Sodexo S.A. (SW) Earnings Call Transcript & Summary

Good morning, and thank you for standing by, and welcome to the Sodexo Q3 Fiscal 2020 Revenues Conference Call. [Operator Instructions] I advise you that this conference is being recorded today, Tuesday, July 7, 2020. I would now like to hand the conference over to the Sodexo team. Please go ahead.

Thank you. Good morning, everyone. Welcome to our Q3 2020 revenue call. On the call today are CEO, Denis Machuel; and CFO, Marc Rolland. As usual, the slides and press release can be downloaded from the website, and you'll be able to access this call on our website for the next 12 months. The call is being recorded and may not be reproduced or transmitted without our consent. I remind you that this presentation contains statements that may be considered as forward-looking statements, and as such, may not relate strictly to historical or current facts. These statements represent management's views as of the date they're made, and we assume no obligation to update them. You're cautioned not to place undue reliance on our forward-looking statements. Please get back to the IR team if you have any further questions after the call. I remind you that the next announcement will be the full year figures on Thursday, 29th of October 2020. Thank you. And now over to Denis.

Thank you, Virginia, and good morning, everyone. It's great to be with you today, and I especially hope that you are all well. Thanks for joining us. To make things easier for you, unlike normal practice, we've decided to comment Q3 figures only. You will find the 9 months' figures in the appendix. Obviously, since the end of February, we are in a very different world, a COVID-19-impacted world. And our industry has never seen a crisis like this. So on Slide 4, you see that Q3 revenues fell 29.9%, slightly better than our hypothesis of minus 33%, the hypothesis that we gave in April. In Business & Administrations, sales were down 28.5%, with Corporate Services down 27% and Sports & Leisure down 84%. Education was down 53.9%, with Schools at only minus 48% despite most schools being closed around the world from mid-March. This is due to the fact that most districts in the U.S. decided to supply meals to children in need. Healthcare & Seniors were more resilient at minus 12.9%, but not as good as our initial hypothesis. Benefits & Rewards was down 22.8% versus our hypothesis of minus 20%. On Slide 5. After a month of adaptation in March, we have strongly controlled our costs. The flow-through is now below 25% due to a combination of the use of the furlough systems, but also separating from staff when there were no other alternatives and strictly controlling all SG&A. On Slide 6, you see that we had a major cash outflow in March due to an abrupt interruption of cash sales as sites closed. On the other hand, we continue to pay our suppliers for previous weeks' food supplies. But already in April, our cash flow was again positive as working capital realigned on the new revenue levels and our protective measures came into play. So the cash burn only lasted 1 month. On Slide 7, as I'm sure you have seen, we have decided to reimburse our USPP of USD 1.6 billion. Given our strong liquidity, we were not prepared to accept the conditions that the noteholders were trying to impose. We want the freedom to be able to decide whether we invest, we restructure or we pay the dividend or not. So by the end of August, these notes will be reimbursed and we will be covenant-free. Now if we move to Slide 9. You see that from day 1, we adapted our services into key initiatives to ensure business continuity. First, we provided critical support to local health systems. In California, for example, in only 13 days, we helped reopen the Los Angeles Surge Hospital dedicated to COVID-19 patients. The building was empty. There was no kitchen nor any IT infrastructure, and we managed the catering, cleaning, biomedical engineering and maintenance for nearly 270 patients. We also immediately redeployed our people whose workplace closed to other sites, urgently requiring additional team members. And this means that more than 4,000 employees have been redeployed primarily in North America and in Europe in hospitals and in retirement homes. Support for educational communities has been critical in our adaptation to the crisis. We reopened 1 central kitchen in Marseille to prepare 5,000-plus meals daily to the most in need, highly impacted by the pandemic. In the United States, despite many schools and universities closing, our teams continued to provide schoolchildren and students with access to food by preparing more than 4 million meals per week. And while Sports & Leisure sites closed down completely, we did our best to adapt our activity. In the Hard Rock Stadium in Miami, for example, having provided catering services for the Super Bowl in February, we reinvented ourselves and prepared more than 625,000 meals for seniors in the city. In the U.K., teams from Sports & Leisure and Healthcare got together to support the NHS to set up COVID-19 drive-through testing centers for key workers. Healthcare had the client relationship and Sports & Leisure had the people. Finally, we launched B2C delivery services in France with Prêt à Partager and in Brazil with Deli Express. In this fast-growing market in Brazil, we are leveraging our existing kitchens to expand from a B2B to a B2C model. We already established partnerships with delivery apps such as Rappi and are discussing also with other platforms. Now on Slide 10. Reinforced health and safety protocols have become essential in the post-COVID world. And as many countries are emerging progressively from confinement, employees need to be reassured that they can feel safe within the workplace. We can contribute to people's confidence every step of the day to minimize risk and enhance safety for our employees, clients and consumers with a comprehensive range of services. We created Sodexo's Medical Advisory Council, comprised of experts from around the world in epidemiology, family medicine, nutrition, occupational health and behavioral health and pandemic planning and operations. This council supports the development of new protocols and standards, including COVID-19-related services. With the same pragmatic approach, we joined forces with Bureau Veritas to introduce a hygiene verification label for our procedures and services, further proof of our commitment to getting people back on-site with complete confidence. In the same way, on Slide 11, we have been an essential partner for our clients during the COVID-19 crisis. We'll be an essential partner as they restart. We are convinced that trust will be the cornerstone of the successful adaptation to the post-COVID new reality. This is why we launched rise with Sodexo, a global program to meet the health, operational and confidence challenges that clients are facing when restarting their business. Our unique expertise as well as the lessons recently learned from our experience in dealing with the pandemic, particularly in Asia, will allow our clients to conduct their operations with confidence and in complete security. Rise with Sodexo is based on the seamless integration of our services across On-site, Benefits & Rewards and Personal & Home Services, integrating over 20 essential services from simplified restaurant services, including retail, grab and go and meal cards for homeworkers, to disinfection, contactless services, deep cleaning, air control, digital concierge services and office reorganization. This program was designed and delivered in only 3 weeks and is now live in North America, in the U.K. and France and planned for global deployment in the coming months. I now turn over to you, Marc, as we go through the operations.

Thank you, Denis, and good morning, everyone. So let us turn to Slide 13. Q3 revenues came in at EUR 3.9 billion, down 31.2%. The currency impact was minus 1.7% due to the strength of the euro relative to most currencies, except for the dollar. Scope change accounted for 0.3%. This gives us an organic decline of 29.9%, slightly better than our hypothesis. On-site was down 30.1% and Benefits & Rewards was down 22.8%. Before going into the detail, I would like just to show you how resilient some of our activities were. As Denis said, we've never seen such a crisis in our industry. But interestingly, on Slide 15, our FM services that we've been building up around the world over the last 15 years has provided us with resilience. FM represents 33% of our On-site business, and it's down only 2%. And with FM more resilient, so are the global integrated accounts, which represents about 10% of our On-site revenues which are flat, also helped by sector bias towards FMCG and pharmaceuticals. We also have a solid 50-50 mix of blue- versus white-collar workers in our Corporate Services activities. Blue-collar workers can't work from home, and for those that are in essential industry, they continue to come to work even through lockdown. The fact that more than half our Corporate Services contracts in North America are cost plus has also helped us, whereas elsewhere, we've had to negotiate with each of our clients to revise the contract. Although this is happening, it takes more time. The diversity of our geographical presence has also helped. The 16% in Asia and Latin America has been very resilient. Except in schools, lockdown has not been as strict in all countries either. And to a certain extent, some countries are behind the curve, with the COVID pandemic perhaps not having even reached its peak in the U.S. or Latin America. Finally, we also have 2 segments which have been very resilient: E&R, thanks to mining; and Government & Agencies, which has military bases at present in the portfolio. Together, these segments account for 13% of the group's revenues, and together, were actually up 2.7% in Q3. So FM sales were down 2%, while food sales, on the contrary, were down 44%. And in fact, FM was flat if you strip out Education. In Slide 17, you can see that while North America and Europe were down by more than 30% each, Asia Pacific, Latin America, the Middle East and Africa was down only 4%. And look at the recovery in China. This is just one country, and China is particularly blue-collar, particularly FM, and has taken a very proactive approach to getting back to work. So I'm certainly not going to guarantee that the end of lockdown will look like this everywhere. But by end-May, China was only down 1% year-on-year. FM was well above last year due to new services, many of which are part of the rise with Sodexo offer. Denis, do you want to go through the next slide?

Yes. Thanks, Marc. And as you just said, our global integrated accounts, which we've been building over the past 15 years, have been an important lever of resilience. I wanted to share with you the example of one of our clients, a worldwide pharmaceutical leader, and explain how we supported these clients in adapting its operations in China during the pandemic. The area to be secured represented more than 210,000 square meters, including the HQ in Shanghai, 6 factories and additional offices in Beijing. Our teams moved into action from day 1 to address the client's main challenges such as physical sanitization of enormous facilities, social distancing and the need for new and increased sanitary protection for thousands of people moving around in these facilities. From the distribution of essential materials, full disinfection, preparation and distribution of food with the highest standards of health and safety, access control, epidemic outbreak simulations and logistics, this large pharmaceutical company is supported by a team of more than 500 Sodexo employees. The outstanding and effective protection measures of the Sodexo team were rewarded by the Vice Mayor of Shanghai, who praised the team's logistical support, and were widely recognized by our clients who promoted our work internally. As you can see from this example, our integrated services business model is pretty resilient. I now turn you back to Marc to go through the segment slides. Thank you.

So Business & Administrations Q3 revenues were down organically by 28.5%, slightly better than the hypothesis. The COVID-19 impact was very significant on the business despite the resilience of the Energy & Resources and Government & Agencies segments, the FM activities generally, and more particularly, within the global integrated FM accounts. Corporate Services was down 27%, and Sports & Leisure was down 84%. North America was down 44.5%, particularly impacted by the substantial decline in Sports & Leisure, with all sites closed from mid-March. Corporate Services was impacted by the closing of many client sites due to client and state decisions to lockdown. However, the combination of the 50-50 split between blue-collar and white-collar consumer, the high level of cost-plus contracts and the weight of FM services and global accounts provided some resilience in the U.S. In Europe, sales were down 33.1%. While all segments were impacted by lockdown, the performance was relatively resilient, thanks to the overall weight of government services, Energy & Resources, FM services and global accounts. The 2% decline in Asia Pacific, Latin America, Middle East and Africa reflect the strong recovery in China at the end of its lockdown, extra FM services for the protection of mining employees in order to avoid closure and the lesser COVID-19 lockdown in Latin America. Healthcare & Seniors Q3 revenues were down 12.9% organically, a bit more than what we anticipated in our hypothesis. In fact, many hospitals heavily reduced elective surgery, and we also suffered a significant drop in retail activities. This was not fully mitigated by extra COVID-19-linked services. In North America, activity was down 15.3%, a bit more than the average, due to the loss of several hospital contracts from the fourth quarter fiscal '19 and one large contract exit in the first quarter of fiscal '20. FM cross-selling initiatives linked to COVID-19 helped to ensure that seniors and FM sales were flat. In Europe, the minus 9% decline was due to the loss of retail sales, particularly in Southern Europe, slightly offset by higher volumes for cleaning and infection control and a new contract for COVID testing centers in the U.K. In Asia Pac, Latin America, Middle East and Africa, the 7.6% decline was principally due to reduced volumes due to COVID and site exits in LatAm. Asia, and particularly India, was more or less stable. Education was down 53.9%, heavily impacted by the closure of schools and universities in most countries, but actually better than the minus 60% hypothesis. North America was down only minus 52.2%, thanks to local meal plans for children in need, as Denis has already mentioned. In Europe, the lockdown was more severe and started a bit earlier. As a result, the revenue decline was almost -- also more severe at minus 59.3%. In France, schools started reopening in May, but very progressively and usually with very limited food services. In Asia Pacific, Latin America, Middle East and Africa, organic growth was minus 47.3%. In China, schools started opening mid-May. However, as international schools are a large proportion of our contract, this was very progressive, given the absence of many of the international pupils. Now let's move on to Benefits & Rewards Services. The decline of 22.8% was a bit below our hypothesis. However, this was particularly due to services diversification. We should come back to this in a minute. Employee benefits, which represents 80% of BRS activities, was more resilient with issue volume down only 12% in Q3. Latin America employee benefits issue volume was also much more resilient, down only 7%. Digital conversion increased by 7 points because paper vouchers were not distributable in most countries during lockdown. We also have substantially increased the number of delivery company partnerships. We have 15 today in 7 countries. We managed to sell meal benefits to on-site homeworkers. For instance, 20,000 On-site Services consumers who had become temporary homeworkers were signed up in the Czech Republic. The good news is that legislation is also helping us. In some countries, we are seeing the face value limits being increased to help consumers during the crisis. And in others, such as France, the maximum daily spend in meal benefit has been doubled since the reopening of restaurants. In April and May, we also signed and put in place solutions to direct around EUR 400 million of COVID-19-related aid for different authorities and NGOs. Let me remind you of the model in BRS for the employee benefits. There are 3 main sources of revenue: client commissions on issue volume, interest from the float and merchant revenues linked to reimbursement. Issue volumes were down 12% due to furlough measures. But don't forget, homeworkers continue to get their benefit. The reduction in issue volume impact the size of the float, but this was compensated by a more significant decline in reimbursement volumes. As the restaurants were closed, consumers were slower to use their cards, but this is just a phasing impact on merchant revenue. They will pick up as restaurants reopen. As you saw, employee benefits issue volume was down 12%. It was much more resilient in digital at only minus 4%, while paper vouchers volume was down 41%. In Italy, paper vouchers continue to be printed, but elsewhere, they were not considered essential products, which made it difficult to issue the vouchers during confinement. Some of the loss of activity will be recouped in Q4 as production restarts. The good news is that the move to digital is accelerating in those countries where it has been slow up to now. We are now at over 80% digital. The real challenge is France, which is still only at 28%. In the middle and right-hand chart, you can see that the food issue volume, which is mostly in Latin America, was more resilient than the meal volumes, which is -- which were impacted particularly by more severe lockdowns in Europe. As some of you may know, we also have a public benefits activity within our diversified services. We leverage our expertise to help public authorities or NGOs distribute aid for specific uses. Being able to guarantee that the aid or the benefits are spent where they should be spent is a strength of our model. We have a public benefits business in 19 countries, servicing 7.8 million beneficiaries. Given our network of merchants and our systems, we can be very agile in mobilizing our forces to provide immediate aid in crisis situations at low cost to government and NGOs. Here are a few examples. In Belgium, Sodexo was given the management of the payment of the Walloon region's COVID subsidy to SMEs, equivalent to EUR 5,000 per SME. Sodexo has ensured fast and accurate payment of about EUR 300 million to SMEs. Sodexo is also the exclusive issuer of service vouchers to pay for home services in Belgium. This activity was badly hit during lockdown. However, the same system were used to channel financial support to certified home care providers and their employees. Sodexo has already driven more than EUR 40 million of regional subsidies to home care services provider and household helpers. In Panama, the government approved $100 million solidarity program to support deprived families. Sodexo has been tasked to distribute $45 million to 550,000 families spread out all around the country. The Philippines Disaster Resilience Foundation and Caritas Manila, in partnership with the country's biggest business group, was able to distribute grocery vouchers to 1.4 million families in the most challenged communities of the Greater Manila Area using a Sodexo food voucher. Overall, we signed circa 400 million of issue volumes in April and May. Now if we go into the detailed figures. The 22.8% decline in BRS revenue was split minus 18.3% in employee benefits, as we have already seen, and the diversification services were down 38.8%. This much more significant impact from the COVID pandemic is due to a sharp decline in the home services benefits in Belgium, which could not be used during lockdown, and the collapse in corporate travel on the Rydoo platform, which will probably remain low for a while. The expense management part of the service continue to perform reasonably well. In Europe, U.S.A. and Asia, organic growth in revenue was down 27%, particularly impacted by the decline in the diversified services. Sales were a bit more resilient in Latin America, down 17.4%, thanks to the more progressive impact of COVID-19 in the region. The Brazilian market, which had already been weak for several quarters, affected by the falling interest rates and a more competitive environment, was down a bit more due to COVID. There was a significant decline also in Chile and Peru. Mexico, on the other hand, continued to grow. I just wanted to point out the very significant currency impact in Latin America of about 20%. This is due to the weakness of all the major currencies in the region, especially the real. Financial revenues were down 22.1%, due principally to the continued significant fall in interest rates in Brazil. I'll remind you that the Selic was at 6% this time last year and is currently running at 2.25%. The float was actually more or less stable during the period with lower reimbursement, compensating the lower issue volume. Thank you for your attention. I now hand you back to Denis for the outlook.

Thank you, Marc. So then let's turn to the outlook for the end of our fiscal year on Slide 31. As you have seen, the Q3 performance is slightly better than our initial April hypothesis predicting a decline in revenue of 33%. Today, while China and Europe are coming out of lockdown, the recovery is still very slow. The pandemic is still strong in North America, Latin America and India. As a result, our updated Q4 top line hypothesis are more prudent. As of today, we expect Q4 group revenues to be down circa 27% versus 15% anticipated back in April. Our modeling this time suggests no recovery in Business & Administrations, with Corporate Services down 25% and Sports & Leisure down 90%. Our hypothesis for Education have not changed, but Q4 is a small quarter due to school and university holidays, and we were already very cautious on the start of the academic year in North America. For Healthcare, we are not expecting any recovery as the hospitals remain significantly impacted by COVID protocols, and therefore, elective surgery and retail sales are picking up very slowly. Finally, BRS should see less of a decline as reimbursement volumes catch up with issue volumes. This brings the H2 decline to minus 28% or around minus EUR 3 billion of revenues lost. So if we go now to Slide 32. As I've just said, our new hypothesis gives us an H2 organic revenue decline of 28% versus minus 25% previously. Strong mitigating measures taken on-site and strict reduction of SG&A expenses are coming through. So we estimate the underlying operating profit flow-through to be better than the 25% originally assumed for H2. It should be between 20% and 23%. This improvement will more or less compensate the weaker top line hypothesis at the underlying operating profit level. And given the trend in the last 3 months, we expect a second half free cash flow in a range of minus EUR 200 million to plus EUR 200 million, excluding the USPP make-whole of EUR 149 million. We are confident that our strong and unique positioning and diversified portfolio of services and our solid financial structure are our key strengths to take better advantage of the emerging trends in the post-COVID world such as increased outsourcing trends, further market consolidation to the benefit of larger players and accelerated services integration. We will organize a Capital Markets Day on Monday, 2nd of November of this year, just after our full year results, to update you on how we are progressing and give you more information on our perspectives moving forward. I now open the call for your questions. Operator, can you please open the Q&A session? Thank you.

The first question is coming from the line of Jamie Rollo from Morgan Stanley.

Right. Just the first question is just on the new hypothesis that are down 27% for the fourth quarter. It's not dramatically better than the third quarter number. So I was just wondering, it would be quite helpful if you can give us what the monthly figures were in the first quarter so we can get a feeling for whether that's actually been improving over the last 2 months, and also, what that slow improvement between Q3 and Q4 might imply for maybe the first half of 2021. The second question is just more general. You just talked about increased outsourcing trends, accelerated services integration. It'd be quite helpful if you can maybe give us some numbers on what that might mean for the company in terms of net contract gains, whether there's any sign of that actually improving within the organic sales number you're giving us. And then thirdly, just finally, on the Capital Markets Day in November, should we be expecting any targets or any change in strategy?

Jamie, thanks for your questions. Well, what we see for Q3 and the beginning of Q4 are pretty much in line with what we've said. So there is no major change. The ramp-up that we see with schools reopening is slow because when -- summer will come and volumes are very slow in summer. There are very progressive restart in corporations. So nothing major. The -- it's very -- it's much too early to say something about Q1. We know that Q1 will not be fantastic. There are still a lot of question marks on how universities will restart in North America, lots of question marks. Schools will restart progressively, of course. We will have the volumes picking up. And we expect Corporate Services to accelerate, but to what level, it's still difficult to anticipate. So that's -- but you cannot expect the Q1 significantly better than the Q3 and Q4, but hard to go into deeper details. As far as the increasing outsourcing trends, yes, we see -- we believe that at this moment, some of our clients or some prospects have seen that the services that we deliver, and some of them were doing it in-house. Those services are getting more and more complex. And we engage a lot with clients and prospects to do cross-selling and also engage into first-time outsourcing because we demonstrated that our service and protocols are very solid and help business restarts. We see opportunities for first-time outsourcing, particularly in education and hospitals. We see some things coming up there. Too early to really say the magnitude of what this will mean in terms of new business, contract gains. We are -- at this moment, we've -- we're still getting out of the big shock, but we are pretty optimistic on the fact that we will be able to gain new contracts post COVID-19 peak. In terms of Capital Markets Day, we will, of course, give some guidance for -- we'll first give a better view on how we started the year and some guidance for '21. Too early again to give you any details on that. I don't expect any dramatic change in strategy. What I can tell you is that the COVID-19 crisis has told us is what we started to do before the crisis has to accelerate. So the big move that we've started to do, the digitization of our services, the focus on more multichannel food services, the convergence that we started between On-site and BRS, for example, all those things are to accelerate. And that's also what we want to tell you in the Capital Markets Day, is how we will accelerate to take all the opportunities that we have ahead of us. And we believe that this crisis has also created some opportunities for us to catch.

Just on the first question, I'm just -- I would have thought that maybe March was a bit better than down 13%. So it would just be helpful to get a feeling for just roughly those 3 months to see whether maybe there is a better improvement that looks like between the third and fourth quarters?

Jamie, for you to appreciate the step between Q3 and Q4, think that the 29.9% we've achieved or we have seen in decline in Q3 is down in 2.5 months, and that the first 2 weeks of March were balanced. It will give you an idea, if you redo the math, as to the improvement from Q3 to Q4.

Okay. So it sounds like within the last 2 months, and there's no actual improvement between April and May, that those were running down in the low...

No, what I'm saying is that if you want to appreciate the Q4 number versus Q3, don't compare 27% and 29.9%. You have to recalculate the 29.9% over 2.5 months because the first 2 weeks of March were normal -- almost normal. So there is an improvement between Q3 and Q4.

Next question is coming from the line of Simon LeChipre from MainFirst.

Yes. Simon LeChipre, MainFirst. Three questions, please. First of all, if you have any update to share from discussions you have with clients on working from home and which extent they want to implement this in the future. Secondly, if you could please come back on the key drivers of the better-than-expected drop-through for H2 compared to your initial 25% and any details on how it differs between On-site Services and Benefits & Rewards. That would be very helpful. And lastly, if you could also comment on the commercial activity during this second half in the development retention and if you have anything to share on retention in Healthcare in North America. You mentioned in the last call some contracts were still at risk.

Yes, Simon. So yes, on the corporate side, definitely, what we've seen is a big takeup, of course, of homeworking. But we have to separate what's long term for this and what's short term. Definitely, you have different types of clients. You have the ones that have really discovered working from home, that have never done that before and were forced to go into it. You have the ones who had already some proportion of working from home and have just extended it, and the one who were already massively in -- working from home. And the ones that have discovered it will, of course, keep some portion of it, but not -- of course, not to the extent that was done during the confinement lockdown. The ones who were already in to it will increase to some extent, but not massively. What we hear from many of our clients is that they want their people back to the office now. So people being back in the office will happen progressively. And we see that at the beginning there were some fears of people not willing to come back, but now companies are very actively promoting the fact that the place -- the workplace is safe. And of course, that's where we've become very relevant with all our services and particularly with our rise with Sodexo offer. So really, we are extremely active to support our clients there. What we see is people and companies, when people are all working remotely, they miss the sense of belonging. They miss this ideation and collective intelligence that happens when people are together. They miss the feeling of being part of that community. It's also hard to recruit and do the proper induction for young professionals or new employees that joined the company. So there are many aspects that are extremely important for companies. And this -- that remote, that working from home trend will remain, but it had already started before. So it will continue to progress, but not at all with the magnitude that we lived through the COVID. So we have to adapt, of course, our teams and our offers to the number of people on the site. That's what we've done over the years. And -- but also what I want to highlight is that the working from home also brings us opportunities for Benefits & Rewards, and typically, to combine meal cards from homeworkers with on-site services. And that's a compelling offer that we've started to distribute to our clients, but also Personal & Home Services. So that creates opportunities that will probably accelerate some convergence of services that we're building. On the drop-through...

Yes, on the drop-through, first, between On-site and BRS, you must understand that the drop-through is a reflection also of your margin pre-COVID. So if you are at 6% or 30%, the drop-through mathematically cannot be the same because what you lose is -- if you were totally flexible, what you lose is your UOP margin. So obviously, the drop-through in BRS is higher than the drop-through in On-site. When we look at On-site, the key question is how can we flexibilize the cost we have on the site? And we've been very active, obviously, at managing the food costs and the inventories and then make the labor cost flexible, which is the key component of our cost. So in some geographies, it's naturally easier, like in the U.S. because you have hourly workers. In some other countries, it's less flexible. In Continental Europe, in general, the labor market is stricter in terms of flexibility. But we benefited from the programs the government put in place. So for instance, in France, we benefited from the program of chômage partiel, but at the same time, there is still 20-odd percent which remain at our expenses. And then you've got the other direct cost. And in the other direct cost, I would say a large majority of them are flexible except when you have depreciation or except when you were paying a rent, you have to go and renegotiate, it's not fully flexible. So the drivers are numerous. And then after, you have the SG&A. The SG&A by nature in our industry is a lot of labor cost. So you can't try to flexibilize. And then you've got the variable cost, which we completely stopped, I mean, no traveling, no subcontracting, no consulting, no whatsoever. So -- but the SG&A are, by nature, a bit more rigid than the custom side. So all this put together, the drop-through is actually pretty good in the U.S. It's better than the group average in the U.S. It's good in the U.K., and I would say, in Asia Pac. It is less good in Continental Europe where the labor markets are stricter and more rigid.

And on your third question, Simon, the -- obviously, the retention rate has improved during this crisis and the development has slowed down. But we have a better increase in retention than the decrease in development, but with a slight difference. So -- and it's true across all our segments, even in Healthcare, the retention level in Healthcare last year at that time wasn't good. So we've improved a little bit. However, we have lost one of the -- I was telling you in the previous calls that we were unsure about the retention of some of our contracts in Healthcare in North America. And we have unfortunately lost one of the large ones we were unsure of. At the moment, we only have now, let's say, a few sizable contracts that are up for a bit. And of course, we are actively working on keeping them. So that's the situation today.

Next question is coming from the line of Jaafar Mestari from Exane BNP Paribas.

I've got 3 questions, if that's okay. The first one is on cash burn. You're not showing detailed monthly amounts on Slide 6. It looks like you're probably around EUR 300 million of total cash burn between March, April and May. So looking at your guidance for H2 as a whole, is it the right way to look at it, to think that going forward, you definitely expect to be each months between breakeven and positive? So something like EUR 400 million positive free cash flow from here at the top end? Secondly, still on cash flow and specifically in terms of working capital in BRS. So for Q3, you said merchant redemption was slow. Now as many restaurants will start to reopen and to redeem again, what sort of working capital outflow have you assumed from BRS in your H2 guidance, please? And the last question, when you talk about synergies between OSS and BRS, you mentioned meal vouchers being issued to OSS clients in the Czech Republic. Is that something you could consider expanding more widely across geographies? Or are you just mentioning Czech Republic anecdotally? And is this already happening in your major BRS geographies?

Yes. I mean we didn't give you numbers, but the proportions are relatively easy to check, and I don't think your hypothesis is wrong. So -- and yes, we -- what's happened on the free cash flow is that in March and in the early days of April, we've lost our cash sales. And you lose them only once. Once you've lost them, you've lost them. At the same time, we were paying suppliers that we procured stuff from in December and January. So the cash in March was obviously a very difficult month because of those cash sales reduced immediately and payments still linked to your pre-COVID activity. What's very positive for us is that April and May were positive. And so -- and we are expecting -- we're not expecting wonders from June to August, but we're expecting them to be slightly positive. Normally, H2 is our largest free cash flow semester. And as we said, I mean, we think we should be around 0, between minus EUR 200 million and plus EUR 200 million for H2, because there are still a lot of moving parts. But yes, we are expecting the monthly free cash flow to be slightly positive every month, which will allow the Q3 to get within the minus EUR 200 million to plus EUR 200 million in H2. Working capital in BRS. Working capital in BRS, it's actually a slight positive because, yes, the reimbursements are lower than issue volume, but some clients have not been paying us as fast also. So I think the Q3 movements are very minimal, and so we are expecting Q4 to be more or less the same. We're not expecting big swing because, yes, we will reimburse more, but we will also collect those overdues that some clients have not been paying us. So we are estimating the model for BRS to be relative positive to neutral over H2.

And then as far as the synergies or convergence are concerned, yes, definitely, we gave this example in Czech Republic because it's particularly striking to have 20,000 people getting meal cards. But we are accelerating that in geographies where, of course, we have Benefits & Rewards and where also there is a particular important proportion of homeworking for Corporate Services. Typically, Brazil where our portfolio is more skewed towards blue-collar workers and manufacturing, there won't be massive synergies there because there is not much of homeworking on our portfolio. But in many countries in Europe, we are accelerating this. We're moving towards this convergence in France, actively selling. At the moment, companies are still figuring out the new normal, how will homeworking be organized in a more regular way, but we have very active conversations. And bringing those 2 activities together will definitely, I'm sure, generate very interesting leads. We have some interesting leads at the moment with clients, for sure.

Next question is coming from the line of James Ainley from Citi.