Elis SA

PAR:ELIS

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 revenue call for Elis. [Operator Instructions] I must advise you that the call is being recorded today, Tuesday, the 28th of April 2020. And I shall now hand over to your first speaker for today, Xavier Martiré. Please go ahead.

[Xavier Martiré, Chairman of the Management Board & CEO]

Good afternoon, everyone. Welcome to our Q1 2020 revenue presentation conference call, which is also webcasted. The speakers on this call will be Louis Guyot, CFO; and myself. So first, I hope you are all healthy and that you are coping well in these difficult times. As you know, we usually don't do presentations for quarterly revenue release, but given the circumstances, we felt it was important to give you more color on what we see in our different markets. So I will start by giving you an overview of the Q1 business highlights. I will then hand over to Louis. He will notably comment on the recent evolution of debt, liquidity and cash flow. And I will then come back to provide you with some comments on what we see for the next weeks and months. Let me start with the highlights of the first quarter of the year. So Q1 revenue stands at EUR 760 million, with a negative organic growth of 1.8%. After 2 very good months in January and February, the different confinement measures implemented across Europe had a very strong impact on our business in March. Following the implementation of lockdown measures across many European countries in March, the hospitality industry has ground to a halt. Industry as well as Trade & Services are also materially impacted with better resilience. Healthcare was stable over the second half of March, but we will see later that we are now seeing some slowdown there, too. In order to face this exceptional and unprecedented situation, we quickly took many actions. First, we adjusted our cost base very significantly with around 100 plants shut down today across the group. Headcount has been adjusted too at plant level to reflect the change in our client activity, but also at headquarter level. And to do this, we have been relying on the different government measures that have been announced in most of the countries. Second, we have reviewed and significantly cut our CapEx plan for 2020, especially all the industrial projects, to increase capacity. This will come on top of the mechanical decrease of linen CapEx as activity slowing down. Therefore, our cash flow is totally under control, with positive cash generation even during the weeks of the strict confinement measures in a right number of countries. And furthermore, we don't have any major debt maturity before 2023. Our available liquidity today stands at EUR 1.1 billion, and we kept working on further improving it, notably through the cancellation of the dividend and the temporary suspension of our M&A activity. Finally, as you might have seen in March, we successfully obtained, at low cost, waiver on our bank test covenants at the end of June. As a reminder, what you see on the next slide are the dates where the lockdown measures were implemented in our different European countries. These measures were put in place between March 10, starting with Italy, and March 21 in the U.K. They concern all our significant countries, except for Sweden, where no lockdown has been put in place. Looking at this time line, I would like to highlight again our great responsiveness as we were able to communicate to the market as early as March 17 regarding a first set of cost adjustment measures. Moving on to the next slide. We usually comment our numbers by region, and this is what I will still do today. But given the very different trends between our 4 end markets, the performance of each geography comes down to the contribution of every end market to its revenue. As an example, we saw that France, Southern Europe and U.K., our 3 regions with the highest proportion of Hospitality in the mix, were the most impacted in Q1 as our hospitality business basically fell to 0 from mid-March onwards, with all restaurants or hotels being either closed by law, like in Spain, or with negligible occupancy rates when they remain open. In Industry, we see a contrasting situation. On the one hand, some of our clients are simply stopped -- have simply stopped their activity and closed their plants. That is the case, for example, of many of our clients in the automotive industry. But on the other hand, some other clients haven't seen any material impact, such as in pharmaceuticals, energy, food processing, among others. At the end of the day, we observed circa minus 40% revenue decrease in the last 2 weeks of March after the implementation of the lockdown measures. In Healthcare, we have been able to sign some new business, for example, with some small hospitals that switch to the outsourcing business model during the crisis, but this was offset by the fact that most countries have decided to postpone all non-urgent medical treatments to make more room for COVID-19 patients, often resulting in some hospitals being partially empty, which means lower activity for us. At the end of the day, Healthcare has been stable in the last 2 weeks of March. Finally, Trade & Services, just like Industry, show mixed pictures with all non-food stores and business premises closed, but with food retails keeping a normal activity. All in, the last 2 weeks of March showed a circa minus 40% top line decrease. Looking at Q1 revenue by region now, the geographies in which Hospitality is the biggest contributor shows the strongest contraction. So that is France, Southern Europe and the U.K. Conversely, Central Europe and Scandinavia showed good resilience in Q1, driven by both the higher proportion of Industry or Trade & Services in their revenue mix and by softer lockdown measures in some countries, like Sweden or Germany, leading to a lower number of business shutdowns compared to what we observed in Southern Europe. Latin America remained a strong growth driver for the group with a very good start of the year in January and February as well as a favorable business mix, with Healthcare representing around 2/3 of revenue in the region. Let's now take an in-depth look at monthly organic revenue growth by region in the first quarter. You clearly see how good the trend was at the beginning of the year with mid- to high single-digit figures posted in January and February, notably in France or in Southern Europe. But unfortunately, March showed a sharp slowdown in all geographies, especially in the second half as the pandemic spread across Europe and lockdown measures were being put in place, leading to a decrease of minus 12% in organic revenue in March for the group. Let's now go through our different geographies, starting with France. Again, the beginning of the year was very good before we registered a sharp activity slowdown in March caused by mainly -- by the sudden interruption in Hospitality, which normally represents more than 1/3 of the country total revenue. On top of that, the lockdown implemented mid-March also impacted our Industry and Trade & Services businesses with a circa minus 15% organic revenue decline in March. Healthcare remained stable with the same phenomenon I described before, some gains of new contracts -- notably with some public hospitals -- offset by the room made in some private hospitals for the COVID-19 patients. In total, March organic revenue declined by 20% with only the last 2 weeks of the month fully impacted by the crisis, which gives you an idea of the magnitude of the impact. Central Europe was more resilient with slightly positive organic growth in Q1 at plus 0.6%, and with March down by only 4%. The end market mix in the region is more favorable with a strong contribution for Healthcare and Industry clients, which respectively represent 40% and 30% of total revenue. In particular, Industry showed good resilience in the Netherlands, Poland, and Germany, partially helped by softer confinement measures. And surprisingly, Switzerland was the most impacted country in the region due to its higher exposure to Hospitality. Moving on to Scandinavia and Eastern Europe. We see a pretty similar resilience with March only down minus 4.5% organically, and Q1 virtually flat year-on-year. In this region, Hospitality only represents 15% of revenue; and some countries, like Sweden, which was not put under confinement, continued their activity almost normally. Denmark and Finland were more impacted but it is worth noting that both these countries are currently progressively lifting the confinement measures as is Norway. Moving on to the U.K. and Ireland. The slowdown started later in March compared to most other European countries. Also, the impact on March organic growth was very significant at minus 18%, clearly showing the magnitude of the crisis in the region. Our mix is not favorable there, with 1/3 of our business in Hospitality, currently close to 0. But we also noted, for Industry and Trade & Services, a much higher number of bankruptcies in the U.K. than anywhere else in Europe. In Healthcare, we also noted a gradual decrease in volumes for Q1 as the NHS has been rolling out a massive plan to postpone non-urgent treatments to make more room available for COVID-19 patients. So all in, the U.K. is today among the countries where the crisis has the biggest impact on our business so far. Moving on to Southern Europe. The beginning of the year was very good with plus 9% organic growth in January to 6% in February before the crisis massively impacted March at minus 30%. The mix is very unfavorable in this region too, around 60% of our revenue is normally done with Hospitality clients, and all the Spanish hotels have been ordered to close by the government. However, Italy was up in Q1, including in March, with many of our clients operating in Healthcare on resident industrial activities. And furthermore, we have successfully launched a disinfection offer, relying on our good pest control network in the country, with good results in the quarter. To conclude this world tour, let's touch base on Latin America, where performance was good in Q1 with plus 6% organic growth driven by a strong performance in January and February. Activity slowed in March with organic growth only slightly up. Also, circa, 90% of our revenue comes from Healthcare or resilient Industry clients. Again, we have seen many cancellations of non-urgent medical treatments leading to material volume decrease in Healthcare in March. For the record, Brazil was the first geography to witness this postponement phenomenon as the country tried to prepare for the epidemic arrival. I would now like to return to all the measures taken by the group in a very timely manner to adapt to this unique situation. On the cost side first, as of today, we count around 100 plants that are either shut down or virtually stopped, including in, but not limited to, France, Spain, the U.K., Switzerland and Germany. This includes both blue collar, the plant manager and also the local sales, as you obviously can have any commercial discussion these days. And at central level, every country headquarter has contributed to the cost-saving efforts with savings roughly proportional to the impact felt in the country. To help us with all these adjustments, we have benefited from many government measures related to partial unemployment, which allowed us to significantly reduce costs where needed. Now on the cash side, we have also been doing tremendous work to limit the impact on our numbers, the obvious gain was on CapEx where we have extensively reduced the 2020 plan and canceled all projects related to capacity increase. We will also our linen CapEx investment decreased during the month of low activity as the linen that is currently not used by our customer will not need to be replaced. All these actions put in place in March make us feel quite comfortable with regards to the impact of the revenue drop on our margins, and cash generation. As we previously indicated -- and as we see it, by the way, in our numbers -- for each euro of lost revenue, the impact on EBITDA is about EUR 0.50, and EUR 0.20 are saved on investments. On top of that, we expect an additional EUR 0.10 to be saved to corporate income tax. Thanks to this, we were cash positive in March and even during the peak of the confinement period in April. This obviously leaves us confident in our capacity to continue generating a solid amount of cash for the full year. Moving now to the next slide. Crisis might be violent, but we see some good business opportunities for the coming months. You see here a list of some of what we have been working on lately, as well as some recent achievements. First, our pest control business is currently offering a disinfection service, which, as you can imagine, has met with real success lately. We have also signed several short-term contracts with small hospitals in France and Spain, which were previously washing the linen internally. We have also benefited from the acquisition of some hotels rooms by healthcare authorities to host COVID-19 patients who do not require specific treatment but need to be quarantined for a while. And additionally, we have seen increasing demand for textile materials dedicated to surgery gowns because of a shortage of similar disposable products. In Spain, we have signed a short-term contract with a major European retirement home player that normally washes its linen internally, and that is now thinking of permanently switching to outsourcing. We have launched a restart package commercial offer for our customers who reopened their business. This notably includes more hydroalcoholic and disinfection solutions. But we also know that clients now address a higher rotation of uniform for their employees, implying additional deliveries for Elis and, hence, more business for the group. Finally, we are currently working on the conception of textile masks that can be washed and keep its productive pattern. This is something we should be able to add to our portfolio of products in the short term. I will now hand over to Louis, who will provide you with a quick update on the recent evolution of the debt and liquidity side.

[Louis Guyot, CFO & Member of the Management Board]

Thank you, Xavier. So as you have seen, our operational adjustments have been very quick and efficient. As far as the balance sheet is concerned, we have been working on 2 main topics over the last weeks. First, we have obtained a waiver regarding the June bank test that covers our 2 revolving lines of credit under USPP. Our counterpart on the financial products are, first, our usual pool of commercial banks for the 2 evolving lines and, second, borrowings for the USPP. We decided to get in touch with our lenders early in March, and we eventually got dispensed from paying fees for this waiver, underscoring the excellent relationship we have with our partners. We keep the line open in a very transparent way, which I believe is highly appreciated. Second, we have been working on further improving our already comfortable liquidity as a precaution. We, therefore, decided to cut the dividend for '19 and to put our M&A activity on hold for now. As far as our debt is concerned, you can see on Slide 20 that we don't have any major maturity before '23, which gives us -- which gives the market plenty of time to recover before we need to start thinking of refinancing. Given the crisis, we drew EUR 200 million from the revolver line in March as a sanity check, mainly, as we had no immediate use of it. Then we managed to place EUR 125 million of commercial paper in April at 58 bps with a 12-month maturity, showing that this market is indeed opening. Therefore, we repaid, the last week, half of what was previously due on the revolver, meaning EUR 100 million. In total today, we have EUR 800 million undrawn revolver facility plus EUR 300 million cash, so a total liquidity of EUR 1.1 billion. Moving to the next slide. The very good news is that we currently are not burning any cash. Indeed, above the operational savings mentioned by Xavier, we are currently seeing strong months in terms of receivables, which led to positive free cash flow for the group in March or in April. This reflects our capacity to properly collect cash with earlier values we see today being a small part of the client who are currently closed, mainly the small ones, as the big networks are actually paying. These clients should pay us when they're open. Therefore, the only risk we identify today corresponds to the clients' bankruptcies. For those particular clients, a very small part then, we are talking about 1 or 2 months of revenue that could not be recovered in the end. This will represent [ at group level an impact submitted ] around EUR 10 million. So now I will hand over back to Xavier for update of the current trading April and some outlook consideration.

[Xavier Martiré, Chairman of the Management Board & CEO]

Thank you, Louis. So let's say a few words about April, first. So we have registered slightly different trends compared to March. In Industry, first, we have seen a sequential improvement with generally better activity in Central Europe and in Scandinavia, where we have seen some reopenings of 4 different sites that were shut down in March. Therefore, April revenue should be down minus 20% organically compared to the minus 40% we saw in the second half of March, marking a material improvement. In Hospitality, the April trend is exactly in line with what we saw in the second half of March, so nearly 0. We hope to see some pickup during the summer holidays on the back of domestic tourism. It is also important to have in mind that Elis has a great variety of hotel clients ranging from no-star hotel to 3-star hotels, which are far less dependent on international travelers. Therefore, also Hospitality should not be recovering as fast as our other end market. We remain slightly confident we will see some positive sign in H2. In Healthcare, the measures aiming at saving some rooms for COVID-19 patients that we already mentioned a few times today has been intensifying in April, leading to a circa minus 15% organic decrease year-on-year. This is obviously not great news, but this is not something that worries me, given the very temporary nature of this effect. Some countries, like Germany, have publicly communicated on the need for hospitals to quickly reopen for all patients. So I am quite confident that we will see a normalization, most likely in the second half. Finally, Trade & Services showed a slight improvement in April with organic decrease of minus 30% compared to minus 40% in the second half of March on the back of some first reopenings of stores in some countries. We hope to see some pickup in the next week, notably with our collective catering clients, as business premises will gradually reopen. So as far the outlook is concerned, it is still too early for us to give you a reliable indication of what the full year '20 could look like. That said, we observed, in many of our geographies, some first steps towards the lifting of lockdown. Obviously, every country has its own specificities, different phasing and so on. But nevertheless, this is happening. For example, Germany, Poland, Italy, Austria, Switzerland have already started lifting part of the restrictions, allowing businesses to restart their activity. Many others should follow in May, starting with France, mid-May or beginning of June; and maybe Spain at the end of May. Therefore, the worst of the crisis should be behind us, and we believe that April should mark a low point with an expected organic revenue decrease for the month at minus 40%. Furthermore, given the impressive adjustments we have made on our cost base, the strong focus we are putting on cash collection and the natural buffer we have, such as CapEx reduction, I am confident that the group will deliver triple-digit free cash flow in 2020 after [ lease ] payment. Thank you all for your attention, and we are now ready to open the Q&A session.

[Operator]

[Operator Instructions] Our first question is from David Cerdan from Kepler Cheuvreux.

[David Cerdan, Equity Research Analyst]

A few questions for you, please. The first question is how are you? Is it okay for you, first question? Because we have seen that some CEOs were not -- have been impacted by the virus. So this is my first question. Second question is regarding the business. So you could -- so you say that April should be the lowest point. How do you see the trend for the next month? If you can give us an idea of a trend we could have in the second part of the year. The third question is regarding the cash flow. Can you maybe explain your natural -- I would say, the natural client turnover? I think that it was 6%. So do you expect this number of loss ratio to be worse in the next months because of the crisis? And regarding the CapEx, if you -- at which kind of percentage of sales do you expect CapEx to be in 2020?

[Xavier Martiré, Chairman of the Management Board & CEO]

Okay. So thank you for the whole -- everything is okay for the health of the team. For the second question, it's very difficult for me to answer because what are the trend for the second part of the year, it's -- at this stage, nobody knows and you can just have some bet. So probably, we will find a good level of activity in Healthcare, as I said, and we should recover the normal level of activity. For Hospitality, we all know that it will be very complex even in the second part of the year. But with what kind of magnitude, at this stage, I don't know, nobody knows. Even our customer hotels and restaurants don't know precisely what will be the activity in the second part of the year. And the same for Industry and Trade & Services. We have seen the first step of strong improvement in April. So it will progressively improved regularly week after week, thanks to the reopening of a lot of customers, but it's complex to give you more color for the rest of the year. And if we have these opportunities, we would have been able to give you some guidance for the year. But at this stage, we consider that it's not feasible. Third part of your question around cash. For the level of turnover of customer, we will have 2 different trend, one positive, one negative. One positive is in this context, globally speaking, the level of commercial activities of everybody is more limited and the level of risk that the customer is ready to take is also much more limited. So you always prefer to work with a leader -- with a reliable leader in this context. And so we see that we have a decrease -- a strong decrease in cancellation. So customers want to stay with us. It was the case, for instance, very interesting to analyze what happened in U.K., for instance, where you know that it is one of our key issue in the country. But in U.K., we have seen the best score ever in March in terms of cancellation, resignation of customer. So it is a global favorable trend. On the other hand, we have a negative trend, of course. It is the risk of bankruptcy that could provide us a lower level of customers in the future, and so we could lose more customers in the future due to the mortality that will increase in the rest of the year. For CapEx -- in CapEx, as we said, each time we lose 100 in sales, we are able to save at least 20%. So it's close to the normal trend of 18%. So all in all, that means that we will be, for the full year, a little below 18% in 2020.

[Operator]

Okay. And we will take our next question from Chirag Vadhia from HSBC.

[Chirag Vadhia, Research Analyst]

Firstly, on the U.K., you mentioned there were more bankruptcies within Industry and Trade. Could you give some more color in terms of the clients, such as by which service line, are you seeing it more in workwear, for example? And the second question is, could you give us an update on the scenario analysis that you've done if this April exit rate continues, such as on leverage? And if the recovery is more gradual, how do you see the business evolving over this time? And finally, on CapEx looking into 2021, do you see that you will have to spend more the following year to make up maybe sort of some of the CapEx savings this year, even though the trend is similar at around 18%?

[Xavier Martiré, Chairman of the Management Board & CEO]

So we highlight the fact that the situation in U.K. is very difficult. It's clear. We have a little more closure of customer. So it is in workwear where we have seen the start of bankruptcy, but also in the end market of Hospitality for small customers. So that means that today, the drop is very severe, of course, with Hospitality. It is also -- we have a bigger impact in Industry and Trade & Services in U.K. than elsewhere. It's also linked to the exposure of the group, at least to some industry very impacted, like collective catering. And on top of that, NHS has a strict control of operations in healthcare in U.K. And as they have decided to postpone a lot of non-urgent treatments, it has a strong impact in our business. At the same time, you -- if you remember the nursing home is not today an outsourced business for us. So they still used to wash internally the linen. So that means that this end market inside Healthcare that is much more stable in other countries, like Germany or France, for instance, is not there in U.K. to mitigate the big slowdown in hospitals. So it is the reason why in U.K., we have seen a strong impact on the activity in April, for instance. You had questioned about what happened if the recovery is very slow. It is a scenario that, of course, is also under study internally. So we -- you know that we have -- we had, very easily, the waiver for the covenant of June. So depending on the scenario of recovery, it's not impossible at all that we need a second waiver for the covenant of end of December. We have already started to discuss very -- in open manner with our banks on this subject. We don't feel any fears in front of us. So I'm very confident to the way to obtain very quickly the same level of waiver for the covenant of December. And for '21 CapEx, we don't forecast any increase in percentage of sales of the CapEx for '21 because all what we postponed or can't sell today is mainly linked to capacity program; because, before, we had a very strong level of activity with a very nice organic growth. So that means that we needed some strong investment to follow this growth in volumes. Of course, it's not the case today. So what we will save in 2020 is definitively saved, and we don't need to invest more. We will not need to invest more in '21.

[Operator]

[Operator Instructions] The next is from Daniel Hobden from Crédit Suisse.

[Daniel James Hobden, Research Analyst]

Just maybe a few quick ones from me. So I was wondering if you could let us know the percentage of staff that have been furloughed across your business. Question 2 was around free cash flow. Clearly, the receivables are looking okay at the moment. I was wondering if the March and April solid cash generation, how much of that was driven by the income from government-led support. Or is that yet to really hit the tape and provide a benefit? In the space, I was wondering how you see yourself being positioned. Obviously, you've given us your growth numbers. How do you feel, let's say, the peers are doing? And you speak about sort of coming out the other side, is there a chance that, as we head into H2 and setting into 2021, you're going to be better positioned, and possibly some of your peers would be facing some of the bankruptcy challenges that you referenced for some of your companies? And then the final question is just on the debt refinancing or the waiver, I should say, for the covenant. The waiver that was obtained a few weeks ago for the June one, was that based on the fact that you would suspend M&A and the dividend? So if we are going to expect a waiver for 2020, the December, would that sort of cut out the dividend for 2020 and possibly put a limit on M&A?

[Xavier Martiré, Chairman of the Management Board & CEO]

Okay. So for April, we gave, during the presentation, some trend for April. So we will finish the month with around minus 40% on the top line in comparison to what we could expect. And the breakdown is minus 20% in Industry, more or less 0 in Hospitality, minus 15% in Healthcare and minus 30% in Trade & Services. And what we expect for the coming days or weeks is progressive improvement in every end market due to reopening of the activities in some countries or quite everywhere. Second question lead to cash flow perhaps for Louis.

[Louis Guyot, CFO & Member of the Management Board]

For cash flow, in fact, as you have understood, there are clearly 2 elements. They are the kind of structural cash flow on which we work a lot. With regard with EBITDA, we can provide some thanks to cost cutting. The CapEx, we can cut and so on. And that provide us with the kind of comfort that the impact on cash, at the worst, is nearly around 0. And then we had a kind of a lag effect on the receivables is that -- now whatever we get the money from higher amounts of revenues and that provides a very positive cash flow in March and in April related to this lag effect. But we are very conscious of that, of course. That's why we look also closely at the structural cash flow we are able to provide. And that is thanks to the operational savings we are making on everything around [ the euro plus ] [indiscernible]. So that is something we look closely at. By the way, the other, like I said, is that for all the technical unemployment provided by the government, the different governments, we are still waiting for the money. We have paid the people in March, of course, but we are waiting for the money of the government. So there's a negative working cap effect from this part. But of course, much smaller than the receivables effect, which is highly positive.

[Xavier Martiré, Chairman of the Management Board & CEO]

So third question was around the Spanish situation. So it's clear that it is a country where the lack of activity in hotels is very massive. And it's clear that it will have an impact in the landscape of competition. So it's, at this stage, too early to estimate precisely how many small competitor will die. But it's clear that when we see the level of help provided by the government, that is not so huge. I'm totally sure that we will see, in the future, in the second semester, some bankruptcy of a small competitor. It will be the case in Spain. But for sure, we will have the same kind of situation in all our countries. Because you -- in some countries, you know that the majority of the cases, it's not usual to be able to deliver services for every end market. And you will find a lot of competitor dedicated to some end market; and for instance, dedicated for Hospitality. So you can imagine that for them, today, the level of turnover is very close to 0. And depending on the level of help providing by the different countries, it's clear that we will see a strong -- some bankruptcies and some mortality in our landscape of competitor. And then it is the consequence, your last question. So we'll be able to make again some M&A. And perhaps, Louis can give you some more color on the -- what were the conditions of negotiation of the waiver.

[Louis Guyot, CFO & Member of the Management Board]

Actually, it's not working that way. The way we work is kind of partnership with the banks and Barings. When you -- and when you look at the debt -- again, Page 20 -- you are aware that the lines confirmed by the waiver on the covenant are quite -- a very small part of the total amount is for the [ revolver ] line which are with the commercial banks with whom we are making business every day in every country. And the other one is Barings, being the American investor with whom we have built the program of USPP and quite friendly to us. So globally, it's a kind of transparency that was pledged and that was highly appreciated that we give them all the information in detail of what's happening, what we are doing. So we were quite transparent about the fact that, well, to improve liquidity, it's a good idea to cut dividend. [ Navarre's] M&A is probably not a high priority, but it was not a condition set up by the banks, and I'm totally confident that we can have waiver at the end of the year and decrease of our action towards dividend and M&A. Of course, no decision is made as of today.

[Operator]

Our next question for today is from the line of Sabrina Blanc from Societe General.

[Sabrina Blanc, Equity Analyst]

Yes. Sabrina Blanc speaking. I have 2 questions, if I may. If I look at your potential opportunities that you have mentioned in one of your slides, can you provide more color in potential sales? And how big is it? And my second question is regarding the hospitality area. Can we have an idea in terms of breakdown between the hotel part and the restaurant part for your -- perhaps for the biggest countries or for the group overall.

[Xavier Martiré, Chairman of the Management Board & CEO]

For your first question, Sabrina, it's too early to give you some precise figures on what will represent the different opportunities for the future. We can just say -- give you some example, but just example. First, it's quite interesting to see that in Italy, just the business of disinfection was big enough to mitigate the lack of revenue with some industrial customers. So that means that it can be quite important. We have started, of course, to sign a lot of contracts now in some countries like France to prepare the May 11 with disinfection. And with hydroalcoholic dispenser, it can be massive also. Just one example. We have signed with the -- one of the major city in France for all the offices of these cities. And it is a contract of EUR 0.5 million per year, just for one customer. So that means that, of course, we can expect some important impact of this different set of opportunities. But at this stage, it's too early to give you some more precise figure. The second question, the breakdown in some countries or globally speaking, between hotels and restaurants in the turnover is 80/20, 80 hotels, 20 restaurants.

[Operator]

We'll now take our next question. It comes from the line Sylvia Barker from JPMorgan.

[Sylvia Pavlova Barker, Analyst]

So I just want to ask on the drop through, the EUR 0.50 per EUR 1, how much of that is -- so what's the split between the kind of flexible and fixed costs? And then how much do you expect from government programs within that? And then on the CapEx, so clearly, back in, let's say, 2013, '14, you were spending about 17% of sales on Capex, and you were still growing organically. Could you not reduce your linen CapEx even more? Could we not see it to, let's say, 50 -- overall kind of CapEx, let's say, 14%, 15% of sales? Or -- and yes, I will stop here, actually, and then I will see if there are any follow-ups.

[Xavier Martiré, Chairman of the Management Board & CEO]

So for the first question, sorry, but I don't have a precise breakdown inside all the cost savings between what is linked to partial unemployment and what is linked to dismissal of temporary workers, and so on and so on. So it's -- I don't have this breakdown. For the second question, it depends on how long we have the consignment and how long we stop to sell. It's clear that if it is only 2 months of closure of the sales activity, it's not a big impact on the total level of sales of the year. It's clear that if we stop to sell much more longer, it's clear that we could have an even bigger impact on the CapEx. So that's why we prefer to provide figures more safe with a 20% of decrease of the CapEx in this context. Because we see that in the majority of the countries, we are working to launch again our sales team on the road to start -- to restart their commercial activity. So that's why we have kept this 20% of decrease of CapEx in -- related to the lack of turnover.

[Sylvia Pavlova Barker, Analyst]

Okay. If we just think about kind of the fixed flexible costs, what is the kind of -- I was estimating 65% to 70% fixed. Is that roughly where you're thinking or...

[Xavier Martiré, Chairman of the Management Board & CEO]

We have -- I think we have demonstrated that the concept of fixed or flexible cost is depending on the magnitude of the crisis. Because before the huge crisis, I would have said, okay, with 35% variable. But you have seen that when the crisis has a strong magnitude, we are able to go to 50% because we have cut some costs that before were considered as fixed, and we have demonstrated that at the end, nothing is definitely fixed. And I can assure you that we have already started a process to work on organization of the group for '21, '22 to see how we will adapt the costs, the fixed costs everywhere in the old headquarter, and so on, to a probable decline of the turnover, and we are able to answer whatever is the magnitude of the lack of revenue in '21. So we will have a scenario where we are able to cut 5% of the headquarter, 10% of the headquarter, 15% of the headquarter with -- so each time, what before was considered as fixed costs, we are working to make this totally variable for '21, depending on the level of lack of revenue.

[Sylvia Pavlova Barker, Analyst]

Okay. Okay. That's very helpful. If I can just sneak one more. Just in terms of -- going back to the point of competitors going bankrupt, and just in general, the competitive landscape. As we kind of come out of this with lower volumes, especially in Hospitality, where I guess a lot of the small mom-and-pops will be operating, could we expect kind of pricing to be particularly weak, if I think back to 2015, '16? Is there a risk that pricing is running relatively low for a little while? Or how do you see that?

[Xavier Martiré, Chairman of the Management Board & CEO]

No, I'm -- no, I'm not afraid about this because the situation is so difficult today for a lot of players, that on top of that, they cannot play with marginal revenue and to play with lower prices. We have, if you remember 2014, it was partly Elis responsible for the beginning of the war -- the price war in France because we launched a lot of actions to increase significantly sales with major customers, and a lot of competitors were afraid. They had believed at the stage that we wanted to change our pricing policy. So I'm much more confident now. And all what I have seen for now reinforce this confidence that all the players will keep calm, and we'll keep more responsible behavior in terms of pricing.

[Operator]

Our next question for today is from Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

I got 2 questions. First, just on Hospitality. And if you kind of think about when the clients start to open up, let's say, in summer, is there a chance that your revenue could actually trend better than what the overall hotel RevPAR or the hotel occupancy rates would say just because presumably once the hotel opens up, all the linens needs to be replaced and washed. In that case, you will do better than overall hotel industry, per se. Is that a fair way to think about it? And the second question is just on the savings on the EBITDA. Does your guidance assume the full benefit of all the furlough schemes that are out there because the details are sort of still emerging? And is there a case for an upside on that EUR 0.50 of savings in case the revenue trends sort of remain -- continues to be weak.

[Xavier Martiré, Chairman of the Management Board & CEO]

So first question for Hospitality. So I think that more [carats than] they will wash more linen. It could happen. It's clear that they will have to change a little the quality of hygiene inside hotels. We have seen that, for instance, just an example, they have said that now they need to change every day, the uniform of all the people working inside the hotel. So it could add some volume. But I think that it is -- it will not be so significant for us. What is totally clear is that we are not following the RevPAR of this end market. We are following the occupancy rate. So it's clear that in H2, our customer for the hospitality end market will have a severe decline in RevPAR but a much lower decline in occupancy rates. And so the key KPIs for you to track the level of activity and turnover of [in] Hospitality is the occupancy rate and not the RevPAR. The second question around the 50% of savings in EBITDA, honestly, I don't expect a lot more coming from different measures in the different governments. We have seen that some improvement of measures were much more dedicated to very small players, small companies. And each time, we are too big to benefit from this additional measure.

[Anvesh Agrawal, Equity Analyst]

Okay. That's very clear. Maybe just one more. You've given the revenue trends in Industry and Trade, which are clearly better in April than what you had in second half of March. Now has that number of minus 20% and minus 30% been stable throughout the April? Or over the last 1 or 2 weeks, actually, the revenue trends are better than that number suggests?

[Xavier Martiré, Chairman of the Management Board & CEO]

It's progressively improving day after day, following some reopenings of customer regularly every day. But you can see, for instance, that Germany is progressively reopening all the businesses. Every day you listen from the name of a big industrial customer that decided to reopen their plant, and so on. So every day, we see a small improvement in the situation.

[Operator]

Our next question is from Matija Gergolet from Goldman Sachs.

[Matija Gergolet, Equity Analyst]

Yes. Thank you for all the details provided, it's very useful in these uncertain times. I have 4 questions. The first one is, you mentioned that you will be saving on industrial CapEx. Is it possible to just quantify that saving on industrial CapEx in euro millions? Is it now EUR 20 million, EUR 30 million or how much? Second question on the business. Now you mentioned the disinfection service as a potential area of growth. Can you just help us a little bit understand how material is -- are the disinfection services today for Elis as a whole? Because I thought your business was mostly done with the field agent. So you don't have no separate teams that come in to do the disinfection. How does that work? I assume it's relatively small today, but what percentage of your revenues today would be disinfection services? Then the third question would be workwear. And then going back a little bit to the full year results. I think I understood back then that your workwear revenues would be relatively insensitive to volumes up and down. But now we're having like a significant decline, say, in activity. Can you just remind us how do the workwear revenues on contracts work? So is it on a per employee basis? Or what portion is fixed revenue, what portion is dependent on the actual volumes of washers? And sorry, just last -- the fourth one, last one, just on Trade & Services. In that segment, what percentage of the revenues would be, say, exposed to offices in general? So I think there is a debate in the market whether we will need as much office space in the future compared to the past. So just curious to know what percent of your Trade & Services business would be related to offices overall.

[Xavier Martiré, Chairman of the Management Board & CEO]

Okay. So industrial CapEx, you can imagine that I would not provide you any precise figures. Otherwise, you would have directly our actual assumption in lack of turnover. So that means that we have different scenarios depending on the magnitude of the lack of revenue for the full year, and same answer that what I've said for the fixed cost management before '21 at the headquarter level where we will have different scenario and we will apply cost-cutting depending on the lack of revenue estimated for '21. We have exactly the same level of strategy for industrial Capex. Depending on the -- what we see in the coming months in the lack of revenue, we will adjust the level of effort in the industrial CapEx. So we have some flexibility in this amount saved for the full year. Disinfection, so it is part of the pest control business. So before it was quite zero in our turnover, honestly, disinfection, because the need from customer and the market was close to zero. So we had EUR 125 million of business in pest control. We have some dedicated team. So don't forget that a part of the business is done by our field agents. But we have also some more technical teams for more technical intervention. When you have a bed box, for instance, inside a hotel, it's more complex to make the treatment. And then we have some technical teams. So that means that today, disinfection of that is -- that are made by Elis are made by our technical team everywhere. And we have the bandwidth today to answer to a lot of different requests from our customers. And as I said, in Italy where the need came earlier, we have been able to have some good results. And with the ability for Elis Italy to be with a positive growth in March. Nevertheless, of course, it's nothing to see with the lack of revenue that we will have globally speaking in the group. When we -- you see the lack of revenue coming from Hospitality, it is not thanks to disinfection that we need to be to, but it is a nice add-on with a very huge level of profitability. The third question around workwear. It's clear that normally speaking, as we charge in the contracts, we charge per employee a fixed fee. So that means that, normally, this business is more resilient than the other because we don't charge per piece wash. We charge per employee that wear uniform. Nevertheless, when you have a customer that closed 100% of the activity during one month, of course, you cannot charge the contract. So that means that what you can ask is to increase the length of the contract. So if you have not delivered anything during 1 or 2 months, at the end, the negotiation will be, of course, you don't charge for the 2 months where everything was closed, but you will ask to prolong a little the contract. It is an example of a [good contract] that we will be able to refresh. But for the rest, if they decrease the number of employees or if they stop totally to work, of course, you cannot charge. So for the coming days, what is very important is to see how many employees will work again inside our customer, and it will explain the increase of the invoice in workwear with our customers. The best-case scenario is where they use partial employment or (foreign language) in Germany, for instance, and where they use all their employees, but 4 days a week or 3 days a week. In this case, we could save 100% of the invoice. Otherwise, if they reopen the activity, but with only 50% of their employees at the beginning, of course, we will charge only the number of employees. Okay. And the last question, sorry, Trade & Services, we have around 20% of the business, Trade & Services, is made with offices.

[Operator]

Our next question is from the line of Mourad Lahmidi from Exane.

[Mourad Lahmidi, Analyst]

Yes. The first one is on your partial employment. How many of your workers are taking partial employment? And the second is about what you said on the delinquency rate of your small clients. I think you talked about EUR 20 million, going forward. Can you just explain what you have assumed behind this EUR 20 million?

[Xavier Martiré, Chairman of the Management Board & CEO]

The line is very poor. Can you repeat, especially the second one?

[Mourad Lahmidi, Analyst]

Sure. You talked about EUR 20 million of delinquency rate at small clients going forward. Can you just explain what you've assumed behind EUR 20 million?

[Xavier Martiré, Chairman of the Management Board & CEO]

And I think that we will switch directly to the second question because for the first question, I don't want to give such a precise information. So we have explained that we are able to save 50% of the lack of revenue with a lot of different measures. We have cut some temporary contracts. We have renegotiated with some supplier, of course, to decrease some costs. We are using, in some countries, some partial employment. In some other countries, we have also fired directly some people. It was the case in Latin America where we didn't benefit from such a program. So it is with all these action plans that we have been able to reach 50%. And the second question will be for Louis.

[Louis Guyot, CFO & Member of the Management Board]

I think you go back on the EUR 10 million I mentioned of estimation of, I would say, cash [never connected], well, that's based on what we've kind of seen what is of some small shops, small clients being closed and clearly nothing because there's nobody at all, so they don't push on the button. To be clear on these issues, the big network are paying even networks of hotels, for example, they are paying the bills. You are aware that a lot of pressure is made by the government that any guy benefiting from government package, shall honor the law, and especially the bigger payment. So those guys are paying. So we are speaking of [finances] which closed [indiscernible]. What happens in this case is that when you're open, of course, we are very happy to help them reopen. But very fast, we come to collect them. And the experience has shown that we are paid in full. So the risk is [indiscernible] going bankrupt and leaving us with 1 month, worst-case 2 months of bill not being paid. That is my estimation of EUR 10 million.

[Operator]

And our last question today is a follow-up from David Cerdan from Kepler Cheuvreux.

[David Cerdan, Equity Research Analyst]

Yes. Just a rapid question. Your performance in January and February were very strong. Can you explain?

[Xavier Martiré, Chairman of the Management Board & CEO]

So it's a mix of a lot of things. I think that the first activity of our customer was quite good. It's a mix also of the confidence we had. Thanks to the very good level of performance in '19 with the ripple effect in '20, and we started the year with a very solid commercial activity. So the level of new sales was very good. And you know that in '19, we have seen a lot of improvement in the churn in a lot of countries. It was the case in U.K., of course, but the same quite everywhere that explains a part of the very solid organic growth delivered by the group in '19. And honestly, we were on the same type of level of performance for 2020. So that's why we are very disappointed, but it is life. But it's clear that the commercial performance of the group in the beginning of 2020 was very solid with high level of sales and a regular decrease of constellation of customer.

[Operator]

Okay. And we're going to take one more question from Edward Donahue from One Invest.

[Edward Donahue;Orion International SAGL;Analyst]

I was just -- I actually got 2, if I may. One was just with the first one with regard to the operating leverage as you exit. The situation. I mean you basically out of your total plant footprint, you've got 100 that are on standstill at the moment. As you actually see, as you were talking earlier, and a sequential improvement, how does the cost structure work as you start to open up? And can you actually increase the density and volumes being handled per plant? And also as you start operating, do you lose immediately the government support programs for employment? At the moment, we've got the EUR 0.5 saving, which is great, but it's just interesting to see how that's going to work on the other way on the way up.

[Xavier Martiré, Chairman of the Management Board & CEO]

So for partial employment, no worry. We have a long-term agreement from government. In France, for instance, and it is the same in Germany, we have 12-month agreement, and it is the beginning. So that means that in the worst case, you have second time consignment or a very long period of lack of activity in the plant. It's not impossible that this period could be increased. Nevertheless, in this period, if we need to exit from the help from the government, we will put some measures to fire some people, of course. And if we start to recover some activity in somewhere, it is not the end of the help linked to the partial unemployment. That means that every month, you will declare the number of days or number of hours not worked by everybody. So that means that if you reopen a plant, you can very easily, and it is what we are doing now, for instance, decide to ask an employee to work only 3 days per week, and then you will have 40% of partial unemployment paid by the government. So that's why it's -- the system today in a lot of countries is very efficient, very flexible and give us a lot of comfort to keep the EUR 0.50. It is -- by the way, it is what we have been able to deliver in March and I can assure you that in March, it was the more challenging months because we had the information of the lockdown mid-March. So it was quite complex to put in place immediately all the measures to decrease the cost. And nevertheless, in March, we have been able to save the [ half ] of the lack of revenue in EBITDA. So that's why we are very confident to be able to keep this ratio of 50% in the coming months.

[Edward Donahue;Orion International SAGL;Analyst]

Great. And next question I just had was you were talking on the previous question about commercial wins in the beginning of the year, because if you look at January, February, I mean, you actually had some excellent organic growth, actually across the entire geographies. And I was just wondering, with regard to the U.K. where you've been putting a lot of focus on there, especially in workwear, where you're actually seeing an improvement in your workwear business and churn up until this whole mess started?

[Xavier Martiré, Chairman of the Management Board & CEO]

It was the case in U.K. So we -- the performance of the churn in January, February and March was far below what we delivered last year in U.K. in workwear. So we have decreased the churn in January, decreased the churn in February and decreased the churn in March. In March, it was -- we were close to 6%. So we were at the level of what we have in the rest of the group. Of course, it's only one month in a very specific context where everybody were afraid by the COVID crisis. So we cannot bet that it is the end of the story for us. And of course, we have been able to decrease definitely the level of churn in U.K. Nevertheless, when we see the performance in January and February, it was also a good performance, not fixed, but a very good performance. And I'm very confident -- I was very confident with the performance of U.K. in workwear in the beginning of the year. The challenge in U.K. for workwear was now much more linked to the level of new sales. And if you remember what we have said before the crisis, we say that now we are very confident to took control of the churn. And the challenge is to increase the level of new sales. It will be the way to come back to a positive growth in uniform in U.K. So it was the challenge, of course, until March, but now everything has changed, of course. The level of churn will be very, very limited. But in the same time, the level of new sales will be also very limited on the short term. And after that, we will need to see how many customers will die after the crisis in U.K.

[Edward Donahue;Orion International SAGL;Analyst]

Okay. And my last question is just, could you remind us on the covenants, what the covenant rate is? Are there any restrictions with regard to -- you point out, not at the moment with the USPP, but could there be restrictions when you look for a second waiver?

[Xavier Martiré, Chairman of the Management Board & CEO]

So I think I cannot answer this one. The level -- the threshold is 3.75. As I mentioned, it's a friendly discussion we have. We have a very small part of the lender, meaning the commercial banks and borrowings, so not all the other ones. And there's no condition to the way they are. As I mentioned, it's kind of transparency discussion with them, where we say what we will do. And of course, we stick to that.

[Operator]

There are no further questions at this time. I'll hand back to Mr. Martiré. Please go ahead.

[Xavier Martiré, Chairman of the Management Board & CEO]

So thank you for your interest. Be safe, and we will still continue to keep you informed about the evolution of the source range situation in the coming weeks or months. Thank you. Good evening, bye.

[Operator]

Thank you very much, sir. Ladies and gentlemen, that does conclude the call. Thank you all for joining. You may now disconnect.