Welcome to Compass Group's first quarter trading update conference call hosted by Dominic Blakemore, Chief Executive Officer. For information, this call is being recorded. To ask a question, please press star one on your touch-tone keypad. And I'll turn the call over to Mr. Dominic Blakemore for his opening remarks. Please go ahead.
Thank you, George. Good morning and welcome to our Q1 trading update. As usual, Petros is alongside me. We've had a strong start to the year with organic revenue growth over 9%. Net new business remains excellent and accounts for about half of our growth, supported by strong client retention. Outsourcing and industry trends remain extremely positive, underpinning our exciting growth momentum. New business signings over the last 12 months reached another high of $3.6 billion on an annualized basis, and our pipeline is the strongest it's ever been. You've seen we're also continuing to invest in attractive growth opportunities, and for the year to date, we've spent around $1 billion on M&A, mostly on Dupont in France and 4Service in Norway. They're fantastic businesses with strong management teams, which further enhance our capabilities and sectorization, helping to unlock new market opportunities. Our 2025 guidance remains unchanged.
We expect to deliver high single-digit underlying operating profit growth in constant currency, with organic revenue growth above 7.5% and ongoing margin progression. So in summary, we're really pleased with our start to the year as we continue to deliver on our strategic priorities. The business is in great shape, and we're really excited about the future. Thank you. Now over to the operator, and we'll take your questions.
Thank you very much, sir. Ladies and gentlemen, as a quick reminder, if you wish to ask any questions, please press star one on your telephone keypad. Our very first question this morning is coming from Jamie Rollo, calling from Morgan Stanley. Please go ahead. Your line is open, sir.
Thanks. Good morning, everyone. Three questions, please. First, net new sounds like it's around sort of 4.5% or so, obviously a very good number. A bit of a slowdown, though, from Q4's 5% or, or a bit more, I think it was. Has it slowed? And if so, why? 'Cause the ARO and the retention numbers do, do sound very good. Secondly, again, probably nitpicking a bit, Europe, again, a good number, 8.5% or so, but I think Q4 was up about 11%. Is there any sort of weakness in B&I or the macro side behind that, or is that just sort of phasing, etc.? And then finally, more, more general comments on the new U.S. administration. Any sort of impact from, from tariffs? I think one of your competitors talked about maybe a 30 basis point margin hit, or indeed from, the immigration policies on, on labor costs.
Thank you.
Sure. Thank you very much, Jamie, for those. Look, first of all, net new, just taking a bit of a step back, I think we're signaling here today that you should see net new sort of strongly placed in our 4-5% range, and that'll be the fourth consecutive year of us delivering at those levels. So I think we're really pleased with that. And that underpins the medium-term organic growth guidance that we have in our framework. I think the reason I stress that is inevitably we're gonna see in quarters sort of puts and takes as larger accounts mobilize and demobilize. We had a very strong half two last year in fourth quarter. We've started well this year. We expect to be around the midpoint for net new at the half year.
And, based on how we're doing the first half of this year, we'll see if we can improve on that in the second half. So look, on net new, we're really pleased. In terms of Europe, I don't think there's anything to read into that. We're not seeing any particular change in volume. In fact, like-for-like and volume remain positive and strong in Europe. And we expect to see an acceleration in net new in that region as we go through the year as well. And then finally, on the change of government in the U.S., I mean, look, under the last two administrations, we've performed very strongly. We've seen no reason why that should change now.
Reflecting on a couple of the specifics on that, in terms of any potential tariffs, as you know, 85%-90% of our purchasing in all of our major markets is domestic, so unlikely to be significantly impacted by tariffs. And if we were to see inflation in any way, look, I think we've now demonstrated our ability to both mitigate and price. And of course, when we see inflation, it's an opportunity for us to widen the value gap to the High Street, and we've seen that as a positive impact on volumes. And of course, inflation is also an accelerant of first-time outsourcing, which continues to trend very positively as well.
I think, you know, the only other aspect to that would be to add look if we were to see the tightening in any other economies as a result of any policy changes. Again, now, you know, we're confident in the variable nature of our operating model and our ability to mitigate for volume. Again, those conditions would act as an accelerant for outsourcing, and we're confident we could capitalize on that. I think net in terms of the change of administration, we feel the macro remains positive for our business model.
Great. Thank you very much.
Thank you for your questions, sir. We'll now move to Simona Sarli of Bank of America. Please go ahead.
Yes, good morning, and thanks for taking my questions. So I have three, please. One is a follow-up, and it's related to the net new business wins. So if you can elaborate a little bit more on the trajectory of growth from net new business wins for the rest of the year, also considering indeed the tough comps, as you said, in the second half. Secondly, on pricing, so if I backsolve what from what you reported in Q1, it looks like pricing for you in Q1 has been contributing almost like 4%, so pretty much similar to the Q4. And if I look instead at Aramark and Sodexo, so they have been talking more about 2%-3%. So what can explain this differential, and where is it currently trending at for Q2?
Lastly, if there is, please, any update on, M&A and any potential share buyback later in the year? Thank you.
Simona, thank you very much for those. Why don't I hand over to Petros on those three?
Hi, Simona. Good morning. On net new, I think you heard Dominic, we expect to be in the first half of the year around middle of our guidance, 4%-5%. This is backed on a strong retention sustainably in line with our second half of last year, above 96%. Our forward-looking indicators on an ARO continue to look positive, and the pipeline is very strong. So we expect to be within our range of 4%-5%, middle point, the first half. And, you know, we're gonna work hard to see if we can create more opportunities in the second half. When I go to your pricing, and volume, I think for Q1, pricing was about 3%, you know, which is about a point lower than Q4, in line with our expectations.
When I look at volume, we continue to see, you know, positive net contribution on organic. A touch down versus half two, as expected, but we expect to have, you know, strong net new in the first half, as we explained, and a good quarter one and half year. When I go to a full year on your share buyback question, I think on the M&As, you know, we have executed about a billion investment in the business with Dupont and 4 Service, which is great. Not a lot have changed from what we discussed in November. We have a couple of opportunities we're looking at in the M&A. If these opportunities present themselves, we're going to, you know, capitalize on those.
If they don't, we'll rebalance the share buyback for the remainder of the year, and we'll give you an update in May.
Thank you, Petros and Simona. All I'd add to that is, and hopefully you're hearing that consistently from us now over a number of calls. You know, we're a growth business, and our capital is best served in CapEx and M&A that allows us to maintain sustainable growth in the range that we've expressed in the framework and net new in the 4%-5% range. So if we bias to CapEx and M&A, don't be surprised.
Thank you.
Thank you for your questions, Simona. We'll now move to Simon or Simon LeChipre of Jefferies. Please go ahead.
Yes, morning. Three questions, please. First of all, on the net new wins, any kind of different performance across Europe and the US in Q1? Just curious on the trend there. And secondly, any update on current cost inflation between food and labor, and basically, how does it compare with the scenario embedded into your guidance? And lastly, just on Hofmann and CH&CO. I mean, I wondered if you could get an update on the integration of these two businesses and how they have performed since they have been consolidated. Thank you.
Thank you, Simona. Look, first of all, on net new, yeah, look, we've had North America's had a very good run on net new and a very strong first quarter. So that does imply that in international or regions outside of North America, a little slower. We expect on the basis of the mobilizations that we're aware of that the international region will accelerate through the year as well. So we're actually really pleased with that balance. Let me hand over to Petros for inflation and the acquisitions.
Good morning, Simona. On inflation, as I mentioned earlier, Q1 was about 3%, 4% in labor. We talked before, labor being more sticky, 2% in food, a blend of 3%. You know, it's in line with our expectations, but we always keep an eye on inflation. I think with our model, we have proven we can manage well, you know, a moderate level of inflation, demonstrating our value to the client. So we're feeling really good about this, in line with our guidance. When it goes to CH& CO, I think, you know, a couple of weeks ago, we reviewed within our business both, CH & CO and Hofmann that were acquired in Germany. I think what we're seeing, we're seeing both acquisitions being ahead of the business cases that we have signed up for.
Our management team is being very energized by the subsectorization, the portfolio opportunity we have to serve more clients and consumers in areas we did not serve before. It has enhanced our flexibility in the operating model, and we feel positive about these two acquisitions, and so far, they're performing really well.
Thank you very much.
Thank you, Richard, Mr. LeChipre. Our next question is coming from Jaafar Mestari of BNP Paribas. Please go ahead.
Hi, good morning. I just wanted to come back on this concept of the ramp-ups of the new business being lumpy, I think you said. Competitors have explicitly said very slow and ill-accelerating in H2. So it's a little bit of a trend. Just curious if that's a coincidence, if that's a function of the nature of the businesses, are you signing bigger things, more first-time outsourcing? What explains that slow ramp-up? Secondly, on like-for-like volumes, so with everything you said on net new and pricing, it implies something like plus 1.6% in Q1. Would it be fair to say that the comparables were particularly high in this Q1? I remember last year, amazing sports and leisure, amazing Christmas parties, more return to the office.
Would it be fair to say that it's a little bit easier to grow further on like-for-like volumes for the remainder of the year? And then just the last one on Rest of the World. So many exits there. If we take the opposite approach, could you tell us what's in there? It's only 5% now, and it's gonna be folded into Europe. But, you know, just so we know which are the big drivers there, Turkey's still there, Australia's still there. Are those the only material things to think about?
Jaafar, good morning, and thank you for your questions. I mean, first of all, I'm gonna take a little bit of exception on your first question, if I may. I don't really think there's a slowing in net new business, nor is there a meaningful acceleration. We printed around 4.5%. I think that's a very strong number and absolutely consistent with our performance of the last three years or so. You know, there isn't a hockey stick in our net new business performance in any way, shape, or form. I think what you see, though, when we kind of obsess around quarters, the big accounts can make a small difference to numbers.
So we much prefer to look at the trends over halves and full years, and, you know, that's where we see ourselves being comfortably within the 4%-5% range. And of course, our ambition is to continuously work towards improving that. We've got super pipelines. We've got a great 12-month number in new signings. So we're very excited about what we can do, and it certainly isn't about any slowdown, whatsoever. Just in terms of the volume points, again, just to remind everyone that we have benefits of return to office over a number of periods. Now, inevitably, that is lessening a little bit. And again, let's just remind ourselves, volumes of 1.5% and above that is materially different from anything we experienced before the pandemic and then in the history of the business.
I think we're starting to normalize more and more at these sorts of levels, which we think is really exciting. There'll always be calendar differences between quarter and event differences between quarters, and we've seen a bit of that. But we feel really good about where we are on volumes.
On Rest of the World, Jaafar, just to remind you, we have completely exited LATAM. We have exited, you know, some other small markets in the Rest of the World, Kazakhstan, Angola, etc., etc. Practically, this is behind our three core markets in the Rest of the World, which is, you know, the core markets we have. We're focusing on to drive sustainable growth. You do see a better quality portfolio after the exits we have executed, and you can see this in the print.
Thank you. And on the first question, just to clarify, I absolutely didn't mean net new business as a whole is slowing down. My question was on some accounts that take longer time to ramp up, and so a slow ramp-up of some of the wins. I think you alluded to that, to some large accounts take more time to mobilize.
No, it specifically isn't about kind of slow ramp-up of accounts. It's the timing of the actual opening of those accounts, and it can differ from our expectations, and it can be lumpy within quarters. I mean, for example, if we win a large sports and leisure account, we operated the Melbourne Tennis Open, you know, that would be a big hit of new business in one quarter, for example.
Yeah. And once they're there, they're fully ramped up.
Exactly.
Thank you. Thank you very much.
Thank you very much for your questions, sir. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one. We'll now go to Vicki Stern, Barclays , please. Please go ahead.
Yeah, morning. Just wanted to follow up on the volume question firstly. So sort of 1.5% or so currently. Sounds like most of that return to office trend has sort of faded now. But just remind us of the key elements driving such a high level of volume growth versus what you saw previously. Is it still a sort of key piece of that being this volume, the price discrepancy versus the High Street, digital? Just keen to understand the levers, and with that, obviously then the confidence that that can sustain going forward. Second one was just on the margin phasing between H1 and H2. I think previously you weren't calling out much of a shape in terms of margin this year, so just keen to understand if that's still the case.
And then just related to the margin opportunity and the top line, on automation, I've seen you're using the Hyphen machine as one example. I'm sure there are plenty of other automation devices being used, and some of them look to have the potential to be pretty huge in terms of cost and time-saving opportunities. So just talk a little bit around that and the opportunity you see there. Thanks.
Thank you, Vicki. Just on volume, I mean, yeah, I think it's fair to say in the private sector, we've probably largely seen the significant bounce from the return to office. Though we continue to, at the margin, expect a little bit more positivity given the narrative that we're hearing from many clients at the moment, but separately, look, I think you're absolutely right. I think the value gap to the High Street is very significant. I think that's driving full and per capita spend on our sites, and we think that's exciting. We've gotta continue to work to maintain that advantage and that right, as it were. We also think digital is driving different behavior, and we see sort of very strong consumer behavior continuing within the sports and leisure sector as well.
You know, I think net net on this one, you know, this we'd hoped to see something positive as a result of the changes that were implemented through and beyond COVID, and I think we're seeing that. You know, we'd like to believe that volume now becomes a permanent contributor positively to our business model as we go forward. I think we need to continue to prove that to ourselves, but we're working very hard on it, and, you know, we see no reason why that shouldn't be the case as we go forward.
Morning, Vicki. On margin, I think this is consistent with our guidance on high single digit underlying profit for the year. I think what you expect from us is to see margin progress in the first half versus prior year. You expect to see from us margin progress in the second half versus prior year, and a nice progression, you know, within the year. When it goes down to tech, and the, sorry, you asked about the margin opportunity in the tech. So maybe the first thing just to remind us is the opportunity we have to grow the business and how this balances with margin expansion over time. We talked a lot about this on how we're harnessing the elevated growth while very pleased with this. Dominic spoke about the technology we have implemented in our business.
I think what we're realizing now, beyond the client and consumer investments we have made, and we see great participation, captive audience, we're realizing a very good opportunity for us where it goes to our operations, where it goes to unit managers, how we enable our teams to do their job more efficiently, faster, so we can get better commercial outcomes, and you will see some of this for us in the future.
Yeah. And just to build on that, Vicki, you know, a couple of thoughts on the consumer side. We've recently opened the Intuit Dome at the LA Clippers, which is a totally frictionless consumer experience from entry to leaving the stadium. You know, that's technology that obviously the client introduced, but we worked alongside them. And there's learnings and experience there for us in terms of how we can deploy that across our wider estate. So we see, you know, kind of, you know, huge opportunity over time broadly to take those learnings and roll out on a very adapted basis, but appropriately for a number of sites within our account.
And then I think as Petros rightly said, look, the AI can improve our back office operations, in terms of automation as opportunity in our central kitchens and so forth. So look, I think there's a lot to go after here, and I think it will continue to yield marginal gains for us as we go forward.
Great. Thanks very much.
Thank you for your questions, Ms. Stern. Ladies and gentlemen, that will conclude today's question and answer session and today's conference. We'll be taking away your attendance. You may now disconnect. Have a good day and goodbye.