the future and our ability to return to a group margin above 7% before we return to pre-COVID-19 volumes. Thank you.