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Welcome to the Compass Group 1 -- Q1 Trading Update call. Today's call is recorded. Hosting today's call is Dominic Blakemore, Chief -- Group Chief Executive. [Operator Instructions] I will now turn the call over to Dominic Blakemore for opening remarks. Please go ahead, sir.
Thank you, Emma. Good morning, and thank you all for dialing in. As usual, I'm joined by Karen Witts, our CFO.I'm sure you've read this morning's statements.Before opening the call to questions, I'd like to say a few words on our performance and outlook. Q1 revenues were similar to Q4 and in line with expectations, given the anticipated second wave and continued containment measures taken by governments around the world. B&I and Sports & Leisure revenues remained broadly unchanged. Revenues in Education softened slightly in North America as students didn't return to school after Thanksgiving. And revenues in Defence, Offshore & Remote and Healthcare & Seniors saw a continued improvement. I'm very pleased with our excellent retention at 95.7%, which is as high as it's ever been. And I'm very encouraged by new business wins, although they're yet to contribute meaningfully to our revenue base. In the quarter, new business growth was suppressed by delayed openings and lower volumes.Despite the lack of improvements in volumes quarter-on-quarter, the group's operating margin increased by over 200 basis points from 0.6% in quarter 4 to 2.7% in the first quarter. This is due to the series of actions we've taken over the last year to adapt to our operations and to manage our cost base more flexibly, including contract renegotiations and resizing of the business.Although the vaccination rollout is underway, the pace of volume recovery continues to be uncertain. Therefore, we anticipate Q2 revenues and volumes will be broadly in line with the first quarter. However, encouragingly, we continue to make good progress managing costs, and expect our second quarter operating margin to improve by a further 50 to 100 basis points. By achieving this, we'll be halfway to recovering our pre-COVID margin, putting us firmly on track to rebuilding our underlying margin above 7%.And so in summary, we're focused on controlling the controllable. We've improved margins again without significant volume improvement. We're excited about the strong pipeline, particularly in the more defensive sectors of Healthcare & Seniors, Education and Defence, Offshore & Remote, which will diversify and broaden our revenue base. And we continue to be excited by the significant structural market opportunity globally. These opportunities, combined with innovation and a more efficient operating model, will help us to emerge from the pandemic stronger than we've ever been and will allow us to further consolidate that position as the industry leader in food services.We'll update the market again on the 25th of March.Thank you. And now we're very happy to take your questions.
[Operator Instructions] We will now take our first question from Bilal Aziz from UBS.
It's Bilal Aziz from UBS. Three from my side, please. Firstly, just on the pace of margin improvement with the additional 50 to 100 bps expected in 2Q, you very helpfully detailed out all the cost actions you've taken in the full year's results with structural cost savings of GBP 70 million. I guess with the volume environment as is right now, when do you get to annualize some of those benefits into a more steady state and then rely more so on volumes?Number two, the net win rate in North America was, I think, close to about 6.1% in the fourth quarter. Can you perhaps provide any color on how that's trended in Q1, please?And lastly, just on 2Q guidance. Were there any notable differences between the months in Q1 with regards to organic growth trends? Just thinking of the shape of volumes ahead. By memory, I think you might be annualizing about 2 weeks of the COVID impact in Europe in 2Q, although I appreciate smaller on a group basis.
Yes. Thank you, Bilal, for those questions. If I take the first 2, then I'll pass the third on the Q2 trends to Karen.Look, firstly on the pace of margin improvement. I just want to reiterate, we're really pleased with what we've achieved and what we're guiding to in quarter 2. We've come from minus 5% in the third quarter of last year to what will be around plus 3.5% in quarter 2 with little or no volume recovery in the last 6 months. So we've only seen 10 percentage points of volume come back and sees us at about 2/3 of our pre-COVID volume. So we think that is very significant margin improvement.Obviously, we have a series of plans that each quarter's actions will annualize as we go forward, and we have a series of plans in place that are volume-agnostic. So should volumes not recover, we will continue to make margin progress as a result of those actions. Now as and when volumes do recover, we would expect the pace to pick up somewhat. And obviously, we said before we don't expect the volume recovery to be linear. It will be lumpy. I think what you've seen in the fourth quarter and the first quarter was significant change as we got the benefits of the actions that we've taken. Obviously, in quarter 2, we're guiding to a slightly slower pace as we see the volumes flatten. But we are -- we do have confidence that we continue to make margin progress regardless of volume as we look forward and then that can accelerate with volume.Secondly, on the point of the new business or net new business win rate in North America. Look, we were around 5% as a group last year. We're at the same level in the first quarter of this year. And that really is suppressed by 2 things: one, delayed openings; and secondly, by lower volumes on the business that has opened. And once those contracts are annualized and volumes do recover, that will obviously go through like-to-like, as we've said before. However, the absolute number of contracts we're winning is very positive in all of our regions, and especially in North America where the win rates and number of new contracts that we're winning is as good as we've seen. That is biased towards Healthcare and Education at the moment with less within B&I and Sports & Leisure. And you're seeing an uptick in first-time outsourcing. So all of that feels very positive for the medium-term future as volumes recover. So yes, we're pleased with the continuing trends, and the pipelines look good across all of the regions as well as they do within North America.Karen, over to you for the Q2 trend?
Thanks, Dominic. Well, as you know, it's the revenue that really remains uncertain. And as we entered the second quarter, we saw varying lockdown measures in place across our key markets, and some of them a bit different from what we've seen pre-Christmas. So our view is that we anticipate that Q2 revenues and volumes will be broadly in line with Q1.It is worth noting from an organic revenue perspective that in [ P6 ] we start to annualize the COVID impact. So last year, we had 2 weeks in March, which were impacted by COVID compared with a whole quarter with these varying lockdown measures that are in place.
We will now take our next question from Jamie Rollo from Morgan Stanley.
Just coming back on one of those questions, please. Just to be clear. The comment about the second quarter being similar to the first quarter, you're talking in sterling revenue, yes? Because as you say, your March figures last year were down about, I think, 20%. So are you either saying it's down 34% versus 2019 or is that down 34% versus 2020? I'm just wondering whether you're stripping out those 2 weeks.Second question, is there anything, Dominic, you can give us perhaps on that pipeline? Anything to draw out in terms of whether we might see an acceleration in contract gains? Anything to draw out by industry or by region?And then finally, just on that margin progression. I appreciate it's not linear. You're saying it's just still move ahead. I think consensus margins are about 4% for the year, which is 5% for the second half. And that would imply a continued sort of nearly 100 basis points sequential progression, which is obviously no additional slowdown from here when it has slowed quite a lot. I was wondering how you feel about that 5% second half margin.
Thanks, Jamie. If I take the first 2 and then pass the third question on to Karen.Look, firstly, yes, the sort of down 1/3 is, against the 2019 sort of pre-COVID impact. And what we will have to do as we go forward is ensure we show you both organic growth against the prior period, whether it was COVID impacted or prior. And then separately, we want to anchor ourselves in our scale and volumes against the pre-COVID equivalent periods because we believe this recovery is first about margin, then deleverage, and then it's about restoring scale to pre-COVID levels as quickly as we can. So we want to stay anchored in that. And yes, we believe we'll continue to be about 1/3 down against the pre-COVID volumes as it were.Secondly, on pipeline color. Look, really sort of growth starts with retention. And the one thing I would call out is we're reporting today retention of 95.7%. That's close to 1 point better than our historic average. We don't believe that, that's particularly about deferred processes. Processes are continuing, albeit virtually. We do believe it's about what we're describing as the fight to trust and the quality of our client relationships. And I think it also shows that we're not compromising service for margin. That's very, very important. So that retention is good. It's improved across all of the regions. And as we look at what we've achieved in the first quarter, those trends continue to be very positive.When we're talking about the new business pipeline, again, it's very strong in all 3 of our regions. In North America, it aspires towards Healthcare, Education with a slight -- with the upweighting we've talked about in first-time outsourcing. We've seen a little bit of a slowdown in B&I and more so in Sports & Leisure, as you would expect, where there's sort of greater uncertainty about when events will start again. In Europe, it's been a strong performance, a strong pipeline in B&I and Healthcare in particular, which we're very pleased. We've really made a good start in Europe on new business. And then in rest of the world, it's actually across all of our sectors. We're seeing good wins and good pipelines nicely balanced, and the same across sort of the more developed markets in rest of world and emerging as well. So it feels a positive start to the year from new and retention with a good pipeline of opportunities ahead of us.Karen, over to you for the margin progression point into the rest of the year.
Thanks, Dominic. Thanks, Jamie, for your questions. Given the uncertainty that we're facing into at the moment, our focus is on looking out a quarter at a time when we're trying to give you as much color as we possibly can on that. And as you know, we actually withdrew our full year guidance. But saying that, our ambition is certainly to continue to improve the margins quarter-on-quarter. We don't think that the margin improvement won't necessarily be linear, and we've seen that. Q1 had a big step-up from Q4 as the benefits from the initiatives that we've taken have come through. And we've guided you to further step up between Q1 and Q2. So if volumes do come back, then our margin will improve more quickly than if they don't come back in the short term. As Dominic said just a bit earlier on this call today, there are choices around costs that we can make and we will take, if necessary, as we look at the environment around us. And then in the longer term, we still expect the margin to return to above 7% before we recover the pre-COVID volumes.
So just to ask it another way perhaps. That 50 to 100 basis points improvement in Q2, from a sort of volume agnostic basis, could we assume that continues into the second half of the year?
I think we'll continue to...
And I think -- go ahead, Karen.
No. Sorry, Dominic. Go ahead.
I was just saying, look, we expect to continue to make progress and we'll update at the half year on what we think that is for the second half once we've got, in particular, a better view on volumes.
We will now take our next question from Jaafar Mestari from Exane BNP Paribas.
I've got 2 questions, if that's okay. Firstly, on margins, maybe on the mechanics rather than on the numbers, to understand how it's going to work going forward. Do you now have some visibility on some contract level margins with a number of clients? But of course, they're not covering your brand overheads decline. And once they're not covering central costs, et cetera, they're basically covering the on-site costs, I assume. So conceptually, how wide is the range of group margin once you take into account overheads and central costs if revenue had ended up 10% below or 10% above for Q1?And secondly, on labor costs, if this becomes a theme in the U.S., what do you think is the best precedent for case study in terms of your track record? I'm thinking the U.K., your experience in managing the implementation of the National Living Wage. It does look like you had significant margin pressure, but I do remember there was also a lot of like-for-like issues in the U.K. market. So what would you say is your track record and the ability to manage to potential significant labor cost increases?
Okay. Jaafar, thank you very much for those questions. Look, if I take the first and then maybe hand labor costs on to Karen.I mean looking in terms of terms of the mechanics on margin, you're absolutely right. We're doing a few things. We're obviously working hard with our clients to renegotiate contracts, either to recover cost in units, as you say, or costs plus our normal margin and offer a smaller base to protect that margin. We're working incredibly hard on in-unit efficiencies, and that's around labor flexibility, increased use of CPUs. So we're introducing sort of greater food and labor flexibility, and we're seeing the rewards for that. And then, of course, we're working very hard on our overhead within sectors and above sectors within countries and region group. In all of that, the latter element of that, we do continue to have choices, and likewise, even within that forecast. So if volumes are going to be sustained at lower levels for longer, we already know there are actions that we can take and when we can take them that will contribute towards the margin progress and allow us to get closer to historic margins at lower volume levels. If those volumes come back sooner, then we know we don't have to take those actions, and it will come back with volume. And there's a trade-off in the middle there between the levels of ongoing government support, which is radically reduced at this point, and when we take those actions. So that's really the mechanics as we see it.When you talk about the sort of ranges of margins, I sort of prefer to think about it at the sector level, which is our best sort of benchmark globally and which would be pre-country and region overhead. And right now, we've got 2 of our 5 sectors, Healthcare and DOR, are operating close to historic levels. Now both of those have been affected by the loss of retail for -- where social distancing and the closure of retail outlets on those sites has been impacted. But we're managing to offset that with other initiatives. So we're pleased with the outcome there.If you look at the 3 other sectors. Education has lost about 1/3 of the margin from stop start containment measures impacting as well as the loss of some of the on-site retail, particularly in the higher ed space. But look, I think as we look forward, we recognize that most governments want to get children back at school, and most universities and higher education institutions believed in the campus on-site experience. So we think there will be a natural volume. Recovery there will be, of the 3 other sectors, the one which is likely to recover soonest.And then when we look at the other 2. The B&I margin, the industry sector has performed well as employees and clients have continued to operate on site. B, as we've talked about previously, particularly with the tech sectors, financial services and others has been much reduced. That's where the choices remain on margin recovery and where we can take further action. Sports & Leisure effectively has almost completely stopped at this point, and we're carrying a run rate and overhead within that, which will either get lifted by the volume recovery or we have further choices ahead of us. Now that's really how we look at it. And therefore, there is, to your point, a plus or minus 10% of volumes. That's how we're thinking and planning quarter-on-quarter. If the volume comes back, what do we need to do? If the volume doesn't, what do we need to do? And making sure that we're making those choices in the best interest of the medium-term business rather than a quarterly margin progression. I hope that's answered the question. And turn over to Karen on labor cost inflation.
Thanks, Dominic. And some of what Dominic has actually described is pertinent to the way that we will and do manage labor costs. We've got a strong track record of managing labor costs across the group. And over the last few years, we have seen increases in minimum wages, et cetera. So just in terms of managing any labor cost inflation in the U.S., then we'll do what we usually do, which is really kind of combination of pricing and efficiency. The pricing conversations are ongoing with our clients and, indeed, have been a real part of the conversations that we've been having as we've gone through the pandemic, and we have renegotiated contracts. So we will continue to have pricing conversations with clients.The other element is efficiency. And some of the work that we've been doing, again, across the group, to manage the pressures of COVID actually put us in a good place going forward with regards to efficiency. So the work that we're doing on labor flexibility, on digital innovation and automation.The labor model in the U.S. is quite a flexible one. We can move in an agile way to man up and man down where that's appropriate. And I think we've seen that again throughout this pandemic period, where we moved a lot of people at the start of the pandemic. And you see that coming through in the current margins that we've got in the U.S. Now we also -- half of our clients want this, we have things like, Avenue C, cashierless elements to our offer, unmanned innovation, particularly in accounting and vending sector. It's a combination of all those things, the pricing and the efficiency, that helps us manage the labor costs.
And if I may just add to part of it. Yes, just in terms of precedents, they predate, Karen. The National Living Wage in the U.K. was around a time when we have more P&L contracts in the U.K. that did affect volume. I think the great -- the best pressure in really is North America where we have ObamaCare legislation and managed to recover all of that cost inflation through either cost-plus or efficiencies as well. So I think the track record is there, and we know what we need to do.
We will now take our next question from Richard Clarke from Bernstein.
Three, if I may. Just on your flat volume assumption into Q2. I'm just wondering what you're kind of assuming in there on education reopenings, given we've seen a little bit of good news in the U.S. I think Utah and another state has opened their schools. Is that feeding into there? And then we're seeing basketball let fans in as well. So could this give you some upside? Or is it too small to move the needle? Second question is on Foodbuy, how are volumes through Foodbuy working? What does that do to your food cost this year? Is that having an impact, slowing an impact on your margin? And then third question, maybe a little bit sort of -- but your margin range of 50 basis points for Q2 is quite wide by historical Compass standards. And for Q1, you're able to give a quite specific guidance of 2.5%. What will kind of determine which end of that range you hit in Q2?
Yes. Let me take the first and third questions and then pass the Foodbuy volume question onto Karen. Yes, just with regard to the volumes in Q2, look, we're already a month through, and that obviously informs the guidance we've given. In U.K. and Europe, we think we're unlikely to see any sort of material school reopenings that move the needle before the summer time. Obviously, we are hopeful of that about the summer time. We are more weighted to higher eds in North America, and it does appear that the second semester is going to continue either as virtual or hybrid, and those trends will continue. And so really, what we might see in sort of K-12, the lower edge space in North America is unlikely to be material for us. And yes, I think the trial events that we're seeing are positive in Sports & Leisure because we really want to see ways through this where fans who stay here can open safely. But again, our expectation is that we won't see anything significant until the second half of the year. On the margin range, look, a good question, 50 to 100 bps. We'd like to think we'll be firmly and solidly within that range if the volume environment that we've called today plays out. I think the caution and the conservatism is obviously, if things were to turn down any more than we're seeing, which -- look, given that we're into the second wave containment measures, hopefully feels unlikely. But I think it's right and proper for us to remain cautious at this point. But if the environment plays out as we see it and the action plans we put in place, we'll be firmly and strongly within that range. Karen, over to you on Foodbuy.
Thanks, Richard. Well, in fact, I would say, we've actually seen and been managing the impacts on Foodbuy over these last months because we're clearly operating with much lower volumes going through the system. And the way that we're managing the food cost to maintain our food cost benefit is through fewer SKUs. We can do that through compliance or through menu simplification. We also have got increasing external Foodbuy client base in some resilient sectors. So really, that's an improvement in some areas and the third-party element of Foodbuy. And we work well with our suppliers, and we've got long-term relationships with them. And we haven't seen a deterioration in the levels of some purchasing income that we've been achieving.
Great. If I can just ask for one quick clarification. Obviously, you're giving us the Q1 to Q2 margin. Is there any difference in a normal year between Q1 and Q2 margin?
Just on seasonality, I think our first quarter is typically -- well, the first quarter and second quarter and first half, typically, I think, 10, 20 bps ahead of the second half. There is a touch of seasonality in there for us. Obviously, the second half has the summer months. But at this point, given the actions that we're coming from, we don't really see seasonality as being a factor in the pace of the margin progression.
[Operator Instructions] We will now take our next question from Leo Carrington from Crédit Suisse.
A few for me. Firstly, on the competitive landscape. I think there's been a surprising, or in my view, a surprising lack of visible strain in contract catering companies. But I did hear comments from the U.S. that competition is increasing in schools as B&I operators or other operators shift their focus. Is that something you've seen? And can you perhaps have some comments on what you see in terms of competition?Secondly, just another one on the margin progression. The most significant sequential improvement looks to be in Europe. Can you just help us understand why? And is Europe the main source of the further margin progression you're expecting for Q2?And then lastly, DOR saw a solid sequential revenue improvements? Is this new contract ramping up for extra scope on old contracts? And then, more broadly, you've called out a full year and again now as DOR having a particularly good pipeline. Is this better market activity or improved competitiveness from yourselves?
Leo, thank you for those questions. Again, I'll take the first and third, and then hand over the European margin question to Karen.Look, on the competitive landscape, I don't think we are seeing that entry of new players into other sectors or spaces. In fact, I'd argue the reverse. What we're seeing in our conversations with clients is they want proven best-in-class, best-in-sector operators, again, given the experience of COVID. And I think that's really pertinent to the sort of non-B&I sectors. So again, just reflecting on what that means. In Healthcare, it's proven processes. It's being able to protect our employees in those environments. It's being able to offer more frequent and broader hygiene and disinfection services. So I think that rules out non-sector expert players. In Education, we've seen that uptick for demand in competence around hygiene process and PPE protection, which, again, we have as a business and other players don't. And then within DOR, there's been quite a lot of change because, obviously, you're managing entire communities in remote locations, whether it's defense or it's the mineral sector. And there's a need there for the expertise that we bring by sector. So we actually believe that, at this point, sectorization, sub sectorization, sort of family of expert brands plays very strongly into the needs of our clients. And I think it's more difficult for a generalist player to switch sectors and try to compete on price at this point. So I think I described at the moment that it is very much about quality and capability. And as we said on several occasions, that's right to trust them. I think that's what's showing up in our retention and new business.Just answering the question on DOR. And yes, we're very pleased with the quarter-on-quarter improvement. And you're right, it's a number of factors. So we have -- we won a substantial piece of business in Australia with BHP, which has been rolled out across their estate, and that's benefiting the numbers. We won significant business in Chile with [indiscernible], and that's rolling out. The mineral companies have continued to produced strongly in a strong market for them, which has meant production volumes are high. The POB, people on board, is high, and we need to service those volumes. So that's positive. But also rather than the sort of traditional canteen or restaurant service, which would be a buffet, it's now about box meals and table service, which means there's sort of more value in it for us. So it's a number of factors that are driving that. And that good pipeline is across sort of Defence, Offshore & Remote. So it's sort of all of the subsectors and particularly within the rest of world. But as I said earlier, it's sort of we're seeing good opportunities in all sectors and rest of the world right now.Karen, over to you for the margin in Europe question.
Yes. Thank you, Dominic. So what we're seeing in terms of margin in Europe is really a combination of the 2 factors. The first is that Europe has experienced the most protracted and restricted containment measures. I mean for all of us sitting here in the U.K., we can see that and we can feel that.In terms of the recovery, the actions that we are taking to recover in Europe are exactly the same as for the rest of the group. So working on contract renegotiations, working on labor flexibility and rightsizing and working on general costs and food costs. But it's taken us a bit longer to resize in Europe, given, first of all, the multiple countries that are involved, and secondly, the tighter labor laws. So you remember that we did some rightsizing at the end of last year in North America and LatAm, and we did that because we have the flexibility to move very quickly there. It takes a bit longer in Europe, so you're just starting to see the benefits coming through this quarter.
We will now take our next question from Vicki Stern from Barclays.
Just coming back on the net new business wins. Obviously, you've talked with a lot of confidence there about the high retention rates and the pace of signings and you've explained why, clearly, it's hard to see that coming through in the numbers currently. And so 2 questions really. Just in terms of your perception of what that pace means in terms of signings, do you think that's consistent with the prior levels of net new business, sort of 3% per annum, as we get into actually seeing the contribution from those contracts or sort of better or worse than those prior levels? Just so we can understand it because it's obviously hard to see in the numbers today. And then just sort of related to that, just when should we start to see the benefit? Is that really just when we start to lap the comps and work off a different base?And then just secondly, on contract renegotiations. Just -- obviously, this is only a part of the cost-cutting measures and how you're getting margins up. But obviously, some of those are short-term discussions. Can you just help us understand how much of that is a sort of long-term contract renegotiation today? And how much of that is you're going to need to go back on this contracts in 6, 12 months' time, just sort of set terms for the future?
Yes. Thanks, Vicki. If I take the growth question, and then Karen can do the contract renegotiations.Yes. Look, it's tricky, isn't it, because of how the calculations are done to actually to see the trends. Retention is a clear calculation. So it's pre-COVID volumes lost over pre-COVID total group volumes. And so it's just sort of pure calculation in this quarter. And as we start to lap the pandemic, it will then be sort of post-COVID volumes loss over post-COVID total group volume. So retention will remain, I think, a pure like-for-like measure that we can look at. And as we said today, at 95.7%, it's 60 bps better than last year and close to 1 point better than the historic average. And so if we can sustain that, that will be positive for net new. And obviously, we would never declare victory after, of course, but it's a good start, right?On the new business, I mean we measure it internally on what would be pre-COVID volumes. And so we know what the value of the contracts we've won in the first quarter is compared to the value of contracts we would have won in the pre-COVID world. And it looks very positive and comparable to those levels. So that should, in principle, mean that we would be able to see a return to the net new levels that we enjoyed previously. Obviously, the challenge for that is a number of those contracts will be delayed for opening. And a number of those contracts, when they are opening or opening in sort of new world volumes and -- will either see, within the first 12 months, the volumes recover and that will flow through in new business or we'll see them -- and annualize and then flow through like-for-like. So I think the net new measure is going to be a bit muddy to navigate for a while yet until we've truly lapped to the 12 months of the crisis. And we'll do everything we can to sort of pull out that trend, particularly as we get to the half year, so that we can show you how we're doing. But in old money as it were, it feels good. And in the absolute number of contracts that we're winning, it feels good. But again, this is only a quarter, and we're keen to see how we perform as we get to the half and beyond.Karen, over to you on the contract renegotiation.
Okay. Thanks. Vicki, in terms of our overall portfolio of contracts, the profile hasn't really changed over this pandemic phase. So we're still about 1/3, 1/3, 1/3 in terms of cost-plus fixed price and P&L. And so by implication, that does actually mean that the conversations that we're having with our clients are temporary measures. And I think that works for us and it works for them. And the focus that we have been having up until now is very much on ensuring that, where sites are open. And sometimes they're not open, that we work with clients to make sure that we're passing through costs. We're also getting some more permanent benefits just in terms of -- particularly in North America, extension of length of contract. We might see that in the Sports & Leisure sector where that's completely inactive at the moment. So we're working with clients to extend the length of the contract there. So we're really very happy with the support that we're getting from clients just now, and we do recognize that contract renegotiation is ongoing. In fact, that's very helpful for us. And there's a question earlier about inflation, and it actually helps to make sure that if there are inflationary pressures, they're getting passed on, too.
I might just add one comment there. I think what it also demonstrates is the sort of the weight of pressure on the operations of the business, that this isn't a silver bullet and it's done once. We need to be thoughtful about how we did it best in the context of maintaining strong client relationships. And everybody wants to see the volumes come back and the old structures in place. We need to make sure we balance sort of being fairly treated in the short term with a strong client relationship and where we expect to be over time. And that means it's constant effort, which I think we're very well placed to do and very well disciplined to do.
We will now take our next question from Andre Juillard from Deutsche Bank.
Few questions, if I may, more qualitative than quantitative. If you look at the landscape and your main competitor, especially local and regional player, do you see any players being in difficulty? And explaining part of your market share growth. First question.Second question is about your clients and especially on the B&I and Sports segment. Do you see their request? And I'm still talking about qualitative evaluating for the next few years. And do they more talk about digital evolution and things really changing about the way they ask you to provide your service? Second question.And regarding the pricing power, and this is a kind of follow-up about your last question. Do you see any evolution on your pricing power, your capability to reflect the evolution of the food price and so on?
Yes. Thank you, Andre. Let me take those. Yes. First of all, with regard to the landscape. Look, all I can say is that, in the first instance, we believe that bidding processes are happening with greater discipline. We think that's positive in the use of CapEx and the costs of service. Yes, we do see a number of players that are perhaps finding that the circumstance is challenging. As I've said before, if you are a dedicated B&I or Sports & Leisure sector player, then right now, you don't have the breadth of portfolio like ourselves where you've got 2 sectors, which are the 40% of the business, which is performing as it were before and is able to help manage the overall costs of operation. So yes, we are seeing that, and we may well see consolidation in the sector as a result.With regards to the B&I and Sports & Leisure and the requests, what we're finding -- and remember, our manufacturing clients is still largely operational. So the conversations that we're having with the industry clients is about how do we operate safely with the right protocols. And if some of those protocols have to stay for longer, what does that look like? So the focus there is very sort of pragmatic about the operation.Within B&I and Sports & Leisure, the conversation is probably, as you would expect, sort of within the B. It's about what does the workplace of the future look like and what role does hospitality and catering have to play in that, how do we operate safely, what does it mean in terms of the numbers of people that can congregate within particular spaces, and therefore, how do we use our footprint within their office space differently. And that absolutely does mean there's a greater emphasis on digital desk delivery and personalization. And that is coming through sort of loud and clear in the bids that we're seeing. I'd also say there's an uptick of interest within sort of health and wellness and sort of everything. Again, we've learned about maintaining appropriate diets for the wider health implications. And I think, again, those give us the opportunity to differentiate ourselves with our clients.In Sports & Leisure, it's about how do we deliver great experiences with the right price structure to potentially smaller attendance levels or step changes in attendance levels. So look, if we go back to sort of 2,000 then 5,000, then 25% or 50% of capacity, what does that offer look like? And those are all ongoing conversations with current as well as prospective clients. So some different things happening there, and that's the broader expertise of the business can really help us out. And then on pricing power and the evolution of pricing power. Look, I think it's fair to say we've always managed food and labor cost inflation reasonably well through that combination of contract protections that we've got, either in cost-plus or P&L where we control the shelf price and the efficiencies, and we'll continue to look for efficiencies. And one of the benefits of the experience we've had here is that we're introducing greater flexibility to labor and food. That hopefully gives us the efficiency to deal with what can't be passed on.Having said all of that, I think there's a greater understanding of the importance of our services in many of our sectors, and therefore, potentially a fairer hearing on pricing and negotiations than we've seen before. So I think there's a combination of factors at play there, but I don't believe in any way it's been detrimental to our pricing power.
Okay. Just maybe a follow-up question on the B&I segment. Do you have some request from corporates asking you to deliver some more food meal directly to their employees when they are working from home? Is it something which is not substantial at the moment?
Yes. I mean we have had. I would say it's the margin. And I don't think that it has significantly grown as we've kind of experienced longer lockdowns. And the one comment I would make on B&I is, if the longer this persists, the more I hear increased desire from our clients to be back in the workplace, and to the workplace to be valued in a different way by everyone. That may not mean back to the levels of attendance we experienced before, but certainly that the workplace is important and plays an important part in the balance of our lives. And so we quantified the work-from-home risk. But as we navigate our way through this, I think there's a degree of optimism about the role of the office as we go forward on our role within it.
We will now take our next question from Stuart Gordon from Berenberg.
Just probably a same question in 2 parts. In terms of the cash flow, just looking for an update on how that's going in terms of cash burn. And also, in terms of contract wins and the pipeline, how do you see the CapEx for that unfolding through the year? Because I would imagine that the initial costs that you may incur will not be necessarily representative of the anticipated volumes that you've got.And then as a second part in the cash flow, obviously, did the way things are going in terms of the margin give you increasing confidence to use the cash that you built up last year with the capital increase for investing in the business as we move through the -- hopefully, the tail end of the pandemic?
Karen, I think those are firmly and squarely with you. Thank you, Stuart.
Thanks, Dominic. Okay. All right. Well, we're not actually updating on cash flow until the half year. But what we did say at -- in November with our full year results was that, as we've got to positive operating margin, then we had stemmed the cash burn that we were seeing. And also at the half year, when we commented on our cash, we said that we had done particularly well on collections and reducing days sales outstanding in a way that we thought that we could continue.We are continuing to win new business, as Dominic has explained. And we believe that in certain instances, CapEx is a really valuable part of winning that new business. We see that particularly in North America, where CapEx gets deployed into typically a larger contract and contracts that are of a longer length than in contracts where CapEx isn't deployed. So in North America, our average contract length is 7 to 8 years. We have said that, because we're going to continue to invest, because we are still winning new business, our CapEx for the half year should be at a gross level in the region of GBP 350 million to GBP 400 million. Now a lot of that is actually CapEx that was committed in prior periods when we signed new business, and we're waiting for the new business to open. When we're working with clients on new bids and tenders for new business, we are still prepared to put CapEx into those contracts. Clearly, we work with our own internal hurdle rates and making sure that the CapEx that we're investing helps to support our long-term ROCE. It may be that volumes are a bit suppressed in the short term, but working the clients, we're also finding some opportunities to wait a bit before the CapEx is deployed until some of the volumes are coming back. And then on your third question, just in terms of whether or not we've got confidence to use the cash that we've built up, absolutely. It was thought through and deliberate part of our strategy to create balance sheet resilience so that we could use that, the resilience, and the means within that balance sheet to take advantage of our competitive position, whether that was from the CapEx that I've just described or -- and I think we've discussed this earlier on the call, whether it might be from M&A opportunities as and when they come along.
We will now take our final question from Kean Marden, Jefferies.
Three very quick ones from me. Would you mind sharing what government furlough -- the impact from government furlough schemes, the benefit was to the EBIT line in the first quarter, please, and whether that all drops away in Q2? Secondly, some U.S. universities at the moment are canceling spring break. Would that have any potential tailwinds to your business in March? Or is the fact that most sites are remote or hybrid mean that, that won't be the case? And then finally, I've got a few IG messages from clients just trying to nail down the Q2 organic revenue growth guidance. So is the right way to think about this, that on a pre-COVID basis, organic revenue growth down about 1/3, but the COVID impact on the business in the first quarter of last year was about 7 percentage points, all concentrated in the last couple of weeks in March? And therefore, when we see the numbers that you print for the second quarter, it would be more like sort of 26%, 27% instead.
Yes. I'll -- Karen, if you could do the government furlough and the organic growth point. And then just on the universities point, Kean, yes, look, I think we're hearing across some of the education estate plans to try and catch up some of the lost teaching time. We've heard plans mooted in national education systems in certain countries, and that might either be through some schools or it might be through spring break. That would obviously only be a benefit to us if it is on campus, on site physical teaching. But yes, that could be a potential benefit, but certainly not something that we're building into our numbers at this point until there's greater clarity.Karen, over to you on the others.
Yes. Thanks. Just in terms of the government support that we are receiving -- have received. In quarter 1, it was just about GBP 50 million of government support, and that is now really concentrated in Europe. Any other government support has pretty much tailed away. We see that reducing to something more like GBP 40 million in quarter 2, and then our current line of sight has it tailing off very, very significantly. There's 1 or 2 countries in Continental Europe that have committed to a bit more support going out further. But what we tend to see is that governments will communicate what they're going to do in terms of support about a quarter out. And obviously, this is very dependent on the external environment. But we understand in -- that to get back to our historic margins, that means that we've got to move up government support. And we've got to get the business rightsized for the long-term revenues and long-term volumes that we're going to be seeing. So -- but GBP 50 million quarter 1, about GBP 40 million quarter 2 and probably a lot less thereafter. And then your question around nailing down quarter 2 organic revenue guidance. I mean, we -- I'll just reiterate, this is uncertain. We are living in uncertain times, and we think that the volumes and the revenue in quarter 2 could be similar to the volumes and revenues that were in quarter 1. But the point that you make around what we saw in March last year, and therefore, the impact that, that might have on organic revenue guidance. So in terms of arithmetic, yes, understand the arithmetic.
Thank you. That will conclude the questions for today's session. I will now turn the call back to your host for closing remarks.
Yes. Just let me say thank you all very much for joining us today, and we look forward to speaking to you in -- at the half year in May. Thank you. Have a good day.
Ladies and gentlemen, that will conclude today's call, and you may now all disconnect.