Veren Inc. Price & Performance (VRN)

Good morning, everyone. We've made great progress across our key metrics in the first half. Delivering another strong financial performance. Were pleased to deliver double digit growth in operating profit and earnings per share. Let's start by looking at the components of revenue growth. Mobilized net new business continues to be excellent. And in the middle of our 4% to 5% target range. Like for likes, remained strong at around 4% with pricing and volumes normalizing as expected. We continue to expect positive volume growth driven by our attractive value proposition increased use of technology and additional events. And whilst we're not immune to micro pressure, our significant value gap to the high street drives higher participation in our restaurants. Helping to mitigate any potential volatility. As you know, following our portfolio reshaping, we combined the Rest of World with Europe to form a new international region. Both North America and International delivered strong organic revenue growth and margin progression with double digit growth in operating profit. Operating profit was up by nearly 12% to over $1,600,000,000 Interest increased to around $150,000,000 mainly due to higher debt. We continue to expect our interest charge to be around $300,000,000 for the full year.

As anticipated, our effective tax rate was 25.5% This is also expected to be the rate for the full year. Earnings per share were up by nearly 11% in constant currency. Turning to cash now. CapEx was 3% of revenue and we continue to expect CapEx to be around 3.5% of revenue for the full year. Working capital outflow reflects the usual seasonality of our business and the timing of events in Sports and Leisure. We expect our working capital position to improve in the second half and be broadly flat for the full year. Our strong cash generation and balance sheet gives us the most capacity in the industry to invest in growth. In the first six months, we invested $1,700,000,000 in CapEx and M and A. During the period, we acquired Dipon in France and Forest Service in Norway. Which accounted for most of our M and A spend. Leverage ended the period at 1.5 times net debt to EBITDA as we expected. We anticipate leverage to reduce at the full year depending on the M and A activity. M and A is integral to our strategy of unlocking further growth opportunities in our core markets. Targets are normally sourced locally, having been known to us for several years.

We've already established relationships with them and they are a good cultural fit to Compass. We look for quality brands complementary capabilities and entrepreneurial management teams. They typically come with strong revenue growth synergy benefits and attractive cash flows. As you know, in recent years, we've increased our M and A focus on Europe. Recent acquisitions such as CHMCOIN in The U. K, and Hoffmann's in Germany are performing well and are delivering their investment cases or better. Our capital allocation model is consistent and well known. As a growth business, our priority is to continue to invest in the business through CapEx and M and A. After paying an ordinary dividend, we then distribute any further surplus capital to shareholders. Whilst maintaining a strong balance sheet. Our fiscal year twenty twenty five guidance is unchanged We continue to expect high single digit operating profit growth driven by organic revenue growth above 7.5% which continued margin improvement. Now back to Dominic.

Thanks, Petros. We operate in an attractive market where changing consumer trends and increasing complexities help us unlock first time opportunities. Many organizations that are facing cost pressures are looking for efficiencies, And as experience has shown, this can trigger further outsourcing. The market opportunity plus our unique competitive advantages, such as sectorization, procurement scale, operational expertise give us the best combination to continue gaining market share. Looking ahead, emerging megatrends are offering further growth opportunities in all sectors. Whether it's personalised integrated nutrition, aging populations, lifetime learning, or the global reach of major sports and events franchises. These trends are creating growth pathways for us in the future. For some time now, we've been expanding our market in North America through the organic creation of fourteen minutei subsets sectors with niche expertise. They capture parts of the market we couldn't reach before Our sectorisation is being further enhanced through strategic M and A. Which supplements or supports our existing capabilities within core markets. Recently, 've added DuPont and Force Service to our portfolio in Europe following our blueprints of buying best in class businesses with exciting growth potential. Over time, we've proven M and A creates value. By accelerating growth increasing procurement scale and removing overhead costs.

It's a key part of our business model as value compounds year after year. We have a resilient business mix with many different clients across multiple industries. Our diverse portfolio of sectors benefits from mostly captive audiences and limited exposure to discretionary spend. History has shown us that pressures in the short term often leads to more outsourcing. And higher win rates. As clients and consumers look for help, navigating cost pressures. Our value gap to the High Street continues to grow. From procurement scale operational expertise. Providing an even more attractive offer to consumers. North America has a resilient operating model. With the vast majority of procurement sourced locally, the market is well insulated from import tariffs. Our chefs have full autonomy over the menu, and work together with our procurement experts to find alternative ingredients or to price it accordingly. In healthcare and education, the majority of our clients are privately funded. And therefore mostly insulated from potential federal spending cuts. Technology and data. Are transforming the clients and consumer experience. Reducing friction and increasing personalization. There's even greater potential in our back of house processes. Advanced digital tools are optimizing performance by integrating processes, such as fully costed meals, on demand labour scheduling and real time management information.

Some of you may be familiar with the Intuit Dome, home to the LA Clippers. Facial recognition technology powers the entire fan experience. Through our partnership with the stadium, we leverage camera technology for all food and drink purchases, offering a seamless experience with no need for a device. Positive market trends and ongoing investments in growth will continue to drive strong new business wins. The annualized new signings stands at $3,600,000,000 and the pipeline is attractive with a blend of first time outsourcing and market share gain opportunity. With our focus on preempting initiatives, and the improvements in Europe, retention is trending above 96%. It's the combined strength of these factors which underpins our expectation. For net new business growth to remain within the 4% to 5% range. We've said before margin growth is incremental. And continues to rebuild back to our peak and beyond. Improvement is driven by scale, retention overhead leverage and unit performance. There's potential everywhere to leverage fixed costs and back of house tech solutions. Europe will continue to benefit from expanding scale retention gains and growth maturity. In summary, our resilient business model and favorable market dynamics give us confidence in our medium term growth algorithm.

We expect mid- to high single digit organic revenue growth, with margin progression back to our peak and beyond. Leading to profit growth ahead of revenue growth. As we continue to deliver long term compounding shareholder returns. Our strong half year results highlight the resilience of our business model. Our competitive advantages, enhanced by our world class talent, creates a powerful circle of growth and value creation. With significant growth opportunities, clear priorities and energized teams, we're excited for the future. Now over to Q and A. The operator will share instructions on how to ask questions. Please remember that you must be connected by phone to ask a question. Operator, over to you.

Thank you.

Ladies and gentlemen, this call is being recorded. And our first question today comes from Jamie Rollo from Morgan Stanley. Please go ahead. Your line is open.

Thanks. Good morning. Three questions, please.

Just digging a bit into North America, obviously, a very good second quarter organic sales growth of 7.5%. But it did slow quite sharply from the first quarter, which I think was 9.7%. And you saw a much, much smaller only I think, a 20 basis point slowdown in the international division. So why the biggest slowdown in The U. S? And are you seeing any underlying weakness or any change in behavior there? Secondly, just I guess a more technical question on the revenue line. It looks like the impact of disposals and M and A were actually a positive 70 basis points in the half and the full year guidance is still minus 100 basis points. So are you still sticking to that? Should we still expect something like negative 3% in the second half to get to that number. Then finally, just on the cash flow, the working capital sort of outflow in all three lines, which is a bit unusual. It looks like some of that could be contingent consideration on past M and A. But if you could please talk about that and your expectation for full year working capital? Thank you. Thanks, Jamie. Good morning.

I'll take the first question then let Petros take the second and third. We're not seeing any underlying weakness or any change of behavior at all North America. The second quarter was was very solid as has P7 trading been. So we're very pleased with what we're seeing there. Net new in North America is is strongly within the range of 4% to 5%. Remember, we are lapping a leap year last year and we're also we've had a few sort of weather related and other events in The U. S. In that quarter in particular. So we think the underlying is a continuation of the trends we saw in Q1 and is our expectation as we go into the second half. With regard to international, we've just seen a slight acceleration in net new in the second quarter. Which effectively we've seen a continuation of the net new trends in North So very positive in net new for international and a slightly stronger net new quarter for us as a group.

Good morning, Jamie. On the disposals, no change to what we discussed in Q1. It's a bit of a timing in there. Remember we closed all of the LatAm disposal in some other markets January. There will be a drag in the second half so consistent to what we discussed before. On cash flow, what you see in working capital you see a seasonal outflow we have You see a bit of a timing of events sports and leisure calendar change between half one and half two. We remain confident. We know this trend will reverse in the second half. And we remain on track on broadly flat working capital for the full year.

Very clear. Thank you very much.

Thank you, Jamie.

Thank you. And we're moving on to a from Simona Thurley from Bank of America. Please go ahead. Your line is open. Yes, good morning and thanks for taking my question. So first of all, something on client retention that you was at 96.2%. Can you provide a little bit more color if that was effectively stable in Q1 and Q2? And is that an scope for further improvement in the second half of the year? And then if you can give a little bit more color again going back to the international. In trends between EMEA and rest of the world? And lastly, on share buyback, in case there should be no further M and A until the year end. Is there still any scope for potentially announcing a share buyback? Thank you.

Hi, Simona. Thank you for the questions. Again, I'll take the first question and then give the second and third to Petros. Look on retention, we're really pleased. We continue to trend above above 96% as you rightly say. It's again a continuation of the trends we saw in the first quarter. We're hopeful that we can continue to do better from here. Retention in our international region is at record levels and our forward looking retention based on our retention performance in the first six months of the new financial year as it were. Is tracking above our best levels in North America as well. So we feel good about that. That gives us the confidence that we can sustain the 4% to 5% net new business run rate. Not just in the balance of this year, but into 2026. As we said in the statement today, that's the fourth year that we've been sustaining those net new contract win rates in our reported results. And not just in the forward looking indicators, which we feel it really is the underpinning of the quality of this business. Thank you, Simone, over to Petros.

On international, both EMEA and rest of the world performed strongly. Within the range of net new with good pricing and good volumes. And actually on retention, sustaining an improved level of retention to historic levels in mid-90s consistently. When it goes to the buybacks, I think you shared this talking about us prioritizing CapEx and M and A. I think the same holds true. There might be a couple of opportunities for the second half. If they mature, we'll take them. If not, we're going to rebalance between buybacks and M and A as we go forward.

Thank you. Thank you. And from Jefferies, now have Simon Le Schuyblatt with our next question. Please go ahead. Your line is open.

Yes, good morning. I have three, please.

Firstly, on The U. S. Retention, so it improved nicely in H1. Could you perhaps comment on the performance across the different sectors? I mean any particular sectors driving this uptick? And are you confident to maintain this 97% in the second half? Secondly, on volumes, it was up 1% in H1 Are you confident to still have positive volume in the second half? And lastly, any update on inflation and how does it track compared with your expectation and what does that mean for you of guidance, you have two to 3% pricing for the year?

Thank you, Simon. Yes, look on retention, the retention performance is strong across all of our sectors in The U. S. We're really pleased with that It's a nice balanced picture. We focus very, very much on you've heard us talk about SAG process, the Strategic Alliance Group, which focuses on the key or larger accounts that covers about 70% of our business. We continue to deploy our processes with discipline there. In fact, we are at record levels of preempts, which underpins those processes and gives us great confidence on our retention rates.

What we're also doing now differently in The U. S. Is we focus on the tail of other accounts and we deployed a number of new processes, which allow our operators to focus even more using effectively a satellite And we're seeing improved retention from that We've always been at industry leading levels of retention in North America. And they've led the way in the Compass business. So we're never complacent, but we'd like to think that we can continue to make marginal improvements from here through greater focus. Yes, volumes were positive in the first half 1%. We expect that positive trend to continue. Into the second half. We have talked to you previously that in like for there is a degree of normalization of the sporting calendar. A normalization of return to office. And also as Pepe I'm sure will come on to say, we are pricing slightly lower as we see in place fall. That's all within like for like, but specifically within volumes, we continue to anticipate a positive outlook for the half year. Second half year.

Good morning, Simon. On inflation very consistent to what we have and what we took in the forecast. Remember Q1 was a north free, in Q2 a big touchdown We do expect this to be within the range of 2% to 3% in the second half. Two realities there. Europe, you have a bit of a lower inflation. In The U. S, we see more volatility in if you look at the ten year treasury bonds. Net net 2% to 3% is the right range for us.

Thank you.

Thank you. And up next, we have Ivor Bilsackelli UBS. Please go ahead. Your line is open.

Thank you. Good morning, everyone. You mentioned that the uncertainty could be beneficial for first time outsourcing. Given that we have had a couple of months of uncertainty, have you actually seen any uptick in tendering? And if not from your historic experience, when might we actually expect after most of a period of time, what we expect tendering levels to increase? Secondly, mentioned vending as a potential area of growth. And my understanding is that it should be a higher margin business potentially even significantly higher margin So it would be great if you could touch on a little bit on how the growth from a top line and a margin perspective is trending in now. Both in the half and looking forward. And then maybe slightly longer term, mean, do have the ambition to grow at mid to single mid to high single digit revenue growth in the future. But given the bigger you're going to get, harder it's going to be to maintain. So given that that opportunity is still there, why not grow your new business at a higher rate? What are the obstacles for that stage? And why not go at sort of 10% rather than maybe the 8% that you're doing?

Thank you.

Thank you, Eva, for those questions. Yes, look, first of all, on the question of sort of lead time of the global the uncertainties you call it, feeding into an new. It's an art, not a science. It creates more opportunity for us to have conversations with our existing clients and gives us an opportunity for greater preempt. So that's something that we are working on at the moment. It creates the opportunity to have more conversations about there being a tipping point in the environment for clients to bring that particularly self operated business to market for the first time. But that's not going to happen in a matter of weeks or even months. That is going to be over a couple of quarters. That's certainly what we saw last time in the Global Financial crisis. It was probably about a half year before we started to see that. That pickup in the win rates. And the scale of business being brought to market. So that would be broadly our expectation again. I have to say at the moment, I don't think this level of uncertainty is is as much as of a trigger as we've previously seen. So we think it's the environment is absolutely fine.

We've got super pipelines in all of our regions. Our win rates are improving. We're very, very excited about the growth opportunity ahead of us. And yes, look, if we can use this to our advantage in those conversations and use it as a bit of an accelerant, that would be as super too. So look, we're positive on the outlook growth. With regard to your point on vending, yes, look, parts of our business portfolio of services and countries do have different margin profiles. And therefore we seek to grow where we've got the greatest opportunity. But it is part of a portfolio. And yes, you are right, vending has been a good contributor to our margin progression. As we've always said, we try and create margin wherever we can and we reinvest it for growth whilst growing profit ahead of revenue growth. And I I think that formula works really well for us and vending would be one of the contributors of that that margin that we can reinvest across the business. And think that's why you see the consistency of net new delivery in our business. Because we have that sort of tried and trusted formula of reinvestments and deploying margin where we can create it.

But it is also why we're very interested in micro markets and vending across other regions and countries. So we've got a great blueprint in North America. We've now entered The UK. We made a number of acquisitions, which have brought us both the technology and the regional and national reach so that we can provide a vending and micro market solution to our clients. We're going to continue to build that capability first in The UK and then we'll look where else we can deploy it. With that hopefully will come margin opportunity and again the ability to sustain our broader growth. And then finally look, great question on the growth opportunity. We are very confident that we can sustain this growth algorithm. Look, we can see the pipeline ahead for many years. We know the size of the market. We know the huge opportunity in first time outsourcing. We know the fantastic opportunity that we've got from taking share. And what we're super focused on at the moment is continuing to build out that total addressable market in all of our country sectors and regions so that there's always headroom for growth. We talk about that all of the time with The U. S. Business.

To answer your question, how we can grow scale as the absolute numbers get bigger, how can we sustain this this algorithm. But the point I would make is there is a balance to all of this. Right? And if we get ahead of our skis and we rush for growth, we risk mobilizing badly, we risk not having the overhead structure to support that. We'd need to invest one off to do that and we'd rather grow incrementally and sustainably. And have a consistent profile. And that's why we feel that this 4% to 5% range plus 2% to 3% on like for like and a point or so ahead of that from profit growth and margin expansion. Consistently delivered is a much more sustainable, predictable and reliable model and the one that we feel is right for us.

That's great. Thank you very much.

Thank you. Our next question now comes from Andre Juilliard from Deutsche Bank. Please go ahead. Your line is open. [indiscernible] And thank you for taking my question.

Two follow-up question, if I may. First one is about labor in The U. S. Particularly, do you see intention coming up with the actual environment in The U. S? And do you have any fear about potential inflation coming on that or potential tension to find some people?

Second question about the balance sheet.

You are guiding to remain around 1.5 times net debt on EBITDA. Could you consider to go a little bit higher on that side or not? Thank you very much. Thank you, Andre, for those questions. I'll take the first and then Petros on the balance sheet. Yes, look, you're right, but I think that's labor in The US, it it a positive for us, right? If labor is tight, if it's costly, it makes self operation harder, it makes being a smaller player harder. We believe that we can address those challenges better than anyone. I'm delighted that retention rates have improved month over month now for nearly two years across all of our regions. And that really tells me we're getting something right in terms of quality of employment conditions we offer, pay rewards benefits, the environment that we're offering to our colleagues and the opportunities they have to grow their careers for the longer term. Our labor turnover rate sits at around 30% to 35% in most parts of our business, which is extremely low relative to other hospitality businesses and particularly relative to the the QSR and high street restaurant industry. That level of retention gives us greater quality of service.

And it means we have more opportunity to work with that colleagues on how we can build their careers for the longer term. So look, we've often said a bit of inflation is good for for us. A bit of tension in the labor pool is good for us because it's how we can differentiate and prove to our clients and to our colleagues that we're the best partner for each of them.

On balance sheet, think you have seen the first half, we have been 1.5. We expect this to reduce in the second half as we go subject to M and A. Our range is appropriate. It gives you the capacity continue to invest in the business. I think the 1,000,000,000 to 1.5 is the right range. Okay. Thank you.

Thank you. And we're now moving on to a question from Jaafar Mestari. From BNP Paribas. Please go ahead. Your line is open.

Hi, good morning. I have three questions. That's all right. Firstly, on the full year guidance.

At least 7.5% for the full year. After which you delivered in this H1.

It means at least 6.5% in the second half. And I appreciate this is a floor Can you talk maybe about some of the ranges in your assumptions that could make 6.5% the right number. You need be at the very, very low end of your net new and pricing ranges and no contribution from volume. So just curious what's the scenario in which H2 is only 6.5% for the group? Then just slightly ahead, Nicole, on margins, you expected to make year on year and sequential progress this half at the group level, you have achieved that. In international, there was no sequential progress. Is there a marked seasonal margin pattern in the new international division that we should be aware of? There was some of that in Rest of the World previously. I don't think in Europe, there was any market seasonality. So is it just new reporting? Or is there any ramp up there synergy delivery, any other reasons for H1 to be sequentially down? And just on U. S. Client retention, you gave some more forward looking color than usual, which is very helpful. So I just wanted to clarify those figures. I think you said forward looking retention based on the first six months.

Is that historical highs. Does that mean your success rate in the first six months of the year was higher than usual? Is that comparable to the metric that some peers use where they say first day of the fiscal year retention is 100% and then we work down? Or do you mean you could be at 97% and stay there over the next six months as well? Thank you.

Thank you, Jafar. Look, I'll answer the the first and third, and then I'll ask Petros to speak to margins. Actually taking The U. S. Client retention first, The answer to your question is yes. We are We are trending on a six month basis historical highs, which means that we are retaining all contracts over that six month period that have either been preempted or gone out to bid at levels above anything we've experienced before. We don't normally talk to that. We prefer to talk to the in the year retention impact. But I think that gives you a good indication that if we can sustain those levels then we should be improving, we should be performing strongly. In retention in North America on the go forward basis. In terms of full year guidance that we've had, we're really, really pleased with the first half. We're talking about retaining net new in the 4% to 5% range. We'll continue to price and we see some positive volume. So look 7.5% on a full year basis is a floor. We would expect to see better, but look, as we all know, the world's in a certain place at the moment and we'd rather have a touch of conservative at this point and see how we go in the second half.

Safar, good morning. On your margin question, you see good progress both in U. S. A. And international very consistent to showing more progress in international. You do see progress versus last year. You see progress versus the second half of last year. And we'd expect to continue to see sequential progress as we talk in half two.

On international, is that the 5.8% margin for H1 this year?

Yes, that's exactly right. It's 5.8%. 5.8% and last year it was 5.6 exactly it's 20 basis points to last year.

Yes, correct. H1 and then H2, yes, my question was H2 last year was higher. In Rest of the World, there was this seasonal pattern where H2 was always higher. I'm just asking if in the new international division, there's also going to be a marked seasonal pattern where I think it's immaterial. I'm not sure there is anything in there.

Jeff, I'll also dispose of the markets. There's rest of the region is less than 5% a sense of that total portfolio is going have very little impact on the profile of the international region with Europe included.

Okay, fair. Thank you.

Thank you. Our final question for today comes from Neil Tyler from Redburn Atlantic. Please go ahead. Your line is open.

Good morning. Thank you. And it will be just one. Business and Industry, please. You mentioned in the release the strength of net new continues in that business, which has obviously been a theme for some time in a market that's already very well penetrated. Can you help us understand the sort of I suppose the contributors to that net new and whether that's equally coming from first time outsourcing or perhaps from competitors or whether really the, I suppose, the TAM the rate at which the adjustable market there is growing faster than certainly I had anticipated historically? Thank you.

Yes. Thank you, Noah. That's a great question. Yes, look, B and I is a super sector. It really is. It's been the core of our business and continues to perform really strongly. Why is that? We see new institutions, we clients expanding their sites, we see first time outsourcing opportunity We see share gain opportunity. And we also see an expansion of services, right? So the ability to sell in micro markets and vending to sell in the fine dining and catering and hospitality solutions think what we've learned with with B and I is once you're anchored with a client, you continue to on their estate with other service offers within food. As well as having all of the TAM market opportunity that you described as well. So I think one of the things we've learned is well, certainly we're never complacent, but never be complacent about the core because the so much opportunity that continues. And we see that not just in the near term, but we see it in our pipelines and the opportunity over time as well. And that's what makes us so excited about the business.

Thank you. That's very helpful.

Thanks a lot.

Thank you. And that concludes today's Q and A session. I'd like to hand back over to Dominique Plagmer for any additional or closing remarks.

Yes. Thank you very much, and thank you all for your questions this morning. Before we conclude, I'd like to share a few final thoughts. We operate in a highly attractive market where emerging trends and new capabilities capabilities we've acquired continue to unlock significant growth opportunities. As you've heard us say this morning. And our business is resilient, supported by a flexible operating It helps us mitigate any volatility we might see. Experience has shown us that macro pressures can lead to increased outsourcing and accelerated growth in the medium to long term. Thank you very much. Enjoy the rest of spring and summer, and we'll speak to you again in July.