Surrey / UK. (cg) British Compass Group PLC has had a good first half of the year and the Group´s expectations for the full year remain positive and unchanged. Organic growth has been driven by good rates of new business wins, levels of retention remain high and infill acquisitions are making a meaningful contribution. Overview:
. | H1/2012 | H1/2011 | Change |
Revenue | 8,6 billion GBP | 7,9 billion GBP | +08,6 percent |
Underlying operating profit | 617 million GBP | 567 million GBP | +08,8 percent |
Underlying profit before tax | 572 million GBP | 531 million GBP | +07,7 percent |
Reported profit before tax | 581 million GBP | 528 million GBP | +10,0 percent |
Underlying earnings per share | 22,4 GBPence | 20,4 GBPence | +09,8 percent |
Interim dividend per share | 07,2 GBPence | 06,5 GBPence | +10,8 percent |
Continued momentum and further efficiency gains
- Positive momentum in top line growth, driven by good levels of new business wins and a consistently high rate of retention.
- Total revenue up 8,6 percent year on year, including contribution from acquisitions.
- Organic revenue growth of 5,0 percent.
- Strong performances in North America and Fast Growing + Emerging.
- Cash flow generation remains strong and we continue to make acquisitions and reward shareholders.
- Interim dividend increased by eleven percent.
- 188 million GBP spent on acquisitions in the first half of the year.
- On track to complete 500 million GBP share buy back by the calendar year-end.
- The future prospects of the Group remain encouraging.
- Expectations for the full year remain positive and unchanged.
- Compass remains well placed to exploit significant growth opportunities, particularly in North American and Fast Growing + Emerging markets.
- Further efficiency gains underpin our expectation of future improvement in the operating profit margin.
Richard Cousins, Group Chief Executive:
«Compass has had a positive start to the year, delivering revenue growth of nearly nine percent and organic growth of five percent. We have continued to see high levels of new business wins and retention across the Group, with particularly good trading momentum in our North America and Fast Growing + Emerging regions. We are continuing to generate cost efficiencies, which are enabling us to invest in the many growth opportunities we see across the Group, with increasing emphasis on emerging markets. Looking forward, whilst we are not immune from the current economic difficulties in Europe, the fundamentals of the business are strong and I remain excited about the opportunities for future growth and margin progression».
Sir Roy Gardner, Chairman:
«These results demonstrate that the business continues to make good progress in delivering quality, sustainable growth. Despite the ongoing headwinds of food cost inflation and challenging economic conditions in Europe, we have achieved good rates of revenue and profit growth. We remain committed to rewarding shareholders at the same time as investing in the future of the business and we have therefore increased the interim dividend by eleven percent».
Group overview
Reported revenue has grown by 8,6 percent in the first six months to 31 March 2012 or 8,8 percent on a constant currency basis. After adjusting for the impact of acquisitions and disposals, organic growth has remained strong at 5,0 percent for the period, driven by further good performances in North America and the Fast Growing + Emerging markets. We have continued to see good levels of new business wins and a consistently high level of retention across the Group.
Underlying operating profit increased by 8,8 percent in the first half, with the underlying operating profit margin remaining flat at 7,2 percent. We have continued to generate efficiencies, which are, in part, being reinvested in exciting growth opportunities around the world, helping us to manage the effects of difficult economic conditions in Europe and underpin our expectations of future improvement in the operating profit margin. We have delivered 50 million GBP of constant currency operating profit growth as follows:
15 million GBP of net new business growth
During the first half, we have delivered new business growth of 8,5 percent and our retention rate remains high. The good growth in new business has been driven by both increased outsourcing in some parts of the world and further embedding best practice within Compass. Quality, sustainable growth remains a core value and we have continued to invest in sales resource and training to support this. Looking forward, we see an exciting pipeline of further opportunities.
The positive momentum we saw last year in retention has continued into the first half of this year and we remain at a Group average of 94,5 percent. The roll-out of our best practice model for retention is ongoing and we are confident that we can improve this performance further.
21 million GBP of base estate profit growth
As we saw last year, like for like revenue growth of 2,0 percent has been driven predominantly by price increases, reflecting the ongoing rise in food cost inflation. Whilst food cost inflation is outside our control, we continue to mitigate the impact as far as possible through initiatives such as menu planning and driving efficiencies in purchasing and logistics. Our contract structures typically enable us to pass on the remaining inflationary increases.
Flat like for like volume reflects a mixed picture globally. We saw a positive trend in Fast Growing + Emerging and a slight increase in North America, whilst the difficult economic conditions in Europe + Japan resulted in negative like for like volume. Although like for like volume is driven in part by macro economic conditions and employment levels in particular, we have continued to focus on the many ways through which we can increase consumer participation and spend. We continue to develop innovative and exciting consumer propositions, use intelligent marketing and train our people to develop their retail skills.
The combination of price and volume has resulted in positive overall like for like revenue growth in North America, quite strong growth in Fast Growing + Emerging, but a slight contraction in Europe + Japan.
We remain committed to our relentless focus on efficiencies and we believe that we are only part of the way through the journey to drive further productivity in our food and labour costs. We see further opportunities through everyday steps such as rationalising our product and supplier base, appropriate standardisation, labour productivity and improved labour scheduling. We have generated considerable efficiencies in the first half, which are being used to mitigate food cost inflation and in the ongoing reinvestment we make to deliver quality and value to our clients and consumers. The remaining efficiencies flow through to profit. Overall, we have delivered growth in the base estate in line with the average of the past few years.
Five million GBP net increase in above unit costs
Despite growing the top line organically by five percent and investing some ten million GBP in putting the right resource in place to facilitate expansion, in particular in the Fast Growing + Emerging markets, we have been able to contain the increase in above unit overheads to just five million GBP.
19 million GBP from acquisitions net of disposals
This relates to the incremental operating profit, after integration costs, of the acquisitions we have made in both 2011 and 2012, net of disposals.
Strategy
Our strategy remains clear and unchanged.
Focus on food
Food remains our core focus. The structural growth opportunity in the outsourced foodservice market, estimated at 200 billion GBP, is a key growth driver. With an overall penetration rate of less than 50 percent, it represents a vast opportunity. Sectors such as Healthcare and Education are significantly under-penetrated and we believe the benefits of outsourcing will become ever more apparent as economic conditions and legislative changes put increasing pressure on organisations´ budgets. Business + Industry, whilst more highly penetrated, is still attractive due to its scale, growth and, in some countries, the fragmented nature of the market. As one of the largest providers in all of our sectors, we are well placed to benefit from this trend.
Fast growing support services
Support and multi-services are a growing part of the business as we continue to win new contracts and expand the range of services we supply to our existing clients. They now represent 22 percent of Group revenue, 15 percent of which relates to support services. Our approach remains to increase our capabilities in an incremental and low risk way. Clients´ attitudes to support services vary significantly by region, sector and sub-sector and we will therefore continue to respond accordingly.
Geographic spread
In line with the management changes we announced at the full year results in November 2011, we now see our business in three segments: North America, the more developed markets of Europe + Japan and Fast Growing + Emerging. In simple terms, the three segments comprise countries that are at similar stages of development.
North America will remain the core growth engine for the Group and we are increasingly positive about our business there. The outsourcing culture is vibrant and the addressable market is significant. We are well positioned, with a strong client base in all of our core sectors and our management team throughout the organisation is a key factor in driving performance.
Whilst we do see some good growth opportunities in parts of Europe + Japan, the difficult economic conditions will continue to impact like for like revenue and top line growth. Encouragingly, we are now seeing more opportunities to drive greater efficiencies across the region. These will, in part, be used to combat the difficult economic conditions, but we do see the potential to improve the margin over time.
The Fast Growing + Emerging region, which now comprises close to 20 percent of Group revenue, is becoming an increasingly important part of the Group and we have an established presence in all the key markets. With the potential they offer, we are investing in their growth. As the economies of these countries remain buoyant and the trend to outsourcing increases, we would hope to see the current double digit growth continue for many years to come.
Uses of cash
Over the last few years, we have added to our organic growth with a number of excellent infill acquisitions. Just over a third of these have been in support services and an increasing number in emerging markets. We continue to have a strong preference for small to medium sized infill acquisitions, building scale in food and adding new capabilities in support services, in our existing geographies. During the first half of the year, we disposed of our US Corrections business. Although a solid business, this did not fit into our core sectors or growth strategy. This delivered 58 million GBP of net cash.
The Group´s cash flow generation remains excellent and it will continue to be a key part of the model. A strong balance sheet enables us to reward shareholders in parallel with reinvesting for growth and making infill acquisitions. Our commitment to an efficient balance sheet and a progressive dividend policy remains strong and we are continuing to execute the 500 million GBP share buy back we announced in November 2011, which we expect to complete by the calendar year end.
Outlook
Compass has had a good first half of the year and our expectations for the full year remain positive and unchanged. Organic growth has been driven by good rates of new business wins, levels of retention remain high and infill acquisitions are making a meaningful contribution. We are continuing to generate good levels of cost efficiencies, which are enabling us to reinvest in the business at the same time as helping us to manage the ongoing challenges of difficult economic conditions in Europe and food cost inflation.
As we look out to the second half, whilst the difficult economic climate in Europe is likely to continue to put pressure on like for like revenue in that region, we remain positive about the opportunities to grow the business. We are well placed to capitalise on the significant structural growth opportunities in both food and support services around the world. We have an excellent business in North America and we are expanding our presence in Fast Growing + Emerging markets, which remain a focus for future growth. We will continue to drive cost efficiencies, underpinning our expectation of further progress in the operating profit margin over the medium term.
OTHER TOPICS FROM THIS SECTION FOR YOU:
- Starbucks: Reports Q4 and Full Year Fiscal 2024 Results
- Luckin Coffee: Announces Q3-2024 Financial Results
- Bunge Global SA: Reports Third Quarter 2024 Results
- Cheesecake Factory: Reports Q3-2024 Financial Results
- Sysco: Reports Q1-2025 Financial Results
- Mondelez International: Reports Q3 2024 Results
- Brinker International: Reports Q1 Of Fiscal 2025 Results
- Grupo Bimbo: Reports Third Quarter 2024 Results
- Paulig Group: strengthens position in World Foods
- Corbion: Q3-2024 Interim Management Statement
- Gruma: reports third quarter 2024 results
- AAK: announces Interim report for Q3-2024
- Darling Ingredients: Reports Q3-2024 Financial Results
- AAK: divests its North American Foodservice site
- Valora strengthens global leadership in pretzel market
- Coca-Cola Company: Reports Q3-2024 Financial Results
- Starbucks: reports preliminary results, suspends guidance
- Aryzta AG: announces 9M-2024 Interim Report
- JAB Acquires Mondelez’s Stake in JDE Peet’s
- Just Eat Takeaway.com: Q3-2024 Trading Update