Compass Group PLC

LSE:CPG

Earnings Call Transcript 2021-Q4

[Operator]

Hello, and welcome to Compass Group Full Year Results Conference Call. Hosting today's call will be Dominic Blakemore, Group Chief Executive Officer. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Dominic Blakemore, to begin today's conference. Thank you.

[Dominic Blakemore, Group CEO & Director]

Thank you. Good morning, and thank you for dialing in. You've seen today's results and heard our presentation. We're really, really pleased with what was achieved in 2021 and just as excited by the prospects for '22. In particular, reinstating the dividend was a key staging post in our confidence in recovery. So what I think is most important is that in my 10 years in the business, I've never seen more opportunity and we've never been stronger or better placed in such an exciting market. What do I mean by that? The pipeline is exceptional. We reported record wins in all regions. We're converting more first-time outsourcing than ever. We're seeing very strong recoveries and positive momentum in our sectors. We've got the digital and climate offers to win. We've the balance sheet to exploit all of these opportunities, and we're the partner of choice for businesses wishing to sell or scale. That all points us to fully restoring our pre-COVID size and shape and growing faster than ever before. As we know, there are short-term challenges. But we have the experience, scale and means to deal with them. And when I step back to take a longer-term view, these are tailwinds that will ultimately create more growth opportunity. I truly believe the actions we've taken over the past 18 months has set us up for a period of strong performance in the years ahead. I'm joined by Palmer Brown, our new and permanent CFO this morning. And now let's open the call to questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Bilal Aziz from UBS.

[Bilal Aziz, Associate Director and Equity Research Analyst]

Two from my side, please. Firstly, just on the rate of new business wins, and you've clearly grown that by 15% this year. Perhaps, what do you think a sustainable win rate is going forward now? One of your competitors were suggesting some normalization of that first-time outsourcing trend, but Dominic, you said that you were perhaps a bit more optimistic on the presentation. And then number two, just on the revenue guidance, I appreciate the uncertainty. The low end still implies a small sequential improvement. Perhaps, can you flesh out your expectation by vertical? And any comments what you may have seen in October, November to get an idea of the pace of the improvement going forward?

[Dominic Blakemore, Group CEO & Director]

Yes. Thanks, Bilal. Why don't -- I'll take the second question first and then ask Palmer to speak to the rate of the new business wins. So in terms of that revenue guidance of 20% to 25%, that broadly means achieving 90% to 95% of 2019 revenues on a full year basis with an expectation of exiting actual around 100% level by the fourth quarter. In terms of what we've seen by sector, let me start with the stronger sectors first. And perhaps it's probably worth just illustrating what we're seeing in terms of volume trend, but also in terms of what we're seeing in first-time outsourcing trend, and that might go some way to answering your first question, too. So if we start with the more slightly busy sectors, our Healthcare sector has performed consistently above 2019 levels. I think it's worth pointing out a couple of things, though. Let's remember the -- our retail business, which is around 10% of that portfolio, is still some way from recovery. So we would expect to see that come back in due course. Separately, it's very clear that there are waiting lists for clinical treatments all around the world. And as we talked about -- that sector today, we do expect longer hours, additional days and potentially more shifts. And therefore, over time, and particularly once we -- the tricky next few months, we would expect to see higher volumes in that sector. And then finally, we've continued to win new business strongly and particularly in the Senior Living space. So we -- in the beginning of the new financial year, we've seen the biggest single first-time outsourcing within the Senior Living space. And often when we see these things happen, like we did with Ascension and Texas A&M with respect to -- in the Healthcare and Education spaces, they tend to put more pressure on the opening up of first-time outsourcing. So we're really, really pleased with that. If we move next to Defence, Offshore & Remote, again, consistently performed above 2019 levels. Again, we've continued to take share in that sector through the pandemic. I think looking forward, a couple of points, again, the retail levels on sites are not back where they were. We would expect those to continue to recover. Secondly, we do expect there to be significant demand for oil, gas and commodities as we witness global economic recovery. And so we are expecting to see higher volumes within that sector, again, over time. And then lastly, there continues to be opportunities for new contract wins. And as we see the emergence of hydro, wind farms and so forth, there's new subsectors and opportunity opening up within that market. Thinking now about the sort of 3 sectors that were a little bit more impacted. Let's start with education. We've seen a very strong recovery in education. Again, that may slow a little as we go through the next few months in the Northern Hemisphere winter. But broadly, we've seen a strong return. I think we've got less concerns today about virtual learning, particularly within the higher ed space. It's very clear that both academics and students are keen on the Compass experience. And in particular, we've seen where students have returned, they are spending more, participating more and more social than ever. So I think those are all positives in that sector. And of course, again, learnings of the pandemic have been around the provision of food and related space and nutritional quality. And so lots of opportunity, we believe, for investment from government there. And in the higher ed space, of course, we see institutions that are looking to sort of work the assets more, and therefore we expect roles to be strong. In Sports & Leisure, you've seen a very strong fourth quarter recovery, up to 90-odd percent to 2019. But at the moment, you've got to remember, not everywhere is yet open. Conference centers aren't open. We're not yet seeing artists -- international artists touring globally. And therefore, there are lesser events still at the moment. So we do expect all of those to recover. Again, as events go indoors, it makes slower touch over the coming months, but we expect it to be strong beyond the sort of spring and summer of next year. And what we're also witnessing in that sector is strong per capita spend. So whilst participation is probably 10% down, we're seeing anywhere between 20% and 30% higher levels of spend, which is more than compensating. And then finally, in B&I, I think you have to remember, we need to split that sector into manufacturing and offices. In the manufacturing part of our business, which is half of that 40% of our portfolio, we have continued to see people going into the workplace for obvious reasons. And because of the kind of quite strict COVID protocols that operates, we have seen people participating strongly and the need for our services is as great as ever. Slightly different picture in the office space, and we've talked about that today. A slower return, particularly in large urban areas. Probably around 50% on the average around our world, lower in some countries, higher in others. We're obviously in a different pattern of days, which we've talked about. But again, we're seeing individual spend longer in the office, higher participation, higher spend rates, clients willing to offer free food programs as an attraction to the return to office and working with us on providing sort of compelling offers to bring them back in. So I think we do believe that once we get beyond again, this spring, we would expect to see a degree more normalization in that sector, maybe a bit trickier through the winter months because I think we'll all be cautious, won't we? But as I talked to a few CEOs and our clients, clearly, the mood has moved from -- we can work virtually to we want to work on a hybrid basis to we're now concerned about our culture, our productivity, the training of our colleagues and all around well-being. And there's definitely a sort of keenness to get back to more presence than there is today. So I'm optimistic about what that could look like once we get through these winter months. And -- to say as well, both within Sports & Leisure and B&I, whilst highly outsourced sectors, we are still seeing first-time opportunities because of all these pressures we've described. So I think momentum is positive. You've seen today I've talked about 20% of our 2019 volume sort of still potentially to come back as well as that net new business opportunity, which is what gives us the optimism. And over to Palmer for the net new win rates.

[Palmer Brown, CFO & Director]

I think this part of the question really hits to one of the themes and one of the things we're most excited about in the business now and then looking ahead. Dominic talked about the opportunity for the recovery in the base business. But one of the other things that's quite exciting when it comes to the growth trajectory is the new business opportunity. When you look at the GBP 1 billion of net new business that we mobilized in the year, that's on an annualized basis, the GBP 2.1 billion of new business wins, the record retention rate that we established, that all has us feeling quite excited. But I think when you drill down a bit, I think it really speaks to the ongoing opportunity. 50% of those new business wins came from first-time outsourcing. We think that the market dynamics are ripe for that to continue. So when you think about the macroeconomic challenges, the things that make things quite difficult for our operators on a daily basis, things like supply chain disruption, labor shortages, inflation, those are things that can be a catalyst for outsourcing. And even if you look at those items and you think they may be temporary, there are other challenging complexities that are coming online that are catalysts as well. So when you look at increased regulation, changing consumer sentiment, heightened expectations when it comes to digital and technology, those are the kind of things that really play to our favor and have us feeling quite comfortable about how we feel about things going forward. I think when you look at it, the pipeline is quite strong at the moment. We have strongest pipelines ever in North America, the U.K. and Europe. North America pipeline is about GBP 5 billion in total and about GBP 3 billion on a weighted basis. That's with the probability greater than 50%. Europe is about GBP 3 billion total and GBP 700 million on a weighted basis. We've had a great start to the year. We've won 2 contracts in excess of GBP 100 million a piece that have yet to be reported. So I think when you look at the last year, the new business wins and the momentum in this year, combined with the opportunity in the marketplace, it has us feeling quite good about what lies ahead. Exactly where that lands in terms of a normalized number, I think it's a bit too early to tell. But I think it's quite reasonable to expect it will be north of where we've been historically.

[Operator]

Our next question comes from the line of Jamie Rollo from Morgan Stanley.

[Jamie David William Rollo, Managing Director]

Three, please. I think this part, you may have just answered. On the GBP 2.1 billion of new business wins, I'm probably reading too much into it, but versus the H1, GBP 1.1 billion annualized, which was 20% higher. And I think on the May call, you're talking about maybe 200 basis points of faster net gains, and it's 100 now. Is there a slowdown in the pace of signings in H2? It doesn't sound like if your comments just then, but keen for any sort of commentary there. And also, I think you're still seeing sort of discipline amongst your main competitors on the tendering process. Secondly, it would be great if you could please give us a sort of steer on the cadence of margins in the year. How much stronger will H2 be than H1? And how much of the slowdown in H1 is cost inflation versus mobilization of these [indiscernible] into those sort of buckets? And then finally, on cash returns, anything to stop you instigating a share buyback this year?

[Dominic Blakemore, Group CEO & Director]

I think I'm going to hand all 3 of those over to Palmer.

[Palmer Brown, CFO & Director]

Sure. Jamie, on your first one, I think you are probably reading a little too much into it. I think when you look at the sales aspect, it can be lumpy at times. I just referred to a couple of new deals. Had they closed in [ P12 ] as opposed to the beginning of the year, you wouldn't ask the question at all. So I think it doesn't speak to any overall trend you're seeing in the marketplace. In terms of cadence of margins in the year, we talked a little bit about the sort of the challenges that are happening on an operational basis. When you look at things like the supply chain disruption, the labor shortage inflation, those are things that we're not sure how long they're going to be around, and they might be around for a while. And I think we've got to be prepared to deal with it for a while. I think the good thing is we've got the business model and the track record to do just that. But I think there are a couple of things that will have an impact on the margin, specifically. One is the heightened mobilizations that are occurring. The reopening of the base business coupled with the mobilization of the new business wins. As you know, the margin trajectory of contracts increases over the life cycle of the contracts that come online at dilutive margins. We absorbed the mobilization costs as they occur. So that's having a weighting because that has not yet normalized yet with the heightened activity that's happening. The other thing is there is simply the lag of pricing. So we've got the business model to deal with inflation. We've shown the ability to digest it whether it's on the mitigation side of things or pricing. But pricing has a lag. We saw a pickup in pricing in the second half of last year. And we're going through lots of pricing activity at the moment and something that will continue. I think that the combination of the 2 really points to heightened margin in the second half. We expect the first quarter, most likely the first half, to be flattish with our exit rate of Q4. And we will expect that to accelerate to around 7% by the end of the year and then progressing onward toward our historical levels thereafter. With respect to returns to shareholders, you'll recognize the capital allocation framework from before. I think over the last 10 years, pre-COVID, we returned a little over GBP 8 billion to shareholders. We fully anticipate that commencing again. And we think the reinstatement of the ordinary dividend is the first step of that.

[Dominic Blakemore, Group CEO & Director]

And Jamie, if I might just add to a point of detail. You talked about sort of a point of higher net new. I think it's slightly above that just on the annualized benefit of the net new we mobilized last year. So with the record new business AROs as well, I think that range is probably 1 to 2 points.

[Operator]

Our next question comes from the line of James Ainley from Citi.

[James Robert Garforth Ainley, Director & European Hotels and Leisure Analyst]

Yes. Some sort of related questions on the margin outlook, please. When you blend together the sort of labor and food cost inflation that you're seeing, what does that imply in terms of an overall kind of cost -- the cost increase you need to offset? And as we then sort of rolled, I know you're guiding on absolute level of EBIT margin. But how should we think about the sort of drop-through on the revenue rebuild as it continues to ramp up? And I guess the final piece is on sort of labor cost inflation. One of your competitors mentioned they saw some easing in labor cost pressures in North America in recent weeks. Is that something you've seen too?

[Dominic Blakemore, Group CEO & Director]

Thank you, James. I think I'll again, hand those questions over to Palmer. Just one comment to make. Of course, in the guidance we've given today, we have reflected our view of both cost inflation, our pricing and obviously, the drop-through on that volume recovery. So all of those factors have been taken into account. But a little bit more color from Palmer.

[Palmer Brown, CFO & Director]

Yes. I think your first one and your third one are very similar when it comes to margin and the inflation pressures. We're currently seeing labor inflation around 5%, food inflation around 4%. We -- that's what we're experiencing. We think the external market is about 1 point to 1.5 points higher than that. I mean, usually, we're a bit better in terms of mitigating on the food side of things, but the supply chain disruption is playing a role in that. So for instance, our substitution levels in terms of products are running around 10% at the moment. Historically, they've never been [ above ] 2%. So that certainly has an impact to our savings and what we're able to do on the mitigation front. Are we seeing a bit of easing on the labor inflation side of things? Perhaps. I think it's a bit early. We've still got a lot of open positions in North America. I mean we've hired about 240,000 employees globally since the trough of the pandemic, 140,000 in North America. We've got about 35,000 open positions at the moment, and we're doing all kinds of things to try to fill those positions. So I think it's probably a bit early to tell. We certainly think it will subside over time. But exactly what time period remains to be seen. And just in terms of the margin progression and the drop-through, that really depends on the shape of the recovery. The base business coming back online will certainly have a higher drop-through than the new business mobilizing. So I think we -- you've heard us talk about the significant opportunities we see on both fronts, and that will continue not only for this year but a bit beyond this year as well. And so it's going to really depend on that mix. Regardless, as those volumes return, you will see the margin progression. That's one of the other reasons why we think the margin progress will be second-half weighted.

[Operator]

Our next question comes from the line of Vicki Stern from Barclays.

[Victoria Jane Lee Stern, MD & Equity Analyst]

Just firstly, thinking about the incremental returns on the new business. I think you mentioned on the prerecorded call that you're expecting a roughly similar level of CapEx despite this higher growth rate. Can you help us understand that and sort of why is it? It's because it's more coming from first-time outsourcing or it's about specific regions or segments that that's falling in? And secondly, you also mentioned there's higher participation rates in B&I coming from a few factors. Just sort of how sustainable do you think that is? Is some of it really about companies that have really trying to get people back into the office with a bit of an incentive that, that could fade in the future? And just generally where that all leaves you versus sort of 3% to 4% potential structural headwind you'd called out for B&I or for the group from B&I in the future? And then just finally on Europe, really encouraging to see such a good portion of the ones are coming from Europe. Obviously, historically, that's a slightly more challenging region for you. Just if you can remind us, what are the reasons why that's been more of a challenge for you? And I suppose, do you think you're sort of turning the corner in Europe now?

[Dominic Blakemore, Group CEO & Director]

Yes. Thank you, Vicki. Maybe I'll have a go at the first one and then -- and the second and then ask Palmer to give a fresh perspective, I guess, on Europe, which I think would be helpful. So first of all, in terms of returns on new business, yes, we've said today that -- our CapEx and our [ sales ] ratio is broadly the same as it's been. And of course, in absolute numbers, that's lower off of our suppressed top line and for higher new business. So it's quite positive. We expect some of the CapEx to come into this financial year as we open that record new business. I think broadly, the mix in being more first time has a slightly lower CapEx requirements and is more about driving efficiency and quality in the early years of a first-generation contract. So I think that opportunity in first-time outsourcing is particularly positive for us. And perhaps also the weighting would be towards the Healthcare & Senior Living space as well is helpful. I think it's probably worth pointing out finally that one of the interesting opportunities around how we invest in our clients is to do that through the life of a contract, through digital-type deployment, through the unattended micro markets, which will become an investment that can get returns on through the life of a contract that is attractive to our clients and is a different way rather than deploying the CapEx upfront. So I think at the moment, we'll stick around that 3.5% level, even with the higher growth levels. And I think what's really important is that the mood you've heard from us today is it's an exciting market. We should always buy us for growth. We believe we can generate the returns on it. It would be exciting to see how sustainable levels of growth, and our ability to fund CapEx and use CapEx is one of those tools. On the B&I recovery, yes, look, I think inevitably, there will be some short-term issues that are taken. And maybe some of that will be free food programs. But what we're also hearing is a number of our clients are keen to sustain those programs over time, particularly from a well-being standpoint. So I think there is a change going on there. Again, perhaps higher participation and higher spend will be there for a while, but it certainly help compensate until the volumes come back as I expect them to do from the clients that we are talking to. And net-net, I think there's a broad change in behavior, which will be positive for us within the sector. What does that mean vis-a-vis the 3% to 4%? I mean I think we stand by that now. I think we've set a little bit less risk on the higher ed side. Maybe a fraction more here on B&I, but I think only time will tell. But I don't think its significantly different. And I think we think there's loads of opportunity, particularly when we talk about digital and sustainability and our ability to bring offers to clients that can't do themselves and others are struggling to build the differentiation around. Palmer, do you want...

[Palmer Brown, CFO & Director]

Yes. When it comes to Europe, I think it's one of the things we're quite excited about the sort of the positive movement that we've seen in the -- I think the momentum going into this year and what we think can carry forward. I think the biggest thing I've probably seen in Europe is an expansion of the growth mentality. I think that's something that's existed in parts of our business globally, most notably in North America, but it's not been consistent overall. And it's one of the opportunities we see in the rest of the business. And I think you're starting to see that take shape in Europe. And what I'm really talking about there is a growth mentality throughout the entirety of the organization. It's not just the sales team working in isolation to try to win new business. It's sales ops, it's all the departments, it's everyone working together in tandem with that growth mentality. I think once that exists, you really start to see the momentum going forward. You're starting to see that take shape in Europe. We're starting to have a bit different mentality when it comes to the type of people that we want in certain roles, the types of training that we want to utilize. You're starting to see that take root in some of the results already. You've seen where we've had net new business in Europe is 2.5x what it was in fiscal '19. You've heard me talk the impressive pipeline that exists right now. There's every reason to think that, that can continue going forward. So we're quite positive on Europe.

[Operator]

Our next question comes from Richard Clarke from Bernstein.

[Richard J. Clarke, Research Analyst]

First one -- 3 if I may. But first one, I guess, throughout this pandemic, you've normally been given quite specific guidance into the next quarter, which you haven't given this time. I'm just wondering if there's any specific commentary you gave on Q1. Could margins be down from Q4? Or can you think you keep them around at sort of high 5s level? Second question, it looks like you're a little bit more positive on support services. Obviously, you've always done those in DOR and Healthcare. But it seems like you're getting a little bit more excited about Education. So maybe you can just talk about that opportunity. You're seeing some higher-margin opportunities to do support services in Education. What do those look like? And then I think, Palmer, you said that you've won 2 contracts in 2022 -- FY '22 already that are over $100 million in revenue. If I look at your Slide 27, it looks like you won no contracts in 2021 that are that kind of size. So can you maybe talk to, are you beginning to see some bigger contracts either way? Or am I kind of misreading that slide or your commentary? Are these new wins getting bigger?

[Dominic Blakemore, Group CEO & Director]

I'll ask Palmer to answer questions 1 and 3, and then I'll come back on support services.

[Palmer Brown, CFO & Director]

Yes. I think, Richard, on the margin profile, we are trying to get away from the quarterly margin progression. I think it was appropriate over the pandemic. But I think at this point, where we are in a business, I think we can look more towards a traditional view. And that's what you're seeing. You've heard me say earlier here on the call that we would expect Q1 and probably the first half to be flattish with the exit rate of Q4. Don't necessarily think that will be lower, but we wouldn't expect much margin progression in that first half and much more second-half weighted. In terms of the new business wins, those 2 contracts over GBP 100 million, not dollars, to start with. But you are right when it says that it is bigger than anything we won last year. I would not read too much into that. Again, it's lumpy. Sales can be lumpy. And I think the biggest thing is to look at the longer-term trends over time and the sort of the underlying growth profile, the strength of the pipeline, things of that. I think that's probably the better indicators.

[Dominic Blakemore, Group CEO & Director]

And Richard, on the support services. I think we've always said where we've got a point of differentiation and where it's embedded in our model, then we are very minded towards support services. In the presentation today, I've talked about high single-digit growth throughout the pandemic at accretive margins. And the support service business has been good for us through the pandemic, with particularly favor in Healthcare and DOR. Healthcare, we've always talked about the pricing power and the importance of hygiene in that environment, and that doesn't change. In DOR, it's always been about the challenge is actually mobilizing labor into these locations and that's a point of differentiation for us. I think what's happening in Education is we're now seeing the importance of hygiene services within that space. We've got a terrific business in the U.S. We acquired [ eat to go ], which has grown very, very attractively throughout that period of time. So we may be minded to the game where we believe it's critical and integral to the model, and we have a great opportunity to cross-sell. At the moment, we wouldn't see that in the other sectors, right? So we're very focused on targeting on where we think we have that point of differentiation. And if it can be growth-accretive, then at the right margins than we should absolutely pursue it.

[Operator]

And the next question comes from the line of Kean Marden from Jefferies.

[Kean Marden, Head of Business Services Equity Research]

I've got 3, if I can. Just first of all, starting with some of the big pipeline statistics that you provided earlier on, Palmer. So would that suggest if we compare the sort of TCV versus sort of weighted and the unweighted numbers, a win rate in the U.K. of about 25% to 30% assumed, but U.S. about 60%. And then I guess, within that, is therefore the U.S. one distorted by some of the recent wins, I think you referenced, that may not move down the bid pipeline in the order book yet? But again, more generally, is your win rate higher in the States? And have you seen the competitive field narrow a little bit and therefore, your win rate percentage may be drifting up? And then a couple of quick ones. Just secondly, have you treated the bad debt provisions this year? So we cover a lot of other companies. You increased provisions a lot in the last fiscal year. Have any of them made their way back to the P&L in the final quarter this year? And then thirdly, I can see that you've put some initiatives in place in the U.K., sort of big data collection and interrogation. I guess we think more broadly about that. How does that play out? And what sort of economic benefits do that deliver over the next year or 2? And if there's any sort of particular territory that happens to be particularly sort of best-in-class or front of the line with those initiatives? Which one should we be following?

[Dominic Blakemore, Group CEO & Director]

Yes. Thanks, Kean. I'll take the last one and then hand the others to you, Palmer. Just with regard to data, we talked about before our E15 business in the U.S., which was established to effectively data mine on client accounts and particularly within the Sports & Leisure sector to create the opportunity to drive dynamic pricing, promotions and therefore, really focus on what we can do as a partner to our clients on per capita spend. The benefit is weighted to them. We benefit, too. It becomes a unique point of opportunity. We're looking to do that in other parts of our world where we have the right clients and opportunities. And the U.K. is one where we're focusing on that, along with significant investment in the digital opportunity. And then on the first 2, over to Palmer.

[Palmer Brown, CFO & Director]

Yes. I think the win rate question, I think the best way to look at the win rate is, historically, we have been a good bit better in North America than we have elsewhere. But one of the things we're seeing is that improving in both the U.K., Europe and in rest of world. So I think it's a good bit of self-help that's happening. A lot of the good training that's taking place, hiring the right people, a bit more of the growth mentality is there. So we are seeing some improvements in that win rate. I'll say that on the flip side, I don't want to see a win rate is way too high because that implies that maybe we're not going after enough. So I do think that there's a right balance to play this there. But certainly, you're seeing improvements in the sort of the overall mentality and the quality of what we're doing in the U.K. and Europe. And I think your question on the bad debt provision, Kean, is really getting to an overall quality of profits piece. The bad debt provision, yes, we did establish some provisions at the beginning of the pandemic, which we thought were appropriate for the time. We have not seen sort of that downside really take place on the client side. So that did have some movements over this past year. But there were some things on the other side as well. So when you look at an overall quality of profits perspective, it's almost an exact wash for the entire year. So I do think you can look at our underlying operating margin is really reflective of the trading of the business.

[Operator]

Our next question comes from Stuart Gordon from Berenberg.

[Stuart John Gordon]

Yes. A couple of things that are kind of linked. I think you've spoken historically about the flight to quality, particularly from smaller players. Is that still happening? And could you go into a bit of detail on the sort of mix of the gross wins that you saw this year? And off the back of that, I think because of the flight to quality, you also saw quite a lot of M&A opportunities. Now there is nothing significant during 2021. How is the landscape for that looking just now?

[Dominic Blakemore, Group CEO & Director]

Yes. I'll take the first point on flight to trust and then Palmer will pick up on M&A. Yes, on the flight to trust, it absolutely is still happening. I think we probably see that more in the first-time outsourcing. It's about self-operated clients who simply struggle with the operational complexities that are facing them at the moment, whether it's hygiene, it's the variability of volume, it's the difficulty in sourcing labor. It's all of those challenges we've talked about, which we believe is the driver in that shift. If you look at our mix with first-time outsourcing going 30% to 50% on a number which has grown, our wins from our share gains from others remains broadly in line with the historic levels. And clearly, within that, I think we're still seeing some of the factors that I described. But I think this is really about unlocking that first-time outsourcing opportunity. And M&A, Palmer?

[Palmer Brown, CFO & Director]

Yes. I think with respect to M&A, it is something that we're still looking at very keenly. If you look back to the 2 years pre-COVID, we spent about GBP 1 billion on M&A in those 2 years. We certainly have the wherewithal to do a good bit of M&A and we have the inclination to do it as well. It's just a matter of finding the right deals. I mean we've looked at a number of things that we passed on. We've done some smaller deals. We are looking at a number of things at the moment. But it's something that we do see as part of our overall strategy. We will be selective and disciplined just like you've seen from us historically.

[Operator]

Our next question comes from Jaafar Mestari from BNP Paribas.

[Jaafar Mestari, Analyst]

I've got 3 questions, if that's okay. Firstly, just on the new business signing, how much of this GBP 2.1 billion that you've signed in 2021 would you say has already been opened in 2021 as part of the 7.2%, how much would be truly left to roll out? And related to that, could you give us some color on the top 10 new wins in North America, just very -- by sector. Is it broad-based? Or are you seeing some of the states starting to move? I'm thinking, for example, about self-operated university campuses. Some of those you've been going after since 2013. We know that our margins have won the first ever contract with [indiscernible] University, for example. Are they going towards outsourcing?And just lastly, you seem to be talking, if I piece together your comments about the Q4 '21 exit rates. On the revenue side, it would be at or around 100% of pre-COVID revenue. And on the margin side, it would be around 7%. Do you still think there have been structural cost improvements in the business that could allow you to deliver 7% margins with revenue below pre-COVID levels? Or is the picture now that you pretty much need 100% to get to 7%?

[Dominic Blakemore, Group CEO & Director]

Yes. Thank you, Jaafar. Just on the top 10 new business wins. Broadly, sort of 1/3 of those would have been in the Healthcare & Senior Living space. A couple within Education and a couple each in Sports & Leisure and B&I. So I think most positively, it's broad-based across all of the sectors. Healthcare is a great sector for us, and we've done particularly well there. So I think it goes to the story of we were delighted with the big wins that we've had previously. That's given us the reference sites and reference accounts to accelerate the first-time outsourcing, and I think we're seeing that again. I'll just take the Q4 volume and margin point. Look, I think broadly, we know in this business, we could get to a margin outcome faster if we thought it was necessary. We don't want to do that. We want to continue to build this business back to the best it can possibly be. As you've heard Palmer say today, whilst that 90% volume, 80% of that is like-for-like. So there's a lot of new in pricing, which comes with different margin attributes. So I think we're really pleased with the 7%. We see the ability to get back to pre-COVID margin beyond that, with significant progress again in the following year. And we've learned a lot, right? So it's all about how we deploy those additional efficiencies. Right now, we're in a period of incredible reopening and incredible mobilization, which comes with the cost. And we want to do that flawlessly to reward our clients with whom the goodwill has been absolutely outstanding throughout the pandemic. I think absolutely critical, we don't let any of our clients down through this phase. And we know that we can grow the margins up over time beyond that. So it's a balance. We would be super excited to really exploit this growth opportunity and then enjoy the margin thereafter.

[Palmer Brown, CFO & Director]

I think when it comes to the new business signings and the mobilization, roughly 40% or so was -- has been mobilized and captured in fiscal '21. So that would be mobilization and [ ITT ] within fiscal '21. The remainder would be a roll into fiscal '22 and perhaps a little beyond. I do think it's worth pointing out that even though you've seen mobilization, you may not have seen full population. So I think that is a very important factor. You're certainly seeing that play out with some of the fiscal '19, fiscal '20 new business wins. I think that's the case in fiscal '21. So that will continue to occur over time. So when you look at the base volume, that will return over a number of years. It won't be all this year. It will extend into '23, certainly. But it is something to factor into the math.

[Jaafar Mestari, Analyst]

And did you say 40%, 4-0, has been mobilized?

[Palmer Brown, CFO & Director]

That's correct. That's correct.

[Operator]

[Operator Instructions] Our next question comes from Joe Thomas from HSBC.

[Joseph Philip Thomas, Analyst]

A couple of questions, please. Firstly, you're talking about the ESG and decarbonization. I just wonder what that's practically involving in terms of product sourcing, et cetera, and what the margin implications of that might be, whether it extends the recovery further out. Also, just back to the point on transaction values being higher. It sounds as though that's being driven by some of the free food that's being given out in offices at the moment. Is there anything aside from that? I'm just wondering what sort of benefit that technology brings in the long term? And then -- sorry, finally, if I may, what is the status now with respect to contract renegotiations, things that you were -- that you previously had on sort of temporary measures? Have they all been moved off those temporary measures now?

[Dominic Blakemore, Group CEO & Director]

Thanks, Joe. Just taking the point on transaction value. I don't think we should read into it that this is about free food. I think it's about a number of factors. I think consumers are spending more. I think the fact that we are cashless creates less price sensitivity. And I think there's a mood to enjoy the moment with colleagues or friends, whether it's in the office or the Sports & Leisure sector. So I think there's a number of positives that are driving that uplift in transaction values. Just on ESG and decarbonization, I mean, we addressed this through a number of measures. Of course, we are consolidating the commitments of our suppliers who are also seeking to achieve their own net zero targets. So that's highly beneficial. A lot of what we're doing is looking at menu choices and how we nudge consumers to different choices. Some of those means less animal protein and potentially less cost as opposed to it being more costly sourcing. There may be an element of that in -- at some point as we look at regenerative agriculture in the longer term. But we also think that there's an opportunity for premiumization and where it's a really critical requirement for our clients and their colleagues. We know that a lot of colleagues want to work for companies with the right values. And this is a very visible show of values that we can help our clients with. And if in the short term before supply chains really address sort of alternative means, that means a little bit of pricing, we think that, that is something that we can work with our clients on. So look, I'm not sure it has tremendous margin implications in the short term, but we're working through it all. And just as an example, when we came to COP, we had the low-carbon menus with the carbon ratings, we're actually deploying that at 300 sites already in the U.K. So it is scaling up at some pace and it's a real point of interest for a lot of our customers.

[Palmer Brown, CFO & Director]

And with respect to the contract negotiations, don't think of this as simple conversations that took place at the beginning of COVID and then are yet to take place at another point in time, but rather about ongoing dialogue. That's the way that most of these work. It's an ongoing dialogue with the clients about the offers that they want to have about their population levels and the like. And so what you're seeing take place is that a number of these are shifting back and forth over time, but it will be a function of a number of variables. We fully expect that to continue over the course of the year. So it's not like we have any definitive time frame on when that will be complete. But these are ongoing conversations.

[Operator]

Our next question comes from Neil Tyler from Redburn.

[Neil Christopher Tyler, Research Analyst]

Two follow-up questions from me, please. Firstly, Dominic, going back to your point on free food and the offering there. Can you explain whether that represents a meaningful proportion of the B&I or revenues at the moment? And where there would be any meaningful margin implication of that proportion of growing and essentially where you're billing the customer as opposed to the consumer? That's the first question. And the other one is around M&A. And just picking up on the comments you made earlier around the pipeline. Is it the case that the pipeline of opportunities that exist, but the prices have risen, the multiples have risen or that's perhaps slowing down the level of activity there? Or is that not yet reflected in the way that you're viewing the opportunities there?

[Dominic Blakemore, Group CEO & Director]

Thanks, Neil. Just on the free food points. I mean the example I would give is within one of our B&I sectors, around 40% of our clients are offering free food programs. So that would be just to dimensionalize it sort of 15% of our U.K. business. So it is significant to that subsector. Obviously, behaviors are different in different sectors, but an interesting development in B&I. And broadly, we work with our clients to ensure that we're getting a fair margin in line with our expectations and that it's not punitively costly for them. It's really important that it's fair on both sides and it's encouraging them to take this step, which we think is a great way of us building our position on site with all of the employees. And then, Palmer, just on M&A.

[Palmer Brown, CFO & Director]

Just a little more on the free food margin impact. Those are going to mostly be cost reimbursable type of contracts that are there. Those clients would really be on the same type of contract structures already pre-COVID. So the implications on margin really aren't significant. Ultimately, it's the client making that decision on what they want to spend. I think the key for us is that we need to operate that with the P&L mentality so that we treat the clients' dollars like our dollars. With respect to M&A, we are seeing some valuations that are really consistent with what we saw pre-COVID. I think there's a bit of sort of mental expectation in a lot of owners' minds that the business ultimate value really hasn't changed, even though the current trading has. And so when we get into conversations about how to structure deals, it really comes down to the underwriting risk of the recovery and where that lies. So we're willing to take that on in certain places, certain places where we want to share that a little bit more. But we really aren't seeing any significant changes in value. I'll tell you, it's not necessarily the value that's kept us from doing the deals. It's just a matter of the right deals that really work for us.

[Operator]

Our final question comes from the line of Tim Barrett from Numis.

[Timothy William Barrett, Leisure Analyst]

I had 2 things left, please. One, we haven't really talked much about the retention rate. As you said, it's a good level. Can you talk a bit about nonretained business and any constituents that might be a bit different post COVID? And then second, I just wanted to understand the dividend policy. Is the intention to go to a 50% payout with 1/3, 2/3 split as you had before?

[Dominic Blakemore, Group CEO & Director]

So I think the answer on dividend is yes. And then on the retention rate, Tim, we really proved -- really pleased that it continues to improve. We're already at very high levels. We've continued to [ nudge ] on, and we would hope to continue to do so. We use the pandemic as an opportunity to lock up a few contracts for longer. We always sought to term out to the bigger contracts wherever we can. Hopefully, that will give us a bit of benefit as we look forward. In terms of what we've not held on, so I don't think the reasons have changed. And we're just very pleased with the improving retention rate. I'm really pleased as well that it's across all 3 regions. I think that's really important for us to recognize.

[Timothy William Barrett, Leisure Analyst]

Is there anything to call out in terms of customers going out of business or retrenching?

[Dominic Blakemore, Group CEO & Director]

No, no, I think it's been one of the positive surprises for us of how our client base has been able to withstand the pandemic. I mean, clearly, I think we typically trade in B&I with resilient blue chips and they've been strong through this. So that hasn't been a feature as it were.

[Palmer Brown, CFO & Director]

I do think an interesting anomaly there is within the retention rate, it does pick up any what we call white losses. So that would be businesses going out of the business or being acquired by other businesses. I mean we have seen a bit of that that's happening. I think the good thing is with the scale that we have in our clients, how we've been net winners when it comes to that kind of thing. It also would pick up remote site businesses that would run their life -- their natural life. So all of those white losses would be picked up in the retention rate as well.

[Operator]

Okay. And I will hand you back over to your hosts.

[Dominic Blakemore, Group CEO & Director]

So thank you. Just thank you all for joining us today, and thanks for the questions, and we'll look forward to speaking to you in February.

[Operator]

Thank you very much for joining today's call. You may now disconnect your handsets.