Good day, and welcome to the Compass Group PLC third quarter trading update. Today's conference is being recorded. Hosting today's call will be Dominic Blakemore, Chief Executive Officer, and Karen Witts, Chief Financial Officer. Following their brief opening remarks, you will have the opportunity to ask questions by pressing star one on your telephone. I will now turn the call over to Dominic Blakemore. Please go ahead.
Thank you, Emma. Good morning, ladies and gentlemen. Thank you for dialing in. As usual, I'm joined by Karen Witts, our CFO. I'm sure you've read this morning's statement. I'd like to say a few words on our performance before opening the call to questions. Throughout the pandemic, our priority has been the health and safety of our employees and consumers, and we continue to manage the business to protect the interests of all of our stakeholders, including our people in the communities in which we operate. Our business started to slowly reopen towards the end of the quarter, and by the end of June, about 60% of our business was open, compared to 55% by the end of May.
Our sites are reopening with best-in-class health and safety protocols. We are actively entering into contract renegotiations with our clients to recover the cost of operating safely and with lower attendance levels. At the same time, we're adjusting our business to the new trading environment. In the third quarter, spent GBP 42 million in resizing costs in North and South America. Encouragingly, the group's operating margin improved within the quarter. The drop improved further to 20% in June. Looking at our regions, our overall business in North America has been slightly more open during the quarter. Sites reopening and constructive conversations with clients to recover higher operating costs, combined with more flexible labor law, has allowed us to adjust our cost structure and start to rebuild the operating margin. In Europe, the lockdown measures in our major markets have been deeper and more widespread than in other regions.
We're starting to see a small number of sites reopening, and we're also working with our clients to pass through higher operating costs. However, a greater weighting towards Business & Industry, stricter containment measures, and a less flexible workforce mean that while we are vigorously managing the situation, progress in the region will inevitably be slow. In the Rest of World , most of our business was open at the end of June. This is mainly due to our higher exposure to Offshore & Remote, which has not been significantly impacted by lockdowns. The operating margin was slightly positive as a result of the good performance in Offshore & Remote in Asia-Pacific, combined with swift labor cost actions in South America. To conclude, we are encouraged by the relative improvements in performance in June and the early signs of an acceleration in first-time outsourcing opportunities.
The pace at which our volumes will recover is still unclear, especially given a possible increase in local lockdowns. In the meantime, we're proactively managing the business, reducing our costs, and rebuilding our margins. Our focus on operational execution, our scale, and our strength and balance sheet will enable us to succeed in this new environment and further consolidate our position as the industry leader in food services. We remain excited about the significant structural market growth opportunity globally and the return to organic revenue growth, margin improvements, and returns to shareholders over time. Before we take your questions, I'd like to bring to your attention our reporting calendar. Given these extraordinary circumstances, this year, we will issue a pre-closed trading update on the 30th of September, followed by our full-year results on the 24th of November. Thank you. Now we'll take your questions.
Thank you. As a reminder, ladies and gentlemen, to ask a question, please signal by pressing star one. We will take our first question from Jamie Rollo from Morgan Stanley. Please go ahead.
Thanks. Morning, everyone. Three questions, please. Just on the top line, it looks like June was around sort of 37% down or so, which is quite a lot better, 10 points better than April and May, and obviously better than your down 50 slow recovery scenario. I appreciate you're not giving guidance, is there any feeling you can give us to whether that pace of recovery can continue? Maybe you can reference some of the July data, and the impact of some of the recent lockdowns. Second question is just on the drop-through, 23% in the quarter, it's better than your guidance.
Could you please quantify the various sort of government and other sort of furlough schemes that benefit in the quarter, maybe in sort of millions of GBP benefit, and how sustainable the June number of 20% can be as those schemes are winding down, and what sort of exceptionals we should expect to generate the cost reductions needed to sort of continue that low drop-through? The final one, just on business wins, it all sounds very encouraging. If you can maybe talk around the pipeline, and whether you actually expect net gains to accelerate at some point. Thank you.
Thank you, Jamie. Three questions, but lots of subparts, thank you for that. We'll take those in reverse order if I may, and I'll deal with the first two and then pass to Karen to talk about the pace of recovery in the quarter and the year. First of all, just looking at business wins, you'll see in the statement we've talked to a 95% retention rates in the quarter, which is slightly positive to our long-run average retention rate, which we're clearly pleased with. Inevitably, that is in part due to processes that have been put on hold. I think more importantly, it's been a response to what we're calling a flight to trust. We've seen a number of our clients extend contracts with us, a number of our clients complete retention processes without them becoming competitive.
We think that that is a feature that we will benefit from as we look forward. That flight to trust is about financial strength, as well as the appropriate hygiene, health, and safety protocols that we can bring to our clients. The pipeline remains strong. In fact, in North America, it's looking like we'll have our strongest ever year of new business wins. Therefore, yes, when it comes to net new business, we would like to think that we should see some form of acceleration over time. We've also got a number of inquiries coming in around first-time outsourcing, particularly in the healthcare and aged care sector, and especially again in North America. I think all those opportunities we talked about for better retention and acceleration in first-time outsourcing and the opportunity to take share are all very real.
When it comes to drop-through, I think we're keen to move away from the concept of drop-through after this quarterly statement. I think what's much more important for us now is the margin progression that we make. Clearly you've seen in the quarter we have a - 6% margin in the quarter, which is - 5% before restructuring. We've improved to - 3% in June. Clearly our intention, whilst we can't control volume, is do everything we possibly can to improve that margin as we go forwards. Therefore, the 20% drop-through is better than the range that we guided to, and we're very, very pleased with that progress. What's critical for us now is how quickly we can move towards breakeven and beyond through the actions that we want to take on contract renegotiations and adjusting or rightsizing the business to the new volume environment.
That brings me on to the question on government furlough. In the round globally, we've probably benefited around GBP 90 million a month through quarter three from government programs. That nearly halves per month in run rate in quarter four and will diminish significantly beyond that. Therefore, our ability to manage margin will be the pace at which we can resize the business in line with those programs coming off and the pace at which volume recovers. Therefore, we signaled today that we are and will continue to resize the business accordingly. What that meant today is you've seen a GBP 42 million restructuring charge, principally in North and South America, with a six-month payback. We will continue to resize the businesses as those programs run off, and in the absence of volume recovery, we'll need to take the necessary actions.
Much of those programs are in the U.K. and Europe, and therefore you should expect to see any restructuring there coming later in the process. We will update in each quarter as we go on the costs incurred and the payback. Over to Karen for the volume recovery pace.
Yes, Jamie, just in terms of that, you saw through the quarter our organic revenue was down 44%. As we've been giving our regular updates, we said that the position in April and May was actually similar. As you say, we saw an improvement in June, where the organic revenue decline was less than 40%. That was really as a result of some of the constraints being lifted across the geographies, as particularly referenced with Europe as being close to us. Constraints started to be lifted by the mid to end of May, hence the better figure in June. As we head towards the end of July, we think that July is looking pretty much like June. August for most of our geographies is the month of vacation. We are assuming that August is more than likely to look similar to July.
We will need to wait and see what happens in September. September will be an important month. We will need to see what happens when the schools and the higher education institutions go back, and indeed what the student behaviors are like once they go back to their schools and universities. We also need to see the pace of return to work in the B&I sector. There's been lots of news coverage recently about who's going back when. There's some organizations pushing back their expectations a bit. September will be important, and that's one of the reasons why we're going to update again at the end of September.
Very good. Thank you.
Okay. Thanks a lot.
Thank you. We'll go to our next question now from Jarrod Castle from UBS.
Thank you. Good morning. I will limit it also to three. I'm wondering if you can give any color in terms of FM versus catering, both in terms of growth and margin. Secondly, just any update on what's going on with procurement and the ability to hold on to discounts that you receive for volume. Just lastly, you've paid back the U.K. government CCFF. Can you just put a color, why now? Perhaps, was this in your thinking when you raised the equity? Perhaps could you have raised less equity, if you hadn't paid it back? Thanks.
Jarrod, thank you. Why don't I take those first two and then I'll hand over to Karen for the third. First of all, just on the color of FM versus food services, on revenue and on margin. Obviously, I think you have to bear in mind that where we operate support services, we do it alongside food, typically in the healthcare sector and within the Defence, Offshore & Remote sector. Those particular sectors have held up well. I think from a revenue standpoint, the catering volumes in both have been affected by lower footfall in the retail aspect of those sectors. Within healthcare, we've obviously seen lower elective surgery volumes, which means there are less patients and less visitors within the hospital environment as well, and that has clearly had an impact on the catering volumes.
When it comes to the support services volumes in both of those sectors, they've been robust to positive. Obviously, the importance of hygiene provision in that environment has been significant, and therefore we've seen greater demand and greater volume. Typically, the margins in those sectors have clearly benefited from the hygiene services and they suffered from the loss of the retail. In the round, those sectors remain a significant contributor of profit to the group, albeit slightly below in margin terms where they've been historically. When it comes to procurement, I think if you look at the scale of food volume decline that we suffered, it is significant and therefore you would expect there to have been an impact on our procurement synergies.
Of course, they are flowing through the drop-through and they're also flowing through the operating margin of the sectors that continue to operate at some scale. What we've done to offset that is we've simplified menus, which means we're putting greater volumes through fewer SKUs and fewer suppliers. We've also, in many instances, managed to maintain our current pricing or past pricing with our suppliers, and we'll continue to do so in anticipation of recovery over time. I think the other important thing is, our purchasing model has always given us relative benefits against competitors and self-op. That relative benefit, whilst reducing, in absolute terms, remains exactly the same proportionately as it were, and therefore we believe will always give us competitive advantage in new business. Of course, it's why we're seeking to recover those dyssynergies through our commercial contract renegotiations with the clients.
I think it's a mixture of factors, and like everything else, I believe we're trying to manage the situation as best we can within our own control. Over to Karen, just on the CCFF.
On the CCFF. Yeah. We need to repay the CCFF, Jarrod. If you think about the order in which we did things, it was one of our very early actions. I believe we were one of the first organizations to access the CCFF. We repaid it, in order to reduce our interest costs. To some extent, the equity raise meant that we did have more liquidity in place, and we didn't want to incur the interest costs. On the question of the equity raise, then when you think about the cash burn, at a headline level, it is much lower than expected. That really was largely a function of timing differences, tax deferrals, and an acceleration of receivables in an environment where we said cashflow would be lumpy. We still expect significant cash demands on the business.
We've just started to speak about restructuring costs, and we want to be able to invest for growth through CapEx and then later on through M&A where appropriate. We are very comfortable with the actions that we've taken.
Of course, just to add one point to that answer, Jarrod, of course, one aspect of that was to ensure we introduced the resiliency to the balance sheet for any worse conditions should they arise, be that further local, regional or national lockdowns. I think that the raise is absolutely serving its purpose across those dimensions of cash costs, investment in the business, investment in restructuring, and the resiliency that we wanted to introduce.
Okay, thanks.
Thank you. We'll now go to our next question from Richard Clarke from Bernstein.
Good morning. Three questions from me, if I may. Just a question on the rightsizing costs. What would you expect your budget to be for that through the next couple of years? That alongside your renegotiations with clients. Is that enough to ultimately get your margin back to 2019 levels on some sort of full recovery scenario? Is there other components you need to put in? Second question, just on the nature of the new wins. What sectors are you seeing those in? Is there a higher CapEx component at all associated with COVID compliance?
I know you said in your release that you were in line with the slow recovery scenario, but it looks like your slow recovery scenario is more like down 50%, and you said you're now kind of below inside 40%. Given that that's what you stress tested against, does that free any cash up? If so, what might you be able to spend any money on in the shorter term?
Thank you, Richard. Again, three very full questions. Firstly, when it comes to will our rightsizing renegotiation be sufficient to get our margins back to 2019 on full recovery. Look, I see no structural impediment to us being able to restore industry-leading margins. I think the question is the period of time over which we can achieve that. As we've said repeatedly, I think there are three levers within our control and one outside. I think the three levers within our control are innovation, the extent to which we can renovate our offer, particularly within those sectors which are most impacted by digital, by remote, by delivering, by social distancing. We're working very hard on having options to address that, which will allow us to earn attractive margins at smaller volumes. The second is the ability to right-size, and you've clearly seen a start today.
We're not going to put a number on it. We think that is unwise at this point. We'd rather update you as we go. The scale of rightsizing will be dictated by the pace of volume recovery and the strength of the relative economies. Obviously there are some countries which are more expensive than others. We don't have the ability to forecast that today. We'll take the right actions, do the right things, and report as we go. The third lever is client renegotiations. At this point, in some way or another, either in the immediate short term or for the medium term, we've had positive conversations on around 50% of the contracts, which we think is a great start. Some of those conversations will need to happen again for longer periods of time ahead.
I think it shows the willingness of our partner clients to work with us on that. I think when you put those together, we are doing everything that we can within our control. What's outside our control is the pace of volume recovery, which you heard Karen talk to. If we see volumes restored to 2019 levels, there is no impediment to us recovering margins. It's the pace at which we see those volumes recover. I think it's fair to say the sector where we would anticipate there being some more likely long-term difference would be B&I, and therefore, I think it would be unwise of us to think we would see B&I recover to 2019 volumes. Our job is to be profitable on lower volumes and to win as much new business within that sector as we can.
When it comes to new wins and higher CapEx, at the moment what we're seeing largely is processes closing that started pre-COVID, and therefore it is across the piece. A number of those wins require CapEx. We're being incredibly diligent to ensure new contracts have all the right protections for the new environment. Especially obviously around volume and pricing at different volume levels to ensure any CapEx we do deploy has the returns that we've always seen associated with it in the past in the new environment. Therefore, we're working very hard on that. We're not necessarily seeing higher CapEx. We're seeing CapEx being deployed in different sectors. It's becoming a competitive advantage in healthcare, in a way that it possibly hasn't been in the past. Obviously we're less minded to investments in higher ed and Sports & Leisure right now.
We're being very judicious and will continue to be so as we go forward. Finally, when you ask about the volumes, I would say we talked about being 50% open and 44% down in the quarter. To me, that's pretty close to the 50% that we talked about in the slow recovery. It may have been slightly better in June, of course. The walk forward into quarter four remains uncertain. For now, I think we're pretty much in line with what we anticipated. We're pleased we're doing a bit better on drop-through, a bit better on margin, and a bit better on cash. Of course, that puts us in a better place. I think we're only three months into something that could be a very long journey for all of us.
I think it's important that we're very judicious and thoughtful in that regard.
Thanks very much.
Thank you. Our next question comes from Jaafar Mestari from Exane BNP Paribas.
Hi. Good morning. Thank you for taking the questions. I've got two, if that's okay. Following up on cash burn, just wanted to check that GBP 260 million outflow, and then this has been flattered by GBP 220 million of tax deferrals. In any case, around GBP 500 million underlying outflow looks pretty close to your guidance for GBP 150 million-GBP 200 million per month. Has this been fairly consistent or has cash burn reduced materially through the quarter, and in particular, when you have a significant improvement in revenue towards the very end, does that help materially? That's my first question. Second question, could you maybe just give us some color on volume trends and client behavior by end market and by client industry within B&I, in particular technology clients, financial services clients?
We've seen a few headlines of large U.S. companies planning for work from home to last until next summer. Are you being affected by any individual client decisions there? I'm thinking about Google in the U.S., for example.
Jaafar, thank you very much for those two questions. I will take the second first and then hand back to Karen for cash burn. If you look at our B&I sector. You are absolutely right. We have to look into the subsectors and the industry lines. I think the first split is between the B and the I. Business professional services, white collar, is 60% of our Business & Industry . Manufacturing is 40%. What we have seen typically is faster reopening of the industry sector and higher volumes, and I think those are for the obvious reasons that typically, people need to be on-site to produce and manufacture, and that has been our sort of consistent experience around the globe. We are seeing that below normal levels by some way.
We're also seeing the impact of the economy on a number of those clients already coming through in terms of their own restructuring plans and their own shift patterns. We are seeing lower volumes on-site, which we expect to feature for a while as well. That has certainly come back faster. Of course, a number of those clients would be out of major city centers in suburbs. There is less concern around transit to sites and more people travel by car or independently to those locations. I think for all of those reasons, we've worked very closely with our clients to establish appropriate operating protocols. I think the net positive in all of that is more people are willing to spend time together during the breaks, albeit socially distanced and safely because of that moment of social contact.
Obviously more people are staying on-site during the breaks because of concerns of a greater risk of infection outside of the sites themselves. When it comes to the B&I, the 60%, of course, many of our sites would be located in urban and city centers. There is greater concern around transit into those. They've recovered much more slowly. Clients across all sectors are being, I think, very cautious and careful about the pace at which they bring staff back, especially with regard to their obligations around health and safety for those individuals, and especially with the uncertainty that we see around further spikes more generally. We have obviously, as you quite rightly referenced, seen the likes of Google, who is a significant client of ours in North America, take the decisions they've taken, and we fully support our clients in all of the actions and decisions they take.
We're working with all of those clients to see how we can serve them to a more limited extent on-site and potentially off-site to their employee base. We fully respect those decisions but recognize that that will weigh on our volumes for longer, and hence the caution that you've heard this morning and the caution that we've injected into all of our planning, because we recognize that that is likely. We've also seen a little bit of a fistfight, if I might call it that, in a number of clients between, I think in the first few months of this, everybody thought we could all work very effectively from home, and there was an opportunity to address real estate costs and so on.
I think as the longer we go through this, I think we're also recognizing the need for creative collaboration for social working, the importance that has for training, coaching, development, and onboarding. I'm hearing more clients that are concerned about not being able to bring people back sooner or in the medium term. I think we'll see those things both at play. I think that the single most important thing right now is public health and government guidance in every country as to what's appropriate. That will be the limiting factor. As that unlocks the potential for people to work, I think we'll then start to see clients making decisions based on how effective is home working and what else do they need to offer their workforce. We're optimistic in the medium term that we'll see more volumes come back.
Clearly, in the short term, we have to be thoughtful about those factors. Karen?
Just to pick up on the question on cash burn. Jaafar, thanks for that question. You are absolutely right. We are, in fact, pretty close to our guidance here. Internally, we've been telling people not to be seduced by the timing differences. When you actually strip out the fact that we've got these significant tax deferrals, GBP 220 million of tax deferrals, and about the same number of accelerated receivables, that underlying position is pretty close to what we said it would be. I would like to say that I'm calling them timing differences, we have to work really hard to get the tax deferrals and to get the cash collected from the client receivables. The cash burn is a combination of the amount of business that is open and the drop-through rate.
Yes, we talked about the fact that both of those things were a bit better in June. Going forward, it's going to depend on the speed of the recovery of openings and participation, and our ability to keep that drop-through rate or transferring it back into margin progression in line with what we've got here in an environment where, as Dominic said earlier, we'll start to see the government support tailing off. We are going to have to think about how we manage that in terms of our rightsizing, our contract renegotiation, and other cost reduction activity. Again, just to emphasize a point that Dominic made, we do have the balance sheet resilience, and we do have the liquidity to see us through any bumps in the road that we might find or any requirements on our cash.
Thank you very much.
Thank you.
Thank you. Our next question now comes from Vicki Stern from Barclays.
Yeah, morning. A few questions just on delivery. Just an update, please, on how things are going with Feedr. Particularly, are you seeing any incremental interest from new clients in that type of offer already? Related to that, can you just help us understand a little bit, you touched on this earlier with your margin comment, just what the margins on that delivery model could look like? Just how material can that be for you? Is that going to remain niche, or do you actually see that being a core part of the future business, at least for B&I? Thanks.
Thank you. Thank you, Vicki. We're actually tackling delivery through a number of different business models in a number of different countries. We're obviously doing it through the Feedr acquisition in the U.K. We're going through a small acquisition in Asia-Pac, and we're also doing it through partnership in a number of other countries. We do think it's important. Why do we think it's important? A couple of reasons. On the one hand, it gives us access to a new business segment in SMEs, where it would be 50 to 100 meals per day, and the scale of enterprise where it wouldn't typically be able to afford on-site catering services.
It means that we can use the technology either to produce in our own kitchens and deliver in, or to partner with other high street restaurants, where they would produce and then we would provide the delivery in to those clients. Separately, whilst we're in an environment of lower volumes, it may be uneconomic for us to operate the kitchens. Therefore, it's an economic and thoughtful way of us being able to provide great food options into larger clients whilst their volumes are lower. It's also proving to be very important in the short term for us. We think that over time, it will become one of the catering options for our large clients.
You'll have potentially desk drop and attended vending, you'll have a restaurant or canteen that you can visit, and then you can also order through a delivery app, and potentially at scale across a number of the employees at a given site. We think it's got a lot of potential. You asked how material it's going to be and will it become core? I can see that it will become a core subsector within B&I, and will be a service offering, but I think it will be one of many. If you look at what we've already achieved in the U.S., we have our Canteen vending, we have our unattended vending solutions. We've now got the Foodworks, which is effectively a delivered-in solution. I think it becomes one of a number of ways of reaching and meeting our consumer needs.
When it comes to margin, look, with everything, we have the expectation that if we're going to enter into something, it will achieve at least our average unit margin, and we have no reason to believe that we can't achieve that over time with our delivery offers.
Thank you. Just to follow up on that. Obviously, arguably a competitive space in terms of delivery, just sort of the relative strength of Compass entering that is the relationships you've already got with the businesses, just to understand sort of the barrier to entry.
I think there's a few reasons here. We have the captive client base and effectively we can reach them through apps, either for a bespoke service or across a number of services. I think that's the first opportunity. The second is we already have, I think they're called dark kitchens, but we already have significant independent kitchens globally. I think we've got 20 in North America, 40 or so in Europe, and another 20 across Asia-Pac, at which we can produce. Typically, they're being used for scale production into sectors like healthcare and education. There's no reason they can't be used for batch production of high-quality meal offerings.
I think we have the assets, and I think we're also figuring out that in the new world post-COVID, the assets that we share with our clients can be more fully used and utilized when they're not being utilized with our clients. I think those are both competitive advantages. I think we're figuring out how to bring the tech in through acquisitions and through self-development. I think the one piece that we'll have to figure out is the delivery and logistics. If you think about something like our scale and footprint of the Canteen operations in the U.S., I think we already have a competitive advantage there, too. I think there's a number of reasons why we should be well-placed to make this a success within the B2B2C environment, as it were, of the workplace.
Very helpful. Thanks.
Thank you. Our next question now comes from James Ainley from Citi.
Yeah. Morning, everybody. Thanks for taking my questions. Most have already been answered. I wonder if you could give us maybe a bit of color around the education segment in the way that you did for B&I. I guess particularly thinking schools seem more likely to be mandated to go back. What are colleges telling you about their plans to return in the autumn? Second question, I think you said earlier that you'd had positive conversations with around 50% of your clients about recovering the kind of costs, the higher costs of the current environment. Is that because you've only spoken to 50% or is that because the others were not positive? If you can just clarify that, it'd be helpful. Thanks.
I'm sure. Thanks, James Ainley. Yeah, just on the education color, it's a little bit like B&I and like Sports & Leisure, isn't it? There is huge uncertainty on what we're going to see in the coming months. It is different by sub-sector. Again, I think you have to remember our business is split about 60% higher ed, 40% lower ed, and in the U.S., that's about 80/20. I think we're finding that higher ed, so universities, are more cautious about bringing student groups back to campus. So we've seen, certainly in our conversations with clients and in their planning, a greater reliance on remote learning, particularly for large-scale group lectures. We understand the tutorials and experiments and all that good stuff in smaller groups will still take place physically, and a lot of institutions are planning for groups to remain within bubbles.
I have to believe in the short term, that will mean lower volumes on campus for us. That is absolutely our planning assumption, is one of the things that featured in our slower recovery case. When it comes to lower ed, I think it's going to be very much about the positions taken by independent governments and public health authorities, and we will obviously respond to that. We are ready, willing, and able to operate on all sides and can do so profitably. We need to see the volumes come back. I think the single biggest concern there will be, what happens if we see spikes in the virus within local communities, which results in closure at short notice of those school systems.
I think that's a little bit where the jury's at, and as we've seen with the quarantine guidance with Spain just these last few days, it is very dynamic, isn't it? I think the positive there is the sorts of conversations we're seeing about lunchtime meals for all students being free in the U.K. and that potential in other countries as well. I think there may be positives come out of this crisis as well. Finally, we often talk about independent schools, and I guess one of my thoughts coming into this, that we were likely to see lower volume in independents because of potential recessionary pressures on spend. I think what we're actually seeing is potential for oversubscription due to parental concern about digital services. That is a sector that, it should return, we would be hopefully positive in.
When it comes to the conversations, you frame the skeptical conversation. We were pleased with the 50%, largely because it's about how many of our clients are open and operating to allow us to have conversations about the reality. If you think about it, none of our Sports & Leisure clients are open, so there's no conversations happening there at all. Inevitably, there are some that will be more difficult, and that's because they're going through their own uncertainties and difficulties, and we will have to work through the consequences of those over time. This is always going to be a balance between contract negotiation and cost recovery and reduction of cost.
Yeah. Okay. Thank you very much.
Thank you. We have a question now from André Juillard from Deutsche Bank. André Juillard, your line is open if you wish to go ahead with your question.
Hello, do you hear me?
Please go ahead.
Hello, André.
We hear you.
Okay. Sorry. Thank you very much for taking my question. Part of them have already been answered, but I wanted to come back on what you are mentioning in your press release about the new outsourcing opportunities which are coming on the market. What are you seeing exactly? Is it self-managed business which is coming on the market for externalization? Are you seeing some regional players being under difficulties and contracts coming on the market? Could you simply give us a little bit more color about what is happening? Connecting to that, the balance sheet is impressively safe at the moment, with GBP 5 billion available. What are you planning to do with that? Is it a simple security? Are you considering some potential M&A in the midterm and some potential return to shareholders? Thank you.
André, thank you. Thank you very much for the question. When we talk about first-time outsourcing and seeing positive trend, and a number of inward inquiries, that absolutely is in self-op. As we said, probably the biggest area of that at the moment is healthcare and aged care in North America, but also in a number of our major markets. When it comes to share, I think we've always talked about seeing an opportunity for share. I think sadly for the industry, there are a number of smaller and medium-sized players who are sector-specific, where their level of revenue closure, if they don't have the sector exposure that we have to the likes of healthcare, DOR, et cetera, has left them very vulnerable. We've certainly seen a number of smaller players not choosing to compete in bids.
Some not being able to open contracts that have been won, and therefore we've been able to step in. I think that again goes to the flight to trust or safety as it were. I expect to see that being a potential feature as we look forward. When it comes to the balance sheet, look, our number one priority is resilience through whatever this virus throws at us over the next 12 months. Our number two priority is restoring our margin and doing absolutely everything we can to restore industry-leading margins as quickly as we can. Look, we always said after that, once we've navigated those waters, this would then be about investing in the business for the future because we believe those opportunities will be there, either through first-time outsourcing or through potentially troubled competitors. I think that is some way off.
Right now, my focus and the focus of this business is sequential improvement in operating margin quarter after quarter after quarter.
Okay. Thank you.
Thank you. Our next question now comes from Leo Carrington from Credit Suisse.
Good morning. Thank you. Two questions. The first would be just to maybe follow up on André's. More broadly on potential new contract development for larger contracts coming up for a re-tender, do you expect a pause in activity or possibly even extensions of some contracts? If so, would this be a net slowdown in new contract wins for the next 12 months or so? Secondly, the trends in the GPO, say, the U.S. GPO, what has been the sort of numbers around third-party purchasing? Has this been any more resilient in your business or maybe worse given the focus on broader hospitality? If you have any outlook in terms of the recovery there and any impact on the North American margin too.
Just taking the second one first. Our third-party book of clients where we operate GPOs typically reflects our own sectorization. We clearly have significant third-party business through healthcare, in education, as well as in pure hospitality, as it were. Our third-party book is probably slightly more exposed to lockdown in our business, but not hugely so. Just when it comes to your question on to the retention new contracts. Look, in part, you're right, we will inevitably see some processes either put on hold or extensions put in place. That will benefit us from a retention. We still see a lot of new business coming to market for the reasons that we understand quality of process, quality of service, and the stress on our competitors. We believe at this point we're winning on retention, and we should still see attractive new business.
Some of that new business may be a bit slower in opening and will obviously open at lower volumes. In GBP, millions terms, it may look less, but in numbers of contracts, we believe it will be a net positive for us.
Thank you very much. Helpful.
Thank you. As we have no further questions, I'd like to turn the conference back over to your presenters today for any additional or closing remarks.
I'd just like to say thank you all very much for your questions this morning, and thank you for dialing in. To the extent that any of you are taking holidays, I very much hope you enjoy them and get some rest over the coming months, and we look forward to updating you again at the end of September.
Thank you. This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.