Compass Group PLC (CPG) Earnings Call Transcript & Summary

Thank you very much, and good morning. I'm joined this morning by Karen Witts, our CFO. Before opening the call to questions, I'd like to say a few words on the results and the placing. We came into this pandemic on the back of our strongest performance in many years. As you know, we grew 6% organically over the past 2 years, and we were growing at 6% organically with 10 basis points of margin progression in the first 5 months of this financial year. But the crisis is placing significant pressure on the business. And during the course of April, we have around 50% of our revenue suspended. The outlook remains uncertain, both in terms of the length of the lockdown measures and what the relaxation of those containment measures, the impact it may have on our business as well as on the economy thereafter. We've acted quickly and decisively to put the business on the very best possible footing by reducing costs by GBP 500 million per month, protecting cash by reducing CapEx, pausing M&A and suspending the dividend. We've strengthened our liquidity by increasing our committed facilities by GBP 800 million to GBP 2.8 billion, and we've now obtained waivers from our U.S. Private Placement investors for our next 2 leverage covenant test. We remain extremely confident in our medium and long-term prospects and the Compass model of creating long-term shareholder value. We'll target steady and sustainable organic revenue growth, combined with industry-leading margins, and we invest in the business to support our organic revenue growth, the CapEx and Intel acquisition. And finally, importantly, we reward our shareholders with an ordinary dividend and returned surplus cash as appropriate. However, we need to reduce our leverage to increase our resilience. The equity raise, combined with the steps we've already taken, will allow us to weather the crisis whilst continuing to invest in the business, adapting our sites to the new normal, reducing costs, enhancing our competitive advantages and supporting those long-term growth prospects. We believe this will put us in a strong position in the recovery and further consolidate our position as the industry leader in food services. Thank you, and now we're happy to take your questions.

[Operator Instructions] We will now take our first question from Jamie Rollo from Morgan Stanley.

Three questions, please. The first one, I'm just sort of curious as to why equity, no -- no debt. I mean, you've been pretty clear. You're cautious on the outlook. But the company has pretty good liquidity anyway, and you came into the crisis with low leverage and you seem to have taken down your long-term leverage target a little as you move that to a post-IFRS 16 basis. So I'm just wondering, is it a concern about any longer-term structural change in contract catering? Or is there something else that we should be thinking about? And then secondly, on the cash burn. If I look at that liquidity table where you got up from GBP 2.5 billion to $3 billion between the end of March and the end of April, despite the GBP 800million RCF, it looks like the cash burn was about GBP 250 million in April. Is that right? And is that the sort of run rate we're thinking about? And if you could sort of mention working capital and any exceptionals within that conversation? And then finally, on the -- those are the quite good 23% -- a very good 23% April flow-through margin. Is that the sort of figure we should think about going forward? And what sort of margin should we think about for the group under those stress scenarios?

Thank you, Jamie. If I take the first and third question and then pass to Karen for the second. First of all, on the question of why equity, no debt. Look, we've clearly considered all of our options. This step isn't about liquidity. It's about reducing leverage and it's about introducing resilience such that we can withstand whatever the next 12 to 18 months could look like and also emerge the other side with the business that we've continued to invest in. We want to reduce our leverage back down to the range that we've traded at historically, which is 1.0 to 1.5x. And yes, on the new IFRS 16 basis, I think it's a fraction more conservative than the past. But it isn't in any way a signal of concern about our industry or sector. It's the desire to trade with the same values that Compass has always had, of conservatism and resilience. With regard to comments about the sector. Look, right now, 50% of the business is suspended. We need to work through the recovery of volumes. In the near term, it's going to be about how we adapt to social distance and the health and safety protocols that will be required on site. And therefore, what that means for volumes on site. In the longer term, yes, we'll have to understand what remote working, remote learning has meant for our sectors. But we do believe that the people will return to those sites. And the opportunity for us to provide enhanced services and more valued services will be there. In terms of drop-through, yes, we're very pleased with what we've achieved. We set out a range of 25% to 30%. We're now at 23%. We believe that is sustainable operationally. And isn't resulting from any one-offs at all at a pure operational number. We'll obviously work hard to further improve it. We quickly need to move -- quickly need to move away from a focus on drop-through to a focus on margin. And the journey now over this next phase is, as we recover volumes, how we recover margin. And I believe in that, there are 3 levers to pull. One is reducing our costs with the new volume environment. The second is addressing our commercial arrangement. So we're best protected to a low volume environment. And then obviously, it's being poised to welcome the volumes back into the system as they come. If I could pass over to Karen for the cash burn question.

Yes. Sure. So you asked the question about the situation in April, Jamie. So effectively, the cash burn is obviously very dependent on the amount of business that is open or closed. And in April, about 50% of the business was closed. With 50% of the business closed, our operational cash burn is in the region of GBP 100 million to GBP 150 million a month. Clearly, our cash flows are a bit lumpy. What we are also seeing in the short term, and you did refer to working capital, is a working capital unwind. So typically at the half year and the full year, we would have negative working capital to the tune of about GBP 100 million. And you'll have seen in the half year results that, that makes -- that working capital is GBP 300 million. And that is a function of the fact that about 1/3 of our business is cash sales. So when you don't have the cash sales and your debtors, realistically, all other things being equal, stay quite stable and your trade creditors, which are on 30-, 60- or 90-day terms, unwind. And with a 90-day unwind, we would have an outflow, total outflow, including what you saw in March, of about GBP 800 million. So if you just put that on a rough monthly basis, then you can get to the kinds of figures that you have picked up from the liquidity profile.

And should we be thinking about any sort of big exceptionals, if you're going to make some big redundancies in the year or even next year?

I think...

Jamie, look -- sorry, Karen. Do you want to take that?

No. No, you carry on.

I was going to say, look, in the past, as you know, we've always rightsized the business when we consider it appropriate to the volume trends that we're seeing. We're obviously going to have to have a clearer line of sight of how the sectors are recovering and what the pace of recovery is. But look, we also recognize we've got half of our workforce furloughed today. 10% of those are on government furlough programs around the world. Inevitably, that will be phased out at some time and maybe phased out before volumes recover. So we just have to poised to do the right thing. And part of our planning is to ensure that we're able to do that. But those plans certainly wouldn't in any way be crystallizing that.

We will now take our next question from Jaafar Mestari from Exane BNP.

Three questions for me please. First one, going back to The equity raise and the rationale. You've talked about why equity. Can you may be help us understand How you calibrated the amounts, GBP 2 billion? What is this expected to cover in terms of duration? And what's the budgeting assumption in terms of the rest of fully year 2020 that you're trying to make sure you're well capitalized for? Second question, I appreciate, it’s the very early days. But could you please comment on the first few weeks of reopening where it's happened? I appreciate China is small. But maybe on the first full week of reopening in France for example, how are clients behaving in offices, in manufacturing and in education? And lastly, just in terms of your product and then your commercial strategy. What are the changes That you're making? If any, what are you pitching to your clients for H2 '20 and for 2021 in terms of service levels, frequency, opening hours, mix of services? Is facilities management and cleaning doing a comeback in some of your pitches?

Thank you, Jaafar. If I take the second and third question and Karen can close on the first. Look, in terms of the first few weeks of reopening, we've obviously had experience in China. China is a small market for us. And now -- I mean -- and broadly, I think we all think China is around three months behind -- ahead of the rest of us. We've got about 95% of our B&I sites open with around 70% volumes. And Education is yet to reopen there. So there are sector differences between countries. With regards to our business there, it is nonurban, typically, and more in manufacturing. And of course, the behaviors of authorities there are different in terms of the mandate to get employees back to work as quickly as possible. But also, the speed with which we have adapted health and safety protocols for that new environment through past experience, in particular. We have seen sites open and close, and we've also seen and learned a lot around temperature testing, around hygiene, health and safety protocols that need to be adapted and how we can live with social distancing in the kitchen and the restaurant environment. We've, therefore, taken those experiences and developed best practices and processes that we shared around the world and with our teams. And that's enabled us to prepare for reopening elsewhere, where we can work as a strategic adviser to our clients by sharing those learnings. In terms of what we're seeing in some of the European countries right now. I mean I think the first thing to say is, it's very slow and steady. So where B&I has reopened in France, we're seeing 15%, 20% of volumes returning to work, no more at this point. And it's probably fair to say that in China, it ramped up over a number of weeks and months as well and has flattened out at the 70% level. We're obviously recognizing the challenges of social distancing in the different environments. We're seeing manufacturers talk more about multiple shifts with lower workforce. But of course, that means that we need to be able to provide different daypart meal solutions during the course of the day rather than more congregating around breakfast and lunch. So we have to adapt there. Moving on to your third question about sort of products and commercial strategy. Look, it's still very, very early days. I mean, we do talk in the presentation this morning of some of the trends that we're initially seeing. We see, clearly, a real value for health, safety and hygiene protocols. That means the PPE equipment that our employees are provided with. It means the protective screens that we've got. It means the safe social distancing to dine. And importantly, it also means how we create environments that don't feel alien but feel comfortable. And we're working with a lot of our clients at the moment as to how that can be achieved. I think the second is, there is a strong belief that the health and wellness agenda continues to be very important, both in terms of the mental and physical wellness of employees in the workplace and at home. So that's something which we already believe we had strong capability in with our sort of food science and nutritional teams, and we're working very hard there. And then finally, we do believe there's going to be an acceleration in digital. So we will see -- every client is asking for cashless, preorder, prepaid to queue bust, desk drop, grab-and-go, click-and-collect, anything which takes the sort of the congregation of people out of the system. And more personalized meals on a one-to-one basis as opposed to the buffet offers that we've seen before. So we think that digital has got a strong role to play in that. And all of these things are how we will adapt our offer to a potentially lower-volume environment in the short-term as we all adapt to social distancing. And that, I think, will give us an opportunity in the medium term. Karen, do you want to take the point around the equity raise?

Yes. The equity rationale. You wanted to hear a bit about calibration, amount and duration. So the equity raise is part of the package of measures, and then Dominic's already talked about those. And we've already taken cost savings, reducing our CapEx in the second half of this year, pausing acquisitions, suspending dividends and improving our liquidity position through an additional RCF. And what we believe and trying to think about this is that we want to strengthen liquidity. We want to lower leverage. And we want to continue to invest in the business. And the GBP 2 billion is the amount that drops out of that, once you've thought about your liquidity position getting back to -- or getting to a leverage range within a reasonable time scale of 1.0 to 1.5x, and as I said, continuing to invest in the business. We clearly, in terms of duration of the pandemic -- I mean, just nobody knows, and this is a very uncertain environment. And when you're looking at these things, you have to take a suitably sort of conservative planning view when you're thinking about liquidity and leverage.

I guess that was precisely my question. So I guess, in budgeting and coming to the GBP 2 billion number, because of the uncertainty, have used your best estimates and a fairly granular recovery scenario? Or is there an element of a worst-case approach in your calibration? Let's assume we stay at minus 45%, that's the number that will definitely cover it.

Jaafar, it's Dominic. I mean, look, we've looked at a whole range of scenarios. I think Karen put it very well when she said, look, and our responsibility as a management team is to be prudent and conservative. We have looked through what -- what some of those worser cases going to look like, and then we obviously have the plan for that. At this point in time, it's impossible to budget, isn't it? We have no idea when Sports & Leisure will reopen. We have no granularity on what the Education calendar and attendances will look like and the pace of recovery of B&I volumes. So we've have to look at a range of scenarios. What we are absolutely committed to is that, we would pull every lever available to it to deliver profitable outcomes on the different volume scenarios. And over time, volumes will recover, and our profitability will recover.

We will now take our next question from Vicki Stern from Barclays.

Just firstly, coming back on the volume outlook, I suppose, as we look into next year. And you talked about China operating now at about 70% of prior levels. So that gives us a sense on the volume recovery there. But just any discussion around the sort of price mix impact as we think about just total revenue for you? I suppose the offer that now needs to be provided potentially comes with a quite different price point. Secondly, just coming back to the working from home. I appreciate, obviously, quite early days. Just curious what you're hearing though from your clients already on it in the discussions you're having? Is it -- in terms of exposure, if you can give any sense as to sort of what proportion of B&I you think is potentially exposed to that theme? And also, do you see that theme in any way touching other segments outside of B&I?

Thanks, Vicki. Thank you. Look, on the subject of price mix, I mean, clearly, we've got a few things going on here, haven't we? There are additional costs to provide these services. We know that in PPE, in hygiene, in packaging, it's a different meal offer. And I think our clients, thus far are recognizing that. Absolutely the case and absolutely essential and necessary, if they're going to safely bring employees back into the workplace. So we're having positive conversations about the cost structure. And obviously, within that also is the deleverage impact of volumes. So we've got to be very thoughtful about how we recover our costs with appropriate contracts. And we're having those conversations with our clients, and we'll seek to put protections in place in our business in the short-term and on renewals and new business, which cater to this new environment as it were. So look, there's a lot going on there. We're very focused on it. And absolutely, what I believe is the next 18 months is about relentless operational focus to drive both the cost savings and also that price recovery that you described. Look, on the second point about working from home, I mean, it's just decided -- we do believe that there are very different trends by sector, by geography, by urban and nonurban area and so forth. So we don't think this is one-dimensional in any way. With regard to industry, the conversations with our clients are absolutely that they need to get their workforce back in the workplace. And this isn't about working from home in the manufacturing environment, of course. So we do believe that we will see that. And that's 40% of our B&I sector. So 60% is really the business elements of that. And again, there will be a split between major city and outside and the ease with which people can get to the office without using major transit systems. I think that's also a limiting factor. And when I've talked to clients, and I've talked to a number of senior clients around the world and CEOs of our major companies. Look, they recognize -- I think everybody is recognizing there has been an efficiency and an ability to work effectively from home. But there's also have been many limitations and the ability for people to socialize, congregate, create together, engage, remains incredibly important to their business models. So what we're hearing come out of this is an ambition to have greater flexibility, but more structured. And I believe that's important to us because at the moment, as you know, there is significant ad hoc home working, which means, Wednesdays and Fridays is going to be 40% to 60% volumes and other days, 70% or 80%. What we believe will emerge over time is a more structured program where different teams work from home at different times and so forth, which will give us the ability to plan better for those volumes, adjust our cost base accordingly and ensure that we have the best offer for those office workers. And also, of course, we're discovering through this an opportunity to provide evening meal solutions, meal kits, next-day lunch packs to home workers as they leave the office environment. So again, there's an awful lot going on. And I think you need to recognize that this is -- this may be a trend, and therefore, how do we respond to it positively.

Very clear. And I'm sorry -- is it a trend that, in any way, touches any of the other segments? I'm thinking higher education?

Yes. Sorry, Vicki, I didn't pick up on that. I mean, look, for obvious reasons, we don't believe it impacts any of the other sectors bar education, and that would be higher ed. Look, we have seen remote learning, and remote learning has been a solution to the need not to be on-campus in the short term. Again, I've talked to the senior education leaders and there's a recognition of the importance of societal contact and individual development. And therefore, they're keen to have a balance where students are on campus and maybe social distancing and density is dealt with through a mix of lecture attendance and online lectures. So I think we'll see a number of things come out of this, and we're just going to have to course correct as we go.

We will now take our next question from Daria Fomina from Goldman Sachs.

I'm going to ask my first question on the universities, we just finished that topic. We are in some way negotiating for the next year. Can you talk a little bit about how that conversation is going? A lot of the universities under distress. And how do you expect that season to evolve for the 2021 revenues and contract? My second question will be on the cost split. Obviously, you guided -- and sorry if I missed it, my line dropped 2 times. You guided for GBP 450 million savings. Now it's GBP 500 million. Can you give a bit of a split of whether there's a part of it that's government support and how big exactly that is so we can think through the impact when that unwinds? And my last question is on the market share gains, as you mentioned, and the growth outperformance on the back of first-time outsourcing. Is there any way for you to quantify that benefit and the level of interest that you see now as we go through this distressed in April and May month?

Daria. sorry, I missed -- would you mind repeating your first question? I missed that one.

Sure. It's on the universities, our education, rather, renegotiation season for the 2021. How is that going? Or how you see that shaping up as the summer months are very important and whether you see risk of a dramatic reduction as a lot of universities are under -- or some of the universities under financial distress themselves?

Thank you. Sorry. I take the first and third questions and then Karen takes the second. Look, on higher ed in universities, I think I should make the point more broadly. We've continued to win new business and retained business even through the crisis. And we've seen that in all of the sectors. And of course, we've been very thoughtful on any terms of business that have absolutely protections we need as we go forward. We've had positive renegotiations where necessary. But I think you make a good point. There will be a number of institutions through this, which will be stressed. They may be in sports and leisure, they may be in higher ed, they may be in health care. And we're going to have to see how that also unwinds and impacts the business. I mean I think this is analogous in many ways to post the global financial crisis. We can talk a lot about how social distancing is impacting the business consumer client environment. But we're also going to have to recognize that we may have volume pressure from exactly what you describe. And again, that's what we're going to have to address as we go through managing our cost base and selective management of clients. But when it comes to market share gains and first-time outsourcing, again, what grounds us is the period after the global financial crisis. We saw an acceleration then in first-time outsourcing as institutions sought cost savings. We believe this will now be about cost savings and great health and safety protocols, which we believe we will be able to play into. And therefore, we think it's critical that we continue to invest in the capabilities which will allow us to win those opportunities. In terms of share gains, look, we've already got examples of competitors who are unable to operate at all in this environment and therefore businesses they were mobilizing, has come to us to start and take forward. So we do know that there will be both of those opportunities. We've got -- I think we have to look at our net new and make the right decisions to ensure we have the right contracts to exploit that opportunity and then work really, really hard on the volumes to ensure that we're getting the right profitability profile in that new volume environment. Karen, do you want to pick up on the cost savings?

On the cost savings, yes. So as you can imagine, we've been working really hard and really fast on the cost mitigations. And so far, we've got cost mitigations of about GBP 500 million a month. They come from a combination of reductions in our in-unit labor. So that includes some overtime contractors, temporary workers as well as government support schemes. We're also reducing salary. People are on reduced hours in our above-unit overhead level. And then we've also reduced our in-unit overhead, things like rent, rates and concession fees. And you're right, the number has increased as we have given our update. So in April, we said we have cost mitigations of GBP 450 million. And now we're seeing GBP 500 million in March -- sorry, GBP 450 million. And in April, we're seeing GBP 500 million. Now the difference between the two has come, partly but not fully, from the government support kicking in. Now with 50% of our business currently suspended, we have furloughed about 50% of our workforce. And 13% of our workforce is receiving some form of government support. The government support mostly comes from Continental Europe and the UK. There's very little in North America and there's none in Latin America. Every country has a different scheme, different duration, different contribution to support. It's very complicated to work through. And just to emphasize again, when we're thinking about this from a cost-saving perspective, it's not that the support schemes cover 100% of the cost. They make a contribution to the cost.

We will now take our next question from Jarrod Castle from UBS.

Three as well. Can you maybe just talk a bit about where you were in terms of perm versus temp mix, across the organization? And how you see that evolving now going forward, given I guess, you'll need more flexibility, not less? Secondly, you've put M&A on hold. What about disposals? And indeed, will you be looking to scale them back or maybe accelerate some disposals? And then you touched on, I guess, a little bit on pipeline. But can you just give a bit of additional color in terms of has the pipeline itself shrunk? Is it -- are the indications of growth? And any kind of forward indications on client churn as you went from March to April to May? Would be interesting, if you could give some color there.

Sure. if I let Karen take the perm versus temp question, I'll do the other 2. I mean, look, we've put we put all M&A on hold, as you would expect anyone who was in any discussions with us has also pause their processes. Then just in terms of sales pipeline, I think you're referring to -- I mean, look, we had a very exciting pipeline in many of our markets coming into this. Some processes have continued to run. Others have been put on a hold. And actually, some have been accelerated to a positive outcome. And on retention, we've also seen a significant opportunity to extend business and retain business through accelerated processes. Again, I think it's a good example of clients wanting resilient partners. So look, I think we have definitely seen a pause. It's been difficult for people to work through these processes virtually and online. But there has been a continuation and the indications continue to be broadly positive.

And if I just pick up on the perm -- the temp question, Jarrod. Temporary labor is about 12% to 13% of the global workforce and the extent of flexibility in our labor model is currently a function of the labor law environment by country, by region. So we have a very flexible model in North America. And clearly, labor laws in Europe, in particular, are a bit less flexible. But we are always looking at ways to make the way that we deploy labor more efficient and more effective. And clearly, given the current situation, we're going to have to think even harder about that.

We will now take our next question from Kean Marden from Jefferies.

I've got a few more questions on unit economics, if you don't mind. I think I've read some reports recently suggesting that sites would require a dedicated sanitation employee. Is that something that you agree with? Or do you think those tasks can be conducted by the existing workforce? And therefore, you don't necessarily need to run with additional headcount in units? Then interested in your comments on positive discussion with clients. Just on those. Does that relate to sort of upfront CapEx that might be required in the business? So sort of kiosks, trollies, additional sort of serving, some shelving or -- and does that relate to OpEx as well? So there's a distinction between the two? I'm also interested in whether those comments also apply to your fixed-price contracts that you have in the portfolio as well. And then finally, could you maybe provide some insight into what the in-unit margin look like in China, if you're operating at 70% of the previous revenue? Are you still profitable with that level or not?

Kean, there's a lot of detailed questions in there. But let's just try pull a few apart. I mean, look, when it comes to your comments about sanitation workers on site, look, what we're doing is two things: we're working with public health authorities in the countries in which we operate as well as of our clients to ensure that we've got processes and protocols that meet minimum local country standards, and they will be different for us everywhere. And then also, we have a conversation with our clients about what best practice looks like. And of course, that also includes disinfection, hygiene, services and potentially dedicated workers for that, where we have the capabilities. So we actually see that as an opportunity for, again, differentiation and also value creation because these services are essential and critical. When it comes to the client conversations, you're absolutely right. There's a differentiation between OpEx around additional costs to serve in this environment. And CapEx, which is about ensuring the environment is appropriate as we go forward. Look, they're all individual conversations. I think clients recognize, again, the criticality of having the right environments and the right services and that has a different cost profile. And that's exactly what we're discussing with many of them today, to ensure that we protect our own commercial terms and recover those costs. So there are a number of ongoing conversations, of course, about how we -- we move to trading terms with our clients that protect us and provide these services, which I really do believe they're valuing at the moment. And remember, 1/3 of our book is cost plus contracts, which allows us to recover that. You're absolutely right to point to fixed price, where we've got unitary economics, which are based on volume and leverage. And that's where we're working very hard to put protections in place, both in terms of volume analysis but also reversion to cost plus, particularly through the reopening phase where putting these new measures in place is more costly. And of all I can say in China is, as we will learn everywhere, it's a journey. And our ability to restore unit margin to its former levels will be based on 3 things. First of all, our ability to manage cost to that new volume environment. Secondly, our ability to recover the -- exactly the new costs that you've described. And thirdly, as those volumes restore. So look, I can't call the margin in China right now. But I do recognize that this will be a journey for us over time, and we're working very hard on that.

We will now take our next question from Stuart Gordon from Berenberg.

A couple of questions here. You've mentioned significant reverse inquiry from some companies out there before for you coming in to step in and offering services. Are you also getting reverse inquiry from some competitors who are financially distressed and looking to come under the Compass umbrella? And if so, how will you adapt the sort of suspension on M&A, if some of that is interesting? And secondly, under reverse inquiry, both elements -- does that -- I assume that, that's excluded from the sort of sensitivity, which I appreciate is not in any way guidance, but the sensitivity chart that you show in the presentation slide.

Yes. Thank you, George (sic) [ Stuart ]. Yes, absolutely, again, just to stress those sensitivity charts are illustrative and stress test. And yes, they are volume profile and not net new business as it were. With regard to reverse inquiries, yes, I mean, we've had -- we've closed a number already, as I said earlier. And interesting, yes, you are right. There are others in the industry that are considering their futures. And of course, we need to be very careful not to inherit bad books of business. But there are different ways of working with people than simply traditional M&A.

We will take our next question from Peter Testa from One Investments.

I have a couple of questions, please. I was wondering on the sites that you have which are open, where you've basically put in health and safety and so on, and you've also started to adapt menus. Can you give any sort of sense as to how the total cost to serve, say, including menu simplification? And maybe actually labor is working as you had to stretch hours and so on? The second question is, as you mentioned, there's -- not all the furloughed labor costs are covered by governments. Can you give some sort of sense as to how much your cost of furlough is at the moment within that GBP 500 million savings, what the gross number, including the fact that you're having to pay part of furloughed staff cost at a period when you're shut? And then the third thing, as you talked a bit about the opportunity on retention being potentially better in the short-term and sales, obviously, a bit more challenging, can you give any sort of sense of how the net changes versus a normal Compass flow on that front?

I mean I guess, with the number of the questions we received and your question now, Peter. You're asking for a degree of precision, which is incredibly hard for us to give. Eight weeks into this crisis with so many changing dynamics and I'd ask you all to just reflect on that as well. We can give you mood music and trends at the moment. But I think we have to just respect that. We're working really hard. In the first instance, your first question on site openings. We're working really, really hard to do everything our clients’ needs and wants. And we believe that's what will create the goodwill for us to be able to recover those additional costs and services and to have thoughtful and sensible renegotiations. So as you would expect, I think we've managed cost as well as anybody in our industry, and we will continue to do that. I'll just ask Karen in a second to comment on the furlough point. And again, with regard to retention and sales, it's just too early to tell. And then we're seeing, I wouldn't say a dramatic change in either immediately. But it's very, very difficult to tell when we've had 8 weeks of these types of working conditions. So I think we'll have better views on that as we get to quarter 3 and beyond. I think to the point, though, we all need to track the evolution of net new and the evolution of volume separately, because winning on net new will be about the long-term health of the business. Recovering volume will be about protecting our profitability and the 2 are exactly what we're focused on as a management team. Karen, the follow-up question?

Yes. I mean, I think you commented on it, Dominic. I mean, it was a very, very granular question, and things do change all time. And just to give you an example of the kind of change that we see, up until about 10 days ago, the U.K. government was covering about 80% of the cost of employees who had been furloughed up to the end of June. They've now extended the time frame and reduce the support. So it's -- and each country, as I've said, is very different, ranging from about 80% being -- 60% being covered right up to 100% being covered. And so I think maybe another way of looking at it is to say we've got 50% of our workforce who are working and 50% who are not. And the ones who are not are covered either by a combination of government support, some of them are client paid and then more typically, in the U.S., after a very short period of time, people don't get paid when they're on furlough.

Right. Okay. Is CapEx going to change a lot going forward, do you think?

Karen, do you want to take that?

Yes. I mean, I think, again, we just need to wait and see. I think we feel that rather than necessarily changing a lot in percentage of revenue terms, and clearly, the quantum will depend on maybe what our revenue is, if we want to keep that sort of metric, we actually think that the CapEx may look a bit different. So up until now, we've had CapEx focused on Sports & Leisure and focused on Education. We actually think that there is an ongoing place for CapEx more in the digital space and in terms of adapting kitchen and dining rooms to new health and hygiene requirements for social distancing.

We will now take our next question from Richard Clarke from Bernstein.

Three, if I may. The company presentation you put out today specifically mentioned inorganic growth opportunities. And presumably, these are over a longer period of time. But if you could comment on maybe where you might see inorganic growth opportunities? Are these going to be distressed competitors or more technology players? Second question is, your goodwill balance seems to have survived this. If you could just comment on sort of the nature of necessity to take any impairments and the decision on not impairing that goodwill balance. And then lastly, just on Europe, margin down 170 basis points. My rough estimate is that means the drop-through there was somewhere in the sort of high 40s, which is quite a bit higher than obviously, we're showing the Europe drop-through last year. Just any comment on what's happened in Europe? Why is the margin down very much there?

Yes. Let me take the first question and then if Karen could pick up on goodwill and in Europe. Look, yes, we talk about inorganic growth. Obviously, that is an opportunity that we believe will be there in the medium term. Look, we believe health care is a sector of great opportunity. We'll be better recognized and valued as we go forward as well as aged care. There's a significant self op opportunity within that space. So it will be -- we will look at sectors when we're considering this. Yet, we do believe also there may be fresh business opportunities. And finally, yes, I agree, capability requirement may be different. You may have seen our Feedr acquisition before the COVID crisis in London, which gives us the capability to have online delivery to SMEs across London where they wouldn't typically have on-site catering. So I think there are a number of things at play there. We've always participated in in-fill M&A and we'll obviously be circumspect and very thoughtful about returns in this environment. And absolutely, I want to stress again, this 18 months is about relentless operational focus as we see volumes recover and as we restore the profitability.

And Richard, I wasn't sure if I heard you correctly. Did you ask -- was your question why have we not had any goodwill impairments in the half year?

I guess that was the one question, yes, whether there was any -- or would there be any necessity to impair any of that goodwill? And then the second question was just on the Europe margin performance, down 170 basis points. It looks like a big drop-through in Europe. Any commentary there.

Right. Okay, okay. So let me pick up the goodwill question first then. So the short answer is that we have sufficient headrooms across all our countries and regions. And in actual fact, you look at headroom in terms of long-term cash flow, it would be surprising if you saw anything in a phenomenon that so far has only lasted 8 weeks. But technically, we've got sufficient headroom everywhere. And then in terms of the Europe drop-through, actually, we did make progress between the end of March and the end of April. So that was -- when I spoke about the cost mitigation increasing from GBP 450 million to GBP 500 million, that was between March and April. In March, the impact of COVID was over a 2-week period. That's quite hard to mobilize a cost reduction in that period. And by April, the drop-through has decreased quite significantly. And that was a big contributor, actually, to the overall drop-through in the -- from 28.5% to 23%.

Maybe if I can just have one quick follow-up just because you brought up Feedr there, Dominic. Feedr is actually delivering to home. I think part of it offer is it does say it can facilitate working from home. Is this something realistically Compass could ever do at scale? Or is this just something for the moment that's happening right now?

Look, I think with a lot of digital, it's about experimentation, isn't it? What we like about it is the capability to deliver into SME. We believe that there's an opportunity to deliver different solutions into our existing client base. And we do believe, potentially, that the homeworker could become a target consumer. And therefore, any route to target those individuals could be positive. But we just got to -- we've got to suck it and see how we as we go. Can I ask for maybe one last question, and we'll close the call?

We will now take our final question from Rowan Marron from Rathbone Brothers.

I'm afraid it's back on the placing again. So we're -- what is probably the trough, you guys are burning GBP 100 million to GBP 150 million cash per month. You got GBP 3 billion liquidity. So that's a 20 months plus run rate. I mean, you don't have big debt balloon payments. Walk me through, in what scenario do you really need that GBP 2 billion?

I mean I don't think any of us have got the ability to predict troughs. We have considered a number of different scenarios. We've taken what we believe are responsible actions as a board to conservatively plan for those and take all the actions necessary. And as you've heard us say today, we want to reduce -- we will have an elevated EBITDA-to-net-debt leverage ratio for some time as we navigate our way through recovery. Our desire is to flatten that particular curve as quickly as possible and restore our historic leverage whilst continuing to invest in the business. And therefore, we believe it's appropriate to be on the front foot, take actions quickly and to do so ahead of any prolonged uncertainty.

I can see where you're coming from. But I'm not convinced it's a good reason to raise a large part of your market cap at depressed price?

Well, thank you for the question. If -- I think we'll now move to close the call and specifically with regard to the placing, we spoke to many of our investors in the days ahead of launching the deal, and I'm pleased to say that the book is now formally covered. Thank you all very much for your questions today and your contributions, and we look forward to speaking to you after the third quarter results.