Sodexo S.A. (OTCPK:SDXOF) Q3 2020 Earnings Conference Call October 29, 2020 4:00 AM ET

Company Participants

Denis Machuel – CEO

Marc Rolland – CFO

Virginia Jeanson – Head of IR

Conference Call Participants

Andre Juillard – Deutsche Bank AG

Jaafar Mestari – Exane BNP Paribas

James Robert Garforth Ainley – Citigroup Inc.

Jamie David William Rollo – Morgan Stanley

Jarrod Castle – UBS Investment Bank

Leo Carrington – Crédit Suisse AG

Richard J. Clarke – Sanford C. Bernstein & Co. LLC

Sabrina Blanc – Societe Generale

Victoria Jane Lee Stern – Barclays Bank PLC


Good morning. Thank you for standing by, and welcome to the Sodexo Fiscal Full Year 2020 Results Conference Call. [Operator Instructions] I advise you that this conference is being recorded today, Thursday October 29, 2020. At this time I would now like to hand the conference over to the Sodexo team. Please go ahead.

Virginia Jeanson

Thank you very much. Good morning, everyone. Welcome to our fiscal year 2020 results call. On the call today are CEO Denis Machuel; and CFO Marc Rolland. As usual, if you haven’t already done so, the slide and press releases are available at And you’ll be able to access this call on our website for the next 12 months.

The call is being recorded and my not be reproduced or transmitted without our concept. Please get back to the IR team if you have any further questions after the call. I remind you that we have our Investor Day on Monday and our first quarter announcement will be on January 8, 2021. I now turn you over to Denis.

Denis Machuel

Thank you, Virginia, and good morning to all of you. Thanks for being with us this morning. I hope first that you’re all safe and well. The first thing that I want to say today is that our fiscal ’20 numbers are better than our recent hypothesis.

The proof that our business model is resilient on the top line, on the underlying operating profit and also in terms of the cash generation, even through the worst crisis that the group has ever seen. If you go to Slide 4 and look at the second half. The organic revenue decline was 27.5%, which is better than the minus 28% predicted.

The flow-through to UOP was at 21.2% at constant rates versus the range of 20% to 23% that we had given you. And the free cash flow pre-USPP make-whole was positive EUR 465 million. And this allowed us to be cash flow positive this year even after the make-whole. I think it’s a remarkable performance given the circumstances. If we now turn to Slide 5 for the detail in revenues.

The Q4 organic decline came out better in all segments and activities than the Q3 trend, which was minus 36%. And our Q4 hypothesis at minus 27%. The Q3 trend shows the underlying trend for 3 full quarters of COVID crisis, given that the first weeks of March were normal. We definitely saw signs of an improvement in Europe in Corporate Services and Schools, and Asia Pac was growing in most segments.

On the other hand, the recovery in North America remained very slow. So, for the year, the organic revenue decline was 12%, split minus 12.1% in on-site services and minus 7.8% in BRS. Given this revenue decline at constant rate, the group and the on-site margins were down 240 basis points to 2.9% and 2.6%, respectively.

The BRS margin was down 300 basis points to 26.2%. If we look now at our growth indicators, the good news is that client retention is up 20 basis points at 93.5%. I highlight the fact that quite a few sites have closed down definitively in some markets due to the crisis, and these are counted as lost business.

This year, also because of the crisis, when clients were not prepared to negotiate, we took more drastic measures to eliminate our underperforming contracts. So, excluding voluntary exits, retention would have been 94.4%. Comparable unit growth at minus 11.9% is the direct result of confinement, lockdown and partial unemployment at existing sites.

And despite some solid cross-selling during the year, before and during the crisis, development was very slow at only 4.9%. If we look at retention and development, just to give you a bit of color on these figures, the good news is that North America retention was up 230 basis points, and particularly in Healthcare & Education, which is really good news.

Gross profit retention was better than revenue retention at 95.7%, principally due to the voluntary exits. On the development front, pro forma gross margins on our signings were up 50 basis points. And an interesting point is that cross-selling in Corporate Services was 2% for the year, helped in the second half by the extra disinfection and clinic services, amongst others.

Now on Slide 9, I’d like to share with you an example of an integrated facility management contract with one of the largest pharmaceutical leaders in the world. We successfully extended our relationship this year from a regional contract to a global one. Sodexo has been a service partner for this client in Europe, the Middle East and Africa for the past 10 years.

And during fiscal ’20, Sodexo was awarded a 5-year contract to deliver 78 services, including food, hard and soft FM services in more than 60 countries in 5 continents, at more than 100 sites from corporate services to R&D sites and manufacturing plants. We made the difference. Thanks to our long-standing relationship as well as our expertise in delivering global IFM solutions for the life sciences sector.

Our strong proposal on sustainability, diversity and inclusion and well-being was a key differentiator. With our clients, we are working together to nurture a workplace environment that contributes to sustainability and economic inclusion by improving environmental performance in facilities, by developing awareness and engagement of the teams and consumers and by promoting employee and supplier diversity and inclusion.

And this is how we are concretely acting to help our clients enhance their workplace experience and the well-being of their employees and at the same time, preserve the planet. So, on Slide 10, you can see that in this crisis, we kept a very close eye on our balance sheet. We reduced our CapEx in H2 by half related to the first half run rate.

We paused our acquisitions helped by the fact that the first half had been spent integrating the previous year acquisitions. So, net M&A spend was only EUR 18 million. And as a consequence, there is a limited 0.7% contribution to revenues from changes in scope. We generated EUR 465 million of free cash flow pre the USPP make-whole in the second half.

Our net debt fell between February and August by nearly EUR 300 million, and our liquidity by year-end was very strong at EUR 5.1 billion. Now I hand you over to Marc to go into the detail. Marc?

Marc Rolland

Thank you, Denis, and good morning, everyone. I am very pleased to be here with you this morning. As usual, you will find the alternative performance measures definition in the appendices, along with some information to help you with your modeling. Now let’s start with the focus on the flow-through performance in H2 2020 on Slide 12.

As Denis has already pointed out, our UOP flow-through at constant rate was 21.2%, in the range of our hypothesis of between 20% and 23%. When taking into account the currency impact on revenues and underlying operating profit, the UOP flow-through that you can calculate through our — with our numbers was actually even slightly better at 20.4%.

Let’s now have a look at the P&L performance for full year 2020, clearly impacted significantly by the sanitary crisis. Revenue growth was minus 12% and total revenue amounted to EUR 19.3 billion. Given the loss in the second half, underlying operating profit was EUR 569 million and was down minus 52.6%.

The underlying operating profit margin was at 2.9%, down 260 bps or 240 bps, excluding the currency mix effect. As we indicated in our trading statement back in September, our restructuring costs and impairments can be seen in the step-up of other operating income and expenses.

I should come back to this with the next slide. Financial expenses increased by EUR 191 million. I remind you that this includes a make-whole payment of EUR 150 million and the IFRS 16 effect for EUR 25 million, which was not there last year. This was also, and to a lesser extent, impacted by a decline in interest income due to lower interest rates on deposits and the interest cost of the new bonds raised in April and July.

With the reimbursement of the USPP and the new bond, average gross debt cost at year-end was 1.6% against 2.6% last year. The tax charge came out at EUR 98 million on a pretax loss of about EUR 230 million. In fiscal 2020, we decided not to recognize about EUR 122 million of tax assets related mainly to the pretax losses in France, where we capped recognition of deferred tax assets to the amount in deferred tax liabilities.

Excluding this one-off impact, the underlying effective tax rate will have been 30.8% against 29% in the previous year. As a result, the net loss for the year was minus EUR 315 million, and EPS of minus EUR 2.16. When you strip out all the exceptional elements, OIE, make-whole and taxes, the underlying net profit was a positive EUR 306 million and EPS a positive EUR 2.1.

Now I would like to come back on the other income and expenses. The vast majority of the OIE were accounted for in H2. As you can see and in line with our September trading update, the biggest ticket items were: first, the restructuring costs were EUR 191 million, of which EUR 158 million in H2. We decided to be proactive and to adjust our on-site labor cost base and anticipate the expected end of the furlough programs.

We are also working on the reduction of our SG&A and have executed part of the plan — a part of the plan on this in H2. Of the EUR 158 million in H2, the split was 60% on site, 40% offsite or SG&A. And approximately 50% of this EUR 158 million have already been cashed out in fiscal year ’20. Then the impairments of assets, intangibles and goodwill in the second half amounted to EUR 249 million, with about half of them in the Sports & Leisure segment.

As a result, overall, the OIE were EUR 503 million, up EUR 362 million versus the prior year. Just want to make sure that everyone understood how we go from the reported net profit to the underlying net profit. So, from the minus EUR 315 million of net profit, you add back the OIE and the make-whole in financial expenses, you adjust for the tax impact of those 2 items, EUR 454 million and then you factor in the impact of the nonrecognition of deferred tax assets, and you get to EUR 306 million.

Let’s now have a look at the evolution of our cash. As you remember, free cash flow was minus EUR 243 million. Then Q3 was minus EUR 309 million, but with very different results month per month. After a very difficult month of March, where all our over-the-counter cash sales suddenly stopped while we continue to pay suppliers, we got back to positive inflows in April and then in May.

Then we had an excellent Q4 at EUR 624 million, each month contributing positively. To get there, we worked hard on client collections and strictly controlled our clients’ past dues. Payables outflows became mechanically lower as we were buying much less. We got some payment delays from government support programs for about EUR 200 million, and BRS did well too in H2.

As a result, our free cash flow was positive for the full year at EUR 72 million. And what is really good, as you can see on the right side of the slide is that both our BRS and on-site activities have to be have proven to be cash resilient in H2. In on-site, even if you strip out the government support delayed payment, the free cash flow was positive in H2. This slide has far too many figures.

What I really wanted to show you was, first, the IFRS 16 line is the adjustment for what now comes through positively in the operating cash flow, but it has no impact on our free cash flow. You will note the positive variance of the working cap year-on-year, showing the resilience of our cash model. It’s EUR 55 million. Then you will see that CapEx was severely reduced in H2 by more than 50% compared to H1.

However, we did maintain IT, BRS and digital investments. As a result, full year net CapEx was down a little bit and represents now 2.2% of revenue versus 1.9% last year. The increase in dividend payments reflects the 5.5% increase in the dividend per share for fiscal ’19. I remind you that this was paid on the 2nd of February before the global pandemic emerged.

A few important elements on the balance sheet. Net debt increased by EUR 655 million to EUR 1.868 billion. Our net debt-to-EBITDA ratio is slightly above our target range of 1 to 2 at 2.1. Our gearing ratio also increased to 67% and due to the net debt increase, but also due to the reduction in shareholders’ equity. The single biggest impact on shareholders’ equity came from currency variation and especially the weakness of the dollar and the reais, particularly in the second half.

Then, of course, there was the impact from the reported loss for the year, the revaluation of financial assets under IFRS 9, the first-time adoption of IFRIC 23 book to equity and obviously, the dividend from fiscal year ’19. At the end of fiscal ’20, the group had a cash position of EUR 3.1 billion, of which EUR 2.1 billion is related to the BRS activity, including restricted cash for EUR 770 million and financial assets for EUR 333 million.

I would just like to highlight the strong liquidity at the end of the worst year the group has ever been through. At the end of the first half, we had liquidity of EUR 4.4 billion. During the first month of the crisis, the commercial paper market dried up. So, we stopped using — issuing any, accounting for a reduction in liquidity of EUR 725 million.

As soon as we came out of close period in April, we issued a bond for EUR 1.5 billion. We also increased our unused credit facility by EUR 250 million and having decided to reimburse the USPP for EUR 1.4 billion, which happened in Q4, we issued another EUR 1 billion bond in July. H2 free cash flow was positive, as described earlier.

And finally, we suffered negative currency effects on the reais and U.S. dollar for the main ones for EUR 244 million. As a result, we ended the year with EUR 5.1 billion enough to get us going for a while. Let’s now turn to the review of operations. I will focus my comments on H2 rather than the full year. You have all the full year numbers in the press release and the appendices.

The second half was impacted significantly by the COVID-19 pandemic from the middle of March. H2 revenue was EUR 7.6 billion, down 30.1%. There was a 3% negative currency effect, predominantly linked to the reais and the 0.4% positive contribution from acquisition, net of disposals. As a result, organic growth is negative at minus 27.5%.

On-site Services was down 27.8% and Benefits & Rewards was down 18.8%. So, let’s look first at the On-site business. In the second half, also the food services were impacted significantly down 42.2%. There were pockets of resilience. FM was down only 1.4%. Global accounts, which are predominantly FM accounts and also more weighted to blue collars were flat. E&R and G&A together were positive, up 1.3%. APAC, LatAm and EMEA regions were only down 5.2% altogether while Europe and NORAM were the most severely impacted regions with minus EUR 28.4 million and minus 35.9%, respectively.

Even the 26% decline in Corporate Services shown earlier on Slide 5, was reasonably resilient because we have a 50-50 white-collar blue-collar split and about 1/3 of those contracts were cost plus contracts going into the crisis. This, unfortunately, didn’t stop the business from being very badly impacted.

In H2, B&A organic growth was down 29.2% with a negative margin of 3.3% for the semester. Healthcare & Seniors were clearly less impacted with revenue down 11.1%. The margin was reasonably solid at 5.8% on only 100 bps. Education revenue was down a lot more significantly at minus 47.2% and similarly across all the regions. The margin was hit a lot more significantly than the other key segments and was a negative at minus 14.9%.

However, I remind you that H2 margins in education are usually just about breakeven due to the seasonality of the revenue stream. As a result, the H2 On-site underlying operating margin was negative at minus 1.9%. Now if we go into the segment, starting with Business & Administration. Corporate Services saw a very severe decline in food revenue, but this was somewhat offset by the factor of resilience that I mentioned previously. In North America and in Europe, office workers mostly remained at home with some early signs of recovery in Europe during the summer.

In Sports & Leisure, there was a sharp decline due to the complete closure of stadiums, convention centers and medium from March. French tourists was very low in the summer. As already said, E&R and Government & Agencies remained open throughout the second half and was particularly boosted by extra COVID-related activities, in particular in the mining sector, which remained open throughout the crisis due to very strict sanitary measures implemented.

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On the revenue, I would like to highlight the performance of APAC, LatAm and EMEA with only a minus 3.4% organic degrowth. The margin was negative and down 760 bps due to the 29.2% decline in revenues, reflecting a flow-through of 22.6%.

This reflects the writing up of excess food stock at the outset of the crisis, some necessary delays to adapt the workforce to the volumes, the remaining cost of the furlough schemes, extra costs in relation to new protocol and personal protective equipment, depreciation charges continuing and the time required to negotiate terms with clients.

Moving on to health care. Organic growth was minus 11.1%. COVID-19 impacted severely the retail activities in hospitals. The sharp reduction in elective surgery also impacted patient dining activities, but there were several opportunities for enhanced protocol and more staff provision.

With an organic decline of 14.6% in North America, a significant part of the growth is coming from the impact of the contract losses and exit and some negative same-store sales due to COVID-19 impact. In Europe, the situation was better due to a large contract with the government in the U.K., the rapid testing centers. The seniors’ activity was stable in North America, in Europe, where it’s been more difficult, we have seen some improvement in July and August.

Operating margin was down 100 bps impacted by the lower retail sales during the crisis, higher personnel and protective equipment costs, but partially mitigated by extra new services and the exit impacts, which are relative on the margin. Education organic growth was minus 47.2% with similar reductions across all regions.

Universities in North America were severely impacted. There were some very active negotiations that took place to cover our costs through minimum charges and cost plus arrangements. Concessions and construction suffered greatly, but FM services were a lot more resilient. Schools, overall, were more resilient than universities due to a higher share of FM services and because of the multiple millions of meals prepared for local authorities to provide meals to families despite the school closures.

The second half margin is traditionally very low due to the seasonality of the revenue flow. The education margin was minus 14.3% versus breakeven in the previous year due to the very significant decline in revenue and the time necessary to adjust the on-site labor force to the new volumes.

Now let’s move on to Benefits & Rewards performance in H2 and the levers of resilience that we talked about in Q3. Employee benefit issue volumes were down 8.4% in the second half. But there was a step improvement in Q4 from minus 12% in Q3 to only minus 4% in Q4. And as you can see, Latin America has been more resilient than Europe and Asia.

But what is exciting is that we have seen a 12-point increase in the digitalization of our activities. And the increase is in all the countries where the paper was still operational, even in France. As a result, our rate of digitalization has now reached 86%. We have also seen a massive increase in food delivery, thanks to the 70 partnerships we have with food delivery companies.

We have simplified the presentation. So overall, at the bottom of the slide, you can see that BRS H2 revenues were down 18.8% with underlying operating margin of 20.8%, down 800 basis points. So, on the organic growth. By service, employee benefits were down 17.5% on issue volume, down 8.4%.

The discrepancy between the revenue and issue volume performance is due to the delay in merchant revenues, which were impacted by confinement and restaurant closures. We note that the competitive situation in Brazil continues to be difficult and interest rates, very low. Services diversification was down 23.5% with a very severe decline in travel, interrupting the very rapid development of our Rydoo mobility and expense activity.

By region, revenues were down 18% in Europe, where the trend improved significantly in Q4 as restaurants reopen. In LatAm, the decline was 19.9% due to the competitive environment and falling interest rates in Brazil. Issue volumes were much more resilient in LatAm than only 6.9%, as you saw on the previous slide.

On the far right table, you can see the impact of the financial revenue, down 25.2%, significantly impacted by the drop of — in interest rates and particularly of the Brazilian Selic currently down to 2% versus 5% a year ago. In spite of significant efforts on the cost line, the sharp decline in revenue could not be compensated by the decline in costs. In the variable revenue and fixed cost business, the flow-through is usually severe.

And here, it was a reasonable 62%. As a result, the underlying operating margin was down 800 bps to 20.8%. We have maintained during the crisis, the necessary investment in CapEx to continue the transformation, and the overall CapEx to revenue ratio for BRS increased from 6.5% to 9.1% this year. Thank you for your attention. I now hand you back to Denis for the outlook.

Denis Machuel

Thank you, Mark. Before going to the outlook, I’m sure you noticed that in our announcement that to protect the balance sheet, given the severity of the COVID-19 downturn in our activity. Given the uncertainty as to the timing of recovery and also in solidarity with our teams, the Board has decided not to propose a dividend for fiscal year ’20, even if the underlying net profit was positive.

Now let me go through our hypothesis for our first half of fiscal ’21. As you all know, the level of uncertainty as to the extent of the second wave, which we are currently experiencing and the timing of a vaccination remains high. What is clear is that the effect of the covenant in pandemic will continue to be significant for the group in the next few quarters.

The Government & Agencies and the Energies and Resources segments will continue to be resilient. Healthcare & Seniors are progressively returning to pre-corporate level. But clearly, some segments such as Sports & Leisure will not recover until the pandemic is over. Others such as Corporate Services and Education, we’ll see activity improving progressively.

Benefits & Rewards employee benefits issue volumes will return progressively to growth as digitization and penetration continue to progress, strengthened by working-from-home trend. This progression may be impacted by the rising level of unemployment if we go into economic recession. On the revenue side, the progression in Benefits & Rewards is linked to reimbursement patterns and impacted negatively by extremely low interest rates.

So, we see the first half of fiscal ’21 organic revenue growth in a range of minus 20% to minus 25%. The slow ramp-up in Sports & Leisure that we experienced from July to September, mostly in France, has almost completely stopped. Education is trending well in Europe, but remains volatile in the U.S. with activities varying a lot from 1 week to another.

Corporate Services was on an encouraging trend from July to September in Europe, but there are several signs that it will be more difficult in the next few months. North America remains very impacted in food services with very slow improvement. Energy & Resources, Government & Agencies, Healthcare & Seniors are progressively stabilizing and bring us resilience.

Of course, until activity levels return to more normal levels. We are using all available furlough programs. We have announced restructuring measures in several countries recently, and we will to continue to take measures to protect margins going forward as government support fades away in several countries. We are working on our next stage restructuring, which will be across the board in all segments and activities to reduce SG&A.

Given the cost reduction already implemented in fiscal ’20, Our hypothesis for the first half of fiscal ’21 group underlying operating margin is between 2% and 2.5%. On free cash flow, we expect recurring free cash flow for the first half to be around EUR 200 million.

However, we have several nonrecurrent elements, such as the cashing out of restructuring costs, the reversal of government support payments and the reimbursement of the 2020 Olympic Games, hospitality packages amounting to a total of EUR 250 million. Other results, free cash flow in the first half will be around EUR 350 million.

Now in terms of midterm guidance. Looking further out on the basis that the pandemic will be over 2021 by calendar year-end, the group aims to return to sustained growth and to rapidly increase the underlying operating margin back to pre-COVID level. As you know, we’ve planned an Investor Day this coming Monday. To proceed with this Investor Day or not as we go into lockdown in France and the day before an unpredictable U.S. election is a tough call to make.

My team and I have talked long and hard and ask ourselves lots of questions before deciding to maintain this Investor Day. In the end, we decided to be proactive and forward-looking, we are all acutely aware of the noise, the worries and distractions around each of us. And therefore, that our audiences might not want to listen.

At the same time, however, we also felt that it was important to protect this opportunity to update you on what we’ve been doing as it is key to understanding our direction during these challenging times. Doing the event virtually rather than physically for once, had the advantage that it will be available to all key stakeholders to listen later and whenever they are ready.

I can assure you that we’ll be observing the strictest social distancing and hygiene guidelines to ensure absolute safety for our teams of presenters and for the studio team just as we do for our clients and our consumers every day. I do hope that you will choose to be with us on Monday as your presence will mean a great deal to us.

Thanks again for being with us today, and let’s open up the floor to your questions. So operator, you can start the Q&A session.

Question-and-Answer Session


[Operator Instructions] So, our first question is coming from the line of Jamie Rollo from Morgan Stanley.

Jamie Rollo

Three questions, please. First, just on the guidance. It’s quite brave to give guidance. I just want to push you on the confidence in that 20% to 25% decline because the statement says the company saw a significantly improving trend going into September.

So, if you can give us maybe the August and September figures that would be quite helpful, and also talk about what your assumption is for the impact of the lockdowns in Europe in that period? Secondly. On the again, on the guidance, on the margin guidance this time on the first half, if my math is right, that implies the flow-through will improve again to below 20%.

So, is that being driven by the restructuring savings? Or is that some of the contract conversions to cost-plus or something else? And then finally, thinking perhaps slightly more longer term. You talked about 1 big pharma contract win, and you talked a bit about cross-selling hygiene services.

But can you give us a flavor of any other signs of more outsourcing or more contract wins that gives you some confidence, please?

Denis Machuel

Jamie. Answering your first question, yes, we — I think we’re pretty confident in this 20% to 25% guidance. We had a reasonably solid, if I could say, September, given the circumstances, which has confirmed that we expect that 20 % to 25% guidance. Definitely, we see lockdowns coming up in Europe.

There was an announcement in France by Present Macron. Our hypothesis have been updated mid-October. So, we are saying we’ve given a relatively wide range to take into account a flow of both positive and negative information as they come.

At this moment, we believe that particularly what was announced in France yesterday is within higher hypothesis. So, of course, we’re still navigating uncertainty. But I’d say we are relatively confident in this broad range of minus 22% to 25%. On the margin, Marc.

Marc Rolland

Yes, we are not looking at it. As we were looking at it in H2 — in H2, we were looking at the flow-through because we were coming from a pre-COVID situation to a post-COVID situation and we were adapting.

Today, I mean, we are really tracking the business side-by-side at gross margin level and seeing how we can improve gross margin from Q4 to Q1, Q1 to Q2. And so this is how we drive the business. To improve margin, and we’ve seen margin improvement already as the months were progressing.

To improve margins, the biggest ticket item is to adjust the labor cost. And so this was really what was improving the flow-through from Q3 to Q4. And so adapting the labor force to the volume. Hence why we are taking the furlough programs, but we also launched into restructuring program, and quite a bit of it at gross profit level because we have to reduce our labor cost. The food cost is under control.

I mean this is not an issue. And then the third part is renegotiation with clients And so during, for instance, in education, we have undergone a lot of negotiation with universities in schools as to how we will invoice them for the reopening, and trying to move them to a cost-plus scenario because during turmoil, it’s actually better to be in cost per scenario.

The fact is that we are renegotiating the contract almost every 3 months because in March, April, we were negotiating the downturn. Now we were renegotiating the reopening. And soon enough, we’ll be renegotiating the new normal, so to speak, or and so forth. But this is how we are. We are tracking margins, and we are confident in our gross margin projection.

Denis Machuel

And as far as our pipeline in a way, the way it looks like, I must say that, yes, we are happy with this big contract win. We are happy with the rate of cross-selling, we’re happy to a certain extent, given the situation we are in. But we have, in our pipeline, a good chunk of first-time outsourcing clients thinking about whether they should outsource.

So, that’s pretty encouraging. How much of this will be translated? It’s still unknown. Sometimes first time outsourcing takes more time to deliver because clients are asking questions, and it’s not like switching from or rebidding on the existing scope.

But I must say that we will see, as months come, but I think we feel that the complexity of the situation and the difficulty to handle properly both Food Services and also Cleaning and Disinfection services, which are complex services to operate in a COV19 world are pushing clients to talk to us.

The rise with Sodexo campaign has got a lot of good reactions with clients and prospects. So, I think more to come on this one, but I’m pretty positive on this trend.

Jamie Rollo

And sorry, just to go back to the first question. Can we push you a bit more just on someone else to give us — are you able to give us either the August or the September months just to see what the cadence was like in the period?

Denis Machuel

Jamie, we don’t communicate on the month. And plus, I think September was a bit I would say, a bit reassuring. However, there are cutoffs, et cetera. So, we’ve got to be careful. I’d say, yes, September was in this very difficult moment. September was a bit reassuring.

Marc Rolland

Encouraging. But there was one extra day of work in France, for instance, in September, so but September was encouraging.


The next question is from the line of Vicki Stern from Barclays.

Victoria Stern

Coming back on the medium-term margin comments. So, I think you sort of described that you believe you can get margins ultimately back to where they were pre-COVID. Just curious where that confidence comes from. What does that assume in terms of volumes recovering? Do you assume that volumes can fully get back to where they were before in light of work-from-home, et cetera?

And I think you mentioned already there that contract renegotiations are happening very much stage by stage. So, how much comfort are you getting really on those contract renegotiations today about long term where those positions can land?

And coming back then on the sort of longer-term thoughts on work-from-home and delivery, your sort of best view at this stage on where volumes will land in light of those 2 trends and in terms of a post-COVID world I’m talking?

And then just finally on the competitors’ dynamic, I think 1 view around sort of how this will all play out is it clearly is going to be quite tough for a lot of the smaller competitors out there. Just curious what you’re seeing from that perspective.

Denis Machuel

Yes. Vicki. First, in terms of you talk about margins and volumes, it’s true. It’s there’s a mix of 2 things. Volumes are very hard to or in revenue are very hard to predict at this stage. It is a lot of uncertainty out there, and there are lots of moving parts. The volumes in Sports & Leisure I think will be hard to recover before we have a vaccination.

There’s a lot of uncertainty around what happens in universities in North America moving forward. And to your third point, this — the working from home trend that impacts corporate services, which also represents an opportunity for us is, of course, full of the moving parts.

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So, the volumes are, of course, uncertainty, but the efforts that we do in our margins, and Marc mentioned that the restructuring that we do and the strength that we put the effort that we put on our gross margins, and I can tell you, all our teams are all hands on deck, on the gross margin, make us confident that moving forward, we can get back to a pre-COVID margin, get back over this as we exit the sanitary crisis.

So, I think we’re doing lots of efforts both on the gross margin side and on the cost side to be confident that we can recover those margins with an uncertainty of the volumes.

Marc Rolland

On the negotiation, we clearly start, it’s very early to renegotiate. I was giving the examples of the there were renegotiation in universities, but we have also for intense negotiation in Corporate Services in France, where we have a big white car business in France. And so it’s been tough negotiations, especially at the beginning.

I think where months were progressing by June, July, I think most of the renegotiations were done. So, we had the contract to reopen. So, now we are actually living with those contracts, we renegotiated. It is actually possible that when 2021 start in university, we may have to continue negotiations for the reopening after the winter break and the beginning of in spring and so forth.

But negotiations are, in most cases, and I will say, 75% to 80% of the contracts have been renegotiated. Some have been exited. And somewhere, we are good at the out — at the start because they were cost plus, so we continue with this. Now we are confident in our ability to negotiate and to renegotiate ongoing because this is not the end.

I think every 3 or 4 months, you need to sit down again with your clients and renegotiate the terms for the quarters to come.

Denis Machuel

Yes. And on the your question, Vicki, regarding delivery and working-for-home long-term impact estimates, I think we’ll have a dedicated moment on our Investor Day on Monday on this. So, I want to expand, but I believe, and we all believe that this also represents an opportunity, the shape of our revenue with Corporate Services will change.

But the opportunity to capture market share, the opportunity to capture a share of wallet for in our consumers are appealing. And I think there is a — Sodexo has also a unique positioning on this with our Benefits & Rewards activity plus the on-site and the convergence of both. So, more to say on this on Monday in our Investor Day. Regarding competitive environment.

Yes, of course, smaller players suffer as we do, sometimes, of course, more. The resilience that we have, thanks to our portfolio of countries, of services and segments is quite unique in activities is unique. So yes, some of them are in difficulty. And — but it’s yet to be really seen on the market. Lots of them also benefit from the furlough measures in government.

So, they have some cash that they can get. So, it’s still too early to say if — what exact impact will there be and also possibly some possibility of acquisitions for some smaller players that would be possible good targets.

Victoria Stern

Just coming back on the contract renegotiations. Just sort of in theory, if you’re looking at, say, a corporate services contract where obviously, it will be impacted in some cases by work from home. Would you also be confident that even if volumes are say, 10%, 20%, 30% below where they were before that in those specific cases, you’d be able to get the margin on those contracts back to where they were before?

Marc Rolland

Yes, we will be and we are rebuilding the margins. In some cases, it’s a good margin or the recovered margin on a lower volume or it’s delivered differently, but we are rebuilding the margin. There is a transition period and there will be the post-COVID margin.

Right now, we are in the transition period, but margins are improving. From what we saw in Q3, Q4, clearly, going into Q1, margins are higher, and it’s our job to maintain them in Q2 going forward.


Next question is from the line of Jaafar Mestari from Exxon.

Jaafar Mestari

Two questions, please. Just firstly, as a follow-up on guidance, maybe to ask the same question differently. If your range includes things as bad as general lockdowns in some major countries.

Can I ask what is a scenario that is not included in your guidance that’s if we hear about it tomorrow morning, could take your revenue decline back to minus 30% or minus EUR 0.35? And then the second question on U.S. client retention. So, I’m just trying to unpick the different parts in North America. So, total client retention in North America, if I’m correct, is improving by over 2 percentage points.

And that’s despite your comments that U.S. health care is still problematic with a number of contract losses there. So, does this suggest that retention in U.S. B&I and U.S. Education is really, really strong, maybe fight or higher, I would guess at that stage. If that’s the case, is that real underlying improvements?

Or is it just that in the B&I and Education, those contracts are just being renewed ad hoc and then they don’t come up for renewal because the client has other priorities?

Denis Machuel

Sorry for the firefighter noise, as you can hear, I can assure you it’s not in our building, but sorry for this. In terms of guidance, Jaafar, what we’ve and since the beginning, we said that our hypothesis moving forward would be of smart lockdowns in countries and not a full lockdown.

That’s what we have in our guidance. What we understand from — typically, if we look at the announcement that we had — yesterday in France, it’s that business will be able to continue to operate as much as they can. Of course, remote working is encouraged, but production will continue to operate, people will continue to work.

So, that’s the hypothesis. So, can we have another surprising something coming up? Yes, I don’t exclude. There’s so much uncertainty, but I would say that we’ve taken some with this big range, we think that if the activity is not fully stopped everywhere in Europe, we can be in the range.

Of course, if something again, another something different happens, it might change, but we’re today, what we hear from the countries, tells us that we could make this range. In retention, in North America, yes, it’s up mainly Healthcare given its size. And the retention program that we have is a big contributor to the improvement in retention in North America. We’ve also improved retention in schools. We’ve improved retention in Energy & Resources.

We are quite stable in Government & Agencies where we’ve — and we’ve also improved. Even though the volumes are not there, we’ve improved our retention in spans all leisure. We don’t have the volumes, but we have the contracts. So, it’s and some renewals have been pushed back absolutely.

True in universities also, not so true in Healthcare, actually, health care has continued to be quite active in terms of bids, et cetera. But I think this reflects some significant efforts that we’ve made in Healthcare, but also in other segments. And we are — I can tell you we are all hands on deck on that.

Are we done? We’re never done. We’re very, very vigilant, very careful. Our operations are stronger, particularly in health care, and that, of course, helps retention.

Jaafar Mestari

And sorry, maybe I’m just looking at the wrong things on this, but just to clarify, U.S. health care in your answer just now you said it was a contributor to the improvement in retention. Maybe I didn’t hear it correctly, but in your — in Marc’s commentary on North America, contract exits and losses that continued into Q4 were flagged as a big reason why North America Healthcare was minus 15% in H2.

So, is this just a question of definition, Are those Q4 contract losses not fully reflected in retention? Is U.S. Healthcare retention actually better year-on-year?

Denis Machuel

No. You actually, you have to first recognize that we come from a low level of retention, okay? So, that’s important. And there is a delay. Sometimes we when we talk about the retention, we look at there is the indicator, which is a forward-looking indicator because as soon as we lose a contract, we put it in our retention.

But then the impact on the revenue comes later. So, the contract that we see in our indicator in a particular quarter, you can see the impact for the — or the year moving forward. So, that explains.

Marc Rolland

The bulk of the exit and losses were coming from fiscal year ’19. And there was one extra loss in Q4, but in magnitude, it is much less than what we had lost in fiscal year ’19 impacting the numbers.

Jaafar Mestari

So, the retention number is forward-looking and it’s getting better, including free U.S. Healthcare?

Marc Rolland

The retention in the Healthcare is definitely much healthier in ’20 than it was in ’19. So, looking forward, it is better.

Denis Machuel

And we have all hands on deck on that. I can tell you, it’s — the competition is fierce and well I’ll — I’ve been very clear that we’ve got to be very, very solid in this.


The next question is from the line of Richard Clarke from Bernstein.

Richard Clarke

Three for me, if I can. Just 2 questions again on the guidance. Just wondering, obviously, we can imagine that European B&A may take a step back from here, which segments would you expect to step forward? Is it North American in Education, North American Healthcare?

Where are you expecting some step-ups and improvement into the in the first half? Second question, if I look on Page 12, I think I can just about work out a regional drop-through which gives me 16% in U.S., 17% in the U.K. and 29% in the Euro area.

Just wondering, given the impression is that furlough schemes have been more generous in Europe, why is there such a big difference between the drop-through by regions and how might that transition? And then also on the Olympics, you mentioned you’re paying back some of the hospitality packages.

Is — can we read into that, that we should not expect Olympic revenues in FY ’21?

Denis Machuel

Richard. So yes, well, definitely in North America we’ll still be quite uncertain given the sanitary crisis. In Europe, we believe that overall Healthcare will be Healthcare & Seniors will continue to be solid. Definitely, the of course, the impact of a second wave, well, might slow down a bit Healthcare, as you know, when we — when there is a big proportion of COVID-19 patients, we have less services, retail doesn’t ramp up back.

So, there are some but still, Healthcare will help us move forward. Government & Agencies will be solid, and Energy & Resource even in Europe has a relatively good trend. Schools are in Europe, more or less back to not normal, but good very good levels. They are much more uncertain, much more volatile in North America as they open and close here and there.

But in Europe, it’s quite solid. And as you — again, we see that even though lockdown measures are being taken, schools remain open. So, and we don’t expect anything from Sports & Leisure anywhere. So, I’d say Healthcare & Seniors, Government & Agencies, Energy & Resource. Corporate Services will be ups and downs as lockdowns impact.

But as Marc said earlier, in several countries, the proportion of the type of the portfolio that we have in Corporate Services has an impact. LatAm will be solid because LatAm is blue collar. France is second because LatAm is more white collar and more urban. So, it’s really a mix of things that create the Corporate Services numbers. On the second question, Marc.

Marc Rolland

Yes, I’m not completely sure to understand your second question and where you extracted from, I assume its Page 12 on the MD&A.

Richard Clarke

Yes, that’s right. You can do the year-on-year for the revenue and EBIT, I guess, from Page 12. It just looks like the — I mean you’ve got Europe there, obviously, a euro area is loss-making and it looks like a big drop through in Europe. And I’m just wondering why that’s so high given the furlough schemes and maybe also why the U.S. looks so good at 16% down?

Marc Rolland

So, in terms of flow-through, what I had explained, I think, with Q3, the best flow-through we experienced was in North America because this is where we can flex the labor the fastest. And so — and the best flow-through in North America was in universities because in universities, we have hourly labor.

So, North America is really the best flow-through of all the regions. Then the second best was the U.K. because first, we — the mix of business and the furlough program and the flexibility and the fact also we have the rapid testing centers which we could redeploy staff, helped us managing the labor and the U.K. team was actually pretty good and had a very good drop-through.

Then we moved to the continents. And on the continent, as you know, labor is not flexible. I mean the labor laws, whether it’s in Germany, Netherlands, in Italy, in France, in Spain, very difficult. Flexing the labor force was very difficult. So, we used the furloughs, but the furloughs left charges for us to pay. In France was 22%.

In some other countries, well a little more. So, it’s actually in the Euro zone, so to speak, that the flow-through was worse because of the inflexibility of the labor market. And also one thing is because the labor market isn’t flexible, is this where we did most of the restructuring and the adjustment.

So, that’s why in euro, we are in losses while we are actually doing a lot better in dollars and sterling. And we did also very good in reais because in reais, Brazil, even though the pandemic there is crazy, I mean, they managed a fantastic flow-through and they managed the P&L very healthy during the crisis.

Denis Machuel

And regarding the Olympic Games. By contract, we have to reimburse the packages. We are in negotiation with Tokyo 2021 now to see if and there are — we have some group talks with them for Tokyo 2021. What we want to do is, of course, as there is uncertainty also on Tokyo 2021, we’re going to secure whatever contract terms that we have moving forward.

So, and if we were to sign, then the reimbursement pattern would be certainly different, but we take the hypothesis that — because it’s not true at all that we will reimburse the packages because that’s the safest assumption to take for this coming year.

Well, of course, we are actively negotiating with Tokyo 2021.


The next question is from the line of James Ainley from Citi.

James Ainley

Can I just follow up on that Olympic Games reimbursement point more broadly? Can you just give us a bit more of a breakdown on those cash flow impacts, the gap between EUR 100 million and the EUR 350 million that you mentioned in your outlook slide?

Could you give us some sense about kind of how each of those 3 break down? And secondly, can you tell us what percentage of your BRS revenues are now coming through from food delivery?

And related to that, are you seeing any OSS clients moving towards offering delivery-only services or some kind of hybrid model with an on-site cafeteria, but an increase in delivery type options for their underlying employees?

Marc Rolland

So, on your first question. So, just to our recurrent free cash flow is expected to be minus EUR 100 million, which is actually very similar to prior years. Then we have EUR 250 million of one-offs, so to speak. The first 1 is linked to the restructuring we booked in fiscal year ’20.

In fiscal year ’20, out of the EUR 160 million booked in H2, only half of it was cashed out. The other half is coming now. So, it’s about EUR 80 million. Then the reimbursement of the Olympic Games tickets all in because we need to be reimbursed by the TOCOG, and we will reimburse the clients is about EUR 120 million.

And the balance EUR 50 million is linked to the delay programs, the government gave us in some countries like the U.S. and the U.K. and EUR 50 million of those delaying benefits we got, which were EUR 200 million at year-end, EUR 50 million will be reimbursed by February.

So, that’s the EUR 250 million.

Denis Machuel

Right. In terms of the percentage of benefits awards in delivery, it’s so we don’t communicate on the volumes, but we see the percentage growing significantly.

We have now 70 partnerships with delivery companies and lots of consumers, particularly in small in small and medium enterprises, which are an important part of our portfolio, of course, mainly in urban areas, call a delivery company and pay with their Sodexo card.

So, that percentage is really growing at a fast pace. Regarding your third question, we’ve seen during the crisis, delivery options being that we also proposed been accelerating, particularly even in your on-site side, the pick and collect has been an important part of our services because it allows people to first be efficient and also not necessarily sit in a restaurant.

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So, it’s good for the COVID-19 distanciation social distancing thing policies. We’ve also — we’ve foot sharing in some of our delivery partners proposed integrated options for our clients. And this day, even after lockdown, clients appreciate this panel.

And again, we will expand on this on Monday in the Investor Day because we believe it’s important that we dig deep into how we analyze the corporate services market, how on-site clients or end consumers are evolving.

So, it’s and we believe, again, that we have some interesting things to implement and are and we are currently implementing this in array and a range of multiple options for employees.


Next question is from the line of Sabrina Blanc from Societe General.

Sabrina Blanc

Sabrina Blanc, speaking. I have 3 questions, if I may. The first one is regarding the European market and just could you remind us the biggest countries, the difference between France and U.K., for example? And I have a second question regarding — if we go back to full lockdown in April, and can you provide us some color on what was the worst impact due to lockdown notably in those countries?

And my latest question is regarding the dividend policy. I guess that at this stage, it’s too early to answer for next year. But what do you have in mind for the coming years?

Denis Machuel

Okay. So, you said difference in between the main countries for France and –.

Marc Rolland

What we can say about Europe and so the between France and Germany and Belgium and Netherlands, there is not much difference, Italy. I mean Continental Europe, the mix of services, the mix of segments can be different. The weight of Healthcare & Seniors can be different. But if you drill down and look at segments, there is not much difference in behaviors of those markets for us.

I mean they are all within a range in term of volume drop. Now between France and the U.K., the biggest difference between France and U.K. is really the mix of services. We have a lot of government services in the U.K., a lot of public services with justice, with defense, with healthcare.

And this was extremely resilient during the crisis. Also in the U.K., for instance, in Corporate Services, we do a lot of FM in manufacturing. We don’t do much food in London, for instance. So, we didn’t suffer from the food downturn. But in France, we do a lot of food, white-collar in La Défense.

And obviously, La Défense was one of the first micro markets in France, which suffered. The region did not suffer in France that much. So, the difference between U.K. and France is a mix. Also in France, we have a lot more Sports & Leisure than we have in the U.K. So, the U.K. portfolio was extremely resilient.

Even the E&R portfolio did relatively well during the pandemic in the beginning of the pandemic in April. If I go back to the worst impact in those countries is the labor. This is what I explained on Richard’s question, the labor flexibility, our ability to reduce the volume of labor quickly to be in the volume of services requested by our consumer, our clients is the main impact on the margin.

And as soon as you have a very flexible labor market, within days, you can adjust your volume. In France, in Germany, in Netherlands and to a lesser extent in the U.K., it’s not as flexible as it is in the U.S.

Denis Machuel

Yes. And regarding the dividend policy, it’s, of course, much too early to mention anything for next year or further. What I can tell you is we have, for many, many years, a very steady and a clear dividend policy with a 50% payout and well this is something that we have not lost. It’s just, of course, this policy is for us very important moving forward. That’s all I can tell you.

Sabrina Blanc

Yes, perhaps one further question. And in terms of size, could you remind us the size of the French market and the U.K. market before COVID?

A – Denis Machuel

The U.K –.

Marc Rolland

Pre-COVID, the U.K. market was about EUR 1.8 billion, and the French market was about EUR 2.3 billion.

Denis Machuel


Marc Rolland

That’s fiscal year ’19 numbers from top of my mind. But — yes.


Next question is from the line of Jarrod Castle from UBS.

Jarrod Castle

Just exploring a little bit more on your guidance. You’ve given obviously the free cash flow guidance for the first half. Any comments around CapEx? Should we still be looking around the 2% level? And I guess, should we also be thinking about free cash flow being positive in the second half?

Secondly, just in terms of margin and kind of the redundancies that you’ve announced, can you give a bit of color in terms of potentially how long it would take to see the 7% leave the organization? And I guess also, just directionally, I mean, should we be expecting the second half margin to be higher than the guidance for the first half, just given the cost cutting that you are undertaking?

And then just lastly, on M&A, you barely did any disposals in the year just gone by, I think, it was EUR 17 million of free cash flow. Would this be a source of free cash flow when we think a bit about the year to come?

Marc Rolland

So the CapEx, we are assuming that the CapEx in H1 will get back to normal level. We looked at it into details, and there are pluses and minuses in relation to Sports & Leisure because last year, we had intangible in relation to the games and so forth.

But if I strip out this, it will be very similar in H1 this year than it was in H1 last year. And that’s included in the minus EUR 100 million of recurrent free cash flow. Free cash flow for the second half, I mean, we will work hard to make it positive, but I cannot give you hypothesis for H2 just now.

So but yes, we will work hard to make sure that it is a positive like we did last year.

Denis Machuel

And regarding the restructuring plan in France that represents 7% of our staff. We are — we just announced it this week. We’re entering into negotiations with the unions. It’s going to take something around 4 months to go through the whole process, the negotiation and the whole organization of all this.

We also favor the mobility across segments. It’s an integral part of that plan. And it’s important because reinventing a new mobility and transfer across France will bring us agility moving forward, and we need this agility to respond better to the changing markets and trends.

So, — but you can imagine that it’s going to take — it’s going to go through H1 and H2 this year to implement the plan in France. In terms of the third question around the margins in H2. As you understood, we gave a guidance for H1.

We didn’t give a guidance for the full year, which means we won’t give you a guidance margin or revenue guidance for H2. Sorry, Jared.

Marc Rolland

But you can count on us to work hard.

Denis Machuel

Yes, absolutely.

Marc Rolland

On the M&A, so we had some disposals as you may not have seen, we are now in 64 countries. When we started the program, we started with 80 countries. Obviously, what we are disposing of are not the biggest countries. So, they are small, so they don’t impact the revenue a lot. But we have a long list of assets we are currently selling.

It does not necessarily mean leaving a country. It means sometimes leaving an activity or sub activities in the country. There will be some cash inflow if some of the biggest ticket items are sold, but it will not be a source of free cash flow, okay? It will be a source of cash.

That does not include in the free cash flow. But we are working on this. So, you can count the number of countries to come down and some assets to be disposed but it will not have a massive impact on the P&L. It can have some impact on the cash, positive impact on cash.


Next question is from the line of Leo Carrington from Credit Suisse.

Leo Carrington

Can I just focus on B&A with a few questions, three questions. Facilities management activity looked to have sequentially improved in Q4. Can you just sort of detail what’s in the mix here? Was it effectively cleaning and disinfection driving this? And to what extent this can continue in 2021?

And then Secondly, if you could just comment on the underlying global white collar versus blue collar trends. Would it be fair to assume blue collar organic growth was down single digits and the balance was driven by white collar?

And then lastly, on the client renegotiations, you mentioned these took some times to come through during H2. To what extent are clients supporting higher operating costs and any higher procurement costs?

Denis Machuel

So, regarding the sequential improvement in Q4. It’s a mix of things, but it’s a mix of in B&A of Energy & Resources having a good trend, government & Agencies being resilient. And in Corporate Services, we’ve seen activity coming back in several places, and particularly some of the white collar portfolio that we have.

People have gone back to work. We have reopened restaurants. Of course, they were not full to at full volumes, but we’ve seen that activity coming up. And on top of that, we mentioned that. We’ve also done some significant cross-selling in disinfection and FM overall cleaning, et cetera. So, it’s really a mix of things. Can it continue in ’21?

Yes. I think we will continue and those services, particularly cleaning and FM services have demonstrated their importance. Clients want more. It will depend also we had a big intake, a big ramp-up in services in the mining sector, for example. And as the pandemic particularly, for example, in Australia, as the pandemic seems to go away, the clients might ask for less of the services moving forward.

And of course, big uncertainty, as we as I said earlier, on what the lockdowns in Europe will how they will impact people going to the office or not. As far as white collar and blue collar, again, same thing, it really depends on our portfolio. But blue collar have definitely demonstrated that those clients, they continue to operate, they want to secure their people both from — for Food Services and also from FM services.

So, that the strength of our portfolio is there is, I think, is really an asset. Regarding client negotiation.

Marc Rolland

Yes, the client negotiation, the first point is When you are reopening or when you are in downturn with the clients is to — it’s very 2 different things. When we were closing sites, and so we had fixed costs, the negotiation was asking the clients to continue bearing some of those fixed costs.

So, that was a difficult conversation, but many clients accept it to continue bearing some of the fixed cost, even though there was hardly any volume. When we are reopening, the question is more, let’s take in La Défense, you have a big tower, you have 3 restaurants in your tower.

The negotiation is, let’s reopen only 1 restaurant and not the 3 because otherwise, the fixed costs are too high. And when you are in 1 restaurant instead of having buffet, 20 offers and whatever, can we reduce it to 2 or 3 offers? Implement the protocol and so forth. And this is what’s really helped us reduce our costs.

Because our costs are much less than it costs less to the client, but it also allows the client to reopen because the clients need the service to reopen. If the service is not there, some clients will find it difficult to reopen their site. So, in some cases, there is an extra cost to the client.

But very often, we can mitigate most of it by actually reducing the offer or reducing the number of kitchen, reducing even the hour of opening so that we can adjust. And this is what needs to be renegotiated because it’s a new way of working during that period of transition.

And then there will be a possibly a final way final negotiation because when it will restart with, let’s say, less people because now the people work more from home, we will need to see whether we keep those 3 kitchens, those 20 offers and whatever, so that we can add up to the new volumes.

Those are really the sequence of negotiation that we are facing through. And the response from client is overwhelming most cases, they are not happy to renegotiate. So, sometimes if it means extra cost, I mean it’s not an easy conversation. But we most of them are we are coming to term with them and with a very different restart up contract.


There is a question coming up. It’s coming from the line of Andre Juillard from Deutsche Bank.

Andre Juillard

So, I’ve got a few questions. The first one is about education. Could you give us some more color between the split between — sorry, about the split between schools and university just to have a proportion between both because if I understood well, school are still open in most countries where universities are more closed especially in the U.K. and the United States?

Second question was a general question about your market share. What do you see from peers and from your clients? We’ve seen that your retention rate was up. But in general, the market is still growing, you are gaining market share? Or you are seeing local players being very aggressive and international competitor as well? Third question was about the vouchers.

Could you give us some more color about the trend between paper and digital? And remind us what is the proportion of digitalization?

And last question, if I may, was about developing gaps. Could you give us some more color about the renegotiation you have with Japan, and the kind of turnover we could expect in the new version?

Denis Machuel

So, regarding education, schools, universities have approximately the same weight in the overall revenue definitely, what we see in terms of trends, as I said, schools have reopened in Europe and for the important majority in Asia. In NorAm it’s still very, very volatile.

Some schools are open some schools closed. Universities are obviously strongly impacted. And again, the pattern of behaviors in universities is very, very diverse. Some like more than half of them have gone into hybrid models with online and campus. And of course, the dining options have been really reshuffled, and it’s very, very hard to predict what we — what will happen moving forward. Still a lot of uncertainty.

Lots of universities have said that spring semester would be postponed by like 2 or 3 weeks. They still don’t know what they’re going to do for summer. So yes, that’s uncertainty there. In terms of market share, I think we of course, obviously, the numbers are very fluctuate a lot.

Improving our retention demonstrates that we are particularly in North America that we are holding strong against competitors. Some local players are aggressive, but not to a greater extent than before. And I must say that the competition between the major players is as before, and of course, very quite fierce particularly in North America as it has always been fierce in health care, but also in other segments.

So, I’d say there’s the crisis so far has not change in a significant manner, the behavior of competitors. And we are — it’s also internally, there’s been a lot of focus on the retention of our clients and ensuring business continuity was the first step to secure client retention.

When the clients know that you are by their side in tough times, you have much better, of course, tend to retain them moving forward. In terms of the trends between paper and digital, we accelerated, in BRS, we accelerated our progress on digital. We are now 86% digitized.

We’ve improved 12 points in Q4 in Europe. So, that was really, really, in a way, COVID helped us a lot accelerate digitization, which is great for us, and we will continue to see this trend progressing. As far as –.

Marc Rolland

Yes, for the Olympics the negotiations are ongoing. So, it’s difficult to give you numbers, and it will depend of what we agree with the Olympic Games Committee but It will be much less than what we had planned at the outset for the July 20 Olympic Games.

So, it could be probably 50% of the site at the maximum. So, yes. It’s still going to be significant if we can make it. But I will say something around between EUR 50 million and EUR 80 million if we were making it. But it’s very volatile as numbers go. So, –.

Denis Machuel

Tough to predict a year.

Marc Rolland


Denis Machuel

Yes. Thanks a lot for all your questions. We appreciate it. We look forward to further exchanges with all of you on Monday. I hope you will be with us. And until then, keep safe and have a good day. Thank you.

Marc Rolland

Thank you.

Denis Machuel


Marc Rolland



So, that does conclude our conference for today. Thank you all for participating. You may all disconnect.