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Aramark (NYSE:ARMK)
Q4 2021 Earnings Call
Nov 16, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Aramark's Fourth Quarter and Full Year Fiscal 2021 Earnings Results Conference Call. My name is Paul and I will be your operator for today's call. [Operator Instructions]

I will now turn the call over to Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, please proceed.

Felise Kissell -- Vice President, Investor Relations

Thank you, and welcome to Aramark's earnings conference call and webcast. I hope all of you are doing well. This morning, we will be hearing from our Chief Executive Officer, John Zillmer, as well as our Chief Financial Officer, Tom Ondrof. As a point of reference there are accompanying slides for this call that will be viewed through the webcast. These specific slides collectively will be made available following our prepared remarks for easy access.

Additionally, our notice regarding forward-looking statements, is included in our press release this morning, which can be found on our website. During this call we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD&A and other sections of our Annual Report on Form 10-K and our other SEC filings.

We will be discussing certain non-GAAP financial measures. A reconciliation of these items to US GAAP can be found in this morning's press release as well as our website.

So with that I will now turn the call over to John.

John Zillmer -- Chief Executive Officer

Thanks, Felise, and it's good to be with all of you. Today, I'll provide a strategic overview of our fourth quarter performance, recap our progress throughout fiscal '21 that included record levels of net new business and share an initial view of the year ahead that we expect we will build on the strong foundation for growth we've experienced this year. Our teams across the globe are committed to reaching for remarkable [00:02:26] for our stakeholders driven by service, innovation and growth. Over the course of the year, we executed on our strategic initiatives, despite the challenging and complex operating environment. The cultural transformation in the business, combined with our renewed close partnerships with clients and suppliers, not only allowed us to navigate this unprecedented period, but also put us in a position to win and further increase performance levels across the business. In every one of our segments we had made great progress.

Among the highlights, I'm most proud of, this year we meaningfully accelerated Aramark's growth trajectory, by adding senior leadership talent and making organizational changes that significantly bolstered our industry in line with business expertise, including sales leadership and many key roles, by investing in growth oriented areas of the business, by enhancing sales training and development programs, by further aligning our compensation approach with Aramark's strategic objectives including net new business, which now represents 40% of the company's bonus incentive plan across the organization, by strengthening client and supplier relationships and enhancing our operating infrastructure.

I'd like to take a moment to discuss our strong fiscal '21 net new business performance, which we attribute to the ownership mindset we've been cultivating on our ongoing focus on innovation and the scale of our platform. Our annualized gross new business wins totaled nearly $1.25 billion, the highest in company history, representing 7.7% of pre-COVID revenue. This performance was broad based across segments with particularly strong contribution from the Education and Facilities and other sectors within FSS US. In Higher Education business, specifically, we added a record number of new clients that further strengthens the portfolio of our largest business. Our new business wins extended across lines of business, geographies and client size. In the United States, average annualized revenue for our new business wins were $3.4 million, emphasizing the breadth and depth of our ability to source clients large to small.

Our international segment continued to experience a broad based steady growth trajectory across all countries, specifically led by industries such as mining, education, healthcare and B&I. Uniforms added to this performance, reflective of the investments we've made in growing this business. Our teams across the company are hard at work on-boarding these new clients. We continue to benefit from greater first time outsourcing activity representing approximately 40% of wins globally and nearly half of our wins within the FSS US segment derived from self-op conversions. Our strengthened talent and new capabilities provide further differentiation in the marketplace and reflect how well we've adapted to the new normal.

In fiscal '21, we also improved retention rates to 95.5%, 130 basis points better than our historical five year average. We are targeting retention rates to ultimately reach 97%. Accordingly, the magnitude of new business wins combined with significant improved retention rates allowed us to achieve record annualized net new business performance. As examples of our progress, the annualized revenue of our net new business was over $500 million, 5 times higher than the average of the previous five years.

The FSS US segment reported a notable improvement with record high net new business of nearly $300 million, following negative net new results in three of the prior five years and international increased net new business to approximately $150 million, over 30% higher than its historical average. Each segment reached important milestones by increasing retention rates more than 100 basis points, led by uniforms, an improvement of 180 basis points. Collectively, this level of annualized net new business represents 3.1% of our pre-COVID level of revenue. Together with our typical base business growth, typically 1% to 2%, we are well on our way to our mid-single digit growth goals.

I would now like to review Aramark's organic revenue performance by reportable segment. In the fourth quarter, revenue in total increased 37% year-over-year and reached 87% of pre-COVID levels. FSS US reported in organic revenue increase of 58% compared to the fourth quarter last year as we implemented many of our newly created programs across sectors. We welcome students and educators back to in-person learning at the start of the school year in both K-12 and in Higher Education. Fans largely returned with stick to stadiums at full capacity for Major League Baseball and the National Football League season is underway. Our leisure business benefited from ongoing activity at national parks and corrections that already returned to pre-COVID levels. B&I clients began to implement greater in-person return to work activity, although at a measured pace. At Aramark, we are fully back in our offices here in Philadelphia as of October 18. Facilities continued serving clients with in-demand services and showing locations we're ready and safe to increase in-person activity. And Healthcare gradually improved as patient care began to normalize with the higher level of voluntary procedures, routine medical appointments and hospital visitation.

International organic revenue grew 21% year-over-year, driven by stronger performance in Canada and Europe. Sports and entertainment and education in our international geographies reported improved business activity with the pace of reopenings behind the US. Organic revenue in the Uniform segment grew 5% in the quarter driven by rentals and adjacency services, with hospitality clients experiencing increased levels of activity. Key areas of focus in Uniforms include higher growth rates in recurring business, customer route density optimization, merchandise management and enhanced back office utilization.

As you saw from our announcement a few weeks ago, we're extremely excited to have Kim Scott, joined as President and CEO of Aramark Uniform Services. I am confident that Kim's leadership and extensive commercial experience positions her well to accelerate profitable growth in this segment, while simultaneously enhancing our employee and customer experiences. I look forward to Kim's meaningful contributions to the business as a member of our executive leadership team reporting to me. I also want to take this opportunity to thank Brad Drummond for his many years of service as he retires from Aramark.

Now I'd like to provide some perspective on a few relevant topics important to our business that has been top of mind in capturing the headlines for what seems like months namely, navigating a dynamic global supply chain and tight labor market. While we have seen supply chain disruptions in the foodservice industry, our scale, proactive management, deep bench of suppliers and menu flexibility has helped us mitigate much of this for our clients. Our overall focus remains on leveraging spend, optimizing supplier relationships and assuring availability in demand products and honoring our commitments to sustainability and local diverse suppliers, all of which will position us to continue to effectively weather the storm. We are also actively monitoring the markets for inflationary pressures and buying opportunities, relying on our use of fixed contract pricing and the ability to pass on market driven pricing to moderate any near-term impact on the business. We are currently in active deployment of our new field ordering technology for our managed services business, which will streamline our operators buying activities and ensure alignment with optimized supply chain programs.

On the labor side, we continue to effectively adapt to the environment. We've been implementing strategies to mitigate labor costs led by disciplined scheduling protocols and efficient resource management aligned with demand as well as leveraging technology in this area. We're also able to benefit from our scale by utilizing our flexible operating model, full employee base and leveraging client locations in adjacent geographies. Additionally, I'm pleased to announce that we've taken a big step in our goal of reducing our environmental impact in carbon footprint by committing to establish a definitive target for our greenhouse gas emissions. When we finalize our goal, there will be a Science Based Target submitted through the Science Based Targets initiative or SBTI, as you likely know as SBTI is a joint effort between the UN Global Compact, The World Wildlife Federation and other international environmental auditing groups. This is important news for Aramark as we deepen our commitment to transparency in our environmental stewardship.

I would also like to take this opportunity to commend the community service and passion exhibited by the Aramark teams globally. Our most recent Building Community Day consisted of thousands of team members leading nearly 80 virtual and in-person projects taking place in six different countries. I'm extremely proud of our commitment to making a positive impact on people and planet.

And now, Tom will provide a detailed financial review of the business. Tom?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Thanks, John. And thank you everyone for joining us today. Over the next few minutes, I will discuss our financial results in the quarter, including detailed insight into the business, as we frame the ongoing recovery and share our outlook as we enter fiscal '22.

In the fourth quarter and really since that start of COVID's impact on the business, we've continued to control what we could control, whether that was effectively leveraging our variable cost-based operating model at the onset of the pandemic, implementing disciplined strategies to strengthen our balance sheet or taking action to invest and transform the culture of the organization. We are extremely proud of the progress we've made and recognize that this is just the beginning.

Our performance in the quarter reflected our team's focus and resolve. Adjusted operating income was $165 million, resulting in a constant currency AOI margin of 4.8%, improving 120 basis points from the third quarter. Improved profitability was driven by strong unit-based cost management and the ability to leverage above-unit operating costs in SG&A across higher sales volumes. These drivers resulted in adjusted EPS that was $0.21 compared to an adjusted loss per share of $0.35 in the fourth quarter last year.

We also took action over the course of the year to manage our balance sheet, resulting in interest expense savings of over $10 million versus fourth quarter fiscal '20 which also contributed to the adjusted EPS improvement. In fiscal '21, the company delivered $480 million of year-over-year improvement in net cash provided by operating activities. This strong result was achieved through an improved unit profitability and better-than-expected working capital management as well as from federal tax refunds and deferred payroll taxes related to the CARES Act.

Note that, we continue to participate in the appropriate country-specific government assistant programs from which we received approximately $159 million in labor credits that were mentioned previously throughout the year. The improved net cash provided by operating activities, combined with the measured use of capital expenditures, helped the company generate $282 million in free cash flow, better than our previously stated outlook. At year-end, we maintained strong liquidity with over $2 billion in cash availability.

Now, let me briefly review our GAAP results. In the fourth quarter, consolidated revenue was $3.6 billion, operating income was $132 million and diluted earnings per share was $0.14. These results include $86 million in revenue from Next Level Hospitality and continues to be excluded from our organic revenue metric until we lap the acquisition in the third quarter of fiscal '22. As John mentioned, we are encouraged by the rebounding base revenues with organic revenue reaching 87% of pre-COVID levels in the fourth quarter, slightly better-than-anticipated due to the acceleration of new account openings and higher-than-expected pricing pass-through. The performance in the quarter was driven by many areas of the business that have already approached or exceeded pre-COVID organic revenue levels through the result of initial contributions from fiscal '21 net new business, pricing and base volume recovery.

In other selected areas, we are seeing some revenue streams within our portfolio continue to be impacted by COVID-19, such as retail and catering in the US Higher Education and healthcare sectors; conference and convention centers, concerts and certain events in US sports, leisure and correction sector; higher education in Canada and Continental Europe; Sports & Entertainment in Continental Europe; as well as hospitality clients and Canadian operations in our Uniform segment.

In addition, White Tower B&I, both in the US and international, have had a longer recovery as companies have delayed the return -- full return to the office. Collectively, we anticipate these revenue streams that we've grouped into a COVID Index will show continued improvement in fiscal '22.

As you can see on the slide, the non-COVID-impacted areas of certain sectors, particularly within facilities and other, healthcare and education as well as the Uniform segment are operating at or above pre-COVID revenue levels.

Finally, let me share our fiscal '22 outlook. Based on our current expectations for fiscal '22, we project the following full year performance. Organic revenue growth between 23% and 27% over prior year, with revenue expected to approach pre-COVID levels by year-end. The revenue outlook reflects a continued impact from COVID-19 in fiscal '22 of approximately $1.6 billion to $1.9 billion or 10% to 12% of pre-COVID revenue, partially offset by net new business wins and pricing pass-through. Adjusted operating income margin in a range of 5% to 5.5%, with the second half of the year reaching 6% to 6.5%.

AOI margin outlook considers the $1.6 billion to $1.9 billion revenue impact of COVID-19. In many cases, the company has brought back operating and above-unit cost in advance of full revenue recovery. As COVID impacted volumes recovery, we expect this transitional impact on AOI margin to unwind, allowing us to leverage the existing cost in the business, resulting in an incremental margin on the remaining COVID-19 volume recovery of 15% to 20%. AOI margin will be temporarily affected by the start-up of new accounts which typically have lower margins in the first year of operation, with an acceleration thereafter.

The magnitude of new account start-ups in fiscal '22 has grown meaningfully following recent new business wins. As we continue to deliver on our net new results in future years, those start-up costs will be absorbed by the accelerating margin cadence of new client wins from prior years. At the moment, net new business is translating to approximately a 10 basis point to 15 basis point headwind of fiscal '22 margins.

Lastly, with global supply chain shortages that we're all managing through, we have been providing exceptional solutions for our clients to meet their needs. In some cases, this has resulted in utilizing secondary suppliers where our negotiated pricing is not always as favorable as with our preferred partners. While we are diligently managing this dynamic period, these off-program supply chain actions have resulted in what we believe is a temporary cost increase in certain areas of the business as we work with clients to help them innovatively address. Through pricing, supply chain initiatives and operating efficiencies, we expect to offset inflation: free cash flow between $300 million and $400 million which includes the upcoming December repayment of approximately $65 million of deferred payroll taxes associated with the CARES Act; an annualized net new business in the range of $550 million to $650 million which would represent 3.5% to 4% of pre-COVID revenue and an increase relative to the record performance achieved in fiscal '21 when we had over $500 million of net new business or 3.1% of pre-COVID revenue.

Together with the typical price and volume-based business growth of 1% to 2% that is currently shrouded by the impact of COVID, as John mentioned, we are well on our way to our mid-single-digit growth goal. Ultimately, we expect to achieve mid-single-digit organic revenue growth with ongoing margin progression that reaches pre-COVID levels and beyond. We look forward to sharing more on our operational and financial framework that we expect to deliver new levels of performing success at Aramark's upcoming Analyst Day in a few weeks.

Thanks for your time this morning. John?

John Zillmer -- Chief Executive Officer

Thank you, Tom. Fiscal '22 is just underway with new client wins already occurring as well as a robust pipeline of opportunity ahead. We're confident in our ability to build upon the momentum that we're creating. And finally, for those of you able to participate in our Analyst Day next month, Tom, myself and the rest of the leadership team look forward to our time together.

Thank you, everyone. And operator, we'll now open the call for questions.

Questions and Answers:

Operator

Thank you sir. We will now begin the question-and-answer session. [Operator Instructions] Kevin McVeigh from Credit Suisse is on line with a question.

Kevin McVeigh -- Credit Suisse -- Analyst

Great, thanks so much, and congratulations on the results, and really, on the AOI outcome as well. I think just that recognition really underscores some of the incremental disclosures you folks have been able to demonstrate since you've transitioned in; so congrats on that. Hey, John or Tom, just really exceptional new business bookings. Could we maybe talk about that a little bit? How much of it was competitive takeaways or new logos? And any thoughts as to just post-COVID, is there a structurally higher level of outsourcing that you're starting to see as a result of just the increased challenges of kind of maybe folks that had been maintaining facilities internally? Just wanted to start there because just really exceptional numbers around that.

John Zillmer -- Chief Executive Officer

Yes. Well, thank you very much. It's -- absolutely, we are seeing an increased level of outsourcing. As we noted, 50% of the wins in the United States came from self-op conversion and globally, over 40% were some self-op conversions first-time outsourcing events. So that is a significant tick up over the historical average.

I would say the marketplace is still very competitive and we are working very hard in every sales situation to not only retain our existing customers but to sell our competitors' customers when they come to market. So really, the industry hasn't changed but there is an accelerated level of outsourcing activity that I think all the organizations will benefit from. And I think it bodes well for certainly the next 12 months and possibly well beyond.

We're seeing customers, both in our traditional marketplaces as well as some nontraditional opportunities come to us to consider it. So we're excited about our prospects. But all in all, we're just really excited about all the businesses and the results they've been able to achieve, really reenergizing the growth culture of the company and really installing leadership that understands the lines of business and really are focused on that growth narrative, if you will.

And I think the other significant impact item for us beyond what's happening in the marketplace is just the focus, the cultural change and the compensation change which drives behavior as well. So we're excited about the results. We expect continued performance improvement and we're going to continue to incent people to make that happen.

Kevin McVeigh -- Credit Suisse -- Analyst

And just a quick follow-up, because I think the culture is so critical to Aramark, just any thoughts on that? Because in addition to the wins, you're really seeing a dramatic improvement in retention. Just what's driving that? And if I heard you right, I think 40% of bonus is tied to new business. Is that right? And then what's that been historically?

John Zillmer -- Chief Executive Officer

That is correct. And historically, it hasn't been a component of the senior leadership bonus element. It's been -- it was focused on EPS and margin growth in the past or EBIT or EBITDA and so the Board and the management team recommended making this change last year and the results have been dramatic. And we intend to include this in our bonus programs going forward.

I would say the cultural transformation has been fantastic. And what we've really done is we've reinvigorated both the hospitality culture and the growth culture. We've put people into positions that they know and understand and they're committed to; businesses that they love, they grew up in with customer relationships that are long standing. And that's driving the business improvement as well. So we're excited. We think we're at the -- we're in the first inning or the second inning. We've had great results this year but we have very strong expectations moving forward.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Kevin, this is Tom. If I can just clarify one point, too. I think you meant this but just to make sure, the bonus, the 40% target is based on net new business. So, it factors in retention which I think is much focused to people as well. So if you win $100 and you lose $100, that gets you nowhere on your bonus.

John Zillmer -- Chief Executive Officer

That's right.

Kevin McVeigh -- Credit Suisse -- Analyst

Very helpful. Thanks, again.

John Zillmer -- Chief Executive Officer

Thanks, Kevin.

Operator

Neil Tyler from Redburn is on line with a question.

Neil Tyler -- Redburn -- Analyst

Yes, good morning, thank you. Two questions, please. First of all, in your outlook guidance, it seems that the operating leverage figures that you've offered point to around about $300 million headwind at AOI against the 2019 base. If I take the drop-through that you've presented us with, if that's correct, can you perhaps, Tom, talk us through the other puts and takes that get us to maybe the midpoint of where you're guiding to this year. And then secondly, you mentioned the 10 basis point to 15 basis point headwind on the margins of net new. But on a sort of normalized and gross margin basis, are you confident that the new business you're winning is of a sort of sustainably higher margin than that is being lost? Thank you.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes. I'll start with the second piece with the new business that we're winning because it's fundamental to the algorithm, if you will, over the coming years. We've got a very robust pro forma process from the ground up regardless of the size of the contract. And John mentioned the average contract win this year was about $3.5 million. So that ranges from quite a bit smaller to bigger. And there's a lot of bread-and-butter accounts in there that may not rise to the level and usually don't rise to the level of, say, John and I reviewing it because the investment is very small and whatnot. So, we need this rigorous process because all these little wins accumulate to a lot. And so the operators, sales folks, finance folks with each lines of business and countries work through these pro formas together. It's not just the sales team or just the operators doing it. It's reviewed. It does progress up to change if there is certain levels of capital investment or if the annual revenues get large. So again, very rigorous process to ensure that we're getting a return, that we're getting a margin that will be up at least around the company average over time. The bigger the accounts we've talked about, the longer ramp up. And then obviously, the cost plus versus P&L dictates sort of that margin progression over the lifespan of the contract.

So a long way of saying that we feel confident that this start-up, because we're coming off really at a zero growth base, as we start to get into years two and three of this year and start to lap what we're going to be winning going forward, this headwind disappears and starts to build on itself. So hopefully, that will make sense. But again, we feel good about the type of business we're winning and that will ultimately be margin enhancing for us as we go forward.

In terms of the build, the schedule and what you referred to, it is roughly the COVID Index headwind that I think your math's right, around $300 million, really trying to show on the one schedule in the deck, how you would build back to pre-COVID level margins and how that factors in to it based on what our current outlook is. So, if you take that $300 million and add it on top of this fiscal '22 outlook, plus factor in some of the supply chain and new business headwinds we're dealing with at the moment, you work yourself back to the high 6% plus margin, just to show that we're progressing as we have. And there's a lot of noise in the system but that we're managing through it. And ultimately, we think back to and beyond those '19 margin levels.

Neil Tyler -- Redburn -- Analyst

Got it. Thank you very much. That's very helpful.

John Zillmer -- Chief Executive Officer

I would just add one comment to -- not only to this question but in general, that we have not -- as a result of -- we have not changed our return expectations or our profit expectations in order to accelerate this growth recovery or this new account net new business wins. Our return requirements are still the same return on net assets, return on invested capital requirements are the same. So this is not a phenomenon born of dropping our price. This is a phenomenon borne of performance and improved activity levels and frankly, great salesmanship.

Neil Tyler -- Redburn -- Analyst

Thank you. Very clear.

Operator

Toni Kaplan from Morgan Stanley is on line with a question.

Toni Kaplan -- Morgan Stanley -- Analyst

Thanks so much. I wanted to ask about the long-term algorithm that you set out in the release. Just how to think about the pieces? Is it 3% new business, 2% price? You mentioned that this year new business was a little bit over at 3%. I think next year at 3.5% to 4%. So just trying to gauge what you think normal is long-term for new business and price and any other factors that we should be thinking about?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, I'll start with that, John, if you want to follow-up.

John Zillmer -- Chief Executive Officer

Sure.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes. I think that's sort of shaping it up. We'll talk a little bit more about it in a few weeks at the Analyst Day. But I think getting into that 4% to 5% net growth and then pricing volume being on top of that, we're really trying to deemphasize the pricing component because, again, we talk about we're trying to bring value to our clients and to just pass through pricing that they can almost do on their own doesn't create a lot of value. So we want to drive this more through the healthy foundational strong new business, strong retention. And then just pass-through pricing or price appropriately and then ultimately try to drive some air quote same-store sales on top of that. So the key driver here is the net growth and we really like to get that up ultimately into that 4% to 5% range.

John Zillmer -- Chief Executive Officer

Yes. That's absolutely right. And thanks for the question, Toni. We want the key driver and the growth narrative to be net new. So improved retention, net new sales in that, call it, 4% to 4.5% range, potentially getting higher in some years as we have great results and then some volume recovery as a result of enhanced marketing capabilities and enhanced programmatic support. So building base business volumes through increased participation at the component of it. And then we see pricing really as an definite offset to inflation to keep the margins moving upward as we're able to accelerate the growth. Because there's so much margin opportunity and so much leverage opportunity as we build scale and get that growth engine running but that's what we're really trying to focus the team on. We'll get our cost recovery through pricing. We'll mitigate costs through various other kinds of initiatives but we'll really drive growth by selling new accounts, retaining our existing business and then growing volumes in our base business.

Toni Kaplan -- Morgan Stanley -- Analyst

Great. Wanted to ask my follow-up on Education. It really surpassed, at least, our expectations in the quarter. You mentioned the record new clients in Higher Ed. So was it -- from your perspective and obviously, you had different expectations than we did but was it -- were there more -- was there strength in more students coming back in-person versus maybe what was expected? Or was it really the new client wins that maybe was better-than-expected?

John Zillmer -- Chief Executive Officer

Yes, I think it's a combination. I think the students returning to campus was roughly on our estimates; some up, some down a little bit, depending on the individual university or account. So I think all in all, that was relatively neutral but we had an extremely good new account sales year and a great retention year as well. So I think that was the key driver for Higher Ed.

Toni Kaplan -- Morgan Stanley -- Analyst

Perfect. Thank you.

Operator

Ian Zaffino from Oppenheimer is on line with a question.

Ian Zaffino -- Oppenheimer -- Analyst

Hi, great. First of all, congratulations on the AIO orders, it's pretty impressive, and also on the quarter. But question would be on the self-ops. And obviously, you saw a nice increase there, amid on lot conversions. Can you maybe talk about the areas where you saw the most wins? Maybe also where you sort of least wins? And if you can maybe bring those up where you'd see an increase or an even greater increase in self-op wins?

John Zillmer -- Chief Executive Officer

Yes. A couple of color points here. First off, we had very broad-based success across the enterprise. So almost all businesses had significant net new sales activity with the exception of a couple that were impacted by -- significantly by COVID. Take national parks, for example. The National Park Service did not have any bid processes over the course of the last, call it, 24 months. So that business did not have significant net new performance as we would hope. We're always bidding on new opportunities but that business is essentially just operating it's current business and doing it -- and doing very effectively but -- so not a lot of growth coming from them.

But other businesses, like Facilities had fantastic sales years, significant self-op conversions of activity on the facility side which is very encouraging and we continue to see increased demand from that business. As I said, Higher Ed had record wins; very strong performance in K-12; big, good performance in B&I, both domestically and internationally. So it was a very broad-based successful year from a new account sales activity and from a retention perspective. So we're very pleased about that. This isn't one account that we sold in one business that's driving those results. It's a very broad-based level of activity from all the lines of business.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. And then, a follow-up would be on the Education side. What do we need to see to basically get back to pre-COVID? You talked a little bit about like the retail and catering volumes were a little bit slower to recover. Is that a function of just students being back? Is it a function of take rates or any counter types of restrictions? Maybe just give us a lot of color there. Thanks.

John Zillmer -- Chief Executive Officer

Yes. I would say that that's really more of a function of campuses changing their business model, at least, in the short term until they work through the full recovery. So you're seeing less catering by administrations, student activity at pretty much normalized levels and the number of students enrollments at pretty much normalized levels and meeting our expectation. But the campus administrations are not having big meetings and big conferences and those kinds of things. So that's that extraordinary catering that typically add significant revenue growth to us. So I think that will take a little bit longer to return. And so I would say it's that kind of a change more than a gap in terms of student expectations. Tom, I don't know if you have any other color you want to add to that.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

No, that's -- that covers it.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. So, it's basically the B&I component of Higher Ed sort of the way to think about it?

John Zillmer -- Chief Executive Officer

Yes, you could characterize it that way. Sure, certainly.

Ian Zaffino -- Oppenheimer -- Analyst

All right. Thank you very much.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

Andrew Steinerman from JPMorgan is on line with a question.

Andrew Steinerman -- JPMorgan -- Analyst

Hi, John. I just wanted to go through the client retention a little bit which obviously not only did you have an extraordinary year at 95.5%, you're ultimately targeting 97% over the medium term. I really just want to talk about kind of the 95.5% and kind of going into fiscal '22. I surely heard that some of the contracts that might have been up for a competitive bid in the whole industry, so it's not Aramark. It's the whole foodservice industry just was really kind of pushed out a year because of COVID. And so my question is do you see the same thing, some delayed RFPs just kind of staying with the current vendor which might make for the whole industry, fiscal '22, harder to hold on to all the client retention gains in '21? Like in other words, maybe Aramark's client retention has to recede before moving higher?

John Zillmer -- Chief Executive Officer

Yes. No, that's a great question. But I think I would tell you that really, '20 was the year that had significant activity levels depressed in '21 as a -- in terms of our fiscal year, saw pretty normal levels of activity across all the businesses. And so the -- in '20, there weren't any K-12 bids done. But last year, there were -- that accelerated because you've got the legislative requirement to go ahead and rebid. So I think we saw a pretty normalized activity in our fiscal '21 from a rebid perspective. Part of our retention and we'll talk about this at the Analyst Day but there were businesses that closed down. There were universities that shut down. There were businesses that shut down and just never came back. So some of that gap between the -- what my expectation is that 97% and 95.5% is the fact that some of those businesses just shuttered. But we count those. When they don't reopen, we count those as lost. So there is a little bit of that impact and we'll get into that on December 9 and make sure that we have a full disclosure on what that impact was in both '20 and '21, so it's very clear to you. But no, I would expect '21 was a normal year. I think '22 will be a normal year. I think the only anomaly is that level of increased outsourcing activity that will drive further opportunities for us.

Andrew Steinerman -- JPMorgan -- Analyst

Great. Thanks, John.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

Ashish Sabadra from RBC Capital Markets is on line with a question.

Ashish Sabadra -- RBC Capital Markets -- Analyst

Thanks for taking my question. Again, a strong momentum in new business win and pretty -- really strong fiscal year '22 new win guidance as well. John, you mentioned robust pipeline. And also you just, in response to the last question, highlighted increased self-op conversion opportunity. I was just wondering, as you think about the '22 new win expectation, is it still driven mostly by self-op like 50% driven by self-op and the others from competitive win? Just wondering if you could provide incremental color on that front? Thanks.

John Zillmer -- Chief Executive Officer

Sure. I would say we have an expectation of continued first-time outsourcing activity in '22 that will impact the total percentage. I think we have an expectation that, that phenomenon will normalize. We've always had about, call it, 35% of our wins coming from self-ops. So that gap of 15% year-over-year over the historical average is significant in '21 and we've taken very strong advantage of that. Whether it still maintains that level in '22, hard to say. But I -- my expectation is that we'll see continued significant impact from that self-op conversion process across a range of the businesses. And so if it's 50%, if it's, call it, 40% or 45%, I think that's probably a good way to think about it. And if it continues to accelerate, we'll disclose it as it happens. But we're very encouraged by the level of activity.

Ashish Sabadra -- RBC Capital Markets -- Analyst

That's very helpful color. And maybe just a quick question on Uniform services. As the volumes have come back close to the pre-pandemic level and then with the new leadership in place. Any incremental thoughts on strategic optionality for that business? Thanks.

John Zillmer -- Chief Executive Officer

Sure. I have to tell you, I'm very excited about Kim Scott joining the company. She has an extraordinary background and as a commercial leader, as a growth-oriented leader and we're very excited to have her join the team. And I think she'll bring new insights and fresh perspective to the business. I think the team has done an extraordinary job over the course of the last couple of years really managing through COVID, in spite of the write-off we took on PPE, the company has worked very aggressively to get the ABS implementation done, to get the new business rates up and to achieve record retention. So all in all, I'm very happy with Uniform's performance and excited about Kim's new perspectives and leadership moving forward. As we've said before, we always maintain strategic optionality and the Board will always be considering what's the appropriate next step. But for right now, we are focused on driving the performance of that business and we think we have a great leader to do that.

Ashish Sabadra -- RBC Capital Markets -- Analyst

That's very helpful color, thanks. And congrats once again on a strong quarter. Thanks.

John Zillmer -- Chief Executive Officer

Thank you. Thank you very much.

Operator

James Ainley from Citi is on line with a question.

James Ainley -- Citi -- Analyst

Good morning, everybody. Thanks for taking my question. The question is, you mentioned that $1.6 billion to $1.9 billion of still -- revenue still impacted by COVID. Could you sort of help us break down that revenue line in terms of industries? When do you think ultimately that revenue might come back? And where do you see some risk? And I guess kind of reflecting on comments from last time we spoke, you talked about the Delta having delayed some in-person return to the office. I'd be interested to hear kind of what corporates are now saying about their plans to return? Thank you.

John Zillmer -- Chief Executive Officer

Sure. Tom and I will both take this. I would say the single biggest factor really is trying to understand the pace of recovery and trying to model it. And it's still little difficult. Companies are still taking a very measured approach to return-to-work strategies. And so while we're excited by the activity and the changes that are occurring, we just -- it's very difficult for us to really model how that's going to unfold, particularly on the B&I sector, both domestically and internationally, as various countries are impacted by either other waves of COVID or by just a change in their governmental programs. So I think we've done -- I think, a good job of trying to identify for The Street what the impact is potentially for the year. But again, we are estimating based on our best understanding of what's happening in the business. Multiple businesses are impacted. Tom, I think you probably have some color you can add with respect to how that $1.9 billion breaks down.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes. We tried. As John just referred to in the deck, we tried to break that down a little bit and show you the components, showing first that there's some core parts of each business that are back to or above 100% of pre-COVID levels but then there are some areas, some revenue streams that are still relatively impacted or significantly impacted at the moment. The pace is -- I guess, is anybody's guess at this point, it's a smaller and smaller portion as we move along. I would tell you as a bit of color that as you look over this first half of fiscal '22, particularly the first quarter, probably don't expect much movement. There's nothing really new happening in this quarter versus -- first quarter versus fourth quarter just finished. Matter of fact, as sports goes indoors, could that -- we're not sure what that's going to do in that area. So I don't see a great deal of movement in this bucket over the first half. But then as we talked about in the outlook, seeing things return to pre-COVID levels or close to as we progress through the year and into the second half.

James Ainley -- Citi -- Analyst

Okay. Thank you. As a follow-up, could I maybe ask you a bit more color in terms of the cost outlook? I mean you talked about being able to pass on cost pressures in terms of price. But when you sort of look at the buckets of labor and food, what kind of price increase do you think you need to pass on in the year ahead?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Well, I hope -- I said this a little tongue in cheek but I hope very little. I mean, again, we drive our value through cost control for our clients. And so it's a bit of a dance [Phonetic], that we obviously need to recover our costs. And our teams do a tremendous job of that but we also need to provide value for our clients. So it's a case-by-case much base as much as it was in the early days of COVID. When we're negotiating contracts, the teams are out there diligently working. In some cases, there's a bit of a delay in pricing such as Higher Ed. They're fixed for the semester, obviously and then they negotiate for the new semester. Others, it's instantaneous or it's contract-driven that the changes can happen instantaneously. But always, we're looking to provide what can we do first before just passing a bill on to the client.

John Zillmer -- Chief Executive Officer

Yes. I would just add that while we still have the contractual rent to do that, we think it's imperative that we use all the levers we have under our control because ultimately, that's what helps the client derive value from us as an operator, that they see higher value if we're able to really deliver to them beyond their expectations. But there comes a time when you have to use the lever. And we've got systems in place and infrastructure in place that really assist our frontline managers with understanding what the cost implications are going to be for them. And they're very specific location because it's different by geography, it's different by business unit based on the products that they use and the mix of menu offerings. So we've got systems in place and process in place that really helps them make their individual decisions and negotiations. And we're very confident in our team's ability to go ahead and recover that -- those inflationary cost pressures.

James Ainley -- Citi -- Analyst

Okay, perfect. Thank you.

Operator

Steven Grambling from Goldman Sachs is on line with a question.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi, thanks. I may have missed this in the beginning but what are some of the expectations at the segment level as we think about organic growth and margin assumptions? And then could you also -- for 2022 can you also bridge us kind of from that sales and margins to free cash flow guidance as we think through some of the other line items such as capex, contract investments, cash taxes and working capital?

John Zillmer -- Chief Executive Officer

Tom, you'll get this one.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, five segments, Steven. I haven't really gone into that level of detail. So I'll take a pass on that one, provide the overall guidance. We're getting, as John said, broadbrush positive results across the piece year-to-year. It could vary a bit but we feel very good about the progress that each of the segments are making in their growth journey and expect good results from all three over time.

In terms of the bridge in the cash flow, we -- it's a strong -- very strong quarter. It's a very strong year for cash flow, certainly was helped with the -- by the federal tax refunds, very strong working capital management and, of course, the underlying operating results. Probably a bit higher if you look at it as a conversion or a percentage of AOI, higher certainly than we've done before because of a couple of those CARES Act items. But we do expect as we get into next year through the guidance to be back around that sort of 45%, 50% AOI conversion which we historically have been to. I personally -- and we'll talk about it again in a few weeks. I personally like to see that continue to push a little higher.

Capex, I think pulling this back to the new business wins this year, I think the market remains very rational. As John mentioned, we're not lowering our return expectations or investing a lot more to win these contracts. So I think proportionally, I don't feel a lot of pressure on Capex and therefore, free cash flow. So I think trying to get into that near 50% AOI conversion rate for free cash flow is a realistic target for us.

Stephen Grambling -- Goldman Sachs -- Analyst

And perhaps one follow-up as a point of clarification. On the 10% to 15% headwind you cited for new contracts, is that the full headwind from both going from, call it, zero to 3% in net wins and the impact of the ramp from new contracts? Or is it really just the headwind from kind of going from zero to the 3% plus?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, it's really the headwind both from a stand still. So the zero to 3% portion because that's what I'm saying. Once we start to lap it in a few years and we've got a consistent growth model going, that headwind dissipates.

Stephen Grambling -- Goldman Sachs -- Analyst

Awesome. Thanks so much.

Operator

Andrew Wittmann from Baird is on line with the question.

Andrew Wittmann -- Baird -- Analyst

Yes, good morning. And thanks for taking my question, guys. And first, just on the disclosure for the net new retention, the gross new wins; this is obviously really important indicators that I think many of us have wanted to see disclosed for a long time. So, thank you for the transparency, it does a lot. Just based on that, I thought we'd use the opportunity to ask a question as well. And regarding the gross new wins, record, heard that. We heard record retention and that's all very positive. The context that I'm looking for is the 1.24. How does that compare? You said record. How much...

John Zillmer -- Chief Executive Officer

Andrew, did we lose you? Hello?

Andrew Wittmann -- Baird -- Analyst

I apologize. Hello?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

No worries. Yes, you're back.

John Zillmer -- Chief Executive Officer

No worries. You're back.

Andrew Wittmann -- Baird -- Analyst

I'm sorry. Thank you. My phone has been off all morning. The context that I was looking for was the -- the context that I was looking for was that the five year average of new wins has the one year of COVID impact that brings that one down. So how much better was '21 on gross new wins than historical levels?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Yes, I think that was a fair number. I mean COVID '20 was impacted the five year average. But believe it or not, there were years in the past five and certainly the past eight that were lower than last year in '20. So I don't know that I'd attribute a lot of that five year average just to COVID helping out the cause in terms of the jump from the five year average to '21.

Andrew Wittmann -- Baird -- Analyst

Okay, that's helpful. And I was just wondering, in terms of the impact of where you're winning your business, Education and Facilities seem like the kind of the areas where you've won the most. Can you just talk about how those margin profiles in those businesses compare to your overall fleet average? As the business recovers more, should we -- is this helpful to your average margins? Or is it -- does it go the other way?

John Zillmer -- Chief Executive Officer

Yes. I would say, in general, helpful. We don't like to talk about margins in the individual components of the business because of the competitive nature of the marketplace. So I don't want to be disclosing my individual line of business margins. But I would say, in general, helpful both businesses operate above the company average.

Andrew Wittmann -- Baird -- Analyst

Okay. Thank you very much.

Operator

Richard Clarke from Bernstein is on line with a question.

Richard Clarke -- Bernstein -- Analyst

Hi, good morning. Thanks for taking my questions. Just the first one. It's been a mantra in the industry of margins recovering ahead of volumes. And if I try and kind of pick your guidance for next year, are you expecting that we'll still be seeing a material COVID impact as we exit 2022? Or are you -- because of this acceleration in new business wins, would you step away from that view that your margins were recover ahead of volumes?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Well, Richard, it becomes a slightly complicated one and we talked about this a year ago. If you assumed that the new $16 billion which was our pre-COVID level, was exactly the same as the new $16 billion, I think we would recover. So we sort of continue to stand by that statement. Unfortunately or fortunately and actually, we think it's very fortunate, that what the composition of the new $16 billion which includes some pricing which includes material now net new business, provides as a headwind on the margin.

And to the previous question as we sort of go from no growth to growth. So you've got to sort of pull it apart. That's what we -- again, we try to show on the slide to say, if we theoretically just brought back the same revenues, they recovered -- we would recover to a higher than '19 margin. But now you have all this new in the short run margin dilutive revenue that's going to bring us back up to 16 in a different way, then getting to that -- back to that margin is going to be much more mature by $16 billion. But ultimately, that is all good news for the long run because I'd rather have great net growth than just a pure recovery from a margin standpoint.

Richard Clarke -- Bernstein -- Analyst

Okay, that makes sense.

John Zillmer -- Chief Executive Officer

Yes. And I would just add, as the volume recovery takes place, as those accounts that are still below the COVID-19 levels -- pre-COVID levels as they recover, they'll recover at generally a higher rate of margin based on the leverage in the business and based on the actions that the company has taken. So if you build the recovery volume on top of what we've been able to achieve from a net growth perspective, we should be operating at a higher margin as we exit.

Richard Clarke -- Bernstein -- Analyst

Okay, that was clear. And then, maybe just a follow-up. I think this was a question that someone tried to ask earlier and then they got cut off. But the $1.24 billion of gross wins that you've highlighted for 2021, is that number itself impacted by COVID? Or have you kind of reversed that out? Is that number actually $1.5 billion on fully normalized revenue? Is it actually better than what you're presenting in the slides?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

No. We tried to normalize this. So the $1.24 billion is a normalized number against -- again, against a normalized pre-COVID comparison. So when we talk about it being -- if you do the math and that's always just a number on a number, that the $1.24 billion on the pre-COVID revenue is that 3.1% on that base; so we try to make it a comparative number pre-COVID to post-COVID.

Richard Clarke -- Bernstein -- Analyst

Okay. So actually it's a smaller number today but that's what it will be once we're about to fully recover volumes?

John Zillmer -- Chief Executive Officer

No, that's -- well, is that correct, Tom? Or is that the pro forma expectations?

Tom Ondrof -- Executive Vice President and Chief Financial Officer

It's -- both numerator and denominator exclude COVID, if we think at both normalized numbers.

Richard Clarke -- Bernstein -- Analyst

Okay. Thank you very much.

Operator

Shlomo Rosenbaum from Stifel is on line with a question.

Adam -- Stifel -- Analyst

Hi, it's Adam [Phonetic] on for Shlomo. Could you talk about how the company is tracking in terms of the routing technology rollout for the Uniforms division?

John Zillmer -- Chief Executive Officer

Sure. Shlomo, I'm sorry, I had a trouble quite understanding the question. Could you ask it again please?

Adam -- Stifel -- Analyst

Yes. How is the company tracking in terms of the routing technology rollout for the Uniforms division?

John Zillmer -- Chief Executive Officer

Terrific. Thank you. That was much easier to hear. Yes, it's going very well. The ABS implementation, as we've talked about over the last several quarters is running. We're right around 80% of revenues covered and expect to be completed with the implementation and the rollout by, call it, second quarter of our calendar -- I'm sorry, of our fiscal year. So call it, January, February, March will be completed with the rollout and working through the optimization strategies. So the team has been able to do a terrific job of getting that implementation done during the COVID environment and we're very pleased by the progress and fully expect it to be wrapped up as planned.

Adam -- Stifel -- Analyst

Thanks.

Operator

And your last question is from Hamzah Mazari with Jefferies.

Hamzah Mazari -- Jefferies -- Analyst

Good morning, thank you. Most of my questions are answered, I just had one question. Could you just remind us on how big your GPO business is today and the scale you have sort of relative to competitors? And whether that's a focus going forward as well?

John Zillmer -- Chief Executive Officer

Yes, it is a focus going forward. We continue to work very aggressively to grow both that business through new customer acquisition as well as new client representations, if you will, as well as looking for bolt-on potential acquisitions in that space as you've done a number of small bolt-ons over the course of the last few years. So in terms of total purchase spend, I don't know, have we disclosed that number before, Tom? I'm not certain.

Tom Ondrof -- Executive Vice President and Chief Financial Officer

We have not.

John Zillmer -- Chief Executive Officer

Yes. I would say combined. The combined scale of the two purchasing organizations between [Indecipherable] and the supply chain organization from Aramark, we've got very adequate scale to compete with our -- with the large other GPOs out there. And we're really focused on growing that purchase spend and leveraging it. We've had actually very strong results over the course of the last quarter as a result of the improving hospitality trends taking place, improved travel trends taking place. So we're very encouraged by that business and continue to be focused on it.

Hamzah Mazari -- Jefferies -- Analyst

Very good. Thank you.

John Zillmer -- Chief Executive Officer

Thanks, Hamzah.

Operator

With that, I will now turn the call back over to Mr. Zillmer for closing remarks.

John Zillmer -- Chief Executive Officer

Terrific. Again, thank you, everybody, for joining us this morning. We're excited about the future of the organization, about the achievements the company has been able to make in the last 12 months during a very difficult environment. And we are excited for the future of Aramark. I'd like to say thank you to all the associates and employees of Aramark around the world who have done such great work for our clients and our customers and looking forward to seeing them all in the field as we all recover and get back to normal life. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Felise Kissell -- Vice President, Investor Relations

John Zillmer -- Chief Executive Officer

Tom Ondrof -- Executive Vice President and Chief Financial Officer

Kevin McVeigh -- Credit Suisse -- Analyst

Neil Tyler -- Redburn -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Ian Zaffino -- Oppenheimer -- Analyst

Andrew Steinerman -- JPMorgan -- Analyst

Ashish Sabadra -- RBC Capital Markets -- Analyst

James Ainley -- Citi -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Andrew Wittmann -- Baird -- Analyst

Richard Clarke -- Bernstein -- Analyst

Adam -- Stifel -- Analyst

Hamzah Mazari -- Jefferies -- Analyst

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