Compass Group PLC

Hello and thank you for joining today's call, which is a little later than usual as Petros and I are in the US meeting clients and supply chain partners. We delivered another strong quarter with organic revenue growth over 7%, continued excellent client retention of 96% and net new business growth accelerating back into our 4-5% target range. We remain on track to deliver net new business growth at this level, which represents over $2.2 billion for the fifth consecutive year. As such, we're demonstrating our ability to grow consistently at scale over the long term. Our performance reflects the strength of our sector focus model, disciplined execution and strong client demand. We continue to win market share across multiple sectors, supported by a record pipeline. Over the last 12 months, we secured $4.3 billion of new business wins, which is up 16% year-on-year, with around half coming from first-time outsourcing. Business and industry remains our strongest performing sector, delivering double-digit organic growth and more than $2 billion of new business wins. With a record sales season in US education, six of our top 20 biggest wins coming in healthcare, International Sports and Leisure growing double digits and great new account wins in US defense and data centers supporting our progress in DOR. We have broad base growth across all of our sectors. Given our strong execution and continued momentum, we are reiterating our 2026 guidance of above 11% underlying operating profit growth in constant currency. This is being driven by a combination of strong organic revenue growth, acquisitions and ongoing margin contribution. With that, let's open the call up for questions. Over to the operator.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. Again, to ask a question, please press star 1.

Thank you.

We'll now take our first question from Jamie Rolo of Morgan Stanley. Your line is open. Please go ahead.

Great, thanks. Morning afternoon, everyone. Three questions, if I may. First, on net new, you sounded very confident on the first half call that we'd see the midpoint of 4% to 5% in the second half, and you've come in in the low falls in the third quarter. Should we expect that figure to improve again into the fourth quarter? And how should we think about 2027? Is sort of 4% the new 4% to 5%, if you like? Is that really a 4% ongoing run rate? Definitely on international, 6.4%, perhaps a little bit light, given that was your easiest comp last year. Could you talk a bit more about this pricing slowdown and the events calendar? I think you said sports and leisure was up double-digit. International. So, again, is that a segment you're expecting to pick up in Q4 on OSG? And then just finally, big picture, no real M&A in the quarter. What's your view going forwards there? And should we think maybe about a more balanced capital allocation at year-end and maybe a buyback? Thank you.

Good morning, Jamie. Thank you for those questions. Let me just touch on each of them and maybe hand over to Petros to give you more detail on them all. First of all, just on net new, we're really pleased with the progress we've made quarter on quarter and we do anticipate further acceleration in the fourth quarter. Our guidance of being between four and five is because we will oscillate as we've seen. That guidance is on a 12-month basis. and we will oscillate between that we performed in the higher end of it been at the lower end of it it really depends on timing of some of the mobilizations and you know as we said we will expect to do better as we progress through this year yes I mean international really pleased with the sports and leisure performance but yeah impacted by the the timing events in the prior year calendar Petros do you want to pick up on a bit more detail?

Just a couple of things Jamie on net new let's recognize we have been delivering a four to five percent for fifth consecutive year what is really interesting here is we have sustained a level of retention of 96 percent over four years with international being sustained at 95 percent a significant improvement to the pre-COVID performance as Dominic referenced the first time outsourcing trends we're seeing has been the strongest You know over the last four or five years and we're making really good progress across all sectors Just to realize one thing who will be a 50 billion dollar business this year Ourselves, you know growing within the four to five percent sustainably Is giving us very material share gains in the market in a very fragmented 360 billion dollar size When it comes to international The only thing I would add to Dominic's point is we do see lower inflation internationally. We discussed this in half one call. Predominantly, it's behind foot compared to North America. On the M&A, you have seen our spend has been the same with half one. We have discussed before, we have completed our sectorization, the medium-sized days, with international. We continue to focus on GPOs, unattending and vending. and we do think as we go to end of September results to be in a position to evaluate the balancing between the M&A and buybacks. Just to remind everyone we'll be a fraction higher than the 1.5 leverage on September and we deliver it as we go forward in 2017.

Great, thank you very much.

Thank you. And our next question will come from Leo Carrington of Citi. Your line is set. Please go ahead.

Thank you for taking my question. If I could ask three, please, on a slightly separate topic. Firstly, on CapEx, beyond that point you made about the phasing of openings and the phasing of net new increasing the CapEx potential sales this year, are there any other factors to draw about impacting this potentially vending in micro markets so they're lifting the capex intensity. Secondly, on ARO, which is developing very well, but beyond that University of Kentucky contract, are there any particular large contracts to flag or is this the bulk of signings being more typical sized? And then lastly, on the topic of Construction Phase Data Centers. I know it's H1 Dominic who said that these projects are just one strand of the growth from AI. Have there been any evolution in this market since then that you can update us on? Thank you.

Morning Leo, thank you. Let me speak to the ARO development and I'll hand over to Petros for the CAPEX and data center construction. Again, just revisiting our LTM signings are now $4.3 billion. We believe that's two to three times the size of our international competitors combined. So we feel we're doing extremely well on the winning of new business against what we believe is a record pipeline. You're absolutely right within that we have a very significant contract with University of Kentucky. Over the years, we've had major contract wins over time. So, this is unusual for us. And in fact, we're actually lapping significant contract wins in the prior year and prior years, which effectively, you know, we need to continue to deliver and we believe we can and we see in our pipeline. In terms of other significant contracts, Yes, there are deals which are in the high tens of millions, low hundred million. We see those in sports and leisure. We see those in the defense sector. That wouldn't be unusual for us. At the same time, that's balanced by a very, very healthy pipeline. Thank you Dom. Good morning. On CapEx,

Just to be clear here, we don't see any change in the underlying intensity of CapEx in the business. This is truly to do with lumpiness. You know, we have signed a couple of sizable contracts. Last year, we closed the year at 3.3%, this year at 3.7%. If you're going to take an average four or five years, we're just around 3.5%, which we think is the underlying funding requirements for our business. I just want to also call out, you know, this year we're going to spend $1.6 billion in CapEx somewhere around 20% of this is not client facing CapEx, which goes to technology, data, AI, all of the things we have talked in the past. That gives us really good investment in the business. We have been doing this for many years and our ability to keep making progress in the efficiency and investing in data tech for growth. When it comes to data centers, first thing to say is that in the last nine to twelve months we have been awarded a couple of hundred million dollars in data centers through our five out of six MAG partnerships we have, for which we have the largest share of the wallet. We keep expanding this capability. I want to remind you we do have Very strong support services businesses in North America and international that support a food and non-food service for our clients. In addition to this, our teams are on opportunities on the construction phase and we take them as they come.

Thank you very much Petros and Dominic.

Thank you. And our next question comes from Neil Tyler of Rothschild & Co. Please go ahead.

Yeah, good afternoon. Good morning. Thank you. Three for me as well, please. Firstly, within the £4.3 billion, you mentioned £2 billion of that is within BNI. Just trying to unpack that a little bit more, if you're able to share any details around the momentum of that £2 billion relative to the 16% growth overall, please. And then, thinking about the, I suppose, the like-for-like growth Or maybe it's the new wins alongside the M&A that you've undertaken over the last couple of years. Can you please update us on your thoughts on the timing of revenue synergy delivery and maybe update some comments on that delivery as it pertains to the acquisitions you've made? And then finally, in the release, you mentioned with regards to sports and leisure and specifically in the international business, customers maximizing the commercial potential of their operations. Can you sort of expand on that a little bit? And maybe if you're able to give some examples of how that's translating into either like for like or new wins? Thank you.

Okay, thank you, Neil. Let me just tackle the revenue synergy points and then Petros will pick up on BNI and sports and leisure. I mean, I think it's important to say, if you look back at our track record of revenue synergy delivery, you will see that our rationale for doing many of these deals is that their contribution to organic growth year after year, once we've lapped that first year of acquisition has been growth accretive to our model. We've proven that with Bon Appetit, we've proven that with Levy, we've proven that with Restaurant Associates, we've proven it with Flick. We do believe that the case is the same for the acquisitions that we've made with CH&Co, with Vermont, for service and others. We've seen that in part. That will accelerate, we believe, over time as they become embedded into our model. But that becomes part of our ordinary course growth and very much the rationale for the acquisitions that we've made that we believe will increasingly give our international region the attributes of our North American business model.

Petros? On your 4.3 billion, just to give a bit of color, Just remember, our BNI is the most sectorized business, goes from financial services, banking institutions, all the way down to attending, vending. We have a very broad footprint there. And we do see this actually firing across all of the sub-sectors within BNI, with also one-third of this being first-time outsourcing with clients mobilizing new locations. When it comes to education, I would say it's above fair share. In this 4.3 billion, you know, we had record wins within North America, some really positive developments in K through 12. Sports & Leisure International, definitely above fair share. We're growing, you know, 10% double digits on a year to date and we do have a very strong pipeline. Healthcare, we have grown, you know, six out of our top 15 wins, which is really promising signs there. You know a fraction slower than fraction lower than the first share but with good opportunities as we go forward and we remain positive on this. If I go on the sports and leisure, actually the part of here is the fun experience and our ability to trade up and trade across within our offer The key thing is maybe 10 years ago, we used to have two offers, you know, the VIP boxes, we used to call them the concessions. If you go to our accounts now, you will see a vertical offer up to seven or eight tiers, spanning a very, very high end hospitality all the way down to an amazing concessions. In addition to this, we're running fan zones within the stadiums. And it's a partnership with our clients, a long-term partnership with our clients to keep improving the offer and growing these accounts organically as we go. The last thing I'm going to say, we have invested a lot in data and AI in this space. You imagine a very big event, we have to deliver exceptional service, exceptional revenue in a very short period of time and technology is really helping us and demonstrating to our clients the value we can add to the operations.

If I may, I might just add a couple of comments to that. I think as we came out of the pandemic, we talked a lot about the strength of sports and leisure being around this thing we call revenge spend. I think increasingly we're now seeing this being baked into exactly what Petros has described, the fan experience. It's very clear to us that the consumer is willing to pay for a great experience and a unique experience. It's extremely important to our client partners that they can generate competitive revenues from the food and beverage and hospitality experience to support their underlying operation and what we're seeing is exactly what Petros has described a tiering of hospitality experiences which hits different price points and has very premium experiences at the top end of that. Having visited Wimbledon this year we operated over five Gareth Sharpe, Gareth Sharpe, Gareth Sharpe Thank you very much. Thank you. We'll now take our next question from Kate Shell of Bank of America. Your line is open. Please go ahead.

Thank you very much for taking my questions. Good morning, Dominic. Good morning, Petros. I have two questions. The first one on net new acceleration trajectory. Your ARO obviously at 4.3 billion is a 16% year-on-year growth. When I look at, when I think about the trajectory of that ARO number, about a year ago it was at mid single digit kind of growth and that has accelerated to low teens and now 16%. So your ARO has accelerated for the past three or four quarters. Does that mean, and obviously your net new with retention being stable has just started to accelerate. Does that mean we should Thank you very much. But there is asset heavy and asset light operators, right? So can you talk to us about the kind of opportunities with your capabilities that you are seeing? Do you intend to operate asset heavy when it's required? Or are you only looking at asset light opportunities? And if so, can you tell us a bit about, you know, the size of the opportunities and the relative share of those opportunities within the overall, I guess, TAM in the construction-based data center? Thank you very much.

Kate, thank you. Let me tackle the data centre question. Maybe Petros might add some further colour and then he can pick up on the ARO acceleration point. I think the first thing I'd say to this is, look, it's happening very fast, right? And I think we are, if we're all genuinely honest, we're all learning as we go. It's a super opportunity, undoubtedly. It's been sized differently by different commentators. It's a very significant marketplace. It's multi tens of billions, hundreds of billions in both the construction phase and the ongoing operational phase. and of course there are different partners so in some instances we'll be partnering directly with the the major tech players in others it's with the data center owners and operators where they typically franchise their capacity to a number of different customers and in others it will be through EPCs and EPCMs who are constructing the data centers on behalf of those owners So, you know, we're working through this to understand what a different client base looks like. What we do believe is we have a compelling offer. We were already operating many data centers for, in particular, the Mag7. I think Petros referenced it earlier of the six of the seven that outsource. We are the almost exclusive partner to five of those six. So we have very significant volumes on their existing estate. It gives us the opportunity to speak to them about data center construction and data center provision of services. We're working more and more on building out our relationships with the individual data center owners and operators. And in terms of your question regarding sort of asset heavy asset light, I mean, a lot of this depends on the relative remoteness of the facility. You know, our preference would be for the asset light model. We don't rule anything out if the opportunity is significant. I think we demonstrated that in the remote sector in Australia where we have co-invested in facilities in the short and medium term where the economics are attractive. We'll feel our way through this, we'll ensure we do what is absolutely right from a capex and return standpoint and we're building those capabilities all of the time. I would stress as well as Petros referenced earlier, let's not forget our capability when it comes to the support services and some of the maintenance facilities. We have those capabilities through our businesses in Canada, in the ESS, effectively the remote mining and construction sites in Canada, which have been franchising to the US. We have ESFM, which is our US support services of facility management businesses. In the Nordic region, for example, we have four services. In a number of the European countries, we've got support service businesses as well. And in Australia, we've got Delta FM which provides facility management alongside food so I guess the reason I make that point is that the solution here on the construction phase of data centers is beyond food as it will be in the operational delivery thereafter and we believe we have a compelling combination of both food and support services that we can bring together under Thanks Dom. Morning Kate.

Nothing to add on data centers. I think Dominic captured everything there. On net new, this number you appreciate, we're going to grow north of 7% this year. This number has to continue to grow as we go. In order for us to have confidence, we deliver within the 4% to 5% range. Just to remind us again, a $50 billion business this year, $4.3 billion of new business, retention 96%. We do see an acceleration in Q3 on NetNew versus Q2. We talked about this. We do expect a modest improvement in Q4 as we go. And above all, I think we're looking here at being consistent in delivery within our medium-term algorithm for years to come. And this is why the gross new evolution of the business, which is broad-based across sectors, gives us good confidence. The sustained level of retention gives us good confidence. And as we go forward, We will see, you know, some quarters are going to be maybe towards the low end of our range, some quarters are going to be towards the middle part of our range, but it's going to be within the 4-5. I just want to remind you, last year Q4 had been an exceptional year for Compass. We finished the year at 9.2% organic, so we're lapping these comparators in Q4 this year. and the business growing at around 7% on top of a 9 plus percent last year demonstrates the underlying resilience of the business and the growth opportunities that exist for us.

Great, thank you very much.

Thank you and our next question comes from Jaffa Mastari of BNP Paris. The line is open, please go ahead.

Hi, good morning. I have three questions, please. The first one is just following up on this net new business trend. I'm reading my notes from H1 and trying to compare and contrast and I know lots of people heard more formal indications that you would touch 4.5% in second half. So just wanted to circle back on this. Again, I know it's been labored, but just to understand if there's been specific delays or specific changes in how you intend to mobilize some of the wins, and if there's any reason not to expect a mean reversion. You said just now, Petros Parras, some quarters would be towards low end, some quarters would be towards top end. We've had a handful towards low end. And then secondly, I just wanted to maybe wrap up the World Cup contribution, your estimate of the contribution for the quarter on just one month and what will be different in the Q4 contribution where perhaps you have more of your normal advanced are being displaced, perhaps less of a net contribution. And lastly, on the U.S. education market, you mentioned a record-selling season. You showed a chart at your quick strategy update in H1 that was showing that North American education, you didn't really see that uptick in first-time outsourcing. It was still very much competitive wins. So just curious, if we exclude University of Kentucky, generally, is it broad-based but competitive wins? Or is this already changing and have you seen any meaningful first time outsourcing K-12 or higher education deals, please?

Thank you, Jafar. Good morning. Yeah, I mean, without being a broken record, we're delighted that Annette New Business is on an LTM basis within the 4% to 5%. We're delighted it's accelerating. We do anticipate further acceleration in the fourth quarter. It's very difficult to forecast exactly what we're going to see based on the timing of mobilization of new business in particular. and the relative pickup of volumes in new business. Look, as we said, and as was picked up on previously by Kate, we've got a very positive uplift in the gross new business signings. There is an element of timing with all of that. We know that there is a number of those signings which will open in out years and we don't get the immediate benefit. And so there will always be that to it in our guidance as we manage that through. We're retaining very strong retention levels at the 96%. And of course, the absolute dollars have to grow significantly for us to continue to sustain within our 4% to 5% range. And I'd stress $4.3 billion of new business. We are something like two to three times out of the competition in absolute terms. So we're very pleased with where we are. We believe we can sustain that. It continues to allow us to be within our P&L algorithm. And I think our focus is very much over the multi-year performance. Do we think we can do this in the fourth quarter? Yes. Do we think we can do it for the next year? Yes. Do we think we can do it for the next three years? Yes. That's what's really important to us. And that's what we see in this marketplace. Thank you very much. In terms of the World Cup before our handover to Petros, we're absolutely delighted with the event. We're very proud of our teams who operated on the ground for such an incredibly important event and with such high volumes of spectators and such high profile. We were the biggest F&B partner to the event with over a quarter share of the total matches. But let me let Petros give you some more colour.

As Dominic referenced, north of one quarter of delivering exceptional service within the Games, You know, played in World Cup in total about north of 100 games in the period of June and July. We said in Q3 the impact group is around 30 basis points and we're expecting Q4 to be around 10 basis points. There are still some games, you know, played in July. Phenomenal experience. But what I would like also to call out is outside of World Cup, we do see positive volume contribution across the business that you see in the organic for Q3. If I go to the education, your education question, I think the answer is we do see broad-based growth, competitive wins within K through 12, first-time outsourcing and competitive wins within higher education. So we're quite pleased that the education sector is giving us growth across all of the sorts of growth Sherry Gain, and First Time Outsourcing. Enrolments look good to the extent we know so far, so we remain positive on the sector.

Thank you.

Thank you. And we'll now take the next question from Sabrina Blanc of Burnstone. Your line is open. Please go ahead.

Yes, good morning everybody. I have two questions for Michael. The first one is coming back to the performance in international and due to policies due to lower inflation. Do you expect a catch-up in the coming months because when we look at what's happening in the Middle East and the inflation The second question is regarding the CAPEX acceleration at the end of the year. I understand it's a question of timing, but usually when you have mobilization tests, we used to have them more in OPEX than in CAPEX. So could you explain the difference this time?

Thank you, Sabrina. Let me touch on the points around food cost inflation pricing in international and Petros can reflect on CapEx. Look, I think the first thing to remind us all of is that we're in sort of very dynamic times. I remember being in this business in the first five years when we virtually saw no food cost inflation at all for over five years. What we've witnessed since the pandemic through Ukraine and now through Middle East is a volatility and that volatility is based on global geopolitical events as well as local weather patterns and that means we'll see different conditions in different markets at different times unlike anything we witnessed before. Right now food cost inflation in some of the western European markets is a point It remains at 3.5% in North America for different reasons. What we've demonstrated in this business is our ability to price for inflation. We've done that because we changed our contract structures through the pandemic. That means that we have more dynamic contract structures which protect us better. We obviously talk about three different types of contracts that we've got, but I think in the least flexible, we've introduced the opportunity to price more with greater agility. What that means is I'm not concerned with the headwind that the cost inflation can present and our ability to price for it. But what it also means is that when cost inflation comes up, pricing will come off. And you'll see that in our top line. Typically, we know that because of the way that we protect our clients, we're not pricing with margin. And therefore, there is no real impact to the profitability of the business. As a result, as I've said, you're seeing that site slow down in pricing in this quarter. Were we to see an impact from the Middle East, and we haven't yet seen that, but there are many commentators that are suggesting that we'll see high single-digit food cost inflation, for example, in the fourth quarter here in the UK, then you will see us take that in pricing over time and it will float through our top line. So I think you may see an acceleration and deceleration I think the key thing here is timing. Just to remind ourselves

We invest in client-facing solutions before we mobilize contracts. We mobilize contracts, take a couple of years, even three years to go to maturity in terms of performance. So you have always a lag between capital investment and returns over time. We're confident with returns over time and we know the organic CapEx investment is giving us north of 20% return on capital employed across the business. and for us it's an area I would like to continue to invest there. So it's pretty much down to lumpiness timing of execution of investments in Q4 and as we move to Q1 next year.

Thank you.

The final question comes from Praveen Gundali of Barclays. Your line is open. Please go ahead.

Hello, thank you very much for taking my questions and good morning. Firstly, on life-for-life price, you called out lower inflation being a driver of moderate life-life growth in international. How should we be thinking about inflation and life-for-life price growth trajectory in Q4 and H1 next year? If you can provide some steer on that, that would be helpful. And just wanted to know in related to that, whether are we in, are we firmly in On the territory of low end of that two to three percent inflation range right now, and have you seen any signs of increased resistance from clients into international markets on price divisions in Q3, especially in Europe? Thank you.

Petros. Good morning, Pravin. I'll try to answer your question. The line was not very clear. I think I got most of it, so I'm going to take a stab at it. So on like for like we do we do so we are now if you exclude return to office and a lot of tailwinds we had in a couple of in the last couple of years we do see a positive volume contribution anywhere between 20 to 100 basis points and you have seen this across the quarters. The attribution of this primarily we believe is behind our value offer being uh received positively compared to the street pricing in restaurants and when our associates dine in our in our premises the second thing is we discussed about the premiumization of the offer the trading app and the third thing is the use of data and ai in in driving more sellouts given uh certain locations think about the kiosks pre-order grab and collect all of the solutions we have within Thank you very much. Iran, as Dominic referenced, we haven't seen the Iran conflict embedded in the numbers. Typically, these things may take six to nine months to show. And I want to remind you, this is a different thing compared to the Ukrainian-Russian conflict back in the day that had also an element of product availability shortage within our supply chain. This is more, we believe, to do with the oil price and distribution cost of the last mile of our supply chain partners. So we're monitoring the space. If it's going to manifest itself in next year, as Dominic said, the business has been resilient in navigating through this. and we remain confident to deliver within our meeting term algorithm.

Thank you very much for that and apologies for the bad line. Thank you.

Thank you. I will now hand it back to Dominic for closing remarks.

Thank you and thank you everyone for joining us today. I hope you all have a very enjoyable summer and we'll speak to you again in November.