Compass Group: net profit up 17% in H1/2010

London / UK. (cg) «Compass has delivered another strong performance in a challenging environment. An acceleration in new business wins and continued progress in operating efficiency has delivered significant growth in the margin of 50 basis points. It is very encouraging that organic revenue growth is now returning. As we look forward we will maintain our relentless focus on efficiency, but at the same time we are laying strong foundations for the future growth of the Group» – says Richard Cousins, Chief Executive Officer of the British Compass Group, in an interim results announcement for the six months ended 31 March.

Organic revenue growth returning

Revenue 7,1 billion GBP	up 2,6% (constant currency plus 0,9%, organic plus 0,4%)
Underlying operating profit 504 million GBP	up 10,8% (constant currency plus 9,6%)
Underlying operating margin 7,0%	up 50 basis points
Underlying earnings per share 0,18 GBP	up 16,9% (constant currency plus 14,6%)
Interim dividend 0,05 GBP	up 13,6%
Free cash flow 351 million GBP	up 46,3%

Chairman Sir Roy Gardner: «It is a testament to the strength of the Group that whilst the economic background has remained uncertain the business has displayed strong operational discipline and consistently generated momentum in profitability. There are multiple opportunities for the business to develop and we are positioning ourselves to take advantage of the significant growth opportunity in our core food and fast growing support services markets in both developed and emerging countries. Exciting infill acquisitions are adding to this potential. Our confidence in the future underpins our decision to increase the dividend by 14 percent to five pence per share».

Group overview

Reported revenue has grown by 2,6 percent in the six months to 31 March 2010, or by 0,9 percent on a constant currency basis. Adjusting for the impact of acquisitions and disposals, organic revenue growth was 0,4 percent for the period. Encouragingly, the group has seen a slight acceleration in the rate of new business wins to nine percent and the retention rate has remained stable at 93 percent. After three very difficult quarters, like for like volumes are now showing signs of stabilisation and as the company looks to the second half of the year it continues to expect to deliver modest organic revenue growth.

The group continues to focus on the MAP programme, which gives the company the framework to deliver quality new business and retention as well as control costs and drive greater efficiency. For the six months to 31 March 2010 this has enabled the company to deliver 44 million GBP or ten percent of constant currency operating profit growth. The operating margin has increased by 50 basis points to 7,0 percent, benefiting from the continued flow through of the significant efficiencies generated in the second half of the year to 30 September 2009.

18 million GBP of net new business growth

The company has seen a slight improvement in the rate of new business wins in both food and multi service business, winning important new contracts with Wells Fargo in the USA, Aviva in the UK and Deutsche Postbank in Germany. Furthermore, the pipeline of new business looks encouraging. Compass Group is continuing its focus on extending existing client relationships and the roll out of retention best practice is starting to gain real traction around the world.

Ten million GBP of base estate profit growth

The company has again grown its profit through sustainable growth in the base estate.

Like for like growth: The company continues to experience modest levels of input cost inflation across the business. Against this backdrop the company is achieving appropriate price increases. Overall, like for like volume declined in the period by three percent. The continuous application of MAP 4, unit costs, and management of the flexible cost base has again enabled the company to limit the impact of lost volume on operating profit.

Cost efficiencies: A combination of new efficiencies and the flow through of the significant efficiency gains generated in the second half of last year has enabled the company to offset the impact of volume contraction and report an overall increase in profit, whilst also funding ongoing reinvestment in the business to support growth. The company has also made further efficiencies in MAP 3, cost of food, as it continues to focus on menu planning, supplier and product rationalisation, logistics and waste reduction, where the fast roll out of the waste management programme «Trim Trax» is helping to deliver meaningful savings. Furthermore in MAP 4, unit costs, the company has again reduced in unit overheads. The relentless drive for efficiency is a core value of the Group.

Twelve million GBP of above unit cost savings

Compass Group has again made excellent progress in MAP 5 and further reduced the above unit overheads by twelve million GBP compared to the same period last year. Importantly, the company has made good progress on its journey to redeploy resources away from back office administration to improving its client facing operations and growing the business.

Four million GBP from acquisitions/disposals

This relates mainly to the incremental trading profit from the 2009 acquisitions of Kimco and Lackmann in the USA, Plural in Germany and McColls in the UK.

Outlook

Whilst economic conditions are likely to remain challenging in the second half of the year, the combination of a strong new business pipeline and a stabilisation in like for like volume is expected to deliver modest organic revenue growth. In combination with this, the company continued focus on operating efficiency should enable the group to make further progress in the margin in the second half of the year, compared to the same period last year.

In the medium-term the group is set to benefit from the combination of structural growth in outsourcing, further cost efficiencies and margin progression. Its operating efficiency allows the group to invest in business development, and drive competitiveness. In addition, the strength of the cash flow and balance sheet is enabling the company to reward shareholders and to accelerate growth through value creating infill acquisitions.

Info: Interim results announcement for H1/2010 (PDF, 41 pages, 277 KB).