Interim Management Statement

RNS Number : 2260L

Compass Group PLC

28 July 2011

Compass Group PLC

This statement updates investors on the Group's performance in the nine months to 30 June 2011.

Group

Compass has delivered another good performance in the third quarter of the financial year and our expectations for the full year remain unchanged. Including the contribution from acquisitions, constant currency revenue increased by over 8% in the quarter compared to the same period last year, with organic revenue growth of 4.5% (5.3% for the nine months to 30 June 2011). After absorbing the impact of the tragic events in Japan, the operating margin in the quarter remained broadly in line with the same period last year. Excluding the impact of this, the underlying margin increased by around 20 basis points. Free cash flow conversion remains strong.

Continuing the trends seen in the first half of the year, third quarter organic revenue growth has been driven by good levels of new business wins and a high contract retention rate. Like for like revenue continues to show a mixed picture around the world. In North America and the Rest of the World, like for like revenues are positive, whilst in the UK and much of Continental Europe the conditions are more challenging. Infill acquisitions are now making an important contribution to revenue. These include the significant investments we have made in expanding our business in fast growing and emerging markets including North America, Australia, Turkey and India.

Through the application of our operating framework, MAP, we have continued to generate further efficiencies in the quarter, which are helping to partially offset the impact of rising food costs and, in part, are being re-invested to capture the significant growth opportunities around the world.

North America

Organic revenue growth in the third quarter was 6.8%. This strong result has been driven by the continuation of good net new business across all sectors and some modest like for like volume recovery in both Business & Industry and Sports & Leisure. The continued drive to improve processes around food purchasing and the ongoing leverage of the overhead base have resulted in an improved operating margin of 20 basis points in the third quarter.

Continental Europe

Overall, organic revenue growth in the third quarter has increased by 1.7%. We continue to see good new business growth across the region, however economic conditions in many countries remain challenging and like for like revenue across much of Continental Europe remains difficult. The continued focus on efficiencies has again delivered an increase in the operating margin of 20 basis points in the third quarter. The integration of Elior's business in the Netherlands is progressing well. The associated integration costs will mainly arise in the fourth quarter.

UK & Ireland

Organic revenue growth in the third quarter declined by 1.5% on a comparable basis to the same period last year. Encouragingly our investment in and focus on the retention process is starting to have a positive impact on retention rates. However, difficult economic conditions continue to impact like for like revenue across much of the business. We are continuing to focus on reducing costs to mitigate the impact of lower like for like volume and, excluding the impact of a small amount of acquisition integration costs, the operating margin in the quarter was broadly in line with the same period last year.

Rest of the World

We have seen strong growth in organic revenue of 7.9% in the third quarter, despite the continuing impact on revenues of the tragic events in Japan. Organic revenue growth has been driven by high levels of new business wins and good like for like revenue growth across most countries and, in particular, in Australia and the emerging markets of Brazil, Latin America, UAE, India and China.

As expected, we are starting to see some modest signs of recovery in Japan. This, together with the actions we are taking to reduce costs, should, as previously guided, enable us to limit the impact on profit to around £20 million in the second half of the year.

The continued focus on operating efficiencies has enabled us to deliver an increase in the underlying operating margin (before absorbing the impact of Japan) of around 20 basis points. After absorbing the impact of Japan, the operating margin declined by 60 basis points in the third quarter.

Acquisitions

We invested £126 million on acquisitions in the first half of the year. Since 31 March 2011, we have committed to spend an additional circa £210 million. This includes the acquisitions of the remaining 50% of our Turkish business, Sofra, and Elior's business in the Netherlands as well as acquisitions in North America and Hong Kong as detailed in previous disclosures.

Financial Position

On 11 May 2011, the Group agreed a new £700 million 5 year committed bank facility. The existing committed facility of £697 million as at 31 March 2011 was cancelled with effect from 11 May.

Outlook

The good performance seen in the first half of the year has continued into the third quarter, delivering both good organic revenue growth and a further improvement in the underlying operating margin. As we look out to the rest of the year, we are encouraged by the pipeline of new business and the ongoing opportunities we have to generate further efficiencies. After absorbing the profit impact of events in Japan, our expectations for the full year remain unchanged.

Note to Editors:

(a) Compass Group is a world leading foodservice company with annual revenues in 2010 of over £14 billion operating in 50 countries.

(b) MAP (Management and Performance) is a simple, but clearly defined Group operating framework. MAP focuses on five key value drivers, enabling the businesses to deliver disciplined, profitable growth with the focus more on organic growth and like for like growth.

The five key value drivers are:

MAP 1: Client sales and marketing

MAP 2: Consumer sales and marketing

MAP 3: Cost of food

MAP 4: Unit costs

MAP 5: Above unit overheads

(c) Organic revenue growth, a term used throughout the announcement, is calculated by adjusting for acquisitions (excluding current period acquisitions and including a full period in respect of prior period acquisitions), disposals (excluded from both periods) and exchange rate movements (translating the prior period at current period exchange rates) and compares the current period results against the prior period.

(d) This Press Release contains forward looking statements within the meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward looking statements. The terms 'expect', 'should be', 'will be', 'is likely to' and similar expressions identify forward looking statements. Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general economic conditions and business conditions in Compass Group's markets; exchange rate fluctuations; customers' and clients' acceptance of its products and services; the actions of competitors; and legislative, fiscal and regulatory developments.

A copy of this release, together with all other recent announcements can be found on Compass Group's website at www.compass-group.com.