Final Results - Part 2

Compass Group PLC 11 December 2001 PART 2 NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2001 1. Turnover and operating profit Continuing operations Acquisitions 2001 2000 £m £m £m £m Turnover Foodservice: Geographical analysis: - United Kingdom 2,867 10 2,877 1,200 - Continental Europe & rest of the world 2,826 187 3,013 2,758 - North America 2,395 431 2,826 1,812 __________ ___________ ______ _____ 8,088 628 8,716 5,770 __________ ___________ ______ _____ Operating profit Before goodwill amortisation and exceptional items Foodservice: - The Company and its subsidiary undertakings 640 29 669 345 - Associated undertakings 7 - 7 11 __________ ___________ ______ _____ 647 29 676 356 __________ ___________ ______ _____ Geographical analysis: - United Kingdom The Company and its subsidiary undertakings 376 1 377 120 Associated undertakings 1 - 1 - - Continental Europe & rest of the world The Company and its subsidiary undertakings 143 10 153 136 Associated undertakings 6 - 6 11 - North America 121 18 139 89 __________ ___________ ______ _____ 647 29 676 356 __________ ___________ ______ _____ Amortisation of goodwill: - UK (149) - (149) (24) - Continental Europe & rest of the world (23) (8) (31) (9) - North America (5) (20) (25) (2) Exceptional items: - United Kingdom (115) - (115) (11) - Continental Europe & rest of the world (6) - (6) - - North America (3) - (3) (1) __________ ___________ ______ _____ (301) (28) (329) (47) __________ ___________ ______ _____ Total operating profit: Group and share of 346 1 347 309 associated undertakings __________ ___________ ______ _____ Operating profit after goodwill amortisation and exceptional items for the year ended 30 September 2001 relates to foodservice analysed as UK £114 million, Continental Europe & rest of the world £122 million, and North America £111 million (2000: £85 million, £138 million and £86 million respectively). NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 2.Exceptional operating items - continuing operations 2001 2000 £m £m Reorganisation - costs incurred 40 4 - accrued costs 12 4 - assets written off 44 - Employee share schemes 28 4 ____ ____ 124 12 ____ ____ During 2000, the Group acquired Granada Restaurants and is combining this with the Group's existing UK operations. Costs relate to reorganisation costs of the business and the writing off of the net book amount of duplicate assets. Employee share schemes relate to the Commitment Plan which was entered into with effect from 27 July 2000 to retain senior employees which matures on 27 January 2002 and which is payable in Compass Group PLC shares. 3.Interest payable and similar charges 2001 2000 £m £m Bank loans and overdrafts 155 32 Other loans 82 95 ____ ___ 237 127 ____ ___ 4.Tax on profit on ordinary activities 2001 2000 £m £m UK corporation tax 37 16 Overseas tax payable 52 52 _____ ____ 89 68 UK deferred tax 24 (5) Overseas deferred tax 6 - _____ ____ 119 63 Adjustments in respect of prior years: UK corporation tax 1 (1) Overseas tax payable (3) (4) _____ ____ 117 58 Overseas tax on share of profits of associated undertakings 4 3 Total tax charge before exceptional items 121 61 Exceptional items: UK corporation tax (18) (1) UK deferred tax (11) (2) _____ ____ 92 58 _____ ____ United Kingdom corporation tax has been charged at 30% (2000: 30%). The Group tax charge is reduced below this rate since tax is charged at a lower effective rate on overseas earnings. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 5.Dividends Per 2001 Per 2000 share £m share £m Dividends on ordinary shares of 10p each: Interim 1.9p 42 - - Proposed final 3.8p 84 - - Interim dividend of Former Compass - - 1.1p 16 Final dividend payable to Granada Compass plc - - N/A 121 _____ _____ _____ ____ 5.7p 126 N/A 137 _____ _____ _____ ____ The average number of shares for both 2000 and 2001 have been determined as if the post demerger capital structure of Compass Group PLC had existed throughout the period. The final dividend for 2000 was Former Compass's share of the interim dividend of Granada Compass plc. Owing to the different basis on which this dividend was calculated, a per share amount has not been presented. 6.Earnings per share Before Including Before Including goodwill goodwill goodwill goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items items items 2001 2001 2000 2000 £m £m £m £m Attributable profit 446 146 213 169 for basic earnings per share Interest on - - 7 7 convertible bonds net of tax ___________ ____________ ____________ ____________ Attributable 446 146 220 176 profit for diluted earnings per share Millions Millions Millions Millions Average 2,215 2,215 1,541 1,541 number of shares in issue Shares to be 10 10 2 2 issued Average - - (1) (1) number of shares held by ESOP ___________ ____________ ____________ ____________ Average 2,225 2,225 1,542 1,542 number of shares for basic earnings per share Dilutive 26 26 21 21 share options Conversion of - - 48 48 5.75% convertible bond due 2007 ___________ ____________ ____________ ____________ Average 2,251 2,251 1,611 1,611 number of shares for diluted earnings per share ___________ ____________ ____________ ____________ Basic 20.0p 6.6p 13.8p 11.0p earnings per share ___________ ____________ ____________ ____________ Diluted 19.8p 6.5p 13.7p 10.9p earnings per share ___________ ____________ ____________ ____________ Earnings per share excluding goodwill amortisation and exceptional items has been shown to disclose the impact of these on underlying earnings. The average number of shares for both 2000 and 2001 have been determined as if the post demerger capital structure of Compass Group PLC had existed throughout both periods. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 7.Intangible fixed assets £m Goodwill Cost At 1 October 2000 3,148 Additions arising from acquisitions 1,281 Transfer of goodwill previously included in investment in associates 110 Currency adjustment (46) _____ At 30 September 2001 4,493 _____ Amortisation At 1 October 2000 35 Charge for the year 203 Transfer of goodwill amortisation previously included in investment 6 in associates Currency adjustment (5) _____ At 30 September 2001 239 _____ Net book amount At 30 September 2001 4,254 _____ At 30 September 2000 3,113 _____ Additions to goodwill arising from acquisitions primarily relate to the acquisitions of Morrison Management Specialists in the USA and Selecta in Continental Europe. Further information on these acquisitions can be found in note 16. Transfer of goodwill consists of £51 million in respect of 13.3% of Selecta already owned by the Group and £53 million in respect of Levy, which was accounted for as an associate in 2000 but for which control has been achieved in 2001. Goodwill on acquisitions is being amortised over periods of up to 20 years which are considered to be the estimated useful lives. 8.Tangible fixed assets Freehold Long Short Land and leasehold leasehold Buildings property property £m £m £m Cost At 1 October 2000 737 243 231 Currency adjustment - - (1) Additions 38 19 49 Businesses acquired 23 2 6 Disposals (9) - (11) __________ ________ _________ At 30 September 2001 789 264 274 __________ ________ _________ Depreciation At 1 October 2000 16 3 20 Currency adjustment - - - Charge for the year 3 3 21 Businesses acquired 8 1 2 Disposals - - (7) __________ ________ _________ At 30 September 2001 27 7 36 __________ ________ _________ Net book amount At 30 September 2001 762 257 238 __________ ________ _________ At 30 September 2000 721 240 211 __________ ________ _________ Plant Fixtures and and machinery fittings Total £m £m £m Cost At 1 October 2000 668 417 2,296 Currency adjustment (13) (6) (20) Additions 165 102 373 Businesses acquired 362 33 426 Disposals (87) (19) (126) __________ ________ _________ At 30 September 2001 1,095 527 2,949 __________ ________ _________ Depreciation At 1 October 2000 323 178 540 Currency adjustment (8) (4) (12) Charge for the year 96 47 170 Businesses acquired 196 22 229 Disposals (42) (10) (59) __________ ________ _________ At 30 September 2001 565 233 868 __________ ________ _________ Net book amount At 30 September 2001 530 294 2,081 __________ ________ _________ At 30 September 2000 345 239 1,756 __________ ________ _________ The net book amount of the Group's tangible fixed assets includes, in respect of assets held under finance leases, freehold buildings and long and short leasehold property £4 million (2000: £2 million), plant and machinery £36 million (2000: £29 million) and fixtures and fittings £10 million (2000: £6 million). NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 9.Investments held as fixed assets Investment in associated undertakings Own shares Total £m £m £m Cost At 1 October 2000 158 2 160 Additions 8 - 8 Transfer of investments to (143) - (143) subsidiary undertakings Disposals - (1) (1) Share of retained profits less 3 - 3 losses Dividends received (2) - (2) Goodwill amortisation (2) - (2) Currency adjustments/other 4 - 4 movements ________________ _________ ______ At 30 September 2001 26 1 27 ________________ _________ ______ Investment in associated undertakings at 30 September 2001 comprises a number of small unquoted investments. Transfers to subsidiary undertakings relate to Selecta Group and Levy. In respect of Selecta Group the transfer relates to the 33.3% of Selecta owned prior to the acquisition of the remaining 66.7% stake on 9 May 2001. A 49% stake in Levy was purchased during 2000, however, since that date, control of this entity has been achieved and the entity has now been consolidated in the Group's results for the year ended 30 September 2001. Own shares held by the Group represent 82,951 shares in Compass Group PLC (2000: 316,851 shares in Granada Compass plc). 216,426 shares are also held in Granada plc. All shares are held by the Compass Group Employee Share Trust (ESOP). These shares are listed on a recognised investment exchange and their market value at 30 September 2001 was £1 million (2000: market value of Granada Compass plc shares £2 million). The nominal value held at 30 September 2001 was £0.1 million (2000: £0.1 million). The ESOP is a discretionary trust for the benefit of employees and the shares held are used to satisfy some of the Group's liabilities to employees for share options and long term incentive plans. All of the shares held by the ESOP will be required to be made available in this way. The net cost to the Group of these shares is charged to the profit and loss account over the period to which they relate. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 10.Debtors 2001 2000 £m £m Amounts falling due within one year Trade debtors 839 672 Amounts owed by associated undertakings 1 - Overseas tax recoverable 5 3 Other debtors 162 149 Prepayments and accrued income 171 144 ______ ____ 1,178 968 ______ ____ Amounts falling due after more than one year Other debtors 116 57 Deferred tax 122 141 ______ ____ 238 198 ______ ____ Provided Unprovided ____________ _______________ 2001 2000 2001 2000 £m £m £m £m Deferred tax analysis UK capital allowances in excess of (18) (1) (114) (114) depreciation UK short term timing differences 123 128 51 51 Overseas deferred tax 6 12 101 57 Exceptional items 11 2 9 3 ____________ _______________ 122 141 47 (3) ____________ _______________ The analysis of unprovided deferred tax does not include any potential tax liabilities which might arise in the event of the distribution of unappropriated profits or reserves of overseas subsidiary companies as there is no intention to distribute such profits or reserves. £m The movements on deferred tax are as follows: At 1 October 2000 141 Arising from acquisitions 3 Charged to profit and loss account (30) Other movements (3) Exceptional items 11 ____ At 30 September 2001 122 ____ NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 11.Businesses held for resale £m Total net proceeds from disposal discounted to 27 July 2000 2,722 Reversal of discounting in period from 27 July 2000 to 30 32 _____ September 2000 Net present value of net proceeds receivable from disposal of 2,754 business as at 30 September 2000 Reversal of discounting in the year to 30 September 2001 127 Net proceeds received as at 30 September 2001 (2,806) _____ Net present value of net proceeds receivable from disposal of 75 business as at 30 September 2001 _____ Businesses held for resale represents the businesses of Forte Hotels which were acquired, but held exclusively for resale, on 27 July 2000 as a result of the merger with Granada Group PLC. The net proceeds have been discounted from the date of receipt of the cash proceeds back to 27 July 2000. The effect of the discounting has been credited evenly to the profit and loss account over the period from 27 July 2000 to the date of receipt of the proceeds. 12.Creditors - amounts falling due within one year 2001 2000 £m £m Bonds 330 466 Loan notes 25 9 Bank loans 82 325 Bank overdrafts 47 480 Obligations under finance leases 12 10 Trade creditors 760 597 Amounts owed to associated undertakings 12 - Corporation tax payable 163 211 Overseas tax 138 110 Other tax and social security costs 192 120 Other creditors 184 169 Deferred consideration 2 79 Accruals and deferred income 765 724 Proposed dividend 126 121 _____ _____ 2,838 3,421 _____ _____ Bonds consists of a 10% debenture loan stock due 2018 with a nominal value of £200 million, which is recorded at its fair value to the Group on acquisition, secured on cash deposits of £350 million. Negotiations are in progress to redeem this loan stock. It is anticipated that redemption will take place within the next year and therefore this loan stock has been included in creditors falling due within one year. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 13.Creditors - amounts falling due after more than one year 2001 2000 £m £m Bonds 614 621 Loan notes 161 165 Bank loans 1,772 2,171 Obligations under finance leases 39 32 Other creditors 60 56 Deferred consideration 53 8 _____ _____ 2,699 3,053 _____ _____ All amounts due under bonds, loan notes and bank facilities are shown net of unamortised issue costs. Bonds are unsecured and consist of the following: - Sterling Eurobond with nominal value £100 million redeemable in 2003 and bearing interest at 9.375% per annum. - Sterling Eurobond with nominal value £200 million redeemable in 2010 and bearing interest at 7.125% per annum. - Sterling Eurobond with nominal value £250 million redeemable in 2014 and bearing interest at 7% per annum. The bonds redeemable in 2003 and 2014 are recorded at their fair values to the Group on acquisition. The Group has fixed term, fixed interest private placements totalling US$324 million (£220 million) at interest rates between 7.55% and 8.015%. Of this amount 75% has been swapped to floating rates based on US LIBOR plus a margin. US$50 million (£34 million) is repayable in five to ten years. Maturity of financial liabilities and other creditors falling due after more than one year as at 30 September 2001 is as follows: 2001 _____________________________________ Bonds and Loans and loan notes overdrafts Other Total In more than one year but not more than two years 176 1,761 76 2,013 In more than two years but not more than five years 76 10 58 144 In more than five years 523 1 18 542 _____________________________________ 775 1,772 152 2,699 In one year or less, or on demand 355 129 14 498 _____________________________________ 1,130 1,901 166 3,197 _____________________________________ 2000 _____________________________________ Bonds and Loans and loan notes overdrafts Other Total In more than one year but not more than two years 11 41 41 93 In more than two years but not 196 2,130 40 2,366 more than five years In more than five years 579 - 15 594 _____________________________________ 786 2,171 96 3,053 In one year or less, or on demand 475 805 89 1,369 _____________________________________ 1,261 2,976 185 4,422 _____________________________________ NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 13.Creditors (continued) 2001 2000 £m £m Bank loans: Repayable by instalments within five years - 6 Repayable otherwise than by instalments within five years 1,854 2,490 ______ ______ 1,854 2,496 Less: amounts falling due within one year 82 325 ______ ______ Amounts falling due after more than one year 1,772 2,171 ______ ______ 14. Provisions for liabilities and charges Insurance pensions and other post Legal and employment Onerous other benefits contracts claims £m £m £m At 1 October 2000 199 83 66 Arising from acquisitions 20 6 15 Expenditure in the year (9) (19) (1) Charged to profit and loss account 8 - - Credited to profit and loss account (2) - (1) Reclassified 4 - - Currency adjustment (1) (1) (1) ________ _______ _________ At 30 September 2001 219 69 78 ________ _______ _________ Re- Organisation Provisions Environmental Total £m £m £m At 1 October 2000 3 11 362 Arising from acquisitions - 1 42 Expenditure in the year (3) (1) (33) Charged to profit and loss account - - 8 Credited to profit and loss account - - (3) Reclassified - - 4 Currency adjustment - - (3) __________ ___________ _______ At 30 September 2001 - 11 377 __________ ___________ _______ Insurance, pensions and other post employment benefits relate to the costs of self funded pension and insurance schemes or statutory retirement benefits and are essentially long term in nature. Onerous contracts represent the liabilities in respect of leases on non-utilised properties and other contracts. The duration of these contracts ranges from 2 to 17 years. Legal and other claims relate principally to provisions for the cost of litigation and sundry other claims. The timing of the settlement of these claims is uncertain. Reorganisation provisions were for the committed costs of integration of businesses. Environmental provisions are in respect of liabilities relating to the Group's responsibility for maintaining its operating sites in accordance with statutory requirements and the Group's aim to have a low impact on the environment. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 15.Reserves Consolidated profit and loss account ______________________________________ Share Merger Before premium reserve Goodwill account written off £m £m £m At 1 October 2000 - 4,158 547 Foreign exchange reserve movements - - (81) Premium on ordinary shares issued, net of expenses 11 12 - Retained profit for the year - - 20 ________ ________ ___________ At 30 September 2001 11 4,170 486 ________ ________ ___________ Consolidated profit and loss account ______________________________________ Goodwill Total Written off £m £m At 1 October 2000 (2,132) (1,585) Foreign exchange reserve - (81) movements Premium on ordinary shares - - issued, net of expenses Retained profit for the year - 20 _______ ______ At 30 September 2001 (2,132) (1,646) _______ ______ Goodwill written off represents the excess of the consideration for the operations acquired prior to 1 October 1998 over the fair value of the net assets acquired. The goodwill has been written off to profit and loss account on consolidation. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 16.Acquisitions Businesses acquired during the year are shown below. They principally relate to the acquisition of Morrison Management Specialists Inc., funded by £397 million in cash and Selecta Group funded by £361 million in cash. Consideration Net assets and costs acquired £m £m Morrison Management Specialists Inc. 397 (31) Selecta Group 361 91 Crothall Services Group 138 11 Vendepac 85 15 Au Bon Pain 79 35 Beaver Foods 68 8 ADNH Middle East 46 2 Other 88 7 ______________ __________ Total acquisitions in the year 1,262 138 Adjustments to prior periods 6 - ______________ __________ 1,268 138 ______________ __________ Fair value Fair value Goodwill adjustments of assets acquired £m £m £m Morrison Management Specialists Inc. (40) (71) 468 Selecta Group (17) 74 287 Crothall Services Group (17) (6) 144 Vendepac (8) 7 78 Au Bon Pain (17) 18 61 Beaver Foods (16) (8) 76 ADNH Middle East (2) - 46 Other (15) (8) 96 ___________ __________ _______ Total acquisitions in the year (132) 6 1,256 Adjustments to prior periods (19) (19) 25 ___________ __________ _______ (151) (13) 1,281 ___________ __________ _______ Net assets Fair value Fair value to acquired adjustments the group £m £m £m Intangible fixed assets 19 (19) - Tangible fixed assets 212 (15) 197 Investment in associated undertakings 8 - 8 Stocks 46 (1) 45 Debtors 180 - 180 Investments 12 - 12 Cash 22 - 22 Bank loans and overdrafts (66) (4) (70) Leases (5) - (5) Creditors (235) (79) (314) Provisions (36) (6) (42) Tax 20 (29) (9) Minority interests - 2 2 Share of net assets already owned (39) - (39) __________ _________ ________ 138 (151) (13) __________ _________ ________ Fair value adjustments principally relate to: writing off intangible assets in accordance with Group accounting policy, harmonisation of depreciation policies, and recognising pension commitments and other liabilities not previously recorded. All acquisitions were accounted for under the acquisitions method of accounting. Adjustments to prior year acquisitions relate to the restatement of the values of assets and liabilities in the light of knowledge arising from a more extended period of ownership and additional consideration and costs, all in respect of acquisitions made during the year ended 30 September 2000. Adjustments made to the fair value of assets are provisional owing to the short period of ownership. There was no material difference between operating profits arising from acquisitions and cash flows contributed by those acquisitions. NOTES TO THE FINANCIAL STATEMENTS (continued) For the year ended 30 September 2001 17. Exchange rates Exchange rates for major currencies used during the period after taking into account the Group's hedging arrangements were: 2001 2001 2002 Translation Closing Translation rate rate rate Australian Dollar 2.56 2.98 2.63 Canadian Dollar 2.09 2.32 2.08 Danish Krone 12.17 12.00 12.16 Euro 1.63 1.61 1.63 Norwegian Krone 13.07 13.04 12.95 Swedish Krona 13.68 15.68 15.14 Swiss Franc 2.49 2.38 2.48 US Dollar 1.41 1.47 1.37

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