Trading Statement
Compass Group PLC
09 September 2004
9 September 2004
Compass Group PLC: Trading Update
Compass Group PLC will issue its Preliminary Results for the year ending 30
September 2004 on 30 November 2004. Prior to its closed period, Compass issues a
trading update.
Turnover Growth
Full year like for like turnover growth for the Group is expected to be 7%.
Strong growth in new business of 12% is expected to be achieved as a result of
record new contract gains with a total value of approximately £1.3 billion and a
contract retention rate of 95% (in line with the rate reported in 2003).
Throughput is expected to be broadly flat.
New business has been driven by the continued trend in outsourcing particularly
in Healthcare and Education with increased activity in Defence, Offshore and
Remote Site.
Profit
The roll out of the UK purchasing model to countries outside the UK continues to
gather momentum. The business has achieved the savings that were anticipated at
the start of the year and the Group is confident that it will achieve on-going
cost savings in line with expectations.
For 2004 and onward, total operating profit before goodwill amortisation is
expected to be reduced by £30 million in relation to the following:
In the UK, one of our major distributors has experienced financial difficulties
and we are transferring this business to an alternative major distributor.
Exiting the current arrangement will incur additional costs in 2004 and there
will be higher ongoing costs as a result of switching to the new distributor.
Also in the UK, a number of contracts with Local Education Authorities awarded
over the past two years are failing to deliver the margins we anticipated due to
increased labour costs and lower than expected throughput, allied to pressure on
school meals budgets from these clients.
We have recently secured a number of important in-store restaurant contracts in
the UK where we are beginning to incur start-up costs that are being expensed.
These contracts will be mobilized over the next three years and further start up
costs will be incurred over this period.
Finally, trading conditions over the summer in Continental Europe, particularly
France and the Netherlands, have been disappointing, resulting in reduced
throughput and pressure on margins.
Except for the above items, like for like operating margins for 2004 are
expected to be in line with previous expectations.
Following a recent review with our actuaries, the Group now expects pension
costs in respect of the UK defined benefit schemes to increase by £15 million
from 2005 and onwards.
Tax
For 2004 and 2005, tax on profit on ordinary activities before goodwill
amortisation is expected to be approximately 24% and the cash tax rate
approximately 18%.
Basic Earnings Per Share
Underlying growth for 2004 in basic earnings per share before goodwill
amortisation and exceptional items is expected to be approximately 8%.
Free Cash Flow
Free cash flow for 2004 will be affected by two developments in the business.
Firstly, the rapid growth in Defence, Offshore and Remote Site has required a
significant investment of approximately £100 million in additional working
capital to ensure the smooth operation of the contracts reflecting the nature of
the business and the increasingly challenging logistical issues. Secondly, there
will be a change in the payment profile with respect to a number of suppliers
also with an expected £100 million impact. The overall working capital outflow
will therefore be approximately £200 million higher than previously expected but
free cash flow will benefit from approximately £100 million arising from a cash
receipt in respect of the monetisation of interest rate swaps.
Outlook
The outlook for the business remains encouraging. Turnover growth in each of the
sectors continues to be strong, reinforcing the significant growth potential in
contract foodservice, particularly in Healthcare, Education and Defence,
Offshore and Remote Site. We continue to expect to achieve 7% like for like
turnover growth for 2004. The fundamentals of the business are strong and the
focus continues to be very clearly on driving organic growth. We have
significantly reduced spend on new acquisitions in 2004 to approximately £160
million. We expect to reduce this further in 2005.
The early indicators for 2005 are good and we remain confident of achieving like
for like turnover growth of at least 6%. There will be a continuing focus on
driving organic growth, free cash flow and return on capital employed.
NB: A selection of recent contract gains, renewals and extensions is included in
the attached notes.
ENDS
Teleconference
A teleconference for investors and analysts will start at 8.45am (BST) on
Thursday September 9, 2004. To participate in the teleconference call dial: +44
(0) 1452 541 077, password 'Compass Group'.
A replay of the call will be available for eight days by dialling +44 (0) 1452
550 000, Passcode 1903330#.
Enquiries
Compass Group +44 (0) 1932 573 000
Michael J Bailey, Group Chief Executive
Andrew Martin, Group Finance Director
Sarah Ellis, Director Investor Relations
Brunswick +44 (0) 20 7404 5959
Simon Sporborg
Pamela Small
Notes to Editors
1. Compass Group is the world's largest foodservice company with annual revenues
in excess of £11 billion. Compass Group has over 415,000 employees working in
more than 90 countries around the world.
For more information, visit www.compass-group.com
2. New contract gains, extensions and renewals recently awarded:
UK
Retail & Travel
• Eurostar extended its contract with Momentum, a Compass /
Cremonini SpA joint venture, for a further two years with an annual turnover of
£27 million.
Sports & Leisure
• Henley Royal Regatta renewed and expanded its contract with All
Leisure for a further five years with an annual turnover of £2 million.
• Royal Horticultural Halls and Conference Centre awarded All
Leisure a new seven-year contract with an annual turnover of £728,000.
Business & Industry
• London Stock Exchange renewed its contract with Restaurant
Associates for a further three years with an annual turnover of £1 million.
• Microsoft renewed its contract with Baxter and Platts for a
further three years with an annual turnover of £2.7 million.
Vending
• Centrica awarded Selecta, in conjunction with Eurest, a new
five-year contract with an annual turnover of £1.4 million for vending alone.
Defence, Offshore & Remote Service
• ESS Support Services Worldwide (Aberdeen) was awarded a number
of new contracts, including: a new seven-year contract with Britannia Operator
Limited, a joint venture between ChevronTexaco and ConocoPhilips; a new contract
with Technip for up to five years; and extended its existing offshore contract
with Maersk for a further five years, as well as expanding the contract for
additional services. The aggregated annual turnover of these contracts is £7.5
million.
NORTH AMERICA
Sports & Leisure
• AEG awarded Levy Restaurants and Wolfgang Puck Catering & Events
a new ten-year contract, to provide fine dining and catering at all AEG sports
and entertainment properties globally.
Education
• Newark Public Schools (NJ) awarded Chartwell's School Division a
new contract for up to five years with an annual turnover of £5 million.
• Richmond Public Schools (VA) awarded Chartwell's School Division
a new contract for up to five years with an annual turnover of £3 million.
Business & Industry
• LA Museum of Natural History awarded Wolfgang Puck Restaurants a
new five-year contract with an annual turnover of £1.5 million.
• Becton, Dickinson and Company awarded Flik a new three-year
contract with an annual turnover of £1 million.
• Grey Global awarded Restaurant Associates a new five-year
contract with an annual turnover of £800,000.
Vending
• ThyssenKrupp Waupaca awarded Canteen a new five-year contract
with an annual turnover of £600,000.
CONTINENTAL EUROPE AND REST OF THE WORLD
Retail & Travel
• Norway - Avinor AS awarded SSP a new five-year contract with an
annual turnover of £1 million for the operation of food and beverage facilities
at Tromso Airport.
• Singapore - Civil Aviation Authority of Singapore awarded SSP a
new three-year contract with an annual turnover of £400,000, introducing the
first Caffe Ritazza at Singapore Changi Airport.
• Turkey - Turkish State Railways (TCDD) awarded Rail Gourmet
Sofra and its joint venture partner SFTA Group a new four-year contract with an
annual turnover of £2 million.
Education
• Japan - Taiyo-kai (Social Welfare Corporation) awarded Seiyo
Food Systems a new one-year contract with an annual turnover of £1 million.
Healthcare
• France - A.R.E.P.A awarded Medirest a new three-year contract
with an annual turnover of £1.9 million.
Business & Industry
• France - SANOFI awarded Eurest a new five-year contract with an
annual turnover of £1 million.
• Italy - Danieli Mechanical Industry awarded Onama a new two-year
contract with an annual turnover of £680,000.
• Japan - Sony EMCS Co. awarded Seiyo Food Systems a new contract
with an annual turnover of £1.9 million.
This information is provided by RNS
The company news service from the London Stock Exchange