Dominic Blakemore: Good morning, and thank you for joining us today. 2023 was an excellent year for Compass. We’re building a strong, balanced and sustainable growth model across the group. Revenue exceeded £31 billion, and operating profit increased to £2.1 billion with margin up by 60 basis points. We generated an operating cash flow of over £1.8 billion, giving us flexibility to invest in the business and to return surplus cash to shareholders.

In addition to the almost £1 billion we returned in 2023, we’ve announced another buyback of up to $500 million, depending on the M&A opportunities. Our value-creation model is generating attractive compounding shareholder returns. Today, we’ll show you how we create value through our operations by focusing on our MAP framework to drive growth and operational efficiencies, delivering profit growth above revenue growth. Increased cash generation gives us flexibility to invest in the business organically and through strategic M&A with attractive returns. We have a truly exceptional business with significant structural growth potential, which is exciting for the future.

But first, Palmer is going to take you through the results.

Palmer Brown: Good morning, everyone. Our strong financial track record continues with operating profit up by 30%. This was delivered through organic revenue growth of 19% and an operating margin of 6.8%, each at the higher end of our guidance. Looking at the components of revenue.

Net new business continued to be strong at around 5% with pricing and volumes both increasing by around 7%. As anticipated, volume growth normalized in the second half as we moved further away from the pandemic-impacted comparators. Growth continues to be broad-based with similar net new across the regions. Revenue growth, together with balanced margin progression, resulted in a strong profit performance across all of our regions. Group operating profit increased to over £2.1 billion.

Interest was £136 million, and our effective tax rate was around 24%, in line with our guidance. As a result, earnings per share were up by 37% and, in line with our policy, dividends grew by the same percentage. For fiscal ‘24, we expect interest cost to be around $225 million, reflecting higher net debt in line with business growth and increased interest cost when we refinance in 2024. Our effective tax rate is expected to be around 25.5% due to the higher U.K. corporate tax rate.

Our operating and free cash flow conversions were strong at 86% and 58%, respectively. CapEx was 2.9% of revenue, lower than our historical levels, but is expected to be around 3.5% in 2024 as we capitalize on growth opportunities. There was a working capital outflow of just under £90 million in 2023, and we expect something similar in 2024. Our operating model gives us confidence in our ability to deliver ongoing margin progression. Despite persistent inflation and the drag from higher new business growth, we increased margin by 60 basis points in 2023.

We achieved this through mitigation and appropriate pricing and by utilizing overhead leverage, which was meaningful given our high revenue growth. Looking ahead, while food inflation has eased, particularly in North America, labor inflation remains heightened. Our blended inflation rate has reduced slightly to around 7%, but it’s still high by historical standards. The good news is we understand the operational levers within the business. We’ve got to continue working hard, but our increased size unlocks purchasing scale opportunities, cost efficiencies and overhead leverage.

There’s lots of opportunity in our back-of-the-house processes, too. Digital tools and improved insight will help us focus our efforts, and we’re just starting on these projects now. Our business has a natural profit hedge as we balance revenue and margin. Currently, we’re benefiting from faster revenue growth with macro pressures and increased operational complexity helping to drive outsourcing together with higher pricing. However, inflationary pressures, mobilization cost and less mature contract mix make margin progress more dependent on operational leverage.

If revenue growth were to slow from lower new business or lower inflation and pricing, we would likely benefit from stronger margin as there would be a reduced drag from inflation and mobilization of new business. Our contract mix would also be more mature. In either scenario, we expect our business to generate strong profit growth. Our capital allocation framework has delivered value for shareholders over this cycle and remains unchanged. First and foremost, our strong balance sheet enables us to invest in the business to support growth.

CapEx and M&A enhance our competitive advantage and complement our strong portfolio of brands and capabilities. We have an attractive M&A pipeline. And while remaining disciplined in our approach, we expect to increase acquisition spend this year to capitalize on these opportunities. Dominic will say more about this in a moment. As evidenced by our share buybacks, any surplus capital after investing in the business and paying a dividend is returned to shareholders, keeping our leverage within our target range of 1 to 1.5x.

Our strong cash generation and disciplined use of capital means that leverage has reduced from 1.3x to 1.2x. This is despite investing £1.2 billion in the business through CapEx and M&A and returning £1.6 billion to shareholders in dividends and share buybacks. While investing in the right opportunities, we are also continuing to tighten our portfolio as we increase focus on our core growth markets. We’ve exited 9 tail countries where we had relatively small operations with limited growth potential and higher levels of risk. Our strategy is to go deeper in our larger, more developed markets which offer better prospects.

During fiscal ‘23, our net spend on acquisitions was just over £300 million, mainly in the U.S. and U.K. In November, we also agreed to acquire Hofmann in Germany. This ongoing reshaping improves the overall quality of our business and better positions us for future growth. The role from these acquisitions and disposals on fiscal ‘24 is small, reducing revenue by around $100 million.

You will have seen our guidance for 2024. We expect constant currency operating profit growth to be towards 13%. This is comprised of high single-digit organic revenue growth with net new business growth in the range of 4% to 5%, coupled with ongoing margin progression. Finally, a reminder that this is the last time we report in sterling. From now on, we will be switching to U.S.

dollars to better reflect our business exposure and reduce earnings volatility. Now back over to Dominic.

Dominic Blakemore: Thank you, Palmer. The prospects for sustained higher growth are exciting. Investments we’ve made in our people and processes underpin our strong results.

They’ve enhanced our competitive advantages and will continue to support future growth. Before the pandemic, growth was driven by North America. Their success enabled investments in different operating models such as brands like Unidine and the digital capability of Compass Digital Labs and E15, which has helped to sustain attractive growth rates. The success of the model is evident, and we’re now copying that approach across the group. The evolution of our operating model continues.

We formalized best practice sharing and invested in sales and retention teams globally. These actions build our growth culture and are reflected in our strong results. Annual revenues from new business wins were £2.7 billion, around 40% higher than 2019, with almost half of this coming from first-time outsourcing. Retention remains excellent at 96.5%. And as expected, net new business growth normalized in the 4% to 5% range, above our 3% historical level.

Most importantly, there’s a lot more growth to come. We have 5 clear priorities to support our

strong momentum: focusing on significant growth opportunities in our core markets; targeted regional priorities, enabling higher growth and further efficiencies; increasing the flexibility of our operating model; capturing future sources of growth through disciplined M&A; and nurturing our talent and developing the next generation of Compass leaders. Taking each one in turn, our addressable market is worth at least $300 billion. And despite being the global leader in food services, our market share is less than 15%. With about half still self-operated and competitors accounting for the other 35%, there’s a significant runway of growth for many years across all regions and sectors.

We’re improving the quality of our portfolio by focusing more on the significant opportunities within our core markets. By doing that, we’re maximizing our scale benefits, regional insights and sector expertise. Most of the sectors are under-penetrated with over 50% still self-operated across Healthcare, Senior Living and Education. Beyond the obvious focus on MAP 1 and 2, there’s a continued opportunity to go deeper on processes, compliance and real-time data to drive better decision-making under MAPs 3 to 5. The priorities to capture growth vary by region, reflecting different market dynamics and maturity.

Our excellent track record in North America continues. And with 80% of the market still available, the opportunity for first-time outsourcing and market share gains in existing sectors and subsectors remain significant. Innovation and investment in digital processes are unlocking further growth, and our scale helps optimize productivity and procurement efficiencies. Arguably, there’s an even larger opportunity in Europe. The market is less outsourced and has lots of potential.

And despite being the regional leader, we have still only a 7% market share. Our business is enjoying a strong acceleration in net new business growth. This is driven by both higher gross new business wins and improved retention. This performance is a result of a growth transformation program we began before the pandemic, investing in CRM tools to support sales, up-skilling our people through targeted training and leveraging best practice to drive a growth mindset. New business wins and retention can all be tracked and analyzed in real time with dashboards indicating conversion rates, preemptive renewals and weighted probability of a potential pipeline.

What’s exciting is the opportunity is huge and there are still many improvements to be made. Europe is now in good shape with the foundations in place to sustain strong growth for the future. It’s become increasingly complex to operate in our industry, managing risks and adapting to heightened clients and consumer expectations. But whether it’s bringing people together, health and well-being, digital concepts or sustainability, food has become increasingly important. As we help clients achieve their own organizational objectives, they’re placing more value on our services than ever before.

We’re becoming more embedded, which plays to our advantage. By evolving and improving our model, we now have a wide range of solutions to suit all requirements. Wellness, digital apps, grab-and-go convenience or industry-leading sustainability initiatives, we have the tools. And so increasingly, clients consider us a strategic partner with shared ambitions, creating powerful long-term partnerships. As Palmer mentioned, investing to support growth is a key priority and helps diversify our operating model further.

We have a strong track record of M&A and have added significant value over time by building a portfolio of brands to differentiate ourselves and to get closer to our clients and consumers. Some of our most successful brands, such as Bon Appétit, Canteen and even Foodbuy were all acquisitions and have grown into sizable businesses over the years. They’re great examples of how our capital allocation creates value over time. Currently, there are some attractive bolt-on M&A opportunities with complementary capability, sector expertise and adjacencies with strong management teams. A great example of this is a recent acquisition of a German business, which manufactures high-quality meals at scale distributed through an established network.

As a result, we’re likely to increase our M&A expenditure this year compared to 2023. Developing our people is vital to our ongoing growth prospects. The depth and breadth of our talent is really strong. I’ve seen firsthand how internal succession creates continuity in our unique, decentralized structure. Succession planning is deeply embedded in our organization.

And I’m delighted that our recently announced management changes were filled internally. Training and development spans all levels. And last year, around 50,000 of our leaders and unit managers went on one of our advanced training courses. All of this underpins my confidence in Compass sustaining a strong track record of continued growth. The business is in great shape operationally and financially and perfectly positioned for a more focused growth phase.

We’re benefiting from favorable market dynamics right now, but it’s more than that. Our size, strength and scale enables us to invest back in the business, improving our competitive advantages. Focusing on the most attractive opportunities supported by our growth culture will sustain our success. The powerful combination of higher operating profit and strong capital allocation will generate long-term compounding returns for our shareholders. In a few days’ time, our North American CEO, Gary Green, will step down after nearly 40 years at Compass.

Gary has been instrumental in building a remarkable business and the most successful in our portfolio. Many of the proven processes and strategic initiatives he’s implemented in North America are now being embedded elsewhere. His track record is unparalleled. I’m grateful for his support and his friendship. And on behalf of everyone here at Compass, we wish Gary every success.

I’m delighted Palmer will take over North America. I can’t think of anyone better to lead the business into the next phase of growth. And a very warm welcome to Petros Parras as our CFO. Petros has done an excellent job in Europe, and I’m looking forward to working closely with him in Compass’ next chapter of exciting growth. We look forward to introducing Petros to you in due course.

Now over to Q&A. The operator will share instructions on how to queue for questions. Please remember that you must be connected by phone in order to ask a question. And operator, over to you.

Operator: [Operator Instructions] And our first question comes from Jamie Rollo from Morgan Stanley.

Jamie Rollo: Three questions, please. First, the net new contract sales growth of 4.6% implies quite a sharp slowdown. It was 5.2% in the first half, so around 4% in the second half. Could you just talk a bit about that, please, what caused it and your thoughts on the sort of 4% to 5% target for 2024? Secondly, just on the full year ‘24 profit growth guidance of 13%, it looks a little conservative. It looks like you’re not factoring in any volume growth and also pretty modest margin growth, and it’s well below your peers, Aramark and Sodexo.

So any comments on why that might be the case and your annual level of conservatism? And then finally, just on the M&A, clearly a sort of heightened level and quite a big start to the year. Is there any particular focus on M&A in terms of verticals or geographies? And any scope for upsizing the buyback at the first half if it doesn’t come through?

Dominic Blakemore: Jamie, thanks for the questions. So I’ll speak to net new and M&A and then maybe let Palmer speak to profit growth and the buyback. So first of all, on net new, as you rightly say, net new was 5% in Q1 and 4% in Q4. A couple of factors behind that.

One, obviously, we’ve got a restoring base as we see the COVID volumes come into the calculation. Secondly, there’s a lumpiness to our net new, and so I don’t think we should really read too much quarter-on-quarter. The 4.6% for the full year was a good number and clearly firmly within our range of 4% to 5%. And I think what we think is more important is the sustainability of that range as we go forward. So first of all, look, in the near term, as we reported, we sold £2.7 billion ARO of new contracts in 2023.

That’s broadly 9% gross new with a reported retention rate of 96.5%. That gives us good confidence going into ‘24 that we can sustain that level of 4% to 5%. In addition, we’ve got good pipelines in all of our major countries. Our conversion rates are higher than they’ve been historically. And that gives us good confidence, again, of sustaining that level of growth through ‘24.

I think the most important delta, and we’ve talked about this before, has been the performance outside of North America and particularly in Europe. So North America is really sustaining the net new contract performance on a much bigger base than we saw pre-pandemic. We’re now seeing that level of growth in the other regions. We’ve now seen it in Europe for 2 consecutive years, and we’ve got strong expectations of a third consecutive year of good performance in that region given what we know about the mobilizations and demobilizations. So look, our ambition and aim is to be within that 4% to 5% range, which is 1% to 2% higher than we saw historically.

If I take the second part of that question was sort of sustainability of that over time. We shared again today our market share data. Globally, we have a 15% market share, in North America with 20% market share and outside of North America with 7% market share. So we think there’s a huge runway for growth and for sustaining this performance. And I think we have both the offer in a complex market to be the strategic partner of our clients and also the proven processes which will enable us to continue to win at the levels we need to see.

If I sort of pivot to the M&A question, really, the M&A that we’ve reported today

is twofold: one, the exit of 9 tail countries and a reminder that we’re in -- the 20 of our markets make up 95% of our profit and growth; and then, of course, the acquisition of Hofmann. But I think the real point here is that sort of all of our activity on portfolio and M&A leads us to how do we sustain the 4% to 5%. We’ve talked about sort of going narrower and deeper. We see huge opportunities in our core countries and core sectors. And everything we’re about is how do we double down focus group resources, group processes and capabilities to continue to deliver that.

The tail of countries we’ve exited were small markets or single-contract countries in the oil and gas sector or complex markets like Argentina from a geopolitical standpoint. So we feel that, that frees up group resources and time. And then on the M&A side, it’s not just the Hofmann deal that we’ve announced today, but we did a number of further deals in the Canteen vending space in North America, the infills that give us the capabilities to sustain attractive growth of that subsector, then a number of Foodbuy deals in the U.K., which gives us deeper presence and greater efficiency there. And the Hofmann deal that we’ve announced today is really attractive. It gives us access to the fastest-growing sector or subsector in the German market, but it also gives us a capability of technology where we can serve into SMEs in Germany.

We can use it to have an offer that can address variable footfall on Mondays and Fridays. It gives us access to the Healthcare and Education sectors in Germany. And of course, with the frozen product, we can deliver into other markets from the production footprint that we’ve got there. So we think those are great examples of how we can really focus on the core to sustain these growth levels. And everything we’re seeing today in terms of pipeline conversion rates and so forth gives us confidence that we can do that.

Palmer?

Palmer Brown: The profit growth guidance of towards the 13%, that would reflect our best view of the likely landing spot for the year. I think it’s reflective of the portfolio actions that Dominic just referenced. The strength of the new business wins is something that’s really helping propel that, the £2.7 billion trailing 12 months, roughly 9% gross new. Question about the timing of those mobilizations, but that should come through -- the vast majority of it should come through next year. We will get ongoing margin progression, the extent of which will really depend on the rate of inflation more than anything.

At this point, we feel pretty good about where inflation is heading, at least compared to several months back. We think there’s an opportunity to capitalize. We’re stressing that with each of our businesses. But we do caution to say we’ve been wrong about inflation before. So that’s why we’re taking a really balanced approach there.

Jamie, as you referenced on the volumes aspect, we’re not counting on any further volume recovery at this point. You saw the volumes really recover over the course of the last 18 months, starting with North America, catching up with the other regions at the end of last year. We’re not counting on anything further going into ‘24. Might there be a bit of potential upside? Yes, there might be. And if so, we’ll gladly take it.

But that’s not something we’re necessarily counting on at this point. So that 13% is what we feel like is the likely landing spot for the year. And we feel good about that result, being a nice solid result for the business overall. In terms of...

Jamie Rollo: How about buyback?

Palmer Brown: Yes, in terms of the buyback perspective, the $500 million that we announced today is really reflective of a few things.

It’s to leverage a landing spot for fiscal ‘23 of the 1.2x, the ongoing strong cash generation that we have and, as much as anything, the prospects of further M&A activity over the course of the year. Dominic referenced the Hofmann deal that we recently announced that should close in the coming weeks, just depending on competition authority approval. We have a number of normal infill deals already in the works. But then maybe a bit different this year is just the lumpiness of some of the opportunities that are there in the pipeline. We’ve probably been -- in fairness, we’ve probably been a little bit underwhelmed by the amount of M&A activity that we’ve been able to capitalize on the last couple of years.

We’d like to think that with some of the prospects that are here this year, we could look at a bit of heightened spend. And so that $500 million number that you see is reflective of those prospects, the ability to have flexibility within that. And we view it that, depending on what happens in the first half, we can make some decisions plus or minus at the half year. So really, the M&A pipeline would be the biggest variable within the buyback figure.

Operator: Next question comes from Simona Sarli from Bank of America.

Simona Sarli: So the first one is a follow-up on the net new business wins, which you are indicating to be plus 4%, plus 5% for fiscal year 2024. How should we expect that to be broadly split between H1 and H2? Do you expect the contribution to be even or maybe a little bit more skewed towards the second half of the year? Secondly, on -- again, another follow-up on volume growth. You are assuming no further volume recovery, especially in North America. Can you put that in the context of office occupancy rates still being at 50%, so substantially below pre-COVID levels? And third point on the Hofmann deal, can you provide a little bit like some financial metrics like revenue, margin growth?

Dominic Blakemore: Thank you, Simona. If I just take 2 and 3 and then come back to Palmer on the split of net new.

Just with regard to volume growth, I think the first thing to say is we’re pleased with the volume growth we’ve seen in B&I thus far. So the B&I -- our B&I growth of 30% on a full year basis has seen very strong net new. We’re kind of slightly counterintuitive, but we really are a strategic partner for our corporate clients as they work to bring their colleagues back into the office and in quite a complex landscape. We talked before about sustainability, about digital, about wellness. We see a huge opportunity to continue to outperform within the B&I sector.

Secondly, the volume has recovered nicely. You referenced 50% office occupancy. I’m not sure that’s what we’re seeing in our estate. It really is very different across countries and cities. Certainly, for our estate in the U.K., we talked about being about an average 1 day per week less than we were pre-COVID.

I think that gap is closing. It’s more like 0.75 of a day on average to 0.5. We’ve seen a number of the European cities recover strongly and likewise on the East Coast. We still see some lag on the West Coast and in tech. But I think the narrative that we’re hearing and seeing now from many of our clients and it’s being made public is, now look, being in the office is important for growth, promotion, for mental health and well-being.

And also we’ve seen many reports now, aren’t we, about the quality of food consumed in the office versus the home. So I think there’s a lot of reasons to believe that we may yet still see further volume come back. On the flip side of that coin, look, we are seeing some restructuring, aren’t we? We’re seeing it in consulting, we’re seeing in professional services as things tighten in the near term. So I think that volume recovery gives us a little bit of a hedge against what could be volume impacts from any headcount downturn and, therefore, sort of leaves our high single-digit growth expectation for ‘24 intact with no volume risk. And then, look, in terms of Hofmann, we will provide you with those numbers as and when the deal is concluded and confirmed, and we can do that off-line.

Palmer Brown: In terms of the revenue breakdown, we view -- the likelihood is that net new and pricing will sort of work and inverse of each other as the year progresses. Net new, perhaps a little lighter in H1 and picking up in H2; pricing, the opposite, a bit more in H1, waning a bit in H2 depending on the rate of the inflation curve, each of those blending out to that really the high single-digit revenue for the year that our guidance implies.

Operator: Our next question comes from Vicki Stern from Barclays.

Vicki Stern: Just firstly, coming back on retention. I think the retention sort of fell back a little bit to 96.5%, albeit still incredibly high levels.

Just particular segments or regions to flag where things eased off a little bit. And just more broadly, I suppose coming back to the bigger question, any risk that you think that 96.5% could sort of trend back to closer to 95% where you were before COVID? Second one is just on working capital. I think this business used to sort of typically see an inflow of a few tens of millions each year, that your guidance for next year is for another outflow. Just sort of what’s going on with working capital? And what should the direction of travel be sort of more medium term there? And then just finally, on CapEx, obviously, you came in again slightly below the 3% guide, but you are certainly guiding for 3.5% CapEx next year. Just again, a reminder on sort of why you think you’ve come in lower than that 3.5% range given that net new has been so high and then sort of how we should think about that? Is 3.5% really the right landing spot going forward?

Dominic Blakemore: Thank you, Vicki.

On retention, look, we’re very, very pleased with the retention. And I think what’s the step change in retention from those pre-pandemic levels, there’s been outperformance in Europe and Rest of World. We don’t put that down to extra tenure on contracts through the pandemic. We’ve actually seen bidding and rebidding at normal levels. We think it’s really about the -- I mean, first and foremost, we’ve been working very, very hard on the quality of our offer over many years.

That takes a while before it’s recognized. Secondly, we’ve been working incredibly hard on our core SAG, S-A-G, retention processes and really rolling that out with discipline across those markets. I think we’re being rewarded for that. I think there’ll always be a little bit of variability in the number quarter-by-quarter or LTM just based on sort of larger individual contracts, particularly wide losses that may drop in. So I don’t think there’s anything that is concerning us with regard to sector or country.

I think actually the reverse, we see opportunity to consistently do better. Perhaps those gains may be more marginal as we go forward, but we remain incredibly focused on that. We know where our outliers are from a performance standpoint, and we’re working really hard to further improve their contribution. We work really hard to continue to extend contracts so that fewer contracts are coming up for bid. And actually, part of our portfolio process is to revisit some of those markets which may have kind of a weaker, long-term retention rate because of the nature of the market, which gives us greater sustainability.

So I think you heard me say in the earlier answers, I think everything we worked on at the moment is about how we get all of our KPIs to be more consistent, more sustainable at these higher levels.

Palmer Brown: From a working capital perspective, as much as anything, it’s reflective of geographical and slightly different business mixes that are here. We’re much more balanced from a regional perspective when it comes to growth. The MAP 2 or consumer business is a bit lighter outside of North America than within North America. So as we’re accelerating outside of North America, it’s much more MAP 1 or client pay focused that has a bit more working capital tied to it.

So it’s really the geographical and business mix as much as anything that’s speaking -- that speaks to that slight shift in working capital. And then from a CapEx perspective, yes, we do view that 2.9% in fiscal ‘23 is an aberration. We are continuing to model 3.5% internally. I’ll tell you that just from the start to the year in ‘24, we’ve had a nice start to the year with some new business wins. There are some CapEx tied to that.

We do have line of sight to some timing differences between last year and this year. So we do think it will return more towards that historical 3.5% level.

Operator: [Operator Instructions] Our next question comes from Leo Carrington from Citi.

Leo Carrington: Two questions for me. First of all, in terms of the retention rates outside of North America, they keep improving and driving the overall progression.

How do you see the scope for further gains? Do you see the regions normalizing around similar levels? Or should structurally North America remain slightly ahead, do you think? And then secondly, in terms of the exit rate of pricing and cost inflation, I suppose either in line with the figures you gave for Q4. But how do you expect the H1, H2 progression to unfold in terms of, I suppose, gradually tracking down towards CPI type levels?

Dominic Blakemore: Thank you. I mean, look, first of all, on retention rate, there is a structural difference between North America and the Rest of the World in terms of the average length of contracts. So I think that is likely going to drive a delta of difference. We use significant capital in North America, particularly within Sports & Leisure and Higher Education, typically giving us longer contracts.

We have obviously less presence in Higher Ed and Sports & Leisure outside of North America, albeit they’re sectors that we see as being significant opportunity. So look, I think there’s likely to be a difference in those metrics between the U.S. and the rest for a while, as there is in a few things. But the opportunity for us is to continuously improve and close the gap between the regions and to continue to eke out marginal gains in the U.S. performance.

I think at these levels, the retention is absolutely fine with the gross new business opportunity that we see. And that’s what we believe allows us to sustain the growth rates we talked to. But obviously, we will keep working incredibly hard to improve things as we go forward.

Palmer Brown: From an inflation perspective, probably the first thing to just remind everyone is that the blended CPI that you often see is not necessarily reflective of our cost inputs. So we’re more closely aligned to food away from home or employee or hospitality labor indices, things of that nature, which are typically running higher than CPI.

With that said, last year, we had blended inflation of around 8% or so for the full year. Currently, it’s sitting around 7%. Food is moderating a bit in some different places. Labor is remaining persistently high. As the year progresses, we could foresee further moderation on the food side certainly in certain pockets.

I think the labor is one that’s still a bit more of an unknown. And keep in mind the relative weightings we have, labor would be the higher of the 2 from a cost input from our perspective. It’s certainly one we’re keeping an eye on. I think Dom referenced earlier that we feel like, from a pricing and inflation perspective, we’re about at equilibrium at this point. And the opportunity to potentially capitalize as the year goes on is certainly one that we’re having lots of conversations with a bit -- with respect to the business and fully expect to do that if that does, in fact, materialize.

Operator: The next question comes from Harry Martin from Bernstein.

Harry Martin: The first question I had is just on the guidance, the scope impact where in the presentation, I think you said that comes through an average margin. I guess that’s potentially a little bit surprising given the disposals likely would be in lower-margin countries. And then also, I just wanted to clarify, that guidance includes the Hofmann’s impact for next year, which from the numbers I’ve seen reported has a margin above Compass’ average level as well. So I wonder if you could just give any more color on that part of the guidance.

And then just to check some math on the buyback level. You end the year with $4.5 billion of net debt. I make around $1.3 billion [ph] committed spend from the buyback, the payment of the final dividend and the Hofmann deal. But even if the free cash flow is only flat year-on-year next year, you still get to around the low end of the leverage target given the EBITDA growth. So is that the right interpretation, the $500 million is set to get to the bottom end and then there’s scope to do quite a bit more in terms of M&A or cash returns within the 1 to 1.5x through the year? I just wanted to check if that is right philosophically.

Palmer Brown: In terms of the margin impact from the net M&A, there are a number of countries within the disposal group that would have had higher-than-average margins. If you think of Argentina, which was quite flatter in the P&L, Angola with the DOR aspect of that, but a lot of that is -- we just did not view that to be long-term growth potential within our core focus. So we felt like it was the right thing to do for the business to really focus on those core growth opportunities that are there. Hofmann has the potential to be margin accretive over time. I think we’ve just got to see the way all the synergies fully integrate in over time.

So the 13% that you’re seeing is reflective of everything that we see as of today. So the role of the base business, the new business coming onboard and the net M&A that’s there. From a buyback perspective, probably just to go back to what we said earlier with the M&A being the largest variable that’s there, we’ve had -- while we had average -- while we had spent last year of around £300 million, average over the last couple of years have been £300 million to £400 million or so, we’re looking at single opportunities within the pipeline that would be of that quantum in and of themselves. So we do think this year could be a more lumpy year from an M&A perspective. And it’s one we’re excited about, but that’s why we’re keeping a bit of flexibility within our buyback and our overall framework.

Operator: The next question comes from Jarrod Castle from UBS.

Jarrod Castle: And Gary, wish you well after great service to Compass and your clients. And I’ll kick off with that and especially because we’ve got Palmer on the line. I guess just in terms of the U.S. strategy, Palmer, any thinking in terms of if anything needs to be changed from -- I guess, you were in the inside and now on the outside looking in, but it doesn’t seem many things broken.

So is it just business as usual? Would be keen to get maybe some initial thoughts on how you see that business. We’ve heard from a little bit of kind of consumer companies some impact from weight-loss drugs. I imagine it’s not much of an impact for your business, but be keen to just get some thoughts if that’s having any impact in any of your contracts at the moment. And then just lastly, I mean free cash flow conversion, under 60%. Do you think, over time, this will go up maybe as sales growth slows somewhat? Just some color on free cash flow conversion would be useful.

Dominic Blakemore: Thank you, Jarrod, for those questions and your recognition of Gary in particular. Look, let me take the CPG question and then I’ll hand over to Palmer for one in his old role and one in his new role. Look, just on the weight-loss drugs, I think what we’re seeing is ever more interest and excitement around wellness and nutrition. And we think that’s a really important trend for us. We’re probably the biggest employer of nutritionists on the planet as well as the biggest employer of chefs.

So if we can’t help our clients and consumers with the meal choices, the menu choices and, in some instances, even diet design, then I’m not sure anyone else can. So I think that trend is positive for us. When it comes to actual products, of course, we work with FMCG to look at how the snacking category and the beverage category is changing to ensure we’ve got the beverages which are on trend. And we aren’t seeing any impact at the moment from any of the well-documented new drugs. Before I hand over to Palmer, just on the U.S.

strategy, the point that I would make is the one thing we’re very pleased about is the continuity of leadership that we’re achieving within the North American business. We were very aware that we’ve had very long tenure of some established leaders of the different sectors within the North American business, whether it’s within B&I or others. And we’re really pleased that all of our appointments have been happening from within with an established group of the next set of leaders who’ve got significant tenure within the Compass business, so know the way we do things, know our processes. So we’re really pleased with the continuity strategy. You’ve seen that today both in Palmer’s appointment and Petros’ appointment.

But I think that gives us a good platform to continue success. When it comes to early observations in his new role, I’ll hand over to Palmer.

Palmer Brown: Jarrod, if I knew it was going to be fair game for me to be asked about the new role, I should have turned over a lot of the CFO role kind of questions to Petros along the way. But no, from a North America perspective, I mean, firstly, it is difficult to imagine Compass North America without Gary. Gary came over in 1994 when Compass first arrived there and is -- and really been at the heart of building a great business.

I think Gary would be the first to tell you that the business is full of really exceptional people doing a lot of really good things. A lot of best practices that we’ve developed internally are now being utilized globally, and this is what you’re seeing in some of the step change outside of North America. We feel good about the talent that is there in North America. In terms of opportunities that are there, I think we’ve got just a massive ongoing market opportunity. Roughly 80% of the market is still available to us that’s there.

Roughly 50% of the health care and education markets still remain self-operated with some really some great opportunities within those. Our focus will remain continuing to try to go after those. I actually think from a MAP 2 perspective, a consumer perspective, we’ve got opportunity to continue to improve there. I think we’ve largely been a MAP 1-focused organization over time, don’t want to lose that at all. But what can we do to supplement that with a bit more from MAP 2, I think there’s a potential there.

I think there’s some ongoing opportunity from a systems perspective, just really buckling down on the systems processes when we look ahead at things like AI and what can we do to incorporate those into the business to drive efficiency and really help to continue the growth at scale that we’ve been able to deliver in North America. So really a lot of ongoing opportunity and great people to deliver it. And then your last question from a free cash flow conversion perspective, really don’t necessarily see a whole lot of layup to the upside or risk to the downside. We think it’s pretty solid where that is. Certainly, we’ll constantly try to do better.

And I’m looking at Petros as I’m saying this right now, and I’m sure he’ll find a way.

Operator: [Operator Instructions] Our next question comes from Andre Juillard from Deutsche Bank.

Andre Juillard: Congratulations for the strong results. First question, I wanted to come back on inflation. You were mentioning more or less 7% expected inflation.

Could you give us some more color about the split between food cost and labor cost? And regarding labor, could you also give us some more color about your capability or difficulties to hire people and what we could deduct on the wages evolution? Second question, about profitability. You’ve been mentioning that you were still targeting more or less to be back to the level you were before the COVID crisis in terms of profitability. So if you could give us a kind of timing for that or an idea of how long it will take to be back to that level.

Dominic Blakemore: Andre, if I just take labor capabilities and then hand over to Palmer. Look, I think we finished 2023 with over 600,000 employees globally.

I think what that tells you is we’ve weathered the sort of post-COVID storm as it were on recruitment levels. We’re also seeing a significant fall in the amount of agency or temporary labor that we had to use as we reopened sites. That means that we’ll start to train people in our core processes and get the benefits of consistency and continuity over time. We’ve seen that already in our attrition and turnover rates falling by region. Over the last several months, we started to see that fall on an LTM basis for the first time.

But as we go forward, and particularly given the types of growth ambitions that we’ve described today, we really need to focus on how we recruit, retain and also how we use technology to support us in efficiencies within the kitchen using AI in the back office to drive ever more efficiency for the benefit of our clients. This is always about how we become the employer of choice in our industry. And I think we showed you in the presentation today how we can do that at scale by providing sort of best-in-class training at every level of the organization continuously to really lock in and retain as much of our talent as we possibly can. We think that talent and talent retention is the key enabler of the growth ambitions that we’ve got as we go forward. With regard to profitability and return to pre-COVID margin, it’s absolutely clear to us that there’s no cap on the margin in this business.

We will get back to the pre-COVID levels. As we’ve shown you today, there’s a relationship between our sources of growth and margin progression. What we’re confident about is that we will see margin progression yearly and that our profit will grow above our revenue growth even at those higher levels of high single digit. We’ve seen a lot of operational leverage contribute. Unit margins haven’t yet been restored.

And we believe that over time, that’s where the opportunity lies. That will very much depend on the growth in inflation trends that we’ve talked to today. So look, I think it’s a positive outlook on margin. We mentioned about the pace of progress, and it depends very much on growth. But look, there’s no limit.

We’ll get back and we’ll continue to grow the margin of the business.

Palmer Brown: From an inflation perspective, we said earlier that our current inflation, we’re seeing about a 7% blended inflation rate currently. Food inflation would be a hair lower than that, 6% or so. We do see some regional differences there. It would be higher in Europe, Continental Europe and the U.K.

and a bit lower in the U.S. that’s there. And we’re seeing moderation and potential for further moderation in each of those regions. Wage would be fairly consistent regionally, and it would be a little bit higher than the food. So 7% to 8% or so on the wage front and pretty consistent across the different regions.

Operator: And as there are no further questions at this time, I would like to hand the call back over to Dominic for any additional or closing remarks. Over to you, sir.

Dominic Blakemore: Thank you. Thank you all very much for your questions today. Before we finish, I just want to leave you with a few thoughts.

We believe the business is in great shape with, as we’ve discussed today, really exciting growth potential for the foreseeable future. We talked about entering a new phase of more focused growth, and that really does mean that we want to be narrower and deeper, more focused on the core countries and the core sectors. And very much our portfolio review and our M&A is absolutely about achieving that. Our scale and strong cash generation continue to fuel the investment in our operating model in CapEx, as we’ve discussed, and M&A where we see really attractive opportunities over the coming years. And going forward, as we talked, we expect to maintain the mid- to high-single-digit organic revenue growth and ongoing margin progression year-over-year, which will give us profit growth ahead of revenue growth and increased cash generation with long-term compounding returns.

I just want to say a quick thank you to Palmer on his last results call, at least for now. Well done, Palmer. Thank you. And we look forward to speaking to you again in February.