Good morning, and welcome to Compass Group's Full Year Results Call. Hosting today's call will be Dominic Blakemore, Group Chief Executive Officer. This call is being recorded. Following the opening remarks, you will have the opportunity to ask questions. In order to ask question, please press star one on your telephone keypad. If you wish to cancel your request, please press star two. I will now turn the call over to Dominic Blakemore. Please go ahead.
Thank you, Sergey. Good morning, everyone. As usual, I'm with Palmer, our CFO. We're delighted by the group's performance, which surpassed our expectations. Reached the important milestone of revenue exceeding 2019 levels. Organic revenue growth was 37.5%, benefiting from excellent net new business growth, which accelerated through the year- to- over 7% in the 2nd half, as well as strong like-for-like volume recovery and good levels of pricing. In Q4, group revenue was 116% of the 2019 level, with B&I recovering particularly well at 106%.
All sectors continue to trade strongly. Although we're conscious of the challenging macro environment, we're not yet seeing any consumer weakness as we continue to demonstrate value against the high street. Margin improved by 170 basis points to 6.2% despite mobilization costs and inflationary pressures. We doubled operating profit to GBP 1.6 billion. The outsourcing environment has never been stronger, with operational complexities and inflation continuing to drive increased outsourcing. We're successfully capitalizing on the resulting growth opportunities with our market-leading culinary offer and strong ESG and digital capabilities. Our prospects for accelerated future growth above historical levels are exciting. In 2023, we expect organic revenue of around 15% and an operating margin above 6.5%, resulting in profit growth above 20% on a constant currency basis.
Lastly, reflecting our confidence in the business and positive outlook, we're announcing a further share buyback of GBP 250 million in the 1st half, taking the total program to GBP 750 million. Let's now move to Q&A.
Thank you. As a reminder, to ask a question, please signal by pressing star one. Our first question comes from Jarrod Castle from UBS, London. Please go ahead.
Good morning, everyone. I guess, just in relation to current guidance and then kind of a little bit looking further out, I mean, your exit rate for margin, 6.7%, and you're kind of saying now 6.5%. I guess in relation to the 6.7%, should we at least expect the margin for 2023, you know, at least the exit rate to be higher than that by the time we get to 4Q? Secondly, in the small medium term, you know, Sodexo's been talking about a margin at least 50 points higher than pre-COVID levels by 2025 and organic growth in 2024, 2025, 6%-8%. I guess Compass has, you know, historically always done better than Sodexo.
One, relative to that margin guidance, you know, how should we be thinking, you know, versus your 7.4%, and relative to the organic growth guidance for 2024, 2025, you know, do you think you can still be the market leader on that front? Just lastly, on M&A, you're obviously giving another GBP 250 million back to the market. Should we read anything into that in terms of M&A opportunities that you're currently seeing? Thanks very much.
Thanks, Jarrod. Why don't I take first the medium-term guidance question, and I'll ask Palmer to comment on 2023 margin guidance and capital allocation. I guess the first thing to say on medium-term guidance is it feels a very uncertain world to be making commitments for the medium term. I think that we are appropriately conservative in that environment. I think the other thing to say is it's quite difficult to make forward predictions on growth given the impact that both pricing and volume recovery are having on the current run rates.
I think if you set those aside though, and assume that at some point pricing and volume will return to more like pre-pandemic levels, I think the real delta in our growth story comes from what's within our control, which is the net new contract wins. Again, if you recall pre-pandemic, our net new contract win rate was around 3%. You'll see from the results that we've published today, that run rate is more like 6% in the 2nd half and into the 1st half of 2023. That's being achieved by strong retention, one to two points better than our historic rates, as well as a higher gross new win rate, which is 20% stronger year-on-year.
I guess the point for us is if we can sustain net new at two to three points higher, that could and should be additive to that historic growth rate we enjoyed of around 6%. That would mean our organic growth rate could be mid to high single-digit. In terms of margin guidance, at this point, we still see no reason why we can't get back to pre-pandemic margin levels. I think the rate and pace of that margin recovery will really be dictated by the very strong levels of net new business. I mean, those net new business levels I just quoted are twice as strong as anything we've seen before and therefore come with both mobilization and growth investments, which we think is critical and very positive for the long-term strength of the business.
If we can grow at the rates that we're describing and restore our margin to pre-pandemic levels, we'll be trading with EBIT significantly higher than pre-pandemic. I think the other thing in the mix, I'm sure Palmer will reference, is just around inflation. When we look into 2023, you know, at these elevated levels of inflation, there is inevitably a margin lag that hopefully becomes a tailwind as we see margin start to come down and will give us the benefit in the margin recovery journey. At this point, we also don't see pre-pandemic margins as a floor in the medium term. We really do need to see how we trade through those two factors.
Particularly, as we've always said, we will bias for balanced, strong top line growth across the business because we think that's the most important. Palmer, do you wanna talk about 2023?
In terms of the fiscal 2023 margin progression, you're right, Q4 exit of 2022 was 6.7%. A bit of seasonality and the like in that. We view 6.5%, that 2nd half margin of 6.5% really is the foundation that becomes the floor that we see for fiscal 2023. When we look at fiscal 2023, we expect the 1st half to be flattish compared to that floor. We've got strong mobilization in education in Q1. Dom referenced the, you know, the net new business, the mobilization costs that are there. Keep in mind, that accelerated through fiscal 2022 and good momentum into 2023.
When you look at that top line, growth, if we use sort of 15% as just a benchmark, you know, we expect a little over a third from that, of that to come from net new business, which, as you know, has a margin drag to it. About a third of it would come from pricing. There's a, a bit of a timing drag, just as Dom referenced that, we should expect to make up later. Then you have like for likes making up the rest, which we would expect some progression from. I mean, more importantly and most importantly, frankly, is the strength of that top line, that produces some nice year-on-year profit growth. We're looking at over 20% on a constant currency basis.
You know, the progression of the margin and that profit growth in the 2nd half will really depend on some of those factors. If we see inflation, you know, taper a bit in the 2nd half, if we see the mobilization costs normalize, if we see some stronger like for likes, I think you should expect to see some more margin progression. In terms of, you know, capital allocation, which is M&A is a part of it, we finished fiscal 2022 with leverage of 1.3 x, so squarely in the middle of our target range. We feel very good about the state of the business going into 2023, the strength of the cash flow generation that the business has, but also cognizant of some uncertainties on the horizon.
We're not necessarily seeing it in the business. To be clear, we're not seeing it in the business at all right now, but I think we're all cognizant about what might be on the horizon in the 2nd half of the year. We think, you know, remaining in that mid to low end of the leverage range is prudent. It's why you see us land on the GBP 250 million of buybacks in the 1st half. We think that will have us at leverage of 1.3 x at the half year, which gives us a lot of optionality for, you know, for M&A, for more investment in the business potentially for more shareholder returns.
We think that's the prudent place to be and, you know, we'll keep in mind the context as we go through the 1st half of the year, and we'll have some decisions to make at this at the half year.
Great. Thanks very much.
Jamie Rollo, Morgan Stanley, please go ahead.
Thanks. Morning, everyone. three questions again, just all on the guidance really, please. The first on the margin guidance, I appreciate there's sort of dilution from passing on costs and the contract mobilization. But are you seeing any underlying pressure on margins from things like, well, just underlying cost inflation or layoffs in the tech sector, et cetera? Or is that sort of flatlining of margin really just the, just the sort of dilution from the price, pricing and contract wins? Secondly, you described the 6.5% guidance as a floor, so it'd be useful to know what a ceiling might be if we do get that moderation half of the year. You used to talk about sort of towards 7% margins for next year. Is that, is that sort of reasonable sort of bookend?
Just on the sales guidance, up 15% would give FY 2023 at about 121% of 2019, which is not much improvement from Q4's 116%. I appreciate the volume recovery is largely done, but should that guidance not be also above 15% rather than 15%, like the margin guidance? Thank you.
Jamie, thank you for those questions. I think it's fair to say precision is challenging given the amount of uncertainty in the environment at the moment. I mean, just a couple of thoughts and then maybe Palmer can give a bit more color. I think it's important to say right now we're not seeing recessionary pressures impacting the business either with regard to consumer spend or the layoffs you described in the tech sector. Whilst we've seen some announcements being made, I think there are a couple of counter trends there. I mean, one is we're still seeing a strong return to office, which you saw in our 4th quarter B&I numbers, which we do expect to continue.
Potentially if there are slightly lower headcounts, then that may slightly moderate the B&I growth, but we still expect it to be strong. In addition, I think we are seeing a number of other firms in what is still a war for talent and one of the drivers of growth in the business, picking up some of those individuals, which means we may see sort of headcount growth in other parts of the portfolio, as it were. With regard to the guidance, look, I think on margin, yes, it's a floor. We said we'll be above 6.5%.
As you've heard Palmer say, you know, the two main factors in that absolutely are managing inflation and the scale of our net new business growth and the relative acceleration. You know, as you've seen from today's presentation, it's accelerating quarter-on-quarter, and therefore the level of mobilization is also increasing quarter-on-quarter. Which is obviously again, you know, we repeat super positive, but it does mean that we have to be thoughtful on the margin impact in the short term. Yes, it's a floor. Where could it land?
If we have those factors, as Palmer described, going our favor in the 2nd half, we could be in the high sixes, for the 2nd half, and therefore you can figure out the full year impact therefore would be more positive. Yeah, we do anticipate that the trend through the course of the year will help us toward the 7%, and beyond as we go forward. Just on sales, again, 15%, you know, you're absolutely right. That would imply, you know, a slight improvements on Q4. Q4 had some benefit from seasonality within it.
Again, you know, we'd like to start the year as we often have done at a point of thoughtful conservatism that gives us the opportunity to do better, but also to weather any potential impacts that we may see from changing conditions. Palmer, I don't know-
Nothing
Say nothing to add to that. Hopefully that's been helpful.
Yeah. Thanks a lot.
Leo Carrington, Citi, please go ahead.
Many thanks. Morning. Two questions, please. In the presentation, you mentioned the opportunity from vending and delivered in. Just something you've been speaking about. Given this is effectively the new market for Compass since the start of the pandemic, is it possible to quantify what kind of boost to growth midterm can be attributable to this category, now that you've got more experience in post-pandemic client needs? Perhaps if you could frame this in terms of your answers to the first question. Secondly, in terms of the solid improvement in European retention rates, increasing retention rates have been a feature at your large European competitor. Is it fair to say there's structurally lower churn in European contracting across the entire market?
Is there a dynamic where clients are choosing to award more contracts to the largest operators rather than locals? Do you see the majority of this trend simply due to improvements Compass has initiated? Thank you.
Palmer will take the vending question.
Just to be clear, I mean, we've had a strong vending business for a long time. Actually, when you, when you look at the origins of Compass in North America and the U.S., it's actually the vending business that dates back further than anything else. We've had the vending business for a while. It's evolved over time, especially starting probably seven, eight years ago or so. We've been getting more and more into the micromarket piece and some of the commissary solutions, the central kitchens and the like. That certainly did accelerate through COVID just as you referenced there. I think it's just some of the dynamics that have been in play.
Then we, you know, we've been factoring in more the delivered in solutions, really across a number of sectors, education, B&I, being the big ones. I think those are factors that you see within the net new acceleration. There are a number of factors that go into that. You know, I'm not sure we've got a really good feel for the quantum of, you know, additional growth as we go forward. When you hear us talk about, you know, the expectation that we have to see revenue and profit growth above historical levels in the short and medium term going forward, this would be just one of those components that we would be there.
Thanks, Palmer. On the European retention point, I'm sure others like we are very focused on self-help. How we can improve through better processes our own retention levels. I think there's a few things that we've been able to do in Europe through the deployment of tech that have helped us with that. We're obviously now deploying CRM for full client insight and data. We have NPS rolled out at 2/3 of our estate, which allows us to get consumer feedback in real time. We've also got something called Compass Client Insight, CCI, which is giving us real-time insights into client feedback, which allows us to course correct immediately rather than waiting for any quarterly reviews that we might have with clients.
We believe that those are helping us to improve the operational quality of our business and in turn helps us improve our retention rate. You've seen today in the presentation the strength of that which we're very pleased with. Is there less structural churn? I do believe that clients are more minded to work with existing providers and with bigger providers because of the complexity and trust issues that we've referenced again today. I think those do help us, and I think you're seeing it manifest itself in the results. For us to have improved from, you know, what was zero to a point of a net new 4% in Europe is incredibly pleasing. In part retention, in part better new business. The portfolio and pipeline looks strong as we go forward.
We do believe that there are still significant elements of self-help which can continue to sustain and improve those trends.
Just to add, I know your question really focused on the retention part of it, but when you look at the net new business overall, the new business wins, we think that's primarily a function of, you know, self-help initiatives, a lot along the lines that Dominic just referenced. Both components of net new, the new business wins and the retention within Europe are predominantly based on our growth initiatives. Just as you heard Dom reference too, we think there's a lot more we can do, and that gives us, I think, a faith in the sustainability of those strong growth rates.
Okay. Thank you. Palmer, take it away.
Vicki Stern, Barclays, please go ahead.
Hi. Morning. Just firstly on volumes, I know we'll probably stop talking about volumes on a pre-COVID base, after this quarter, but where did you sort of land on that in Q4? I think in Q3 you'd been 8% below. What does that reflect now? I think you've talked a lot about still some drags in healthcare, drags in education even, and obviously the B&I. I mean, did you sort of exit Q4 at what you think is the right sort of level? Or, you know, on that basis, there could still be some sustained volume improvement, putting aside obviously risks on job losses and things? Then on signings, I think you normally have a decent line of sight. You've sort of referenced that there actually, Dominic, on pipeline.
If you could just share with us what you're seeing as we look out over the next six to 12 months, any reason at all to think that the sort of elevated level of signing pace you're seeing at the moment should come down at all? Then just finally on margin, you've obviously sort of talked about the drags and on the net new side.
Teasing that out, if we were to sort of stay at this 6% net new level, all else equal, but we're lapping that comp and we're sort of entering 2024, you know, already with a sort of decent level of mobilization in the base from this year, can you help us understand a little bit that margin evolution, just as it starts to become the norm to be at that level of net new, rather than obviously this ramp up that you're talking about at the moment, which definitely has quite a big suppressing effect in the short term?
Palmer, would you wanna tackle the first couple of those?
Yeah, sure. On the volumes piece, yeah, we did see a big step up in volumes through the year. Certainly into Q4, we saw a nice acceleration in B&I in particular, but also sports and leisure and education. You're right, Vicki. It gets to be quite difficult to nail that, but we think the base like for like volumes are, you know, somewhere in that 95%-96% range. I think that, you know, the question is how much in the pace of that ongoing recovery is there. We actually think that all of the units that will reopen are reopened, and that's the, you know, that's the vast majority. I think there's still a bit of return to office that's happening.
Certainly in B&I, you heard us reference the impact in the tech and some of the other industries there. You know, within healthcare, there's still a bit of retail. Certainly within education, some, you know, some catering and some retail there. It's still spread out a little bit, but it's mostly on the B&I side is where we're seeing it.
Thanks. Thanks, Palmer. On signings, the pipeline at this point looks as good as it did a year ago when we reported record new business levels and 20% up on the previous year. You know, we would hope that those levels are at least sustainable as we look forward into 2023. With regard to margin, Vicki, I think there's probably, you know, if you take maybe 6.5% as a start point compared to the 7.4%, there's probably a few drivers of that difference. You know, they're perhaps not quite equal, but you've got the drag of new business, you've got the drag of inflation, and then you've got the investment that we've put into the business.
I think as new business and inflation normalize, that gets us above the 7%. I think beyond that, it's all about, you know, the choice of how much investment we choose to put in the business for accelerated growth. At what point we then get the overhead leverage for that investment and therefore make progress back to the pre-pandemic levels. I think that we can't call exactly when and how that's gonna happen. I think the first thing is we probably need to see the acceleration in new business moderate, but an acceleration in new business is positive, of course. Start to see, you know, inflation coming down a touch.
You know, at the moment, we expect 1st half 2023 inflation to be at the same level as 2nd half 2022, which was, you know, broadly in the range gross inflation of 9%, food in the low double digits, labor, mid to high single digits. You know, if those continue, then, you know, I think that is what may slow us a fraction on the inflation side. We expect to see that sort of as that comes down, become a bit of a tailwind, which helps in the equation I've just described.
Within the net new business, you really got two components of new business that drag on margins. You've got mobilization costs that are expensed in period. As, you know, new business is accelerating, those mobilization costs don't normalize. It's once it moderates is where you get the normalization. Not only that, the margin progression within a contract increases over time. Even absent the mobilization costs, we see increased margin progression as we get to be more efficient, learn the account much better. A lot of times we don't really see that materialize until 12, 18, maybe 24 months beyond. It's very much a, you know, case-by-case contract specific item, but that has a bit longer of a burn that's there.
That's really helpful. Thank you.
Richard Clarke, Bernstein, please go ahead.
Hi, good morning. Three questions, if I may. Just starting off with inflation. When inflation was accelerating, you talked about a lag effect that it takes time to sort of readdress the pricing to reflect that inflation. When inflation begins to decelerate, can that actually become a bit of a margin tailwind for you? Can you actually benefit from that because you're increasing prices by the lag effect from that? Maybe just how does the dynamic work from that in a decelerating environment? The second question just on CapEx, you did a fairly low amount of CapEx this year. You're guiding to that going back to 3.5% next year.
Is there specific spend in that number, or is it just that the market is becoming more capital intensive again year- on- year? Then thirdly, just following up on Jamie's question on the tech sector. I mean, we hear about lots of cost savings going on at Alphabet, et cetera, removing the free sushi. Are you seeing some of those impacts? Maybe how important are those contracts to growth at the moment?
Let me take the first and the third, and then Palmer can deal with the CapEx. I think, Richard, you described exactly in your question how we see the impact of inflation. You know, as it's increasing and there's a lag in our pricing, there's clearly a margin lag. As inflation starts to decelerate and the run rate of pricing overtakes it, we see the benefits. That lag depends on contract types and structure and will be different in different places. Right now, I think importantly, we're seeing sorts of in-inflation at the same levels as it was. We're not yet seeing that deceleration occurring.
You know, right now we would expect that inflation to continue at these elevated levels for the 1st half to the best of our knowledge, and then start to hopefully see that come down in the 2nd half, which is, you know, one of the reasons we expect to see the margin progression in half two. With regard to the tech sector, you know, again, the tech sector has been fantastic for us. It's been a great part of our B&I portfolio in North America. It's around 5%-10% now across the piece. Our contract types would be varied. Yes, there's cost-plus, but there's also P&L arrangements within that.
Clearly, as cost becomes a critical factor to those clients, we are willing and able to work with them to put the right cost structures in place, going forward. We think that that is, you know, that is also ultimately neutral to our P&L. What we have to do is obviously have the variability of the model that should we see volumes fall, we can protect those. Obviously, we would be taking some sort of cautious views of what that impact could be in the year ahead. As you heard me say earlier, we're also seeing, you know, a number of those companies grew their headcount significantly through the pandemic.
We actually yet to see the higher headcount numbers return to office, albeit they may well then be adjusted down as some of these factors impact. We still expect to see sort of growth in the tech part of the B&I portfolio as we get the return to office, perhaps not at the levels that were earlier anticipated. Still, I think a positive overall. As I described earlier, we're seeing lots of indicators that other firms in other sectors are keen to acquire some of that displaced talent, which, you know, we may see showing up in positive volumes elsewhere.
In terms of the CapEx, the 2.7% this past year was lower than anticipated and lower than what we view our normalized model. Nothing much to really read into that timing as much as anything. We do expect that to return to 3.5%. We don't really view it as increased capital intensity. I guess if you wanna look at it year-on-year by definition, it is. We view it as more normalization. In fact, if you look at the overall capital intensity, you know, relative to the growth rates, I think you could look at it being quite favorable the way we're progressing. In terms of, you know, where we're spending it's still the vast majority on client-facing items.
It shifted a little bit, more towards digital, ESG, you know, some things of that nature that are, frankly becoming more important to clients. Still the vast majority, 75% or so on client facing.
Excellent. Thank you.
Jaafar Mestari, BNP Paribas, please go ahead.
Hi. Good morning. I've got three questions, if that's all right. Firstly, just on the pipeline, you said as good as a year ago. Just wanted to clarify if we're talking like last year, GBP 8 billion, I think was the number. GBP 5 billion in North America and GBP 3 billion in Europe, or if there's been any granular change within that. Secondly, on your revenue guidance, the breakdown you gave 1/3 of it from like-for-like volumes. I'm just curious how much of this +5% is basically just annualizing where you ended the year versus where you started the year, versus how much incremental volume improvement you expect from the September levels. Lastly, on retention, how would you describe the 2022 and 2023 renewal activity?
One of your competitors mentioned that they had a higher than usual number of contracts to renew in 2022. They'll have a smaller than usual number of contracts to renew in 2023, for example. Is there anything like that for you, or is it just average followed by average?
I mean, let me just quickly take the retention. I think we would say 2023, like 2022, like 2021, has been broadly the same percentage of contracts which have fallen for renewal. We don't, you know, the lumpiness of the portfolio generally tends to blend itself out into the average. We think it's sort of more of the same, which is positive. On the other two points, Palmer?
Yeah. Pipeline, I mean, we look at pipeline both on a gross basis and sort of a weighted probability basis. personally, I view the weighted probability is more indicative, although it does have subjectivity sort of built in. We provide some guidance as to what that should look like. We'd like to see a pipeline at least 2 x as large as the new business win expectations on a weighted probability basis. We are seeing that in all of the regions. I think it's a combination of a lot of the self-help initiatives that we've talked about here, as well as some of the outsourcing dynamics that are taking place.
You know, when you look at the big step up in the sources of new business, 45% of our new business wins are from first time outsourcing. Again, that's a significant step up from the historical 30% or so that's there. The pipeline continues to be very, very strong and we have expectations that will continue. In terms of the like for like revenue that's there, you know, we do have some strong growth that comes into to fiscal 2023. We think roughly half or so of the like for like expectation in 2023 is a roll. The remainder, in all honesty, is a bit of a question mark that's there, and that's factoring into some of the guidance.
Just to be clear, when we're looking at that, if you wanna use 15% as the benchmark and, you know, you're looking at net new above a third in pricing there at the like for like we're looking at is a little bit less. That's the remaining gap. It's the combination of those three that really produce that top line and the margin result as well.
All right. Thank you for the color. Thanks.
Neil Tyler, Redburn, please go ahead.
Yeah, good morning. Thank you. Just a couple please, Les. Following on from, yeah, a bit of clarification on the previous question. Does that the split of net new obviously has an impact on the margin progression. Within that, slightly more than a third of the revenue growth coming from net new, should we sort of broadly assume sort of 96% and 10% as the components and no great difference therefore, in that effect, on margin year-on-year? That's the first question. The second one, just the source of new wins.
I wonder whether you could talk a little bit about whether there's been any sort of sequential change in the source market from which you've been winning new business, especially first time outsourcing, over the course of the last 12 or 18 months. Thank you.
Thanks, Neil. On the net new point, yeah, I think you're broadly right. I think what's important is though how that looks half- on- half. Again, I think it goes to the point of the sort of accelerating net new that we'll see in the 1st half of 2023, which is also an accelerating gross new, which is where the higher levels of mobilization spend comes from. It's not just the absolutes, but it's the mix sort of half- on- half that impacts that. Then on new business source, I mean, I think as we said.
You know, broadly 45% is coming from first-time outsourcing. We're actually seeing that across all sectors. I don't want it to be a brand answer, but, you know, we're seeing first-time outsourcing a new opportunity in B&I just as much as we are in healthcare and education. That's been broadly consistent for a while now. That's what's also exciting because we're not over-reliant on particular sectors, albeit we still see lots of opportunity in healthcare and education.
That's great. Thank you.
Andrea Tonnelone from Deutsche Bank, please go ahead.
Good morning. Thank you for taking my questions. Part of them has been already answered. I just wanted to come back on the correlation between the different type of contracts you have, inflation and guidance, just to have a clearer view. Could you just give us a clearer view on where you are in term of type of contracts and if you came back to the level you were before the crisis? Second question, the balance sheet. 1.3 x net debt and EBITDA is a comfortable level if I understand well.
You keep some margin of maneuver, could you give us some more color about M&A, share buyback and dividend that you could consider and the allocation of cash? Thank you.
In terms of the contract structures, we are pretty much back to historical levels in terms of the base contract structures. I will say, though, with that, within the shift from some of the fee contracts back to the P&L contracts, we still have elevated subsidies from clients across the board. The subsidy level would be a bit higher than what it was historically. That is, you know, that's continuing to normalize as, you know, as headcounts and volumes increase. It's not a perfect correlation. Ideally, it would be. That is, you know, that's happening over time. In terms of the base contract structures, it's pretty much how it's been historically.
In terms of the balance sheet, certainly where we are gives us a lot of optionality, depending on the landscape. Yes, we're, you know, we're looking at M&A opportunities. Frankly, we're looking at M&A opportunities in all regions. We'd like to think that some of them can materialize. We've always been disciplined about that in the past, certainly that won't change. We're investing in the business to take advantage of all the opportunities that we see. Then, you know, to the extent that we have any excess, then we'll return to shareholders.
We're cognizant that we are in the mid to low end of the range on a forward-looking basis, and we think that's a good place to be, and we'll have some decisions to make. It'll really be based on those different variables as the year unfolds.
Do you have any envelope in mind for M&A or nothing special?
I mean, nothing special. I don't think you'll see anything massive, you know, from us. You know, we do view M&A as part of our strategy. It really comes back to the core question of how does it help us grow. When we're looking at M&A opportunities, certainly we've done a good bit of them in North America. We're starting to look at them increasingly in other places. It's all about how does it help us grow and then within our disciplined approach. We don't have any set expectations.
Okay. Last question, if I may, about dividends. Can you guide anything on a midterm level of payout or something like that?
I mean, it's our policy that we've stated we're at a 50% of underlying earnings on a payout basis, and we expect that to continue as we go forward.
Okay. No, no change on that side.
No change.
Thank you.
Thank you. We will now take our final question today from Joe Thomas from HSBC. Please go ahead.
Good morning, both of you. Couple of questions really regarding the risks related to the economic outlook. As big business has evolved over time and you've done different activities, and specifically thinking about stuff like vending and delivery, I'm just wondering what, whether you think that the operational gearing dynamics of the business have changed. If you could give a bit of color around that would be helpful, please. I suppose related to that as well, you've talked about subsidies that are coming in from clients just now.
I just wonder, when we think about like-for-like changes, to workforces in the period ahead, whether there's any difference in contract protections or what contract protections you've actually got in place to sort of see you through that period. Thanks.
Yeah. Thank you for those questions. They were both really interesting. I mean, first of all, in terms of risk on economic outlook, I think there's a couple of things to stress here. Firstly, you know, as we've shown in the presentation today, if we compare our portfolio today to the portfolio of 2019, our B&I exposure has reduced from 50% to 1/3. Why is that? It's actually been the very strong growth we've enjoyed in the other sectors, as well as the slower recovery from the pandemic. We also think our DOR sector is more resilient now than it was then because it has more exposure to ongoing production as opposed to lumpy construction projects. When we add that all up, we think we are more resilient and more defensive than we've been before.
In addition, you know, and I know you know this, but it is worth saying, you know, we think that those cost pressures on clients are an accelerant of outsourcing. If you look back to 2009 and beyond, what happened is our revenues held up and didn't actually turn negative because the acceleration in net new offset the volume declines within B&I. Actually, over time, we then saw those volumes come back, which benefited the business. That was particularly marked in North America, where we continued to invest in winning new contracts through the cycle, and that will absolutely be our strategy, you know, should we detect widespread recession, as we go forward.
In terms of operational gearing, you know, we learned a lot through the pandemic about how to vary our cost base, and therefore, I think We're much more agile of fleet of foot in terms of how we would protect unit and operating margins through any volume downturn. I think we're better placed to do that than we ever have been. To your last point, I think the contracts that we've got protect us better now than ever. I can't call out the percentages of that, but we learned through the pandemic that volume protections are critical.
Perhaps where the industry had got a little bit aggressive, in a benign economic environment and when adverse events hadn't happened, I think we've now seen and have the right to protect contracts in a way we haven't before. I think those protections are in the contract should we see material downturns. I think we feel, you know, looking out today, you know, to the extent that we have, you know, any recessionary impact is shallow or industry-specific or country-specific, we feel pretty good that we can manage through it, and that we can see an opportunity beyond that for growth.
Perfect. Thank you.
Thank you. With this, I'd like to hand the call back over to Dominic Blakemore for any additional or closing remarks.
I think simply just say thank you all for joining us today. I'd like to wish you a restful and enjoyable break over Christmas. We will talk to you again on the 1st quarter in the new year. Thank you.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.