SODEXO (SW) Q1 2021 Earnings Call Transcript

SODEXO (EPA: SW) Q1 2021 earnings call dated Jan. 08, 2021

Corporate Participants:

Virginia Jeanson — Head Investor Relations

Denis Machuel — Chief Executive Officer

Marc Rolland — Chief Financial Officer

Analysts:

Bilal Aziz — UBS — Analyst

Simon LeChipre — Stifel — Analyst

Jamie Rollo — Morgan Stanley — Analyst

Vicki Stern — Barclays — Analyst

Leo Carrington — Credit Suisse — Analyst

James Thomas — HSBC — Analyst

Richard J. Clarke — Sanford C. Bernstein & Co. — Analyst

Presentation:

Operator

Good morning. Thank you for standing by, and welcome to the Sodexo First Quarter Fiscal 2021 Revenues Conference Call. [Operator Instructions]

I would now like to hand the conference over to the Sodexo team. Please go ahead.

Virginia Jeanson — Head Investor Relations

Thank you, Nadia. Good morning, everyone. Happy New Year. Welcome to our Q1 call. On the call today we have Denis Machuel and Marc Rolland. As usual, if you haven’t already done so, the slides and press releases are available at sodexo.com. And you’ll be able to access this call on our website for the next 12 months. I remind you that this call is being recorded and may not be reproduced or transmitted without our consent. Please get back to us, the IR team, if you have any further questions after the call. I remind you that we have our AGM on Tuesday at 03:30 French Time online-only due to the pandemic. The next numbers announcement will be the first half figures on April the 1st.

I now turn the call over to Denis Machuel. Denis?

Denis Machuel — Chief Executive Officer

Thank you, Virginia, and good morning, everyone. Happy New Year, and my best wishes to all of you and your loved ones. Thank you for being with us for this first quarter fiscal ’21 call. I must say that we are very pleased with this first quarter relative to our assumptions. And relative to our targets, both on revenues, which are in line, and our cost control, contract negotiations and restructuring, which are better than expected.

So if you move to Slide 4, you will see that the organic decline in Q1 revenues was 22.7% or 21.5% if we exclude the Rugby World Cup in the base. This was better than in the last two quarters of fiscal ’20, and in particular, the fourth quarter, which was at minus 24.9%. We saw an improvement in September and October, even though the second wave impacted our activity in November, reducing some of the progress. The organic decline in On-Site was 23.3% and would have been 22.1% if we exclude the impact of the Rugby World Cup last year. This compares to minus 25.4% in Q4. So while North America has remained very impacted in all segments by the pandemic, the recovery in Europe and Asia Pacific and Latin America has continued.

Benefits & Rewards was down 5.6%, showing a significant improvement in the trend relative to the minus 15.1% in Q4 as a result of the return to positive growth in issue volumes and reimbursement volumes, even though the second wave has slowed this recovery. Latin America remains affected by a very competitive environment and lower interest rates in Brazil. In the next few slides, I’d like to go into a bit more detail on the situation in Education, which remains very compressed.

On Slide 5, let me remind you that our schools business is about 50% of our education activity and is spread approximately half in North America, the third in Europe and the rest in Asia. As you can see on the slide, European schools were open. And although not all schools and classes are open all the time, the participation rate was high, between 80% and 95%. France has been open since the beginning of September. Schools in the U.K., Spain and Italy have opened more progressively. On the negative side, we are now going back into lockdown in the U.K., which will have an impact on our Q2. In North America, the situation is far more difficult with only 16% of schools fully opened. However, our activity rate is around 50% due to the critical role we’ve played in the distribution of emergency meals.

On the next slide, you will see that we have renegotiated about 70% of our contracts. And despite the schools closures in North America, we are continuing to provide strong support to communities with approximately 60 million meals provided to bring healthy and nutritious meals to communities [Phonetic] in need. And during this signatory [Phonetic] crisis, we have remained more than ever focused on promoting and providing good nutrition.

In Italy, flexible lunch boxes have been conceived with ingredients to boost immune systems with, for instance, more vitamin C and E, zinc and probiotics. In France, we are still ensuring at least one vegetarian meal weak for all school children. And going further than that, we’ve developed lots of new vegetarian recipes using some of the 50 ingredients of the future, such as quinoa, beetroot and spinach; desserts such as apple and beetroot puree and/or caramel quinoa cake, are being integrated into the school menus.

In the U.S., in October, SodexoMAGIC, our venture with Magic Johnson, got together with Impossible Foods to provide a vegetarian burger for more than 5,000 school children across four Michigan school districts to promote new ways of eating even in these difficult times. Impossible Foods and SodexoMAGIC hosted a Socially Distanced Cookhouse Time event at the Flint Junior High’s centralized kitchen.

If we now look on Slide 7 at universities. Our universities business is principally, as you know in North America, and many of our clients are suffering there. The overall enrollment declined in this current academic year is 5%, but has reached 16% for first year students across the U.S., according to New York Times Research. And when you look at the breakdown on the chart, you will see that only 27% of learning is physical, 8% is fully online and the rest is a hybrid approach. This situation cannot last. Surveys have repeatedly shown that students want physical learning and campus life.

As far as the situation is concerned, it’s still very fluid in universities with very little visibility even for the spring term. As previously mentioned, we’ve now managed to renegotiate approximately 70% of our contracts mainly on the food side. Cost plus contracts now account for 30% of the total versus only 10% pre-COVID. These renegotiations guarantee us more security to cope with a much lower volumes.

We are also successfully cross-selling our clean floor process into the university campuses. This array of cleaning tools and supplies reduces surface pathogens, therefore, reducing the risk of contagion. We are also deploying our BuyIt payment app for our university students in more than 170 of our sites for the spring term. There is about 27,000 users so far and growing.

Now, a look at Benefits & Rewards. The festive year end gift campaigns accounts traditionally for approximately 7% of BRS revenues. And we have these offers in 10 main countries. The campaigns this year have been very positive, less so in Q1, but more in the final run up to the holiday season with two main factors to consider. First, because several European governments announced one-off tax exemption increases. And second, many companies diverted other seasonal budget such as holiday parties, decorations, etc. to boost the gift budget this year. And this year, digital offers accounted for 42% of the total, up 11 points versus last year.

We’ve been very successful in new business and cross-selling due to the launch of some new offers such as our Sodexo Premium Pass Celebration Dining in India. We’ve also enhanced our targeting of companies and sectors which were not previously big buyers of gift benefits. And we had a strong dedicated sales and marketing campaign in all of these countries.

Let me pass you over now to Marc for the revenue analysis.

Marc Rolland — Chief Financial Officer

Thank you, Denis, and good morning, everyone. And my best wishes to all of you for prosperous 2021.

So let’s turn to Slide 11. Revenue came in at EUR4.4 billion for the quarter, down 27.1%. The currency impact was a negative 4.5% due to the weakness of most currencies against the euro, and in particular, the real. Some scope changes were negligible at 0.2%. This gives us an organic decline of 22.7% better than in Q4 fiscal 2020, particularly, if you take into account the Rugby World Cup, which had a negative impact of 120 basis points on the group and on on-site numbers. On-Site was down 23.3 or 22.1 excluding the Rugby. Benefits & Rewards improved significantly from one quarter to another, being down only 5.6%.

Turning now on Slide 13 for the on-site levers of resilience. Again, this quarter, certain service, geographies and segments have been much more resilient than others. FM was flat and our global IFM accounts were actually up 1%. This is due to our great sectorial mix with 80% of our global IFM accounts being in the pharmaceutical and FMCG sectors. E&R and Government & Agencies were very firm, up 5.5% combined. It was helped by strong activity in the mining sector due to additional COVID-related services. In Corporate Services, we have also been able to renegotiate all our P&L type contracts, which represents two-third of our contractual base in that segment.

Geographically, we saw strong resilience in our APAC, Latam and EMEA region, which was flat this quarter. Europe was down only 19.8% or 16.6% excluding the impact of the Rugby and was much better than the previous quarter due to schools going back progressively as of September. On the other hand, North America remains very badly impacted by COVID with little sign of improvement at this stage, particularly, given the weight of the Education and Sports & Leisure segments in that region.

Slide 14. Business & Administrations organic decline was 27.7%. The trend was 2.1 point better than in Q4, but doubled at 4.2 points if you strip out the Rugby which was in last year’s published figures. You will find full disclosure on the Rugby effect in the appendix of this presentation. And while on the appendices, please take a look at them, because we do put quite a lot of detail into them.

In B&A in North America, the organic decline improved slightly, but remained very significant at minus 47%. The trend improved in Energy & Resources and Government & Agencies. However, most Sports & Leisure sites remain closed and Corporate Services showed no improvement in trend relative to the previous quarter. In Europe, sales were down minus 30.2% organically, more or less in line with the performance of the previous quarter. However, the trend is much better if you exclude the impact of the Rugby at minus 26%. It was visible in all segments with the better September and October more than offsetting the impact of the new lockdown measures in November.

In Asia Pacific, Latam, Middle East and Africa, activity was flat in the quarter, reflecting strong growth in Energy & Resources, particularly in mining, while activity in Corporate Services is stabilizing more progressively. Growth in China and Latin America is offsetting a more difficult situation in India and some other Asian countries.

In Healthcare & Seniors, the organic decline of minus 3.5% was much better than the previous quarter. Organic growth in North America was down 10.6% due to the weakness of retail sales in the majority of hospitals during the pandemic and with no sign of any improvement in the previous quarter. On the other hand, cross-selling of new COVID-related services has been solid. Seniors performance have continued to improved month-by-month with encouraging new wins.

In Europe, the strong organic growth of 9.9% reflect the ramping up of the COVID rapid testing center contract in the U.K. and the contribution of the large new contract in France. More generally, hospitals across the region are suffering from the declining retail sales. Seniors activity is more or less back to previous year levels. In Asia Pacific, Latam, Middle East and Africa, the organic decline was better at minus 4.3% with a return to strong growth in China, partially offset by the continued weakness due to the pandemic in Latin America.

Education revenue in the first quarter was down minus 31.2% organically. In North America, the segment remained severely impacted by the COVID pandemic with an organic decline of minus 38.5%. Schools and universities were only very partially opened with very patchy performances. Only 15% of schools are fully opened, although activities of that was 50% of normal level due to the emergency meal distribution. Only 27% of universities are fully opened. The vast majority is providing hybrid learning system.

In Europe, schools reopened, and so the organic decline was limited to minus 7.4%. Most schools were backed by mid-quarter, even if some classes are forced to close from time to time due to COVID. In Asia Pacific, Latam, Middle East and Africa, the organic decline remained significant at 21.5% due to the lockdown in India, Singapore and Hong Kong. China recovery was visible in the bilingual schools, which are up strongly. However, the international schools remained very difficult.

Now let’s move on to Benefits & Rewards Services. As you have already seen, the Benefits & Rewards Services revenue trend improved significantly in Q1 versus the previous quarter, down only 5.6% organically. This improvement was due to a strong improvement in employee benefit issue volumes, and even more so, in reimbursement volumes. Both were up respectively 0.8% and 1.6% year-on-year. While issue volumes were down very slightly in Latin America, minus 0.4%, they were up 1.9% in Europe, Asia and USA.

In India, for instance, despite a very significant effect of the pandemic in the country and the strict lockdown, our team was very proactive in moving to virtual digital solution, leveraging the VITA Technology. Within weeks of the lockdown, we were able to issue meal, cafeteria and multi-benefit solutions totally virtually to overcome the difficulties of manufacturing and distributing physical cards. More than 3,200 contracts were set-up for digital insurance and more than 225,000 cards have been issued virtually. We have also started to market joint on-site BRS offers and have begun to win some contracts.

Moving on to Slide 19. Employee Benefits revenues were down 4% organically, demonstrating a clear recovery compared to the fourth quarter of fiscal 2020 trend. Services Diversification was down minus 10.7% due to the continued difficulties in sports and travel market in most countries. On the other hand, public benefits are up strongly in all region.

In Europe, Asia and USA, revenues declined by 3.2% organically, which represents a significant improvement relative to the previous quarter in most countries. Issue volumes were solid. And in September and October, we saw an improvement in the reimbursement volume, even though this trend reversed in November due to the second round of lockdown. Growth in issue and reimbursement volumes, for instance in India, in China and Turkey were strong as by innovation in new offers.

In Latin America, sales declined minus 9.4%. Overall, issue volumes and reimbursement volumes were stable in the region. However, revenues were impacted by the highly competitive environment and falling interest rates in Brazil. Although the Brazilian Selic is still declining year-on-year, it has stabilized since last summer at about 2%. The momentum in the rest of the region remained very strong, except in Chile, which was more impacted by the pandemic and the economic environment.

I have already talked a lot about the operating revenue. They were down only minus 4.2%. On the other hand, financial revenues were down 23.5% still impacted by the decline in interest rates, particularly in Brazil. Thank you for your attention.

And I will hand you back to Denis for the outlook.

Denis Machuel — Chief Executive Officer

Thank you, Marc. And if we now go to the outlook. So as far as the outlook is concerned and given the performance in the first quarter on revenues and the fact that there will possibly be further third wave lockdowns in some countries over the next couple of months as we are seeing in the U.K. at the moment, we maintained the first half organic growth hypothesis at between minus 20% and minus 25%. Given the strict cost control, the service contract negotiations and the ongoing restructuring, we now target an underlying operating profit margin of at least 2.5%. So above the original estimate of between 2% and 2.5%.

As far as the free cash flow is concerned, we maintained our assumptions of the negative free cash flow of EUR150 million in the first half due to the traditionally negative recurrent first half outflow of about EUR100 million and the non-recurrent elements of about EUR250 million, including previous year restructuring costs, government support payment delays reversals and the reimbursement of the 2020 Olympic Games hospitality packages.

For the second half, it’s far too early to foresee the way things will be out on our activities as it will depend heavily on the equilibrium between new ways of contamination and the speed of the effects of the vaccination on the pandemic. However, on the basis that the pandemic will largely be dealt with by 2021 calendar year end, we aim to return to sustained growth and rapidly increase the underlying operating margin back over to the pre-COVID levels.

And let me now open the meeting to your questions. Thanks again for being with us. So operator, if you can switch to questions.

Questions and Answers:

Operator

Yes. Thank you. [Operator Instructions] And your first question comes from the line of Bilal Aziz from UBS. Please ask your question. Your line is open.

Bilal Aziz — UBS — Analyst

Hey, good morning, everyone, and Happy New Year. And just two questions from my side, please. And you mentioned in the back of the slide pack some contract wins. Can you talk a bit more broadly once again about the pipeline and how that might be split between integrated contract and single service catering contracts and if you’ve noticed any pattern between that? And secondly and partly related to that. Is there a split between what you’re seeing between market share gains and first-time outsourcing, particularly interested in the U.S. with regard to what you’re seeing and hearing on smaller competitors? Thank you.

Denis Machuel — Chief Executive Officer

Thank you, Bilal. In terms of — we have a contract win. We have a, I would say a solid pipeline. The velocity in the pipeline is probably not as fast as we would wish given the impact of the crisis, of course, but we have a solid pipeline. The split between integrated and single service has not massively moved. You know that the large integrated contracts, we’ve been very careful about the profitability that we expect from those contracts. We were more selective. We have a good pipeline of that, but we are selective as well. And sometimes it takes time because we want to negotiate those contracts properly.

In terms of single service, we are — we have in full, particularly, we’ve put an emphasis on that. And we are — we have good expectations of some nice signatures. First-time outsourcing represent at the moment about one-third of our pipeline, which is good. And again, the speed at which we signed those first-time can be sometimes a bit slower given the pandemic we’re still in. But I think it’s — I would say — I would quantify our pipeline as solid, safe and promising.

Bilal Aziz — UBS — Analyst

Thank you.

Denis Machuel — Chief Executive Officer

Thank you, Bilal.

Operator

Thank you. And your next question comes from the line of Simon LeChipre from Stifel. Please ask your question. Your line is open. The next question comes from Simon LeChipre. Are you there? No. So the next question comes Simon LeChipre. Please ask your question. Your line is open.

Simon LeChipre — Stifel — Analyst

Hi. Can you hear me?

Operator

Yeah.

Simon LeChipre — Stifel — Analyst

Okay. So good morning and Happy New Year. Three questions, please. First of all, looking to Q2, how confident are you in terms of your guidance for H1 given the new restrictions being put in place? So basically, do you expect Q2 to show slight deterioration compared to Q1? And secondly, in terms of margin. So if you could please come back on the drivers behind the better performance and give us some details on segments which are doing better compared to your initial expectations? And lastly, looking to your free cash flow guidance, so you keep it unchanged despite a better profitability expected. So does that means a minus EUR100 million recurring free cash flow you expect is really a conservative scenario right now or it was a factor that would offset the impact from the better profitability? Thank you.

Denis Machuel — Chief Executive Officer

Thank you, Simon, and Happy New Year to you as well. So regarding Q2 and H1 as a whole, yeah, I think we are confident in the guidance that we’ve given. It integrates — that guidance integrates the lockdown that we have at the moment in the U.K. We’ve upgraded our margin assumptions and kept our revenue guidance. And the reason for that is because we’ve been — we are improving the business quarter-by-quarter in terms of top-line progressively. Q1, as I said, in all segments is better than Q4.

On the cost side, we have focused a lot on how we control the cost. How we, again, get the full impact of our contract negotiations. We are very close to our clients and really deliver the services that are required in a proper contractual framework, and that’s very, very important. We — if we go above and beyond, then we ask for the extra above and beyond revenue as needed. I must say that mindsets have changed, thanks to this crisis, in our teams. And they are very focused in getting rewarded for the services that we provide.

So what we see is, we see the gross margin getting more and more solid, improving versus previous quarters, and that’s what makes us confidence in this improvement of the profit margin. And of course, the restructuring program that we’ve put in place to improve and reduce our SG&A ratio is well underway, and it of course brings support to our confidence.

In terms of free cash flow, Marc?

Marc Rolland — Chief Financial Officer

Yeah. In terms of free cash flow, we’re probably a little conservative, maintaining the cadence.

Denis Machuel — Chief Executive Officer

Yeah.

Marc Rolland — Chief Financial Officer

It could be slightly better.

Simon LeChipre — Stifel — Analyst

Okay. Thank you very much.

Operator

Thank you. And your next question comes from line of Jamie Rollo from Morgan Stanley.

Jamie Rollo — Morgan Stanley — Analyst

Yeah. Good morning, everyone. Happy New year. Three questions, please. First, just coming back on one of the previous questions, your expectations for Q2. Clearly the H1 guidance, which is unchanged, give the pretty wide range for Q2, down 17% to down 27%. It would just be helpful if you can give us a flavor for where you think you might end up. I assume Q2 will be worse than the first quarter. So if you could talk about that and maybe give us a flavor for what November was?

And secondly, if we look at the improvements you reported in Q1 versus Q4, as you showed, nearly all — well, a lot of it is in Europe and that’s despite of course the lockdown there in November. But even within North America, some of the segments seem to got a bit worse. I’m just wondering what your expectations are? Clearly it’s very difficult to guide on the virus, but it does seem to be very wide gap between North America and Europe right now, wider than it was in previous quarters?

And finally on the commentary about recovering your margins. Since you last reported, Compass said they hope to recover their pre-COVID margins before recovering their pre-COVID revenues. Do you see a similar trend or do you expect more of a linear relationship?

Denis Machuel — Chief Executive Officer

Thanks, Jamie, and Happy New Year to you. Yeah, well actually, we’ve seen Q2 as — we expect Q2 to be more or less in line with Q1. Nothing actually have changed one way or the other. We already — we are already halfway through Q2 almost. If some lockdowns come, they will impact the second part of Q2. Schools remain opened, except in the U.K. France has said that they would — that the government recently said that they would close the schools at the very, very last — as a very, very decision. So we are — I think we are quite confident that we would have probably Q2 more or less in the same range as Q1.

Yeah. Well, NORAM, if we can say over the last three quarters — three months, NORAM is more or less flat in terms of trend and it’s a bit above 9% to 30%, and we don’t see any improvement here coming up. So — and — but it’s true that we’ve seen Europe progressing a bit. November has been a bit less than good than September and October. As we’ve said, we had a promising first two months. And then with the lockdowns in Europe, we went a bit down. So that’s how you can see Q2 versus Q1. Not a massive improvement, but not necessarily a massive deterioration.

In terms of margins, as we’ve said, we hoped for very much our cost. We reignite the top-line as much as we can. And yes, as I said in the guidance, margins will increase. Will they increase more quickly than our revenue? Probably yes, but let’s be pragmatic. Let’s take things step by step. What we’re convinced is we can pre — post-sanitary prices when populations are vaccinated, we can reignite our margin improvements and get back over to the pre-COVID margin levels that we have. That’s where we are confident. We confirmed this. The speed between the revenue and the margin is yet to be assessed. But yeah, probably we can increase margins quicker than ROE. It’s possible, but let’s take it step by step.

Jamie Rollo — Morgan Stanley — Analyst

Right. Sorry, just to follow-up on the last one. At 2.5% you’re already half way back to where you were. And you are still running with sales down over to the 20%, but clearly the pace of margin improvement is going to slow very sharply. If you can give us any help on thinking about that on the trajectory of sales improving from sort of minus 20% to flat? I mean, I’m guessing we are factoring in certainly a much slower margin performance as you head into the sort of teens type production. Is that fair?

Denis Machuel — Chief Executive Officer

I’m not sure I — you were breaking up so much. So what you’re suggesting is that we are almost halfway through, is that right?

Jamie Rollo — Morgan Stanley — Analyst

Yes. Sorry, there is an echo on my line. I’m just — so the point I wanted to make was in your second quarter last year — sorry, in your third quarter last year, I think your margin was negative 3% with sales down about 30%. And it’s now possibly at least plus 2.5% with sales down between 20%, 25%. So it’s only a fairly small sales improvement, but a dramatic margin improvement, and at 2.5%, you’re only half of your — roughly half of your pre-COVID margins. So just mathematically, there must be a much slower pace of improvement from here. But I’m just wondering when that slow down comes through? Is it when the sales decline is in the sort of teens, like between 15% and 20% or is it when it’s single-digit declines?

Denis Machuel — Chief Executive Officer

It’s hard — I wouldn’t — sorry, and I’ll let Marc complement there. I wouldn’t model this like this. There is lots of moving parts. And if you compare the situation in Q3, I mean, we had massive changes, we had stocks, inventory that we have to get. I mean, there is not much like-for-like there…

Marc Rolland — Chief Financial Officer

There was quite a few one-off issues in Q3 and Q4, which were not recorded. What we have with Q1 is I think we have a clean recurrent view on the business for the first time. In Q4 and Q3, there was lots of moving parts. There are still a few moving parts like government aid, how long it will carry on, when will it stop and so forth. But today’s Q1 gives us a much cleaner view on performance than we had in previous quarters.

And as Denis said, we’ve been encouraged by what we saw in Q1 versus what we were expecting. So we believe there is a path, negotiation have given us the good results. Our cost control is there. So now let’s see how Q2 is performing and Q3 and we will give you more visibility, but we need to confirm. It is encouraging.

Jamie Rollo — Morgan Stanley — Analyst

Yes. Thank you.

Operator

Thank you. And your next question comes from the line of Vicki Stern from Barclays.

Vicki Stern — Barclays — Analyst

Hi, good morning. And just coming back on the earlier question around net new business growth. And just firstly any comment on how retention is faring in the quarter? And obviously, short-term, the pipeline is being impacted by the pandemic still. But just is it around — maybe your best guess at this stage as we look out over the next couple of years or so as to what that level of net new business wins should look like?

Denis Machuel — Chief Executive Officer

Thanks. Vicki. And hello, Happy New Year to you. Just — the development is slightly better, which is encouraging versus last year. So that’s a good sign. Retention is yet to be pre-assessed. We are again at the beginning of the year. We are still very early in the year. So we’ll give you more relevant of that in H1, but I’d say the quality of the pipeline is improving.

Definitely, the net new business moving forward will be positive because we — again, we aim at — on a steady state basis, we aimed at really reigniting our top-line growth as well as improving the margins. And retention will be a very, very — has been and will be a very, very important focus for all the teams moving forward. But we’ve put lots of efforts there. So we want a healthy pipeline in terms of new win. We want to capture opportunities that we can have in first-time outsourcing. We know that they are more profitable in most of the cases and sometimes the — we’re going to a tender and in market share gain. And so retention is very, very critical to us. But I’m positive on the net new business wins that we can have moving forward.

Vicki Stern — Barclays — Analyst

Thanks. And then perhaps a follow-up. There has been a lot of discussion about the impact of [Indecipherable] smaller competitors. And just if there’s any anecdotal comments around what you’re seeing amongst those competitors? Have there been many sort of heavily disrupted?

Denis Machuel — Chief Executive Officer

Some thoughts, smaller competitors have been of course disrupted as we’ve been. Some that are less diversified have been sometimes severely impacted, particularly the ones that are operating schools for example in last year, of course, they’ve been impacted. The point is, because we are not a cash intensive business, you can survive even if you struggle. So the ones that had some difficulties in, let’s say, spring and summer, as soon as schools reopened they got oxygen back. So we haven’t seen any major failure of even smaller competitors. Will there be some opportunities, maybe some acquisitions moving forward? Yes, we think there will be. But we haven’t seen any heavily disrupted competitor of relevant side, I would say.

Vicki Stern — Barclays — Analyst

Thank you. And sorry, just one last follow-up. Just any regional differences in terms of sort of new activities in Europe sort of moving slower or faster than the U.S. on that front, for example?

Denis Machuel — Chief Executive Officer

In terms of the business trends or the property deals?

Vicki Stern — Barclays — Analyst

Property signings and/or retention.

Denis Machuel — Chief Executive Officer

No, nothing particular. No, nothing particular in terms of signatures or anything. They are mostly linked to the situation that the markets are in.

Vicki Stern — Barclays — Analyst

Okay. Thanks very much.

Denis Machuel — Chief Executive Officer

No major regional difference, yeah. Thank you, Vicki.

Operator

Thank you. And your next question comes from the line of Leo Carrington from Credit Suisse. Please ask your question.

Leo Carrington — Credit Suisse — Analyst

Good morning. Thank you. Two questions. Firstly on BRS, I guess BRS saw the strongest sequential improvement. I’m interested in the sustainability of this performance and underlying client activity. Firstly, you mentioned gifting was 7% of revenues in BRS last year. What’s — what kind of increase in activity have you seen in Q1? And I’ll also appreciate, you said it’s perhaps more of a fact visible for Q2. And secondly, have you seen any cross-selling progress during the crisis? Can you just remind us on how much client overlap there is and what potential is there?

And then second question, I was surprised to see Compass quietly acquired EAT Club in the U.S., which you, Sodexo, previously were part owners of. Can you just give an indication of why you didn’t look to take ownership or perhaps if there was a reason why that business didn’t fit with yours? Thank you.

Denis Machuel — Chief Executive Officer

Yeah. Thanks, Leo. In terms of BRS, so yeah, we believe that these — the improvements, particularly in the issue volume will continue. Of course, lockdowns again in Europe where we have a significant business may impact a bit. But we think that that will continue and we have a good sales activity in BRS and we continue to be confident. We have a high, definitely, a high-single-digit growth in — on the Christmas campaign and that will bring good things, specifically also on the revenue side when reimbursements come in. The good thing also is we’re improving our digital offers in India, so we see more and more clients ordering digital solutions, which is good and yet at the good level, but it’s improving.

In terms of cross-selling, yes, I think the joint offers between OSS and BRS are very promising. We accelerated cross-selling. We’ve signed really some — more and more contracting. We have a good pipeline in terms of that really joint offer. And that’s I think will give you more light and more information as we move forward with — this is really promising.

In terms of EAT Club, we had a stake into EAT Club. We — they went into with minority stake. Yeah, they went into trouble because they couldn’t find their market. And we looked at the potential and we decided not to take it over completely. It was — we had some discussions that we felt it was not bringing the value that we would have expected. So we moved to other options rather than taking it completely.

Leo Carrington — Credit Suisse — Analyst

Thank you very much.

Denis Machuel — Chief Executive Officer

Sure.

Operator

Thank you. And your next question comes from the line of Joe Thomas from HSBC. Please ask your question.

James Thomas — HSBC — Analyst

Good morning. Hello. This is James Thomas from HSBC. I just want to come back on the pipeline, if that’s okay. So I think you characterized the pipeline as being solid and you said that I think first-time outsourcing was about a third of the pipeline. How much — what percentage of the pipeline is first-time outsourcing normally? I’m just trying to get a sense of whether that’s increased or decreased and whether the overall scale of the pipeline is going up or going down? It doesn’t sound as though there’s much coming from smaller competitors, now you say they’ve been given more oxygen. So I just want to get a better steer on whether there is a potential for the growth to be accelerated? That would be the first question.

And then the second question is on the healthcare side of things. We read sort of grim headlines in the newspapers daily, especially in the U.K. about the routine operations. They delayed, postponed, especially in London at the moment, I don’t know to what extent that’s more widespread. But any thoughts on how that’s — well, how you’re thinking about the healthcare business more generally?

Denis Machuel — Chief Executive Officer

Right. So yeah, [Indecipherable] as I said, first-time was one-third. I must say that it’s higher as a proportion than we had before. Two things that may contribute to that. The first thing is some of our prospects have realized that operating food services or FM services themselves was difficult. Operating a disinfection services when you are not a specialist is complex and even operating food services to ensure that proper food safety, the proper safety of the people in the way we operate being more digital to ensure that there is sort of pick and collect and pick and delivery services is hard to do when you sell software. So that’s one side of things.

And the second thing is, we had for the past, let’s say, 18 months, two years, we have said to the teams that they needed to be more focused on that first-time outsourcing market, which is still depending upon the segments of course, which is still massive. So we have put an emphasis on our sales teams pre-COVID on feeding the pipeline with first-time outsourcing. So I think both those elements contribute to that increasing part of first-time outsourcing in the pipeline. And the pipeline is increasing. I would say, it’s more the quality of the pipeline that is increasing. We had a good pipeline, but the quality in terms of the margin that we could expect, the quality in terms of the capacity to win, the velocity and everything is improving.

In terms of healthcare, we believe this is a great market. As you know, it suffered less than I think many of other segments. Yes, elective surgery has been postponed in many hospitals. Retail has also disappeared almost in all hospitals. There are no more visitors. And obviously, elective surgery will come back as soon as pandemic goes away. Retail will come back because visitors will come back to hospitals. And we have — we strongly believe in the potential of that market.

We are well positioned in the U.K. Yeah, it’s going to come gradually, but we are positive on that market. We have strong positions in the U.K., strong position in France, strong position in NORAM and in Asia as well. So that’s going to be an important market for us moving forward. Again, when pandemic goes away, we’ll see volumes progressively picking up.

James Thomas — HSBC — Analyst

Thank you. No, I think that it will come back. And my question was really aimed at understanding whether [Indecipherable] Q1?

Denis Machuel — Chief Executive Officer

I’m sorry. You broke up. Could you repeat your question?

James Thomas — HSBC — Analyst

Yes. No, I understand that it will come back eventually. And my question really was aimed more understanding on a quarterly basis whether Q2 was looking worse than it did in Q1?

Denis Machuel — Chief Executive Officer

Okay. Sorry, sorry. Yeah, what we’ve seen is that the healthcare month-by-month is progressively improving. We also have the rapid testing centers in the U.K., which gave us healthcare growth in the U.K. because of the testing centers. So yes, it will be some hiccups in terms of elective surgery for a few months, but the rapid testing centers activity is quite solid.

So actually the U.K. is one of our best performing market at the moment in healthcare and it’s gradually improving. The underlying trend is improving month-after-month. So I think today the healthcare systems around the globe are a lot more organized than they were a year ago and they are able to cope more with other surgeries. It’s not a brilliant and there are some challenges, but it’s getting better. So we are not too worried. And then we are seeing this going further progressing positively. And obviously in the U.K. we’re supported by the testing center.

James Thomas — HSBC — Analyst

Thanks very much.

Operator

Thank you. And your next question comes from the line of Richard Clarke from Bernstein. Please go ahead, ask your question.

Richard J. Clarke — Sanford C. Bernstein & Co. — Analyst

Hi there. Good morning, everybody. Apologies. There was some sound issues on some of the earlier questions. So have any of these been asked already then please let me know. And in your presentation you mentioned that there is some working from home benefits in the Benefits & Rewards. Is that the gifting that you referred to in the presentation or is that some more longer term sort of working from home benefit you see within the Benefits & Rewards?

And in healthcare, just wondering, I kind of understand in education why Europe is doing so much better than North America, but why in healthcare is Europe doing so much better? Is that really down to the testing centers or is there something else different in healthcare between the two divisions? And can — is vaccinations an opportunity for you or is testing the sort of limit there?

And then just to push on the longer term guidance, you talked about if the virus is over, if the pandemic is over by calendar year 2021 you will then go back on margins. Should those things be kind of concurrent? So if — will H2 FY ’22 see margins above pre-pandemic levels or would there be more work to go over the sort of coming quarters to get back on to that trajectory?

Denis Machuel — Chief Executive Officer

Yeah. Thanks, Richard. And so on the work from home, it’s much more than the sort of gift campaign that we did. We did a good gift campaign. But the fundamental trend is, we see clients willing to accompany their employees when they are home. And we see employees asking for support when they work from home. As we said in the Investor Day, we expect work from home to sort of land at two days per week, of course for office workers not for production people. But — and for those two days, clients are really figuring out how they will accompany and accompany people with food services typically with our cards makes lot of sense. And where we are stronger is that we can integrate both offers, the On-Site and the BRS cards in one system, one integrated system, which is a great value for our clients and for our employee experience, and we are unique on this. So that trend will support the development of joint offers and we are really positive on it. We’re signing clients. We have a good pipeline of course in the countries where BRS is, but it’s strong.

In terms of — so we’re positive on that. In terms of healthcare, Marc, do you want to…

Marc Rolland — Chief Financial Officer

Yeah. The healthcare in Europe is better, generally speaking. Even if you move away the rapid testing centers, the trend is better than the U.S. It’s also because the retention historically is a lot better in Europe than in the U.S. Here in the U.S. last year we had some large losses. And so there is still a compounded effect on the NORAM numbers. And so the NORAM numbers will improve because the base will get more favorable in the coming quarters.

In Europe, I would say if you remove the rapid testing centers, the trend is about minus 5%. And with rapid testing center, you move to 10% because the rapid testing center is about EUR20 million amount right now. So that gives you the trend, but the trend is improving. What’s important is that steadily we see the healthcare trend improving month-after-month.

Denis Machuel — Chief Executive Officer

And regarding your…

Marc Rolland — Chief Financial Officer

And regarding vaccination, we are open for business. I mean, obviously, I mean, we did good business and I think we’re providing good service in the U.K. for the testing center. We will be happy to support. So the vaccination is a little bit more technical, it requires some — but yes, we are open to that, but today we have no new opportunities.

Denis Machuel — Chief Executive Officer

And it depends on government strategies…

Marc Rolland — Chief Financial Officer

Government protocols, the government strategies, but we can do.

Denis Machuel — Chief Executive Officer

And as far as your third question, Richard. As I said, we aimed — post-pandemic, we aimed at getting back to sustainable growth and increased UOP over the pre-COVID levels, but I wouldn’t give any timeframe on that. We have been — we are always cautious. I think you should take the trend that we have as a positive one and the efforts that we’re making in improving quarter-after-quarter our gross profit margins after the crisis that we’ve lived through and is for us important the cost control that we do also good signs. But I won’t commit on a date.

Richard J. Clarke — Sanford C. Bernstein & Co. — Analyst

Thanks very much. Very clear.

Denis Machuel — Chief Executive Officer

Thank you, Richard.

Operator

Thank you. And there are no further questions at this time. Please continue.

Denis Machuel — Chief Executive Officer

Okay. All right. So thank you very much for being with us today. I would just again want to wish you the very best. I want to wish to all of us, I would say, a better ’21 than we had a ’20. I’m convinced that this year is the year of opportunity. We are — we’ve been demonstrating resilience and strength during the crisis. I think we’ve done really well relative to some of our competitors. We’re ready to put our — all our efforts in surging from the crisis and getting back to the levels that — and better levels that we had in terms of revenue and profit. That’s our goal.

We are confident and the teams are absolutely focused and motivated, close to our clients and positive moving forward, even though — yeah, the months to come might be a bit difficult. But the energy is there. The willingness is there to develop the business. And yeah, looking for more good things moving forward. Thank you very much. Have a great year.

Virginia Jeanson — Head Investor Relations

Thank you. Bye, bye.

Denis Machuel — Chief Executive Officer

Take care and stay safe.

Operator

[Operator Closing Remarks]