Welcome to the Compass Group 1 Q1 Trading Update Call. Today's call is recorded. Hosting today's call is Dominic Blakemore, Group Chief Executive. Following the opening remarks, you will have the opportunity to ask questions. I will now turn the call over to Dominic Blakemore for opening remarks.
Please go ahead, sir.
Thank you, Emma. Good morning, and thank you all for dialing in. As usual, I'm joined by Cam Wits, our CFO. I'm sure you've read this morning's statement. Before opening the call to questions, I'd like to say a few words on our performance and outlook.
Q1 revenues were similar to Q4 and in line with expectations Given the anticipated second wave and continued containment measures taken by governments around the world. B and I and Sports and leisure revenues remained broadly unchanged. Revenues in education softened slightly in North America as students didn't return to school after Thanksgiving And revenues in defense, offshore and remote and healthcare and seniors saw a continued improvement. I'm very pleased with our excellent retention of 95 7%, which is as high as it's ever been. And I'm very encouraged by new business wins, although they're yet to contribute meaningfully to our revenue base.
In the quarter, new business growth was suppressed by delayed openings and lower volumes. Despite the lack of improvements in volumes quarter on quarter, the group's operating margin increased by over 200 basis points from 0.6% in quarter 4 Including contract renegotiations and resizing of the business. Although the vaccination rollout is underway, the pace of volume recovery continues to be uncertain. Therefore, we anticipate Q2 revenues and volumes will be broadly in line with the Q1. However, encouragingly, we continue to make good progress managing costs and expect our second quarter operating margin to improve by a further 50 to 100 basis points.
By achieving this, we'll be halfway to recovering our pre COVID margin, putting us And so in summary, we focused on controlling the controllable. We've improved margins again without significant volume improvement. We're excited about the strong pipeline, Particularly in the more defensive sectors of healthcare and seniors, education and defense offshore and remote, which will diversify and broaden our revenue base. And we continue to be excited by the significant structural market opportunity globally. These opportunities, combined with innovation and operating model will help us to emerge from the pandemic stronger than we've ever been and will allow us to further consolidate our position as the industry leader in food services.
We'll update the market again on the 25th March. Thank you. And now we're very happy to take your questions.
We will now take our first question from Liaiz Az from UBS. Please go ahead. Your line is open.
Good morning, everyone. It's Blasi from UBS. Thank you very much for taking my questions. And 2 from my side, please. Firstly, just on the pace of margin improvement with additional 50 to 100 bps expected in 2Q, you very carefully detailed out all the cost actions you've taken In the full year's results, with structural cost savings of €70,000,000 I guess with the volume environment as it is right now, when do we get to annualize some of those benefits into a more steady state and then rely more so on volumes?
It's into a more steady state and then rely more so on volumes. Number 2, the net win rate in North America was, I think close to about 6.1% in the 4th quarter. Can you perhaps provide any color on how that's trended in Q1, please? And lastly, just on 2Q guidance, were there any notable differences between the months in Q1 with regards to organic growth Trent, just thinking of the shape of volumes ahead, by memory, I think you might be annualizing about 2 weeks of the COVID impact in Europe in 2Q, Although I appreciate it's small on a group basis.
Yes. Thank you, Bart, for those questions. If I take The first two, then I'll pass the 3rd on the Q2 trends to Karen. Look, firstly, on the pace of margin improvement. I just want to reiterate, we're really pleased with what we've achieved and what we're guiding to in quarter 2.
We've come from minus 5% in the Q3 of last year to what will be around plus 3.5% in quarter 2, with little or no volume recovery in the last 6 months. So we've only seen 10 percentage points of volume come back And Cesar said about 2 thirds of our pre COVID volume. So we think that is very significant margin Improvements. Obviously, we have a series of plans that each quarter's actions We'll annualize as we go forward, and we have a series of plans in place that are volume agnostic. So should volumes not recover, we will continue to make margin progress as a result of those actions.
As and when volumes do recover, we would The pace to pick up somewhat. And obviously, we said before, we don't expect the volume recovery to be linear. It will be Lumpy. I think what you've seen in the Q4 and Q1 was significant changes. We got The benefits of the actions that we've taken, obviously, in quarter 2, we're guiding to a slightly slower pace as we see the volumes flatten.
But we are we do have confidence that we continue to make margin progress regardless of volume as we look forward and then that Accelerate with volume. Secondly, on the point of the new business or net new business win rates in North America, we were around 5% As a group last year, we're at the same level in the Q1 of this year. And that really is Press by 2 things: 1, delayed openings and secondly, by lower volumes on the business that has opened. And once those contracts are annualized and volumes do recover, that will obviously go through like to like, as we said before. However, The absolute number of contracts we're winning is very positive in all of our regions and especially in North America, where The win rates and number of new contracts that we're winning is as good as we've seen.
That is biased towards health care and education at the moment with less within B and I and Sports and Measure, and you're seeing an uptick in first time outsourcing. So all of that feels Very positive for the medium term future as volumes recover. So yes, we're pleased With the continuing trends and the pipelines look good across all of the regions as well as they do within North America. Karen, over to you for the Q2 trend.
Thanks, Dominique. Well, as you know, it's the revenue that really remains Certain. And as we entered the Q2, we saw varying lockdown measures in place across our key markets, and revenues and volumes will be broadly in line with Q1. It is worth noting from an organic revenue perspective that in P6, We start to annualize the COVID impact. So last year, we had 2 weeks in March, which were impacted by COVID compared with a whole quarter with these varying lockdown measures That's all in place.
That's very clear. Thank you very much.
Thank you. We will now take our next question from Jamie Rollo from Morgan Stanley. Please go ahead. Your line is open.
Yes, thanks. Good morning, everyone. Just coming back on one of those questions, please. Just to be clear, The comment about the Q2 being similar to the Q1, you're talking in sterling Revenue, yes. Because as you say, your March figures last year were down about, I think, 20%.
So are you either saying it's down 34% versus 2019? Or is that down 34% versus 2020? I'm just wondering whether you're stripping out those 2 weeks. Second question, is there anything, Dominic, you can give us perhaps on that pipeline? Anything to draw out in terms of whether we might see an acceleration And contract gains, any draw out by industry or by region?
And then finally, just on that margin progression, I appreciate it's not linear. You're saying it's just still move ahead. I think consensus margins were about 4% for the year, which is 5% For the second half, and that would imply a continued sort of nearly 100 basis points sequential progression, Which is obviously no additional slowdown from here when it has slowed quite a lot. I was wondering how you feel about that 5% second half margin.
Thanks, Jamie, and good morning. If I take the first two and then pass the third question on to Karen. Look, firstly, yes, the sort of down a third is against the 2019 sort of pre COVID impact. And what we will have to do as we go forward is ensure we show you both organic growth against the prior period, Whether it was COVID impacted or prior. And then separately, we want to anchor ourselves in our scale and volumes against The pre COVID equipment periods because we believe this recovery is first about margins, then deleverage, and then it's about restoring scale to pre COVID levels as quickly as we can.
So we want to stay anchored in that. And yes, we believe we'll continue to be about onethree down against the pre COVID volumes as it were. Secondly, on pipeline color. Look, really, sort of growth starts with retention. And the one thing I would call out is we're reporting today Retention of 95.7%.
That's close to a point better than our historic average. We don't believe that, that's particularly about Processes are continuing, albeit virtually. We do believe it's about what we're describing as the fight Trust and the quality of our client relationships. And I think it also shows that we're not compromising service for margin. That's very, very important.
So That retention is good. It's improved across all of the regions. And as we look at what we've achieved in the Q1, those trends continue to be very positive. When we're talking about the new business pipeline, again, it's very strong in all three of our regions. In North America, it expires towards health care, education, with the up weighting we've talked about in First time outsourcing.
We've seen a little bit of a slowdown in B and I and more so in Tortellers, as you would expect, where there's Greater uncertainty about when events will start to gain. In Europe, it's It's been a strong performance, a strong pipeline in B and I and Healthcare in particular, which we're very pleased with. We've made a good start in Europe on new business. And then in Rest of World, it's actually across all of our sectors. We're seeing good wins and good pipelines, Nicely balanced and the same across sort of the more developed markets in Rest of World and Emerging as well.
So it feels A positive start to the year from new and retention with a good pipeline of opportunities ahead of us. Karen, over to you for the margin progression points into the rest of the year.
Thanks, Dominic. Thanks, Jamie, for your questions. Given the uncertainty that we're facing into at the moment, our focus is on looking out a quarter at a We're trying to give you as much color as we possibly can on that. And as you know, we actually withdrew our full year Guidance. But saying that, our ambition is certainly to continue to improve the margins quarter on quarter.
We don't think that the margin improvement will necessarily be linear, and we've seen that. Q1 had a big step up from Q4 as the benefits from the Initiatives that we've taken have come through, and we've guided you to further step up Between Q1 and Q2. So if volumes do come back, Then our margin will improve more quickly than if they don't come back in the short term. As Dominic said just a bit earlier on this call today. There are choices around costs that we can make, and we will take if necessary as we look at the environment around us.
And then in the longer term, we still expect the margin to return to above 7 So
just to ask it in another way perhaps, that 50 to 100 basis points improvement in Q2. From a sort of volume agnostic basis, could we assume that continues into the second half of the year?
And we'll continue to
Go ahead, Karen.
No, sorry, Dominic, go ahead.
I was just saying, look, we expect to continue to make progress, and we'll update at the half year what we think that is for the second half once we've got, in particular, a better view on volumes. Thanks, Jamie.
Thank you. We will now take our next question from Jafar Messari from Exane BNP Paribas. Please go ahead. Your line is open.
Hi, good morning everyone. I've got two questions, if that's okay. Firstly, on margins, maybe on the mechanics rather than on the numbers to understand how it's going to work going forward. You now have some visibility on some contract level margins with a number of clients. But of course, they're not covering your And overheads to clients and clients are not covering essential costs, etcetera.
They're basically covering the on-site costs, I assume. So conceptually, How wide is the range of group margins once you take into account overhead Central costs, if revenue had ended up 10% below or 10% above for Q1? And secondly, on labor costs, if this becomes a theme in the U. S, what do you think is the best precedence for case study in terms of your track records. And I'm thinking the UK, your experience in I think implementation of the national living wage, it does look like you had significant margin pressure, but I do remember there was also a lot of like for like Issues in the U.
K. Markets, what would you say is your track record and ability to manage through potential significant
Jafar, thank you very much for those questions. Look, if I take first and then Maybe hand labor costs on to Karen. I mean, looking, in terms of the mechanics on margin, you're absolutely right. We're doing a few things. We're obviously working hard with our clients to renegotiate contracts either to recover costs in units, as you said, All costs plus our normal margin offer a smaller base to protect that margin.
We're working incredibly hard on in unit efficiencies, and that's around labor flexibility, increased usage CPUs. So we're introducing some greater food and labor flexibility, and we're seeing The rewards for that. And then, of course, we're working very hard on our overhead within sectors And above sectors within countries and region group. In all of that, The latter elements of that, we do continue to have choices and likewise, even within our forecast. So if volumes are going to be sustained At lower levels for longer, we already know there are actions that we can take.
And when we can take them, it will contribute towards further margin progress And allow us to get closer to historic margins at lower volume levels. If those volumes come back sooner, Then
we know we don't have
to take those actions and it will come back with volume. And there's a trade off in the middle there between the levels of ongoing government support, which is radically reduced I prefer to think about it at a sector level, which is our best sort of benchmark globally and which would be pre Country and region overhead. And right now, we've got 2 of our 5 sectors, Healthcare and DOR, Operating close to the historic levels. Now both of those have been affected by the loss of retail For where social distancing and the closure of retail outlets on those sites has been impacted, but we're managing to offset that with other So we're pleased with the outcome there. If you look at the 3 other sectors, education has lost About a third of the margin from stop start containment measures impacting as well as There are also some of the on-site retail, particularly in the higher edge space.
But look, I think as we look Forward, we recognize that most governments want to get children back at school, and most universities and higher education institutions believe in the campus on-site experience. So we think there will be a natural volume recovery there. It will be, of the 3 other sectors, the one which is likely to recover CNS. And then when we look at the other 2, the B and I margin, the industry sector has performed well as employees and clients We continue to operate on-site. The years we've talked about previously, particularly with the tech sectors, financial services and others, has been much reduced.
No, that's where the choices remain on margin recovery and where we can take further action. Sports and Leisure Effectively has almost completely stopped at this point, and we're carrying a run rate of overhead within that, which will either get lifted by the volume recovery All we have further choices ahead of us, and that's really how we look at it. And There is a, to your point, a plus or minus 10% of volumes. That's how we're thinking and planning quarter on quarter. If the volume comes back, what do we need to do?
If the volume doesn't, what do we need to do? And making sure that we're making those choices in the best interest of the medium term business rather than A quarterly margin progression. I hope that, that's answered the question. And then just over to Karen on labor cost inflation.
Thanks for the color. Thank you.
Thanks, Dominik. And some of what Dominik has actually described is To the way that we will and do manage labor costs, we've got a strong track record of managing labor costs across the group. And over the last 2 years, we have seen increases in minimum wages, etcetera. So just in terms of managing any labor cost inflation in the U. S, then Our conversations are ongoing with our clients and indeed have been a real part of the conversations that we've been having as we've gone through the pandemic and we have renegotiated contracts.
So we will continue to have pricing conversations with clients. The other element is efficiency. And some of the work that we've been doing, again, across the group to manage the pressures of COVID actually put us in a good place going forward with regards to efficiency. So the work that we're doing on labor flexibility on digital innovation and automation. The labor model in the U.
S. Is And I think we've seen that again throughout this pandemic period where we moved A lot of people at the start of the pandemic, and you see that coming through in the current margins that we've got in the U. S. We also have, if our clients want this, we have things like Avenue C, cashier less Elements to our offer, unmanned innovation, particularly in our canteen and vending sector. There's a combination of all those things, the pricing and the efficiency that helps us manage the labor costs.
And if I may just add to that, Yes. Just in terms of precedence, they predate Karen. The national living wage in the U. K. Was around a time when we have more P and L contracts in the U.
K. And that did affect volume. I think the greatest the best precedent really is North America where We had the Obamacare legislation and managed to recover all of that cost inflation through either cost plus or efficiencies as well. So I think the track record is there, and we know what we need to do.
We will now take our next question from Richard Clarke from Bernstein.
Taking the questions. And 3, if I may. Just on your flat volume assumption into Q2, I'm just wondering what you're kind of assuming in there on education reopening, Given we've seen a little bit of good news in the U. S, I think Utah and another state have opened their schools. Is that feeding into there?
And then we've seen basketball let fans in as well. So could this give you some upside? Or is it too small to move the needle? On Foodbuy, how are volumes through Foodbuy working? What does that do to your food costs this year?
Is that having an impact, slowing an impact And then third question, maybe a little bit sort of trite, but your margin range of 50 basis points 5%. What will kind of determine which end of that range you hit in Q2?
Yes. Let me take the first and third questions and then pass the food by volume question on to Karen. Yes, just with regard The volumes in Q2, look, we're already a month through and that obviously informs the guidance we've given. In U. K.
And Europe, we think we're unlikely to see any sort of material school reopenings that move the needle before the summer term, Though obviously, you are hopeful about the summer term. We are more weighted to higher edge in North America, and it does The 2nd semester is going to continue either as virtual or hybrid, and those trends will continue. And so Really what we might see in sort of K-twelve, the lower edge space in North America is unlikely to be material for us. And Yes. I think the trial events that we're seeing are positive in Sports and Energy because we really want to see ways through this where fans and Stadia can open safely.
But again, our expectation is that we won't see Anything significant until the second half of the year? On the margin range, a good question, 50 to 100 bps. We'd like to think we'll be firmly and solidly within that range if the volume environment that we've called today Plays out. I think the caution and the conservatism is obviously, if things were to turn down Any more than we're seeing, which, look, given that we're into the 2nd wave containment measures, that hopefully feels unlikely. But I think it's right and proper for us to remain cautious at this point.
But if the environment plays out as we see it and the We'll be firmly and strongly within that range. Karen, over to you on 2, bye.
Thanks, Richard. Well, in fact, I would say, we've actually seen and been managing the impacts of supply over these last months because we're clearly Operating with much lower volumes going through the system and the way that we're managing the food cost To maintain our food cost benefit is through fewer SKUs. We can do that through Compliance or through menu simplification. We also have got increasing So no food buy client base in resilient sectors. So really that's an improvement And in some areas in the 3rd party element of Foodbuy.
And we work well with our suppliers and we've got long term relationships with Same. And we haven't seen a deterioration in the levels of purchasing income that we've been achieving.
Great. If I can just ask for one quick clarification. Obviously, you're giving us Q1 to Q2 margin, is there any difference in a normal year between Q1 and Q2 margin?
Just on seasonality, I think our first quarter Typically, well, the Q1 and Q2 and first half are typically, I think, 10, 20 bps ahead of the second half. So there is a touch of seasonality in there for us. Obviously, it's the second half as the summer months. But At this point, given the actions that we're coming from, we don't really see seasonality as being a factor in the pace of the margin progression.
We will now take our next question from Leo Carrington from Credit Suisse.
A few for me. Firstly, on the competitive landscape. I think there's been a surprising or in my view, a surprising lack of Visible strain in contract catering companies. I did hear comments from the U. S.
That competition is increasing in schools as B and I operators or other operators shift their focus. Is that something you've seen? And
Can you perhaps offer
some comments on what you see in terms of competition? Secondly, Just another one on the margin progression. The most significant sequential improvement looks to be in Europe. Can you just help us understand why and is Europe The main source of the further margin progression we're expecting for Q2? And then lastly, DoR saw solid sequential revenue improvements.
Is this new contracts ramping up or extra scope on old contracts? And then more broadly, you've called out a full year and again now of DOR having a particularly good pipeline. Is this better market
Again, I'll take the first and third and then hand over the European margin question to Karen. Look, on the competitive landscape, I don't think we are seeing That entry of new players into other sectors or spaces. In fact, I'd argue the reverse. What we're seeing in our conversations with clients is they want proven best in class, best in sector operators, Yes. Again, given the experience of COVID, and I think that's really pertinent to the sort of non B and I sectors.
Again, just reflecting on what that means in Healthcare, it's proven processes. It's being able to protect our employees in those environments. It's being able to offer more frequent and broader hygiene and disinfection services. So I think that rules out Nonsector Expert Players. In Education, we've seen that uptick The demand in competence around hygiene process and PPE protection, which again, we have as a business and other players And then within DOR, there's been quite a lot of change because obviously you're managing entire communities in remote locations, whether it's defense It's the mineral sector.
And there's a need there for the expertise that we bring by sector. So we actually believe that at this point, Sectorization, subsectorization, sort of family of expert brands plays very strongly into the needs of our clients. And I think it's more difficult for a generalist player to switch sectors and try to compete on price at this point. So I think I'd describe at the moment that it is very much about quality and capability. And as we said on several occasions, that's right to trust.
And I think that's what's showing up in our retention and new business. Just answering the question on DOR, and yes, we're very pleased with the quarter on Improvement. And you're right, it's a number of factors. So we have we run a substantial piece of business in Australia BHP, which has been rolled out across their estate, and that's benefiting the numbers. We won significant business in Chile with Asafo Gastro, and That's rolling out.
The mineral companies have continued to produce strongly in In a strong market for them, which has meant production volumes are high. The POB, people on board, as they call it, It's high, and we need to service those volumes. That's positive. But also rather than the sort of traditional No canteen or restaurant service, which would be a buffet. It's now about box meals and table service, Which means there's sort of more value in it for us.
So it's a number of factors that are driving that. And that good pipeline is across sort of defense, offshore And remote, so sort of all of the subsectors and particularly within the rest of the world. But as I said earlier, So we're seeing good opportunities in all sectors in rest of the world right now. Karen, over to you for the margin in Europe question.
Yes. Thank you, Dominic. So what we're seeing in terms of margin in Europe is really a combination of 2 factors. The first is that Europe has experienced the most protracted and restricted containment measures. I mean, for all of us Sitting here in the U.
K, we can see that and we can feel that. In terms of the recovery, the actions that we're taking to recover in Europe are exactly the same as for the rest of the group. So working on contract renegotiations, Working on labor flexibility and rightsizing and working on general And food costs. But it's taken us a bit longer to resize in Europe, given, first of all, the multiple countries that are involved and secondly, The tighter labor laws. So remember that we did some rightsizing at the end of last year in North America and LatAm, and we did Because we have the flexibility to move very quickly there.
It takes a bit longer in Europe, so you're just starting to see the benefits coming through this quarter.
We will now take our next question From Vicki Stern from Barclays. Please go ahead. Your line is open.
Yes, morning. Just coming back on the net new business wins. Obviously, you talked with a lot of confidence there about the high retention rate and the pace of signings. And you've explained why clearly it's hard to see that coming through in the numbers Currently, so two questions really. Just in terms of your perception of what that pace means In terms of signings, you think that's consistent with the prior levels of net new business sort of 3% per annum as we get into that You're seeing the contribution from those contracts or sort of better or worse than those prior levels, just so we can understand it because it's obviously hard to see in the numbers today.
And then, yes, Related to that, when should we start to see the benefit? Is that really just when we start to lap the comps and work off different base? And then just Secondly, on contract renegotiations, just obviously, this is only a part of the cost cutting measures and how you're getting margins up. But Obviously, some of those are short term discussions. Can you just help us understand how much of that is a sort of long term contract today and how much
of that is you're going to need
to go back on this contract in 6, 12 months' time to sort of set
terms for the future?
Thanks, Vicki. Good morning. If I take the growth question and then Karen can do the contract negotiations. Yes, look, it's tricky, isn't it, because of How the calculations are done to actually see the trends. Retention is a clear calculation.
So It's pre COVID volumes lost over pre COVID total group volumes. So it's just sort of pure calculation In this quarter. And as we start to lapse the pandemic, it will then be sort of post COVID volumes lost over post Total group volumes. So retention will remain, I think, a pure like for like measure that we can look at. And As we said today, at 95.7 percent, it's 60 bps better than last year and close to a point better than the historic average.
And so if we can Sustainer, that would be positive for net new. And obviously, we would never declare the We have to record it, but it's a good start, right? On the new business, I mean, we measure it internally on What would be pre COVID volumes? And so we know what the value of the Contracts we've won in the Q1 is compared to value contracts we would have won in a pre COVID world, and it looks very positive and comparable those contracts when they are opening, they're opening in sort of new world volumes. And we'll either see within the 1st 12 months, the volumes recover And that will flow through new business or we'll see them annualize and then flow through like for like.
So I think the net new measure is going to be a bit to navigate for a while yet until we've truly lapped to the 12 months of the crisis. And we'll do everything we can to sort of pull out that trend, particularly as we get to the half year so that we can show you how we're doing. But In old money, as it were, it feels good. And in the absolute number of contracts that we're winning, it feels good. But again, this is only a quarter, and we're keen
In terms of our overall portfolio of contracts, the profile hasn't really changed over this So we're still about a third, a third, a third in terms of cost plus fixed price and P and L. So by implication, that does actually mean that the conversations that we're having with our clients are I think that works for us and it works for them. And the focus that we have been having until now is very much on Ensuring that where sites are open and sometimes where they're not open, that we work with clients to make sure that we're Passing through costs. We're also getting some more permanent benefits just in terms of Particularly in North America, extension of length of contract. You might see that in the Sports and Leisure sector where That's completely inactive at the moment.
So we're working with clients to extend the length of the contract there. So we're really very happy with the support that we're getting from clients just now. And we do recognize that Contract renegotiation is ongoing. In fact, that's very helpful for us. And there's a question earlier about inflation, and it actually helps to make sure that If there are inflationary pressures, they're getting passed on to.
If I
might Just to add one comment there. I think what it also demonstrates is the sort of the weight of pressure on the operations of the business. This isn't a silver toilet and it's done once. We need to be thoughtful about how we did it best in the context of maintaining strong client relationships. And Everybody wants to see the volumes come back and the old structures in place.
We need to make sure we balance sort of being fairly treated in the Short term, with a strong client relationship and where we expect to be over time. And that means it's constant effort, which I think we're very Well placed to do and very well disciplined today. We
will now take our next Question from Andre Juilliard from Deutsche Bank. Please go ahead. Your line is open.
Good morning, everyone, and thank you for taking my question. Few questions, if I may, more qualitative than quantitative. If you look at The landscape and your main competitor, especially local and regional players, do you see any player being in difficulty And explaining part of your market share growth, first question. Second question is about your clients and especially on the B and I and Sports segment. Do you see There are requests, and I'm still talking about qualitative evaluating for the next few years.
And do they more talk about digital evolution and things really changing About the way they ask you to provide your service? Second question. And regarding the Pricing program, this is a kind of follow-up about your last question. Do you see any evolution on your pricing power, your capability to reflect The evolution of the food price and so on. Thank you.
Yes. Thank you, Andre. Let me take those. Yes. First of all, with regard to the landscape, look, all I can say is that in the first instance, we believe that Processes are happening with greater discipline.
We think that's positive in the use of CapEx And the costs of service. Yes, we do see a number of players that Our path finding the circumstances challenging. As I said before, if you are a dedicated B and I on Sports and Leisure Sector player. Then right now, you don't have the breadth of portfolio like ourselves where you've got 2 sectors, which are 40% of the business, which is performing as it were before, is able to help manage the overall costs of operation. So yes, we are seeing that, and we may well see consolidation in the sector as a result.
With regards to the B and I and Sports and Measure and the request, what we're finding remember, our manufacturing clients are still largely operational. So the conversations that we're having with the industry clients is about how do we operate Safely with the right protocols. And if some of those protocols have to stay for longer, what does that look like? So the focus there is very pragmatic about the operation. Within B and I and Sports and Measure, the conversation is probably as you would expect.
So within the B, It's about what does the workplace of the future look like and what role does hospitality and catering have to play in that? How do we operate safely? What does it mean in terms of the numbers of people that can congregate within particular spaces? And therefore, how do we use our footprint within their office space differently? And that absolutely does mean there's a greater emphasis On digital desk delivery and personalization, and that is coming through sort of loud and clear in the bids that we're seeing.
I'd also say there's an uptick of interest within sort of health and wellness and sort of everything, again, we've learned About maintaining appropriate diets for the wider health implications. And I think, again, those give us the to differentiate ourselves with our clients. In Sports and Leisure, it's about How do we deliver great experiences with the right price structure to potentially smaller Attendance levels or steps changes in attendance levels. So look, if we go back to 2000, then 5000, Then 25% and 50% of capacity, what does that offer look like? Those are all ongoing conversations with current as well as So some different things happening there, and that's where sort of the broader expertise of the business can really help us Help us out.
And then on pricing power and the evolution of pricing power. Look, I think it's fair to say we've always managed food and labor Cost inflation reasonably well through that combination of contract protections that we've got, either in cost plus or P and L where we control the shelf price and the efficiencies, and we'll continue to look through efficiencies. And one of the benefits of the experience we've had here is that we're introducing greater Having said all of that, I think there's a greater understanding of the importance of our services in many of our sectors And therefore, potentially a fairer hearing on pricing and negotiations than we've seen before. So I think there's a combination of factors at play there, But I don't believe in any ways that we've been detrimental to our pricing power.
Okay. Thank you. Just maybe a follow-up question on the B and I segment. Do you have some requests from corporate Asking you to deliver some more food meal directly to their employees When they are working from home, is it something which is not substantial at the moment?
Yes. I mean we have had, I would say it's the margin, and I don't think that it has Significantly grown as we've kind of experienced longer lockdowns. I mean, the one comment I would make on B and I is, It's the longer this persists, the more I hear increased desire from our clients to be back in the workplace and for the workplace to be valued in a different way by everyone. Now that may not mean back to the levels of attendance we experienced before, But certainly, that the workplace is important and plays an important part in the balance of our lives. And so we quantified the work from home risk.
But As we navigate our way through this, I think there's a degree of optimism about the role of the office as we go forward in our role within
Okay. Thank you.
Thank you. We will now take our next question from Stuart Gordon from Berenberg. Please go ahead. Your line is open.
Yes. Good morning. Just probably same question in 2 parts. In terms of the cash flow, just looking for an update on how that's going in terms of cash burn and also in terms of Contract wins and the pipeline, how do you see the CapEx for that unfolding through the year? Because I would imagine that the initial costs That you may incur will not be necessarily representative of the anticipated volumes that you've got.
And then as a second part on the cash flow, obviously, Does the way things are going in terms of the margin give you increasing confidence to use the cash that you built up last year with the capital increase for investing in the business as we move through the hopefully the tail end of the pandemic.
Karen, I think those are firmly and squarely with you. Thank you, Sue.
Thanks, Dominic, okay. All right. Well, we're not actually updating on cash flow until the half year. But what we did say In November, with our full year results, was that as we've got to positive operating margins, then we had stemmed the cash And also at the half year, when we commented on our cash, we said that we had done particularly well on collections We are Continuing to win new business, as Dominik has explained, And we believe that in certain instances, CapEx is a really valuable part of winning that new business. We see that particularly in North America, where CapEx gets deployed into typically our larger Contracts that are of a longer length than in contracts where CapEx isn't deployed.
So in North America, our average Because we are still winning new business, our CapEx for the half year should be at a Growth level in the region is €350,000,000 to €400,000,000 Now a lot of that is actually CapEx that was committed In prior periods, when we signed new business and we're waiting for the new business to open, When we're working with clients on new bids and tenders for new business, we are still prepared to Put CapEx into those contracts. Clearly, we work with our own internal hurdle rates and Making sure that the CapEx that we're investing helps to support our long term ROCE. It may be that volumes are a bit suppressed in the short term, but working with clients, we're also finding Some opportunities to wait a bit before the CapEx is deployed until some of the volumes are coming back. And then on your third question, just in terms of whether or not we've got confidence to use the cash that we've built up. Absolutely.
It was thought through and a deliberate Part of our strategy to create balance sheet resilience so that we could use that resilience and the means within that balance sheet Earlier on the call whether it might be from M and A opportunities as and when they come along.
Okay. Thank you very much.
Thank you.
Thank you. We will now take our final question from Keane Marden, Jefferies. Please go ahead. Your line is open.
Good morning. All three very quick ones from me. Would you mind sharing what government furlough The impact from government furlough schemes, the benefit was to the EBIT line in the Q1, please, and whether that all drops away in Q2. Secondly, some U. S.
Universities at the moment are canceling Spring break, would that have any potential tailwinds to your business in March? Or is the fact that most sites are remote Or hybrid, I mean, that won't be the case. And then finally, I've got a few IV messages from clients just trying to nail down Q2 organic revenue growth guidance. So is the right way to think about this, that on a pre COVID basis, organic revenue growth Dan, about a third. But the COVID impact on the business in the Q1 of last year was about 7 percentage points or concentrated In the last couple of weeks in March and therefore when we see the numbers that you print for the Q2, it would be more like sort of 26%, 27% instead?
Thanks.
I'll allow Karen, if you could do the government per load and the Organic growth points. And then just on the university's point, Keith. Yes, look, I think we're hearing across Some of the education estate plans to try and catch up some of the lost teaching time. We've heard plans noted in National Education Systems in certain countries, and that might either be through summer schools or it might be through spring break. That would obviously only be a benefit to us if it is on campus, on-site physical teaching.
But yes, that could be a potential benefit, but certainly not something that we're building into our numbers at this point until there's greater clarity. Karen, over to you on the others.
Yes. Thanks, Will do. Just in terms of the government support that we are receiving have received, In quarter 1, it was just about £50,000,000 of government support, and that is now really concentrated In Europe, any other government support is pretty much tailed away. We see that reducing to something more like £40,000,000 In quarter 2. And then our current line of sight, has it tailing off very, very significantly There's 1 or 2 countries in Continental Europe that have committed to a bit more support going out Further, so what we tend to see is that governments will communicate What they're going to do in terms of support about a quarter out, and obviously, this is very dependent on the external But we understand in that to get back to our historic margins, that means We've got to move off government support, and we've got to get the business right sized for the long term revenues and long term volumes that We're going to be seeing, so that's about €50,000,000 quarter 1, about €40,000,000 quarter 2 and probably a lot less thereafter.
And then your question around nailing down quarter 2 organic revenue guidance. I mean, I'll just reiterate, this is uncertain. We are living in uncertain times, and we think that The volumes and the revenue in quarter 2 could be similar to the volumes and revenues that were in quarter 1. It's a point that you make around what we saw in March last year and therefore the impact that might have on organic revenue guidance. So In terms of arithmetic, yes.
I understand the arithmetic.
Thank
you. That will conclude the questions for today's session. I will now turn the call back to your host for closing remarks.
Just simply say thank you all very much for joining us today, and we look forward to speaking to you in the half year in May. Thank you. Have a good day.
Ladies and gentlemen, that will conclude today's call and you may now all disconnect.